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Joint Sponsors, Overall Coordinators, Joint Global Coordinators, Joint Bookrunners and Joint Lead Managers
Joint Bookrunners and Joint Lead Managers
STOCK CODE : 9860
艾迪康控股有限公司
ADICON HOLDINGS LIMITED
(incorporated in the Cayman Islands with limited liability)
GLOBAL OFFERING
Joint Global Coordinators, Joint Bookrunners and Joint Lead Managers


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IMPORTANT : If you are in any doubt about any of the contents of this Prospectus, you should obtain independent professional advice.
ADICON Holdings Limited
ʮ̡
(Incorporated in the Cayman Islands with limited liability)
GLOBAL OFFERING
Number of Offer Shares under
the Global Offering
: 33,192,500 Shares (comprising 17,288,500
New Shares and 15,904,000 Sale Shares
and subject to the Over-allotment Option)
Number of Hong Kong Offer Shares : 3,320,000 Shares (subject to reallocation)
Number of International Offer Shares : 29,872,500 Shares (comprising 13,968,500
New Shares and 15,904,000 Sale Shares
and subject to reallocation and the Over-
allotment Option)
Offer Price : HK$12.32 per Offer Share, plus brokerage of
1.0%, SFC transaction levy of 0.0027%,
Stock Exchange trading fee of 0.00565%
and AFRC transaction levy of 0.00015%
(payable in full on application in Hong
Kong dollars and subject to refund)
Nominal value : US$0.00002 per Share
Stock code : 9860
Joint Sponsors, Overall Coordinators, Joint Global Coordinators, Joint Bookrunners and Joint
Lead Managers
Joint Global Coordinators, Joint Bookrunners and Joint Lead Managers
Joint Bookrunners and 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 responsib ility for the contents
of this Prospectus, make no representation as to its accuracy or completeness, and expressly disclaim any liability whatsoever for any loss howsoeve r arising 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 and on Display” in Ap pendix V 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) O rdinance (Chapter 32 of
the Laws of Hong Kong). The Securities and Futures Commission and the Registrar of Companies in Hong Kong take no responsibility for the contents of thi s Prospectus or any other
document referred to above.
The Offer Price will be HK$12.32 per Offer Share. Applicants for Hong Kong Offer Shares are required to pay, on application, the Offer Price of HK$12.32 for each Hong Kong Offer
Share together with a brokerage fee of 1.0%, a SFC transaction levy of 0.0027%, a Hong Kong Stock Exchange trading fee of 0.00565%, and AFRC transaction levy of 0.00015%.
The Overall Coordinators, on behalf of the Underwriters, may, with the consent of our Company and the Selling Shareholder, reduce the number of Hong Ko ng Offer Shares and/or the
Offer Price in this prospectus at any time on or prior to the morning of the last date for lodging applications under the Hong Kong Public Offering. In suc h a case, an announcement will
be published on the websites of the Stock Exchange at www.hkexnews.hk and our Company at www.adicon.com.cn as soon as practicable following the decision to make such reduction,
but in any event not later than the morning of the day which is the last day for lodging applications under the Hong Kong Public Offering. For further info rmation, see the sections headed
“Structure of the Global Offering” and “How to Apply for the Hong Kong Offer Shares” in this prospectus.
Our Company is incorporated in the Cayman Islands and substantially all of our businesses are located in the PRC. Potential investors should be aware o f the differences in the legal,
economic and financial systems between the Cayman Islands, the PRC and Hong Kong and that there are different risk factors relating to the investment i n our Company. Potential investors
should also be aware that the regulatory framework in the Cayman Islands and the PRC is different from the regulatory framework in Hong Kong, and should take into consideration the
different market nature of the Shares. Such differences and risk factors are set out in the sections headed “Risk Factors” and “Regulatory Overview” i n this prospectus and in Appendix
III to this prospectus.
The obligations of the Hong Kong Underwriters under the Hong Kong Underwriting Agreement to subscribe for, and to procure applicants for the subscrip tion for, the Hong
Kong Offer Shares, are subject to termination by the Overall Coordinators (on behalf of the Hong Kong Underwriters) if certain grounds arise prior to 8 :00 a.m. on the day
that trading in the Shares commences on the Hong Kong Stock Exchange. Such grounds are set out in the section headed “Underwriting – Underwriting Arran gements and
Expenses – The Hong Kong Public Offering – Grounds for Termination” 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 offe red, sold, pledged or transferred
within the United States or to, or for the account or benefit of U.S. persons, except in transactions exempt from, or not subject to, the registration re quirements of the U.S. Securities Act.
The Offer Shares are being offered and sold (1) solely to QIBs as defined in Rule 144A pursuant to an exemption from registration under the U.S. Securiti es Act; and (2) outside the United
States in offshore transactions in reliance on Regulation S.
ATTENTION
We have adopted a fully electronic application process for the Hong Kong Public Offering. We will not provide printed copies of this Prospectus or prin ted copies of any application
forms to the public in relation to the Hong Kong Public Offering.
This Prospectus is available at the websites of the Stock Exchange ( www.hkexnews.hk ) and our Company ( www.adicon.com.cn ). If you require a printed copy of this Prospectus, you
may download and print from the website addresses above.
IMPORTANT
June 19, 2023


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IMPORTANT NOTICE TO INVESTORS:
FULLY ELECTRONIC APPLICATION PROCESS
We have adopted a fully electronic application process for the Hong Kong Public
Offering. We will not provide printed copies of this Prospectus or printed copies of any
application forms to the public in relation to the Hong Kong Public Offering.
This Prospectus is available at the website of the Hong Kong Stock Exchange at
www.hkexnews.hk under the “HKEXnews > New Listings > New Listing Information”
section, and our website at www.adicon.com.cn. If you require a printed copy of this
Prospectus, you may download and print from the website addresses above.
To apply for the Hong Kong Offer Shares, you may:
(1) apply online via the HK eIPO White Form service in the IPO App (which can be
downloaded by searching “ IPO App ” in App Store or Google Play or downloaded
at www.hkeipo.hk/IPOApp or www.tricorglobal.com/IPOApp )o ra t
www.hkeipo.hk ;o r
(2) apply through the CCASS EIPO service electronically cause HKSCC Nominees to
apply on your behalf, including by:
i. instructing your broker or custodian who is a CCASS Clearing Participant or
CCASS Custodian Participant to give electronic application instructions via
CCASS terminals to apply for the Hong Kong Offer Shares on your behalf; or
ii. (if you are an existing CCASS Investor Participant ) giving electronic
application instructions through the CCASS Internet System
(https://ip.ccass.com ) or through the CCASS Phone System by calling
2979 7888 (using the procedures in HKSCC’s “An Operating Guide for
Investor Participants” in effect from time to time). HKSCC can also input
electronic application instructions for CCASS Investor Participants through
HKSCC’s Customer Service Centre by completing an input request.
We will not provide any physical channels to accept any application for the Hong Kong
Offer Shares by the public. The contents of the electronic version of this Prospectus are
identical to the printed document as registered with the Registrar of Companies in Hong Kong
pursuant to Section 342C of the Companies (Winding Up and Miscellaneous Provisions)
Ordinance.
If you are an intermediary , broker or agent , please remind your customers, clients or
principals, as applicable, that this Prospectus is available online at the website addresses
above.
Please refer to the section headed “How to apply for the Hong Kong Offer Shares” in this
Prospectus for further details of the procedures through which you can apply for the Hong
Kong Offer Shares electronically.
IMPORTANT


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Your application through the HK eIPO White Form service or the CCASS EIPO service
must be for a minimum of 500 Hong Kong Offer Shares and in one of the numbers set out in the
table. You are required to pay the amount next to the number you select.
No. of
Hong Kong
Offer Shares
applied for
Amount
payable on
application
No. of
Hong Kong
Offer Shares
applied for
Amount
payable on
application
No. of
Hong Kong
Offer Shares
applied for
Amount
payable on
application
No. of
Hong Kong
Offer Shares
applied for
Amount
payable on
application
HK$ HK$ HK$ HK$
500 6,222.13 7,000 87,109.73 50,000 622,212.35 700,000 8,710,973.05
1,000 12,444.25 8,000 99,553.98 60,000 746,654.83 800,000 9,955,397.75
1,500 18,666.37 9,000 111,998.22 70,000 871,097.30 900,000 11,199,822.48
2,000 24,888.50 10,000 124,442.47 80,000 995,539.78 1,000,000 12,444,247.20
2,500 31,110.62 15,000 186,663.71 90,000 1,119,982.25 1,200,000 14,933,096.65
3,000 37,332.75 20,000 248,884.94 100,000 1,244,424.72 1,400,000 17,421,946.08
3,500 43,554.86 25,000 311,106.18 200,000 2,488,849.45 1,660,000
(1) 20,657,450.35
4,000 49,776.98 30,000 373,327.41 300,000 3,733,274.15
4,500 55,999.11 35,000 435,548.65 400,000 4,977,698.88
5,000 62,221.23 40,000 497,769.89 500,000 6,222,123.60
6,000 74,665.49 45,000 559,991.12 600,000 7,466,548.32
(1) Maximum number of Hong Kong Offer Shares you may apply for.
No application for any other number of Hong Kong Offer Shares will be considered and any
such application is liable to be rejected.
IMPORTANT


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If there is any change in the following expected timetable of the Hong Kong Public
Offering, we will issue an announcement in Hong Kong to be published on the websites of the
Stock Exchange at www.hkexnews.hk and our Company at www.adicon.com.cn .
Hong Kong Public Offering commences ........................ .9:00 a.m. on Monday,
June 19, 2023
Latest time to complete electronic applications under
the HK eIPO White Form service through one of
the below ways (2)
(1) the IPO App , which can be downloaded by
searching “ IPO App ” in App Store or Google
Play or downloaded at www.hkeipo.hk/IPOApp
or www.tricorglobal.com/IPOApp
(2) the designated website www.hkeipo.hk ..................... 1 1:30 a.m., Friday,
June 23, 2023
Application lists of the Hong Kong Public Offering open (3) .............. 1 1:45 a.m., Friday,
June 23, 2023
Latest time for (a) giving electronic application instructions
to HKSCC and (b) completing payment of HK eIPO White
Form applications by effecting internet banking transfer(s)
or PPS payment transfer(s) (4) ................................. .12:00 noon, Friday,
June 23, 2023
If you are instructing your broker or custodian who is
a CCASS Clearing Participant or a CCASS Custodian
Participant to give electronic application instructions
via CCASS terminals to apply for the Hong Kong
Offer Shares on your behalf, you are advised to contact
your broker or custodian for the latest time for
giving such instructions which may be different from
the latest time as stated above.
Application lists of the Hong Kong Public Offering close
(3) ............ .12:00 noon, Friday,
June 23, 2023
Announcement of the final Offer Price, the level of indications 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 Public Offering to be published on the
websites of the Stock Exchange at www.hkexnews.hk and
our Company at www.adicon.com.cn on or before (5)(7) ..................... .Thursday,
June 29, 2023
Announcement of results of allocations in the Hong Kong
Public Offering (with successful applicants’ identification
document numbers, where appropriate) to be available through
a variety of channels (See the section headed “How to Apply
for the Hong Kong Offer Shares – D. Publication of Results” in
this Prospectus) from
(7) ............................................. Thursday,
June 29, 2023
EXPECTED TIMETABLE (1)
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Results of allocations in the Hong Kong Public Offering will
be available at the “IPO Results” function in the IPO App
or at www.tricor.com.hk/ipo/result or www.hkeipo.hk/IPOResult
with a “search by ID” function (7) ..................................... Thursday,
June 29, 2023
Dispatch of Share certificates/Deposit of Share certificates
into CCASS and refund checks/ HK eIPO White Form
e-Auto Refund payment instructions (if applicable)
on or before
(6)(7) .................................................. Thursday,
June 29, 2023
Dealings in Shares on the Stock Exchange expected to
commence at (7) ............................................ .9:00 a.m., Friday,
June 30, 2023
Notes:
(1) Unless otherwise stated, all times and dates refer to Hong Kong local times and dates.
(2) You will not be permitted to submit your application under the HK eIPO White Form service through the IPO App
or the designated website at www.hkeipo.hk after 11:30 a.m. on the last day for submitting applications. If you have
already submitted your application and obtained an application reference number from the IPO App or the designated
website prior to 11:30 a.m., you will be permitted to continue the application process (by completing payment of
application monies) until 12:00 noon on the last day for submitting applications, when the application lists close.
(3) If there is/are a “black” rainstorm warning, a tropical cyclone warning signal number 8 or above and/or Extreme
Conditions in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon on Friday, June 23, 2023, the
application lists will not open and will close on that day. Further information is set out in the section headed “How
to Apply for the Hong Kong Offer Shares – C. Effect of Bad Weather and/or Extreme Conditions on the Opening and
Closing of the Application Lists” in this Prospectus.
(4) Applicants who apply for Hong Kong Offer Shares by giving electronic application instructions to HKSCC via
CCASS should refer to the section headed “How to Apply for the Hong Kong Offer Shares – 6. Applying through the
CCASS EIPO Service” in this Prospectus.
(5) None of the websites or any of the information contained on the websites forms part of this Prospectus.
(6) Share certificates for the Hong Kong Offer Shares are expected to be issued on Thursday, June 29, 2023, but will only
become valid evidence of title provided that the Global Offering has become unconditional in all respects prior to 8:00
a.m. on Friday, June 30, 2023. Investors who trade Shares on the basis of publicly available allocation details prior
to the receipt of Share certificates or prior to the Share certificates becoming valid evidence of title do so entirely
at their own risk.
(7) In case a typhoon warning signal number 8 or above, a “black” rainstorm warning signal and/or Extreme Conditions
is/are in force in any days between Monday, June 19, 2023 and Friday, June 30, 2023, then the day of (i)
announcement of results of allocations in the Hong Kong Public Offering; (ii) dispatch of Share certificates and
refund cheques/ HK eIPO White Form e-Auto Refund payment instructions; and (iii) dealings in the Shares on the
Stock Exchange may be postponed and an announcement may be made in such event.
The above expected timetable is a summary only. For details of the structure of the Global
Offering, including its conditions, and the procedures for applications for Hong Kong Offer Shares,
please refer to the sections headed “Structure of the Global Offering” and “How to Apply for the
Hong Kong Offer Shares” in this Prospectus, respectively.
EXPECTED TIMETABLE (1)
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IMPORTANT NOTICE TO INVESTORS
This Prospectus is issued by us solely in connection with the Hong Kong Public Offering
and does not constitute an offer to sell or a solicitation of an offer to buy any security other
than the Hong Kong Offer Shares offered by this Prospectus pursuant to the Hong Kong Public
Offering. This Prospectus may not be used for the purpose of, and does not constitute, an offer
or a solicitation of an offer to subscribe for or buy, any security in any other jurisdiction or
in any other circumstances. No action has been taken to permit a public offering of the Offer
Shares or the distribution of this Prospectus in any jurisdiction other than Hong Kong. The
distribution of this Prospectus and the offering and sale 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 to make your
investment decision. 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
made in this Prospectus must not be relied on by you as having been authorized by us, the Joint
Sponsors, the Overall Coordinators, the Joint Global Coordinators, the Joint Bookrunners, the
Joint Lead Managers, the Capital Market Intermediaries, any of the Underwriters, any of our
or their respective directors, officers or representatives, or any other person or party involved
in the Global Offering.
Page
EXPECTED TIMETABLE ............................................. i
CONTENTS ........................................................ iii
SUMMARY ........................................................ 1
DEFINITIONS ...................................................... 15
GLOSSARY OF TECHNICAL TERMS ................................... 30
FORW ARD-LOOKING STATEMENTS ................................... 35
RISK FACTORS .................................................... 36
W AIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES ....... 80
INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING .. 84
DIRECTORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING ........ 87
CORPORATE INFORMATION ......................................... 93
INDUSTRY OVERVIEW .............................................. 95
REGULATORY OVERVIEW ........................................... 113
HISTORY, REORGANIZATION AND CORPORATE STRUCTURE ............. 130
BUSINESS ......................................................... 149
CONTRACTUAL ARRANGEMENTS .................................... 220
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS ............. 233
CONNECTED TRANSACTIONS ........................................ 237
DIRECTORS AND SENIOR MANAGEMENT .............................. 244
CONTENTS
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Page
SUBSTANTIAL SHAREHOLDERS ...................................... 255
CORNERSTONE INVESTORS ......................................... 256
SHARE CAPITAL ................................................... 261
FINANCIAL INFORMATION .......................................... 263
FUTURE PLANS AND USE OF PROCEEDS .............................. 307
UNDERWRITING ................................................... 309
STRUCTURE OF THE GLOBAL OFFERING. ............................. 319
HOW TO APPLY FOR THE HONG KONG OFFER SHARES ................. 328
APPENDIX I – ACCOUNTANTS’ REPORT .......................... I-1
APPENDIX II – UNAUDITED PRO FORMA FINANCIAL INFORMATION . II-1
APPENDIX III – SUMMARY OF THE CONSTITUTION OF THE
COMPANY AND CAYMAN ISLANDS COMPANY LA W
AND TAXATION .................................. III-1
APPENDIX IV – STATUTORY AND GENERAL INFORMATION .......... IV-1
APPENDIX V – DOCUMENTS DELIVERED TO THE REGISTRAR OF
COMPANIES AND ON DISPLAY ..................... V-1
CONTENTS
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This summary aims to give you an overview of the information contained in this
Prospectus. As it is a summary, it does not contain all the information that may be important
to you and is qualified in its entirety by, and should be read in conjunction with, the full text
of this Prospectus. Y ou should read the entire Prospectus before you decide to invest in the
Offer Shares.
There are risks associated with any investment. Some of the particular risks in
investing in the Offer Shares are set out in “Risk Factors” in this Prospectus. Y ou should
read that section carefully before you decide to invest in the Offer Shares.
OVERVIEW
We are one of the top three independent clinical laboratory, or ICL, service providers in China
in terms of total revenues during the Track Record Period, according to Frost & Sullivan. Our
business has demonstrated strong growth during the Track Record Period, with our total revenues
increasing at a CAGR of 33.1% from RMB2,741.7 million in 2020 to RMB4,860.6 million in 2022.
We offer comprehensive and best-in-class testing services primarily to hospitals and health check
centers through an integrated network of 33 self-operated laboratories across China. The high
quality of our services is backed by our strong performance in terms of international accreditation
and comprehensive testing menu. As of December 31, 2022, 18 of our laboratories were accredited
by ISO15189, which enabled us to provide customers with the quality assurance that comes with
this rigorous international standard. Our testing portfolio consists of over 4,000 medical diagnostic
tests, including over 1,700 routine tests and over 2,300 esoteric tests, as of December 31, 2022.
During the Track Record Period, our testing volume increased at a CAGR of 65.6% from 60.1
million in 2020 to 164.9 million in 2022. We are committed to continuously serving our patients and
the general public with our high-quality testing services as a leading ICL service provider in China,
and becoming a trusted and reliable partner for medical professionals and the general public.
We believe that we are well-positioned to benefit from the growing demand for testing
services in China. Driven by a series of favorable government policies and industry tailwinds, the
ICL market size in China grew rapidly at a CAGR of 10.9% from RMB14.7 billion in 2017 to
RMB22.3 billion in 2021, and is expected to further grow at a CAGR of 18.2% to RMB51.3 billion
in 2026, according to Frost & Sullivan. In addition, the ICL market in China is still at a nascent
stage compared to that of other developed countries. For example, China’s ICL penetration rate,
measured by the ICL testing market size as a percentage of the total clinical testing market size, in
2021 was approximately 6%, significantly less than 60% for Japan, 44% for Germany and 35% for
the United States. China also lags behind in terms of clinical test spending per patient, with this
figure one-sixth the size of that of the United States in 2021. As a result, there remains significant
room for China’s ICL market to further develop and continue to grow.
In response to the continuing growth of healthcare expenditures, healthcare reforms in China
have emphasized the implementation of cost-control measures, where ICLs have played an
increasingly important role. As budgetary pressure intensifies, hospitals are increasingly
incentivized to outsource clinical tests to qualified ICL service providers like us to reduce costs. In
addition, as part of overall healthcare reforms, implementation of hierarchical diagnosis and
treatment systems have propelled patient flow shifting from Class III hospitals in major cities
towards Class II and Class I hospitals and community health centers in lower-tier cities. With
increased testing volume and limited testing capabilities, these hospitals are more inclined to use
ICLs for assured quality, comprehensive test menus, competitive pricing, and timely reporting. The
Chinese government has vigorously encouraged collaboration between hospitals and ICLs and
streamlined the approval process for chain ICLs, which has and will continue to accelerate the
growth of the ICL market. Furthermore, increasing awareness for preventive treatment and
emergence of new pharmaceutical therapies in recent years have spurred the demand for specialized
SUMMARY
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testing. It is costly for hospital-based laboratories to introduce such new tests, as they often lack
sufficient patient volume and advanced testing technologies. As a result, demand for cost-
competitive and high-value testing services, which ICLs are capable of offering, has been growing
significantly.
At the same time, the ICL industry in China is characterized by its significant entry barriers.
The complex regulatory framework, high standards for advanced testing technologies and logistics
capabilities, as well as the demand for experienced professionals, largely limit the growth of new
entrants. In particular, the ICL market in China is heavily regulated and it is difficult and
time-consuming for new market players to obtain approval for licenses and certificates to open
laboratories. As such, hospitals often prefer incumbent and established ICLs that they are familiar
with, and new entrants are often faced with unfavorable terms from hospitals, if they are able to get
business from such hospitals at all. In addition, successful ICLs generally have a large network of
laboratories, which require large amounts of capital investment and take years or decades to
establish. Therefore, large-scale chain ICLs with comprehensive test offerings and strong technical
capabilities usually enjoy economies of scale and higher cost efficiency, and are better positioned
to further increase their market shares.
As a market leader in providing ICL services in China, we believe that we are well-positioned
to benefit from the aforementioned barriers to entry and capture a greater share of the fast-growing
market. We believe our success is underpinned by our industry-leading operations and capabilities.
We have an experienced senior and regional management team. Our comprehensive test offerings
are supported by our advanced technologies focusing on a broad spectrum of testing platforms, as
well as strong R&D capabilities. We operate a dedicated cold-chain logistics network covering more
than 19,000 customers across 30 provinces and municipalities and over 1,600 cities and counties in
China by the end of 2022, which ensures speedy transport of our samples and timely reporting of
testing results. In addition, we leverage our proprietary IT infrastructure, Laboratory Information
System, to ensure accurate processing and storage of data, as well as effective customer
management across our laboratories nationwide. We also assembled a dedicated sales and marketing
team of over 1,500 personnel with high level of industry knowledge and expertise to help us
broaden our presence nationwide.
In addition, our Controlling Shareholders have provided us with substantial strategic insights
and helped us to strengthen management capabilities, operational efficiency, business development
capabilities, and corporate governance. Aided by the changes implemented by our Controlling
Shareholders since 2018, we experienced rapid growth and strong financial performance during the
Track Record Period. Our total revenues grew at a CAGR of 33.1% from RMB2,741.7 million in
2020 to RMB4,860.6 million in 2022. Our net profit increased at a CAGR of 53.8% from RMB289.5
million in 2020 to RMB684.9 million in 2022. Our adjusted EBITDA (non-IFRS measure) grew at
a CAGR of 34.0% from RMB567.6 million in 2020 to RMB1,019.8 million in 2022. Our adjusted
net profit (non-IFRS measure) grew at a CAGR of 30.1% from RMB367.0 million in 2020 to
RMB621.1 million in 2022. See “Financial Information – Non-IFRS Measures”.
SUMMARY
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OUR STRENGTHS
We believe the following competitive advantages have contributed to our success and will
help drive our growth in the future:
 A market leader in the rapidly growing ICL industry;
 Comprehensive, high-quality and advanced test portfolio underpinned by our strong
R&D and quality control capabilities;
 Industry-leading ICL operational capabilities;
 Strong growth trajectory fueled by expanding service offerings and superior execution
evidenced by robust financial performance; and
 Top-tier and experienced management team solidified by shareholder support.
For further details, see “Business – Our Strengths.”
OUR STRATEGIES
To achieve our mission and further solidify our leadership, we intend to pursue the following
growth strategies:
 Further strengthen our testing capabilities and portfolio to drive future growth;
 Enhance the breadth and depth of our ICL network by strategically penetrating untapped
markets;
 Continue to develop new testing methods and apply innovative technologies;
 Further optimize IT infrastructure as well as automate our laboratory processes and
logistics; and
 Selectively pursue strategic investment and alliances, and other emerging growth
opportunities.
For further details, see “Business – Our Strategies.”
RISK FACTORS
Our business and the Global Offering involve certain risks as set out in “Risk Factors” in this
Prospectus. You should read that section in its entirety carefully before you decide to invest in our
Shares. Some of the major risks we face include the following:
 Our operations face competition that could adversely affect our results of operations. If
we cannot compete successfully with our competitors, we may be unable to increase or
sustain our revenues or achieve and sustain profitability.
 We conduct our business in a heavily regulated industry. We may be adversely affected
by the uncertainties and changes in PRC regulations with respect to the ICL industry.
 If we fail to comply with applicable licensing requirements, or become damaged or
inoperable, our ability to perform tests may be jeopardized.
 Any adverse change in the regulatory regime relating to ICL industry or the healthcare
industry may limit our ability to provide testing services and may have a material
adverse effect on our business, results of operations and financial condition.
 Failure in service quality control may adversely affect our operating results, reputation
and business.
 Failure to obtain and retain new customers, the loss of existing customers, or a reduction
in tests requested or specimens submitted by existing customers could impact our ability
to successfully grow our business.
 Our past financial performance may not be indicative of our future results.
SUMMARY
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 The COVID-19 pandemic had and may continue to have material impacts on our
business, results of operations and financial performance.
 Revenues generated from COVID-19 related testing services may not be sustainable.
 If we fail to keep up with industry and technology developments or implement new
technologies into our test offerings in a timely and cost-effective manner, we may be
unable to compete effectively and our business and prospects could suffer.
 Certain of our leased properties are subject to land defects, and we maybe required to
vacate such properties which could adversely affect our business, financial condition and
results of operations.
PRE-IPO INVESTORS
We received two rounds of Pre-IPO financings from our Pre-IPO Investors. In view of the
success and prospects of our Group, Pearl Group Limited, a company owned by investment funds
which are (by and through their controlled affiliates and their respective general partners) ultimately
controlled by Carlyle, one of the world’s largest and most diversified global investment firms,
approached our Group with a number of other investors and made the Round A Pre-IPO Investments
between September 2018 and July 2019. As agreed among the investors, the Round A Pre-IPO
Investments were led by Pearl Group Limited as it initiated the investment in our Group, and made
the largest amount of investment among the investors. As our business continued to thrive after the
Round A Pre-IPO Investments, Pantai Juara Investments Limited, a company wholly owned by
Khazanah National Berhad, a sovereign wealth fund of Malaysia tasked with growing the long-term
wealth of the nation, LBC Sunshine Healthcare Fund II L.P., an exempted limited partnership
managed by Lake Bleu Capital (Hong Kong) Limited, a sophisticated investor specializing in
investing in healthcare companies in Asia and Greater China, together with other investors, made
the Round B Pre-IPO Investments between December 2020 and January 2021. As agreed among the
investors, the Round B Pre-IPO Investments were led by Pantai Juara Investments Limited and LBC
Sunshine Healthcare Fund II L.P.. For further details, including the identity and background of our
Pre-IPO Investors, see “History, Reorganization and Corporate Structure – Pre-IPO Investments” in
this Prospectus.
OUR CONTROLLING SHAREHOLDERS
Pearl Group Limited was entitled to exercise the voting rights to approximately 39.87% of our
total issued Shares as of the Latest Practicable Date, and will be entitled to exercise the voting rights
to approximately 38.92% of our total issued Shares immediately following the completion of the
Global Offering (assuming that the Over-allotment Option is not exercised). Pearl Group Limited
is 94.57% owned by Carlyle Asia Partners V , L.P. and 5.43% owned by CAP V Co-Investment, L.P..
The general partner of Carlyle Asia Partners V , L.P. and CAP V Co-Investment, L.P. is CAP V
General Partner, L.P.. The general partner of CAP V General Partner, L.P. is CAP V , L.L.C., an
indirect subsidiary of Carlyle. CAP V , L.L.C. is wholly-owned by TC Group Cayman Investment
Holdings Sub L.P.. The general partner of TC Group Cayman Investment Holdings Sub L.P. is TC
Group Cayman Investment Holdings L.P.. The general partner of TC Group Cayman Investment
Holdings L.P. is CG Subsidiary Holdings L.L.C.. The managing member of CG Subsidiary Holdings
L.L.C. is Carlyle Holdings II L.L.C.. The managing member of Carlyle Holdings II L.L.C. is
Carlyle Holdings II GP L.L.C.. The sole member of Carlyle Holdings II GP L.L.C. is Carlyle.
Accordingly, Carlyle, Carlyle Holdings II GP L.L.C., Carlyle Holdings II L.L.C., CG Subsidiary
Holdings L.L.C., TC Group Cayman Investment Holdings L.P., TC Group Cayman Investment
Holdings Sub L.P., CAP V , L.L.C., Carlyle Asia Partners V , L.P., CAP V Co-Investment, L.P., CAP
V General Partner, L.P. and Pearl Group Limited will be our Controlling Shareholders upon the
Listing.
SUMMARY
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SUMMARY OF HISTORICAL FINANCIAL INFORMATION
The following tables set forth a summary of the financial information from our combined
financial information for the Track Record Period, extracted from the Accountants’ Report set out
in Appendix I. The summary of combined financial data set forth below should be read together
with, and is qualified in its entirety by reference to, the combined financial statements in this
Prospectus, including the related notes. Our combined financial information has been prepared in
accordance with IFRS.
Summary of Consolidated Statements of Comprehensive Income
For the Y ear Ended December 31,
2020 2021 2022
(RMB in thousands)
Revenues ........................................... 2,741,731 3,379,515 4,860,613
Costs of sales ....................................... (1,625,071) (1,937,126) (2,964,448)
Gross profit ........................................ 1,116,660 1,442,389 1,896,165
Selling and marketing expenses ........................ (359,051) (489,783) (553,272)
Administrative expenses .............................. (236,566) (263,003) (282,262)
Research and development expenses .................... (102,009) (125,446) (162,746)
Fair value (loss)/gain on financial liabilities at FVTPL .... – (61,531) 87,044
Profit before tax .................................... 358,185 417,243 820,812
Income tax expense .................................. (68,732) (94,948) (135,928)
Profit for the year ................................... 289,453 322,295 684,884
Attributable to:
Owners of the parent ................................. 284,121 315,540 680,793
Non-controlling interests .............................. 5,332 6,755 4,091
Non-IFRS Measures
To supplement our consolidated financial statements which are presented in accordance with
IFRS, we also use non-IFRS measures, namely EBITDA (non-IFRS measure), adjusted EBITDA
(non-IFRS measure), and adjusted net profit (non-IFRS measure) as additional financial
measures, which are not required by or presented in accordance with IFRS. We believe that such
non-IFRS measures facilitate comparisons of operating performance from period to period and
company to company by eliminating potential impacts of certain items. We exclude share-based
compensation expenses, listing expenses and fair value loss/(gain) on convertible redeemable
preferred shares at FVTPL when presenting non-IFRS measures. Share-based compensation
expenses are non-cash in nature and do not result in cash outflow, and the adjustment has been
consistently made during the Track Record Period. We also exclude listing expenses with respect
to this Global Offering. In addition, we account for the convertible preferred shares as financial
liabilities at fair value through profit or loss. The convertible preferred shares will automatically
convert into ordinary shares upon the completion of the Global Offering, and no further loss or gain
on fair value changes is expected to be recognized afterwards. The reconciling item is non-cash, and
does not result in cash outflow.
We believe that such measures provide useful information to investors and others in
understanding and evaluating our consolidated results of operations in the same manner as it helps
our management. However, our presentation of EBITDA (non-IFRS measure), adjusted EBITDA
(non-IFRS measure) and adjusted net profit (non-IFRS measure) may not be comparable to
similarly titled measure presented by other companies. The use of such non-IFRS measures has
limitations as an analytical tool, and you should not consider it in isolation from, or as substitute
for analysis of, our results of operations or financial condition as reported under IFRS.
SUMMARY
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We define EBITDA (non-IFRS measure) as profit before tax plus depreciation and
amortization expenses and finance costs, minus bank interest income. We define adjusted EBITDA
(non-IFRS measure) as EBITDA (non-IFRS measure) for the period adjusted by adding back
share-based compensation expenses, listing expenses and fair value loss/(gain) on convertible
redeemable preferred shares at FVTPL.
For the Y ear Ended December 31,
2020 2021 2022
(RMB in thousands)
Profit for the year .................................... 289,453 322,295 684,884
Add:
Income tax expenses ................................. 68,732 94,948 135,928
Profit before tax ..................................... 358,185 417,243 820,812
Add:
Depreciation ......................................... 1 13,118 136,235 188,565
Amortization ........................................ 6 6 2 1,617 4,853
Finance costs ........................................ 19,644 16,326 76,824
Less:
Bank interest income ................................ 3,765 6,289 8,874
EBITDA (non-IFRS measure) ........................ 487,844 565,132 1,082,180
Add:
Share-based compensation expenses .................... 63,598 37,325 15,049
Listing expenses ..................................... 16,179 35,290 9,664
Fair value loss/(gain) on convertible redeemable
preferred shares at FVTPL ............................ – 61,531 (87,044)
Adjusted EBITDA (non-IFRS measure) ............... 567,621 699,278 1,019,849
We define adjusted net profit (non-IFRS measure) as profit for the period adjusted by adding
back net of tax, share-based compensation expenses, listing expenses and fair value loss/(gain) on
convertible redeemable preferred shares at FVTPL.
For the Y ear Ended December 31,
2020 2021 2022
(RMB in thousands)
Profit for the year ................................... 289,453 322,295 684,884
Add:
Share-based compensation expenses .................... 63,598 37,325 15,049
Listing expenses .................................... 16,179 35,290 9,664
Fair value loss/(gain) on convertible redeemable
preferred shares at FVTPL ............................ – 61,531 (87,044)
Less:
Tax shield adjustment ................................ 2,195 5,203 1,460
Adjusted net profit (non-IFRS measure) .............. 367,035 451,238 621,093
Our net profit grew by 11.3% from RMB289.5 million in 2020 to RMB322.3 million in 2021,
primarily due to (i) increases in our revenues and gross profit, which is attributable to our overall
business growth across all specialty testing groups, and (ii) increased economies of scale, resulting
in higher operating efficiency with relatively lower administrative expenses as a percentage of
revenue, which is partially offset by increased sales and marketing expenses and listing expenses
in connection with the Global Offering. Our net profit grew further by 112.5% from RMB322.3
million in 2021 to RMB684.9 million in 2022, primarily due to (i) continued business growth driven
SUMMARY
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by laboratory expansion and significantly expanded test offering, (ii) increased economies of scale
and higher operating efficiency, and (iii) an increase in fair value gains on derivative financial
instruments and contingent consideration.
Revenue Breakdown
We primarily generate revenues from providing diagnostic testing services and sales of
medical products to our customers. The following table sets forth our revenues from each source
during the Track Record Period:
For the Y ear Ended December 31,
2020 2021 2022
RMB % RMB % RMB %
(RMB in thousands, except for percentages)
Medical diagnostic
testing services ........ 2,513,184 91.7 3,144,832 93.1 4,400,748 90.5
Sales of medical
products .............. 228,547 8.3 234,683 6.9 459,865 9.5
Total ................ 2,741,731 100.0 3,379,515 100.0 4,860,613 100.0
As a nationwide ICL provider with a comprehensive test catalog and competitive pricing, we
are able to offer differentiated value propositions to a broad array of customers we serve. Our
customers primarily include private and public medical institutions, including hospitals, clinics and
health check centers. During the Track Record Period, we secured our customers mainly through
one-on-one commercial negotiation by our dedicated in house sales and marketing personnel, and
to a lessor extent, through participation in tendering process organized by certain of our customers,
pursuant to regulatory requirements or their respective internal policies. The following table sets
forth a revenue breakdown by customer types during the Track Record Period:
For the Y ear Ended December 31,
2020 2021 2022
RMB % RMB % RMB %
(RMB in thousands, except for percentages)
Public medical
institutions ......... 1,230,274 44.9 1,401,207 41.4 1,721,959 35.5
Public hospitals ........ 1,109,257 40.5 1,251,383 37.0 1,612,262 33.2
Other public medical
institutions .......... 121,017 4.4 149,824 4.4 109,697 2.3
Private medical
institutions ......... 899,424 32.8 1,199,207 35.5 1,404,223 28.8
Private hospitals and
clinics .............. 602,687 22.0 819,145 24.3 1,003,252 20.6
Health check centers . . . 296,737 10.8 380,062 11.2 400,971 8.2
Others
(1) ............. 612,033 22.3 779,101 23.1 1,734,431 35.7
Total ................. 2,741,731 100.0 3,379,515 100.0 4,860,613 100.0
Note:
(1) Others include pharmaceutical companies and CROs, as well as employers and individuals.
SUMMARY
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Summary of Consolidated Statements of Financial Position
As of December 31,
2020 2021 2022
(RMB in thousands)
Total non-current assets ............................... 388,629 571,734 959,261
Total current assets ................................... 2,334,912 2,538,104 3,894,972
Total assets ......................................... 2,723,541 3,109,838 4,854,233
Total current liabilities ................................ 1,008,970 1,387,774 2,418,432
Net current assets ................................... 1,325,942 1,150,330 1,476,540
Total assets less current liabilities .................... 1,714,571 1,722,064 2,435,801
Total non-current liabilities ............................ 675,453 869,217 1,823,465
Total liabilities ...................................... 1,684,423 2,256,991 4,241,897
Net assets .......................................... 1,039,118 852,847 612,336
Non-controlling interests .............................. 14,779 48,606 101,512
Our net assets decreased from RMB1,039.1 million as of December 31, 2020 to RMB852.8
million as of December 31, 2021, primarily due to (i) declaration of dividends of RMB452.6 million
in 2021, (ii) consideration of RMB138.8 million paid to equity shareholders of PRC operating
entities, and (iii) put option over non-controlling interests of RMB57.5 million, partially offset by
(i) net profit of RMB322.3 million we recognized in 2021, (ii) issuance of share capital of RMB68.9
million, (iii) issuance of share awards of RMB37.3 million, and (iv) capital injection into a
subsidiary by non-controlling shareholders of RMB23.8 million. Our net assets decreased from
RMB852.8 million as of December 31, 2021 to RMB612.3 million as of December 31, 2022,
primarily due to (i) declaration of dividends of RMB865.0 million, (ii) exchange difference on
translation of the financial statement of RMB54.3 million, and (iii) put option over non-controlling
interests of RMB43.8 million, partially offset by (i) net profit of RMB684.9 million we recognized
in 2022, (ii) acquisition of subsidiaries of RMB33.4 million, (iii) capital injection into a subsidiary
by non-controlling shareholders of RMB15.4 million, and (iv) issuance of share awards of
RMB15.0 million.
We recorded net current assets of RMB1,325.9 million, RMB1,150.3 million and RMB1,476.5
million as of December 31, 2020, 2021 and 2022, respectively. The decrease from 2020 to 2021 was
primarily due to an increase of RMB323.7 million in other payables and accruals, an increase of
RMB126.9 million in trade payables, and a decrease of RMB119.4 million in cash and bank
balances. Such decrease was partially offset by an increase of RMB271.5 million in trade and bill
receivables. As of December 31, 2022, the net current assets increased to RMB1,476.5 million,
primarily due to an increase of RMB643.3 million in trade and bills receivables and an increase of
RMB571.4 million in cash and bank balances, which is partially offset by an increase of RMB551.8
million in trade payables, and an increase of RMB296.0 million in other payables and accruals.
We recorded total non-current liabilities of RMB675.5 million, RMB869.2 million and
RMB1,823.5 million as of December 31, 2020, 2021 and 2022, respectively, including the fair
values of convertible redeemable preferred shares of RMB443.9 million, RMB621.9 million and
RMB589.2 million as of December 31, 2020, 2021 and 2022, respectively. All the convertible
redeemable preferred shares which were accounted for as liabilities will be converted into our
ordinary shares immediately prior to the completion of the Listing, and such liabilities would be
derecognized and accounted as an increase in equity upon the Listing.
SUMMARY
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Summary of Consolidated Statements of Cash Flow
For the Y ear Ended December 31,
2020 2021 2022
(RMB in thousands)
Net cash generated from operating activities ............. 481,989 564,262 892,938
Net cash used in investing activities .................... (100,913) (197,329) (333,301)
Net cash generated from/(used in) financing activities .... 537,722 (476,193) 3,722
Interest paid and/or tax paid ........................... (55,696) (112,983) (138,588)
Net increase/(decrease) in cash and cash equivalents ...... 918,798 (109,260) 563,359
Cash and cash equivalents at the beginning of the year . . . 304,523 1,226,819 1,109,211
Effects of foreign exchange rate ....................... 3,498 (8,348) 8,055
Cash and cash equivalents at end of the year .......... 1,226,819 1,109,211 1,680,625
KEY FINANCIAL RATIOS
The following table sets forth certain of our key financial ratios as of the dates or for the
periods indicated:
For the Y ear Ended December 31,
2020 2021 2022
Profitability ratios
Gross profit margin (1)................................. 40.7% 42.7% 39.0%
Net profit margin (2) .................................. 10.6% 9.5% 14.1%
Adjusted net profit margin (non-IFRS measure) (3) ........ 13.4% 13.4% 12.8%
EBITDA margin (non-IFRS measure) (4) ................. 17.8% 16.7% 22.3%
Adjusted EBITDA margin (non-IFRS measure) (5) ......... 20.7% 20.7% 21.0%
Return on equity (6) ................................... 35.4% 34.1% 93.5%
Return on assets (7) ................................... 13.8% 11.1% 17.2%
As of December 31,
2020 2021 2022
Liquidity ratios
Current ratio (8)....................................... 2.31 1.83 1.61
Quick ratio (9) ........................................ 2.21 1.75 1.52
Capital adequacy ratios
Gearing ratio
(10) ..................................... 0.21 0.16 1.86
Notes:
(1) Gross profit for the period divided by revenue for the same period and multiplied by 100.0%.
(2) Profit for the period divided by revenue for the same period and multiplied by 100.0%.
(3) Adjusted net profit margin is a non-IFRS measure. It equals adjusted net profit for the period (non-IFRS measure)
divided by revenue for the same period and multiplied by 100.0%. For reconciliation of adjusted net profit (non-IFRS
measure) to net profit, see “Financial Information – Non-IFRS Measures”.
(4) EBITDA margin is a non-IFRS measure. It equals EBITDA for the period (non-IFRS measure) divided by revenue
for the same period and multiplied by 100.0%. For reconciliation of EBITDA (non-IFRS measure) from profit before
tax, see “Financial Information – Non-IFRS Measures”.
(5) Adjusted EBITDA margin is a non-IFRS measure. It equals adjusted EBITDA for the period (non-IFRS measure)
divided by revenue for the same period and multiplied by 100.0%. For reconciliation of adjusted EBITDA (non-IFRS
measure) from profit before tax, see “Financial Information – Non-IFRS Measures”.
(6) Net profit for the period divided by average total equity as of the beginning and the end of such period and multiplied
by 100.0%.
(7) Net profit for the period divided by average total assets as of the beginning and the end of such period and multiplied
by 100.0%.
(8) Current assets divided by current liabilities as of the end of the period.
(9) Current assets less inventories divided by current liabilities as of the end of the period.
(10) Total borrowings divided by total equity as of the end of the period.
SUMMARY
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RECENT DEVELOPMENT
Selected Results of Operation for the Three Months Ended March 31, 2023
For the three months ended March 31, 2023, we recorded total revenues of RMB768.0 million,
a decline of 31.0% as compared to the same period in 2022, among which revenues generated from
medical diagnostic testing services totaled RMB700.0 million, accounting for 91.1% of our total
revenues, showing a decline of 31.7% compared to the same period in 2022. Our testing volume in
the first quarter of 2023 declined primarily because demand for COVID-19 tests reduced
significantly since the Chinese government eased its dynamic zero-COVID policy in late 2022. For
details, please see “– COVID-19 Pandemic and Effects on Our Business.” However, with the lift of
COVID-19 restrictions, demand for our base testing services rebounded, which boosted our
non-COVID revenue growth. Revenue contribution by non-COVID testing business increased
significantly from the three months ended March 31, 2022 to the same period in 2023. We expect
our net profit for the year ending December 31, 2023 to decrease significantly compared to the year
ended December 31, 2022, as a result of expected decline of revenues contributed by COVID-19
testing services in 2023.
The financial data of the Group for the three months ended March 31, 2023 disclosed above
are derived from the Company’s unaudited interim financial statements for the three months ended
March 31, 2023, which have been prepared in accordance with the International Accounting
Standard 34 Interim Financial Reporting issued by the International Accounting Standards Board
and reviewed by our reporting accountants in accordance with Hong Kong Standard on Review
Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the HKICPA.
COVID-19 Pandemic and Effects on Our Business
In December 2022, Chinese government eased its dynamic zero-COVID policy and lifted most
of its COVID-19 related restrictions. Meanwhile, Chinese government also canceled mandatory
PCR test requirements and mass testings previously implemented in various regions across the
country. This had reduced the need for our COVID-19 related testing services nationwide and is
expected to result in a significant decline in revenues generated from such services in the future.
As such, we expect a significant decrease in the forecast profit for the financial year ending
December 31, 2023. For details, please see “Risk Factors – Risks Relating to Our Business and
Industry – Revenues generated from COVID-19 related testing services may not be sustainable”.
However, with the lift of COVID-19 restrictions, demand for our base testing services is expected
to further boost our non-COVID revenue growth, which have been inhibited in recent years as a
result of the COVID-19 related disruptions in China.
COVID-19 pandemic had also impacted our business and results of operations during the
Track Record Period. The following table sets forth a breakdown of our revenues by COVID-19
testing and non-COVID-19 business during the Track Record Period:
For the Y ear Ended December 31,
2020 2021 2022
RMB % RMB % RMB %
(RMB in thousands, except for percentages)
Non-COVID-19
business .............. 1,817,195 66.3 2,147,080 63.5 2,576,057 53.0
COVID-19 testing ...... 924,536 33.7 1,232,435 36.5 2,284,556 47.0
Total ................. 2,741,731 100.0 3,379,515 100.0 4,860,613 100.0
SUMMARY
–1 0–


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For a detailed discussion on how COVID-19 affected our business operations and financial
performance, please see “Business – Impact of COVID-19 On Our Business”. The extent to which
the pandemic impacts our results of operations going forward will depend on future developments
which are uncertain and unpredictable, including the frequency, duration and extent of outbreaks of
COVID-19, the appearance of new variants with different characteristics, the unpredictability of
future variants or declining population immunity to result in resurgence of cases, the effectiveness
of efforts to contain or treat cases, and future actions that may be taken in response to these
developments. Our management has been and will continue to closely monitor the impact of
COVID-19 on all aspects of our business operation and respond to any challenges and opportunities
the pandemic may bring about. For details, please see “Risk Factors – Risks Relating to Our
Business and Industry – The COVID-19 pandemic had and may continue to have material impacts
on our business, results of operations and financial performance”.
Recent Regulatory Development in China
According to Article 6 of the Special Administrative Measures (Negative List) for the Access
of Foreign Investment (2021) (݄(૶ఊ)(2021وthe “ 2021
Negative List ”) which took effect on January 1, 2022, where a domestic company engaged in the
business in the prohibited areas provided in the 2021 Negative List seeks to issue and list its shares
overseas, it shall complete the examination process and obtain approval by the relevant competent
authorities; the foreign investors shall not participate in the operation and management of the
company; its shareholding percentage shall be subject to the relevant provisions on the
administration of domestic securities investment by foreign investors. As confirmed by our PRC
Legal Advisor, according to the 2021 Negative List and based on interview with competent
government authorities, our PCR testing services within our overall ICL business falls within the
prohibited areas provided in the 2021 Negative List. Therefore, our Company has, through Aidiken
WFOE, controlled Hangzhou Adicon and its subsidiaries as the subsidiaries of our Company
through the Contractual Arrangements. For further details, please see “Contractual Arrangements”.
On December 27, 2021, a spokesman from the NDRC held a press conference in relation to
the 2021 Negative List. During the conference, it was held that the supervision and administration
of the overseas issuance and listing by a domestic enterprise under 2021 Negative List shall be led
by CSRC and the CSRC will seek the view of the competent authority in the relevant industry or
sector after receipt of the application materials for an “overseas listing” (“ ྤ̮ɪ̹”). On
January 18, 2022, another press conference was held by the NDRC to further clarify the position
of Article 6, during which the spokesman made it clear that Article 6 shall only be applying to the
situations where domestic enterprises were seeking a direct overseas issuance and listing. With
reference to the definition under the Overseas Listing Trial Measures, a direct overseas issuance and
listing of a domestic company refers to a PRC-incorporated joint stock company issues shares or
seeks to be listed overseas, where the listed company is the domestic company itself, such as H
shares listing (the “ Direct Overseas Listing ”). Therefore, based on the clarification made by the
NDRC, our PRC Legal Advisor is of the view that our proposed Listing does not constitute a Direct
Overseas Listing, which is a case applicable under the Article 6 of the 2021 Negative List.
In addition, on February 17, 2023, the CSRC released the Trial Administrative Measures of
Overseas Securities Offering and Listing by Domestic Companies ( ྤʫΆุྤ̮೯БᗇՎձɪ̹၍
جthe “ Overseas Listing Trial Measures ”) and five supporting guidelines, which came
into effect on March 31, 2023. The Overseas Listing Trial Measures will regulate both direct and
indirect overseas offering and listing of PRC domestic companies’ securities by adopting a
filing-based regulatory regime. Where an issuer submits an application for initial public offering to
competent overseas regulators, such issuer must file with the CSRC within three business days after
such application is submitted.
On the same day, the CSRC also held a press conference for the release of the Overseas Listing
Trial Measures and issued the Notice on Administration for the Filing of Overseas Offering and
Listing by Domestic Companies (ٝwhich, among
SUMMARY
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others, clarifies that companies that satisfy all of the following conditions shall be deemed as
“Existing Applicants ( πඎΆุ)” and are not required to complete the overseas listing filing
immediately, but shall complete filings as required if they conduct refinancing or are involved in
other circumstances that require filing with the CSRC: (i) the application for overseas offering or
listing shall have been approved by the relevant overseas regulatory authorities or stock exchanges
(such as passing the hearing for the listing application of its shares on the Stock Exchange) prior
to March 31, 2023, (ii) the company is not required to reapply for offering and listing procedures
to the overseas regulatory authorities or securities exchanges (such as a new hearing for the listing
application of its shares on the Stock Exchange) after March 31, 2023, and (iii) such overseas
securities offering or listing shall be completed on or prior to September 30, 2023. See “Regulatory
Overview – Regulations Relating to Foreign Investment”.
Based on the foregoing and as advised by our PRC Legal Advisor, if we are not deemed as
an Existing Applicant, we will be required to complete the filing procedures with the CSRC in
connection with the Listing. See “Risk Factors – Risks Relating to Doing Business in China – Filing
with the CSRC may be required in connection with the Listing, and, if required, we cannot predict
whether we will be able to complete such filing”.
No Material Adverse Change
Our Directors confirm that, as of the date of this Prospectus, there has been no material
adverse change in our financial or trading position, indebtedness, mortgage, contingent liabilities,
guarantees or prospects of our Group since December 31, 2022, the end of the period reported on
in the Accountants’ Report set out in Appendix I to this Prospectus.
CONTRACTUAL ARRANGEMENTS
Due to regulatory restrictions on foreign ownership in the PRC, we entered into the
Contractual Arrangements whereby Aidiken WFOE has acquired effective control over Hangzhou
Adicon and its subsidiaries, and become entitled to all the economic benefits derived from our
laboratories operated by Hangzhou Adicon and its subsidiaries. The following simplified diagram
illustrates the existing structure of the Contractual Arrangements:
Our Company
Aidiken WFOE
Hangzhou Adicon
Registered Shareholders
100%
100%
• Exclusive Option Agreement
• Loan Agreement
• Equity Pledge Agreement
• Power of Attorney
• Exclusive Business Cooperation
Agreement
Offshore
Onshore
33 laboratories operated
by Hangzhou Adicon and
its subsidiaries
Entities controlled under the Contractual Arrangements
For further details, see “Contractual Arrangements”.
SUMMARY
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DIVIDENDS
Under the Articles, our Company in general meeting may declare dividends in any currency
to be paid to our shareholders, provided that no dividend shall exceed the amount recommended by
our Directors. In addition, our Directors may from time to time pay to our shareholders interim
dividends our Directors believe to be justified by the profits generated by our Company. No
dividend may be declared or paid other than out of profits and reserves of the Company lawfully
available for distribution, including share premium.
We are a holding company incorporated under the laws of the Cayman Islands. As a result, the
payment and amount of any future dividend will also depend on the availability of dividends
received from our subsidiaries. PRC laws require that dividends be paid only out of the profit for
the year calculated according to PRC accounting principles, which differ in many aspects from the
generally accepted accounting principles in other jurisdictions, including IFRS. PRC laws also
require a foreign-invested enterprise to set aside at least 10% of its after-tax profits, if any, to fund
its statutory reserves, which are not available for distribution as cash dividends. Distributions from
us and our subsidiaries may also become subject to any restrictive covenants in bank credit
facilities, convertible bond instruments or other agreements that we or our subsidiaries may enter
into in the future.
On June 23, 2021, our Board declared a dividend of US$69.9 million out of our share
premium. On May 18, 2022, we declared a special dividend of RMB865 million, representing 100%
of retained earnings as of March 31, 2022 to the shareholders of the Company whose names appear
on the register of members of the Company at the time of such dividend declaration. For the
avoidance of doubt, the shareholders of the Company to receive the special dividend will not
include any IPO subscribers. All the dividend declared had been paid by the end of 2022.
The amount of dividend actually distributed to our shareholders will depend upon our earnings
and financial condition, operating requirements, capital requirements and any other conditions that
our Directors may deem relevant and will be subject to approval of our shareholders. Our Board has
the absolute discretion to recommend any dividend. We currently intend to retain most, if not all,
of our available funds and any future earnings after the Global Offering to fund the development
and growth of our business. As a result, we do not expect to pay any cash dividends in the
foreseeable future.
OFFERING STATISTICS
All statistics in the following table are based on the assumptions that: (i) the Global Offering
has been completed and 17,288,500 Offer Shares are issued pursuant to the Global Offering, (ii) the
Over-allotment Option is not exercised, and (iii) 723,452,291 Shares are issued and outstanding
following the completion of the Global Offering.
Based on the Offer Price of
HK$12.32 per Offer Share
Market capitalization immediately after the Global Offering (1) ....... HK$8,912.9 million
Unaudited pro forma adjusted net tangible assets per Share (2)(3) ...... HK$1.54
Notes:
(1) The calculation of market capitalization is based on 723,452,291 Shares expected to be in issue immediately upon
completion of the Global Offering, without taking into account any Shares which may be issued upon exercise of the
Over-allotment Option.
(2) The Preferred Shares would have been converted into ordinary shares upon completion of Global Offering. The
conversion of Preferred Shares would have been reclassified such preferred shares amounting to RMB589,179,000
from liabilities to equity and accordingly increased the unaudited pro forma adjusted consolidated net tangible assets
of the Group as of December 31, 2022 by RMB589,179,000.
(3) The unaudited pro forma adjusted consolidated net tangible assets attributable to owners of the Company per Share
is arrived at after adjustments referred in note 2 above and on the basis of 723,452,291 Shares are in issue, assuming
that the Share Consolidation and the Global Offering has been completed on December 31, 2022 but does not take
into account any Shares which may be sold pursuant to the exercise of the Over-allotment Option.
SUMMARY
–1 3–


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LISTING EXPENSES
Listing expenses are estimated to be approximately RMB117.1 million (based on an Offer
Price of HK$12.32 per Share, assuming that the Over-allotment Option is not exercised), accounting
for approximately 60.6% of our gross proceeds. Listing expenses primarily consist of (i) RMB7.7
million of underwriting commissions, and (ii) RMB109.4 million of non-underwriting related
expenses, including (x) RMB67.4 million of fees and expenses of legal advisors and accountants,
and (y) RMB42.0 million of other fees and expenses. An estimated amount of RMB113.9 million
for our listing expenses, accounting for approximately 59.0% of our gross proceeds, is expected to
be expensed through the statement of profit or loss and the remaining amount of RMB3.2 million
is expected to be recognized directly as a deduction from equity upon the Listing. Listing expenses
of RMB73.8 million were incurred on or before December 31, 2022, of which RMB61.1 million was
charged to our consolidated income statements, while the remaining amount of RMB12.7 million
was recorded as a prepayment and will be subsequently charged to equity upon completion of the
Global Offering. We estimate we will further incur underwriting commission and other listing
expenses of RMB43.3 million after December 31, 2022, which will be charged to our consolidated
income statements upon the completion of Global Offering.
The Selling Shareholder is responsible for the underwriting commission of 3%, and a
discretionary incentive fee of up to 1%, of the aggregate Offer Price of the Sale Shares, translating
to an aggregate amount of approximately HK$7.8 million (based on an Offer Price of HK$12.32).
Such underwriting commission and incentive fee are not included in the listing expenses of the
Group.
USE OF PROCEEDS
We estimate that we will receive net proceeds from the Global Offering of approximately
HK$83.9 million, after deducting underwriting commissions, fees and estimated expenses payable
by us in connection with the Global Offering, assuming no Over-allotment Opinion is exercised and
based on the Offer Price of HK$12.32 per Share.
We intend to use the net proceeds as follows:
 approximately HK$12.6 million (representing 15% of the net proceeds) for
strengthening our routine and esoteric testing capabilities, including research and
development and sales and marketing capabilities;
 approximately HK$21.0 million (representing 25% of the net proceeds) for network
expansion through establishing new laboratories, partnership investments and
development of new channels;
 approximately HK$21.0 million (representing 25% of the net proceeds) for business
development activities to form strategic collaborations with industry participants as well
as strategic and bolt-on acquisitions;
 approximately HK$12.6 million (representing 15% of the net proceeds) for upgrade and
expansion of our existing laboratories;
 approximately HK$8.4 million (representing 10% of the net proceeds) for investment in
operating infrastructure including logistics facilities, artificial intelligence technologies
and IT infrastructure; and
 approximately HK$8.4 million (representing 10% of the net proceeds) for working
capital and general corporate purpose.
We will not receive any of the proceeds from the sale of the Sale Shares by the Selling
Shareholder in the Global Offering. For further details, see “Future Plans and Use of Proceeds”.
SUMMARY
–1 4–


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In this Prospectus, unless the context otherwise requires, the following terms shall have
the following meanings. Certain technical terms are explained in the section headed “Glossary
of Technical Terms”.
“Accountant’s Report” the accountant’s report of our Company, the text of which is
set out in Appendix I to this Prospectus
“Adicon HK” Adicon International Limited (ʮ̡), a
limited company incorporated in Hong Kong on March 7,
2008, a direct wholly-owned subsidiary of our Group
“affiliate(s)” with respect to any specified person, any other person,
directly or indirectly, controlling or controlled by or under
direct or indirect common control with such specified
person
“AFRC” the Accounting and Financial Reporting Council of Hong
Kong
“Aidiken WFOE” Aidiken (Hangzhou) BioTech Co., Ltd. (ٵࠔ(ψ)ي
ʮ̡), a limited liability company established in
the PRC on July 18, 2008, an indirect wholly-owned
subsidiary of our Group
“associate(s)” has the meaning ascribed to it under the Listing Rules
“Beijing Adicon” Adicon (Beijing) Clinical Laboratories Co., Ltd. (ࠔ
ʮ̡), a limited liability company
established in the PRC on December 7, 2007, one of the
PRC Operating Entities controlled by our Group through the
Contractual Arrangements
“Board” the board of Directors
“business day” any day (other than a Saturday, Sunday or public holiday in
Hong Kong) on which banks in Hong Kong are generally
open for normal banking business
“BVI” the British Virgin Islands
“Capital Market Intermediaries” Morgan Stanley Asia Limited, Jefferies Hong Kong Limited,
CLSA Limited, Deutsche Bank AG, Hong Kong Branch,
Haitong International Securities Company Limited, The
Hongkong and Shanghai Banking Corporation Limited,
CCB International Capital Limited, Futu Securities
International (Hong Kong) Limited, Huatai Financial
Holdings (Hong Kong) Limited, ICBC International
Securities Limited, Tiger Brokers (HK) Global Limited and
Valuable Capital Limited
DEFINITIONS
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“Carlyle” The Carlyle Group Inc., a company listed on Nasdaq Global
Select Market (ticker symbol: CG) and one of our
Controlling Shareholders
“CCASS” the Central Clearing and Settlement System established and
operated by HKSCC
“CCASS Clearing Participant” a person admitted to participate in CCASS as a direct
clearing participant or a general clearing participant
“CCASS Custodian Participant” a person admitted to participate in CCASS as a custodian
participant
“CCASS EIPO” the application for the 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 through causing HKSCC
Nominees to apply on your behalf, including by (i)
instructing your broker or custodian who is a CCASS
Clearing Participant or a CCASS Custodian Participant to
give electronic application instructions via CCASS
terminals to apply for the Hong Kong Offer Shares on your
behalf, or (ii) if you are an existing CCASS Investor
Participant, giving electronic application instructions
through the CCASS Internet System ( https://ip.ccass.com )
or through the CCASS Phone System (using the procedures
in HKSCC’s “An Operating Guide for Investor Participants”
in effect from time to time). HKSCC can also input
electronic application instructions for CCASS Investor
Participants through HKSCC’s Customer Service Centre by
completing an input request
“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
“Changsha Adicon” Adicon (Changsha) Clinical Laboratories Co., Ltd. (ӍЎ
ʮ̡), a limited liability company
established in the PRC on April 19, 2010, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
“Chengdu Adicon” Adicon (Chengdu) Clinical Laboratories Co., Ltd. ( ϓேЎ
ʮ̡), a limited liability company
established in the PRC on June 11, 2010, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
DEFINITIONS
–1 6–


--- page 25 ---
“China” or “the PRC” the People’s Republic of China, and for the purposes of this
Prospectus only, except where the context requires
otherwise, references to China or the PRC exclude Taiwan
and the special administrative regions of Hong Kong and
Macau
“Chongqing Adicon” Adicon (Chongqing) Clinical Laboratories Co., Ltd. (ᅅЎ
ʮ̡), a limited liability company
established in the PRC on September 21, 2016, one of the
PRC Operating Entities controlled by our Group through the
Contractual Arrangements
“close associate(s)” has the meaning ascribed to it under the Listing Rules
“Companies Act” or “Cayman
Companies Act”
the Companies Act, Cap. 22 (Act 3 of 1961, as consolidated
and revised) of the Cayman Islands, as amended,
supplemented or otherwise modified from time to time
“Companies Ordinance” the Companies Ordinance (Chapter 622 of the Laws of Hong
Kong), as amended, supplemented or otherwise modified
from time to time
“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
“Company”, “our Company”, or
“the Company”
ADICON Holdings Limited (ʮ̡), an
exempted limited liability company incorporated in the
Cayman Islands on March 20, 2008
“Compliance Advisor” Somerley Capital Limited
“connected person(s)” has the meaning ascribed to it under the Listing Rules
“connected transaction(s)” has the meaning ascribed to it under the Listing Rules
“Contractual Arrangements” the series of contractual arrangements entered into by
Aidiken WFOE, Hangzhou Adicon and the Registered
Shareholders, details of which are described in the section
headed “Contractual Arrangements” in this Prospectus
“Controlling Shareholder(s)” has the meaning ascribed to it under the Listing Rules and in
this context, refers to Carlyle, Carlyle Holdings II GP
L.L.C., Carlyle Holdings II L.L.C., CG Subsidiary Holdings
L.L.C., TC Group Cayman Investment Holdings L.P., TC
Group Cayman Investment Holdings Sub L.P., CAP V ,
L.L.C., Carlyle Asia Partners V , L.P., CAP V Co-Investment,
L.P., CAP V General Partner, L.P. and Pearl Group Limited
“Corelink” Corelink Group Limited, a limited liability company
incorporated in the BVI on January 2, 2008, a company
wholly-owned by Mr. LIN Jixun, one of our Founders and a
non-executive Director
DEFINITIONS
–1 7–


--- page 26 ---
“Director(s)” the director(s) of our Company
“EIT Law” PRC Enterprise Income Tax Law (੻
جwhich was adopted by the National People’s Congress
on March 16, 2007 and became effective on January 1, 2008,
as amended, supplemented or otherwise modified from time
to time
“Employee Incentive Plans” the Senior Executive Incentive Plan and the Senior
Management Incentive Plan, details of which as set out in
the section headed “D. Employee Incentive Plans” in
Appendix IV to this Prospectus
“Exchange Act” the U.S. Securities and Exchange Act of 1934, as amended
“Extreme Conditions” extreme conditions caused by a super typhoon as announced
by the government of Hong Kong
“FIE” foreign invested entity
“FIL” the Foreign Investment Law of the PRC ( ʕശɛ͏΍ձ਷
) adopted by the National People’s Congress
on March 15, 2019 and became effective on January 1, 2020
“Founder(s)” Mr. LIN Jixun and Mr. LIN Feng
“Frost & Sullivan” Frost & Sullivan (Beijing) Inc. Shanghai Branch Co.
“Frost & Sullivan Report” the report prepared by Frost & Sullivan
“Fuzhou Adicon” Adicon (Fuzhou) Clinical Laboratories Co., Ltd. (ࠔ
ʮ̡), a limited liability company
established in the PRC on February 6, 2009, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
“GDP” gross domestic product (all references to GDP growth rates
are to real as opposed to nominal growth rates of GDP)
“Global Offering” the Hong Kong Public Offering and the International
Offering
“Governmental Authority” any governmental, regulatory, or administrative
commission, board, body, authority, or agency, or any stock
exchange, self-regulatory organization, or other non-
governmental regulatory authority, or any court, judicial
body, tribunal, or arbitrator, in each case whether national,
central, federal, provincial, state, regional, municipal, local,
domestic, foreign, or supranational
“GREEN Application Form(s) ” the application form(s) to be completed by the HK eIPO
White Form Service Provider designated by our Company
DEFINITIONS
–1 8–


--- page 27 ---
“Group”, “our Group”, “we”,
“us”, or “our”
the Company, its subsidiaries and the PRC Operating
Entities from time to time, and where the context requires,
in respect of the period prior to our Company becoming the
holding company of its present subsidiaries, such
subsidiaries as if they were subsidiaries of our Company at
the relevant time
“Guangzhou Adicon” Adicon (Guangzhou) Clinical Laboratories Co., Ltd. ( ᄿψ
ʮ̡), a limited liability company
established in the PRC on August 21, 2013, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
“Guizhou Adicon” Adicon (Guizhou) Clinical Laboratories Co., Ltd. (ࠔ
ʮ̡), a limited liability company
established in the PRC on July 16, 2021, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
“Hangzhou Adicon” Adicon (Hangzhou) Clinical Laboratories Co., Ltd. (ψЎ
ʮ̡), a limited liability company
established in the PRC on January 16, 2004, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
“Hangzhou Aiyijian” Hangzhou Aiyijian Technology Co., Ltd (ҦϞ
ʮ̡), a limited liability company established in the PRC
on April 8, 2020, an indirect wholly-owned subsidiary of our
Group
“Hangzhou Huitu” Hangzhou Huitu Biotech Co., Ltd. (ࠢ
ʮ̡), a limited liability company established in the PRC on
December 2, 2010, an indirect wholly-owned subsidiary of
our Company
“Hangzhou Kangming” Hangzhou Kangming Shengjin Technology Partnership
(Limited Partnership) (ҦΥྫΆุ(Υ
ྫ)), a limited partnership established in the PRC on August
12, 2020, which is a registered shareholder of Hangzhou
Adicon and with its limited partners of certain employees of
our Group
“Hefei Adicon” Adicon (Hefei) Clinical Laboratories Co., Ltd. (ੰ
ʮ̡), a limited liability company
established in the PRC on June 5, 2006, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
“Heilongjiang Adicon” Adicon (Heilongjiang) Clinical Laboratories Co., Ltd. ( ලᎲ
ʮ̡), a limited liability
company established in the PRC on January 13, 2020, one of
the PRC Operating Entities controlled by our Group through
the Contractual Arrangements
DEFINITIONS
–1 9–


--- page 28 ---
“Henan Adicon” Adicon (Henan) Clinical Laboratories Co., Ltd. (ੰ
ʮ̡), a limited liability company
established in the PRC on October 16, 2019, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
“HK” or “Hong Kong” the Hong Kong Special Administrative Region of the PRC
“HK eIPO White Form” the application for Hong Kong Offer Shares to be issued in
the applicant’s own name, submitted online through the IPO
App or the designated website at www.hkeipo.hk
“HK eIPO White Form Service
Provider ”
the HK eIPO White Form service provider designated by
our Company as specified in the IPO App or on the
designated website at www.hkeipo.hk
“HKFRSs” Hong Kong Financial Reporting Standards, as issued by the
Hong Kong Institute of Certified Public Accountants
“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 dollars” or “HK
dollars” or “HK$”
Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong Offer Shares” the 3,320,000 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 of the Global Offering” in
this Prospectus)
“Hong Kong Public Offering” the offer for subscription of the Hong Kong Offer Shares to
the public in Hong Kong at the Offer Price, subject to and in
accordance with the terms and conditions set out in this
Prospectus
“Hong Kong Share Registrar” Tricor Investor Services Limited
“Hong Kong Takeovers Code” or
“Takeovers Code”
The Code on Takeovers and Mergers and Share Buy-backs
issued by the SFC, as amended, supplemented or otherwise
modified from time to time
“Hong Kong Underwriters” the underwriters of the Hong Kong Public Offering as listed
in the section headed “Underwriting – Hong Kong
Underwriters” in this Prospectus
DEFINITIONS
–2 0–


--- page 29 ---
“Hong Kong Underwriting
Agreement”
the underwriting agreement, dated June 15, 2023, relating to
the Hong Kong Public Offering, entered into among, inter
alia, our Company, the Joint Sponsors, the Overall
Coordinators and the Joint Global Coordinators, as further
described in the section headed “Underwriting –
Underwriting arrangements and expenses – The Hong Kong
Public Offering – Hong Kong Underwriting Agreement” in
this Prospectus
“Huge King” Huge King Limited (ʮ̡), a limited company
incorporated in Hong Kong on September 5, 2018, one of
our Pre-IPO Investors
“IFRS” International Financial Reporting Standards, as issued from
time to time by the International Accounting Standards
Board
“Independent Third Party(ies)” any entity or person who is not a connected person of our
Company or an associate of such person within the meaning
ascribed to it under the Listing Rules
“International Offer Shares” the 29,872,500 Shares comprising 13,968,500 New Shares
and 15,904,000 Sale Shares, being offered for subscription
or sale under the International Offering, together, where
relevant, with any additional Shares which may be issued
pursuant to the exercise of the Over-allotment Option,
subject to reallocation as described in the section headed
“Structure of the Global Offering” in this Prospectus
“International Offering” the offer of the International Offer Shares at the Offer Price,
in the United States to QIBs only in reliance on Rule 144A
and outside the United States in offshore transactions in
accordance with Regulation S or any other available
exemption from registration under the U.S. Securities Act,
as further described in the section headed “Structure of the
Global Offering” in this Prospectus
“International Underwriters” the international underwriters expected to enter into the
International Underwriting Agreements relating to the
International Offering
“IPO App” the mobile application for the HK eIPO White Form
service which can be downloaded by searching “ IPO App ”
in App Store or Google Play or downloaded at
www.hkeipo.hk/IPOApp or www.tricorglobal.com/IPOApp
“Jiangxi Jince” Jiangxi Jince Biotechnology Co., Ltd. (ҦϞ
ʮ̡), a limited liability company established in the PRC
on August 6, 2020, an indirect non-wholly owned subsidiary
of our Group
DEFINITIONS
–2 1–


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“Jilin Adicon” Adicon (Jilin) Clinical Laboratories Co., Ltd. (ੰ
ʮ̡), a limited liability company
established in the PRC on April 23, 2009, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
“Jinan Adicon” Adicon (Jinan) Clinical Laboratories Co., Ltd. (ੰ
ʮ̡), a limited liability company
established in the PRC on October 19, 2006, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
“Joint Bookrunners” or “Joint
Lead Managers”
Morgan Stanley Asia Limited, Jefferies Hong Kong Limited,
CLSA Limited, Deutsche Bank AG, Hong Kong Branch,
Haitong International Securities Company Limited, The
Hongkong and Shanghai Banking Corporation Limited,
CCB International Capital Limited, Futu Securities
International (Hong Kong) Limited, Huatai Financial
Holdings (Hong Kong) Limited, ICBC International
Securities Limited, Tiger Brokers (HK) Global Limited and
Valuable Capital Limited
“Joint Global Coordinators” Morgan Stanley Asia Limited, Jefferies Hong Kong Limited,
CLSA Limited, Deutsche Bank AG, Hong Kong Branch,
Haitong International Securities Company Limited and The
Hongkong and Shanghai Banking Corporation Limited
“Joint Sponsors” or
“Sponsor-OCs”
Morgan Stanley Asia Limited and Jefferies Hong Kong
Limited
“Latest Practicable Date” June 9, 2023, being the latest practicable date for
ascertaining certain information in this Prospectus before its
publication
“Laws” all laws, statutes, legislation, ordinances, rules, regulations,
guidelines, opinions, notices, circulars, directives, requests,
orders, judgments, decrees, or rulings of any Governmental
Authority (including the Stock Exchange and the SFC) of all
relevant jurisdictions
“Linyi Adicon” Adicon (Linyi) Clinical Laboratories Co., Ltd. (ੰ
ʮ̡), a limited liability company
established in the PRC on November 10, 2021, one of the
PRC Operating Entities controlled by our Group through the
Contractual Arrangements
“Listing” the listing of the Shares on the Main Board
“Listing Committee” the listing committee of the Stock Exchange
“Listing Date” the date, expected to be on or about June 30, 2023, on which
the Shares are to be listed and on which dealings in the
Shares are to be first permitted to take place on the Stock
Exchange
DEFINITIONS
–2 2–


--- page 31 ---
“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
“Liye HK” Liye Asset Management Co., Limited, a company
incorporated in Hong Kong on November 13, 2020, one of
our Shareholders controlled by Mr. GU Yue, an Independent
Third Party
“Main Board” the stock exchange (excluding the option market) operated
by the Stock Exchange which is independent from and
operates in parallel with the GEM of the Stock Exchange
“Manson Grand” Manson Grand International Limited (ʮ̡), a
limited company incorporated in Hong Kong on December
21, 2010, a direct wholly-owned subsidiary of our Group
“Mega Stream” Mega Stream Limited, a limited liability company
incorporated in the BVI on January 2, 2008 and is wholly-
owned by Mr. LIN Feng, one of our Founders
“Memorandum”, “Articles” or
“Memorandum and Articles”
the memorandum and articles of association of our
Company conditionally approved and adopted on April 27,
2023 with effect from the Listing Date, as amended,
supplemented or otherwise modified from time to time, a
summary of which is set out in the section headed
“Summary of the Constitution of the Company and Cayman
Islands Company Law and Taxation” in Appendix III to this
Prospectus
“MOFCOM” the Ministry of Commerce of the PRC ( ʕശɛ͏΍ձ਷ਠਕ
௅)
“Nanchang Adicon” Adicon (Nanchang) Clinical Laboratories Co., Ltd. (Ў
ʮ̡), a limited liability company
established in the PRC on September 10, 2008, one of the
PRC Operating Entities controlled by our Group through the
Contractual Arrangements
“Nanjing Adicon” Adicon (Nanjing) Clinical Laboratories Co., Ltd. (ࠔ
ʮ̡), a limited liability company
established in the PRC on December 4, 2009, one of the
PRC Operating Entities controlled by our Group through the
Contractual Arrangements
“Nanning Adicon” Adicon (Nanning) Clinical Laboratories Co., Ltd. (ࠔ
ʮ̡), a limited liability company
established in the PRC on November 23, 2017, one of the
PRC Operating Entities controlled by our Group through the
Contractual Arrangements
“NDRC” the National Development and Reform Commission of the
PRC (ึ)
DEFINITIONS
–2 3–


--- page 32 ---
“NHC” the National Health Commission of the PRC ( ʕശɛ͏΍ձ
ึ) (formally known as National
Health Family Planning Commission)
“Offer Price” HK$12.32 (exclusive of brokerage of 1%, SFC transaction
levy of 0.0027%, Hong Kong Stock Exchange trading fee of
0.00565% and AFRC transaction levy of 0.00015%)
“Offer Share(s)” the Hong Kong Offer Shares and the International Offer
Shares together, where relevant, with any additional Shares
to be sold by our Company pursuant to the exercise of the
Over-allotment Option
“Over-allotment Option” the option expected to be granted by our Company to the
International Underwriters, exercisable by the Overall
Coordinators (for themselves and on behalf of the
International Underwriters) for up to 30 days from the day
following the last day for the lodging of applications under
the Hong Kong Public Offering, to require our company to
allot and issue up to 4,978,500 additional Shares
(representing in aggregate approximately 15.0% of the
initial Offer Shares) to the International Underwriters to
cover over-allocations in the International Offering, if any,
details of which are described in the section headed
“Structure of the Global Offering – The International
Offering – Over-allotment Option” in this Prospectus
“Overall Coordinators” Morgan Stanley Asia Limited and Jefferies Hong Kong
Limited
“PRC Legal Advisor” Han Yi Law Offices
“PRC Operating Entities” the entities controlled by our Group through the Contractual
Arrangements, namely Hangzhou Adicon and its
subsidiaries
“Pre-IPO Investment(s)” Round A Pre-IPO Investments and Round B Pre-IPO
Investments
“Pre-IPO Investor(s)” the pre-IPO investors as set out in the section headed
“History, Reorganization and Corporate Structure – Pre-IPO
Investments” in this Prospectus
“Preferred Share(s)” the preferred share(s) of our Company with a par value of
US$0.00002 each
“Preferred Shareholder(s)” the holder(s) of the Preferred Shareholders, the details of
which are set out in the section headed “History,
Reorganization and Corporate Structure” in this Prospectus
“Prospectus” this Prospectus being issued in connection with the Hong
Kong Public Offering
DEFINITIONS
–2 4–


--- page 33 ---
“QIB” a qualified institutional buyer within the meaning of Rule
144A
“Qingdao Adicon” Adicon (Qingdao) Clinical Laboratories Co., Ltd. (ࠔ
ʮ̡), a limited liability company
established in the PRC on May 13, 2019, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
“Quzhou Adicon” Adicon (Quzhou) Clinical Laboratories Co., Ltd. (ࠔ
ʮ̡), a limited liability company
established in the PRC on January 6, 2020, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
“Registered Shareholders” Ms. LAN Jia, Ms. LIAN Hailun and Hangzhou Kangming
“Regulation S” Regulation S under the U.S. Securities Act
“Reorganization” the corporate restructuring of the Group in preparation for
the Listing, as described in the section headed “History,
Reorganization and Corporate Structure – Reorganization”
in this Prospectus
“RMB” or “Renminbi” Renminbi, the lawful currency of the PRC
“Round A Pre-IPO Investments” our Round A Pre-IPO Investments, details of which are set
out in the section headed “History, Reorganization and
Corporate Structure – Pre-IPO Investments” in this
Prospectus
“Round B Pre-IPO Investments” our Round B Pre-IPO Investments, details of which are set
out in the section headed “History, Reorganization and
Corporate Structure – Pre-IPO Investments” in this
Prospectus
“RSU(s)” the restricted share units under the Employee Incentive
Plans
“Rule 144A” Rule 144A under the U.S. Securities Act
“SAFE” the State Administration of Foreign Exchange of the PRC
(̮ි၍ଣ҅)
“SAMR” the State Administration for Market Regulation of the PRC
(̹ఙ္ຖ၍ଣᐼ҅), formerly known
as the SAIC
DEFINITIONS
–2 5–


--- page 34 ---
“Sanming Adicon” Adicon (Sanming) Clinical Laboratories Co., Ltd. (ࠔ
ʮ̡), a limited liability company
established in the PRC on May 30, 2016, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
“Selling Shareholder” Mega Stream
“SFC” the Securities and Futures Commission of Hong Kong
“SFO” or “Securities and
Futures Ordinance”
Securities and Futures Ordinance (Chapter 571 of the Laws
of Hong Kong), as amended, supplemented or otherwise
modified from time to time
“Shanghai Adicon” Shanghai Jince Clinical Laboratories Co., Ltd. ( ɪऎᎀ಻ᔼ
ʮ̡), previously known as Shanghai Adicon
Medical Laboratory Co., Ltd., a limited liability company
established in the PRC on August 2, 2006, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
“Shanghai Lv’angjie” Shanghai Lv’angjie Biotech Co., Ltd. (Ҧ
ʮ̡), a limited liability company established in the
PRC on October 15, 2015, an indirect wholly-owned
subsidiary of our Group
“Shanghai Mei Ai” Shanghai Mei Ai Investment Management Co., Ltd, a
limited liability company established in the PRC on
December 30, 2015, a then Shareholder who ceased to be
our Shareholder on December 24, 2019. Shanghai Mei Ai
was a wholly-owned subsidiary of Meinian Onehealth
Healthcare Holdings Co., Ltd. (΅Ϟ
ʮ̡) (SZSE: 002044)
“Shangrao Adicon” Adicon (Shangrao) Clinical Laboratories Co., Ltd. ( ɪᙘЎ
ʮ̡), a limited liability company
established in the PRC on December 7, 2020, one of the
PRC Operating Entities controlled by our Group through the
Contractual Arrangements
“Shaoxing Adicon” Adicon (Shaoxing) Clinical Laboratories Co., Ltd. ( ୗጳЎ
ʮ̡), a limited liability company
established in the PRC on March 6, 2023, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
“Share(s)” ordinary share(s) in the share capital of our Company with
a par value of US$0.00002 each
“Shareholder(s)” holder(s) of our Share(s)
DEFINITIONS
–2 6–


--- page 35 ---
“Shenyang Adicon” Adicon (Shenyang) Clinical Laboratories Co., Ltd. ( ᓨජЎ
ʮ̡), a limited liability company
established in the PRC on March 16, 2011, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
“Shenzhen Adicon” Adicon (Shenzhen) Clinical Laboratories Co., Ltd. ( ଉέЎ
܃a limited liability company
established in the PRC on May 13, 2019, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
“Shijiazhuang Adicon” Adicon (Shijiazhuang) Clinical Laboratories Co., Ltd. (࢕
܃a limited liability company
established in the PRC on June 21, 2022, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
“STA” the State Taxation Administration of the PRC ( ʕശɛ͏΍
೼ਕᐼ҅)
“Stabilizing Manager” Morgan Stanley Asia Limited
“State Council” the State Council of the PRC ( ʕശɛ͏΍ձ਷਷ਕ৫)
“Stock Borrowing Agreements” The stock borrowing agreements expected to be entered into
on or around Friday, June 23, 2023 between the Stabilizing
Manager (or its agent) and each of Pearl Group Limited and
Corelink Group Limited, pursuant to which the Stabilizing
Manager may borrow up to an aggregate of 4,978,500
Shares from Pearl Group Limited and Corelink Group
Limited, collectively, to cover over-allocations in the
International Offering
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“subsidiary” or “subsidiaries” has the meaning ascribed to it in section 15 of the
Companies Ordinance. Unless the context requires
otherwise, reference to our subsidiaries shall also include
the PRC Operating Entities
“substantial shareholder(s)” has the meaning ascribed to it in the Listing Rules
“Suzhou Adicon” Adicon (Suzhou) Clinical Laboratories Co., Ltd. (ࠔ
ʮ̡), a limited liability company
established in the PRC on August 3, 2021, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
DEFINITIONS
–2 7–


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“Tianjin Adicon” Adicon (Tianjin) Clinical Laboratories Co., Ltd. (ࠔ
ʮ̡), a limited liability company
established in the PRC on June 3, 2014, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
“Track Record Period” the three years ended December 31, 2020, 2021 and 2022
“Underwriters” the Hong Kong Underwriters and the International
Underwriters
“Underwriting Agreements” the Hong Kong Underwriting Agreement and the
International Underwriting Agreements (as defined in the
section headed “Underwriting” of this Prospectus)
“U.S.” or “United States” the United States of America, its territories, its possessions
and all areas subject to its jurisdiction
“U.S. Exchange Act” the United States Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated
thereunder
“U.S. Securities Act” the United States Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder
“US dollars”, “U.S. dollars”,
“US$” or “USD”
United States dollars, the lawful currency of the United
States
“V AT” value-added tax
“Wenzhou (Ouhai) Adicon” Wenzhou (Ouhai) Adicon Clinical Laboratories Co., Ltd. ( ๝
ʮ̡), a limited liability
company established in the PRC on May 16, 2023, one of
the PRC Operating Entities controlled by our Group through
the Contractual Arrangements
“Wenzhou Adicon” Adicon (Wenzhou) Clinical Laboratories Co., Ltd. ( ๝ψЎ
ʮ̡), a limited liability company
established in the PRC on November 29, 2021, one of the
PRC Operating Entities controlled by our Group through the
Contractual Arrangements
“Wuhan Adicon” Adicon (Wuhan) Clinical Laboratories Co., Ltd. (ࠔ
ʮ̡), a limited liability company
established in the PRC on November 24, 2009, one of the
PRC Operating Entities controlled by our Group through the
Contractual Arrangements
DEFINITIONS
–2 8–


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“Xiamen Adicon” Xiamen Guomao Adicon Clinical Laboratories Co., Inc. ( ข
ʮ̡), a limited liability
company established in the PRC on September 25, 2020,
one of the PRC Operating Entities controlled by our Group
through the Contractual Arrangements
“Xi’an Adicon” Adicon (Xi’an) Clinical Laboratories Co., Ltd. (ੰ
ʮ̡), a limited liability company
established in the PRC on May 23, 2016, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
“Xinyang Adicon” Adicon (Xinyang) Clinical Laboratories Co., Ltd. (ࠔ
ʮ̡), a limited liability company
established in the PRC on May 13, 2022, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
“Yunnan Adicon” Adicon (Yunnan) Clinical Laboratories Co., Ltd. (ࠔ
ʮ̡), a limited liability company
established in the PRC on February 2, 2015, one of the PRC
Operating Entities controlled by our Group through the
Contractual Arrangements
“Zhengzhou Adicon” Adicon (Zhengzhou) Clinical Laboratories (General
Partnership) (ה(౷ஷΥྫ)), a general
partnership established in the PRC on August 8, 2012, one
of the PRC Operating Entities controlled by our Group
through the Contractual Arrangements
“%” per cent
For ease of reference, the names of Chinese laws and regulations, governmental authorities,
institutions, natural persons or other entities (including certain of our subsidiaries) have been
included in this Prospectus in both the Chinese and English languages and in the event of any
inconsistency, the Chinese versions shall prevail. English translations of company names and other
terms from the Chinese language are provided for identification purposes only.
DEFINITIONS
–2 9–


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In this Prospectus, unless the context otherwise requires, explanations and definitions of
certain terms used in this Prospectus in connection with our Group and our business shall have
the meanings set out below. The terms and their meanings may not correspond to standard
industry meaning or usage of these terms.
“app” application, software designed to run on smartphones and
other mobile devices
“biopsy” a procedure to remove a piece of tissue or a sample of cells
from the body so that it can be analyzed in a laboratory
“CAGR” compound annual growth rate
“CAR-T” chimeric antigen receptor T cells, T cells that have been
genetically engineered to produce an artificial T-cell
receptor for use in immunotherapy
“chemiluminescence” a phenomenon in which a chemical reaction leads to the
emission of light without incandescence
“circulating tumor DNA” tumor-derived fragmented DNA in the bloodstream that is
not associated with cells
“Class I hospitals” typically township hospitals that contain less than 100 beds,
and are tasked with providing preventive care, minimal
health care and rehabilitation services
“Class II hospitals” tend to be hospitals affiliated with medium size city, county
or district and contain more than 100 beds, but less than 500
beds, and are responsible for providing comprehensive
health services, as well as medical education and conducting
research on a regional basis
“Class III hospitals” comprehensive, referral, general hospitals at the city,
provincial or national level with a bed capacity exceeding
500, and are responsible for providing specialist health
services, which perform a bigger role with regard to medical
education and scientific research care to multiple regions
“clinical chemistry” refers to the biochemical analysis of bodily fluids
“clinical immunological testing” Diagnostic tests employing an antigen to detect the presence
of antibodies to a pathogen, or an antibody to detect the
presence of an antigen
“COVID-19” coronavirus disease 2019, a disease caused by a novel virus
designated as severe acute respiratory syndrome coronavirus 2
GLOSSARY OF TECHNICAL TERMS
–3 0–


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“CRO” contract research organization, a company focused on
providing research and development services to companies
in the pharmaceutical and agrochemical markets
“cytopathology” a branch of pathology that studies and diagnoses diseases on
the cellular level and is an important means of detecting
oncogenesis for early prevention and treatment
“differential diagnosis” a process wherein a doctor differentiates between two or
more conditions that could be behind a person’s symptoms
“dPCR” digital polymerase chain reaction, a novel method for the
absolute quantification of target nucleic acids
“DTC” direct-to-consumer, a sales approach by which companies
sell directly into the marketplace without going through a
traditional distribution network
“ELISA” a biochemical test commonly used to detect antibodies and
other proteins in the blood
“FISH” fluorescence in situ hybridization, a laboratory technique for
detecting and locating a specific DNA sequence on a
chromosome
“flow cytometry” a technique used to detect and measure physical and
chemical characteristics of a population of cells
“genomic” the complete set of genes in a cell or living thing
“hematology” the branch of medicine concerned with the study of the
cause, prognosis, treatment, and prevention of diseases
related to blood
“hepatitis” an inflammatory condition of livers
“histopathological” the microscopic examination of tissue in order to study the
manifestations of disease
“HPV” human papillomavirus, a DNA virus from the
Papillomaviridae family
“ICL” independent clinical laboratory, a laboratory certified to
perform diagnostic and/or clinical tests independent of an
institution or a physician’s office
“immunofluorescence” a technique used for light microscopy with a fluorescence
microscope and is used primarily on microbiological
samples
GLOSSARY OF TECHNICAL TERMS
–3 1–


--- page 40 ---
“immunohistochemistry” the most common application of immunostaining, involving
the process of selectively identifying antigens (proteins) in
cells of a tissue section by exploiting the principle of
antibodies binding specifically to antigens in biological
tissues
“immunology” the branch of biomedical sciences concerned with all aspects
of the immune system in all multicellular organisms
“infectious diseases” a medical specialty dealing with the diagnosis and treatment
of infections
“infertility” a disease of the reproductive system defined by the failure
to achieve a clinical pregnancy after 12 months or more of
regular unprotected sexual intercourse
“ISO15189” an international standard developed by the International
Organisation for Standardization’s Technical Committee
212 (ISO/TC 212) that specifies the quality management
system requirements particular to medical laboratories
“IVD” in vitro diagnostics, tests done on samples such as blood or
tissue that have been taken from the human body
“karyotype analysis” a test that evaluates the number and structure of a person’s
chromosomes in order to detect chromosomal abnormalities
“KOL” key opinion leader, an expert whose opinion is valued in a
specific industry or area of knowledge
“LDT” laboratory developed test, a type of in vitro diagnostic test
that is designed, manufactured and used within a single
laboratory
“Levey-Jennings” or z-score, a graphical representation of control data,
arranged in chronological order, that shows a mean or target
value and one or more sets of acceptable limits
“liquid-based cytology tests” a method of preparing cervical cells for examination in a
laboratory following a Pap smear
“liquid chromatography” a technique used to separate a sample into its individual
parts. This separation occurs based on the differential
affinity of the sample passing through mobile and stationary
substrates
“lymphoma” a cancer of the lymphatic system
“mass spectrometry” an analytical technique that is used to measure the mass-to-
charge ratio of a chemical or biological substance
GLOSSARY OF TECHNICAL TERMS
–3 2–


--- page 41 ---
“MIC” minimum inhibitory concentration, the minimum
concentration of an antibiotic required to inhibit bacterial
growth in a clinical isolate as a surrogate indicator of the
agent’s efficacy
“metagenomic” a sequencing approach in which all of the nucleic acid (DNA
and RNA) in a clinical sample is sequenced
“microbial culture” a method of growing microbial organisms by letting them
reproduce in predetermined culture medium under
controlled laboratory conditions
“molecular biology” is the branch of biology that concerns the molecular basis of
biological activity in and between cells, including molecular
synthesis, modification, mechanisms and interactions
“neonatal” of or relating to newborn children, especially in the first
week of life and up to four weeks old
“NGS” next-generation sequencing, a technology for determining
the sequence of DNA or RNA to study genetic variation
associated with diseases or other biological phenomena
“NIPT” noninvasive prenatal testing, a method of determining the
risk that the fetus will be born with certain genetic
abnormalities
“OB-GYN” obstetrics and gynecology, the branch of health science
dealing with pregnancy, labor, and the puerperium, and
diseases of the female reproductive organs
“pathology” the science of the causes and effects of diseases, especially
the branch of medicine that deals with the laboratory
examination of samples of body tissue for diagnostic or
forensic purposes
“PCR” polymerase chain reaction, a technique used to amplify
small segments of DNA
“POCT” point-of-care testing, the analysis of patient specimens near
or at the site of patient care, usually performed by clinical
staff without laboratory training, also encompassing patient
self-monitoring
“R&D” research and development
“solid tumor” an abnormal mass of tissue that usually does not contain
cysts or liquid areas. Solid tumors may be benign or
malignant
“trace element” a chemical element whose concentration is very low
GLOSSARY OF TECHNICAL TERMS
–3 3–


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“tumor recurrence monitoring” a methodology to early detect and monitor cancer recurrence
“testing volume” measured by the number of samples tested during a given
period
GLOSSARY OF TECHNICAL TERMS
–3 4–


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Certain statements in this Prospectus are forward looking statements that are, by their nature,
subject to significant risks and uncertainties. Any statements that express, or involve discussions as
to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but
not always, through the use of words or phrases such as “will”, “expect”, “aim”, “potential”,
“continue”, “anticipate”, “estimate”, “believe”, “going forward”, “ought to”, “may”, “seek”,
“should”, “intend”, “plan”, “projection”, “could”, “vision”, “goals”, “objective”, “target”,
“schedules”, “outlook” or other similar expressions) are not historical facts, are forward-looking
and may involve estimates and assumptions and are subject to risks (including but not limited to the
risk factors detailed in this Prospectus), uncertainties and other factors some of which are beyond
our Company’s control and which are difficult to predict. Accordingly, these factors could cause
actual results or outcomes to differ materially from those expressed in the forward-looking
statements.
Our forward-looking statements have been based on assumptions and factors concerning
future events that may prove to be inaccurate. Those assumptions and factors are based on
information currently available to us about the businesses that we operate. The risks, uncertainties
and other factors, many of which are beyond our control, that could influence actual results include,
but are not limited to:
 our operations and business prospects;
 our ability to maintain relationships with, and the actions and developments affecting,
our major customers and suppliers in the future;
 future developments, trends and conditions in the industries and markets in which we
operate;
 general economic, political and business conditions in the markets in which we operate;
 changes to the regulatory environment in the industries and markets in which we
operate;
 the ability of third parties to perform in accordance with contractual terms and
specifications;
 our ability to retain senior management and key personnel;
 our business strategies and plans to achieve these strategies, including our expansion
plans;
 the actions of and developments affecting our competitors;
 our ability to reduce costs and offer competitive prices for our products in the future;
 our ability to defend our intellectual rights and protect confidentiality;
 our dividend policy;
 changes or volatility in interest rates, foreign exchange rates, equity prices, trading
volumes, commodity prices and overall market trends;
 capital market developments;
 the actions and developments of our competitors; and
 all other risks and uncertainties described in the section headed “Risk Factors” in this
Prospectus.
Since actual results or outcomes could differ materially from those expressed in any
forward-looking statements, we strongly caution investors against placing undue reliance on any
such forward-looking statements. Any forward-looking statement speaks only as of the date on
which such statement is made, and, except as required by the Listing Rules, we undertake no
obligation to update any forward-looking statement to reflect events or circumstances after the date
on which such statement is made or to reflect the occurrence of unanticipated events. Statements
of, or references to, our intentions or those of any of our Directors are made as of the date of this
Prospectus. Any such intentions may change in light of future developments.
All forward-looking statements in this Prospectus are expressly qualified by reference to this
cautionary statement.
FORW ARD-LOOKING STATEMENTS
–3 5–


--- page 44 ---
An investment in our Shares involves various risks. You should consider carefully all the
information set out in this Prospectus and, in particular , the risks described below before
making an investment in our Shares.
The occurrence of any of the following events could materially and adversely affect our
business, financial position, results of operations or prospects. If any of these events occurs,
the trading price of the Shares could decline and you may lose all or part of your investment.
Additional risks and uncertainties not presently known to us, or not expressed or implied
below, or that we deem immaterial, could also harm our business, financial condition and
results of operations. You should seek professional advice from your relevant advisors
regarding your prospective investment in the context of your particular circumstances.
RISKS RELATING TO OUR BUSINESS AND INDUSTRY
Our operations face competition that could adversely affect our results of operations. If we
cannot compete successfully with our competitors, we may be unable to increase or sustain our
revenues or achieve and sustain profitability.
The ICL industry is highly competitive. We face competition from other companies engaging
in the ICL testing business. We compete for a variety of matters, including but not limited to, testing
portfolio, network coverage, testing and analytics capabilities, service quality, and R&D
capabilities. Our current or future competitors include top market players in the ICL industry in
China that have a national coverage network and comprehensive testing portfolio. We anticipate that
we will continue to face increased competition as existing companies develop new or improved
services and as new companies enter the market with new technologies. Extensive competition may
render one or more of our technologies obsolete or uneconomical. Some of our competitors have
greater financial and personnel resources, broader product lines, more focused product lines, more
established customer base, and more experience in research and development than we do. In
addition, as a result of mergers and acquisitions in the industry, more resources are being
concentrated in our competitors and our upstream and downstream business partners. Competition
may increase further due to the progress and improvements made in the commercial applicability
of technologies and the increased capital investment in the industries. Our competitors may develop
services and products which are more effective and less costly than ours, or obtain patent protection,
regulatory approval, product commercialization, and market penetration more rapidly than we do.
Furthermore, medical institutions and pharmaceutical companies, which are our potential customers
and strategic partners, could also develop competing products. For details, see “Industry Overview.”
We believe that customers in our markets display a significant amount of loyalty to their initial
supplier of a particular service or product. Therefore, it may be difficult to generate sales to
potential customers who have purchased services or products from our competitors. To the extent
we are unable to be the first to develop or offer new services, our competitive position may suffer.
We and our competitors may also compete on the basis of price. If the cost of testing falls over
time, we cannot be sure that the demand for related services will increase proportionately. We may
be unable to increase cost efficiencies sufficiently, if at all, and as a result, our net earnings and cash
flows could be negatively impacted by such price competition. We may also face increased
competition from companies that do not comply with existing laws or regulations or otherwise
disregard compliance standards in the industry. Additionally, we may also face changes in fee
schedules, competitive bidding for laboratory services, or other actions or pressures reducing
payment schedules as a result of increased or additional competition.
RISK FACTORS
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We conduct our business in a heavily regulated industry. We may be adversely affected by the
uncertainties and changes in PRC regulations with respect to the ICL industry.
Our testing laboratories, technology platforms, R&D operations and marketing and
distribution network are primarily in China, which we believe confers clinical, commercial and
regulatory advantages. The ICL industry in China is subject to comprehensive government
regulation and supervision, encompassing the approval, registration, licensing, marketing and
offering of medical testing services. See “Regulatory Overview” for a discussion of regulatory
requirements that are applicable to our current and planned business activities in China. If we, our
customers or suppliers fail to comply with such applicable laws and regulations, we could be
required to make significant changes to our business and operations or suffer fines or penalties,
including the potential revocation of our business license and the suspension or cessation of our
services.
In addition, regulatory requirements in China are constantly evolving and can be subject to
changes and different interpretations, making the extent of our responsibilities uncertain. Any
changes or amendments of our regulatory environment may result in increased compliance costs on
our business. Tightened regulatory requirements could cause delays in or even prevent the success
of the development or commercialization of our services in China and reduce the current benefits
we believe are available to us from offering and developing testing services in China. Additionally,
PRC authorities may periodically, and sometimes unexpectedly, change their enforcement practices.
Therefore, prior enforcement, or lack of enforcement, is not necessarily predictive of future actions.
Any failure by us or our partners to maintain compliance with applicable laws and regulations or
obtain and maintain required licenses and permits may result in the suspension or termination of our
business activities in China. We believe our strategy and approach are aligned with the PRC
government’s policies, but we cannot ensure that our strategy and approach will continue to be
aligned.
If we fail to comply with applicable licensing requirements, or become damaged or inoperable,
our ability to perform tests may be jeopardized.
Our ICL business is subject to extensive regulations in China. To operate our laboratories, we
are required to obtain approvals and accreditations from the NHC or its local counterparts. We
currently have obtained approvals and accreditations from the NHC and its local counterparts for
each of our laboratories. However, as we intend to increase the number of laboratories we operate,
we will be required to obtain NHC approvals and accreditations for such additional laboratories, and
there is no guarantee that we could obtain such approvals and accreditations in a timely manner, or
at all, as the NHC approval and accreditation process is costly, lengthy and uncertain. If we fail to
maintain or renew any major license, permit, certificate, approval or accreditations for any or all
of our laboratories, or if the testing professionals at our laboratories become unlicensed at any time
during their practices, or if we or our laboratories are found to be non-compliant with any applicable
PRC laws or regulations, we may face penalties, suspensions of our operations or even revocation
of our operating licenses, depending on the nature of the findings, any of which could materially
and adversely affect our business, financial condition and results of operations.
Our services could fail to receive or maintain regulatory approvals for many reasons,
including but not limited to:
 failure to maintain the necessary level of quality of our services and ICLs;
 data integrity issues related to our diagnostic testing;
 regulatory requests for additional analyses, reports or data;
 our failure to conduct diagnostic testing in accordance with regulatory requirements or
our diagnostic testing protocols;
RISK FACTORS
–3 7–


--- page 46 ---
 testing sites, devices or reagents, testing items, medical professionals or other
participants deviating from diagnostic testing protocol, or failing to conduct the testing
in accordance with regulatory requirements; and
 rejection by the relevant authorities to approve pending applications or supplements to
approved applications filed by us or suspension, revocation or withdrawal of approvals.
In addition, if our laboratories or the research and development facilities or laboratory
equipment become damaged or inoperable, we may not be able to replace our testing capacity
quickly or inexpensively, or at all. In the event of a temporary or protracted loss of the laboratories,
facilities or equipment, we might not be able to rebuild any of them in a timely manner. Even if we
could rebuild them, it would likely be expensive and time-consuming, particularly since the new
laboratories would need to comply with the necessary regulatory requirements and we would need
certain regulatory agency approvals before our laboratories can open. Any damages or interruptions
of our laboratory operations could result in our inability to satisfy the demand of our testing services
and could materially harm our business, financial condition and results of operations.
Any adverse change in the regulatory regime relating to ICL industry or the healthcare
industry may limit our ability to provide testing services and may have a material adverse
effect on our business, results of operations and financial condition.
The rapid growth and development of ICL industry in China was fueled in part by the
healthcare reform efforts and a series favorable policies implemented by Chinese government in
recent years. For example, in July 2016, NHFPC issued the Basic Standards and Practice of Medical
Test Laboratories (for Trial Implementation) (ਿ͉ᅺ๟ձ၍ଣ஝ᇍ(༊Б))t o
include ICLs into the local healthcare quality control system, suggest ICLs provide clinical tests for
primary healthcare institutions and prioritize the approval process of chain ICL operators. Later in
June 2018, NHC issued Circular on Further Reforming and Perfecting the Examination and
Approval of Medical Institutions and Doctors (ٙ
) stipulating that medical institutions may, on the premise of ensuring medical quality and
safety, entrust independent medical test laboratories to provide medical testing services. ICLs have
been increasingly recognized by the Chinese government and the restrictions around ICLs
collocation with hospitals have been loosened, all of which provided favorable regulatory backdrop
for the overall development of the ICL industry.
However, government policies relating to ICL industry or even healthcare industry in China
may change significantly in the future, depending upon the objectives prioritized by the Chinese
government, as well as the political and social climate at any given time and the continued
development of the healthcare industry in China. We cannot assure that currently effective policies
and regulations may not change, or may continue to be favorable to us, or the Chinese government
may continue to implement similar policies from which we could benefit. In addition, any future
change in the relevant government policies may affect public hospital reform, limit private or
foreign investments in healthcare services. Such future changes or reforms, if adopted and
implemented, may limit the services we are able to or intend to provide and the sources of our
revenue, increase the cost of revenue, restrict the ability to pursue potential acquisitions and
expansions, intensify competition, or otherwise negatively affect us disproportionately compared to
competitors. Moreover, unfavorable public opinion or negative media coverage of the healthcare
industry may also trigger implementation of more stringent policies and heightened scrutiny on best
practices at medical institutions. If we fail to keep up with new policies or best practices, our
standard of operation may fall short of the latest standard and we could become more prone to
non-compliance, resulting in increased cost of compliance and operation.
RISK FACTORS
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The COVID-19 pandemic had and may continue to have material impacts on our business,
results of operations and financial performance.
Since the outbreaks of COVID-19 pandemic in late December 2019, the Chinese government
imposed a series of measures to contain its spread, including travel bans, quarantine measures,
social distancing, restrictions on business operations and freedom of movement, which resulted in,
among other things, a significant reduction in patients’ hospital visits, cancellation of elective
medical procedures and decrease in routine health checks. As a result, we experienced a material
decline in our base testing volumes in the first quarter of 2020, as compared to the same period in
2019. In addition, with the outbreaks of COVID-19, many hospitals in China allocated significant
resources to contain the spread of the virus, and scaled back or postponed non-emergency care,
which also led to a significant decline in demand for testing services, and resulted in a material
adverse effect on our business, financial condition and results of operations.
In response to Chinese government’s policies to contain the spread of the COVID-19, in early
2020, we implemented temporary adjustments to work schedules and travel plans. We had incurred
and may continue to incur additional costs for the safety of our employees and the continuity of our
operations, including increased frequency of deep cleaning and sanitation at each of our laboratory,
additional safety training and processes, enhanced hygiene practices and materials, more efforts in
keeping track of the travel history and the health of our employees and their immediate family
members, flexible and remote working where possible, protective gears provided to our logistics
personnel, and allowing for greater social distancing for the employees who must work on-site.
These measures had temporarily increased our operating cost, and affected the capacity and
efficiency of our operations. Our operations could also be disrupted if any of our employees,
suppliers and other business partners were suspected of having contracted COVID-19, since this
could require us and our suppliers and other business partners to quarantine some or all of these
employees and disinfect facilities used for operations.
The rise of COVID-19 also made it increasingly important for us to develop agile and resilient
responses to adjust forecasts to the market. The massive upsurge of the COVID-19 testing demand
had triggered supply-side disruptions of reagents and consumables dictating course of COVID-19
testing services, resulting a leap in the prices of the raw materials. We experienced temporary
difficulties in securing adequate supplies of reagents and consumables used in COVID-19 tests at
the beginning of the outbreaks. Failure to manage our inventories commensurately could have a
material adverse impact on our ability to capitalize on emerging growth opportunities and to serve
our customers.
The extent to which COVID-19 impacts our results of operations will depend on the future
developments of the outbreaks, including among others, the duration and the severity of the
COVID-19 pandemic, further spread or resurgence of the virus, including the emergence of new
strains of the virus such as the Delta and Omicron variants, potential resurgences of large scale
quarantines and business restrictions, the need for, and availability of, booster vaccines; the
effectiveness and efficiency of distribution of vaccines; the recovery time of the disrupted supply
chains and industries, which are highly uncertain and unpredictable. We are uncertain as to when
the COVID-19 pandemic will be fully contained in China and globally, nor can we predict whether
COVID-19 will have long-term impact on our business operations. Despite the adverse impacts of
COVID-19 mentioned above, leveraging our excellent operational and testing capabilities, we
quickly developed COVID-19 testing protocol and started to offer COVID-19 tests as early as
February 2020, and were one of the forerunners among ICL service providers in China. However,
we cannot assure you that the circumstances that have accelerated the growth of our COVID-19-
related testing services stemming from the effects of the COVID-19 pandemic may not continue in
the future once the impact of the COVID-19 pandemic tapers. For details, please see “– Revenues
generated from COVID-19 related testing services may not be sustainable”.
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Revenues generated from COVID-19 related testing services may not be sustainable.
In response to the COVID-19 outbreaks, we began to offer COVID-19 related tests in
February 2020, and later turned COVID-19 related testing services into a regular line of service and
continue to offer testing services to those who are in need. During the Track Record Period, we
performed a total of over 133 million COVID-19 tests. Revenues from COVID-19 tests amounted
to RMB924.5 million, RMB1,232.4 million and RMB2,284.6 million in 2020, 2021 and 2022,
respectively. Although we have experienced heavy demand for COVID-19 testing as a result of the
pandemic, which has had a positive impact on our overall testing volume, the duration and level of
the demand for, and pricing for, COVID-19 testing is uncertain. The circumstances that have
accelerated the growth of our COVID-19 related testing service may not continue in the future once
the impact of the COVID-19 pandemic tapers. By the end of 2022, Chinese government eased its
dynamic zero-COVID policy, lifted most of the COVID-19 related restrictions, and canceled mass
testings previously implemented in various regions across the country. This had significantly
reduced the demand for our COVID-19 related testing services nationwide, and is expected to result
in a significant decline of revenues generated from such services in the future. The extent to which
the pandemic impacts our results of operations going forward will depend on future developments
which are uncertain and unpredictable, including the frequency, duration and extent of outbreaks of
COVID-19, the appearance of new variants with different characteristics, the effectiveness of
efforts to contain or treat cases, and future actions that may be taken in response to these
developments.
Failure in service quality control may adversely affect our operating results, reputation and
business.
Our service and testing processes are required to meet certain quality standards. We have
established a quality control and assurance system and adopted standardized operating procedures
in order to prevent quality issues with respect to our services and operation processes. For further
details of our quality control and assurance system, see “Business – Quality Assurance”. As a
market leader, we have also adopted industry-leading standards in the performance of our testing
services. Despite our quality control and assurance system and procedures, we cannot eliminate the
risk of service failure. Quality defects may fail to be detected or remediated as a result of a number
of factors, many of which are outside of our control, including:
 operating errors;
 technical or mechanical malfunctions in any of our operating processes;
 human error or malfeasance by our quality control personnel;
 tampering by third parties; and/or
 quality issues with the equipment, medical devices, reagents or raw materials we
purchase or use.
Our success depends on the market confidence that we can provide reliable, high-quality
testing services that will provide patients or physicians with valuable clinical or diagnostic
information. However, there is no assurance that our testing services will perform as expected at all
times. Our tests may fail to accurately, completely or correctly identify the relevant diseases, or
contain other errors or mistakes due to a variety of reasons (such as malfunction of our laboratory
equipment and degraded samples provided by our delivery service providers), which may result in
negative perception of our tests. In addition, failure to detect quality defects in our services or to
prevent such defective services from being delivered to our customers could result in injury or
death, license revocation, regulatory fines, professional liabilities or other problems that could
seriously harm our reputation and business, expose us to liability, and materially and adversely
affect our revenue and profitability. For example, we could face medical liability claims if someone
alleges that our services produced inaccurate or incomplete information regarding their targeted
testing item, or otherwise failed to perform as designed. A claimant could allege that our test results
caused unnecessary treatment or other costs or resulted in the patient missing the best opportunity
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or timing for treatment. A patient could also allege other mental or physical injury or that our tests
provided inaccurate or misleading information concerning the diagnosis, prognosis or recurrence of,
or available therapies for, his or her disease. We may also be subject to medical liability for errors
in, a misunderstanding of or inappropriate reliance upon the diagnostic information our tests
provided. The tense physician-patient relationship in China could also expose us to an increased risk
of potential medical liability claims.
Insurance companies in China generally offer a limited selection of medical liability and
professional liability insurance policies and it is often difficult to secure suitable medical liability
and professional liability insurance coverage at reasonable rates in China. Any medical liability or
professional liability claim brought against us, with or without merit, could increase our insurance
rates or prevent us from securing insurance coverage. Additionally, any medical liability or
professional liability lawsuit could damage our reputation, or cause our business partners to
terminate existing agreements with us and seek other business partners, or cause us to lose our
current or potential customers. Any of these developments could adversely impact our results of
operations and business prospects. In addition, not all of our medical liability claims could be
covered by our insurance policies. We maintain medical liability insurance policies for a limited
number of esoteric tests, for example, non-invasive prenatal testing, which we believe are in line
with market practices and adequate for our business operation. For associated risks, please see
“– Our insurance may not sufficiently cover, or may not cover at all, losses and liabilities we may
encounter during the ordinary course of operation.” During the Track Record Period and up to the
Latest Practicable Date, medical liability claims against us did not, individually or in the aggregate,
have a material adverse effect on our business, results of operations or financial conditions.
Failure to obtain and retain new customers, the loss of existing customers, or a reduction in
tests requested or specimens submitted by existing customers could impact our ability to
successfully grow our business.
The rapid growth of our revenue during the Track Record Period is primarily driven by the
increasing number of customers and the tests requested by our customers. To maintain and further
grow our business, we rely on continuous efforts in retaining existing customers and attracting new
ones. Our ability to retain existing customers is dependent upon multiple factors, some of which are
beyond our control (including among others, customers may no longer need the diagnostic testing
services that we provide for a number of reasons; or member medical institution customers may fail
to obtain, maintain or renew the approvals, permits, licenses or certificates requisite for their
operations, or are otherwise found to be non-compliant with any applicable laws, regulations and
regulatory practices). We may not be able to provide quality testing services in a timely manner or
in a satisfactory manner to our customers, our pricing may not be competitive in the industry, and
our logistics network and information systems may not be able to function effectively and
efficiently to meet our customers’ evolving needs.
Besides, we may be required by relevant laws or regulations, or some of our customers’
internal procurement policies, to undergo public or voluntary bidding process, whose respective
standards and requirements may vary from time to time. We may not always be able to compete
effectively in securing customer contracts during bidding process, which may materially and
adversely affect our results of operations.
In addition, during the ordinary course of our business, we may also receive customer
complaints from time to time, primarily focusing on the accuracy of our test results, promptness of
test results, aftersales service, and responsiveness of customer service, among others. Although we
have put in place a robust customer service system to deal with complaints and rectify our action
in a timely manner, we cannot assure you that such efforts would always be effective or satisfy our
customer’s expectation. Any failure to provide satisfactory experience may cause our customers to
lose confidence in us and may even stop cooperating with us altogether. Even if we are able to
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provide high-quality and satisfactory services, a reduction in tests ordered or specimens submitted
by existing customers due to reasons beyond our control, could impact our ability to successfully
grow our business and could have a material adverse effect on our revenues and profitability.
Furthermore, although we have taken efforts in attracting new customers and business
partners, these efforts may not be cost-effective and we cannot assure you that we will be able to
grow our customer base and enhance our brand as we expect, which may in turn materially and
adversely affect our business operations and prospects.
Also, government policy and regulatory practices may change or tighten to restrict, prohibit
our cooperation with our customers, making it unlawful for us to continue to perform our
obligations under the relevant agreements.
We believe that maintaining and enhancing our service quality is critical to achieving
widespread acceptance of our services, to strengthening our relationships with our existing
customers and to attract new customers. If our services cannot meet our customers’ standards or
their evolving needs, they may lose confidence in us and they may reduce or cease their use of our
services. If actions we take or changes we make to our services upset these customers, they may
comment negatively on us, which could harm our brand and reputation. If we fail to attract new
customers or retain existing customers, our ability to generate revenue will be materially impaired,
and our business, results of operations and financial condition could be adversely affected.
Our past financial performance may not be indicative of our future results.
We experienced significant growth during the Track Record Period. Our total revenues grew
from RMB2,741.7 million in 2020 to RMB3,379.5 million in 2021, and further increased to
RMB4,860.6 million in 2022. We cannot assure you that the demand for our services will continue
to grow at a similar rate in the future due to a variety of factors, some of which are out of our
control, including market saturation as well as competition from new market participants.
If we fail to keep up with industry and technology developments or implement new
technologies into our test offerings in a timely and cost-effective manner, we may be unable to
compete effectively and our business and prospects could suffer.
We operate in a market that evolves constantly and we must keep pace with new technologies
and methodologies to maintain our competitive position. It is critical for us to continue investing
significant amounts of capital resources to develop or acquire new technologies in order to enhance
the scope and quality of our services. In particular, China’s ICL industry is characterized by rapid
changes, including technological and scientific breakthroughs, increasing amounts of data, frequent
introductions of new tests, and evolving industry standards. If we are not able to keep pace with
these advances and increased customer expectations as a result of these advances and capture new
market opportunities that develop as a result of these advances, our proprietary technologies could
be rendered obsolete, our existing testing services and testing services we are developing could be
rendered less clinically effective, and our future operations and prospects could suffer. To remain
competitive, we must expend significant amount of resources to continuously upgrade our existing
testing services, and launch new services, and further optimize our technology platforms to keep
pace with industry and technological advances. We cannot assure you that these efforts will be
successful. We may never realize a return on investment on these efforts, especially if the new test
or service offerings fail to perform as expected, in which case our business, financial condition and
results of operations could be adversely affected.
We may also decide to continue expanding our business by entering into new markets and new
geographic areas, and therefore may need to develop or adapt to new technologies and
methodologies. We cannot assure you that we will be able to develop, enhance or adapt to new
technologies and methodologies in a timely manner or at all. Any failure to do so could significantly
reduce demand for our services and harm our business and prospects.
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Furthermore, developing new technologies and methodologies successfully requires us to
accurately assess and meet customers’ needs, make significant capital expenditures or investments,
hire, train and retain qualified personnel, obtain required regulatory clearances or approvals,
increase customer awareness and acceptance of our services, provide high-quality services in a
timely manner, price our services competitively, integrate innovations into our existing system and
effectively incorporate customer feedback into our business planning. Any failure to do so could
significantly affect our ability to develop and market our new technologies and methodologies and
therefore significantly reduce demand for our services and harm our business and prospects.
If we suffer substantial disruption to our laboratories by any reason beyond our control, our
business, financial condition and results of operations could be adversely affected.
Any interruption in testing operations in our laboratories could result in our inability to
provide satisfactory services to our customers. A number of factors could cause interruptions,
including equipment malfunctions or failures, technology malfunctions, damages to or destruction
of our facilities due to natural disasters, regional power shortages, product tampering or terrorist
activities. Any disruption that impedes our ability to provide our services in a timely manner could
materially harm our business, financial condition and results of operations.
Any negative media coverage or publicity on us or the ICL industry, whether true or not, could
adversely affect our business.
The reputation of our brand is critical to our business and competitiveness. If we fail, or are
perceived to have failed, to deal with issues that may give rise to reputational risk, our business and
prospects may be harmed. Failure to appropriately address these issues could reduce customers’
confidence in us or increase customer attrition rate, which may adversely affect our reputation and
business. In addition, any malicious or negative allegation made by the media or other parties about
the foregoing or other aspects, including our management, business practices, compliance with law,
financial conditions or prospects, whether with merit or not, could severely compromise our
reputation and harm our business and operating results.
Negative publicity about the ICL industry in general may also have a negative impact on our
reputation, regardless of whether we have engaged in any inappropriate activities. Moreover,
negative publicity about our suppliers, business partners, service providers or other counterparties,
such as negative publicity about their customer complaints and any failure by them to adequately
protect the information of our customers and patients, to comply with applicable laws and
regulations or to otherwise meet required quality and service standards could harm our reputation.
If any of the foregoing takes place, our business and results of operations could be materially and
adversely affected.
If our in-house logistics team or our logistics service providers encounter any performance
issues, our business, results of operations and financial condition could be adversely affected,
and our reputation and ability to provide our testing services on a timely basis could be
harmed.
The quality of our testing service largely depends on our ability to deliver the properly stored
and preserved test samples from the medical institutions to our laboratories. To render accurate
testing results requires us to preserve test samples to a high standard, which could be difficult as
test samples are sensitive to various external conditions, such as biological materials, temperature,
air, or light. Therefore, we have established an in-house logistics team consisting of over 1,300
personnel as of December 31, 2022, a nationwide logistics service network and professional quality
monitoring system to ensure high-quality logistics services. We also applied cold-chain
technologies through our proprietary incubators to maintain the activity and effectiveness of the test
sample during the delivery. See “Business – Our Logistics Capabilities.”
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We strive to operate our logistics team both effectively and efficiently, and we have not
encountered any material inaccuracy in our testing results due to the unsatisfactory performance of
our logistics team or the third-party logistics service providers we engage. However, our in-house
logistics team or the third-party logistics service providers may encounter performance issues in the
future that cause the test samples to be exposed to inappropriate temperatures or other improper
storage conditions and lose activity or effectiveness, which in turn make the testing results based
on such testing samples inaccurate. As a result, our business, results of operations and financial
condition could be adversely affected, and our reputation and ability to provide our testing services
on a timely basis could be harmed.
We rely on our in-house marketing force to promote our services. If our in-house sales and
marketing personnel are unable to conduct effective marketing or sales, our business could be
adversely affected.
Successful sales and marketing are crucial for us to increase the market penetration of our
existing services, expand our coverage of medical institutions and other types of customers and
promote new services in the future. If we are unable to increase or maintain the effectiveness and
efficiency of our sales and marketing activities, our sales and business prospects could be adversely
affected.
Our sales and marketing force must possess a relatively high level of technical knowledge,
up-to-date understanding of industry trends, necessary expertise in the relevant specialty areas and
testing services, as well as sufficient promotion and communication skills. If we are unable to
effectively train our in-house sales personnel or monitor and evaluate their academic-driven
marketing performances, our sales and marketing may be less successful than desired.
Moreover, our ability to attract, motivate and retain qualified and professional sales force is
especially important because we also rely on our in-house sales force to market and sell our testing
services. Competition for experienced marketing, promotion and sales personnel is intense. If we
are unable to attract, motivate and retain a sufficient number of qualified and professional
marketing, promotion and sales personnel, sales of our services may be adversely affected and we
may be unable to expand our coverage or increase our market penetration as contemplated.
Failure in our information technology systems or delays in the development and
implementation of updates or enhancements to those systems could significantly disrupt our
operations.
We depend on our proprietary information technology systems, as well as those of third
parties, to successfully deliver our services in all aspects including clinical testing, test reporting,
billing, customer service and logistics. The satisfactory performance, reliability and availability of
our IT systems are critical to our business operations. Any material disruption or slowdown of our
systems or those of third parties whom we depend upon, or any technical failures associated with
the information technology systems, including those caused by power loss, natural disasters,
network failures, computer viruses, ransomware, or other unauthorized tampering could cause
outages or delays in our services, which could harm our brand and adversely affect our operating
results.
Additionally, we must continue to upgrade and improve our information technology
infrastructure to support our business growth. However, we cannot assure you that we will be
successful in executing these system upgrades, and the failure to do so may impede our growth. We
may experience surges in orders associated with seasonal fluctuations and generally as we scale,
which can put additional demand on our IT systems at specific times. Our technology or
infrastructure may not function properly at all times. Any of such occurrences could cause severe
disruption to our daily operations. As a result, our reputation may be materially and adversely
affected, our market share could decline and we could be subject to liability claims.
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We also rely on technologies that we license from third parties, including standard office
software. These licenses may not continue to be available to us on commercially reasonable terms
or at all in the future. As a result, we may be required to obtain substitute technologies. There is
no assurance that we will be able to obtain such substitute technologies on commercially reasonable
terms, or at all, which could negatively affect the functionality of our IT systems and our business
operations.
We are subject to environmental, health and safety laws and regulations. If we fail to comply
with such regulations, our business may be adversely impacted.
Our past and present business operations are subject to national and local laws and regulations
in which we operate, including but not limited to the laws on the treatment and discharge of
pollutants into the environment, on occupational health and safety for the healthcare industry and
on the use of highly toxic and hazardous chemicals used in our business operations. Because the
requirements imposed by such laws and regulations may change and more stringent laws or
regulations may be adopted and relevant governmental authorities may regularly or irregularly
conduct inspections of the laboratories, we may be unable to comply with, or to accurately predict
the timing and the outcome of such safety inspections, with risks of substantial costs needing to be
incurred to comply with, these laws, regulations and inspections. If we fail to comply with
environmental protection and health and safety laws and regulations, we may be subject to various
consequences, including substantial fines, possibility of significant monetary damages or
suspensions of our business operations. As a result, any failure by us to control the use or discharge
of hazardous substances could have a material and adverse impact on our business, financial
condition and results of operations.
In addition, we cannot fully eliminate the risk of accidental contamination, biological hazards
or personal injury at our facilities during normal operations. In the event of any accident, we could
be held liable for damages and clean-up costs that, to the extent not covered by existing insurance
or indemnification, could be burdensome to our business. Other adverse effects could result from
such liability, including reputational damage resulting in the loss of business from customers. We
may also be forced to close or suspend operations at certain of our affected facilities temporarily,
or permanently. If we breach any environmental-related laws and regulations, or face any accusation
of negligence in environmental protection, in addition to the potential fines and penalties, such
incidents may also adversely affect our reputation and creditability. As a result, any accidental
contamination or personal injury could have a material and adverse impact on our reputation,
business, financial condition and results of operations.
Furthermore, potential transition risk may result from the transitioning to a lower-carbon
economy which entails change in climate-related regulations and policies. In the medium term, we
may be subject to heightened pollutant discharge policies, which may result in higher operating
costs due to increased cost for pollutant charge, fines and penalties as a result of non-compliance
and higher operating costs incurred in connection with investment in new facilities. In the long
term, alongside with worldwide initiatives for reducing carbon emissions, we may be subject to
higher operational costs or tax burdens, which could have a material and adverse impact on our
business, financial condition and results of operations.
Pursuant to applicable rules and regulations, medical institution construction projects shall be
subject to mandatory inspection and acceptance procedures, once their actual operations reach 75%
or above of their designed operating scale. As of the Latest Practicable Date, certain of our
laboratories have not yet reached 75% or above of the designed operational scale, and are
voluntarily preparing for or going through the environmental protection inspection and acceptance
procedures and may be required by competent government authorities to take certain improvement
or rectification measures before completion of such procedures. We have obtained confirmations
from the ecology and environment bureaus at district or above levels that (i) the current practice of
the relevant laboratories is consistent with applicable rules and regulations, and (ii) no
environment-related governmental penalty has been made against the relevant laboratories during
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the Track Record Period. As advised by our PRC Legal Advisor, these local ecology and
environment bureaus are the competent authorities to perform environmental protection inspection
and acceptance procedures of the concerned laboratories. Based on the applicable rules and
regulations, and the aforementioned confirmations, our PRC Legal Advisor is of the view that the
operations of these laboratories during the Track Record Period in this regard are in compliance
with applicable environmental protection laws and regulations in all material respects.
In addition, we did not obtain the Report Form on Environmental Impact of Construction
Project for part of Jinan Adicon (890 square meters) due to a limitation of the condition of the leased
site. The spacing between the exterior wall of the expansion area and the surrounding buildings does
not meet relevant requirements of local practices. Pursuant to the Environmental Impact Assessment
Law of the People’s Republic of China (), the Administrative
Regulations on Environmental Protection in Construction Projects (ᚐ၍ଣૢ
Է) and other related rules, if we fail to obtain an approval on an environmental impact report or
form or fail to make a filing of an environmental impact registration form for construction projects
(as the case may be, “ Environment Approval ”) before we build up a new laboratory or make
substantial changes in terms of testing volume, waste discharge measures, operational site, among
others, to an existing laboratory, we may be ordered to (a) in the case of failure to obtain relevant
approval, suspend the construction, subject to a fine ranging from 1% to 5% of total investment
amount of the construction, which equals RMB9,600 to RMB48,000 in our case, or restore to
original operating status by suspending all operations on or the construction of the concerned areas
and to only operate on the approved areas; or (b) in the case of failure to make the relevant filing,
make up the filing and subject to a fine up to RMB50,000. If we fail to complete environmental
protection inspection and acceptance procedures in time in accordance with applicable regulations
for one completed construction or changes for an existing construction which has been issued with
an Environment Approval, we may be subject to, among other things, (i) an order that we make
necessary rectifications with a prescribed deadline and a fine between RMB200,000 and
RMB1,000,000; or (ii) in the case of failure to make rectifications, a fine between RMB1,000,000
and RMB2,000,000. We may also be ordered to suspend operations or use of the construction
concerned if such non-compliance causes material environment pollution or ecological damage.
If we are unable to attract or retain experienced and qualified personnel, including key
management personnel, qualified professionals, our business, financial conditions and results
of operations could be adversely affected.
The loss of key management personnel or the inability to attract and retain experienced and
qualified professionals, as well as employees at our laboratories could adversely affect our business.
Our success is dependent in part on the efforts of key members of our management team. The
operation of our laboratories also depends on employing and retaining qualified and experienced
professionals, including specialists, who perform laboratory research activities and testing services.
The supply of professionals in our industry is limited due to the length of study and training
required, including academic study and clinical training, which can take years. We believe that
skilled professionals generally consider the following key factors, among others, when selecting
laboratories to work at, the reputation and culture of the company, the quality of facilities and
supporting staff, the efficiency of management, the level of compensation, and the number and
quality of training programs. We may not compete favorably with our competitors in respect of one
or more of these factors and, we may not be able to attract or retain the talent desired.
The same is true for our sales and marketing staff as well as logistics personnel with
specialized training required to perform activities related to specimen collection, handling and
delivery. In the future, if competition for the services of professionals and staff increases, we may
not be able to continue to attract and retain individuals in the market. Changes in key management,
or the ability to attract and retain qualified personnel, could lead to strategic and operational
challenges and uncertainties, distractions of management from other key initiatives, and
inefficiencies and increased costs, any of which could adversely affect our business, financial
condition, results of operations, and cash flows.
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We depend on third-party suppliers and service providers for different aspects of our business.
If these suppliers and service providers can no longer provide satisfactory services to us on
commercially reasonable terms, our business and results of operations may experience adverse
impact.
We depend on third parties for different aspects of our business, such as hazardous wastes
disposal, supplying equipment, reagents, consumables and other raw materials, and delivering
samples for our testing services. We also cooperate with some qualified third-party service
providers on an insignificant portion of testing items to our customers. Selecting, managing and
supervising these third-party suppliers and service providers require significant resources and
expertise. Unsatisfactory performance by these third parties, including their failure to provide
services according to applicable legal and regulatory requirements, the terms of our contracts or
otherwise below standard, could significantly and negatively affect the quality of our services,
damage our reputation or cause other harm or losses to us.
Our suppliers expose us to risks associated with fluctuations in prices of equipment, reagents,
materials and services they provide us, and reductions in the availability of these services,
equipment and materials may disrupt our operations. During the Track Record Period, our major
suppliers were generally able to satisfy our demands, and the price set by our suppliers remained
relatively stable. See “Business – Top Customers and Suppliers” for a detailed description of our
suppliers. However, we cannot assure you that this will continue to be the case in the future. The
prices may be affected by a number of factors beyond our control, including market supply and
demand, the PRC or international environmental and regulatory requirements, natural disasters, the
PRC and global economic conditions. A significant increase in the costs of such equipment,
reagents, materials and services may increase our cost of sales and negatively affect our profit
margins and, more generally, our business, financial conditions, results of operation and prospects.
In addition, the service or supply agreements we have with third-party suppliers and service
providers are generally not on an exclusive basis. If these third parties do not continue to maintain
or expand their cooperation with us, we would be required to seek new substitutes for these
third-party material or service providers, which could disrupt our operations and adversely affect
our results of operations.
We have limited control over our third-party suppliers. Illegal actions, misconduct or any
failure by our suppliers to provide satisfactory services could materially and adversely affect
our business, reputation, financial condition, and results of operations. In addition, we may be
unable to receive sufficient compensation from our suppliers for the losses caused by them.
Since we rely on third-party suppliers to conduct various aspect of our business, such as
providing the testing equipment, reagent and materials or promoting our services, we are exposed
to the risk of illegal actions, misconduct or any failure by our third-party suppliers to provide
satisfactory services. For instance, certain of our suppliers are subject to various regulations and are
required to obtain and maintain various qualifications, government licenses and approvals. If any
of these suppliers loses its qualification or eligibility because of its failure to comply with
regulatory requirements, we may not be able to find alternative suppliers in a timely manner or at
all. In addition, some of our suppliers import certain equipment and materials from manufacturers
located outside China and resell to us. As a result, trade or regulatory embargoes imposed by foreign
countries or China could also result in delays or shortages that could harm our business. Moreover,
general economic conditions could also adversely affect the financial viability of our suppliers,
resulting in their inability to provide materials and services used in our operations. If we are unable
to identify alternative materials or suppliers and secure approval for their use in a timely manner,
our business could be materially harmed. Any change in suppliers could require significant effort
or investment, particularly in circumstances where the items supplied are integral to service
performance or incorporate unique technologies, and the loss of these supply contracts may have
a material adverse effect on us. Any material misconduct or disputes against our suppliers could
potentially harm our business and reputation.
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Although we take precautions to detect and prevent misconduct of, or provision of defective
products or services provided by our suppliers, it is not always possible to identify and deter such
misconduct or defects, and we may not able to effectively control unknown or unmanaged risks or
losses, or protect us from governmental investigations or other actions or lawsuits stemming such
misconduct or defects. Our suppliers or service providers who are responsible for the claims,
disputes or legal proceedings against us due to defective supplies or services provided to us or our
customers, may not be able to indemnify us in a timely manner, or at all, for any costs or losses that
we incur as a result of such claims, disputes and legal proceedings.
The price of equipment, reagents and consumables, which is affected by many factors beyond
our control, could adversely affect our margins and results of operations.
We procure equipment, reagents, consumables and other goods and services necessary for our
operations. The prices may increase in the future due to various factors beyond our control. In the
event of significant price increases for such supplies, we may have to pass the increased costs to
our customers. However, we cannot assure you that we will be able to raise the prices of our
services sufficiently to cover such increased costs. As a result, any significant price increase of our
raw materials may have an adverse effect on our profitability and results of operations. In order to
meet the increasing demand arising out of our growth in business, we will be required to increase
our procurement of the abovementioned products. However, as we grow, our existing suppliers may
not be able to meet our increasing demand, and we may need to find additional suppliers. There is
no assurance that we will always be able to secure suppliers who provide products at reasonable and
acceptable prices, and the failure to do so will adversely affect our business performance and results
of operations. Furthermore, as we sold certain medical products during the Track Record Period, we
also face uncertainties in relation to the volume-based procurement policies in China. If any of the
medical products we sell are subject to volume-based procurement scheme implemented in places
where we operate, the procurement prices for such medical products may decrease, which may
adversely affect our profitability and results of operations.
Availability of public and private insurance coverage and insurers reimbursement policies
may affect our revenues, margins and results of operations
Sales of our testing services partly depends on the reimbursement policies of the governmental
authorities and health insurers. Failure to obtain or maintain adequate medical insurance coverage
and reimbursement for our testing services could limit our ability to market those services and
decrease our ability to generate revenue.
Our ability to sell our testing services may be affected by the availability of governmental and
private health insurance in China. China has a complex medical insurance system that is undergoing
reform. The governmental insurance coverage or reimbursement level in China for new healthcare
services is subject to significant uncertainty and varies from region to region, as local government
approvals for such coverage must be obtained in each geographic region in China. In addition, the
PRC government may change, reduce or eliminate the governmental insurance coverage currently
available for treatments based on a number of factors, including due to price and efficacy.
We cannot assure you that our testing services will be covered by the PRC national medical
insurance reimbursement list in the future or our services will be covered by private insurance
companies in China in the future. In addition, currently certain private insurance companies in
China tend to reimburse patients for a higher percentage of the cost if they use a medical device
manufactured by a Chinese domestic company as opposed to an imported device. We cannot be
certain that insurers will continue to adopt this favorable policy in the future.
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On the other hand, PRC regulations and medical insurance plans may exert significant
influence over our pricing policies, which could affect our profitability. We may need to lower the
prices of our services in order to have them included in the medical insurance reimbursement list,
and such price cuts and reimbursement may not necessarily lead to increase in our sales and our
results of operations may be adversely affected.
Business development activities are inherently risky and integrating businesses we acquired
with our existing operations may be difficult and unsuccessful.
We plan to expand our business from time to time through business development activities.
For example, acquisitions of local laboratories with strong potential and broad local customer base,
minority investments and strategic alliances. However, these plans are subject to the availability of
appropriate opportunities and competition from other companies seeking similar opportunities.
Moreover, the success of any such effort may be affected by a number of factors, including our
ability to properly assess and value the potential business opportunity, and our ability to integrate
the targeted business into our own. The success of our strategic alliances depends not only on our
contributions and capabilities, but also on the property, resources, efforts and skills contributed by
our strategic partners. Further, disputes may arise with strategic partners, due to conflicting
priorities or conflicts of interests.
Structural differences in acquisitions such as asset acquisitions or acquisitions of equity
interests may have differing risks. We may not be successful in integrating our acquisition targets,
whom may have different systems, processes, policies and cultures. Integration of acquisitions
involves a number of risks including the diversion of management’s attention to the assimilate the
operations of assets or businesses we have acquired, difficulties in the integration of operations and
systems and the realization of potential operating synergies, the assimilation and retention of the
personnel of the acquired businesses, challenges in retaining the customers of the combined
businesses, and could have potential adverse effects on our operating results. The process of
combining acquisitions may be disruptive to our businesses and may cause an interruption of, or a
loss of momentum in, such businesses as a result of the difficulties in standardizing information and
other systems, in consolidating facilities and infrastructure, to maintain the quality or timeliness of
services that we have historically provided, as a result of diverting our management’s attention from
the day-to-day business as a result of the need to deal with the foregoing disruptions and integration,
and the added costs of dealing with such disruptions.
If we are unable successfully to integrate strategic acquisitions in a timely manner, our
business and our growth strategies could be negatively affected. Even if we are able to successfully
complete the integration of the operations of other assets or businesses we may acquire in the future,
we may not be able to realize all or any of the benefits that we expect to result from such
integration, either in monetary terms or in expected capabilities in a timely manner, if at all.
If we fail to comply with anti-bribery or anti-money laundering laws, our reputation may be
harmed, and we could be subject to significant penalties and expenses that could have a
material adverse effect on our business, financial condition, and results of operations.
We are subject to the anti-bribery laws of the jurisdictions in which we operate, particularly
China. In China, the Anti-Unfair Competition Law () promulgated by SCNPC,
as amended and effective as of April 23, 2019, the Interim Provisions on the Prohibition of
Commercial Bribery () promulgated by the former State
Administration of Industry and Commerce on November 15, 1996 and other related laws and
regulations, prohibit giving and receiving money or property (which includes cash, proprietary
interests and items of value) to obtain an undue benefit. Further, in China, Anti-Money Laundering
Law of the People’s Republic of China (), promulgated by the
Standing Committee of the National People’s Congress on October 31, 2006 and effective on
January 1, 2007, prohibits money laundering. In addition, many of our customers require us to
follow strict anti-bribery as part of doing business with us. Our procedures and controls to monitor
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anti-bribery and anti-money laundering compliance may fail to protect us from reckless or criminal
acts committed by our employees or agents. If we fail to comply with applicable anti-bribery laws
and anti-money laundering laws, we may be subject to civil liabilities, and administrative and
criminal penalties and sanctions or incur significant expenses, our reputation and bidding
qualifications could be negatively affected and our customers could cancel or not renew contracts
for our services, all of which could have a material adverse effect on our business, financial
condition and results of operations.
We may not be able to detect or prevent fraud, bribery, or other misconduct committed by our
employees, customers or other third parties.
We are exposed to the risk of fraud, bribery, misconduct or other illegal activities by our
employees, senior management, directors, customers, suppliers, business partners or other third
parties, which may adversely affect our business and reputation. Misconduct by these parties could
include intentional failures to (i) comply with the regulations of State Administration for Market
Regulation or SAMR, National Medical Products Administration or NMPA, National Health
Commission or NHC and overseas regulators that have jurisdiction over us, (ii) comply with
healthcare fraud and abuse laws and regulations in China and abroad, (iii) report financial
information or data accurately or, (iv) disclose unauthorized activities to us. Also, sales, marketing,
and business arrangements in the healthcare industry are subject to extensive laws and regulations
intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These
laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and
promotion, sales commission, customer incentive programs and other business arrangements. Such
misconduct could also involve the improper use of information, including sensitive information
such as personal data and other privacy, obtained in the course of clinical studies, which could result
in regulatory sanctions and cause serious harm to our reputation.
We have established internal control policies on guiding and monitoring the conduct of our
employees, senior management, directors, customers, suppliers, business partners or other third
parties. We provide training on our internal control policies to our employees on a regular basis.
However, it is not always possible to identify and deter employee misconduct, and our internal
controls to detect and prevent this activity may not be effective in controlling unknown or
unmanaged risks or losses, or in protecting us from governmental investigations or other actions or
lawsuits stemming from a failure to comply with our internal control policies. If any such actions
are instituted against us, and we are not successful in defending ourselves or asserting our rights,
those actions could result in the imposition of significant civil, criminal and administrative
penalties, including, without limitation, temporary or permanent restrictions on our business,
cancellation of licenses and permits, damages, monetary fines, individual imprisonment,
disgorgement of profits, contractual damages, reputational harm, diminished profits and future
earnings, additional reporting or oversight obligations, disqualification for biddings. If we become
subject to a corporate integrity agreement or other agreement to resolve allegations of non-
compliance with the law which could require curtailment or restructuring of our operations and
could have a significant impact on our business. Whether or not we are successful in defending
against such actions or investigations, we could incur substantial costs, including legal fees, and
divert the attention of management while defending ourselves against any of these claims or
investigations.
In particular, the promotion, sales and marketing of our testing services, as well as certain
business arrangements in the ICL and healthcare industry, are subject to extensive laws designed to
prevent fraud, kickbacks, self-dealing and other abusive practices. Activities subject to these laws
also involve the improper use of information obtained in the course of clinical testing, which could
result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to
identify and deter misconduct by our employees and other parties, and the precautions we take to
detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or
losses or in protecting us from governmental investigations or other actions or lawsuits stemming
from a failure to comply with these laws or regulations. If any such actions are instituted against
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us, and we are not successful in defending ourselves or asserting our rights, those actions could have
a significant impact on our business, including the imposition of significant fines or other sanctions.
In addition, our employees, management, directors, customers, suppliers, business partners and
other third parties may be subject to legal, regulatory and administrative proceedings. The existence
of such legal, regulatory and administrative proceedings, even if they do not involve us, may harm
our reputation, and adversely affect our business and operations. We may also be subject to
administrative or criminal penalties for misconducts and illegal activities conducted by our
employees.
We cannot guarantee that our employees, management, directors, customers, suppliers,
business partners and other third parties will not act in breach of our internal control policies nor
attempt to evade our monitoring nor breach applicable laws and regulations. According to (2015)
Min Xing Chu Zi No. 3087 Judgment, the People’s Procuratorate of Minhang District, Shanghai
prosecuted Shanghai Adicon due to bribery conducts in a total amount of RMB1,814,378 as a result
of its sales manager and the relevant sales representatives with the approval of its then general
manager from January 2011 to May 2014 seeking to maintain a competitive advantage (the
“Shanghai Incident ”). In December 2015, due to the Shanghai Incident, Shanghai Adicon was
fined RMB600,000 and became disqualified to participate in government procurement activities for
the following three years. After the Shanghai Incident, we terminated the employment agreements
with these aforementioned employees and relevant sales representatives. Other than Shanghai
Adicon, the business of our other subsidiaries has not been affected by the Shanghai Incident. The
impact of the Shanghai Incident on Shanghai Adicon was not material and Shanghai Adicon has
been eligible to participate in government procurement activities from 2019. As of the Latest
Practicable Date, the main business of Shanghai Adicon is to provide testing services for CRO and
pharmaceutical companies for scientific research or clinical trial purposes. See “Business –
Incidents – Incidents Relating To Bribery.”
In addition, we may have disputes with our employees, third-party suppliers, consultants and
commercial partners due to such misconduct or for other reasons, such as quality of products or
services provided by these third-parties, which may result in suspension or termination of supply
of products or services to us, suspension or termination of certain of our production or research and
development activities, litigation or arbitration, contractual damages and other payments by us,
other liabilities of ours, writing off of amounts paid or receivables, and other negative impacts on
our business operations, and such results may have a material adverse effect on our business,
financial condition and results of operations.
Any change in the regulations governing the use of personal data in China, which are still
under development, and any failure to comply with such current or future regulations, could
adversely affect our business and reputation.
In the ordinary course of our business, we collect and store sensitive data, including protected
health information, personally identifiable information, financial information, intellectual property,
and proprietary business information owned or controlled by ourselves or our customers, payors,
and other parties in China. Any such unauthorized access, loss, or dissemination of information
could result in legal claims, proceedings or liability under PRC laws and regulations that protect the
privacy of personal information. For example, pursuant to the Measures for the Administration of
General Population Health Information (for Trial Implementation) (ج(༊
Б)), the medical institutions including our medical laboratories are responsible for collection,
management, utilization, safety and privacy protection of personal healthcare data.
We have established internal systems to safeguard relevant personal healthcare data. However,
the laws and regulations regarding privacy and data protection in China, as well as other
jurisdictions, are generally complex and evolving, with uncertainty as to the interpretation and
application thereof. As such, we cannot assure you that our privacy and data protection measures
are, and will be, always considered sufficient under applicable laws and regulations. If we are
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unable to comply with the applicable laws and regulations, or to address any data privacy and
protection concerns, such actual or alleged failure could damage our reputation, deter current and
potential customers from using our services and could subject us to significant legal, financial and
operational consequences.
Furthermore, we are subject to a variety of laws and other obligations relating to the security
and privacy of data, including restrictions on the collection, use and storage of personal information
and requirements to take steps to prevent personal data from being divulged, stolen, or tampered
with. In light of the constantly evolving and potentially more stringent regulatory requirements of
cybersecurity and data privacy and the possible variation of regulations and interpretations, it
remains unclear how and to what extent such regulatory requirements will apply to us.
For example, on June 10, 2021, the SCNPC promulgated the Data Security Law of the
People’s Republic of China (), or the Data Security Law, which
became effective on September 1, 2021. The Data Security Law provides that “data” refers to any
recording of information by electronic or other means and “data processing” includes the collection,
storage, use, processing, transmission, availability and disclosure of data, etc. Data processors shall
establish and improve the whole-process data security management rules, organize and implement
data security training as well as take appropriate technical measures and other necessary measures
to protect data security. Data processing activities that affect or may affect national security shall
be subject to a data security review procedure. However, as of the Latest Practicable Date, Chinese
governments have not yet promulgated any specific measures on how to implement such data
security review system in practice.
In addition, on December 28, 2021, the CAC, jointly with other 12 governmental authorities,
promulgated the revised Measures for Cybersecurity Review (), or the
Revised CAC Measures, which became effective from February 15, 2022. On the basis of the
Measures for Cybersecurity Review promulgated on April 13, 2020, or the CAC Measures, the
Revised CAC Measures further restates and expands the applicable scope of the cybersecurity
review. Pursuant to the Revised CAC Measures, a cybersecurity review is required when national
security has been or may be affected where a critical information infrastructure operator (the
“CIIO”) (٫purchases network products and services, and an online
platform operator carries out data processing activities. Moreover, the Revised CAC Measures also
provide that an online platform operator (٫possessing personal information of more
than one million users that applies for listing abroad, shall make declaration for cybersecurity
review with the Office of Cybersecurity Review. On July 30, 2021, the State Council promulgated
the Regulations for Safe Protection of Critical Information Infrastructure (τ
ᚐૢԷ) (the “CII Regulation”) which came into effect on September 1, 2021. Pursuant to the
CII Regulation, critical information infrastructure refers to important network infrastructure and
information system in public telecommunications, information services, energy sources,
transportation and other critical industries and domains, in which any destruction or data leakage
will have severe impact on national security, the nation’s welfare, the people’s living and public
interests. The CII Regulation also stipulates the procedures for determining critical information
infrastructure. It provides that competent authorities shall promulgate detailed rules in designating
critical information infrastructure, identify critical information infrastructure in the relevant
industries, and notify operators of such critical information infrastructure in a timely manner. As of
the Latest Practicable Date, the responsible authorities had not promulgated any implementation
provisions or identification rules which include ICL industry in the relevant scope of “critical
information infrastructure”. In addition, as of the Latest Practicable Date, we had not been notified
by any authorities of being classified as a CIIO, involved in any cybersecurity review or received
any investigation, inquiry, notice, warning or sanctions by any governmental authorities on such
basis. Based on the foregoing, our Directors believe that we should not be classified as a CIIO. In
addition, on March 14, 2022, our PRC Legal Advisor and the PRC legal advisor to the Joint
Sponsors conducted a telephone consultation with the China Cybersecurity Review Technology and
Certification Center (ҦஔၾႩᗇʕː) (the “ Center ”), the department
responsible for accepting cybersecurity review applications under the guidance of the Cybersecurity
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Review Office. During the consultation, our PRC Legal Advisor and the PRC legal advisor to the
Joint Sponsors have informed the Center our proposed listing plan, and the Center confirmed that
Hong Kong listing does not fall within the scope of “listing abroad” under the Revised CAC
Measures, and therefore we are not required to proactively apply for cybersecurity review with
respect to our proposed Listing. Our PRC Legal Advisor is of the view that the Center is the
competent authority for the Consultation, and the staff who responded our inquires during the
Consultation is the duly designated person in the Center to handle public inquiries. As such, our
PRC Legal Advisor is of the view that Hong Kong listing does not fall within the scope of “listing
abroad” under the Revised CAC Measures and thereby we are not required to proactively apply for
cybersecurity review with respect to the proposed Listing.
Based on the fact that (i) our Directors believe that we should not be identified as CIIO, (ii)
our PRC Legal Advisor is of the view, that we are not required to proactively filed for cybersecurity
review with the CAC currently, (iii) as of the Latest Practicable Date, we had not received any
notice from the competent government authorities requiring us to apply for the cybersecurity
review, nor had we been subject to any fines or administrative penalties imposed by regulatory
authorities for any violation of laws and regulations regarding cybersecurity or national security
concerns, (iv) we source certain of our IT related products and services reliable providers with
relevant qualifications required by applicable laws, (v) our integrated management system (ၝ
Υ၍ଣ̨̻) has obtained the Filing Certificate for Information System Security Protection (Level
II) issued by Hangzhou Public Security Bureau to ensure the security of information related to our
business, and (vi) we have implemented a comprehensive set of internal policies, procedures, and
measures to ensure our compliance practice, and to our best knowledge as of the Latest Practicable
Date, none of our data processing activities have or may have any national security concerns, our
Directors do not anticipate any impediment for us in complying with the Revised CAC Measures
in all material aspects, nor do they foresee the Revised CAC Measures would have any material
adverse impact on our business operations or our proposed listing in Hong Kong.
Nevertheless, there remain uncertainties with respect to any future development of the
relevant regulatory regime. There can be no assurance that the relevant authorities will not take a
view that is contrary to or otherwise different from that of our Directors and our PRC Legal Advisor
above, and it is also possible that the PRC government authorities may require us to apply for the
cybersecurity review for other reasons, which is out of our control.
On November 14, 2021, the CAC issued the Regulations on the Administration of Cyber Data
Security (Consultation Draft) ( ၣഖᅰኽτΌ၍ଣૢԷ(ᅄӋจԈᇃ)) (the “ Draft Data
Security Regulations ”) for public comments. The Draft Data Security Regulations have set out
requirements on matters such as the protection of personal information, security of important data,
security management of cross-border data transfer, application for cybersecurity review and
obligations of internet platform operators. According to the Draft Data Security Regulations, a data
processor shall apply for a cybersecurity review if it involves the following activities: (i) the
merger, reorganization or separation of internet platform operators that possess a large number of
data resources related to national security, economic development or public interests, that influence
or may influence national security; (ii) seeking listing abroad and processing personal information
of more than one million users; (iii) seeking listing in Hong Kong, which will influence or may
influence the national security; (iv) other data processing activities that will influence or may
influence national security. However, neither the Revised CAC Measures nor the Draft Data
Security Regulations provides further explanation or interpretation for “influence or may influence
national security”. If (i) we are deemed as online platform operators and our data processing
activities are deemed to influence or may influence national security under the Revised CAC
Measures, or (ii) the Draft Data Security Regulations is fully implemented in the current form, and
our Global Offering is deemed to influence or may influence national security, we may be subject
to cybersecurity review.
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Given that as of the date of this Prospectus, the Draft Data Security Regulations were released
for public comments only and has not come into effect, and is thus subject to substantial
uncertainties, it is impractical for us to predict the impact of the Draft Data Security Regulations
on us at the current stage. Based on the facts that as of the date of this Prospectus, (a) the Draft Data
Security Regulations have not been formally adopted, and are subject to further guidance or related
implementation rules, (b) we have not received any notices or inquiries from competent authorities
requiring us to apply for the cybersecurity review according to the Draft Data Security Regulations,
and (c) we have not been involved in any investigations on cybersecurity review made by the CAC
on such basis and not received any inquiry, notice, warning, or sanctions in such respect, we and
our PRC Legal Advisor do not expect, which the PRC legal advisor to the Joint Sponsors concurs,
that as of the date of this Prospectus, the Draft Data Security Regulations would have a material
adverse impact on our business operations or the Global Offering. We will closely monitor the
rule-making process and will assess and determine whether we are required to apply for the
cybersecurity review once the Draft Data Security Regulations are formally promulgated.
In addition, as advised by our PRC Legal Advisor, by collecting, storing and otherwise
processing certain information via internet during our business operation, we will be subject to
relevant requirements under the Draft Data Security Regulations in terms of personal data
protection, cybersecurity management, assessment and report and other applicable aspects assuming
such regulations were to take full effect in the current form. In preparation of the Draft Data
Security Regulations becoming effective in the future, we have studied various requirements under
the Draft Data Security Regulations with regard to the protection of personal information,
cybersecurity control, assessment and report, and have taken immediate internal control measures
to ensure the compliance with the regulatory requirements in the current form, including thoroughly
reviewing our business practices and operational policies, improving our privacy policies and
service agreements with our customers, establishing relevant mechanism in response to data
security incidents. We will continuously improve our operational procedures and take preventative
measures to avoid future non-compliance under the guidance of relevant authorities. Based on the
fact that during the Track Record Period and up to the Latest Practicable Date, (i) we had not been
subject to material fines or administrative penalties imposed by relevant PRC government
authorities for any violation of laws and regulations regarding data security and cybersecurity, and
(ii) there had been no incident of data or personal information leakage, infringement of data
protection laws and regulations or investigation or other legal proceeding against us in such aspects
that materially and adversely affected our business, we and our PRC Legal Advisor are of the view,
which the PRC legal advisor to the Joint Sponsors concurs, that if the Draft Data Security
Regulations are fully implemented in the current form, we currently do not expect the Draft Data
Security Regulations will have a material adverse impact on our business operations.
We expect that we will continue to face uncertainty as to whether our efforts will be sufficient
to comply with evolving obligations under PRC data protection, privacy and security laws. Any
non-compliance or perceived non-compliance with Data Security Law, Cybersecurity Law or
related PRC regulations may result in fines or other penalties such as making certain required
rectification, suspending our related business, taking down our operations and reputational damages
or proceedings or actions against us by PRC regulatory authorities, customers or others, which may
have an adverse effect on our business, operation or financial conditions.
Our insurance may not sufficiently cover, or may not cover at all, losses and liabilities we may
encounter during the ordinary course of operation.
We maintain insurance policies that are required under PRC laws and administrative
regulations as well as based on our assessment of our operational needs and industry practice.
However, we cannot assure that our insurance coverage will be sufficient or available to cover
damage, liabilities or losses we may incur in the ordinary course of our business. Our insurance
coverage may be insufficient to cover any claim for medical disputes, damage to our fixed assets
or employee injuries. Any liability or damage to, or damage caused by, our facilities or our
personnel beyond our insurance coverage may result in our incurring substantial costs and require
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significant management attention. In addition, there are certain losses for which insurance is not
available in the PRC on commercially practicable terms, such as losses suffered due to earthquakes,
typhoons, flooding, war or civil disorder. If we are held responsible for any such damages, liabilities
or losses and there is insufficient or unavailable insurance, we could suffer significant costs and
diversion of our resources, and thereby materially and adversely affect our business, financial
condition and results of operation.
Any breaches to our security measures leading to failure to maintain the security of
customer-related information or compliance with security requirements could adversely
reduce use of our services from customers and damage our reputation and brand name.
In the ordinary course of our business, we collect, process, and store sensitive data including,
among other things, legally protected patient health information, personally identifiable information
about our employees and proprietary business information, which makes our IT systems attractive
targets and potentially vulnerable to cyberattacks, computer viruses, ransomware, physical or
electronic break-ins or similar disruptions. While we have taken steps to protect the confidential
information that we have access to, our security measures could be breached. Because techniques
used to sabotage or obtain unauthorized access to systems change frequently and generally are not
recognized until they are launched against a target, we may be unable to anticipate these techniques
or to implement adequate preventative measures. Any accidental or willful security breaches or
other unauthorized access to our systems could cause confidential patient information to be stolen
and used for criminal purposes. Security breaches or unauthorized access to confidential
information could also expose us to liability related to the loss of the information, time-consuming
and expensive litigation and negative publicity. If security measures are breached because of
third-party action, employee error, malfeasance or otherwise, or if design flaws in our technology
infrastructure are exposed and exploited, our reputation and brand name could be severely damaged,
we could incur significant liability and our business and operations could be adversely affected.
We may not be able to obtain, maintain, or enforce our intellectual property rights and may
be subject to intellectual property litigations that could adversely impact our business.
Intellectual property rights are essential to our business, and we devote significant time and
resources to their development and protection. Our business relies on intellectual property,
including patents, copyrights, trademarks, etc. The value of our intellectual property relies in part
on our ability to maintain proprietary rights to such intellectual property. If we are unable to obtain
or maintain the proprietary rights to our intellectual property, if we are unable to prevent attempted
infringement against our intellectual property, or if we are unable to defend against claims of
infringing on another party’s intellectual property, our business could be adversely affected. These
adverse effects could include having to abandon, alter or delay the deployment of services or
processes that rely on such intellectual property, having to procure and pay for licenses from the
holders of intellectual property rights that we seek to use, and having to pay damages, fines, and
costs in connection with intellectual property litigation.
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Assertions by third parties of infringement or other violations by us of their intellectual
property rights could result in significant costs and harm our business and results of
operations.
The validity, enforceability and scope of intellectual property rights protection in China are
uncertain and still evolving. We cannot be certain that our tests, technologies and services do not
or will not infringe patents, software copyrights, trademarks or other intellectual property rights
held by third parties. From time to time, we may be subject to legal proceedings and claims alleging
infringement of patents, trademarks or copyrights, or misappropriation of creative ideas or formats,
or other infringement of proprietary intellectual property rights. Any such proceedings and claims
could result in significant costs to us and divert the time and attention of our management and
technical personnel from the operation of our business. These types of claims could also potentially
adversely impact our reputation and our ability to conduct business and raise capital, even if we are
ultimately absolved of all liability. Moreover, third parties making claims against us may be able
to obtain injunctive relief against us, which could block our ability to offer one or more services
or tests and could result in a substantial award of damages against us. Intellectual property litigation
can be very expensive, and it may have material adverse effect on our results of operations and
financial positions to defend ourselves.
Because patent applications can take many years to issue, there may be pending applications,
some of which are unknown to us, that may result in issued patents upon which our services, tests
or proprietary technologies may infringe. Moreover, we may fail to identify issued patents of
relevance or incorrectly conclude that an issued patent is invalid or not infringed by our technology
or any of our services or tests. There is a substantial amount of litigation involving patents and other
intellectual property rights in the PRC. If a third-party claim that we infringe upon a third-party’s
intellectual property rights, we may have to, among others:
 seek to obtain licenses that may not be available on commercially reasonable terms, if
at all;
 abandon any services alleged or held to infringe, or redesign our services or processes
to avoid potential assertion of infringement;
 pay substantial damages including, in exceptional cases, treble damages and attorneys’
fees, if a court decides that the device, test or proprietary technology at issue infringes
upon or violates the third-party’s rights;
 pay substantial royalties or fees or grant cross-licenses to our technology; and
 defend litigation or administrative proceedings that may be costly whether we win or
lose, and which could result in a substantial diversion of our financial and management
resources.
If we are unable to maintain the confidentiality of our trade secrets or know-hows, our
reputation, business and competitive position may be harmed.
Our commercial success will depend, in large part, on our ability to obtain, maintain and
defend know-hows and other intellectual property protection with respect to our services. We seek
to protect our trade secrets or know-hows, in part, by entering into agreements, including
confidentiality agreements and non-disclosure agreements, with parties that have access to them,
such as our employees, consultants, corporate partners and, other third-party service providers.
Nevertheless, there can be no guarantee that an employee or a third party will not make an
unauthorized disclosure of such proprietary confidential information. This might happen
intentionally or inadvertently. It is possible that a competitor will make use of such information, and
that our competitive position will be compromised, in spite of any legal action we might take
against persons making such unauthorized disclosure. In addition, to the extent that our employees,
consultants or contractors use intellectual property owned by others in their work for us, disputes
may arise as to the rights of related work products created or the resulting know-how and
inventions. Enforcing a claim that a third party illegally obtained and is using any of our trade
secrets or know-hows is expensive and time-consuming, and the outcome is unpredictable.
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We sometimes collaborate with third parties, such as research institutions to conduct research
relevant to our business. The ability of these third-parties to publish or otherwise publicly disclose
data and other information generated during the course of their research is subject to certain
contractual limitations. These contractual provisions may be insufficient or inadequate to protect
our confidential information. If we do not apply for patent protection prior to such publication, or
if we cannot otherwise maintain the confidentiality of our confidential information, then our ability
to obtain patent protection or to protect our trade secrets or know-hows may be jeopardized. Failure
to protect our intellectual property may severely disrupt our business operations, reduce or
eliminate any competitive advantage we have developed, and materially harm our business,
financial condition, results of operations and prospects, and any remediation may significantly
divert management’s attention and resources from other activities.
We are subject to credit risks in relation to trade and bill receivables and customers could
default on their obligations to pay our fees.
We are exposed to credit risks from our customers. Our trading terms with our customers are
mainly on credit, except for new customers, where payment in advance is normally required. In
general, we normally grant a credit period of 90 to 120 days. Starting from 2022, in response to
Chinese government’s measures to contain the spread of the Omicron variant, we have participated
in an increasing number of COVID-19 mass testing organized by local governments, which may
have longer payment periods. We seek to maintain strict control over our outstanding receivables
and we seek to minimize credit risks. However, there is no guarantee that all of our customers will
settle payment in full as it falls due. If any of our customers refuses to settle the payment, becomes
insolvent or delays its payment of our fees, our cash flow, as well as our business, results of
operations, and financial position could be adversely affected. As of December 31, 2020, 2021 and
2022, we had total trade and bills receivables of RMB942.0 million, RMB1,213.5 million and
RMB1,856.8 million, respectively. We had impairment losses of trade and bill receivables of
RMB32.3 million, RMB39.8 million and RMB111.5 million, in 2020, 2021 and 2022, respectively.
Any financial difficulties experienced by our customers may result in a reduction in their
engagement of our services and expose us to higher credit risks, which could in turn materially and
adversely affect our financial condition and results of operations.
We may not be able to effectively manage our inventory levels.
Our inventories mainly include reagents and consumables used in relation to our laboratory
services, as well as finished goods which are equipment and instruments we sell to our customers.
We have adopted a centralized inventory management system, to help manage our inventory levels
based on our forecasts of customer demand for our services in each laboratory. Customer demand,
however, can be affected by numerous uncertainties, including in relation to the outbreak of
pandemic, regulatory approvals, possible seasonality and other factors beyond our control. Our
inventories amounted to RMB102.9 million, RMB109.4 million and RMB229.4 million as of
December 31, 2020, 2021 and 2022, respectively. If we fail to manage our inventory levels
effectively, we may be subject to a higher risk of inventory obsolescence, a decline in the value of
inventories, and potential inventory write-downs or write-offs. Procuring additional inventories
may also require us to commit substantial working capital, which would prevent us from using this
capital for other purposes. Any of the foregoing may adversely affect our results of operations and
financial condition.
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Our results of operations, financial conditions have been adversely affected by fair value
changes of our financial instruments during the Track Record Period and the effect of the fair
value change may continue to adversely affect our results of operations and prospects.
We use significant unobservable inputs in valuing our financial instruments, consisting of (i)
contingent consideration arising from our acquisition, (ii) derivative financial instruments, and (iii)
convertible redeemable preferred shares. Changes in fair value of our financial instruments may
significantly affect our financial position and results of operations. Accordingly, such determination
requires us to make significant estimates, which may be subject to material changes, and therefore
inherently involves a certain degree of uncertainty. Fair value of our financial instruments amounted
to RMB443.9 million, RMB635.6 million and RMB616.2 million as of December 31, 2020, 2021
and 2022, respectively. We experienced fair value losses on financial instruments of RMB61.5
million in 2021, attributable to fair value losses on convertible redeemable preferred shares. Factors
beyond our control can significantly influence and cause adverse changes to the estimates we use
and thereby affect the fair value of such liabilities. These factors include, but are not limited to,
general economic condition, changes in market interest rates and stability of the capital markets.
Any of these factors, as well as others, could cause our estimates to vary from actual results, which
could materially and adversely affect our results of operations and financial condition. We will
continue to experience fluctuation of the fair value of our convertible redeemable preferred shares
after December 31, 2022. After (i) the automatic conversion of the convertible redeemable preferred
shares into Shares upon the Listing, which may result in a net asset position, (ii) we repaid the final
installment of the credit facilities pursuant to the loan facility agreement, as the derivatives
designated as interest rate hedging instrument will be terminated concurrently, and (iii) we paid the
consideration for equity interests in Henan Adicon in full within designated period. We do not
expect to recognize any further loss or gain on fair value changes in the financial instruments in the
future.
Our deferred tax assets may not be recovered.
Our deferred tax assets amounted to RMB52.0 million, RMB74.6 million and RMB118.4
million, as of December 31, 2020, 2021 and 2022, representing approximately 1.9%, 2.4% and 2.4%
of our total assets as of the same dates, respectively. We periodically assess the probability of the
realization of deferred tax assets, using accounting judgments and estimates with respect to, among
other things, historical operating results, expectations of future earnings and tax planning strategies.
In particular, as those deferred tax assets can only be recognized to the extent that it is probable that
future taxable profits will be available against which the unused tax credits can be utilized.
However, there can be no assurance that our expectation of future earnings will always be accurate
as a result of factors beyond our control, such as general economic conditions or negative
development of regulatory environment, or if we fail to recover impaired receivables and advances
or financial assets, in which case the value of our deferred tax assets may not be recoverable and
may result in a valuation allowance that would negatively affect our financial condition and results
of operations.
We may suffer from goodwill impairment.
Goodwill is initially measured at cost. After initial recognition, goodwill is measured at cost
less any accumulated impairment charges. We test goodwill for impairment annually or more
frequently if events or changes in circumstances indicate that the carrying value may be impaired.
Determining whether goodwill is impaired requires an estimation of the recoverable amount of the
cash generating units to which goodwill has been allocated, which is the higher of the value in use
or fair value less costs of disposal. Estimating the value in use requires us to make an estimate of
the expected future cash flows from the cash generating units and also to choose a suitable discount
rate in order to calculate the present value of those cash flows. There are inherent uncertainties
related to these factors and to our judgment in applying these factors to the assessment of goodwill
recoverability. We could be required to evaluate the recoverability of goodwill prior to the annual
assessment if there are any impairment indicators which could potentially be caused by our failure
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to successfully integrate the operations of our acquisition of the business to which the goodwill
relates with our other operations. Where the actual future cash flows are less than expected, a
material impairment charge may arise. The carrying amount of goodwill as of December 31, 2020,
2021 and 2022 were nil, RMB25.7 million and RMB79.8 million, and we did not recognize any
impairment charges as of the same dates. Impairment charges could substantially affect our reported
results of operations in the periods of these charges. In addition, impairment charges could
negatively impact our financial ratios and limit our ability to obtain financing.
We have intangible assets other than goodwill. If our other intangible assets were determined
to require impairment, it could adversely affect our results of operations and financial
position.
We have intangible assets other than goodwill in the form of software, patents, and customer
relationship. As of December 31, 2020, 2021 and 2022, the carrying value of our intangible assets
excluding goodwill amounted to RMB3.0 million, RMB20.5 million and RMB143.7 million,
respectively. At the end of each reporting period, we review the carrying amounts of intangible
assets with finite useful lives to determine whether there is any indication that those assets have
suffered an impairment charge. In the event that our intangible assets are impaired, the amount of
the impairment will constitute a non-cash expense to the profit or loss. A slowdown in revenue
growth or a decrease in profit margins could result in an impairment to our intangible assets other
than goodwill. We cannot assure you that we will continue to maintain the same level of revenue
growth or profit margins. In addition, a change in the assumptions used in the impairment testing
of intangible assets may lead to significant impairment charges. While we did not identify any
indicators of impairment during the Track Record Period, if our intangible assets are impaired, or
there is a change in the assumptions used in the impairment testing of our intangible assets, our
results of operations could be adversely affected.
We may suffer from impairment losses for prepayments, deposits and other receivables.
We recorded prepayments, deposits and other receivables amounted to RMB68.8 million,
RMB115.3 million and RMB140.7 million as of December 31, 2020, 2021 and 2022, respectively.
Other receivables primarily consist of advanced payment for investment and short-term leases,
value-added tax recoverable, and deferred listing expenses. As of December 31, 2020 and 2022, we
recorded impairment losses of RMB260.3 thousand and RMB143.2 thousand, respectively, to write
down the carrying value of our prepayments, deposits and other receivables. As of December 31,
2021, we recorded reversal of impairment loss of RMB54.9 thousand. A change in the assumptions
used in such impairment assessment may lead to significant impairment charges, and our results of
operations could be adversely affected. We provided provision of impairment of RMB0.5 million,
RMB0.4 million and RMB0.6 million as of December 31, 2020, 2021 and 2022, respectively.
We may not be able to fulfil our obligations in respect of contract liabilities, which may have
a material and adverse impact on our results of operations and financial condition.
Our contract liabilities amounted to RMB11.7 million, RMB20.7 million and RMB21.1
million, as of December 31, 2020, 2021 and 2022, respectively. Our contract liabilities primarily
arose from the advance payments from customers for the delivery of services and equipment. If we
fail to fulfill our obligations under our contracts with customers, we may not be able to convert such
contract liabilities into revenue, and our customers may also require us to refund the advance
payments we have received, which may adversely affect our cash flow and liquidity condition. In
addition, it may adversely affect our business, our relationship with such customers, which may also
affect our reputation and results of operations in the future.
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We have incurred, and expect to continue to incur, share-based compensation expenses, which
may have a material and adverse effect on our results of operations.
We adopted Employee Incentive Plans in July 9, 2019, which were subsequently amended and
restated on November 7, 2020, April 14, 2021 and October 1, 2021, to enhance our ability to attract
and retain qualified individuals and align their interests with our growth and performance. For
details of the Employee Incentive Plans, see “Appendix IV – Statutory and General Information”.
We recorded RMB63.6 million, RMB37.3 million and RMB15.0 million in share-based
compensation expenses in 2020, 2021 and 2022, respectively. We believe the granting of share
based compensation is of significant importance to our ability to attract and retain key personnel
and employees, and may continue to grant share based compensation to key personnel pursuant to
share incentive plans adopted in the future. As a result, our expenses associated with share-based
compensation may increase, which may have an adverse effect on our results of operations.
Certain of our leased properties are subject to land defects, and we could be required to vacate
such properties which may adversely affect our business, financial condition and results of
operations.
As of the Latest Practicable Date, we did not own any real property, and we entered into 44
lease agreements of properties across different regions used for our offices and operating
laboratories in the PRC. Upon expiration of the leases, we will need to negotiate for renewal of the
leases and may have to pay increased rent. We cannot assure you that we will be able to renew our
leases on terms which are favorable or otherwise acceptable to us, or at all.
As of the Latest Practicable Date, with respect to our leased properties in Changchun,
Qingdao, Xiamen, Harbin and one of the leased properties in Hangzhou, the lessors had not
provided valid title certificates, but all provided the Planning Permit for Construction Engineering
for such properties. As advised by our PRC Legal Advisor, the validity and enforceability of the
relevant lease agreements are not affected by such non-compliance. The lessor of the leased
properties used by our newly acquired laboratory in Henan also failed to provide relevant valid title
certificates. The competent local government authorities have acknowledged the major terms of and
confirmed our laboratory’s rights under the underlying lease agreement and we will not be subject
to any penalties or forced relocation due to the lack of the relevant title certificates. The landlords
of the properties in Qingdao, Xiamen, Harbin and Henan have agreed to indemnify the damages or
losses that we would suffer due to the lack of title certificate of the leased properties concerned.
Nevertheless, we cannot assure you that the lessors will not be subject to any challenges, lawsuits
or other actions taken against the properties leased by us. If the lessors’ rights with respect to any
of such properties were successfully challenged, we may be forced to relocate our operations on the
affected properties. If we fail to find suitable replacement properties on terms acceptable to us for
the affected operations, our business, financial condition and results of operations may be
materially and adversely affected.
As of the Latest Practicable Date, we had one property each in Jinan and Kunming leased by
Jinan Adicon and Yunan Adicon, respectively, that were built on allocated land ( ྌᅡ͜ή). Pursuant
to the Provisional Regulations of the People’s Republic of China Concerning the Grant and
Assignment of the Right to Use State-owned Land in Urban Areas (ᕄ਷Ϟɺ
ήԴ͜ᛆ̈ᜫձᔷᜫᅲБૢԷ), lease of any property built on allocated land should be approved
by local competent land and housing administrative authorities. As advised by our PRC Legal
Advisor, according to consultations with and the compliance letter issued by the competent
government authorities, according to the local practice in Tianqiao District of Jinan and Wuhua
District of Kunming, no government approval is required for the lease of premises built on the
allocated land by Jinan Adicon and Yunan Adicon. The landlords have agreed to indemnify the
damages or losses that Jinan Adicon and Yunnan Adicon would suffer due to the lack of government
approval for the lease of allocated land. Nevertheless, we cannot assure you that the landlords of
Jinan Adicon and Yunnan Adicon will not be subject to any challenges, lawsuits or other actions
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taken against the properties leased by us. If the landlords’ rights with respect to such properties
were successfully challenged, we may be forced to relocate our operations in Jinan and Kunming.
Our business, financial condition and results of operations in Jinan may be materially and adversely
affected.
As of the Latest Practicable Date, the actual land use of the properties leased for our
laboratories is inconsistent with the designated land use as specified in their land use right
certificates. As of the Latest Practicable Date, two of our laboratories are located on land for
commercial use, one of our laboratories is located on land for warehousing use, two of our
laboratories are located on land for scientific study and educational use, one of our laboratories is
located on construction land without specific use restrictions, one of our laboratories is located on
land to be used as general plants for biology, medical and pharmaceutical industry and the rest of
our operating laboratories are located on land for industrial use. Pursuant to applicable laws and
regulations in China, any change in the use of land within an urban planning area shall be approved
by the competent land and natural resources administration authorities and submitted to the
competent authority that originally approved the land use for approval. If the use of a premise is
inconsistent with the designated purpose of the state-owned land where the premise locates and
deemed by competent natural resources and planning bureaus as a violation of applicable land
related laws and regulations, the landlords of the properties would be required to rectify the
noncompliance, imposed on a penalty ranging from RMB100 to RMB500 per square meter of the
concerned land and even be ordered to return the land if the noncompliance could not be rectified
within a required time period. As a tenant, we will not be subject to the aforesaid administrative
penalties. However, if a landlord of the properties for our leases is required by competent authorities
to rectify such land use or return the land, we may have to relocate and bear relocation costs. We
may not be able to find other suitable properties to lease for our laboratory operation in a timely
manner or at all, which may adversely affect our business operations. Please see “Business −
Properties.”
The above mentioned inconsistent land use is primarily due to the limited land available for
medical purposes. In practice, due to the long cycle of formulation, modification and change of
urban land use planning, the land for medical purposes is relatively limited, which hardly meet the
needs of rapid development of medical services. Therefore, it is difficult for many non-hospital
medical institutions (such as medical examination centers, independent clinical laboratories) to find
suitable medical land, resulting in a large number of non-hospital medical institutions, like us, using
non-medical properties in practice. However, in recent years, to ease the tight supply of suitable
premises for privately-run medical institutions, relevant PRC government authorities have released
several guidance, including Opinions on Promoting the Sustainable and Healthy and Standardized
Development of Socially-run Medical Institutions (จ
Ԉ), which confirmed that the premises approved to be used for commercial, industrial, office
purposes could be used by medical institutions without changing the designated land use for a
transitional period of five years, subject to local implementations. Our PRC Legal Advisor has
confirmed that there are currently no locations where we operate laboratories where local policies
or relevant government authorities have commenced the five-year transitional period or announced
a date for the commencement of the five-year transitional period. Despite such positive
development relating to land use for private medical institutions, we cannot assure you that such
policies and regulations will continue to be of our advantage.
We may be subject to fines due to the lack of registration of our leases.
Pursuant to the Measures for Administration of Lease of Commodity Properties (܊גۜ
) which was promulgated by the Ministry of Housing and Urban-Rural
Development of the PRC (ண௅) on December 1, 2010 and became
effective on February 1, 2011, both lessors and lessees are required to file the lease agreements for
registration and obtain property leasing filing certificates for their leases.
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As of the Latest Practicable Date, the lease agreements with respect to 12 properties we lease
in the PRC for our business operations had not been registered and filed with the relevant PRC
government authorities. As advised by our PRC Legal Advisor, failure to register such lease
agreements with the relevant PRC government authorities does not affect the validity and
enforceability of the relevant lease agreements but the relevant PRC government authorities may
order us or the lessors to, within a prescribed time limit, register the lease agreements. Failure to
do so within the time limit may subject us to a fine ranging from RMB1,000 to RMB10,000 for each
non-registered lease. During the Track Record Period and as of the Latest Practicable Date, we had
not received any such request or suffered any such fine from the relevant PRC government
authorities.
As confirmed by our PRC Legal Advisor, the estimated aggregate maximum penalty is
RMB120,000 with respect to the unregistered leases of properties leased by our Group. We are not
subject to any action, claim or investigation being conducted or threatened by any third parties or
the competent government authorities with respect to the registration in our leased properties as of
the Latest Practicable Date. For more details, see “Business – Properties.”
We may be adversely affected by the uncertainties and changes in the regulation of laboratory
developed tests (“LDT”) in the PRC, and any lack of requisite approvals, permits,
registrations or filings in relation to our testing technologies developed in-house may have a
material adverse effect on our business, results of operations and prospects.
Certain esoteric tests provided by Hangzhou Adicon are conducted in the form of LDTs with
unregistered testing reagents as there is no registered testing reagent available in the market. As
confirmed by our industry advisor, Frost & Sullivan, it is common for ICLs, including us, to provide
testing services in the form of LDTs with unregistered testing reagents if there is no registered
testing reagent available in the market. Revenues generated from LDTs each accounted for 0.5%,
0.5% and 0.3% of our total revenues in 2020, 2021 and 2022, respectively. Once registered reagents
are available in the market, we plan to switch to those registered reagents.
Pursuant to Article 53 of Regulations on the Supervision and Administration of Medical
Devices ( ᔼᐕኜ૛္ຖ၍ଣૢԷ), or the Medical Devices Regulation, promulgated by the
State Council and effective from April 1, 2000, latest amended on February 9, 2021 and effective
on June 1, 2021, for in-vitro testing reagents that are not available in China, qualified medical
institutions can develop such testing reagents on their own according to their clinical needs, and use
such testing reagents within their own medical institutions under the guidance of practicing
physicians. Specific administrative measures with respect to such development and use shall be
formulated by National Medical Products Administration or NMPA in conjunction with the National
Health Commission or NHC.
As advised by our PRC Legal Advisor, notwithstanding the latest amendments to the Medical
Devices Regulation, up to the Latest Practicable Date, there is no specific definition for LDTs under
the PRC laws and regulations, nor is there any specific administrative measure or standard for the
use of LDTs within the PRC healthcare industry. As the latest amendments of the Medical Devices
Regulation only became effective on June 1, 2021, a comprehensive regulatory framework
governing the LDT industry has not yet been established. We cannot rule out the possibility that
some common practices in the application of tests developed in-house might be viewed as not being
in full compliance with the applicable PRC laws and regulations.
As advised by our PRC Legal Advisor, we may be subject to medical liability claims if the test
is found to be inaccurate or erroneous as a result of the use of unregistered testing reagents and
causes damage or loss to the clients or related parties. As further advised by our PRC Legal Advisor,
pursuant to the Medical Devices Regulation, illegal or unpermitted use of unregistered medical
devices may be subject to a fine of not less than five (5) times but not more than ten (10) times (for
non-compliance before June 1, 2021) or twenty (20) times (for noncompliance after June 1, 2021)
the value of such unregistered medical devices, and unregistered medical devices may be
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confiscated by NMPA or its local counterpart and in extreme circumstance, the business concerned
may be ordered to be suspended. If all of our LDTs conducted during the Track Record Period were
deemed to be illegal or unpermitted, the maximum penalty we may be exposed would be a monetary
penalty of a cumulative of RMB122.3 million plus confiscation of unregistered testing reagents.
During the Track Record Period, we did not make any provisions in this regard. According to the
compliance letter issued by NHC of Xihu District, Hangzhou, Hangzhou Adicon has been in strict
compliance with all applicable laws and regulations governing ICLs in terms of its technology,
testing items, testing products and devices, among others during the Track Record Period. During
the Track Record Period and up to the Latest Practicable Date, we had not been penalized or
investigated by any relevant government authorities for provision of tests developed in-house by us.
Additionally, we undertake to closely monitor the regulatory development and practices, and once
the detailed implementing rules with respect to LDT are formally released by the NMPA and the
NHC, we will take all necessary measures to ensure our LDT business is in compliance with such
rules. Based on the consultations with Zhejiang NMPA and Hangzhou NMPA and applicable PRC
laws and regulations, our PRC Legal Advisor is of the view that Article 53 of the Medical Devices
Regulation provided legal basis of our current LDT business in principle and the likelihood of us
being penalized due to our use of unregistered testing reagents for our LDT business will be
substantially reduced.
We face risks associated with uncertainties relating to the interpretation and implementation
of the Regulation for the Administration of Human Genetic Resources and other applicable
laws and regulations.
The collection, preservation, usage and outbound provision of human genetic resources in the
PRC are governed by Regulation for the Administration of Human Genetic Resources of the
People’s Republic of China ( ʕശɛ͏΍ձ਷ɛᗳ፲ෂ༟๕၍ଣૢԷ), or HGR Regulation,
except for activities relating to human genetic resources conducted for some specific purposes
including clinical diagnosis and treatment. As advised by our PRC Legal Advisor, according to
consultation with the competent government authority, our testing business for the purpose of
clinical diagnosis and treatment (“ Clinical Testing ”) are not governed by HGR Regulation.
However, we cannot assure you that all our Clinical Testing will be continuously deemed as
conducted for the purpose of clinical diagnosis and treatment by the relevant government authority.
If such business is not deemed as for the purpose of clinical diagnosis and treatment, additional
regulatory requirements including regulatory approvals may be required. Meanwhile, our testing
services for scientific research purposes, including those conducted in collaboration with external
institutions, may be governed by HGR Regulation.
As advised by our PRC Legal Advisor, although an entity controlled, directly or indirectly, by
foreign persons through shareholding ownership would be deemed as a restricted entity
(“Restricted Entity ”, which would not be allowed to or restricted to engage in certain activities
relating to human genetic resources for non-clinical diagnosis and treatment purpose), HGR
Regulation remains unclear as to whether a variable interest entity controlled by a wholly foreign
owned enterprise through contractual arrangements would be deemed and filed as a Restricted
Entity. We cannot assure you that our PRC Operating Entities will not be deemed as Restricted
Entities. If our PRC Operating Entities are deemed as the Restricted Entities by relevant
government authority, our non-clinical diagnosis and treatment business may be adversely affected
and we may have to seek approval for such business from the relevant government authority, which
may be difficult or impracticable, and/or cooperate with domestic entities that are not Restricted
Entities for purposes of the HGR Regulation and be required to obtain approvals or file with
relevant government authority for such cooperation, which could result in additional cost and our
business, financial condition and results of operations will be adversely affected.
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Any litigation, legal and contractual disputes, claims, or administrative proceedings against us
could be costly and time-consuming to defend or settle.
We may from time to time be involved in contractual disputes or legal and administrative
proceedings and claims arising out of the ordinary course of business or pursuant to governmental
or regulatory enforcement activity. Any claims, disputes or legal proceedings initiated by us or
brought against us, with or without merit, may result in substantial costs and diversion of resources,
and if we are unsuccessful, could materially harm our reputation. Any litigation, legal disputes,
claims or administrative proceedings that are initially not material may escalate and become
material to us due to a variety of factors, such as changes in the facts and circumstances of the cases,
the likelihood of loss, the monetary amount at stake and the parties involved. Laws, regulations and
legal actions could also have significant regulatory consequences and result in regulatory
enforcement actions.
In 2019, due to inaccurate information presented in bidding materials as result of the
carelessness of our employees, our subsidiary Hefei Adicon was disqualified on a bid with
Mingguang Municipal People’s Hospital, was imposed a fine of RMB5,100, and banned from
participating in government procurement activities for one year from October 31, 2019, and was
recorded and publicly disclosed as an ordinary dishonest conduct (މon website of
Credit China ( www.creditchina.gov.cn ). Hefei Adicon had fully paid the fine and made all
necessary rectification measures, and the competent government authorities made the decision on
February 12, 2020, to restore the credibility of Hefei Adicon and the public disclosure of the
ordinary dishonest conduct was subsequently withdrawn from Credit China. See “Business –
Incidents – Incident Relating To Bidding.”
Furthermore, claims, disputes or legal proceedings against us may be due to our
counterparties, such as our suppliers, customers, and other third party service providers. Even if we
are able to seek indemnity from them, they may not be able to indemnify us in a timely manner, or
at all, for any losses or costs that we incur as a result of such claims, disputes and legal proceedings.
Our insurance might not cover claims brought against us, might not provide sufficient
payments to cover all of the costs to resolve one or more such claims and might not continue to be
available on terms acceptable to us. In particular, any claim could result in unanticipated liability
to us if such claim is outside the scope of the indemnification arrangement we have with our
customers, our customers do not abide by the indemnification arrangement as required or the
liability exceeds the amount of any applicable indemnification limits or available insurance
coverage. A claim brought against us that is uninsured or underinsured could result in unanticipated
costs and could have a material adverse effect on our business, financial condition and results of
operations.
Fluctuations in interest rate may adversely affect our cash flow.
We currently fund our operations principally by cash generated from our business operations
and bank borrowings. We had no indebtedness, mortgages or charges, did not issue any debt
securities and did not utilize any bank facilities, except as disclosed in “Financial Information –
Indebtedness”. We entered into a credit facility agreement of US$150 million on July 20, 2022, for
the purposes of paying the special dividend we declared on May 18, 2022 and other general
corporate purposes. For details, see “Financial Information – Dividends”. However, we cannot
assure you that we will be able to obtain bank loans or renew existing credit facilities in the future
on favorable terms, or at all. Additionally, any fluctuation in interest rates may affect our ability to
fund our operations and dividend payments.
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Our operations may be adversely impacted by the effects of natural disasters such as
hurricanes and earthquakes, public health emergencies and health pandemics, acts of
terrorism and other criminal activities.
Natural disasters, acts of war or terrorism or other factors beyond our control may adversely
affect the economy, infrastructure and livelihood of the people in the regions where we conduct our
business. Serious natural disasters may result in loss of lives, injury, destruction of assets and
disruption of our business and operations. Acts of war or terrorism may also injure our employees,
cause loss of lives, disrupt our business network and destroy our markets. Any of these factors and
other factors beyond our control could have an adverse effect on the overall business sentiment and
environment, cause uncertainties in the regions where we conduct business, cause our business to
suffer in ways that we cannot predict and materially and adversely impact our business, financial
conditions and results of operations.
A severe or prolonged downturn in the domestic or global economy could materially and
adversely affect our business and financial condition.
The global macroeconomic environment is facing numerous challenges. There are threats of
trade wars between the United States and its major trading partners, including China, and
uncertainties over the impact of Brexit. The growth rate of the Chinese economy has generally been
slowing since 2012 and the trend may continue. There is considerable uncertainty over the
long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and
financial authorities of some of the world’s leading economies, including the United States and
China. There have been concerns over unrest and terrorist threats in the Middle East, Europe and
Africa, which have resulted in market volatility. There have also been concerns on the relationship
between China and other countries, including the surrounding Asian countries, which may
potentially have economic effects. Economic conditions in China are sensitive to global economic
conditions, as well as changes in domestic economic and political policies and the expected or
perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global
or Chinese economy may materially and adversely affect our business, results of operations and
financial condition.
RISKS RELATING TO OUR CONTRACTUAL ARRANGEMENTS
If the PRC government deems that the Contractual Arrangements do not comply with PRC
regulatory restrictions on foreign investment in the relevant industries, or if these regulations
or the interpretation of existing regulations change in the future, we could be subject to severe
penalties or be forced to relinquish our interests received through the Contractual
Arrangements.
Foreign ownership of certain business in PRC is subject to restrictions under current PRC laws
and regulations. For example, except for qualified service providers from Hong Kong, Macao and
Taiwan, foreign investors are not allowed to own 100% of the equity interest in medical institutions.
We are an exempted company incorporated in the Cayman Islands, as such, we are classified
as a foreign enterprise under PRC laws and regulations. Through our wholly-owned PRC subsidiary,
Aidiken WFOE, we have entered into a series of Contractual Arrangements with Hangzhou Adicon
and the Registered Shareholders. Please see “Contractual Arrangements” for a detailed description
of the Contractual Arrangements. Through our shareholdings and the Contractual Arrangements, our
Company acquired effective control over the PRC Operating Entities and, at our Company’s sole
discretion, can receive all of the economic benefits generated by the PRC Operating Entities.
As advised by our PRC Legal Advisor, save as disclosed in the section headed “Contractual
Arrangements – Legality of the Contractual Arrangements” in this Prospectus, the Contractual
Arrangements are legal, valid, enforceable and binding upon the parties thereto under the current
laws and regulations. However, our PRC Legal Advisor has also advised us that there are substantial
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uncertainties regarding the interpretation and application of current or future PRC laws and
regulations. In addition, certain PRC court rulings may invalidate certain contractual agreements if
they are considered to be entered into with the intention of circumventing foreign investment
restrictions in the PRC in contravention of the Civil Code of the People’s Republic of China ( ʕ
Պ). Accordingly, there can be no assurance that the PRC government will
ultimately take a view that is consistent with the opinion of our PRC Legal Advisor.
On March 15, 2019, the National People’s Congress approved the Foreign Investment Law of
the People’s Republic of China () (the “ FIL”) which became
effective on January 1, 2020. According to the FIL, the “foreign investment” refers to investment
activities carried out directly or indirectly by foreign natural persons, enterprises or other
organizations (hereinafter referred to as “ Foreign Investors ”). However, the interpretation and
application of the FIL remain uncertain. In addition, the FIL stipulates that foreign investment
includes “ Foreign Investors investing in PRC through many other methods under laws,
administrative regulations or provisions prescribed by the State Council ”. We cannot assure you
that the Contractual Arrangements will not be deemed as a form of foreign investment under laws,
regulations or provisions prescribed by the State Council in the future, as a result of which, it will
be uncertain whether the Contractual Arrangements will be deemed to be in violation of the foreign
investment access requirements and the impact on the Contractual Arrangements.
If our ownership structure, Contractual Arrangements or the business of Hangzhou Adicon and
its subsidiaries are found to be in violation of any existing or future PRC laws or regulations, or
we fail to obtain or maintain any of the required permits or approvals, the relevant governmental
authorities would have broad discretion in dealing with such violations, including:
(i) levying fines on us;
(ii) confiscating our income or the income of the PRC Operating Entities;
(iii) revoking our business licenses and/or operating licenses;
(iv) shutting down our institutions;
(v) discontinuing or imposing restrictions or onerous conditions on our operations, requiring
us to undergo a costly and disruptive restructuring; and
(vi) taking other regulatory or enforcement actions that could be harmful to our business.
Any of these actions could cause significant disruption to our business operations and severely
damage our reputation, which would result in us failing to receive a portion of the economic
benefits from Hangzhou Adicon and its subsidiaries, and in turn may materially and adversely affect
our business, financial condition and results of operations.
Furthermore, new PRC laws, rules and regulations may be introduced to impose additional
requirements that may be applicable to our corporate structure and the Contractual Arrangements.
In addition, if any equity interest held by Aidiken WFOE in the PRC Operating Entities is held in
the court custody in connection with its litigation, arbitration or other judicial or dispute resolution
proceedings, we cannot assure you that the equity interest will be disposed of to us in such
proceedings in accordance with the Contractual Arrangements. The occurrence of any of these
events could adversely affect our business, financial condition and results of operations.
Our Contractual Arrangements may not be as effective in providing operational control as
direct ownership and our PRC Operating Entities and their shareholders may fail to perform
their obligations under our Contractual Arrangements.
We provide business support, technical and consulting services to Hangzhou Adicon and its
subsidiaries, in which we have no ownership interest and rely on the Contractual Agreements with
Hangzhou Adicon and the Registered Shareholders to control and operate the relevant business.
Although we have been advised by our PRC Legal Advisor that, save as disclosed in this Prospectus,
our Contractual Arrangements constitute valid and binding obligations enforceable against each
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party of such agreements in accordance with their terms, these Contractual Arrangements may not
be as effective in providing us with control over Hangzhou Adicon as direct ownership. Direct
ownership would allow us, for example, to directly or indirectly exercise our rights as a shareholder
to effect changes in the board of directors of the PRC Operating Entities, which, in turn, could effect
changes, subject to any applicable fiduciary obligations, at the management level.
If any PRC Operating Entity fails to perform its respective obligations under the Contractual
Arrangements, we may incur substantial costs and expend substantial resources to enforce our
rights. All of these Contractual Arrangements are governed by and interpreted in accordance with
PRC laws, and disputes arising from these Contractual Arrangements will be resolved through
arbitration or litigation in PRC. However, there are very few precedents and little official guidance
as to how Contractual Arrangements in the context of a variable interest entity should be interpreted
or enforced under PRC law. There remain significant uncertainties regarding the outcome of
arbitration or litigation. These uncertainties could limit our ability to enforce these Contractual
Arrangements.
The Contractual Arrangements contain provisions to the effect that the arbitral body may
award remedies over the shares and/or assets of the PRC Operating Entities, injunctive relief and/or
winding up of these entities. These agreements also contain provisions to the effect that courts of
competent jurisdictions are empowered to grant interim remedies in support of the arbitration
pending the formation of an arbitral tribunal. However, under PRC laws, these terms may not be
enforceable. Under PRC laws, an arbitral body does not have the power to grant injunctive relief
to issue a provisional or final liquidation order. In addition, interim remedies or enforcement order
granted by overseas courts such as Hong Kong and the Cayman Islands may not be recognizable or
enforceable in the PRC. In the event we are unable to enforce these Contractual Arrangements or
we experience significant delays or other obstacles in the process of enforcing the Contractual
Arrangements, we may not be able to exert effective control over the PRC Operating Entities and
may not prevent leakage of equity and values to the shareholders of the PRC Operating Entities or
obtain the full economic benefits of the same. Our ability to conduct our business may be negatively
affected.
Our Contractual Arrangements may result in adverse tax consequences to us.
Under PRC laws and regulations, arrangements and transactions among related parties may be
subject to audit or challenge by the PRC tax authorities. We could face material and adverse tax
consequences if the PRC tax authorities determine that the Contractual Arrangements were not
made on an arm’s length basis and adjust our income and expenses for PRC tax purposes by
requiring a transfer pricing adjustment. A transfer pricing adjustment could materially and adversely
affect us by (i) increasing the tax liabilities of the PRC Operating Entities without reducing the tax
liability of Aidiken WFOE; or (ii) limiting the ability of the PRC Operating Entities to obtain or
maintain preferential tax treatments and other financial incentives.
The Registered Shareholders of PRC Operating Entities may have conflicts of interest with us,
which may materially and adversely affect our business.
The Registered Shareholders of PRC Operating Entities may potentially have a conflict of
interest with us, and they may breach the Contractual Arrangements with us, if they believe it would
further their own interest or if they otherwise act in bad faith. We cannot assure you that when
conflicts of interest arise between us and PRC Operating Entities, the Registered Shareholders of
PRC Operating Entities will act in our interests or that the conflicts of interest will be resolved in
our favor.
In addition, the Registered Shareholders of PRC Operating Entities may breach or cause PRC
Operating Entities to breach the Contractual Arrangements. If PRC Operating Entities or the
Registered Shareholders breach the Contractual Arrangements with us or otherwise have disputes
with us, we may have to initiate legal proceedings, which involve significant uncertainty. Such
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disputes and proceedings may significantly disrupt our business operations, adversely affect our
ability to control PRC Operating Entities and otherwise result in negative publicity. We cannot
assure you that the outcome of any such dispute or proceeding will be in our favor.
If we exercise the option to acquire equity ownership and assets of PRC Operating Entities,
the ownership or asset transfer may subject us to certain limitations and substantial costs.
Pursuant to the Contractual Arrangements, Aidiken WFOE or its designated person(s) has the
exclusive right to purchase all or any part of the equity interests in PRC Operating Entities from
the Registered Shareholders for a nominal price.
The equity transfer may be subject to the approvals from and filings with the SAMR and other
competent governmental authorities and/or their local competent branches. In addition, the equity
transfer price may be subject to review and tax adjustment by the relevant tax or commerce
authority. The Registered Shareholders will pay the equity transfer price they receive to PRC
Operating Entities under the Contractual Arrangements. The amount to be received by PRC
Operating Entities may also be subject to enterprise income tax. Such tax amounts could be
substantial.
RISKS RELATING TO DOING BUSINESS IN CHINA
China’s economic, political and social conditions, as well as governmental policies, could affect
the business environment and financial markets in China, our ability to operate our business,
our liquidity and our access to capital.
Substantially all of our operations are conducted in China. Accordingly, our business, results
of operations, financial condition and prospects may be influenced to a significant degree by
economic, political, legal and social conditions in China as well as China’s economic, political,
legal and social conditions in relation to the rest of the world. China’s economy differs from the
economies of developed countries in many respects, including with respect to the amount of
government involvement, level of development, growth rate, control of foreign exchange and
allocation of resources. While China’s economy has experienced significant growth over the past 40
years, growth has been uneven across different regions and among various economic sectors of
China. China’s government has implemented various measures to encourage economic development
and guide the allocation of resources. Some of these measures may benefit the overall economy in
China, but may have a negative effect on us. For example, our financial condition and results of
operations may be adversely affected by government control over capital investments or changes in
tax regulations that are currently applicable to us. In addition, in the past, China’s government
implemented certain measures, including interest rate increases, to control the pace of economic
growth. These measures may cause decreased economic activity in China, which may adversely
affect our business and results of operation. More generally, if the business environment in China
deteriorates from the perspective of domestic or international investment, our business in China
may also be adversely affected.
Uncertainties with respect to Chinese legal system and changes in laws, regulations and
policies in China could materially and adversely affect us.
We conduct our business primarily through our subsidiaries in China. PRC laws and
regulations govern our operations in China. Our subsidiaries are generally subject to laws and
regulations applicable to foreign investments in China, which may not sufficiently cover all of the
aspects of our economic activities in China. In addition, the implementation of laws and regulations
may be in part based on government policies and internal rules that are subject to the interpretation
and discretion of different government agencies (some of which are not published on a timely basis
or at all) that may have a retroactive effect. As a result, we may not always be aware of any potential
violation of these policies and rules. Such unpredictability regarding our contractual, property and
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procedural rights could adversely affect our business and impede our ability to continue our
operations. Furthermore, since PRC administrative and court authorities have significant discretion
in interpreting and implementing statutory and contractual terms, it may be more difficult to
evaluate the outcome of administrative and court proceedings and the level of legal protection we
enjoy than in more developed legal systems. These uncertainties could materially and adversely
affect our business and results of operations.
Filing with the CSRC may be required in connection with the Listing, and, if required, we
cannot predict whether we will be able to complete such filing.
In January 2015, the Ministry of Commerce of China, or the MOFCOM, published a
discussion draft of the proposed FIL. The FIL passed the legislative review in March 2019, and
came into effect on January 1, 2020. Foreign-invested entities will enjoy national treatment in
industry sectors that are not prohibited or restricted from foreign investment. The FIL imposes
information reporting requirements on foreign investors and the applicable foreign invested entities.
Non-compliance with the reporting requirements will result in corrective orders and fines between
RMB100,000 and RMB500,000. The FIL reinforces the duties of government authorities to protect
intellectual property rights and trade secrets of foreign-investment entities. Government authorities
cannot compel technology transfer by administrative means, reveal or provide trade secrets of
foreign-invested entities to third parties. Last but not least, the FIL calls for the establishment of
a foreign investment security review mechanism. In addition, any administrative and court
proceedings in China may be protracted, resulting in substantial costs and diversion of resources
and management attention.
According to Article 6 of the 2021 Negative List, where a domestic company engaged in the
business in the prohibited areas provided in the 2021 Negative List seeks to issue and list its shares
overseas, it shall complete the examination process and obtain approval by the relevant competent
authorities; the foreign investors shall not participate in the operation and management of the
company; its shareholding percentage shall be subject to the relevant provisions on the
administration of domestic securities investment by foreign investors. See “Regulatory Overview –
Regulations Relating to Foreign Investment” and “Contractual Arrangements – Recent Regulatory
Development in China” for more details.
Furthermore, on February 17, 2023, the CSRC released the Trial Administrative Measures of
Overseas Securities Offering and Listing by Domestic Companies ( ྤʫΆุྤ̮೯БᗇՎձɪ̹၍
جthe “ Overseas Listing Trial Measures ”) and five supporting guidelines, which came
into effect on March 31, 2023. The Overseas Listing Trial Measures regulate both direct and indirect
overseas offering and listing of PRC domestic companies’ securities by adopting a filing-based
regulatory regime. Pursuant to the Overseas Listing Trial Measures, where an issuer submits an
application for initial public offering to competent overseas regulators, such issuer must file with
the CSRC within three business days after such application is submitted. The Overseas Listing Trial
Measures also requires subsequent reports to be filed with the CSRC on material events, such as
change of control or voluntary or forced delisting of the issuer(s) who have completed overseas
offerings and listings.
On the same day, the CSRC also held a press conference for the release of the Overseas Listing
Trial Measures and issued the Notice on Administration for the Filing of Overseas Offering and
Listing by Domestic Companies (ٝwhich, among
others, clarifies that companies that satisfy all of the following conditions shall be deemed as
“Existing Applicants” and are not required to complete the overseas listing filing immediately, but
shall complete filings as required if they conduct refinancing or are involved in other circumstances
that require filing with the CSRC (i) the application for overseas offering or listing shall have been
approved by the relevant overseas regulatory authority or stock exchange (such as passing the
hearing for the listing application of its shares on the Stock Exchange) prior to March 31, 2023, (ii)
the company is not required to reapply for offering and listing procedures to the overseas regulatory
authority or securities exchanges (such as a new hearing for the listing application of its shares on
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the Stock Exchange) after March 31, 2023, and (iii) such overseas securities offering or listing shall
be completed on or prior to September 30, 2023. See “Regulatory Overview – Regulations Relating
to Foreign Investment”. Based on the foregoing, if we are not deemed as an Existing Applicant, we
will be required to complete the filing procedures with the CSRC in connection with the Listing.
As of the date of this Prospectus, we had not received any inquiry, notice, warning, or
sanctions regarding the proposed Listing or our corporate structure from the CSRC or any other
PRC government authorities with respect to the filing requirement under the Overseas Listing Trial
Measures or with respect to the Contractual Arrangements. However, given that the Overseas
Listing Trial Measures were recently promulgated, there remains substantial uncertainties as to their
interpretation, application, and enforcement and how they will affect our operations and our future
financing. In addition, we cannot guarantee that new rules or regulations promulgated in the future
will not impose any additional requirements on us or otherwise tighten the regulations on the
Contractual Arrangements. If it is determined that we are subject to any CSRC approval, filing,
other governmental authorization or requirements, we may fail to obtain such approval or meet such
requirements in a timely manner or at all. Such failure may subject us to fines, penalties or other
sanctions which may have a material adverse effect on our business and financial condition as well
as our ability to complete the Listing.
Restrictions on currency exchange may limit our ability to receive and use financing in foreign
currencies effectively.
Our PRC subsidiaries’ ability to obtain foreign exchange is subject to significant foreign
exchange controls and, in the case of transactions under the capital account, requires the approval
of and/or registration with PRC government authorities, including the State Administration of
Foreign exchange of the PRC, or SAFE. In particular, if we finance our PRC subsidiaries by means
of foreign debt from us or other foreign lenders, the amount is not allowed to, among other things,
exceed the statutory limits and such loans must be registered with the local counterpart of the SAFE.
If we finance our PRC subsidiaries by means of additional capital contributions, these capital
contributions are subject to registration with the SAMR or its local branch, reporting of foreign
investment information with the PRC Ministry of Commerce, or registration with other
governmental authorities in China.
In the light of the various requirements imposed by PRC regulations on loans to, and direct
investment in PRC entities by offshore holding companies, we cannot assure you that we will be
able to complete the necessary government formalities or obtain the necessary government
approvals on timely basis, if at all, with respect to future loans or capital contributions by us to our
PRC subsidiaries. If we fail to complete such registrations or obtain such approval, our ability to
capitalize or otherwise fund our PRC operations may be negatively affected, which could materially
and adversely affect our liquidity and our ability to fund and expand our business.
Discontinuation of government grant and preferential tax treatments we currently enjoy or
other unfavorable changes in tax law could result in additional compliance obligations and
costs, and may impact on our business and results of operations.
A number of our PRC operating entities enjoy various types of government grants and
preferential tax treatment according to the prevailing PRC tax laws. Our PRC subsidiaries may, if
they meet the relevant requirements, qualify for certain preferential tax treatment.
For a qualified high and new technology enterprise, the applicable enterprise income tax rate
is 15%. For a qualified enterprise registered in western regions, the applicable enterprise income tax
rate is 15%. For a qualified small low-profit enterprise, the applicable enterprise income tax rate is
20%. For our subsidiaries which are medical institutions, its revenues arising out of medical
services are exempt from a 6% value-added tax. Pursuant to the policy on the exemption of
value-added tax specified in Item 7 of Article 1 of the Annex 3 to the Circular on the Pilot Program
for Overall Implementation of the Collection of Value Added Tax Instead of Business Tax (Cai Shui
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[2016] No. 36) ((ৌ೼[2016]36
໮)), revenues arising out of medical services rendered by a medical institution is exempt from
value-added tax. On February 2, 2019, STA and Ministry of Finance issued Circular on Clarifying
the Exemption of Elderly Care Agencies from Value-added Tax and Other Policies௅e೼ਕ
(ৌ೼[2019]20 ໮)( “ 2019 V AT Circular ”),
pursuant to which, from February 1, 2019 to December 31, 2020, a medical institution’s revenues
arising out of medical services rendered as entrusted by another medical institution shall be
exempted from value-added tax.
If such PRC subsidiaries fail to maintain its respective qualification under the relevant PRC
laws and regulations, their applicable enterprise income tax rates may increase to up to 25% and
they may need to pay value-added tax for clinical testing revenues collected from customers, which
could have a material adverse effect on our results of operations. In addition, the discontinuation
of our existing government grants may also negatively impact on our business and results of
operations.
Failure by the shareholders or beneficial owners who are PRC residents to make any required
applications and filings pursuant to regulations relating to offshore investment activities by
PRC residents may prevent us from distributing profits and could expose us and our PRC
resident shareholders or beneficial owners to liability under the PRC laws.
Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’
Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles ( ᗫ
)( “Circular 37 ”),
which was promulgated by SAFE and became effective on July 4, 2014, together with relevant laws
and regulations, requires PRC residents to register with banks designated by local branches of SAFE
in connection with their direct establishment or indirect control of an offshore entity, for the purpose
of overseas investment and financing, with such PRC residents’ legally owned assets or equity
interests in domestic enterprises or offshore assets or interests, referred to in Circular 37 as a “special
purpose vehicle.”
In the event that a PRC shareholder holding interests in a special purpose vehicle fails to
fulfill the required SAFE registration, the PRC subsidiary of that special purpose vehicle may be
prohibited from making profit distributions to the offshore parent and from carrying out subsequent
cross-border foreign exchange activities, and the offshore parent may be restricted in its ability to
contribute additional capital into the PRC subsidiary. Furthermore, failure to comply with the SAFE
registration requirements described above could result in liability under PRC law for evasion of
foreign exchange controls.
As of the Latest Practicable Date, each of our senior management who indirectly hold shares
in our Company, being PRC resident and subject to the SAFE regulations have completed the initial
registrations with the local SAFE branch or qualified banks as required by Circular 37. However,
we may not be informed of the identities of all the PRC residents holding direct or indirect interest
in our Company, and we cannot provide any assurance that these PRC residents will comply with
our request to make or obtain any applicable registrations or continuously comply with all
requirements under Circular 37 or other related rules. Even if our Shareholders and beneficial
owners who are PRC residents comply with such request, we cannot provide any assurance that they
will successfully obtain or update any registration required by Circular 37 or other related rules in
a timely manner due to many factors, including those beyond our and their control. For example,
due to the inherent uncertainty in the implementation of the regulatory requirements by PRC
authorities, such registration might not be always practically available under all circumstances as
prescribed in those regulations. Any failure by our PRC residents Shareholders or beneficial owners
to register with SAFE or update their SAFE registrations in a timely manner pursuant to Circular
37 and subsequent implementation rules, or the failure of our future shareholders or beneficial
owners who are PRC residents to comply with the registration requirements set forth in Circular 37
and subsequent implementation rules may result in penalties and limit our PRC subsidiary’s ability
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to make distributions, pay dividends or other payments to us or affect our ownership structure and
restrict our cross-border investment activities, which could adversely affect our business, financial
condition and results of operations.
Failure to comply with PRC regulations regarding the registration requirements for the
Employee Incentive Plans may subject the PRC plan participants or us to fines and other legal
or administrative sanctions.
In February 2012, the SAFE promulgated the Notices on Issues Concerning the Foreign
Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of
Overseas Publicly-Listed Companies (the “ SAFE Circular 7 ”,ɛਞ
). Under SAFE Circular 7 and other
relevant rules and regulations, PRC residents who participate in a stock incentive plan in an
overseas publicly-listed company are required to register with the SAFE or its local branches or
commercial banks and complete certain other procedures.
Participants of a stock incentive plan who are PRC residents must retain a qualified PRC
agent, which could be a PRC subsidiary of the overseas publicly listed company or another qualified
institution selected by a PRC subsidiary, to conduct SAFE registration and other procedures with
respect to the stock incentive plan on behalf of its participants. The participants must also retain an
overseas entrusted institution to handle matters in connection with their exercise of stock options,
the purchase and sale of corresponding stocks or interests and fund transfers. In addition, the PRC
agent is required to amend its SAFE registration with respect to the stock incentive plan if there is
any material change to the stock incentive plan, the PRC agent or the overseas entrusted institution
or other material changes.
We and our PRC employees who are granted options and/or restricted share unit will be
subject to these regulations upon the completion of this Global Offering. Failure to complete their
SAFE registrations may subject these PRC residents to fines of up to RMB300,000 for entities and
up to RMB50,000 for individuals, and legal sanctions and may also limit our ability to contribute
additional capital into our PRC subsidiary, limit our PRC subsidiary’s ability to distribute dividends
to us, or otherwise materially adversely affect our business.
The Chinese tax authorities have strengthened their scrutiny over transfers of equity interests
in a Chinese resident enterprise by a non-resident enterprise.
On February 3, 2015, the STA issued the Public Announcement on Several Issues Concerning
Enterprise Income Tax for Indirect Transfer of Assets by Non-Resident Enterprises (͏Ά
ʮѓ)( “Bulletin 7 ”), which has been further amended by the Bulletin
on Issues Concerning the Withholding of Non-PRC Resident Enterprise Income Tax at Source
(“Bulletin 37 ”) issued by the STA on October 17, 2017 and amended on June 15, 2018. Pursuant
to these bulletins, an “indirect transfer” of PRC assets, including a transfer of equity interests in a
non-PRC holding company of a Chinese resident enterprise, by non-Chinese resident enterprise may
be re-characterized and treated as a direct transfer of the underlying PRC assets, if such
arrangement does not have a reasonable commercial purpose and was established for the purpose
of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect
transfer may be subject to PRC enterprise income tax (the “ PRC Taxable Assets ”).
For example, Bulletin 7 provides that where a non-resident enterprise transfers PRC Taxable
Assets indirectly by disposing of equity interests in an overseas holding company directly or
indirectly holding such PRC Taxable Assets, PRC tax authorities may disregard the existence of the
overseas holding company and re-characterize the nature of the indirect transfer of PRC Taxable
Assets as a direct transfer of PRC Taxable Assets, if such transfer is deemed to have been conducted
for the purposes of avoiding PRC EIT and without any other reasonable commercial purpose.
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Although Bulletin 7 contains certain exemptions, it is unclear whether any exemptions under
Bulletin 7 will be applicable to the transfer of our Shares or to any future acquisition by us outside
of China involving PRC Taxable Assets, or whether China’s tax authorities will reclassify such
transactions by applying Bulletin 7. Therefore, China’s tax authorities may deem any transfer of our
Shares by our shareholders that are non-resident enterprises, or any future acquisition by us outside
of China involving PRC Taxable Assets, to be subject to the foregoing regulations, which may
subject our shareholders or us to additional PRC tax reporting obligations or tax liabilities.
We may be subject to penalties under relevant PRC laws and regulations due to failure to be
in full compliance with social insurance and housing provident fund regulation.
Pursuant to PRC laws and regulations, we are required to participate in the employee social
welfare plan administered by local governments. Such plan consists of pension insurance, medical
insurance, work-related injury insurance, maternity insurance, unemployment insurance and
housing provident fund. The amount we are required to contribute for each of our employees under
such plan should be calculated based on the employee’s actual salary level of previous year, and be
subject to a minimum and maximum level as from time to time prescribed by local authorities.
During the Track Record Period, we did not pay social insurance and housing provident fund in full
for our employees based on their actual salary level in accordance with the relevant PRC laws and
regulations.
Our PRC Legal Advisor has advised us that, pursuant to relevant PRC laws and regulations,
if we fail to pay the full amount of social insurance contributions as required, we may be ordered
to pay the outstanding social insurance contributions within a prescribed time limit and may be
subject to an overdue charge of 0.05% of the delayed payment per day from the date on which the
payment is payable. If such payment is not made within the stipulated period, the competent
authority may further impose a fine from one to three times the amount of any overdue payment.
Our PRC Legal Advisor has further advised us that, pursuant to relevant PRC laws and regulations,
if we fail to pay the full amount of housing provident fund as required, the housing provident fund
management center may order us to make the outstanding payment within a prescribed time limit.
If the payment is not made within such time limit, an application may be made to the PRC courts
for compulsory enforcement. As of the Latest Practicable Date, no competent government
authorities had imposed administrative action, fine or penalty to us with respect to this
non-compliance incident nor had any competent government authorities required us to settle the
outstanding amount of social insurance payments and housing provident fund contributions.
In addition, during the Track Record Period, some of our PRC subsidiaries engaged third-party
human resources agencies to pay social insurance premium and housing provident funds for certain
of our employees. Pursuant to the agreements entered into between such third-party human
resources agencies and our relevant PRC subsidiaries, the third-party human resources agencies
have the obligation to pay social insurance premium and housing provident funds for our relevant
employees. These third-party human resources agencies have confirmed in writing that they have
paid such contributions in full compliance with the agreements with us. Pursuant to the PRC laws
and regulations, the contributions to social insurance premium and housing provident funds made
through third-party accounts may not be viewed as contributions made by us. As of the Latest
Practicable Date, neither our Company nor our PRC subsidiaries had received any administrative
penalty or labor arbitration application from employees for its agency arrangement with third-party
human resources agencies. As of December 31, 2022, our PRC subsidiaries paid contributions to
social insurance premium and housing provident funds for seven employees through third party
agencies per such employees’ personal requests.
As the interpretation and implementation of labor laws and regulations are still evolving, we
cannot assure you that our employment practice policy is and will at all times be deemed to be in
full compliance with labor-related laws and regulations in China, which may subject us to labor
RISK FACTORS
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disputes or government investigations. If we are deemed to have violated relevant labor laws and
regulations, we could be required to provide additional compensation to our employees and our
business, financial condition and results of operations could be materially and adversely affected.
PRC rules on mergers and acquisitions may make it more difficult for us to pursue growth
through acquisitions in China.
PRC regulations and rules concerning mergers and acquisitions including the Regulations on
Mergers and Acquisitions of Domestic Companies by Foreign Investors (Իᒅྤ
), or the M&A Rules, and other regulations and rules with respect to mergers and
acquisitions established additional procedures and requirements that could make merger and
acquisition activities by foreign investors more time consuming and complex. For example, the
M&A Rules require that the MOFCOM be notified in advance of any change-of-control transaction
in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry
is concerned, (ii) such transaction involves factors that have or may have impact on the national
economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise
which holds a famous trademark or PRC time-honored brand. Moreover, according to the
Anti-Monopoly Law of PRC promulgated on August 30, 2007 and the Provisions on Thresholds for
Prior Notification of Concentrations of Undertakings ()
issued by the State Council in August 2008 and amended in September 2018, the concentration of
business undertakings by way of mergers, acquisitions or contractual arrangements that allow one
market player to take control of or to exert decisive impact on another market player must also be
filed in advance with the anti-monopoly enforcement agency of the State Council when the
threshold is crossed and such concentration shall not be implemented without the clearance of prior
notification. In addition, in 2011, the General Office of the State Council promulgated a Notice on
Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by
Foreign Investors (),
also known as Circular 6, which officially established a security review system for mergers and
acquisitions of domestic enterprises by foreign investors. Under Circular 6, a security review is
required for mergers and acquisitions by foreign investors having “national defence and security”
concerns and mergers and acquisitions by which foreign investors may acquire the “de facto
control” of domestic enterprises with “national security” concerns. On December 19, 2020, the
NDRC and MOFCOM jointly promulgated the Measures on the Security Review of Foreign
Investment (), effective on January 18, 2021, setting forth provisions
concerning the security review mechanism on foreign investment, including the types of
investments subject to review, review scopes and procedures, among others. The Office of the
Working Mechanism of the Security Review of Foreign Investment (ʈЪዚՓ፬
܃the “Office of the Working Mechanism”) will be established under NDRC, who will lead the
task together with MOFCOM. Foreign investor or relevant parties in China must declare the
security review to the Office of the Working Mechanism prior to the investments in, among other
industries, important cultural products and services, important information technology and internet
products and services, important financial services, key technologies and other important fields
relating to national security, and obtain control in the target enterprise. In the future, we may grow
our business by acquiring complementary businesses. Complying with the requirements of the
above-mentioned regulations and other relevant rules to complete such transactions could be time
consuming, and any required approval processes, including obtaining approval from competent
government authorities may delay or inhibit our ability to complete such transactions. It is unclear
whether our business would be deemed to be in an industry that raises “national defense and
security” or “national security” concerns. However, the NDRC, the MOFCOM or other government
agencies may publish explanations in the future determining that our business is in an industry
subject to the security review, in which case our future acquisitions in the PRC, including those by
way of entering into contractual control arrangements with target entities, may be closely
scrutinized or prohibited. Our ability to expand our business or maintain or expand our market share
through future acquisitions would as such be materially and adversely affected.
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Payment of dividends may be subject to restrictions under the PRC laws.
Under the PRC laws, dividends may be paid only out of distributable profits. Distributable
profits are the net profit as determined under PRC GAAP or IFRS, whichever is the lower, less any
recovery of accumulated losses and appropriations to statutory and other reserves required to be
made. As a result, we may not have sufficient, or any, distributable profits to enable us to make
dividend distributions to our Shareholders in the future, including periods for which our financial
statements indicate that our operations have been profitable. Any distributable profits that are not
distributed in a given year are retained and available for distribution in subsequent years.
Moreover, as the calculation of distributable profits under PRC GAAP is different from the
calculation under IFRS in certain respects, our operating subsidiaries may not have distributable
profits as determined under PRC GAAP, even if they have profits for that year as determined under
IFRS, or vice versa. Accordingly, we may not receive sufficient distributions from our subsidiaries.
Failure by our operating subsidiaries to pay dividends to us could have a negative impact on our
cash flows and our ability to make dividend distributions to our Shareholders in the future,
including those periods in which our financial statements indicate that our operations have been
profitable.
Holders of our Shares may be subject to PRC income tax obligations.
Under current PRC tax laws, regulations and rules, non-PRC resident individuals and
non-PRC resident enterprises are subject to different tax obligations with respect to the dividends
paid to them by us and the gains realized upon the sale or other disposition of Shares.
Non-PRC resident individuals are required to pay PRC individual income tax at a 20% rate
under Individual Income Tax Law of the People’s Republic of China (੻೼
جfor the interests, dividends and bonus they obtain from the PRC. Accordingly, we are required
to withhold such tax from dividend payments, unless applicable tax treaties between China and the
jurisdiction in which the foreign individual resides reduce or provide an exemption for the relevant
tax obligations. Generally, in accordance with the Notice on Matters Concerning the Levy and
Administration of Individual Income Tax After the Repeal of Guo Shui Fa [1993] No. 045 Issued
by the STA (਷೼೯[1993]045ٝ,)
domestic non-foreign-invested enterprises issuing shares in Hong Kong may, when distributing
dividends to overseas resident individuals in the jurisdiction of the tax treaty, withhold individual
income tax at the rate of 10%. When a tax rate of 10% is not applicable, the withholding company
shall: (a) return the excessive tax amount pursuant to due procedures if the applicable tax rate is
lower than 10%; (b) withhold such foreign individual income tax at the effective tax rate agreed on
if the applicable tax rate is between 10% and 20%; or (c) withhold such foreign individual income
tax at a rate of 20% if no taxation treaty is applicable.
For non-PRC resident enterprises that were established under foreign laws with no real
management body in China but have establishments or premises in China, or for those which have
no establishments or premises in China but whose income is derived from China, under the
Enterprise Income Tax Law of the People’s Republic of China (ج,)
dividends paid by us and gains realized by such foreign enterprises upon the sale or other
disposition of H Shares are ordinarily subject to PRC enterprise income tax at a 20% rate. In
accordance with the Circular on Issues Relating to the Withholding of Enterprise Income Tax by
PRC Resident Enterprises on Dividends Paid to Overseas Non-PRC Resident Enterprise
Shareholders of H Shares (͏ΆุΣྤ̮Hה
ٝissued by the STA, such tax rate has been reduced to 10%, subject to a further
reduction under special arrangements or applicable treaties between China and the jurisdiction of
the residence of the relevant non-PRC resident enterprise.
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Despite the arrangements mentioned above, there are significant uncertainties as to the
interpretation and application of applicable PRC tax laws and regulations due to several factors,
including whether the relevant preferential tax treatment will be revoked in the future such that all
non-PRC resident individual holders will be subject to PRC individual income tax at a flat rate of
20%.
In addition, there remain significant uncertainties as to the interpretation and application of
applicable PRC tax laws and regulations by the PRC’s tax authorities, including individual income
tax on dividends paid to non-PRC resident Shareholders, and on gains realized on sale or other
disposition of our Shares. The PRC’s tax laws and regulations may also change. If there is any
change to applicable tax laws and regulations or in the interpretation or application of such laws and
regulations, the value of your investment in our Shares may be materially affected.
Investors may experience difficulties in effecting service of legal process and enforcing
judgments against us, our Directors, Supervisors or senior management.
Our operations are primarily in the PRC and most of our assets and our subsidiaries are
located within the PRC. Most of our Directors, Supervisors and senior management reside within
the PRC. As a result, it may not be possible to effect service of process outside of the PRC upon
us or most of our Directors, Supervisors and senior management.
A judgment of a court of another jurisdiction may be reciprocally recognized or enforced in
the PRC only if the jurisdiction has a treaty with the PRC or if the jurisdiction has been otherwise
deemed by the PRC courts to satisfy the requirements for reciprocal recognition, subject to the
satisfaction of other requirements. However, the PRC is not a party to treaties providing for the
reciprocal enforcement of judgments of courts with foreign countries such as the United States and
the United Kingdom and enforcement in the PRC of judgments of a court in these jurisdictions may
consequently be difficult or impossible. On July 14, 2006, the Supreme People’s Court of the PRC
and the Government of the Hong Kong Special Administrative Region signed the Arrangement
between the Mainland and the HKSAR on Reciprocal Recognition and Enforcement of the
Decisions of Civil and Commercial Cases under Consensual Jurisdiction (݁
τર) (the “2006 Arrangement”).
Under the 2006 Arrangement, where any designated PRC court or Hong Kong court has made an
enforceable final judgment requiring payment of money in a civil and commercial case pursuant to
a choice of court agreement, the party concerned may apply to the relevant PRC court or Hong Kong
court for recognition and enforcement of the judgment. The 2006 Arrangement took effect on
August 1, 2008, but the effectiveness of any action brought under the arrangement still remain
uncertain. On January 18, 2019, the Supreme People’s Court of the People’s Republic of China and
the Department of Justice under the Government of the Hong Kong Special Administrative Region
signed the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and
Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative
Region (τર) (the “2019
Arrangement”). The 2019 Arrangement regulates, among others, the scope and particulars of
judgments, the procedures and methods of the application for recognition or enforcement, the
review of the jurisdiction of the court that issued the original judgment, the circumstances where
the recognition and enforcement of a judgment shall be refused, and the approaches towards
remedies for the reciprocal recognition and enforcement of judgments in civil and commercial
matters between the courts in mainland China and those in the Hong Kong Special Administrative
Region. As for now, the 2019 Arrangement has not come into force.
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RISKS RELATING TO THE GLOBAL OFFERING
There has been no prior public market for the Shares and an active trading market may not
develop.
Prior to completion of the Global Offering, there has been no public market for our Shares.
There can be no guarantee that an active trading market for our Shares will develop or be sustained
after completion of the Global Offering. The Offer Price is the result of negotiations among our
Company and the Overall Coordinators (for themselves and on behalf of the Underwriters), which
may not be indicative of the price at which our Shares will be traded following completion of the
Global Offering. The market price of our Shares may drop below the Offer Price at any time after
completion of the Global Offering.
The trading price of our Shares may be volatile, which could result in substantial losses to you.
The trading price of our Shares may be volatile and could fluctuate widely in response to
factors beyond our control, including general market conditions of the securities markets in Hong
Kong, China, the United States and elsewhere in the world. In particular, the performance and
fluctuation of the market prices of other companies with business operations located mainly in
China that have listed their securities in Hong Kong may affect the volatility in the price of and
trading volumes for our Shares. A number of PRC-based companies have listed their securities, and
some are in the process of preparing for listing their securities, in Hong Kong. Some of these
companies have experienced significant volatility, including significant price declines after their
initial public offerings. The trading performances of the securities of these companies at the time
of or after their offerings may affect the overall investor sentiment towards PRC-based companies
listed in Hong Kong and consequently may impact the trading performance of our Shares. These
broad market and industry factors may significantly affect the market price and volatility of our
Shares, regardless of our actual operating performance.
Investors will experience immediate dilution.
As the Offer Price of our Shares is higher than the consolidated net tangible assets per share
immediately prior to the Global Offering, purchasers of our Shares in the Global Offering will
experience an immediate dilution in pro forma adjusted consolidated net tangible assets. Our
existing Shareholders will receive an increase in the pro forma adjusted consolidated net tangible
asset value per share of their shares. In addition, holders of our Shares may experience further
dilution of their interest if the Underwriters exercise the Over-allotment Option or if we issue
additional shares in the future to raise additional capital.
Future sales or perceived sales of substantial amounts of our Shares in the public market could
have a material adverse effect on the prevailing market price of our Shares and our ability to
raise additional capital in the future.
The market price of our Shares could decline as a result of substantial future sales of our
Shares or other securities relating to Shares in the public market. Such a decline could also occur
with the issuance of new Shares or other securities relating to our Shares, or the perception that such
sales or issuances may occur. Future sales, or perceived sales, of substantial amounts of our Shares
could materially adversely affect the prevailing market price of our Shares and our ability to raise
future capital at a favorable time and price. Our shareholders would experience a dilution in their
holdings upon the issuance or sale of additional securities for any purpose.
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If securities or industry analysts do not publish research reports about our business, or if they
adversely change their recommendations regarding our Shares, the market price and trading
volume of our Shares may decline.
The trading market for our Shares will be influenced by the research and reports that industry
or securities analysts publish about us or our business. If one or more of the analysts who cover us
downgrade our Shares, the price of our Shares would likely decline. If one or more of these analysts
cease coverage of our Company or fail to regularly publish reports on us, we could lose visibility
in the financial markets, which in turn could cause our stock price or trading volume to decline.
Because we do not expect to pay dividends in the foreseeable future after the Global Offering,
you must rely on price appreciation of our Shares for a return on your investment.
We currently intend to retain most, if not all, of our available funds and any future earnings
after the Global Offering to fund the development and growth of our business. As a result, we do
not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on
an investment in our Shares as a source for any future dividend income.
Our Board has discretion as to whether to declare and pay dividends. In addition, our
shareholders may in a general meeting also declare dividends, provided that no dividends shall
exceed the amount recommended by our Directors. In either case, in no circumstances may a
dividend be paid if this would result in our Company being unable to pay its debts as they fall due
in the ordinary course of business. Even if our Board decides to declare and pay dividends, or to
recommend such dividends to our shareholders, the timing, amount and form of future dividends,
if any, will depend on our future results of operations and cash flow, our capital requirements and
surplus, the amount of distributions (if any) received by us from our subsidiaries, our financial
condition, contractual restrictions and other factors deemed relevant by our Board. Accordingly, the
return on your investment in our Shares will likely depend entirely upon any future price
appreciation of our Shares. There is no guarantee that our Shares will appreciate in value after the
Global Offering or even maintain the price at which you purchased the Shares. You may not realize
a return on your investment in our Shares and you may even lose your entire investment in our
Shares.
Investors may experience difficulties in enforcing Shareholder rights.
Our Company is an exempted company incorporated in the Cayman Islands with limited
liability and the laws of the Cayman Islands differ in some respects from those of Hong Kong or
other jurisdictions where investors may be located. The corporate affairs of our Company are
governed by the Memorandum and the Articles, the Companies Act and the common law of the
Cayman Islands. The rights of Shareholders to take legal action against our Company and/or our
Directors, actions by minority Shareholders and the fiduciary duties of our Directors to our
Company under Cayman Islands laws are to a large extent governed by the common law of the
Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively
limited judicial precedent in the Cayman Islands as well as from English common law, which has
persuasive, but not binding, authority on a court in the Cayman Islands. Shareholders may have
different remedies in exercising their rights in the face of actions taken by the management of our
Company, Directors or major Shareholders than they would as shareholders of a Hong Kong
company or company incorporated in other jurisdictions. Such differences could mean that minority
Shareholders could have different protections than they would have under the laws of Hong Kong
or other jurisdictions with which minority Shareholders are more familiar.
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There can be no assurance of the accuracy or completeness of certain facts, forecasts and other
statistics obtained from various government publications, market data providers and other
independent third-party sources, including the industry expert reports, contained in this
Prospectus.
This Prospectus, particularly the section headed “Industry Overview,” contains information
and statistics relating to the healthcare and ICL industries. Such information and statistics were
extracted from different official government publications, available sources from public market
research and other sources form independent suppliers, and from the independent industry report
prepared by Frost & Sullivan, an independent third party we engaged in connection with the Global
Offering. The information from official government sources has not been independently verified by
us, the Joint Global Coordinators, the Overall Coordinators, Joint Sponsors, Joint Bookrunners,
Joint Lead Managers, any of the Underwriters, the Capital Market Intermediaries, any of their
respective directors and advisers, or any other persons or parties involved in the Global Offering,
and no representation is given as to its accuracy.
Y ou should read the entire document carefully, and we strongly caution you not to place any
reliance on any information contained in press articles or other media regarding us or the
Global Offering.
There may be, subsequent to the date of this document but prior to the completion of the
Global Offering, press and media coverage regarding us and the Global Offering, which may
contain, among other things, certain financial information, projections, valuations and other
forward-looking information about us and the Global Offering. We have not authorized the
disclosure of any such information in the press or media and do not accept responsibility for the
accuracy or completeness of such press articles or other media coverage. We make no representation
as to the appropriateness, accuracy, completeness or reliability of any of the projections, valuations
or other forward-looking information about us. To the extent such statements are inconsistent with,
or conflict with, the information contained in this document, we disclaim responsibility for them.
Accordingly, prospective investors are cautioned to make their investment decisions on the basis of
the information contained in this document only and should not rely on any other information.
You should rely solely upon the information contained in this document, the Global Offering
and any formal announcements made by us in Hong Kong in making your investment decision
regarding our Shares. We do not accept any responsibility for the accuracy or completeness of any
information reported by the press or other media, nor the fairness or appropriateness of any
forecasts, views or opinions expressed by the press or other media regarding our Shares, the Global
Offering or us. We make no representation as to the appropriateness, accuracy, completeness or
reliability of any such data or publication. Accordingly, prospective investors should not rely on any
such information, reports or publications in making their decisions as to whether to invest in our
Global Offering. By applying to purchase our Shares in the Global Offering, you will be deemed
to have agreed that you will not rely on any information other than that contained in this document
and the Global Offering.
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W AIVER IN RESPECT OF MANAGEMENT PRESENCE IN HONG KONG
Pursuant to Rule 8.12 of the Listing Rules, an issuer must have a sufficient management
presence in Hong Kong. This normally means that at least two of its executive directors must be
ordinarily resident in Hong Kong.
Our Company is incorporated under the laws of the Cayman Islands as an exempted company
with limited liability. Given that our executive Director, headquarters, senior management, business
operations and assets are primarily based in the PRC, our Company does not, and will not for the
foreseeable future, have two executive Directors who are ordinarily resident in Hong Kong for the
purpose of satisfying the requirements under Rule 8.12 of the Listing Rules. Hence, we have applied
to the Stock Exchange for, and the Stock Exchange has granted us, a waiver from strict compliance
with the requirements under Rule 8.12 of the Listing Rules. We will ensure that there is an effective
channel of communication between our Company and the Stock Exchange by adopting the
following arrangements:
(a) pursuant to Rule 3.05 of the Listing Rules, we have appointed and will continue to
maintain two authorized representatives, namely Ms. YANG Ling, our chairwoman, and
Mr. WANG Lawrence Allen, our joint company secretary, to be the principal
communication channel at all times between the Stock Exchange and our Company.
Each of our authorized representatives will be readily contactable by the Stock Exchange
by telephone, mobile and/or e-mail to deal promptly with enquiries from the Stock
Exchange. The authorized representatives are authorized to communicate on our behalf
with the Stock Exchange;
(b) we will implement a policy to provide the contact details of each Director (including
telephone numbers, mobile numbers and email addresses) to each of the authorized
representatives and to the Stock Exchange. This will ensure that each of the authorized
representatives and the Stock Exchange will have the means to contact all our Directors
(including our independent non-executive Directors) promptly as and when required,
including the means to communicate with our Directors when they are travelling;
(c) we will ensure that all Directors who are not ordinarily resident in Hong Kong have valid
travel documents to visit Hong Kong and will be able to come to Hong Kong to meet
with the Stock Exchange within a reasonable period of time when required; and
(d) we have retained the services of a compliance advisor, being Somerley Capital Limited
(the “ Compliance Advisor ”), in accordance with Rule 3A.19 of the Listing Rules. The
Compliance Advisor will serve as a channel of communication with the Stock Exchange
in addition to the authorized representatives of our Company. The Compliance Advisor
will provide our Company with professional advice on ongoing compliance with the
Listing Rules. We will ensure that the Compliance Advisor has prompt access to our
Company’s authorized representatives and Directors who will provide to the Compliance
Advisor such information and assistance as the Compliance Advisor may need or may
reasonably request in connection with the performance of the Compliance Advisor’s
duties. The Compliance Advisor will also provide advice to our Company when
consulted by our Company in compliance with Rule 3A.23 of the Listing Rules.
Meetings between the Stock Exchange and the Directors could be arranged through the
authorized representatives or the Compliance Advisor, or directly with the Directors
within a reasonable time frame. Our Company will inform the Stock Exchange as soon
as practicable in respect of any change in the authorized representatives and/or the
Compliance Advisor in accordance with the Listing Rules.
W AIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES
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W AIVER IN RESPECT OF JOINT COMPANY SECRETARIES
Pursuant to Rules 3.28 and 8.17 of the Listing Rules, the company secretary must be an
individual who, by virtue of his/her academic or professional qualifications or relevant experience,
is, in the opinion of the Stock Exchange, capable of discharging the functions of 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:
(a) a member of The Hong Kong Institute of Chartered Secretaries;
(b) a solicitor or barrister as defined in the Legal Practitioners Ordinance (Chapter 159 of
the Laws of Hong Kong); and
(c) 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:
(a) length of employment with the issuer and other issuers and the roles he/she played;
(b) familiarity with the Listing Rules and other relevant law and regulations including the
SFO, Companies Ordinance, Companies (Winding Up and Miscellaneous Provisions)
Ordinance and the Takeovers Code;
(c) relevant training taken and/or to be taken in addition to the minimum requirement under
Rule 3.29 of the Listing Rules; and
(d) professional qualifications in other jurisdictions.
Our Company appointed Mr. WANG Lawrence Allen and Ms. SO Ka Man, as joint company
secretaries. Please refer to the section headed “Directors and Senior Management” in this
Prospectus for their biographies.
Ms. SO Ka Man is a Chartered Secretary, a Chartered Governance Professional and a fellow
of both The Hong Kong Chartered Governance Institute and The Chartered Governance Institute in
the United Kingdom. Ms. SO meets the qualification requirements under Note 1 to Rule 3.28 of the
Listing Rules and is in compliance with Rule 8.17 of the Listing Rules.
While Mr. WANG Lawrence Allen does not possess the formal qualifications required of a
company secretary, we have applied for, and the Stock Exchange has granted us, a waiver from strict
compliance with Rules 3.28 and 8.17 of the Listing Rules for a three-year period from the Listing
Date on the condition that (i) Mr. WANG Lawrence Allen must be assisted by Ms. SO Ka Man who
possesses the qualifications and experience as required under Rule 3.28 of the Listing Rules and
who is appointed as a joint company secretary throughout the three-year waiver period; and (ii) the
waiver can be revoked if there are material breaches of the Listing Rules by our Company.
CONNECTED TRANSACTIONS
We have entered into certain transactions which will constitute continuing connected
transactions of our Company under the Listing Rules following the completion of the Listing. We
have applied to the Stock Exchange for, and the Stock Exchange has granted, a waiver from strict
compliance with (where applicable) (i) the announcement requirement of the Listing Rules, (ii) the
annual cap requirement, and (iii) the requirement of limiting the term of the continuing connected
transactions set out in Chapter 14A of the Listing Rules for such continuing connected transactions.
Should there be any amendment of terms of the Contractual Arrangements or any proposed
transaction to be entered into between our Company and its connected person(s), our Group shall
comply with the requirements under Chapter 14A of the Listing Rules unless a waiver from the
Stock Exchange is obtained as appropriate. For further details, see the section headed “Connected
Transactions” in this Prospectus.
W AIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES
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W AIVER AND CONSENT IN RELATION TO SUBSCRIPTION OF OFFER SHARES BY AN
EXISTING SHAREHOLDER, CORELINK
Rule 9.09(b) of the Listing Rules provides that there must be no dealing in the securities for
which listing is sought by any core connected person of an issuer (except as permitted by Rule 7.11
of the Listing Rules) from 4 clear business days before the expected hearing date until listing is
granted.
Rule 10.03 of the Listing Rules provides that a director of the issuer and his/her close
associates may only subscribe for or purchase any securities for which listing is sought if no
securities are offered to them on a preferential basis and no preferential treatment is given to them
in the allocation of the securities, and the minimum prescribed percentage of public shareholders
required by Rule 8.08(1) of the Listing Rules is achieved.
Rule 10.04 of the Listing Rules provides that a person who is an existing shareholder of the
issuer may only subscribe for or purchase securities for which listing is sought if the conditions in
Rule 10.03(1) and (2) are satisfied. The requirements of Rule 10.03 of the Listing Rules are that (1)
no securities are offered to the existing shareholder on a preferential basis and no preferential
treatment is given to the existing shareholder in the allocation of the securities; and (2) the
minimum prescribed percentage of public shareholders required by Rule 8.08(1) of the Listing
Rules is achieved.
Paragraph 5(2) of Appendix 6 to the Listing Rule prohibits allocation of shares in a global
offering to existing shareholders of the applicant or their close associates, whether in their own
names or through nominees, unless the conditions in Rules 10.03 and 10.04 are fulfilled or prior
written consent of the Stock Exchange has been obtained.
As of the Latest Practicable Date, Corelink holds approximately 12.45% of the total issued
share capital of the Company. Assuming that all Preferred Shares issued under the Round B Pre-IPO
Investment are converted into Shares immediately before the Listing, the Over-allotment is not
exercised and without taking into account the Exercise of the Corelink Anti-Dilution Right (as
defined below), Corelink’s shareholding in the total issued share capital of the Company will
decrease to approximately 12.15% immediately following the completion of the Global Offering,
subject to adjustment to the size of the Global Offering. In addition, Corelink is wholly-owned by
our non-executive Director, Mr. Lin Jixun. Therefore Corelink is a core connected person of the
Company and a close associate of a Director.
Pursuant to the Shareholders Agreement, Corelink has the right to purchase up to the number
of the ordinary shares of the Company offers in the Global Offering at the Offer Price that enables
it to maintain its ownership interest percentage in the Company (the “ Corelink Entitled Shares ”)
immediately prior to a qualified IPO (the “ Corelink Anti-Dilution Right ”). The Corelink
Anti-Dilution Right shall terminate immediately after the consummation of the qualified IPO.
In the Global Offering, Corelink will exercise the Corelink Anti-Dilution Right to subscribe
for additional Offer Shares at the Offer Price, as a cornerstone investor in the International Offering
(the “ Exercise of the Corelink Anti-Dilution Right ”). Following the Exercise of the Corelink
Anti-Dilution Right, Corelink shall not own more than its percentage shareholding interest in the
Company as at immediately before the Listing (i.e. approximately 12.45% of the total issued share
capital of the Company, whether the Over-allotment Option is exercised or not). The number of
Corelink Entitled Shares Corelink will subscribe is 2,152,000 Offer Shares, which enable Corelink
to maintain its ownership interest percentage in the Company prior to the exercise of any
Over-allotment Option, rounded down to the nearest board lot.
W AIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES
–8 2–


--- page 91 ---
Based on the following reasons and conditions, the Company has applied for, and the Stock
Exchange has granted, a waiver from strict compliance with the requirements under Rules 9.09(b),
10.03 and 10.04 of, and a consent under paragraph 5(2) of Appendix 6 to, the Listing Rules, to allow
Corelink to subscribe for Offer Shares in the Global Offering as a cornerstone investor based on the
following reasons and/or conditions:
(a) the Corelink Anti-Dilution Right, if exercised, will be made in compliance with the
Guidance Letter HKEx-GL43-12:
i. the allocation to Corelink is necessary in order to give effect to the Corelink
Anti-Dilution Right under the Shareholders Agreement and such allocation will not
affect the Company’s ability to satisfy the public float requirement of Rule 8.08(1);
ii. a full disclosure of the Corelink Anti-Dilution Right and the number of shares to
be subscribed for by Corelink will be made in the Company’s Prospectus and the
allotment results announcement and the placee lists to be submitted to the Stock
Exchange;
iii. the Corelink Entitled Shares will be subscribed for by Corelink at the Offer Price
and, in any event, will not result in the percentage interest held by Corelink in the
Company increasing above the percentage interest held by Corelink immediately
prior to the Global Offering;
(b) as of the Latest Practicable Date, the Company has a dispersed shareholding structure in
respect of its existing issued shares with 27.76% of the issued shares held by 30 minority
shareholders each with a shareholding less than 5%; and
(c) the subscription of the Corelink Entitled Shares by Corelink will not have any impact on
the Shares to be offered to the public investors in Hong Kong under the Hong Kong
Public Offering, considering that Corelink will subscribe for the Corelink Entitled
Shares in the International Offering at the same offer price and under substantially the
same terms and conditions as other cornerstone investors in the Global Offering.
W AIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES
–8 3–


--- page 92 ---
DIRECTORS’ RESPONSIBILITY FOR THE CONTENTS OF THIS PROSPECTUS
This Prospectus, for which our Directors, including any proposed director who is named as
such in this Prospectus, collectively and individually accept full responsibility, includes particulars
given in compliance with the 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 to the public with regard to our Group.
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 not misleading or deceptive, and there are no other matters the omission of which would make
any statement herein or this Prospectus misleading.
GLOBAL OFFERING
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, this
Prospectus contains the terms and conditions of the Hong Kong Public Offering.
The Hong Kong Offer Shares are offered solely on the basis of the information contained and
representations made in this Prospectus and on the terms and subject to the conditions set out herein
and therein. No person is authorized to give any information in connection with the Global Offering
or to make any representation not contained in this Prospectus, and any information or
representation not contained herein and therein must not be relied upon as having been authorized
by our Company, the Selling Shareholder, the Joint Sponsors, the Overall Coordinators, the Joint
Global Coordinators, the Joint Bookrunners, the Joint Lead Managers, the Capital Market
Intermediaries and any of the Underwriters, any of their respective directors, agents, employees or
advisors or any other party involved in the Global Offering.
The Listing is sponsored by the Joint Sponsors and the Global Offering is managed by the
Overall Coordinators. Pursuant to the Hong Kong Underwriting Agreement, the Hong Kong Public
Offering is fully underwritten by the Hong Kong Underwriters under the terms of the Hong Kong
Underwriting Agreement. The International Offering is expected to be fully underwritten by the
International Underwriters subject to the terms and conditions of the International Underwriting
Agreements, which is expected to be entered into on or about Friday, June 23, 2023.
See the section headed “Underwriting” in this Prospectus for further information about the
Underwriters and the underwriting arrangements.
PROCEDURES FOR APPLICATION FOR HONG KONG OFFER SHARES
The application procedures for the Hong Kong Offer Shares are set forth in “How to Apply
for the Hong Kong Offer Shares” in this Prospectus.
STRUCTURE AND CONDITIONS OF THE GLOBAL OFFERING
Details of the structure of the Global Offering, including its conditions, are set forth in the
section headed “Structure of the Global Offering” in this Prospectus.
INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING
–8 4–


--- page 93 ---
SELLING RESTRICTIONS ON OFFERS AND SALE OF SHARES
Each person acquiring the Hong Kong Offer Shares under the Hong Kong Public Offering will
be required to, or be deemed by his/her acquisition of Offer Shares to, confirm that he/she is aware
of the restrictions on offers for the Offer Shares described in this Prospectus.
No action has been taken to permit a public offering of the Offer Shares in any jurisdiction
other than in Hong Kong, or the distribution of this Prospectus in any jurisdiction other than Hong
Kong. Accordingly, this Prospectus may not be used for the purpose of, and does not constitute an
offer or invitation in any jurisdiction or in any circumstances in which such an offer or invitation
is not authorized or to any person to whom it is unlawful to make such an offer or invitation. The
distribution of this Prospectus and the offering and sale 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 authorisation by the relevant securities
regulatory authorities or an exemption therefrom.
APPLICATION FOR LISTING ON THE STOCK EXCHANGE
We have applied to the Stock Exchange for the listing of, and permission to deal in, (a) the
Shares in issue (including the Shares to be converted from Preferred Shares); and (b) the Shares to
be issued pursuant to the Global Offering (including the Over-allotment Option).
Dealings in the Shares on the Stock Exchange are expected to commence on Friday, June 30,
2023. No part of our Shares or loan capital 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. All Offer Shares will be
registered on the Hong Kong Share Register of our Company in order to enable them to be traded
on the Stock Exchange.
Under section 44B(1) of the Companies (Winding Up and Miscellaneous Provisions)
Ordinance, any allotment made in respect of any application will be invalid if the listing of, and
permission to deal in, the Shares on the Stock Exchange is refused before the expiration of three
weeks from the date of the closing of the application lists, or such longer period (not exceeding six
weeks) as may, within the said three weeks, be notified to our Company by the Stock Exchange.
OVER-ALLOTMENT OPTION AND STABILIZATION
Details of the arrangements relating to the Over-allotment Option and stabilization are set out
in the section headed “Structure of the Global Offering” in this Prospectus.
SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS
Subject to the granting of the listing of, and permission to deal in, the Shares on the Stock
Exchange and compliance with the stock admission requirements of HKSCC, the 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
settlement 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.
All necessary arrangements have been made for the Shares to be admitted into CCASS.
Investors should seek the advice of their stockbroker or other professional advisor for details of
those settlement arrangements and how such arrangements will affect their rights and interests.
INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING
–8 5–


--- page 94 ---
SHARE REGISTER AND STAMP DUTY
Our principal register of members will be maintained in the Cayman Islands by our principal
registrar, Tricor Services (Cayman Islands) Limited, in the Cayman Islands. Our Hong Kong Share
Register will be maintained by the Hong Kong Share Registrar, Tricor Investor Services Limited,
in Hong Kong.
All Offer Shares issued pursuant to applications made in the Hong Kong Public Offering and
the International Offering will be registered on the Hong Kong register of members of our Company
in Hong Kong. Dealings in the Shares registered in our Hong Kong register of members will be
subject to Hong Kong stamp duty. For further details of Hong Kong stamp duty, please seek
professional tax advice.
PROFESSIONAL TAX ADVICE RECOMMENDED
Potential investors in the Global Offering are recommended to consult their professional
advisors if they are in any doubt as to the taxation implications of subscribing for, holding and
dealing in the Shares or exercising any rights attached to them. It is emphasized that none of the
Company, the Selling Shareholder, the Joint Sponsors, the Overall Coordinators, the Joint Global
Coordinators, the Joint Bookrunners, the Joint Lead Managers, the Underwriters, the Capital Market
Intermediaries, any of their respective affiliates, directors, supervisors, employees, agents or
advisors or any other party involved in the Global Offering accepts responsibility for any tax effects
on, or liabilities of holders of the Shares resulting from the subscription, purchase, holding or
disposal of the Shares or exercising any rights attached to them.
EXCHANGE RATE CONVERSION
Solely for your convenience, this Prospectus contains translations of certain Renminbi
amounts into Hong Kong dollars, of Renminbi amounts into U.S. dollars and of Hong Kong dollars
into U.S. dollars at specified rates. Unless we indicate otherwise, the translation of Renminbi into
Hong Kong dollars, of Renminbi into U.S. dollars and of Hong Kong dollars into U.S. dollars, and
vice versa, in this Prospectus was made at the following rates:
RMB0.9068 to HK$1.00
RMB7.1075 to US$1.00
HK$7.8379 to US$1.00
No representation is made that any amounts in Renminbi, Hong Kong dollars or U.S. dollars
can be or could have been at the relevant dates converted at the above rates or any other rates or
at all.
LANGUAGE
If there is any inconsistency between the English version of this Prospectus and the Chinese
translation of this Prospectus, the English version of this Prospectus shall prevail unless otherwise
stated. However, if there is any inconsistency between the names of any of the entities mentioned
in the English Prospectus that are not in the English language and are English translations, the
names in their respective original languages shall prevail.
ROUNDING
Any discrepancies in any table or chart in this Prospectus between total and sum of amounts
listed therein are due to rounding.
OTHER
Unless otherwise specified, all references to any shareholdings in our Company following the
completion of the Global Offering assume that the Over-allotment Option is not exercised.
INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING
–8 6–


--- page 95 ---
DIRECTORS
Name Address Nationality
Chairwoman and non-executive Director
Ms. YANG Ling (ࡗHouse No. 5, 50 Island Road
Repulse Bay, Hong Kong
Chinese (Hong Kong)
Executive Director
Mr. GAO Song ( ৷෽) Room 901, No. 17, Lane 518
Changshou Road
Putuo District
Shanghai, the PRC
Chinese
Non-executive Directors
Mr. LIN Jixun (ᘱԘ) Flat D, 26/F, Tower 2
Centrestage
108 Hollywood Road
Hong Kong
Chinese (Hong Kong)
Ms. FENG Janine Junyuan
(ʩ)
House 12B, Belleview Garden
5 Belleview Drive
Repulse Bay, Hong Kong
Chinese (Hong Kong)
Ms. LIM Kooi June Biyun Road Lane 777
Building 6-202
Pudong New District
Shanghai, the PRC
Malaysian
Independent non-executive Directors
Mr. MI Brian Zihou (ێRoom 705, No. 2, Lane 180
Hongshan Road
Pudong New Area
Shanghai, the PRC
American
Mr. YEH Richard ( ໢ᎌ) Room 21C, Tower 9, Marinella
9 Welfare Road
Aberdeen, Hong Kong
Canadian
Mr. ZHANG Wei ( ੵ⑸) Room 1205, Block 2
Vanke Xingyuan
Yangshan Road
Chaoyang District
Beijing, the PRC
Chinese
See the section headed “Directors and Senior Management” in this Prospectus for further
details.
DIRECTORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
–8 7–


--- page 96 ---
PARTIES INVOLVED IN THE GLOBAL OFFERING
Joint Sponsors and Sponsor-OCs Morgan Stanley Asia Limited
46/F, International Commerce Centre
1 Austin Road West
Kowloon
Hong Kong
Jefferies Hong Kong Limited
Level 26, Two International Finance Centre
8 Finance Street
Central
Hong Kong
Overall Coordinators Morgan Stanley Asia Limited
46/F, International Commerce Centre
1 Austin Road West
Kowloon
Hong Kong
Jefferies Hong Kong Limited
Level 26, Two International Finance Centre
8 Finance Street
Central
Hong Kong
Joint Global Coordinators Morgan Stanley Asia Limited
46/F, International Commerce Centre
1 Austin Road West
Kowloon
Hong Kong
Jefferies Hong Kong Limited
Level 26, Two International Finance Centre
8 Finance Street
Central
Hong Kong
CLSA Limited
18/F, One Pacific Place
88 Queensway
Hong Kong
Deutsche Bank AG, Hong Kong Branch
Level 60, International Commerce Centre
1 Austin Road West
Kowloon
Hong Kong
Haitong International Securities Company
Limited
22/F, Li Po Chun Chambers
189 Des V oeux Rd Central
Central
Hong Kong
The Hongkong and Shanghai Banking
Corporation Limited
1 Queen’s Road Central
Hong Kong
DIRECTORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
–8 8–


--- page 97 ---
Capital Market Intermediaries Morgan Stanley Asia Limited
46/F, International Commerce Centre
1 Austin Road West
Kowloon
Hong Kong
Jefferies Hong Kong Limited
Level 26, Two International Finance Centre
8 Finance Street
Central
Hong Kong
CLSA Limited
18/F, One Pacific Place
88 Queensway
Hong Kong
Deutsche Bank AG, Hong Kong Branch
Level 60, International Commerce Centre
1 Austin Road West
Kowloon
Hong Kong
Haitong International Securities Company
Limited
22/F, Li Po Chun Chambers
189 Des V oeux Rd Central
Central
Hong Kong
The Hongkong and Shanghai Banking
Corporation Limited
1 Queen’s Road Central
Hong Kong
CCB International Capital Limited
12/F, CCB Tower
3 Connaught Road Central
Central
Hong Kong
Futu Securities International (Hong Kong)
Limited
13/F, United Centre
No. 95 Queensway
Hong Kong
DIRECTORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
–8 9–


--- page 98 ---
Huatai Financial Holdings (Hong Kong)
Limited
62/F, The Center
99 Queen’s Road Central
Hong Kong
ICBC International Securities Limited
37/F, ICBC Tower
3 Garden Road
Hong Kong
Tiger Brokers (HK) Global Limited
1/F, FWD Financial Centre
308 Des V oeux Road Central
Hong Kong
Valuable Capital Limited
28/F, China Merchants Tower
Shun Tak Centre
168-200 Connaught Road Central
Hong Kong
Joint Bookrunners and Joint Lead
Managers
Morgan Stanley Asia Limited
46/F, International Commerce Centre
1 Austin Road West
Kowloon
Hong Kong
Jefferies Hong Kong Limited
Level 26, Two International Finance Centre
8 Finance Street
Central
Hong Kong
CLSA Limited
18/F, One Pacific Place
88 Queensway
Hong Kong
Deutsche Bank AG, Hong Kong Branch
Level 60, International Commerce Centre
1 Austin Road West
Kowloon
Hong Kong
Haitong International Securities Company
Limited
22/F, Li Po Chun Chambers
189 Des V oeux Rd Central
Central
Hong Kong
DIRECTORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
–9 0–


--- page 99 ---
The Hongkong and Shanghai Banking
Corporation Limited
1 Queen’s Road Central
Hong Kong
CCB International Capital Limited
12/F, CCB Tower
3 Connaught Road Central
Central
Hong Kong
Futu Securities International (Hong Kong)
Limited
13/F, United Centre
No. 95 Queensway
Hong Kong
Huatai Financial Holdings (Hong Kong)
Limited
62/F, The Center
99 Queen’s Road Central
Hong Kong
ICBC International Securities Limited
37/F, ICBC Tower
3 Garden Road
Hong Kong
Tiger Brokers (HK) Global Limited
1/F, FWD Financial Centre
308 Des V oeux Road Central
Hong Kong
Valuable Capital Limited
28/F, China Merchants Tower
Shun Tak Centre
168-200 Connaught Road Central
Hong Kong
Legal Advisors to our Company As to Hong Kong law and United States law
Kirkland & Ellis
26th Floor, Gloucester Tower
The Landmark, 15 Queen’s Road Central
Central, Hong Kong
As to PRC law
Han Yi Law Offices
Suite 1801, Tower I, Huayi Plaza
2020 West Zhongshan Road
Shanghai, PRC
DIRECTORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
–9 1–


--- page 100 ---
As to Cayman Islands law
Walkers (Hong Kong)
15th Floor, Alexandra House
18 Chater Road
Central, Hong Kong
Legal Advisors to the Joint Sponsors and
the Underwriters
As to Hong Kong law and United States law
Clifford Chance
27/F, Jardine House
One Connaught Place
Central, Hong Kong
As to PRC law
Commerce & Finance Law Offices
12-14th Floor, China World Office 2
No. 1 Jianguomenwai Avenue
Beijing, PRC
Auditors and Reporting Accountants Ernst & Y oung
Certified Public Accountants
Registered Public Interest Entity Auditor
27/F, One Taikoo Place
979 King’s Road
Quarry Bay, Hong Kong
Industry Consultant Frost & Sullivan (Beijing) Inc.
Shanghai Branch Co.
2504 Wheelock Square
1717 Nanjing West Road
Shanghai 200040, China
Receiving Banks Industrial and Commercial Bank of China
(Asia) Limited
33/F, ICBC Tower
3 Garden Road
Central, Hong Kong
DBS Bank (Hong Kong) Limited
11/F, The Center
99 Queen’s Road Central
Central
Hong Kong
DIRECTORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
–9 2–


--- page 101 ---
Principal Place of Business and
Headquarters in China
No. 208, Zhenzhong Road
West Lake District
Hangzhou, the PRC
Principal Place of Business
in Hong Kong
Suite 1303, 13/F, Golden Centre
188 Des V oeux Road Central
Sheung Wan
Hong Kong
Registered Office Third Floor, Century Yard
Cricket Square
P.O. Box 902
Grand Cayman, KY1-1103
Cayman Islands
Company’s Website www.adicon.com.cn
(the information contained on the website does not
form part of this Prospectus)
Joint Company Secretaries Mr. WANG Lawrence Allen ( ˮʘጫ)
Suite 1303, 13/F, Golden Centre
188 Des V oeux Road Central
Sheung Wan
Hong Kong
Ms. SO Ka Man ( ᘽྗઽ)
(FCG, HKFCG (PE))
5/F, Manulife Place
348 Kwun Tong Road
Kowloon
Hong Kong
Authorized Representatives Ms. YANG Ling (ࡗ)
House No. 5, 50 Island Road
Repulse Bay, Hong Kong
Mr. WANG Lawrence Allen ( ˮʘጫ)
Suite 1303, 13/F, Golden Centre
188 Des V oeux Road Central
Sheung Wan
Hong Kong
Audit Committee Mr. YEH Richard ( ໢ᎌ) (Chairman)
Mr. ZHANG Wei ( ੵ⑸)
Mr. MI Brian Zihou (ێ)
Remuneration Committee Mr. MI Brian Zihou (ێ)Chairman)
Ms. YANG Ling (ࡗ)
Mr. ZHANG Wei ( ੵ⑸)
Nomination Committee Ms. YANG Ling (ࡗ)Chairwoman)
Mr. ZHANG Wei ( ੵ⑸)
Mr. YEH Richard ( ໢ᎌ)
CORPORATE INFORMATION
–9 3–


--- page 102 ---
Strategy Committee Ms. YANG Ling (ࡗ)Chairwoman)
Mr. GAO Song ( ৷෽)
Mr. MI Brian Zihou (ێ)
Principal Share Registrar and
Transfer Office
Tricor Services (Cayman Islands) Limited
Third Floor, Century Yard,
Cricket Square P.O. Box 902
Grand Cayman
KY1-1103
Cayman Islands
Hong Kong Share Registrar Tricor Investor Services Limited
17/F, Far East Finance Centre
16 Harcourt Road
Hong Kong
Compliance advisor Somerley Capital Limited
20th Floor, China Building
29 Queen’s Road Central
Central, Hong Kong
Principal Bank Industrial and Commercial
Bank of China Limited
Hangzhou Gudang Sub-branch
Ground floor, Block 1
Gudang Xincun
Hangzhou, Zhejiang Province
PRC
CORPORATE INFORMATION
–9 4–


--- page 103 ---
The information and statistics set out in this section and other sections of this
Prospectus were extracted from different official government publications, available sources
from public market research and other sources from independent suppliers, and from the
independent industry report prepared by Frost & Sullivan. We engaged Frost & Sullivan to
prepare the Frost & Sullivan Report, an independent industry report, in connection with the
Global Offering. The information from official government sources has not been
independently verified by us, the Overall Coordinators, the Joint Global Coordinators, Joint
Sponsors, Joint Bookrunners, Joint Lead Managers, the Capital Market Intermediaries, any
of the Underwriters, any of their respective directors and advisers, or any other persons or
parties involved in the Global Offering, and no representation is given as to its accuracy.
OVERVIEW OF HEALTHCARE SERVICES MARKET IN CHINA
With the accelerated growth of the aging population, rising health awareness and increasing
life expectancy, China’s total healthcare expenditure has grown rapidly in recent years and ranked
the second highest globally, reaching RMB7,559.4 billion in 2021, and it is expected to grow further
to reach RMB11,047.1 billion in 2025 at a CAGR of 9.9% from 2021 to 2025. Moreover, healthcare
expenditure per capita in China has also experienced significant growth. From 2017 to 2021, it grew
at a CAGR of 9.2% from RMB3,757 to RMB5,348, and is expected to reach RMB7,724 by 2025
and RMB11,243 by 2030, representing a CAGR of 9.6% from 2021 to 2025 and a CAGR of 7.8%
from 2025 to 2030.
Total Healthcare Expenditure in China, 2017-2030E
2017 2018 2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E
5,259.8 5,912.2 6,584.1 7,230.6 7,559.4 8,368.2 9,213.4
10,107.1
11,047.1
12,008.2
13,028.8
14,084.2
15,154.6
16,260.9
Billion RMB
Period CAGR
2017-2021
2021-2025E
2025E-2030E
9.5%
9.9%
8.0%
Source: NBSC, Frost & Sullivan Analysis
For most of the top 10 countries by GDP, healthcare expenditure as a percentage of GDP is
approximately 10%. Of the top 10 countries by GDP, the United States has the highest percentage
of healthcare expenditure at 17.8%, compared to a relatively low percentage of 6.6% for China and
is expected to increase to be closer to the peer average.
INDUSTRY OVERVIEW
–9 5–


--- page 104 ---
Healthcare Expenditure as a Percentage of Top 10 GDP Countries in 2019
Global USA Germany France Japan Canada UK Brazil Italy China India
17.8%
9.7% 11.7% 11.2% 11.1%
8.7% 6.6%
3.6%
10.8% 10.3% 9.4%
Source: NBSC, BEA, Frost & Sullivan analysis
China’s healthcare services market has witnessed continuous and robust growth. The total size
of the healthcare services market, as measured by total revenues generated by all types of healthcare
institutions, has increased at a CAGR of 10.3% from RMB3,698 billion in 2017 to RMB5,482
billion in 2021, and is expected to further grow at a CAGR of 7.3% and reach RMB7,269 billion
by 2025.
Healthcare service providers in China primarily consist of hospitals (public and private
hospitals), primary healthcare institutions (including community healthcare centers, rural healthcare
centers and village clinics), and other healthcare institutions (such as women and children
healthcare institutions, special disease prevention agencies and center of disease control). Hospitals
play the most important role in China’s healthcare services industry, with hospitals’ revenue taking
74.6% of the market share among the entire healthcare institution market in China in 2021. The
following chart shows the evolution of the revenue composition of China’s healthcare institutions
from 2017 to 2021.
Revenue of Healthcare Institutions in China, 2017-2021
Category
Total Healthcare
Institutions
Others
Hospitals
Primary Healthcare
Institutions
2021
Billion RMB
5,482
3,698
4,111
4,644 4,869
2017 2018 2019 2020
CAGR, 2017-2021
4,090
502
283
310
348 430
548
890
612
699 752
2,866 3,189 3,597 3,687
+10.3%
+15.4%
+12.9%
+9.3%
Source: NHC, Frost & Sullivan Analysis
The total number of hospitals in China reached 36,570 in 2021. In particular, from 2017 to
2021, there has seen a significant growth in private hospitals in terms of total number and capacity,
while public hospital growth has been comparatively stagnant. The number of private hospitals
grew at a CAGR of 7.2% from 18,759 in 2017 to 24,766 in 2021, accounting for 67.7% of total
hospitals in 2021, whereas the number of public hospitals has seen a decline in the same period.
INDUSTRY OVERVIEW
–9 6–


--- page 105 ---
China Healthcare Service System, 2021
Primary Healthcare Institutions
(977,790)
Hospitals
(36,570)
Professional Public
Health Institutions
(13,276)
Community Health
Centers/Stations
(ਕʕː१)
(36,160)
Public
Hospitals
(11,804)
Rural Health
Centers
(ඊᕄሊ͛৫)
(34,943)
Others
(306,883)
Private
Hospitals
(24,766)
Class III
Hospitals
(3,275)
Class II
Hospitals
(10,848)
Class I
Hospitals
(12,649)
Centers of
Disease Control
(3,376)
Women
& Children Care
Institutions
(3,032)
Preventive
Institutions Of
Special
Diseases
(932)
Others
(3,010)
Village Clinics
(܃)
599,292)
Unrated
Hospitals
(9,798)
Source: NHFPC, Frost & Sullivan analysis
The Number of Public Hospitals by Grade,
2017-2021
The Number of Private Hospitals by Grade,
2017-2021
2017
Unit
6,004
2,679
1,502 1,351 1,276 1,182 1,104
2,460 2,338 2,267 2,193
5,958 5,912 5,833 5,718
2,112 2,263 2,404 2,588 2,789
2018 2019 2020 2021
Class III Hospital
Class I Hospital Unrated Hospital
Class II Hospital
CAGR 2017-2021
-1.0%
7.2%
-1.2%
-4.9%
-7.4%
Total Public Hospitals
Class III Hospitals
Class II Hospitals
Class I Hospitals
Unrated Hospitals
12,297 12,032 11,930 11,870 11,804
2017
Unit
2,418
7,371
8,742
9,262
9,378
8,560
8,694
8,371 8,926
9,985 10,456
3,059 3,775 4,571 5,130
228 285 345 408 486
2018 2019 2020 2021
Class III Hospital
Class I Hospital Unrated Hospital
Class II Hospital
CAGR 2017-2021
7.2%
20.8%
20.7%
9.1%
-0.1%
Total Private Hospital
Class III Hospitals
Class II Hospitals
Class I Hospitals
Unrated Hospitals
18,795
20,977
22,424 23,524
24,766
Source: NHC, Frost & Sullivan analysis
Public policies have encouraged growth in the private healthcare market. In 2013, the National
Health and Family Planning Commission and State Administration of Traditional Chinese Medicine
issued the Several Opinions on Accelerating the Development of Socially-run Medical Institutions
(ʍจԈ), allowing non-public medical institutions to be included
in the designated scope of medical insurance and allowing doctors to practice at multiple sites to
help them simultaneously work in private and public hospitals. In 2016, the National Health and
Family Planning Commission issued the Notice on Printing and Distributing the Guiding Principles
for the Setup Plan of Medical Institutions (2016-2020) (ۆࡡ
2016-2020 ϋ)), encouraging private medical institution development and accelerating the
formation of a diversified medical institution pattern, so that private hospitals have gradually gained
the same position as public hospitals in applying for designated institutions of medical insurance
and scientific research and teaching. In addition, by providing service-oriented care with lengthier
patient visits and an increased emphasis on preventative care, private hospitals have gradually
gained the trust from the public and created a positive perception, which in turn encouraged further
growth of private hospitals.
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Although public hospitals have historically received more than 80% of both inpatient and
outpatient visits, private hospitals visits have started to catch up in recent years. Outpatients and
inpatients received by private hospitals have accounted for a growing percentage of total hospital
patient visits from 2017 to 2021, increasing from 14.2% to 15.8% for outpatients and from 17.5%
to 18.4% for inpatients.
Outpatient Visits of Hospitals in China,
2017-2021
Inpatients of Hospitals in China,
2017-2021
Public Hospitals Private Hospitals
Million Patient Visits
Public
Hospitals
Private
Hospitals Total
CAGR (2017-2021) 2.6% 5.9% 3.1%
3,271.02,952.0 3,051.0 3,270.0
2,792.0
613.0
487.0 526.0
570.0
531.0
3,884.0
3,439.0 3,577.0
3,840.0
3,323.0
2017 2018 2019 2020 2021
Public Hospitals Private Hospitals
164.0156.0 164.0 175.0 148.0
37.033.0 37.0 37.0
35.0
201.0189.0 201.0 212.0
183.0
2017 2018 2019 2020 2021
Million Inpatients
Public
Hospitals
Private
Hospitals Total
CAGR (2017-2021) 1.3% 2.9% 1.6%
Source: Frost & Sullivan analysis
Pain Points and Unmet Needs of Healthcare Services Market in China
Despite its rapid growth, China’s healthcare services market is still immature. Pain points and
unmet needs of the market include the following:
Uneven Geographical Distribution of Medical Services
China has both a shortage of medical resources and uneven geographical distribution of
existing medical resources. For example, as one of the most developed cities in China, Beijing has
abundant medical resources, with more than 110 Class III hospitals and more than five Class III
hospitals per million population in 2021. In contrast, provinces such as Hebei and Henan had less
than 1.5 Class III hospital per million population in 2021. As such, there is expected to be an
increasing number of hospitals established in lower tier cities, which will drive the demand for ICL
testing in these areas.
Concentration of Medical Resources and Diagnostic Demands in Higher-tiered Hospitals
China’s medical resources are concentrated in large Class III hospitals, and patients also
preferentially seek healthcare services in higher-tier hospitals, which leads to a severe concentration
of medical resources and diagnosis demand in higher-tier hospitals. In 2021, Class III hospitals
accounted only for 9.0% of the total number of hospitals in China, while receiving 57.5% of the
total outpatient visits. The severe concentration of medical resources and diagnosis demand have
caused poor patient experiences. For instance, on average, diagnosis time only accounted for 4.4%
(approximately eight minutes) out of the approximate average of 180 minutes per outpatient visit
in 2021, according to Frost & Sullivan. In addition, higher-tiered hospitals often charge more per
outpatient visit. In 2021, Class III hospitals charged the most at RMB370.0 per outpatient visit on
average, followed by RMB232.1 per visit for Class II hospitals and RMB174.6 per visit for Class
I hospitals. Various initiatives have been rolled out by the Chinese government to drive a
hierarchical healthcare system, including hospital alliances, publication of standardized referral
pathways and reimbursement reform, to improve patients’ access to primary care and balance public
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medical resources. For example, the hospital alliance system is a network of medical treatment
providers within a specific region, consisting of one central leading hospital, some lower tier
hospitals along with community medical service facilities, and a referral mechanism to facilitate
patient transfers within the system, in order to more efficiently utilize the provision of healthcare
services. In response to the hierarchical medical system, medical institutions at all levels are
inclined to outsource testing items to ICLs.
Heavy Reliance on Drug Sales in the Revenue Structure of Medical Institutions
Even though revenues generated by public hospitals in China has experienced gradual growth
in recent years, such revenues have been focused on sales of drugs rather than examination or
treatment, according to Frost & Sullivan. In 2021, revenue generated by drug sales in public
hospitals accounted for 38.8% and 24.8% of outpatient revenues and inpatient revenues,
respectively, and was the largest contributor of public hospital revenue. On the contrary, revenues
generated by examinations accounted for only 20.4% and 10.2% of outpatient revenues and
inpatient revenues, respectively. In recent years, a series of healthcare reforms have been carried out
by the Chinese government to optimize the hospital revenue structure by reducing their reliance on
medication and putting more emphasis on examination and treatment, which requires more expertise
and service capabilities of physicians and hospitals. It is expected that revenues generated by
examination and treatment will contribute a growing percentage of total revenues of hospitals. The
change in the revenue structure and emphasis on examination and treatment may potentially result
in an increasing demand for clinical testing, which will lead to more outsourcing demand to ICLs.
Overwhelming Financial Burden on Public Healthcare System
The Chinese government has made strong efforts to increase the accessibility and affordability
of healthcare services through its healthcare reforms. Huge amount of investments have been made
to construct and upgrade healthcare infrastructure and expand medical insurance coverage. A
medical insurance system encompassing URBMIS and UEBMIS have been established to cover
96.5% of the Chinese population in 2021. While the funding for China’s basic medical insurance
fund is expected to grow with a CAGR of 6.6% from 2021 to 2025, expenditure is expected to
experience a much higher growth with a CAGR of 8.9% in the same period, and surpass the funding
in 2028, which puts a severe financial burden on both individuals and the government funding this
program. The government continues to expand the scope of medical insurance payments. The
funding for basic medical insurance increased from RMB1,793.2 billion in 2017 to RMB2,872.8
billion in 2021, with a CAGR of 12.5%. The expenditure of basic medical insurance increased from
RMB1,442.2 billion in 2017 to RMB2,404.3 billion in 2021, with a CAGR of 13.6%. The growth
rate of commercial health insurance premiums from 2017 to 2021 is also less than the growth rate
of expenditure. In order to respond to costs pressure, public medical institutions could choose to
outsource laboratory testing, which encourages the development of ICL to some extent.
OVERVIEW OF THE ICL MARKET IN CHINA
Unless otherwise indicated, China’s ICL market data presented in this Prospectus excludes the
data of COVID-19 testing. For market data related to COVID-19 testing, please see “– Impact of
COVID-19 on China’s ICL Market.”
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Introduction of Clinical Diagnostic Testing
Clinical diagnostic tests are a group of medical tests carried out in laboratories that provide
information about a person’s health status. This information can assist physicians to make precise
and personalized diagnostic decisions around patient care. According to Frost & Sullivan, roughly
70% to 80% of clinical decisions are based on some forms of laboratory testing. Moreover, clinical
tests also are able to assist pharmaceutical and biotech companies in developing new drugs and
vaccines, support private employers to detect alcohol and drug abuse of their employees, and help
insurance providers assess the risks relating to applicants’ health conditions.
Clinical diagnostic tests are generally carried out by three types of providers, namely,
hospital-based laboratories, independent clinical laboratories, or ICLs, and others, such as,
physician offices, nursing homes, and ambulatory surgery centers, among which hospital-based
laboratories have been the largest providers of clinical testing services, both in terms of revenue and
test volume. A hospital-based laboratory typically performs testing only for its own captive patients,
whereas ICLs, on the other hand, are independent from hospitals, and receive samples from a
plethora of hospitals and research institutions for analysis. Compared to hospital-based laboratories,
ICLs are generally larger in scale. They normally have more advanced equipment and more
technically trained laboratory personnel, which enable them to perform specialized tests and
process larger volume of tests more cost-effectively. According to Frost & Sullivan, hospital-based
laboratories typically have a test menu of around 800, mostly routine test items, fulfilling the basic
diagnostic demands of patients of seen at a single hospital, whereas ICLs typically are capable of
performing over 1,000 test items, consisting of a broad range of test types, including specialized
esoteric tests.
The following chart summarizes the advantages and disadvantages of clinical testing service
providers in China.
Hospitals
• Small laboratory and
limited equipment
• Only a few clinical
laboratory technicians:
typically 1~2 technician
in one institution with
lower education degree
• Fewer clinical tests:
typically 50 to 400 tests
and not capable to
conduct specialized
testing
• Fulfill basic clinical
testing needs
Independent clinical laboratory
Demand for independent clinical
laboratory is increasing
• Larger laboratory and more advanced
equipment
• More qualified clinical laboratory technicians
are required: able to operate more advanced
equipment and typically requiring higher
education qualifications such as Masters,
MD, PHD, etc.
• Able to process a larger volume as well as
 larger variety of clinical tests: typically more
than 1,000 tests in independent clinical
laboratories.
• More complex clinical tests: such as MS
detection of metabolic disorders, NIPT,
genetic testing for rare disease, etc.
• Standard clinical
laboratory and equipment
• More laboratory technician
than primary healthcare
institutions with higher
education degree
Primary Healthcare
Institutions and Other
Healthcare Institutions
AdvantagesDisadvantages
• Normally hospital-based
labs offer a limited
number of testing items.
For instance, Class III
hospitals in China offer
500 to 1,000 testing
items, and even fewer
number of tests are
offered in lower tier
hospitals, ranging from
100 to 500 testing items.
Source: Frost & Sullivan analysis
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History of ICLs in China
An ICL is an independent legal entity with qualifications to engage in clinical testing or
pathology laboratory services under the permission of the health administrative department. The
development of ICL industry in China can be divided into five stages, infancy stage (1980s–1994),
exploration stage (1994–2004), primary development stage (2004–2016), rapid development stage
(2016–2019) and accelerated development stage (2019 till now).
Infancy stage (1980s–1994)
Prior to 1980s, all of the medical diagnosis services in China were provided by the clinical
laboratory and pathology departments under medical institutions. With the development of
diagnostic technology and changes in clinical needs, small and medium-sized hospitals had been
unable to undertake comprehensive tests due to their limited capacity, resulting in the need to
transfer their patients’ samples to large hospitals for diagnosis. In the mid-1980s, Yangzhou medical
examination center began to provide medical testing services.
Exploration stage (1994–2004)
Later, with the opening of market development for medical services, some testing service
centers began to cooperate with hospitals to form as single ICLs, which only provide limited testing
and did not achieve scale benefits. In 1994, the first ICL was established in China and was affiliated
with a medical college. From 1994 to 2004, the ICL industry in China began to slowly develop.
Primary development stage (2004–2016)
In 2004, Ministry of Health organized the first ICL seminar in China which brought together
medical experts, suppliers of medical devices and reagents across China. Since then, a large number
of domestic ICLs and chain institutions had been established. In 2009, the Ministry of Health issued
Basic Standards for Medical Laboratory, officially recognizing the legal status of ICLs, and since
then the industry has experienced significant growth. Since 2014, the ICL industry has entered a
new stage of innovative development. ICLs in China started to expand rapidly in a larger scale. On
September 8, 2015, the General Office of the State Council issued the Guiding Opinions on
Boosting the Construction of a Tiered Diagnosis and Treatment System (ܓ
ኬจԈ) to guide localities in promoting the development of a hierarchical system for
provision of diagnostic and medical services. With the implementation of these policies, the ICL
market continued to flourish.
Rapid development stage (2016-2019)
In 2016, the National Health Commission issued the Basic Standards and Practice of Medical
Test Laboratories (for Trial Implementation) (ਿ͉ᅺ๟ձ၍ଣ஝ᇍ(༊Б)),
which encouraged the development of chain ICLs and application of new testing technology,
promoting the expansion of esoteric testing market. In 2018, Nation Health Commission issued a
policy that the medical testing services of public hospitals can be outsourced to third-party medical
institution, further boosting the growth of the ICL market.
Accelerated development stage (2019 till now)
In response to the outbreak of COVID-19 late in 2019, the government has issued many
regulations on standardize the management and quality control systems of ICLs to improve their
level of accuracy and consistency. In March 2021, the State Council issued Regulations for the
Supervision and Administration of Medical Devices ( ᔼᐕኜ૛္ຖ၍ଣૢԷ), which provided
that for in-vitro diagnostic reagents that do not have an approved marketed version in China,
qualified medical institutions can develop them on their own according to the clinical needs of their
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own laboratories, and use them in their own laboratories under the guidance of qualified medical
personnel. This can be seen as a favorable policy for laboratory developed tests, or LDT. Due to
increasing demand and favorable policies, the number of ICLs in China increased from less than 70
in 2009 to over 2,100 in 2021.
Key Growth Drivers of China’s ICL Market
The growth of China’s ICL market is and will continue to be driven by the following key
factors:
Growing Test V olume Driven by Population Aging and Better Diagnostic Services
The population in China has aged rapidly, with the number of people aged above 65 grew at
a CAGR of 6.1% from 2017 to 2021 and is expected to grow further at a CAGR of 5.4% from 2021
to 2025 and reach 247.1 million by the end of 2025. China’s severe aging issue has directly led to
a surge in the prevalence of chronic diseases and an increase in the patient flow of serious diseases,
both of which have and will continue to drive the testing demands, thereby boost the testing volume.
In addition, the growing health awareness and soaring instances of chronic diseases are pushing
people to conduct early detection and take initiatives for preventive measures. Health check
industry in China has experienced growth with a CAGR of 4.3% from RMB118.3 billion in 2017
to RMB140.0 billion in 2021 and is expected to reach RMB178.4 billion by 2026. The number of
people who seek medical check-ups in China reached 447.4 million in 2021, and is expected to grow
with a CAGR of 4.4% to 521.1 million by 2026. Driven by increasing demand from customers, there
has been a growing outsourcing rate of tests from health check centers as they are incentivized to
seek cost competitive tests performed with premium quality.
In addition, the evolving field of precision medicine and emergence of novel technologies
have also significantly stimulated the development of China’s ICL market. Precision medicine is a
medical model that proposes the personalization of medical decisions, treatments, practices, or
products being tailored to a subgroup of patients, instead of a one-drug-fits-all model. Precision
medicine is expected to shift the emphasis of medicine and treatment from reaction to prevention,
improve disease detection, and preempt disease progression, which thereby drives the demand for
more precise and higher-quality healthcare services. In 2015, the Ministry of Science and
Technology held the “National Expert meeting on Precision Medicine Strategy” for the first time,
which represented that China has entered the era of “precise medicine” at the strategic level. ICLs
are increasingly important in the era of precision medicine. It will largely help physicians to
integrate individual health data and information from clinical factors, real-time monitoring factors,
molecular/diagnosis factors (multi-omics including epigenetics), and exogenous factors
(environmental, behavioral, socio-economic, lifestyle) to develop personalized evidenced-based
treatment interventions and ultimately deliver superior therapeutic outcomes for patients.
Increasing Outsourcing Demand from Hospitals
In China, people tend to directly visit and consult specialists in the hospitals due to the lack
of a general practitioner referral system, which leads to severe hospitals overcrowding. Hospitals
have been increasingly outsourcing clinical testing to private sectors to reduce the burden of
overcrowded public facilities. With increased cost control pressures resulting from healthcare
reforms, hospitals have been further incentivized to outsource their clinical testing to independent
laboratories. In addition, National Healthcare Security Administration has implemented many
regulation to control healthcare costs from hospitals, such as Technical Specifications on National
Healthcare Security DRGs Grouping and Payment (ღDRGʱଡ଼ၾ˹൬Ҧஔ஝ᇍ).
Under this specification, reimbursement is calculated based on the care given to a “typical” patient
within the group to treat a specific disease, instead of being reimbursed for every treatment item a
patient receives. In order to maintain a profit level, hospitals are more incentivized to reduce the
expenditure of their overall treatment costs and clinical testing costs. The implement of DRG
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system standardizes testing prices in hospitals and encourages cost containment initiatives. Cost
control pressure in both public and private hospitals will drive the collaboration with ICLs who are
able to provide comprehensive and high-quality testing services at lower costs.
On September 5, 2018, China National Health Development Research Center issued a project
report on effect evaluation and experience summary of independent clinical Laboratory (“ ୋɧ˙ᔼ
൙Пʿ຾᜕ᐼഐධͦజѓ”) in Guangzhou and pointed out that ICLs can save
approximately 1% of China’s total medical insurance expenditures, thereby saving nearly RMB22.1
billion of medical insurance funds in 2019. Due to ICLs’ outstanding cost-saving capabilities,
Chinese government was devoted to continuously expanding medical insurance coverage for tests
outsourced to ICLs, which is expected to further encourage testing outsource to ICLs from hospitals
to ICLs. China National Health Development Research Center estimated that the testing costs saved
by ICLs from 2016 to 2020 amounted to RMB10.4 billion, RMB13.7 billion, RMB17.6 billion,
RMB22.1 billion and RMB27.4 billion, respectively. Owing to ICLs’ cost-saving capabilities, the
government intended to increase its recognition of ICLs by connecting them to the medical
insurance system.
Furthermore, due to hierarchical medical system implemented recently, medical institutions at
all levels have a strong motivation to outsource testing items to ICLs. For primary medical
institutions that lack testing equipment and professionals, and normally offer less than 400 testing
items, it is difficult for them to accommodate the rapid increase in patient flow. Thus, it has seen
an increasing demand for test outsourcing. For tertiary hospitals with better testing capacity
offering more than 800 testing items, decreasing amount of tests performed resulting from patient
diversion makes outsourcing clinical testing to ICLs an economic choice. In particular, when it
comes to esoteric testing items with the characteristics of low volume, high cost, and high technical
requirements, tertiary hospitals prefer outsourcing esoteric tests to ICLs for cost efficiency and
better quality.
Unique Advantages of ICLs over Hospital-based Laboratories
Compared to hospital-based laboratories, ICL chain operators have a broad laboratory network
coverage, which enables them to more easily connect to and cater to hospitals in different classes
across regions. Moreover, once ICLs have expanded to a certain scale, they are capable of
performing a large volume of tests with lower costs, benefited from centralized management,
procurement and optimized utilization of equipment, human resources, reagents and facilities. In
addition, ICLs generally are capable of performing a broad range of tests. Furthermore, with more
capital resources and capital investment, ICLs are more advanced in introducing and applying new
technologies and equipment, and are more proactive in achieving clinical laboratory accreditation
and hire experienced and quality personnel to enhance their competitiveness, which enable them to
deliver higher quality testing services.
Series of Healthcare Reforms Benefiting the ICL Market
Chinese government had carried out a series of healthcare reforms and introduced favorable
policies aiming to reshape the clinical laboratory industry and to further support the growth and
investment in the private sector. For example, in 2013, the NHFPC issued The Catalogue of Clinical
Testing Items, which standardized the development of routine and esoteric testing. Furthermore, the
stricter restriction on insurance pricing and healthcare services pricing reform will further lower the
testing and examination costs at public hospitals. It is expected that such reform will turn hospitals’
testing centers from revenue-oriented to cost-oriented, encouraging them to outsource more tests to
ICLs that have more scale and cost advantages. In 2015, Guiding Opinions on Boosting the
Construction of a Tiered Diagnosis and Treatment System explored the establishment of
independent regional medical testing institutions, pathological diagnosis institutions, medical
imaging inspection institutions, disinfection supply institutions, and blood purification institutions
to control cost through regional resource sharing. In December 2016, Plan for Deepening Reform
of the Medical and Healthcare System during the 13th Five-Year Plan Period ( “ɤɧʞ”ଉʷᔼᖹ
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஝ྌ) issued by NDRC specifically requires hospitals decrease repeat testing, lower
test prices, and reduce the growth of healthcare expenditure in public hospitals to 10% by the end
of 2017. In May 2022, NDRC released the 14th Five-Year Plan which unveiled a new road map to
spur China’s bioeconomy, in a bid to promote high-quality development of the sector. The new plan
pledged to promote the integration and innovation of biotechnology and information technology, as
well as accelerate the development of biomedicine, biological breeding, biomaterials, bioenergy and
other industries to enhance bioeconomy in scope and strength.
In March 2021, the State Council issued Regulations for the Supervision and Administration
of Medical Devices ( ᔼᐕኜ૛္ຖ၍ଣૢԷ), which provides that for in-vitro diagnostic
reagents that do not have the same product on the market in China, qualified medical institutions
can develop them on their own according to the clinical needs of their own units, and use them in
their own units under the guidance of medical practitioners. This can be seen as a favorable policy
for laboratory developed tests, or LDT.
Increasing Demand of Drug Innovation from CROs and Pharmaceutical Companies
In an effort to promote pharmaceutical innovation and drive the sustainable development of
the healthcare market, the Chinese government has issued a series of favorable policies to
encourage R&D activities. Driven by such favorable policies, pharmaceutical companies have
continued to increase their R&D expenditures on drug innovation. In recent years, the R&D process
has become more complex due to a number of factors, including (i) increasing number of large-scale
multi-regional clinical trials, (ii) more stringent regulations on R&D activities, (iii) more innovative
and complicated scientific methods used to address unmet medical needs, and (iv) the adoption of
advanced technologies in the R&D processes. This has driven more pharmaceutical companies to
outsource a broader range of R&D activities to reliable CROs with advanced technology and
experienced technicians. With increasing number of clinical trials conducted in CROs, CROs have
been increasingly willing to collaborate with eligible ICLs to which they can outsource tests, to
enhance clinical trial efficiency and save costs. In particular, although the types of clinical testing
services demanded by CROs and pharmaceutical companies vary from case to case based on their
specific needs, they all require having samples processed using the same analytical methodology to
avoid unintentional differences in laboratory results and reference ranges. Furthermore, these
clients require more detailed tracking and analysis to comply with the stringent requirements for
research and clinical trials. These clients can also require various types of protocol-specific tests for
use in research or clinical trials, such as pharmacokinetic parameters, metabolite concentration,
genetic mutation and biomarker tests that may be proprietary and/or for research use only.
Emerging Technologies Benefitting the Growth of the ICL Market
New technology such as novel gene sequencing platform, automation lab system, 5G network
and advanced logistics system will have wider application, which will reshape and boost the ICL
industry. For example, the advanced gene sequencing technique, or the next generation sequencing
is more and more widely used in cancer research due to its advantages over traditional genomic
analysis methods in terms of high accuracy, speed, and precision, low sample requirements. In
addition, 5G network is critical to logistics system, improving its working efficiency, goods
positioning and tracking efficiency. The emergence of 5G network is validated by numerous
intelligent projects, for instance, autonomous vehicle and delivery, intelligent logistics warehouse
and tracking. 5G network has the characteristics of high-speed data transmission, wide geographical
coverage, low power dissipation, low transmission delay. The advancement of the logistics system
with 5G network also provides efficient operation for ICLs, which is considered to have precise
tracking, good surveillance on quality of specimen and high efficiency of data transmission. More
importantly, the quality of the logistics system will also directly affect the test results of the
laboratory, since specimen may be damaged or inactivated during transportation and consequently
cause any inaccuracy of the test results.
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Market Size and Growth of the ICL Market in China
The market size of China’s clinical testing industry grew at a CAGR of 11.4% from
RMB352.8 billion in 2017 to RMB542.4 billion in 2021, and is expected to reach RMB896.4 billion
by 2026, representing a CAGR of 10.6%.
Breakdown of China Clinical Testing Market, 2017-2026E
783.5
621.4
481.2457.0
845.6
701.0
542.4401.0352.8
18.1 21.1 19.8 22.3 25.3 32.0 38.7 45.4 51.314.7
4.2% 4.5% 4.6%
4.1% 4.1% 4.1%
4.6%
4.9% 5.4% 5.7%
2017 2018 2019 2020 2021 2022E 2023E 2024E 2025E 2026E
896.4
Penetration rate of ICL market excluding COVID-19 testing among clinical testing market
ICL market excluding COVID-19 testing
China clinical testing market
CAGR
China Clinical
Testing Market
ICL Market
excluding COVID-19
testing
2017-2021 11.4% 10.9%
2021-2026E 10.6% 18.2%
Billion RMB
Source: Frost & Sullivan analysis
Meanwhile, China’s ICL market without COVID-19 testing grew by a 10.9% CAGR from
RMB14.7 billion in 2017 to RMB22.3 billion in 2021, and is expected to grow up to RMB51.3
billion by 2026 at a CAGR of 18.2% from 2021 to 2026.
China ICL Market Size and Forecast without COVID-19 Testing, 2017-2026E45,407.5
38,743.6
31,993.1
25,291.022,263.219,848.221,148.618,102.214,698.7
51,310.5
2017 2018 2019 2020 2021 2022E 2023E 2024E 2025E 2026E
Million RMB
Period CAGR
2017-2021 10.9%
2021-2026E 18.2%
Source: Frost & Sullivan analysis
China’s ICL market with COVID-19 testing grew significantly by a 27.0% CAGR from
RMB14.7 billion in 2017 to RMB38.2 billion in 2021, and is expected to grow up to RMB53.6
billion by 2026 at a CAGR of 7.0% from 2021 to 2026.
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China ICL Market Size and Forecast with COVID-19 Testing, 2017-2026E
49,551.545,523.942,559.940,559.238,207.9
30,694.9
21,148.618,102.214,698.7
53,554.3
2017 2018 2019 2020 2021 2022E 2023E 2024E 2025E 2026E
Million RMB
Period CAGR
2017-2021 27.0%
2021-2026E 7.0%
Source: Frost & Sullivan analysis
Comparison between China’s and Global ICL Markets
Despite the rapid growth, China’s ICL market is still in its infancy compared to other
developed countries. ICLs originated from the United States in the 1920s. After nearly a century of
development, it has evolved into an independently operated medical laboratory platform and has
now become an indispensable part of the medical service system. However, China’s first ICL was
established in 1994 and the ICL industry has only developed relatively recently. In 2021, China only
saw ICL penetration rate, measured by the ICL testing market size as a percentage of the total
clinical testing market size, of approximately 6%, significantly less than 60% for Japan, 44% for
Germany and 35% for the United States.
Development of ICL Penetration Rate in Different Countries
6%
35%
44%
60%
1920s 1940s 1960s 1980s 2000s 2021s
China US Germany Japan
Source: Frost & Sullivan analysis
By the end of 2021, there were over 2,100 ICLs in China, whereas there were over 7,500 ICLs
in the United States. China also lags behind in terms of expenditures on clinical testing per patient,
with this figure one-sixth the size of that of the United States in 2021. There is still an ample room
of further development of China’s ICL market.
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Comparison between China and U.S. by Expenditure on Clinical Testing and
Number of ICLs Per Hundred Million Population, 2021
~148.7
~2,259.8
ICL Per Hundred Million Population
RMB116.7
RMB695.7
Expenditure on
Clinical Testing Per Patient
x 6.0 x 15.2
Source: National Health Commission, Frost & Sullivan analysis
The ICL Routine and Esoteric Testing Markets in China
Routine testing consists of commonly tested items for the purpose of providing information
for the diagnosis, prevention, or treatment of a disease available in most clinical labs. Esoteric
testing refer to tests that are less common and typically require specialized technologies or
equipment to perform.
The following table sets forth a comparison between routine testing and esoteric testing:
Clinical Diagnostic Testing by Service Types
Routine testing Esoteric testing
Testing Items
Blood chemistry, bodily fluid biochemistry, blood type check,
immunoglobulin examination, thyroid-related hormone and
antibody testing, etc.  Clinical Immunology, Microbiologic
culture and organism identification, blood cultures, antimicrobial
sensitivity tests; Urinalysis, and Enzyme-linked immunosorbent
assay (ELISA)
Molecular testing for infectious disease such as
Mycobacterium tuberculosis, hepatitis virus, influenza, HPV,
HBV, Molecular testing for genetic functions and variations or
tumor genetics such as BRCA1/2, prostate cancer
biomarkers detection, cardiovascular disease risk prediction
series; Pharmacogenomics testing such as CYP2C19;
Cytogenetic testing including Fluorescence In Situ
Hybridization (FISH); Liquid chromatography/mass
spectrometry (LC-MS) in newborn screening, therapeutic drug
monitoring (TDM)
Technology
Platforms
Routine clinical chemistry, routine hematology, routine
microbiology, routine immunology, etc.
Molecular diagnostics, protein chemistry, cellular immunology,
advanced microbiology, etc.
Cost effective and highly efficient labor force Higher educational and technical requirements
Features
ICLs
Requirements
for Personnel
Major Service
Provider
• Homogeneous and standardize
• Importance to achieve operating scale benefits
• Broad market demand
Hospitals, ICLs, Co-constructed clinical laboratories
• Higher R&D investment
• Smaller volumes and more narrow customer demand
• Requires higher sales and marketing spend
Source: Frost & Sullivan analysis
China’s ICL market can be broken down by routine testing and esoteric testing. China ICL
routine testing market has grown at a CAGR of 9.8% from RMB8.3 billion in 2017 to RMB12.0
billion in 2021, and is expected to reach RMB22.4 billion in 2026, representing a CAGR of 13.3%
from 2021 to 2026. Compared to ICL routine testing, esoteric testing grew at a faster rate, with a
CAGR of 12.3% from RMB6.4 billion in 2017 to RMB10.3 billion in 2021, and is expected to grow
at a CAGR of 23.0% to reach RMB28.9 billion by 2026.
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Breakdown of China ICL Market by Routine Testing and Esoteric Testing without
COVID-19 Testing, 2017-2026E
14,698.7
18,102.2
21,148.6 19,848.2
22,263.2
25,291.0
31,993.1
38,743.6
45,407.5
51,310.5
Total ICL
ICL Esoteric Testing
ICL Routine Testing
Period, CAGR ICL Esoteric Testing ICL Routine Testing Total
12.3% 9.8% 10.9%
23.0% 13.3% 18.2%
2017-2021
2021-2026E
Million RMB
2017 2018 2019 2020 2021 2022E 2023E 2024E 2025E 2026E
14,698.7 18,102.2 21,148.6 19,848.2 22,263.2 25,291.0 31,993.1 38,743.6 45,407.5 51,310.5
6,438.5 8,199.5 9,765.5 9,210.8 10,252.5 11,138.6 16,526.6 21,321.0 25,053.2 28,880.4
43.8 45.3 46.2 46.4 46.1 44.0 51.7 55.0 55.2 56.3
8,260.2 9,902.7 11,383.1 10,637 12,010 14,152.4 15,466.5 17,422.6 20,354.3 22,430.1
56.2 54.7 53.8 53.6 53.9 56.0 48.3 45.0 44.8 43.7ICL Routine Testing proportion (%)
ICL Esoteric Testing proportion (%)
Source: Frost & Sullivan analysis
Demand for Clinical Laboratory Services from Research Institutions
CRO central laboratory (central laboratory for clinical trials) is an independent medical
laboratory providing in vitro diagnostic services for phase I-IV clinical trials. It is committed to
providing scientific, compliance and one-stop comprehensive solutions for clinical trials of Chinese
and foreign pharmaceutical companies, biotechnology companies, CRO companies, medical device
companies and medical institutions. CRO central laboratories create a seamless service chain that
covers research scheme design, diagnostic and testing services, laboratory materials supports,
laboratory projects management, sample cold chain transportation, biological sample management,
data management and statistical analysis and other services. Resulting from the increased R&D
needs in Chinese pharmaceutical market and, benefiting from the favorable government policies,
demand for clinical trial testing has increased, which further drives the development of ICL central
laboratory services.
The CRO market in China has experienced a growth from RMB29.0 billion in 2017 to
RMB64.0 billion in 2021 with a CAGR of 21.9%. The market is anticipated to maintain the rapid
growth and further reach RMB155.8 billion in 2025, representing a CAGR of 25.0% from 2021 to
2025. The CRO market for clinical stage grew from RMB15.7 billion in 2017 to RMB32.7 billion
in 2021, representing a CAGR of 20.1%. The CRO market for clinical stage is expected to grow
from RMB32.7 billion in 2021 to RMB85.0 billion in 2025, representing a CAGR of 27.0%.
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Value Chain of China’s ICL Market
The following diagram illustrates the upstream and downstream sectors of China’s ICL
market:
China Industry Value Chain of Independent Clinical Laboratory
Medical Service Institutes
Medical Institutions:
hospitals, maternity
and childcare hospital,
health clinic
Research Institutions
Pharmaceutical
Companies and
Individual Consumers
 The upstream of the ICL market is mainly
composed of consumables and
instruments manufacturers, which aim to
provide professional equipment,
consumables, software and raw materials
to ICL to conducting various medical tests.
 Large-scale ICL usually have high price
bargain power to negotiate with raw
material manufacturers.
Upstream DownstreamMidstream
 ICLs receive equipment and raw
materials from upstream manufacturers,
and run various medical tests, such as
biochemical tests, immunology tests,
and pathologic tests.
 ICLs can assist physicians in the
hospital laboratory/pathology
department to detect and diagnose
various diseases and medical
conditions, as well as monitor patients
undergoing  treatment.
 ICLs also conduct diagnosis like gene
detection and microbiological tests for
research institutions and
pharmaceutical companies.
 Downstream is the service costumers in
ICL industry, which mainly include hospitals,
research institutes, pharmaceutical companies
and individuals. ICLs regularly collects test
samples from medical service institutions
through cold chain logistics, and delivery the
test report back after testing through internet
or logistics systems. They determine the
market capacity, development prospects and
business model characteristics.
Instruments
 Manual
 Semi-auto
 Auto
 Biochemical
reagent
 Immunoreagent
 Nucleic acid
reagent
Consumables Hospital
Laboratory/Pathology
Department
ICL
 Biochemical tests
 Immunology tests
 Pathologic diagnosis
 Biochemical tests
 Immunology tests
 Pathologic diagnosis
 Gene detection
 Microbiological tests
Medical Service Institutes
Source: Frost & Sullivan analysis
Entry Barriers of China’s ICL Market
Despite the drivers discussed above, there remains significant entry barriers and challenges to
the new entrants in China’s ICL market:
Complex Regulatory Framework . The ICL market in China is heavily regulated. It is difficult
and time-consuming for ICL players to apply for licenses and certificates to open laboratories and
obtain approvals for testing techniques. Opening an ICL requires a Medical Institution Practicing
License issued by the provincial and municipal health departments. As ICLs provide 80% of the
clinical decision-making information, the regulatory authorities typically consciously limit the
number of ICLs in a certain area.
High Technological Requirements . The development of ICLs require a lot of research
investment and operation experiences. New technologies, including novel gene sequencing
platform, automation lab system, 5G internet and better logistics system will enjoy wider
application in the ICL industry. New ICLs may encounter difficulties with respect to diagnostics
technology, cold-chain logistics, operation system build-up and other advanced technologies.
High Stickiness between ICLs and Hospitals. Maintaining a sustainable relationship with
hospitals is of vital importance to the success of ICL players. Before a hospital intakes an ICL, it
is time consuming to screen and assess an ICL’s qualifications, and it takes enormous amount of
time and efforts to build customized testing services with ICLs. As such, hospitals often prefer
established ICLs that they are familiar with, and new entrants are often faced with unfavorable
terms from hospitals, or if they are able to get business from such hospitals at all.
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Economies of Scale . Existing and successful ICLs generally have a large network of
laboratories and are able to drive down their costs and enjoy higher cost efficiency in procuring
logistics services, establishing distribution network and lowering average fixed cost through
centralized management. Because of the large quantity of consumables purchased by ICLs, the
centralized purchase of diagnostic instruments and reagents can effectively reduce their purchase
cost. The large-scale inspection of samples can reduce the fixed cost per inspection, and the test
price is usually 70% to 80% of the standard tests. Large-scale companies may have higher cost
efficiency of cost management of R&D, personnel training, storage and transportation.
Professional Team. Large scale ICLs require diagnostic technicians, advanced equipment and
laboratory technology platform to ensure the accuracy of diagnostic results. It is difficult for a
start-up company to have the same financial resources to equip with advanced equipment and
experimental technology platform, and carry out professional training for diagnostic technicians.
Competitive Landscape
In 2021, top four major ICLs accounted for 62.3% of the total ICL market share in China. In
the future, leading ICLs will continue to accelerate the chain-based expansion of laboratory network
nationwide to further enhance their competitiveness. The rest of the market is relatively fragmented
with a number of regional market players.
Breakdown of China ICL Market by Companies without COVID-19 Testing, 2021
Million RMB
Company A,
6,623.7, 29.8%
Company B,
4,013.6, 18.0%
ADICON, 1,912.4,
8.6%
Company C, 1,317.3,
5.9%
Others, 8,396.1,
37.7%
Source: Frost & Sullivan analysis
Note: The market share is calculated based on the China ICL market size without COVID-19 testing.
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The following table shows basic information of top four ICLs in China in terms of market
share by the end of 2021.
Rank Name
Market
Share
Listing
Venue
Y ear of
Establishment
Geographic
Coverage Business Model
1. Company A 29.8% Shanghai
Stock
Exchange
1994 Mainland
China and
Hong Kong
An independent third-party
medical diagnostic service
organization with diagnostic
service outsourcing as its core
business.
2. Company B 18.0% Shenzhen
Stock
Exchange
2001 Mainland
China
An independent third-party
medical diagnostic service
organization, medical diagnostic
distributor and medical
diagnostic equipment
manufacturer.
3. Our Company 8.6% / 2004 Mainland
China
An independent third-party
medical diagnostic service
organization with diagnostic
service outsourcing as its core
business.
4. Company C 5.9% Shenzhen
Stock
Exchange
1999 Asia, US,
and EU
A genomic focused equipment
and diagnostic service
organization.
The following table sets forth the key operating metrics of top four ICLs in China in terms of
market share by the end of 2021.
Rank Name
Number of
Laboratories
Testing
Item
Number of
Cooperated
Medical
Institutions
Number of
Employees
ICL Business
Revenue
(FY2021) (2)
1. Company A 39 3,000 ~23,000 12,371 6,623.7
2. Company B 38 2,800 ~20,000 11,123 4,013.6
3. Our Company 26 3,100 ~16,000 5,285 1,912.4
4. Company C 17 N/A
(1) ~4,000 4,333 1,317.3
Notes:
(1) The number of testing items of Company C is not publicly available.
(2) In RMB millions.
Future Trends of China’s ICL Market
Frost & Sullivan forecasts the future trends of ICL market in China will primarily focus on
the following:
Technology Advancement . Advancement in technology has been impacting healthcare
practices. For example, next generation DNA sequencing is more widely used in cancer research
due to its advantages over traditional genomic analytic methods in terms of higher accuracy, speed
and precision as well as lower sample requirements. Moreover, emerging new mobile technologies,
information technologies, automated laboratory systems, and ever advancing logistics capabilities
have been changing the way that medical institutions deliver the healthcare services, and further
boosting the growth of the ICL market.
Increasing Consolidation . Large ICLs have a competitive advantage due to their large
networks, extensive test offerings, and lower cost structures resulting from their scale effects. These
advantages enable them to serve customers more effectively. In the future, small ICL companies
without competitive advantages are likely to be phased out and the industry will become more
concentrated.
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Growing Market for Esoteric Tests . Compared to routine tests, esoteric tests are more difficult
to be operated in hospital-based laboratories due to the higher costs and lower single hospital
demand. This, however, presents great opportunities for ICLs which enjoy cost-effective advantages
over hospital-based laboratories, resulting from their scale effect. It is expected that esoteric tests
will comprise a larger proportion of the overall clinical laboratory market in the future.
Increasing number of ICL players . The advancement of new technologies and influx of capital
investment has stimulated the emergence of new entrants in the ICL market in China. The total
number of ICLs have increased from less than 70 in 2009 to more than 2,100 in 2021. Players with
strong technology and access to capital become future leaders in the market.
Growing Esoteric Test Menu . There is a huge gap between China’s esoteric testing items,
roughly 3,000, to that of the leading European Union and the United States providers with roughly
5,000, respectively. As the esoteric testing market gets more mature, the range of the testing items
will expand accordingly in terms of the number of testing items and therapeutic areas covered,
gradually catching up to the developed countries.
IMPACT OF COVID-19 ON CHINA’S ICL MARKET
After the outbreak of COVID-19 in late 2019, the demand for COVID-19 related tests in China
had soared starting from the first quarter of 2020. COVID-19 related tests primarily include nucleic
acid tests using PCR technology and immuno-based detection tests, both of which are categorized
as esoteric tests. The market size of ICL COVID-19 testing services reached RMB15.9 billion in
2021 and is expected to reach RMB15.3 billion in 2022. Driven by the dramatic increase of
COVID-19 tests, the market size of esoteric testing service has shown a strong growth potential
during the pandemic. However, as government has lifted the COVID-19 restrictions and mass
testings requirements in December 2022, the COVID-19 testing market size is expected to gradually
decrease in the next few years and reach RMB4.1 billion in 2025, though it is not expected to
diminish completely, accordingly to Frost & Sullivan. However, the future demand for COVID-19
tests is subject to a number of uncertainties, including future development of the disease and
treatment, and it is difficult to predict.
SOURCE OF INFORMATION
In connection with the Global Offering, we have engaged Frost & Sullivan to conduct a
detailed analysis and prepare an industry report on China’s ICL industry. Frost & Sullivan is an
independent global market research and consulting company which was founded in 1961 and is
based in the United States. Services provided by Frost & Sullivan include market assessments,
competitive benchmarking, and strategic and market planning for a variety of industries. We
incurred a total of RMB680,000 in fees and expenses for the preparation of the Frost & Sullivan
Report. The payment of such amount was not contingent upon our successful Listing or on the
results of the Frost & Sullivan Report. Except for the Frost & Sullivan Report, we did not
commission any other industry report in connection with the Global Offering.
We have included certain information from the Frost & Sullivan Report in this Prospectus
because we believe such information facilitates an understanding of China’s ICL industry for
potential investors. Frost & Sullivan prepared its report based on its in-house database, independent
third party reports and publicly available data from reputable industry organizations. Where
necessary, Frost & Sullivan contacts companies operating in the industry to gather and synthesize
information in relation to the market, prices and other relevant information. Frost & Sullivan
believes that the basic assumptions used in preparing the Frost & Sullivan Report, including those
used to make future projections, are factual, correct and not misleading. Frost & Sullivan has
independently analyzed the information, but the accuracy of the conclusions of its review largely
relies on the accuracy of the information collected. Frost & Sullivan research may be affected by
the accuracy of these assumptions and the choice of these primary and secondary sources.
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Our businesses and operations in China are supervised and governed by Chinese regulatory
authorities. This section primarily sets forth a summary of the principal PRC laws, rules and
regulations relevant to our businesses and operations in China.
REGULATIONS RELATING TO REFORM AND CATEGORIES OF MEDICAL
INSTITUTIONS
Pursuant to the Law of the People’s Republic of China on the Promotion of Basic Medical
Care, Hygiene and Health () which was
promulgated by the Standing Committee of the National People’s Congress, or SCNPC, and became
effective on June 1, 2020, the PRC government encourages and guides social forces to legally
establish and operate medical and health institutions to provide basic medical services.
The Guiding Opinions of the General Office of the State Council on Boosting the Construction
of a Tiered Diagnosis and Treatment System (ኬจ
Ԉ), promulgated by General Office of the State Council and effective from September 8, 2015,
signify the establishment of a tiered diagnosis and treatment system, as an important measure for
rationally allocating medical resources and promoting equal access to basic medical and health
services. The State Council requires the local governments to facilitate the establishment of
independent regional medical testing institutions.
The Circular on Further Reforming and Perfecting the Examination and Approval of Medical
Institutions and Doctors (), which was
jointly promulgated by the National Health Commission, or NHC, and the State Administration of
Traditional Chinese Medicine and became effective on June 15, 2018, stipulates that medical
institutions may, on the premise of ensuring medical quality and safety, entrust independent medical
test laboratories to provide medical testing services.
REGULATIONS RELATING TO LABORATORIES
Medical Test Laboratories
Pursuant to the Administrative Regulations on Medical Institutions ( ᔼᐕዚ࿴၍ଣૢԷ),
promulgated by the State Council, effective on September 1, 1994, and latest amended on March
29, 2022, and the Implementation Measures of the Administrative Regulations on Medical
Institutions (), effective on September 1, 1994, latest amended by
National Health and Family Planning Commission, or NHFPC, the former of NHC, and effective
from April 1, 2017, the establishment of a medical institution, including but not limited to medical
test laboratory, shall comply with the setting up plan and basic standards for medical institutions,
and shall apply for an approval from NHC or its local counterparts to obtain a medical institution
practicing license. The Administrative Measures for the Examination of Medical Institutions (for
Trial Implementation) (ج(༊Б)), which were promulgated by the
Ministry of Health, or MOH, the former of NHFPC, and became effective on June 15, 2009,
stipulate that a medical institution’s practicing license is subject to periodic examinations and
verifications by the registration authorities, and will be canceled if such medical institution fails to
pass the examination.
Pursuant to the Basic Standards and Practice of Medical Test Laboratories (for Trial
Implementation) (ਿ͉ᅺ๟ձ၍ଣ஝ᇍ(༊Б)), promulgated by NHFPC and
effective from July 20, 2016, a medical test laboratory, which conducts clinical tests, including
clinical hematology tests and body fluid tests, clinical chemistry tests, clinical immunology tests,
clinical microbiology tests, clinical molecular cytogenetic tests and clinical pathology tests, for the
purpose of diagnosis, management, prevention or treatment of diseases and health assessment, shall
be regulated as a medical institution and obtain a medical institution practicing license.
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According to the Measures for the Administration of Clinical Laboratories of Medical
Institutions () released by MOH, effective from June 1, 2006 and
amended on July 10, 2020, a medical institution shall set up its clinical testing items according to
its approved and registered professional diagnosis and treatment subjects under the health
administrative department, and shall not carry out clinical testing items beyond the registered
professional scope. Medical institutions shall in principle comply with the Catalogue of Clinical
Testing Items for Medical Institutions (2013) ( ᔼᐕዚ࿴ᑗґᏨ᜕ධͦͦ፽(2013و)), or the
Testing Items Catalogue, promulgated by NHFPC on August 5, 2013. In addition, pursuant to the
Notice on Issues Related to the Management of Clinical Laboratory Items (ᑗґᏨ᜕ධͦ၍
), promulgated by NHFPC on February 25, 2016, the clinical testing items
which are not included in the Testing Items Catalogue, but with clear clinical significance,
relatively high specificity and sensitivity, and reasonable price, shall be validated in time to meet
clinical needs.
During the COVID-19 epidemic prevention and control period, independent medical test
laboratories have been playing an active role in nucleic acid detection. Pursuant to the Notice of the
General Office of the National Health Commission on Requirements for Medical Institutions to
Carry out COVID-19 related Testing (ࣨݭ
), or the COVID-19 Notice, issued by the General Office of the NHC on
January 22, 2020, each province can procure COVID-19 related testing services and cooperate with
qualified third-party testing institutions to carry out testing. The COVID-19 Notice further provided
various testing requirements on COVID-19 related testing to regulate testing procedure, including
sample collection, sample storage and transportation, quality control, etc. To further strengthen the
management on independent medical test laboratories and ensure medical quality and safety, the
medical treatment team under the Joint Prevention and Control Mechanism of the State Council has
formulated and issued the Interim Administrative Measures for Medical Test Laboratories ( ᔼኪ
), which became effective from August 1, 2020, on the basis of the
Practice of Medical Test Laboratories (for Trial Implementation) (၍ଣ஝ᇍ(༊
Б)). Meanwhile, the laboratories shall strictly comply with the Measures for the Administration
of Clinical Laboratories of Medical Institutions (), and shall
participate in the medical test external quality assessment activities at or above the provincial level,
so as to ensure the impartiality and accuracy of testing results.
Clinical Gene Amplification Test Laboratories
Pursuant to the Administrative Measures for Clinical Gene Amplification Test Laboratories of
Medical Institutions (), promulgated by MOH and
effective from December 6, 2010, a medical institution that intends to establish a clinical gene
amplification laboratory shall file an application with the NHC at the provincial level, and register
its clinical testing items with the competent NHC after technical verification passed by the clinical
testing center at the provincial level or institution designated by the NHC at the provincial level.
Pathogenic Microorganism Laboratories
Pursuant to the Regulations on Administration of Bio-safety in Pathogenic Microorganism
Laboratories (τΌ၍ଣૢԷ), promulgated by the State Council,
effective on November 12, 2004, and latest amended on March 19, 2018, pathogenic microorganism
laboratories are classified into four levels, namely bio-safety levels 1, 2, 3 and 4 in terms of
bio-safety protection levels in accordance with national standards on biosafety of laboratories.
Laboratories at bio-safety levels 1 and 2 shall not engage in laboratory activities related to highly
pathogenic microorganisms. The construction, alteration or expansion of a laboratory at bio-safety
level 1 or 2 shall be filed for record with the local counterparts of NHC. The entity launched a
pathogenic microorganism laboratory shall develop a scientific and strict management system,
regularly inspect the implementation of the regulations on bio-safety, and regularly inspect,
maintain and update the facilities, equipment and materials in the laboratory, to ensure its
compliance with the national standards.
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REGULATIONS RELATING TO MEDICAL TECHNOLOGIES
Pursuant to the Administration Measures for the Clinical Application of Medical Technologies
() promulgated by NHC on August 13, 2018 and effective from
November 1, 2018, a negative list will be set up regarding the clinical application of medical
technologies, which are classified into two categories: “restricted” and “prohibited”. Any medical
institution shall refrain from conducting any clinical application of medical technologies that fall
within the “prohibited” category, while a medical institution which engages in clinical application
of medical technologies falling within the “restricted” category shall file with MOH or its local
counterpart within fifteen working days after the first clinical application of such technologies. In
addition, pursuant to the Notice of Strengthening the Administration of Products and Technologies
Relating to Clinical Gene Sequencing (ஷ
), jointly promulgated by General Office of NHFPC and China Food and Drug Administration,
or CFDA, the former of the National Medical Products Administration, or NMPA, on February 9,
2014, no medical institutions may apply gene sequencing technologies or products for clinical use
before the issuance of relevant access standards and management regulations.
REGULATIONS RELATING TO MEDICAL DEVICES
The using and operation of medical devices in China are subject to extensive regulations.
Pursuant to the Regulations on the Supervision and Administration of Medical Devices ( ᔼ
ᐕኜ૛္ຖ၍ଣૢԷ), or the Medical Devices Regulation, promulgated by the State Council and
effective from April 1, 2000, latest amended on February 9, 2021 and came into effect on June 1,
2021, and the Administrative Measures of Registration and Filing of In-vitro Diagnostic Reagents
(), promulgated by SAMR and effective from October 1,
2021, medical devices, including in-vitro diagnostic reagents, are classified into three different
categories, Class I, II and III on the basis of their respective degrees of risk. Medical devices of
Class I refer to such devices with low level of risk, the safety and effectiveness of which can be
ensured through routine administration. Medical devices of Class II refer to such devices with
medium level of risk, the safety and effectiveness of which shall be strictly controlled. Medical
devices of Class III refer to such devices with high level of risk, the safety and effectiveness of
which shall be guaranteed and be subject to strict control through special administrative measures.
The Notice of Strengthening the Administration of Products and Technologies Relating to Clinical
Gene Sequencing (), jointly
promulgated by CFDA and NHFPC, and effective from February 9, 2014, further provides that gene
sequencing diagnostic products, including gene sequencers and relevant diagnostic reagents and
software, shall be regulated as medical devices.
Registration and Filing of Medical Devices
Pursuant to the Medical Devices Regulation, and the Administrative Measures for the
Registration and Filing of Medical Devices () promulgated by
the SAMR and took effect on October 1, 2021, medical devices of Class I are subject to
record-filing, while medical devices of Class II and Class III are subject to registration. The
Medical Devices Regulation also stipulates that qualified medical institutions may, under the
circumstances that there have been no in-vitro diagnostic reagents of the same type marketed in the
PRC, research and develop such products on their own initiatives according to their clinical needs,
and use them within the institutions under the guidance of practicing physicians.
According to the Medical Devices Regulation, when the operating enterprises of medical
devices or users purchase medical devices, they shall check the qualification of suppliers and the
eligible supporting materials of medical devices, and establish relevant entry inspection record
system. The operating enterprises engaging in wholesale business of Class II and Class III medical
devices and retail business of Class III medical devices shall establish a sales record system.
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Operation Permit and GSP for Medical Devices
Pursuant to the Medical Devices Regulation and the Administrative Measures for Operation
of Medical Devices (), or the Medical Devices Operation
Measures, promulgated by CFDA, and latest amended on March 10, 2022 and effective from May
1, 2022, an entity engaging in the operation of medical devices of Class I is not required to obtain
approval or filing for record with NMPA, or its local counterparts; an entity engaging in the
operation of medical devices of Class II shall file for record with NMPA at city level where such
entity is located; an entity engaging in the operation of medical devices of Class III shall apply for
an operation permit from NMPA at city level. The operation permit of medical devices is valid for
five years and the holder of such permit shall apply for extension within 30 to 90 working days prior
to its expiration. According to the Medical Devices Regulation, any entity shall not sell or use
medical devices which are not properly registered or filed with NMPA or its local counterparts. In
addition, according to the Medical Devices Operation Measures, no additional operation permit or
filing is required for any registered holder or record holder of medical devices or manufacturer of
medical devices if it sells the medical devices at the place where it is domiciled or where the
medical devices are manufactured.
Pursuant to the Good Sales Practice of Medical Devices ( ᔼᐕኜ૛຾ᐄሯඎ၍ଣ஝ᇍ)
promulgated by CFDA and effective from December 12, 2014, an entity engaging in the
procurement, acceptance, preservation, sales, transportation and after-sales of medical devices shall
take effective quality control measures so as to ensure the quality and safety of products in the
process of business operations.
Importation of Medical Devices
According to the Medical Devices Regulation, imported medical devices shall be registered
or filed with NMPA or its local counterparts in accordance with the provisions of the Medical
Devices Regulation. Imported medical devices shall have instructions and labels in Chinese.
REGULATIONS RELATING TO IMPORTED AND EXPORTED GOODS
Pursuant to the Administrative Provisions of the Customs of the People’s Republic of China
on the Filing of Customs Declaration Entities ()
promulgated by the General Administration of Customs of China, or GACC, on November 19, 2021
and took effect on January 1, 2022 and the Administrative Provisions of the Customs of the People’s
Republic of China on the Declaration of Imported and Exported Goods ( ʕശɛ͏΍ձ਷ऎᗫආ
) promulgated by GACC on September 18, 2003 and newly revised on
November 23, 2018, consignors and consignees of exported and imported goods shall declare to the
customs by themselves or appoint a customs declaration enterprise to declare to the customs on their
behalf, and shall go through customs declaration entity filing formalities with their local customs
in accordance with the applicable provisions. Consignors and consignees of exported and imported
goods may handle their own customs declarations within the customs territory of the PRC.
REGULATIONS RELATING TO PRODUCT QUALITY
The Product Quality Law of the People’s Republic of China (ሯඎ
), as amended and effective as of December 29, 2018, applies to production and sale activities
in the PRC. Pursuant to the Product Quality Law of the People’s Republic of China, products
offered for sale must satisfy relevant quality and safety standards. Violations of state or industrial
standards for health and safety and any other related violations may result in civil liabilities and
administrative penalties, such as compensation for damages, fines, suspension or shutdown of
business, as well as confiscation of products illegally produced and sold and the proceeds from such
sales. Severe violations may subject the responsible individual or enterprise to criminal liabilities.
Where a defective product causes physical injury to a person or damage to another person’s
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property, the victim may claim compensation from the manufacturer or from the seller of the
product. Where the responsibility for product defects lies with the manufacturer, the seller shall,
after settling compensation, have the right to recover such compensation from the manufacturer, and
vice versa.
Pursuant to the Civil Code of the People’s Republic of China (Պ)
which was promulgated on May 5, 2020 and effective from January 1, 2021, manufacturers shall
assume tort liability where the defects in relevant products cause damage to others. Sellers shall
assume tort liability where the defects in relevant products causing damage to others are attributable
to the sellers. The aggrieved party may claim for compensation from the manufacturer or the seller
of the relevant product in which the defects have caused damage.
REGULATIONS RELATING TO HUMAN GENETIC RESOURCES
The Regulation for the Administration of Human Genetic Resources of the People’s Republic
of China ( ʕശɛ͏΍ձ਷ɛᗳ፲ෂ༟๕၍ଣૢԷ, promulgated by the State Council on May
28, 2019, and effective from July 1, 2019, the “ HGR Regulation ”), and the Implementation
Measures of Regulation for the Administration of Human Genetic Resources ( ʕശɛ͏΍ձ਷ɛ
, promulgated on June 1, 2023 and will come into effect on July 1,
2023, together with the HGR Regulations, the “ HGR Rules ”) regulate entities engaging in
collection, preservation, utilization and outbound provision of human genetic resources. Human
genetic resources include (i) human genetic resources materials, such as organs, tissues and cells
that contain hereditary substances such as human genomes genes, and (ii) human genetic resources
information, such as data generated from human genetic resources.
Pursuant to the HGR Rules, collection and preservation of human substances such as organs,
tissues and cells and carrying out related activities for the purposes of clinical diagnosis and
treatment, blood collection and supply services, crime investigation, doping detection and funeral
and interment shall be subject to other applicable laws and administrative regulations.
Pursuant to the HGR Rules, foreign entities, individuals and such entities established or
actually controlled thereby shall not, within the territory of China, collect or preserve human
genetic resources of China, nor provide human genetic resources of China outward across the
border; while a foreign entity is allowed to conduct scientific research activities by utilizing human
genetic resources of China through cooperation with scientific research institutions, higher
education institutions, medical institutions or enterprises of China. The utilization of human genetic
resources of China in any international cooperative scientific research is subject to approval by the
Ministry of Science and Technology, or MOST. However, the aforesaid approval is not required, but
instead a filing for record with MOST is required, if human genetic resources of China are utilized
for international cooperative clinical trials without any outbound provision of human genetic
resources, for the purpose of obtaining product registration of relevant medicine and medical device
in China.
REGULATIONS RELATING TO PRICE OF HEALTHCARE SERVICES
According to the Notice of Issues Related to the Implementation of Market Price Adjustment
by Non-Public Medical Institutions (ٙ
) promulgated and implemented on March 25, 2014 by the National Development and
Reform Commission of the PRC, or NDRC, the NHFPC and the Ministry of Human Resources and
Social Security, or MOHRSS, prices on healthcare services provided by non-public medical
institutions shall be set with reference to the market level.
In addition, the Circular on the Issuance of the Reform of the Pharmaceutical and Healthcare
Services Price Formulation Mechanism (ஷ
) was jointly promulgated by NDRC, NHFPC and MOHRSS, and came into effect on 9
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November 2009. It provides that both the government-directed price and market-based price shall
apply to the provision of healthcare services: price for basic healthcare services provided by
non-profit medical institutions shall be directed by government-directed pricing guidelines, while
price for healthcare services provided by profitable medical institutions and certain special
categories of healthcare services provided by non-profit medical institutions can be determined by
the market.
REGULATIONS RELATING TO ENVIRONMENTAL PROTECTION
Pursuant to the Environmental Protection Law of the People’s Republic of China ( ʕശɛ
) which was promulgated by SCNPC on December 26, 1989, and amended
on April 24, 2014 and came into force on January 1, 2015, all enterprises and institutions which
discharge pollutants shall adopt measures to prevent and control pollution and damage to the
environment from waste gas, wastewater, waste residues, medical waste, dust, malodorous gases,
radioactive substances, noise, vibration, ray radiation and electromagnetic radiation generated in
the course of production, construction or other activities. Pollution prevention and control facilities
of a construction project shall be simultaneously designed, constructed and put into operation with
the principal part of the construction project. Enterprises that manufacture, store, transport, sell, use
or dispose of chemicals and materials containing radioactive substances shall comply with the
relevant State regulations to prevent environmental pollution. The relevant authorities are
authorized to impose various types of penalties on the persons or entities in violation of the
environmental regulations, including fines, restriction or suspension of operation, shut-down,
detention of office-in-charge, etc.
Pursuant to the Environmental Impact Assessment Law of the People’s Republic of China
() promulgated by SCNPC on October 28, 2002, effective on
September 1, 2003 and latest amended on December 29, 2018, the PRC government implements
administration by classification on the environmental impact of construction projects according to
the level of impact on the environment. The construction unit shall prepare an environmental impact
report or an environmental impact form or complete an environmental impact registration form (the
“Environmental Impact Assessment Documents”) for reporting and filing purposes. If the
Environmental Impact Assessment Documents of a construction project have not been reviewed by
the approving authority in accordance with the law or have not been granted approval after the
review, the construction unit is prohibited from commencing construction works.
Pursuant to the Administrative Regulations on Environmental Protection in Construction
Projects (ᚐ၍ଣૢԷ) promulgated by the State Council on November 29,
1998, amended and effective on October 1, 2017 and the Interim Measures on Administration of
Environmental Protection for Acceptance Examination Upon Completed Construction Projects
() promulgated by the former Ministry of Environmental
Protection on 20 November 2017, where a construction project needs complementary environmental
protection facilities, those facilities must be designed, constructed and become operational at the
same time as the main parts of the project. The project owner shall, after the completion of the
construction project for which the environmental impact report or the environmental impact
statement is prepared, according to standards and procedures prescribed by the environmental
protection administrative department of the State Council, conduct acceptance check of the
constructed complementary environmental protection facilities. The construction project may not be
put into production or use until the constructed supporting environmental protection facilities have
passed the acceptance check. The facilities that have not undergone or fail to pass the acceptance
check shall not be put into production or use.
According to the Regulations on the Management of Medical Waste (၍ଣૢԷ),
which were promulgated by the State Council on June 16, 2003 and amended on January 8, 2011,
and the Implementation Measures of the Management of Medical Waste (ي
), which were promulgated by MOH on October 15, 2003 and came into effect on the
same day, medical institution shall timely deliver medical wastes to an entity for centralized
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disposal of medical wastes and licensed by a relevant environment protection administrative
department for dispose. Sewage generated by any medical institution and excretion of its patients
or suspected patients of infectious diseases shall be sterilized in strict accordance with the relevant
provisions, and shall not be discharged into sewage disposal systems until the relevant standards are
met.
REGULATIONS RELATING TO LABOR PROTECTION
Labor Protection
Pursuant to the Labor Law of the People’s Republic of China (),
promulgated by SCNPC on July 5, 1994 and amended and effective on December 29, 2018 and the
Labor Contract Law of the People’s Republic of China () amended
by SCNPC and effective on July 1, 2013 and the Implementation Rules of the Labor Contract Law
of the People’s Republic of China (ૢԷ) promulgated by the
State Council and effective on September 18, 2008, employers shall establish and improve labor
rules and regulations according to the laws and regulations and shall strictly comply with the
national standards, provide trainings to their employees, protect their labor rights and perform its
labor obligations. Employers shall execute written labor contracts with full-time employees. Labor
contracts shall be categorized into labor contracts with fixed term, labor contracts without fixed
term and labor contracts to be expired upon completion of certain tasks. All employers must comply
with local minimum wage standards.
Social Insurance and Housing Provident Fund
In addition, according to the Social Insurance Law of the People’s Republic of China ( ʕ
) promulgated by SCNPC on October 28, 2010, amended and came into
effect on December 29, 2018 and the Regulations on the Administration of Housing Provident
Funds (၍ଣૢԷ) amended by the State Council and came into effect on March 24,
2019 and the Provisional Regulations on Collection and Payment of Social Insurance Premiums
(ᎈ൬ᅄᖮᅲБૢԷ) amended by the State Council and came into effect on March 24,
2019, employers in the PRC shall pay premium for basic pension insurance, unemployment
insurance, maternity insurance, work-related injury insurance, basic medical insurance and housing
provident funds for its employees at the applicable rates based on the amounts stipulated by the
laws.
REGULATIONS RELATING TO FOREIGN INVESTMENT
On March 15, 2019, the National People’s Congress promulgated the Foreign Investment Law
of the People’s Republic of China (), or the 2019 Foreign
Investment Law, which became effective on January 1, 2020 and replaced the major former laws
and regulations governing foreign investment in the PRC. Pursuant to the 2019 Foreign Investment
Law, “foreign investments” refer to investment activities conducted by foreign investors directly or
indirectly in the PRC, which include any of the following circumstances: (i) foreign investors
setting up foreign-invested enterprises in the PRC solely or jointly with other investors, (ii) foreign
investors obtaining shares, equity interests, property portions or other similar rights and interests of
enterprises within the PRC, (iii) foreign investors investing in new projects in the PRC solely or
jointly with other investors, and (iv) investment of other methods as specified in laws,
administrative regulations, or as stipulated by the PRC State Council. The 2019 Foreign Investment
Law does not comment on the concept of “de facto control” or contractual arrangements with
consolidated affiliated entities, however, it has a catch-all provision under definition of “foreign
investment” to include investments made by foreign investors in China through means stipulated by
laws or administrative regulations or other methods prescribed by the State Council. Therefore, it
still leaves leeway for future laws, administrative regulations or provisions to provide for
contractual arrangements as a form of foreign investment.
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According to the 2019 Foreign Investment Law and its implementing rules, China adopts a
system of pre-entry national treatment plus negative list with respect to foreign investment
administration. The negative list will be proposed by the competent investment department of the
State Council in conjunction with the competent commerce department of the State Council and
other relevant departments, and be reported to the State Council for promulgation, or be
promulgated by the competent investment department or competent commerce department of the
State Council after being reported to the State Council for approval.
On December 30, 2019, MOFCOM and the State Administration for Market Regulation jointly
promulgated the Measures for Information Reporting on Foreign Investment (జѓ
), or the Information Reporting Measures, which became effective on January 1, 2020.
Pursuant to the Information Reporting Measures, where a foreign investor directly or indirectly
carries out investment activities in China, the foreign investor or the foreign-invested enterprise
shall submit the investment related information to the competent commerce authority through the
enterprise registration system and the national enterprise credit information publicity system for
further handling.
Foreign investment beyond the negative list will be granted national treatment. Foreign
investors shall not invest in the prohibited industries as specified in the negative list, while foreign
investment must satisfy certain conditions stipulated in the negative list for investment in the
restricted industries. The current industry entry clearance requirements governing investment
activities in the PRC by foreign investors are set out in two categories, namely the Special
Administrative Measures on Access of Foreign Investment (Negative List) (ɝतй၍
݄(૶ఊ)), the latest amended version of which was jointly promulgated by the Ministry
of Commerce, or MOFCOM, and NDRC on December 27, 2021 and took effect as of January 1,
2022, or the 2021 Negative List, and the Encouraged Industry Catalogue for Foreign Investment
(2022 version) ( ོᎸ̮ਠҳ༟ପุͦ፽(2022و)). Industries not listed in these two
categories are generally deemed “permitted” for foreign investment unless otherwise restricted by
other PRC laws. Development and application of gene diagnosis and treatment technology is
prohibited to foreign investment pursuant to the 2021 Negative List. We conduct the business
operations of clinical genetic testing service involving development and application of genetic
diagnosis and treatment technologies that are prohibited to foreign investment, through Hangzhou
Adicon and its subsidiaries under the Contractual Arrangements.
According to Article 6 of the 2021 Negative List, if a domestic company engaging in business
prohibited in the Negative List seeks to offer shares and list securities in an overseas market, such
offering and listing shall be approved by relevant competent PRC authorities. Foreign investors
must not participate in the operation and management of the company, and their shareholding
percentage shall be subject to relevant provisions on the administration of domestic securities
investment by foreign investors. On January 18, 2022, the NDRC held a press conference to further
clarify the 2021 Negative List, during which the spokesmen make it clear that Article 6 of the 2021
Negative List shall only be applicable where a domestic company is seeking a direct overseas
issuance and listing. With reference to the definition under the Overseas Listing Trial Measures, a
direct overseas issuance and listing of a domestic company refers to a PRC-incorporated joint stock
company issues shares or seeks to be listed overseas, where the listed company is the domestic
company itself, such as H shares listing (the “Direct Overseas Listing”). Our PRC Legal Advisor
is of the view that based on the clarification made by the NDRC, our proposed Listing does not
constitute a Direct Overseas Listing, which is a case applicable under the Article 6 of the 2021
Negative List.
On February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas
Securities Offering and Listing by Domestic Companies ( ྤʫΆุྤ̮೯БᗇՎձɪ̹၍ଣ༊Б፬
جthe “ Overseas Listing Trial Measures ”) and five supporting guidelines, which came into
effect on March 31, 2023. The Overseas Listing Trial Measures regulate both direct and indirect
overseas offering and listing of PRC domestic companies’ securities by adopting a filing-based
regulatory regime.
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Pursuant to the Overseas Listing Trial Measures, if the issuer both meets the following
criteria, the overseas securities offering and listing conducted by such issuer will be deemed as
indirect overseas offering by PRC domestic companies: (i) 50% or more of any of the issuer’s
operating revenue, total profit, total assets or net assets as documented in its audited consolidated
financial statements for the most recent fiscal year is accounted for by domestic companies; and (ii)
the main parts of the issuer’s business activities are conducted in the PRC, or its main place(s) of
business are located in the PRC, or the majority of senior management staff in charge of its business
operations and management are PRC citizens or have their usual place(s) of residence located in the
PRC. Where an issuer submits an application for initial public offering to competent overseas
regulators, such issuer must file with the CSRC within three business days after such application
is submitted. The Overseas Listing Trial Measures also requires subsequent reports to be filed with
the CSRC on material events, such as change of control or voluntary or forced delisting of the
issuer(s) who have completed overseas offerings and listings.
On the same day, the CSRC also held a press conference for the release of the Overseas Listing
Trial Measures and issued the Notice on Administration for the Filing of Overseas Offering and
Listing by Domestic Companies (ٝwhich, among
others, clarifies that (1) the domestic companies that have already been listed overseas on or before
the effective date of the Overseas Listing Trial Measures (i.e. March 31, 2023) shall be deemed as
existing applicants ( πඎΆุ), or the Existing Applicants. Existing Applicants are not required to
complete the filling procedures immediately, and they shall be required to file with the CSRC when
subsequent matters such as refinancing are involved; (2) on or prior to the effective date of the
Overseas Listing Trial Measures, domestic companies that have already submitted valid
applications for overseas offering and listing but fail to obtain an approval from overseas regulatory
authorities or stock exchanges may reasonably arrange the timing for submitting their filing
applications with the CSRC, and must complete the filing before the completion of their overseas
offering and listing; (3) a six-month transition period will be granted to domestic companies which,
prior to the effective date of the Overseas Listing Trial Measures, have already obtained the
approval from overseas regulatory authorities or stock exchanges (such as pass of hearing for listing
in Hong Kong or the effectiveness of registration statement for listing in the U.S.), but have not
completed the indirect overseas listing; if such domestic companies complete their overseas
offering and listing within such six-month period (i.e., on or prior to September 30, 2023), they will
be deemed as Existing Applicants. Within such six-month transition period, however, if such
domestic companies need to reapply for offering and listing procedures to the overseas regulatory
authority or securities exchanges (such as being required to go through a new hearing procedure
with the Stock Exchange), or if they fail to complete their indirect overseas issuance and listing,
such domestic companies shall complete the filling procedures with the CSRC before completion
of the overseas offering and listing; and (4) the CSRC will solicit opinions from relevant regulatory
authorities and complete the filing of the overseas listing of companies with contractual
arrangements which duly meet the compliance requirements, and support the development and
growth of these companies by enabling them to utilize two markets and two kinds of resources.
The Overseas Listing Trial Measures provide that, an overseas offering and listing is
prohibited under any of the following circumstances: if (i) such securities offering and listing is
explicitly prohibited by provisions in laws, administrative regulations and relevant state rules; (ii)
the intended securities offering and listing may endanger national security as reviewed and
determined by competent authorities under the State Council in accordance with law; (iii) the
domestic company intending to make the securities offering and listing, or its controlling
shareholder(s) and the actual controller, have committed relevant crimes such as corruption, bribery,
embezzlement, misappropriation of property or undermining the order of the socialist market
economy during the latest three years; (iv) the domestic company intending to make the securities
offering and listing is currently under investigations for suspicion of criminal offenses or major
violations of laws and regulations, and no conclusion has yet been made thereof; or (v) there are
material ownership disputes over equity held by the domestic company’s controlling shareholder(s)
or by other shareholder(s) that are controlled by the controlling shareholder(s) and/or actual
controller.
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REGULATIONS RELATING TO INTELLECTUAL PROPERTY RIGHTS
Patent
Patents in the PRC are principally protected under the Patent Law of the People’s Republic
of China (), or the Patent Law, promulgated by SCNPC, latest amended
on October 17, 2020 and took effect on June 1, 2021 and the Implementing Rules of the Patent Law
of the People’s Republic of China (), promulgated by the State
Council and last amended on January 9, 2010 and effective from February 1, 2010. The Patent Law
and its implementation rules provide for three types of patent: “invention”, “utility model” and
“design”. The protection period is 20 years for invention patents, 10 years for utility model patents
and 15 years for design patents, commencing from their respective application dates. The Chinese
patent system adopts a “first come, first file” principle, which means that where more than one
person files a patent application for the same invention, a patent will be granted to the person who
files the application first. To be patentable, invention or utility models must meet three criteria:
novelty, inventiveness and practicability. Except under certain specific circumstances provided by
law, any third-party user must obtain consent or a proper license from the patent owner to use the
patent. Otherwise, the use of said patent constitutes an infringement of the patent rights, and shall
pay compensation to the patentee and is subject to order to cease infringement. In addition, under
the HGR Regulation, patents derived from the cross-border cooperation using PRC genetic
resources shall be jointly applied and owned by the cooperating PRC and foreign parties.
Copyright
Copyright in the PRC, including copyrighted software, is principally protected under the
Copyright Law of the People’s Republic of China () which became
effective in 1991 and was most recently amended on November 11, 2020 and took effect on June
1, 2021, and related rules and regulations. Under the Copyright Law of the People’s Republic of
China, the term of protection for copyrighted software is 50 years. The Regulation on the Protection
of the Right to Communicate Works to the Public over Information Networks (ၣഖෂᅧᛆ
ᚐૢԷ), which was most recently amended on January 30, 2013, and provides specific rules
on fair use, statutory license, and a safe harbor for use of copyrights and copyright management
technology and specifies the liabilities of various entities for violations, including copyright
holders, libraries and Internet service providers. In order to further implement the Regulations for
the Protection of Computer Software (ᚐૢԷ) promulgated by the State Council
on December 20, 2001 and last amended on January 30, 2013, the National Copyright
Administration issued the Registration of Computer Software Copyright Procedures (ၑዚழ΁
) on February 20, 2002, which applies to software copyright registration, license
contract registration and transfer contract registration with respect to software copyright.
Trademark
Registered trademarks are protected under the Trademark Law of the People’s Republic of
China () which became effective in 1983 and was most recently
amended on November 1, 2019 and related rules and regulations. Trademarks are registered with the
Trademark Office of China National Intellectual Property Administration. Where registration is
sought for a trademark that is identical or similar to another trademark which has already been
registered or given preliminary examination in the same or similar category of commodities or
services, the application for registration of this trademark may be rejected. Trademark registrations
are effective for a renewable ten-year period, unless otherwise revoked.
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Domain Name
Domain names are protected under the Administrative Measures on Internet Domain Names
() promulgated by the Ministry of Industry and Information Technology,
or MIIT, on August 24, 2017 and effective as of November 1, 2017. Domain name registrations are
handled through domain name service agencies established under the relevant regulations, and
applicants become domain name holders upon successful registration.
REGULATIONS RELATING TO INFORMATION SECURITY AND PRIV ACY
PROTECTION
Pursuant to the Civil Code of the People’s Republic of China, the personal information of an
individual shall be protected. Any organization or individual shall legally obtain the personal
information of any person when necessary and ensure the safety of such personal information, and
shall not illegally collect, use, process or transmit such personal information, or illegally buy or
sell, provide or make public such personal information. A natural person has the privacy right, and
provisions on the privacy right shall apply to the private information included in personal
information. The Basic Standards for Medical Test Laboratories (for Trial Implementation) ( ᔼኪ
ਿ͉ᅺ๟(༊Б)), as promulgated by NHFPC in 2016, provides that medical
laboratories must establish information management and patient privacy protection policies. The
Measures for the Administration of General Population Health Information (for Trial
Implementation) (ج(༊Б)), or the Population Health Information
Measures, as promulgated by NHFPC on May 5, 2014, set forth the operational measures for patient
privacy protection in medical institutions. The Population Health Information Measures regulate the
collection, use, management, safety and privacy protection of general population health information
by medical institutions. Medical institutions must establish information management departments
responsible for general population health information and establish quality control procedures and
relevant information systems to manage this information. Medical institutions must adopt stringent
procedures to verify the general population health data collected, timely update and maintain the
data, establish policies on the authorized use of this information, and establish safety protection
systems, policies, practice and technical guidance to avoid divulging confidential or private
information.
The Cybersecurity Law of the People’s Republic of China (),
promulgated by the SCNPC on November 7, 2016 and effective on June 1, 2017, requires network
operators to adopt technical and other necessary measures to ensure security of personal data and
safeguard against information leakage, damage or loss. On June 10, 2021, the SCNPC promulgated
the Data Security Law of the People’s Republic of China (), or the
Data Security Law, which became effective on September 1, 2021. The Data Security Law provides
that “data” refers to any recording of information by electronic or other means and “data
processing” includes the collection, storage, use, processing, transmission, availability and
disclosure of data, etc. Data processors shall establish and improve the whole-process data security
management rules, organize and implement data security training as well as take appropriate
technical measures and other necessary measures to protect data security.
To support the implementation of the Data Security Law, on December 28, 2021, the
Cyberspace Administration of China, or CAC, jointly with other 12 governmental authorities,
issued the revised Measures for Cybersecurity Review (), or the Revised
CAC Measures, which became effective on February 15, 2022. Pursuant to the Revised CAC
Measures, a cybersecurity review is required when national security has been or may be affected
where a critical information infrastructure operator (the “ CIIO”) (٫)
purchases network products and services, and an online platform operator carries out data
processing activities. Moreover, the Revised CAC Measures also provide that an online platform
operator (٫possessing personal information of more than one million users that
applies for listing abroad, shall make declaration for cybersecurity review with the Office of
Cybersecurity Review. On July 30, 2021, the State Council promulgated the Regulations for Safe
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Protection of Critical Information Infrastructure (ᚐૢԷ) (the “CII
Regulation”) which came into effect on September 1, 2021. Pursuant to the CII Regulation, critical
information infrastructure refers to important network infrastructure and information system in
public telecommunications, information services, energy sources, transportation and other critical
industries and domains, in which any destruction or data leakage will have severe impact on
national security, the nation’s welfare, the people’s living and public interests. The CII Regulation
also stipulates the procedures for determining critical information infrastructure. It provides that
competent authorities shall promulgate detailed rules in designating critical information
infrastructure, identify critical information infrastructure in the relevant industries, and notify
operators of such critical information infrastructure in a timely manner. As of the Latest Practicable
Date, the responsible authorities had not promulgated any implementation provisions or
identification rules which include ICL industry in the relevant scope of “critical information
infrastructure”. In addition, as of the Latest Practicable Date, we had not been notified by any
authorities of being classified as a CIIO, involved in any cybersecurity review or received any
investigation, inquiry, notice, warning or sanctions by any governmental authorities on such basis.
Based on the foregoing, our Directors believe that we should not be classified as a CIIO. In
addition, on March 14, 2022, our PRC Legal Advisor and the PRC legal advisor to the Joint
Sponsors conducted a telephone consultation with the China Cybersecurity Review Technology and
Certification Center (ҦஔၾႩᗇʕː) (the “ Center ”), the department
responsible for accepting cybersecurity review applications under the guidance of the Cybersecurity
Review Office. During the consultation, our PRC Legal Advisor and the PRC legal advisor to the
Joint Sponsors have informed the Center our proposed listing plan, and the Center confirmed that
Hong Kong listing does not fall within the scope of “listing abroad” under the Revised CAC
Measures, and therefore we are not required to proactively apply for cybersecurity review with
respect to our proposed Listing. Our PRC Legal Advisor is of the view that the Center is the
competent authority for the Consultation, and the staff who responded our inquires during the
Consultation is the duly designated person in the Center to handle public inquiries. As such, our
PRC Legal Advisor is of the view that Hong Kong listing does not fall within the scope of “listing
abroad” under the Revised CAC Measures and thereby we are not required to proactively apply for
cybersecurity review with respect to the proposed Listing.
On November 14, 2021, the CAC issued the Regulations on the Administration of Cyber Data
Security (Consultation Draft) ( ၣഖᅰኽτΌ၍ଣૢԷ(ᅄӋจԈᇃ)) (the “ Draft Data
Security Regulations ”) for public comments. The Draft Data Security Regulations have set out
requirements on matters such as the protection of personal information, security of important data,
security management of cross-border data transfer, application for cybersecurity review and
obligations of internet platform operators. According to the Draft Data Security Regulations, a data
processor shall apply for a cybersecurity review if it involves the following activities: (i) the
merger, reorganization or separation of internet platform operators that possess a large number of
data resources related to national security, economic development or public interests, that influence
or may influence national security; (ii) seeking listing abroad that process personal information of
more than one million users; (iii) seeking listing in Hong Kong, which will influence or may
influence the national security; (iv) other data processing activities that will influence or may
influence national security. However, the Draft Data Security Regulations provides no further
explanation or interpretation for “influence or may influence national security”. Given that as of the
Latest Practicable Date, the Draft Data Security Regulations were released for public comments
only and has not come into effect and we are still in the process of evaluating the applicability of
the various requirements under the Draft Data Security Regulations to our business, it is impractical
for us to predict the impact of the Draft Data Security Regulations at the current stage. We will
closely monitor the rule-making process and will assess and determine whether we are required to
apply for the cybersecurity review once the Draft Data Security Regulations is formally
promulgated.
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REGULATIONS RELATING TO ADVERTISEMENTS
Pursuant to the Advertisement Law of the People’s Republic of China ( ʕശɛ͏΍ձ਷ᄿ
), which was promulgated by SCNPC on October 27, 1994 and effective from February 1,
1995 and latest amended on April 29, 2021, advertisements shall not contain false statements or be
deceitful or misleading to consumers. Advertisements on medical devices shall be reviewed by
relevant authorities in accordance with applicable rules before being published.
REGULATIONS RELATING TO ANTI-BRIBERY
Since early 1990s, the legislative authorities at different levels in China have promulgated
certain laws and regulations in respect of commercial bribery. According to the Anti-Unfair
Competition Law of the PRC () (the “ Anti-Unfair
Competition Law ”) promulgated by SCNPC, as amended and effective as of April 23, 2019, unfair
competition is defined as an act in which an operator violates the provisions of the Anti-Unfair
Competition Law in its production and operation activities, disturbs the market competition order
and damages the legitimate rights and interests of other operators or consumers. According to the
Anti-Unfair Competition Law, business operators shall abide by the principles of voluntariness,
equality, fairness and integrity and abide by laws and business ethics in their market transactions.
Operators who violate the provisions of the Anti-Unfair Competition Law shall be subject to
corresponding civil, administrative or criminal liabilities according to the specific circumstances.
Pursuant to the Interim Provisions on the Prohibition of Commercial Bribery (ຫ˟ਠ
) (the “ Prohibition Commercial Bribery Provisions ”) promulgated by
the former State Administration of Industry and Commerce on November 15, 1996, commercial
bribery refers to an act of offering money or property or using other means by an operator to the
other entity or individual for the purposes of selling or buying goods, among which “other means”
refer to the means used to provide any types of benefits other than money or property, such as
offering overseas or domestic travel. Any business operator shall not provide or promise to provide
economic benefits (including cash, other property or by other means) to a counter-party in a
transaction or a third party that may be able to influence the transaction, in order to entice such
party to secure a transactional opportunity or a competitive advantages for the business operator.
Any business operator breaching the relevant anti-bribery rules above-mentioned may be
subject to administrative punishment or criminal liability depending on the seriousness of the cases.
According to the Anti-Unfair Competition Law, if business operator commits bribery, regulatory
authorities may impose fines of more than RMB100,000 and less than RMB3,000,000 depending on
the seriousness of the cases and if there is any illegal income, such income shall be confiscated.
According to the Prohibition Commercial Bribery Provisions, regulatory authorities may impose
fines depending on the seriousness of the cases and if there is any illegal income, such income shall
be confiscated. According to the PRC Criminal Law (), which was latest
amended by the SCNPC on December 26, 2020 and came into effect on March 1, 2021, anyone who
offers money or property to national servants for the purposes of seeking illegitimate benefits may
commit a criminal offence and may be imposed on criminal penalty.
REGULATIONS RELATING TO TAX
PRC Enterprise Income Tax
The PRC enterprise income tax, or EIT, is calculated based on the taxable income determined
under the applicable EIT Law of the People’s Republic of China (੻೼
) and its implementation rules, both of which became effective on January 1, 2008 and were
most recently amended on December 29, 2018 and April 23, 2019, respectively. Taxpayers consist
of resident enterprises and non-resident enterprises. Under the EIT Law and relevant implementing
regulations, a uniform corporate income tax rate of 25% is applicable. However, if non-resident
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enterprises have not formed permanent establishments or premises in mainland China, or if they
have formed permanent establishment institutions or premises in mainland China but there is no
actual relationship between the relevant income derived in mainland China and the established
institutions or premises set up by them, the enterprise income tax is, in that case, set at the rate of
10% for their income sourced from inside mainland China. The EIT Law and its implementation
rules permit certain High and New Technologies Enterprises, or HNTEs, to enjoy a reduced 15%
enterprise income tax rate if they meet certain criteria and are officially acknowledged.
PRC Value Added Tax
Pursuant to the Provisional Regulations on Value-Added Tax of the People’s Republic of
China (೼ᅲБૢԷ), which were promulgated by the State Council on
December 13, 1993 and latest amended on November 19, 2017, and the Implementation Rules for
the Provisional Regulations on Value-Added Tax of the People’s Republic of China ( ʕശɛ͏΍
), which were promulgated by the Ministry of Finance, or MOF, on
December 25, 1993 and latest amended on October 28, 2011 and became effective on November 1,
2011, entities and individuals engaging in sale of goods, provision of processing services, repairs
and replacement services, sales of services, intangible assets or real property, or importation of
goods within the territory of the PRC shall pay value-added tax, or the V AT.
On March 23, 2016, MOF and the State Taxation Administration of the PRC, or STA, jointly
issued the Circular on the Pilot Program for Overall Implementation of the Collection of Value
Added Tax Instead of Business Tax (), or the
Circular 36, which took effect on May 1, 2016. Pursuant to the Circular 36, all of the companies
operating in construction, real estate, finance, modern service or other sectors which were required
to pay business tax are required to pay V AT, in lieu of business tax. A V AT rate of 6% applies to
revenue derived from the provision of certain services. Unlike business tax, a taxpayer is allowed
to offset the qualified input V AT paid on taxable purchases against the output V AT chargeable on
the revenue from services provided.
On March 20, 2019, MOF, STA and GACC issued the Announcement on Policies for
Deepening the V AT Reform (ʮѓ), or the Announcement 39,
which came into effect on April 1, 2019, to further slash V AT rates. According to the Announcement
39, (i) the 16% or 10% V AT previously imposed on sales and imports by general V AT taxpayers is
reduced to 13% or 9% respectively; (ii) the 10% purchase V AT credit rate allowed for the procured
agricultural products is reduced to 9%; (iii) the 13% purchase V AT credit rate allowed for the
agricultural products procured for production or commissioned processing is reduced to 10%; and
(iv) the 16% or 10% export V AT refund rate previously granted to the exportation of goods or labor
services is reduced to 13% or 9%, respectively.
REGULATIONS RELATING TO FOREIGN EXCHANGE AND DIVIDEND DISTRIBUTION
Foreign Exchange Regulation
The principal regulations governing foreign currency exchange in China are the Regulations
on Foreign Exchange Administration of the People’s Republic of China ( ʕശɛ͏΍ձ਷̮ි၍
ଣૢԷ), promulgated on January 29, 1996, last revised and effective on August 5, 2008. Under
the PRC foreign exchange regulations, payments of current account items, such as profit
distributions and trade and service-related foreign exchange transactions, may be made in foreign
currencies without prior approval from the State Administration of Foreign Exchange, or SAFE, by
complying with certain procedural requirements. By contrast, approval from or registration with
appropriate government authorities is required where Renminbi is to be converted into foreign
currency and remitted out of China to pay capital expenses such as the repayment of foreign
currency denominated loans or foreign currency is to be remitted into China under the capital
account, such as a capital increase or foreign currency loans to our PRC subsidiaries.
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In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting
Foreign Exchange Administration Policies on Direct Investment (ટҳ
), as latest amended in December 2019, which substantially amends and
simplifies the foreign exchange procedure. Pursuant to this circular, the opening of various special
purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange
capital accounts and guarantee accounts, the reinvestment of Renminbi proceeds by foreign
investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-
invested enterprise to its foreign shareholders no longer require the approval or verification of
SAFE, and multiple capital accounts for the same entity may be opened in different provinces,
which was not possible previously. In addition, SAFE promulgated the Circular on Printing and
Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment
by Foreign Investors and the Supporting Documents (Ι೯<ટҳ༟̮ි၍
֛>) in May 2013, as latest amended in December 2019, which specifies
that the administration by SAFE or its local branches over direct investment by foreign investors
in the PRC shall be conducted by way of registration and banks shall process foreign exchange
business relating to the direct investment in the PRC based on the registration information provided
by SAFE and its branches. In February 2015, SAFE promulgated the Circular of Further
Simplifying and Improving the Policies of Foreign Exchange Administration Applicable to Direct
Investment (), or the Circular 13, which
became effective on June 1, 2015. Under the Circular 13, the foreign exchange procedures are
further simplified, and foreign exchange registrations of direct investment will be handled by the
banks designated by the foreign exchange authority instead of SAFE and its branches. However, the
foreign invested enterprises were still prohibited by the Circular 13 to use the Renminbi converted
from foreign currency-registered capital to extend entrustment loans, repay bank loans or
inter-company loans.
On June 9, 2016, SAFE issued the Circular on Reforming and Regulating Policies on the
Control over Foreign Exchange Settlement of Capital Accounts (ձ஝ᇍ༟͉ධͦഐි၍
), or the Circular 16, which took effect on the same day. The Circular 16 provides
that discretionary foreign exchange settlement applies to foreign exchange capital, foreign debt
offering proceeds and remitted foreign listing proceeds, and the corresponding Renminbi obtained
from foreign exchange settlement are not restricted from extending loans to related parties or
repaying the inter-company loans (including advances by third parties).
On January 26, 2017, SAFE promulgated the Circular on Further Improving Reform of
Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification ( ᗫ
), or the Circular 3, which took effect on
the same day. The Circular 3 sets out various measures, including the following: (i) relaxing the
policy restriction on foreign exchange inflow to further enhance trade and investment facilitation,
including (a) expanding the scope of foreign exchange settlement for domestic foreign exchange
loans, (b) allowing the capital repatriation for offshore financing against domestic guarantee, (c)
facilitating the centralized management of foreign exchange funds of multinational companies, and
(d) allowing offshore institutions within pilot free trade zones to settle foreign exchange in domestic
foreign exchange accounts; and (ii) tightening genuineness and compliance verification of
cross-border transactions and cross-border capital flow, including (a) improving the statistics of
current account foreign currency earnings deposited offshore, (b) requiring banks to verify board
resolutions, tax filing form, and audited financial statements before wiring foreign invested
enterprises’ foreign exchange distribution above US$50,000, (c) strengthening genuineness and
compliance verification of foreign direct investments, and (d) implementing full scale management
of offshore loans in Renminbi and foreign currencies by requiring the total amount of offshore loans
be no higher than 30% of the onshore owner’s equity shown on its audited financial statements of
the last year.
On October 23, 2019, SAFE issued the Circular on Further Facilitating Cross-border Trade
and Investment (), or the Circular 28, which took
effect on the same day. The Circular 28 allows non-investment foreign-invested enterprises to use
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their capital funds to make equity investments in China, provided that such investments do not
violate the negative list and the target investment projects are genuine and in compliance with laws.
Since the Circular 28 was issued only recently, its interpretation and implementation in practice are
still subject to substantial uncertainties.
To use our offshore foreign currency to fund our PRC operations, we will apply to obtain the
relevant approvals of SAFE and other PRC government authorities as necessary. Our PRC
subsidiary’s distributions to their offshore parents and our cross-border foreign exchange activities
are required to comply with the various requirements under the relevant foreign exchange rules.
SAFE Circular 37
SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on
Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special
Purpose Vehicles (ٙ
), or the SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly
known as the “SAFE Circular 75” (೻ҳ༟̮ි၍
) promulgated by SAFE on October 21, 2005. The SAFE Circular 37 requires
PRC residents to register with local branches of SAFE in connection with their direct establishment
or indirect control of an offshore entity, for the purpose of overseas investment and financing, with
their legally owned assets or interests in domestic enterprises or offshore assets or interests, referred
to in the SAFE Circular 37 as a “special purpose vehicle”. The SAFE Circular 37 further requires
amendment to the registration in the event of any significant changes with respect to the special
purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share
transfer or exchange, merger, division or other material event. In the event that a PRC shareholder
holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC
subsidiary of that special purpose vehicle may be prohibited from making profit distributions to the
offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the
special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC
subsidiary. Furthermore, failure to comply with the various SAFE registration requirements
described above could result in liability under PRC law for evasion of foreign exchange controls.
On February 13, 2015, SAFE released the Circular 13, under which local banks will examine and
handle foreign exchange registration for overseas direct investment, including the initial foreign
exchange registration and amendment registration, from June 1, 2015. There exist substantial
uncertainties with respect to its interpretation and implementation by governmental authorities and
banks.
Regulation of dividend distribution
Under our current corporate structure, our Cayman Islands holding company may rely on
dividend payments from our PRC subsidiary, which is a wholly foreign-owned enterprise
incorporated in the PRC, to fund any cash and financing requirements we may have. The principal
laws, rules and regulations governing dividend distribution by wholly foreign-owned enterprise in
the PRC are the Company Law of the People’s Republic of China (), as
latest amended on October 26, 2018, the 2019 Foreign Investment Law and its implementing rules.
Under these laws, rules and regulations, wholly foreign-owned enterprises may pay dividends only
out of their accumulated profit, if any, as determined in accordance with PRC accounting standards
and regulations. A wholly foreign-owned enterprise is required to set aside as general reserves at
least 10% of their after-tax profit, until the cumulative amount of their reserves reaches 50% of their
registered capital. A PRC company is not permitted to distribute any profits until any losses from
prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed
together with distributable profits from the current fiscal year.
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REGULATIONS RELATING TO LAND USE RIGHTS OF REAL ESTATE PROPERTY
The Civil Code of the People’s Republic of China (Պ), the Land
Administration Law of the People’s Republic of China () enacted
by SCNPC on June 25, 1986 with its latest amendment effective on January 1, 2020, the Regulations
on the Implementation of the Land Administration Law of the People’s Republic of China ( ʕശ
ૢԷ) promulgated by the State Council on December 27, 1998 with
its latest amendment on July 2, 2021, and the Law on the Administration of Urban Real Estate of
the PRC () passed by the SCNPC on July 5, 1994 with its
latest amendment effective on January 1, 2020, mainly govern the use rights of the state-owned land
in the PRC.
Pursuant to the Civil Code of the People’s Republic of China (Պ),
in order to establish construction land use rights, registration shall be completed with the registrar.
A holder of construction land use rights shall reasonably use the land and may not alter the purpose
of land use. Approval of the relevant administrative department shall be obtained if altering the
purpose of land use.
Pursuant to the Land Administration Law of the People’s Republic of China ( ʕശɛ͏΍ձ
) and the Regulations on the Implementation of the Land Administration Law of the
People’s Republic of China (ૢԷ), the state implements a
land use control system and shall formulate an overall land utilization plan to specify land use. Any
entity or individual must use land in strict accordance with the purposes of land use as specified in
the overall land utilization plan. Construction entities shall use state-owned land according to the
stipulations of the land use right assignment 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 authority 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 department 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 to fines or other penalties, including potentially being
required by the relevant land administrative authority to return the land.
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OVERVIEW
Our history can be traced back to January 2004 when our co-founders, Mr. LIN Jixun and Mr.
LIN Feng, launched our first ICL in Hangzhou in 2004 using their personal funding and
contributions. In October 2018, Pearl Group Limited, a company owned by funds which are (by and
through their controlled affiliates and their respective general partners) ultimately controlled by
Carlyle, invested in our Company and became our Controlling Shareholder. Our two co-founders
did not assume any management or executive roles in our Group after the investments of Pearl
Group Limited in October 2018.
The additional resources, expertise and professional management from Pearl Group Limited
and other investors enhanced our corporate compliance and reset our growth path, and led us in our
rapid growth and robust track record results with adjusted EBITDA (non-IFRS measure) grew at a
CAGR of 34.0% from RMB567.6 million in 2020 to RMB1,019.8 million in 2022. See “Financial
Information – Non-IFRS Measures”. We also expanded our ICL network after October 2018 through
the establishment of new ICLs in Guizhou, Heilongjiang, Linyi, Qingdao, Quzhou, Xiamen,
Shenzhen, Suzhou, Wenzhou and Xinyang, and the acquisition of ICLs in Shangrao and Henan. As
of the Latest Practicable Date, we offered comprehensive and best-in-class testing services
primarily to hospitals and health check centers through an integrated network of 33 self-operated
laboratories across China.
KEY MILESTONES
Set out below are the key milestones in our history:
2004 We launched our first ICL in Hangzhou.
2006 to 2011 We launched our ICLs in Beijing, Changsha, Chengdu, Fuzhou, Hefei, Jilin,
Jinan, Nanchang, Nanjing, Shanghai, Shenyang and Wuhan.
Shanghai Adicon was awarded College of American Pathologists (CAP)
accreditation in 2008, and became the first ICL in China to obtain such
accreditation.
Hangzhou Adicon obtained ISO 15189 qualification in 2010, and became the
first ICL in the PRC to obtain such accreditation.
2011 We diversified our business and started engaging in the sales of medical
products.
2013 to 2017 We launched our ICLs in Chongqing, Guangzhou, Kunming, Nanning, Sanming,
Tianjin, Xi’an and Zhengzhou.
We started cooperating with CROs across the PRC through our central ICL in
Shanghai and Hangzhou.
2019 We expanded into health check customer segment and started providing testing
services to health check centers across the PRC.
We launched our ICLs in Qingdao and Shenzhen.
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2020 We started offering COVID-19 tests in February 2020. We were the first batch
of ICLs recognized as a core participant of the national screening for
COVID-19.
We launched a dedicated sales force for the sales and marketing of our esoteric
testing services across the PRC.
We launched our ICLs in Quzhou.
2021 We acquired an ICL in Shangrao and launched an ICL in Xiamen.
We completed our Preferred Shares Pre-IPO investment and received an
aggregate amount of US$88.0 million.
2022 We acquired an ICL in Henan and launched ICLs in Heilongjiang, Guizhou,
Suzhou, Wenzhou and Xinyang.
2023 We launched our ICL in Linyi.
OUR MAJOR SUBSIDIARIES AND OPERATING ENTITIES
Our major subsidiaries that made a material contribution to our results of operations during
the Track Record Period are set forth below:
Company
Place of
establishment
Principal business
activities
Date of establishment and
commencement of business
Hangzhou Adicon ........ P R C I C L Business January 16, 2004
Beijing Adicon ........... P R C I C L Business December 7, 2007
Hefei Adicon ............ P R C I C L Business June 5, 2006
Jinan Adicon ............ P R C I C L Business October 19, 2006
Fuzhou Adicon ........... P R C I C L Business February 6, 2009
Wuhan Adicon ........... P R C I C L Business November 24, 2009
Nanjing Adicon .......... P R C I C L Business December 4, 2009
Tianjin Adicon ........... P R C I C L Business June 3, 2014
Hangzhou Huitu .......... P R C Sales of medical
products
December 2, 2010
The particulars of our subsidiaries are set out in Note 1 to the Accountants’ Report in
Appendix I to this Prospectus. Please also refer to the paragraph headed “Corporate Structure” in
this section for our corporate structure.
MAJOR CORPORATE DEVELOPMENT AND SHAREHOLDING CHANGES
Development of our Business
We launched our first ICL in Hangzhou through Hangzhou Adicon in January 2004, and
rapidly expanded across the PRC. As of the Latest Practicable Date, we operated 33 ICLs across the
PRC though Hangzhou Adicon and its subsidiaries, which are controlled by us through the
Contractual Arrangements. For details of the Contractual Arrangements, please refer to the section
headed “Contractual Arrangements” in this Prospectus.
We diversified our business and started engaging in the sales of medical products in 2011. We
do not operate this business through the Contractual Arrangements as such business is neither
foreign investment restricted nor prohibited. For details, please refer to the section headed
“Business – Sales of medical products” in this Prospectus.
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Our Company
Our Company was incorporated as an exempted company with limited liability in the Cayman
Islands on March 20, 2008 with an initial authorized share capital of US$50,000 divided into
500,000,000 ordinary shares of US$0.0001 each.
At the time of incorporation, our Company issued 10,000 Shares with a par value of
US$0.0001 each to an independent company secretary for US$1.00. On September 30, 2008,
Corelink (a BVI company controlled by Mr. LIN Jixun) acquired the 10,000 Shares from the
independent company secretary, and subscribed for 47,490,000 new Shares at a total consideration
of US$4,750. On the same date, Mega Stream (a BVI holding company controlled by Mr. LIN Feng)
subscribed for 47,500,000 new Shares at a total consideration of US$4,750. From then and up to
October 2018, our Company was ultimately controlled as to 50.0% by Mr. LIN Jixun and 50.0% by
Mr. LIN Feng.
On December 24, 2018, we subdivided our share capital from US$50,000 divided into
500,000,000 ordinary shares of US$0.0001 each to US$50,000 divided into 500,000,000,000 Shares
of US$0.0000001 each.
On June 3, 2021, we approved the consolidation of our share capital from US$50,000 divided
into 500,000,000,000 Shares of US$0.0000001 each to US$50,000 divided into 2,500,000,000
Shares of US$0.00002 each.
Our Major Subsidiaries
(i) Hangzhou Adicon
Hangzhou Adicon, a PRC Operating Entity, was established on January 16, 2004 by our
Founders with an initial registered capital of RMB5 million, which was subsequently increased to
RMB45 million after several rounds of capital injections from our Founders. After several
shareholding restructures between October 2010 and October 2018, the equity interest of Hangzhou
Adicon was ultimately held as to 50.0% by Mr. LIN Jixun and 50.0% by Mr. LIN Feng through their
respective holding vehicles in the PRC. Hangzhou Adicon is the holding company of our ICL
business in the PRC.
In October 2018, Mr. LIN Jixun directed his PRC holding vehicle to transfer his 50.0% equity
interests in Hangzhou Adicon to Ms. LAN Jia for a consideration of RMB260 million, and Mr. LIN
Feng directed his PRC holding vehicle to transfer his 50.0% equity interests in Hangzhou Adicon
to Ms. LIAN Hailun for a consideration of RMB260 million. These considerations were arrived at
after arm’s length negotiations between the parties with reference to the net asset value of Hangzhou
Adicon, and had already been fully settled by cash indirectly from Aidiken WFOE by way of a loan
to Ms. LAN Jia and Ms. LIAN Hailun. For details, please refer to the section headed “Contractual
Arrangement – Summary of the Contractual Arrangements – Loan agreements” of this Prospectus.
Since October 2018, Mr. LIN Jixun and Mr. LIN Feng have ceased to hold any equity interests in
Hangzhou Adicon.
On October 14, 2020, Hangzhou Kangming, on behalf of certain PRC senior management of
our Company, subscribed for 0.36% equity interest in Hangzhou Adicon.
As of the Latest Practicable Date, Hangzhou Adicon was owned as to 49.82%, 49.82% and
0.36% by Ms. LAN Jia, Ms. LIAN Hailun and Hangzhou Kangming, respectively. Our Company,
through the Contractual Arrangements, controls and holds 100% of the economic benefits of
Hangzhou Adicon, which, together with its subsidiaries, operate our ICL business in the PRC.
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(ii) Beijing Adicon
Beijing Adicon, a PRC Operating Entity, was established on December 7, 2007 by Hangzhou
Adicon with an initial registered capital of RMB5 million, which was subsequently increased to
RMB20 million after several rounds of capital injections from Hangzhou Adicon. Beijing Adicon
operates our ICL in Beijing.
(iii) Hefei Adicon
Hefei Adicon, a PRC Operating Entity, was established on June 5, 2006 by Hangzhou Adicon
with an initial registered capital of RMB3 million, which was subsequently increased to RMB20
million after several rounds of capital injections from Hangzhou Adicon. Hefei Adicon operates our
ICL in Hefei.
(iv) Jinan Adicon
Jinan Adicon, a PRC Operating Entity, was established on October 19, 2006 by Hangzhou
Adicon with an initial registered capital of RMB3 million, which was subsequently increased to
RMB20 million after several rounds of capital injections from Hangzhou Adicon. Jinan Adicon
operates our ICL in Jinan.
(v) Fuzhou Adicon
Fuzhou Adicon, a PRC Operating Entity, was established on February 6, 2009 by Hangzhou
Adicon with an initial registered capital of RMB10 million, which was subsequently increased to
RMB20 million after a capital injection from Hangzhou Adicon in December 2013. Fuzhou Adicon
operates our ICL in Fuzhou.
(vi) Wuhan Adicon
Wuhan Adicon, a PRC Operating Entity, was established on November 24, 2009 by Hangzhou
Adicon with a registered capital of RMB20 million. Wuhan Adicon operates our ICL in Wuhan.
(vii) Nanjing Adicon
Nanjing Adicon, a PRC Operating Entity, was established on December 4, 2009 by Hangzhou
Adicon with an initial registered capital of RMB10 million, which was subsequently increased to
RMB20 million after a capital injection from Hangzhou Adicon in October 2010. Nanjing Adicon
operates our ICL in Nanjing.
(viii) Tianjin Adicon
Tianjin Adicon, a PRC Operating Entity, was established on June 3, 2014 by Hangzhou Adicon
and its wholly-owned subsidiary, Guangzhou Adicon, with an initial registered capital of RMB25
million, which was subsequently increased to RMB30 million after a capital injection from
Hangzhou Adicon and Guangzhou Adicon in August 2021. Tianjin Adicon operates our ICL in
Tianjin.
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(ix) Hangzhou Huitu
Hangzhou Huitu, one of our subsidiaries, was established on December 2, 2010 by an
independent third party with a registered capital of RMB7.5 million. In January 2011, Hangzhou
Adicon acquired 60.0% equity interests in Hangzhou Huitu from such independent third party for
a consideration of RMB5 million, which was arrived at after arm’s length negotiations between the
parties with reference to the registered capital of Hangzhou Huitu, and had already been fully
settled by cash. We started engaging in the sales of medical products after acquiring Hangzhou
Huitu in January 2011.
We acquired the remaining 40.0% equity interests in Hangzhou Huitu in June 2020. For
details, please refer to the paragraph headed “– Reorganization – Acquiring the remaining interests
of Hangzhou Huitu and Manson Grand” in this section.
REORGANIZATION
We underwent the following reorganization steps in preparation for the Listing.
Acquiring the remaining interests of Hangzhou Huitu and Manson Grand
Hangzhou Huitu and Manson Grand are engaged in the sales of medical products in the PRC.
Prior to the acquisitions, (i) Hangzhou Huitu was owned as to 60.0%, 26.0% and 14.0% by
Hangzhou Adicon, Mr. XU Chenhuai and Mr. CHEN Shanwen, respectively; and (ii) Manson Grand
was owned as to 60.0%, 26.0% and 14.0% by our Company, Mr. XU Chenhuai and Mr. CHEN
Shanwen, respectively. To the best knowledge of our Directors, Mr. XU Chenhuai and Mr. CHEN
Shanwen are independent third parties of our Company.
After the following steps, Manson Grand and Hangzhou Huitu became wholly-owned
subsidiaries of our Company and Aidiken WFOE, respectively:
(i) on May 25, 2020, our Company acquired 26.0% and 14.0% issued shares of Manson
Grand from Mr. XU Chenhuai and Mr. CHEN Shanwen at a consideration of US$1.51
million and US$0.81 million, respectively. On June 16, 2020, Aidiken WFOE acquired
26.0% and 14.0% equity interests of Hangzhou Huitu from Mr. XU Chenhuai and Mr.
CHEN Shanwen at a consideration of RMB1.85 million and RMB1.00 million,
respectively. These considerations were arrived at after arm’s length negotiations
between the parties with reference to the financial performance of Hangzhou Huitu and
Manson Grand for the year ended 31 December 2019. To settle these considerations, on
June 18, 2020, our Company issued 873,354,175 Shares and 473,066,845 Shares to
Alltrees Holding Ltd (the BVI holding vehicle of Mr. XU Chenhuai) and Boke Holding
Ltd (the BVI holding vehicle of Mr. CHEN Shanwen), respectively, at approximately
US$0.0017 each, and Aidiken WFOE paid RMB1.85 million and RMB1.00 million to
Mr. XU Chenhuai and Mr. CHEN Shanwen in cash, respectively; and
(ii) on June 16, 2020, as part of an intra-group reorganization, Aidiken WFOE acquired
60.0% equity interests in Hangzhou Huitu from Hangzhou Adicon at a consideration of
RMB15.0 million, which was determined with reference to the net asset value of
Hangzhou Huitu. The consideration was fully settled as of the Latest Practicable Date.
Restructuring of Shanghai Adicon
Shanghai Adicon operates our ICL in Shanghai. Prior to the restructuring, Shanghai Adicon
was 86.875% owned by Hangzhou Adicon and 13.125% owned by Shanghai Liye Corporate
Management Limited Partners (“ Shanghai Liye ”), a PRC limited liability partnership controlled by
Ms. YAN Ying ( ᘌᆦ), an independent third party.
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To streamline our corporate structure, based on arm’s length negotiations, (i) on January 6,
2021, Shanghai Liye transferred all its 13.125% interests in Shanghai Adicon to Hangzhou Adicon
for a consideration of RMB10,000, and (ii) on February 9, 2021, our Company issued 295,705,697
Shares at approximately US$0.0077 per Share to Liye Asset Management Co., Limited, a limited
company in Hong Kong owned by an affiliate of Ms. YAN Ying, for a total consideration of
US$2.29 million. Upon completion of the above, Shanghai Adicon became a wholly-owned
subsidiary of Hangzhou Adicon.
Acquisition of Shangrao Adicon and Jiangxi Jince
To expand our business into Shangrao, we acquired in February 2021 (i) the ICL business of
Shangrao Meikang Shengde Clinical Laboratories Co., Ltd. (ʮ̡)
(“Shangrao Meikang ”); and (ii) the business of sales of medical products of Jiangxi Meikang
Medical Equipment Co., Ltd. (ʮ̡)( “ Jiangxi Meikang ”) and Jiangxi
Yingquansheng Technology Co., Ltd. (ʮ̡)( “ Jiangxi Yingquansheng ”).
Shangrao Meikang, Jiangxi Meikang and Jiangxi Yingquansheng were owned by Mr. ZHENG
Shaojun and Ms. HU Ronghua, both of whom are our independent third parties. Prior to the
acquisitions, Jiangxi Meikang, Shangrao Meikang and Jiangxi Yingquansheng underwent a
restructuring to inject the ICL business of Shangrao Meikang into Shangrao Adicon Clinical
Laboratories Co., Ltd. (ʮ̡)( “Shangrao Adicon ”), and inject the
business of the sales of medical products of Jiangxi Meikang and Jiangxi Yingquansheng into
Jiangxi Jince Biotechnology Co., Ltd. (ʮ̡)( “ Jiangxi Jince ”). Shangrao
Adicon and Jiangxi Jince were owned as to 79% by Mr. ZHENG Shaojun and 21% by Ms. HU
Ronghua.
In February 2021, we designated (i) Hangzhou Adicon to acquire 51% of Shangrao Adicon,
and (ii) Aidiken WFOE to acquire 51% of Jiangxi Jince, as to 34% from Mr. ZHENG Shaojun and
17% from Ms. HU Ronghua at a total consideration of RMB20.71 million and RMB16.94 million,
respectively, which were arrived at after arm’s length negotiations between the parties with
reference to net profit generated from the assets and business of Shangrao Meikang, Jiangxi
Meikang and Jiangxi Yingquansheng in 2019. On the same consideration basis, Ms. HU Ronghua
sold 4% of Shangrao Adicon and 4% of Jiangxi Jince to Mr. SHEN Zhuhao, the manager of Guizhou
Adicon, at a total consideration of RMB2.95 million. The considerations payable by Hangzhou
Adicon and Aidiken WFOE had been fully settled by cash as of the Latest Practicable Date. Upon
completion of the acquisitions, Shangrao Adicon and Jiangxi Jince became our subsidiaries.
Pursuant to an agreement entered into between Hangzhou Adicon and Mr. SHEN Zhuhao in early
2021, Hangzhou Adicon has the option to acquire Mr. SHEN Zhuhao’s 4% equity interest in each
of Shangrao Adicon and Jiangxi Jince.
Due to reasons unrelated to our Group, Shangrao Adicon and Jiangxi Jince, subsequent to our
acquisition of 51% equity interests in Shangrao Adicon and Jiangxi Jince in February 2021, the
remaining 45% equity interests held by Mr. ZHENG Shaojun in these two companies were frozen
by a PRC court in June 2021, and was subsequently released in July 2021. Ms. HU Ronghua did
not hold any interest in Shangrao Adicon and Jiangxi Jince as of the Latest Practicable Date. Subject
to the satisfaction of the relevant condition precedents set forth in the relevant agreements,
including (i) obtaining all applicable approvals and completing all relevant filing procedures; and
(ii) no breach of representations and warranties customary for similar type of transactions,
Hangzhou Adicon and Aidiken WFOE are obliged to purchase the remaining 45% interests in
Shangrao Adicon and Jiangxi Jince from Mr. ZHENG Shaojun through the following steps:
(i) 10% out of the 45% equity interests in Shangrao Adicon and Jiangxi Jince have been
transferred to Hangzhou Adicon and Aidiken WFOE, respectively, in September 2021.
The aggregated consideration of these transfers was RMB8.1 million, which was
determined with reference to the net profit of Shangrao Adicon and Jiangxi Jince for the
year ended December 31, 2020. The considerations payable by Hangzhou Adicon and
Aidiken WFOE have been settled;
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(ii) 15% out of the 45% interests in Shangrao Adicon and Jiangxi Jince, respectively, will
be settled by cash at a consideration to be determined based on the net profit of Shangrao
Adicon and Jiangxi Jince for the year ended December 31, 2021; and
(iii) 20% out of the 45% interests in Shangrao Adicon and Jiangxi Jince, respectively, will
be settled, as determined at the absolute discretion of our Company and to the extent
permit by applicable laws, either by cash or by issuing new Shares by our Company, at
a consideration to be determined based on the net profit of Shangrao Adicon and Jiangxi
Jince for the year ended December 31, 2021.
The scale of the business operated by Shangrao Meikang, Jiangxi Meikang and Jiangxi
Yingquansheng as compared to that of our Group is not material. All the applicable size test
percentage ratios (as defined under Rule 14.07 of the Listing Rules) in respect of the acquisitions
of Shangrao Adicon and Jiangxi Jince on an aggregated basis were below 5% as compared to our
Group for the year ended December 31, 2022. Accordingly, (i) the acquisitions are immaterial when
compared to the scale of our operations as a whole; (ii) the acquisitions have not resulted in any
significant change to the financial position of our Group since December 31, 2022; and (iii) all
information that is reasonably necessary for potential investors to make an informed assessment of
the activities or financial position of our Group has been included in this Prospectus.
Acquisition of Henan Adicon
On May 12, 2022, Hangzhou Adicon entered into an equity purchase agreement pursuant to
which Hangzhou Adicon has agreed to acquire 70% equity interests in Henan Adicon, an ICL in
Henan, in two stages (the “ Henan Acquisition ”). In the first stage, Hangzhou Adicon acquired 51%
of Henan Adicon in June 2022 at a consideration of RMB88.9 million, which was determined with
reference to the adjusted net profit (non-IFRS measure) of Henan Adicon for the year ended
December 31, 2021. For the second stage, Hangzhou Adicon has agreed to acquire a further 19%
of Henan Adicon at a consideration to be determined with reference to the audited net profit of
Henan Adicon for the year ending December 31, 2023. Subject to completion of the 2023 financial
audit of Henan Adicon, we expect to make an aggregate investment of approximately RMB100
million to RMB140 million for the Henan Acquisition. In June 2021, Hangzhou Adicon made a
RMB30 million advance payment to the seller, which will be used to offset part of the investment
amount made by Hangzhou Adicon. In June 2022, the consideration payable by Hangzhou Adicon
for the first stage of acquisition was fully settled. We estimate that the consideration payable by
Hangzhou Adicon for the second stage of the Henan Acquisition will be closed after completion of
the 2023 financial audits of Henan Adicon tentatively in June 2024.
To the best of our Directors’ knowledge, information and belief having made all reasonable
enquiries, the beneficial owners of the counterparties to the equity purchase agreement are
independent third parties of our Company and our connected persons. Henan Adicon is engaged in
the ICL business in Henan, operating in the same business and industry sector as our Group. We
proposed to make the acquisition with a view to achieving synergies between Henan Adicon and our
existing business, grow our customer base and secure strong local partners to expand our footprint
in the PRC. Taking into account the above, our Directors believe that the acquisition of Henan
Adicon is fair and reasonable and in the interests of the Shareholders as a whole.
The scale of the business operated by Henan Adicon as compared to that of the Group is not
material. All of the applicable size test percentage ratios (as defined under Rule 14.07 of the Listing
Rules) in respect of the acquisition of Henan Adicon were below 5% as compared to our Group for
the year ended December 31, 2022. Accordingly, (i) the acquisition was immaterial when compared
to the scale of our operations as a whole; (ii) the acquisition has not resulted in any significant
change to the financial position of the Group since December 31, 2022; and (iii) all information that
is reasonably necessary for potential investors to make an informed assessment of the activities or
financial position of our Group has been included in this Prospectus.
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PRE-IPO INVESTMENTS
Principal terms of the Pre-IPO Investments
The below table summarizes the principal terms of the Pre-IPO Investments:
Round Round A Round B
Date of relevant agreement with the
Pre-IPO Investors ...............
Between September 2018 and
July 2019
Between December 2020
and January 2021 (5)
Total amount of Pre-IPO Investments . US$302.48 million US$88.00 million
Total number of Shares under the Pre-
IPO Investments ................
398,755,009 Shares (1) 52,761,653 Preferred Shares (2)
Original issue price per Share ...... US$0.7586 (1) US$1.6679 (2)
Implied post money valuation of our
Group at the time of the Pre-IPO
Investments
(3) ..................
US$436 million US$1,058 million
Premium / (Discount) to the Offer
Price (4) ......................
(51.74)% 6.11%
Basis of considerations ........... T h e considerations were determined after arms’ length negotiations between the
parties with reference to the timing of the investments and the status of our
business and operating entities.
Settlement date of considerations .... T h e considerations were settled more than 28 clear days before the date of our first
submission of the listing application form to the Listing Department of the Stock
Exchange in relation to the Listing.
Use of proceeds from the Pre-IPO
Investments ...................
We utilized the proceeds for the development and operation of our business. As of
the Latest Practicable Date, the net proceeds received by us from the Pre-IPO
Investments had been fully utilized.
Lock-up ...................... Each of our Pre-IPO Investors has agreed to be subject to lock-up arrangements for
a period of six (6) months after the Listing.
Special rights .................. T h e Pre-IPO Investors were entitled to certain special rights, including
information rights, director nomination rights and veto rights. No special rights
granted to our Pre-IPO Investors will survive after the Listing.
Strategic benefits of the Pre-IPO
Investors .....................
At the time of the Pre-IPO Investments, our Directors were of the view that we
could benefit from the additional capital that would be provided by the Pre-IPO
Investors’ investments and the Pre-IPO Investors’ knowledge and experience.
Notes:
1. The figures have been adjusted after the share subdivision in December 2018 and the share consolidation in June
2021. Please refer to the paragraph headed “– Major Corporate Development and Shareholding Changes – Our
Company” in this section for details.
2. The figures have been adjusted after the share consolidation in June 2021. Please refer to the paragraph headed “–
Major Corporate Development and Shareholding Changes – Our Company” in this section for details. Each Preferred
Share will be automatically converted into one Ordinary Share immediately prior to the Listing under the relevant
Pre-IPO investment agreement.
3. The corresponding valuation is calculated based on the proposed post-money capitalization of our Company at the
time of investment (on an as-converted and non-diluted basis), which excludes Shares then expected to be issued
pursuant to the Employee Incentive Plans.
4. The Offer Price will be HK$12.32 per Offer Share.
5. We entered into a share subscription agreement with the Round B Pre-IPO Investors on May 28, 2021, which amended
and restated the original share subscription agreement in December 2020 and certain deeds of adherence in December
2020 and January 2021.
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The increase in our implied post money valuation from US$436 million at Round A Pre-IPO
Investments to US$1,058 million at Round B Pre-IPO Investment was due to the significant
improvement in our business operations, financial performance and prospects after the Round A
Pre-IPO Investments, in particular, the additional resources, expertise and professional management
from Pearl Group Limited enhanced our corporate compliance and reset our growth path, and led
us in our rapid growth and robust track record results, with adjusted EBITDA (non-IFRS measure)
growing at a CAGR of 34.0% from RMB567.6 million in 2020 to RMB1,019.8 million in 2022.
Round A Pre-IPO Investments
On September 27, 2018, Pearl Group Limited and other investors, namely Huge King,
Princess Capital Limited, Kofu International Limited, Eagle View Global Limited and Solarion
Partners Limited, entered into a share purchase and subscription agreement with Corelink, Mega
Stream and our Company, for acquiring an aggregate of 70,098,164,000
(1) Shares in our Company
with a total consideration of approximately US$265.86 million. The table below sets forth the
shareholding of our Company upon completion of the relevant purchases and subscriptions on
October 12, 2018:
Name of Investor (1)
Number of
Shares acquired (2) Consideration
(US$ million)
Pearl Group Limited .......................... 56,308,361,000 213.56
Huge King .................................. 5,745,751,000 21.79
Princess Capital Limited ...................... 3,907,111,000 14.82
Kofu International Limited .................... 2,643,046,000 10.02
Eagle View Global Limited .................... 1,149,150,000 4.36
Solarion Partners Limited ..................... 344,745,000 1.31
Total ....................................... 70,098,164,000 265.86
On December 14, 2018, Beijing Freesia Management Consulting Corporation entered into a
share purchase agreement with Corelink and Mega Stream pursuant to which it acquired
2,872,875,500
(1) Shares from Corelink and 2,872,875,500 (1) Shares from Mega Stream for a
consideration of US$10.90 million and US$10.90 million, respectively.
Notes:
(1) Shanghai Mei Ai, one of the investors in the Round A Pre-IPO Investments, subsequently divested its investment on
December 24, 2019. Please refer to the paragraph headed “– Pre-IPO Investments – Divestment of Shanghai Mei Ai”
in this section for details.
(2) The relevant figures have been adjusted after the share subdivision in December 2018. Please refer to the paragraph
headed “– Major Corporate Development and Shareholding Changes – Our Company” in this section for details.
On July 26, 2019, J.P. Morgan Trust Company of Delaware, InvestWise Holdings Limited and
Solarion Partners Limited entered into a share purchase agreement with Corelink and Mega Stream,
for acquiring a total of 3,907,110,782 new Ordinary Shares from Corelink and Mega Stream for a
total consideration of US$14.82 million, details of which are as follows:
Name of Investor
Number of Ordinary
Shares acquired Consideration
(US$ million)
J.P. Morgan Trust Company of Delaware ......... 2,068,470,414 7.85
InvestWise Holdings Limited ................... 1,378,980,276 5.23
Solarion Partners Limited ...................... 459,660,092 1.74
Total ........................................ 3,907,110,782 14.82
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Round B Pre-IPO Investments
In December 2020 and January 2021, Pantai Juara Investments Limited, BlackRock Health
Sciences Trust II, BlackRock Health Sciences Master Unit Trust, Reach Sight Limited, LBC
Sunshine Healthcare Fund II L.P., OrbiMed Genesis Master Fund, L.P., OrbiMed New Horizons
Master Fund, L.P. and Mirae Asset Securities (HK) Limited invested in our Company as pre-IPO
Investors to subscribe for a total of 10,552,330,565 new Preferred Shares for a total consideration
of US$88 million, details of which are as follows:
Name of Investor
Number of Preferred
Shares acquired Consideration
(US$ million)
Pantai Juara Investments Limited ................... 5,396,078,131 45.00
BlackRock Health Sciences Trust II ................. 2,139,245,197 17.84
BlackRock Health Sciences Master Unit Trust ........ 19,186,055 0.16
Reach Sight Limited .............................. 1,199,128,473 10.00
LBC Sunshine Healthcare Fund II L.P. .............. 839,389,931 7.00
OrbiMed Genesis Master Fund, L.P. ................ 299,782,118 2.50
OrbiMed New Horizons Master Fund, L.P. ........... 299,782,118 2.50
Mirae Asset Securities (HK) Limited ................ 359,738,542 3.00
Total ........................................... 10,552,330,565 88.00
Each Preferred Share will be automatically converted into one Ordinary Share immediately
prior to the Listing under the relevant Pre-IPO investment agreement.
Information on our Pre-IPO Investors
Pearl Group Limited
Pearl Group Limited is 94.57% owned by Carlyle Asia Partners V , L.P. and 5.43% owned by
CAP V Co-Investment, L.P.. The general partner of Carlyle Asia Partners V , L.P. and CAP V
Co-Investment, L.P. is CAP V General Partner, L.P.. The general partner of CAP V General Partner,
L.P. is CAP V , L.L.C., an indirect subsidiary of Carlyle. CAP V , L.L.C. is wholly-owned by TC
Group Cayman Investment Holdings Sub L.P.. The general partner of TC Group Cayman Investment
Holdings Sub L.P. is TC Group Cayman Investment Holdings L.P.. The general partner of TC Group
Cayman Investment Holdings L.P. is CG Subsidiary Holdings L.L.C.. The managing member of CG
Subsidiary Holdings L.L.C. is Carlyle Holdings II L.L.C.. The managing member of Carlyle
Holdings II L.L.C. is Carlyle Holdings II GP L.L.C.. The sole member of Carlyle Holdings II GP
L.L.C. is Carlyle. Carlyle is one of the world’s largest and most diversified global investment firms,
with approximately US$381 billion in assets under management as of March 31, 2023 across three
business segments: Global Private Equity, Global Credit and Investment Solutions. Carlyle’s
purpose is to invest wisely and create value on behalf of their investors, portfolio companies and
the communities in which they live and invest.
Huge King Limited
Huge King Limited is a limited company incorporated in Hong Kong, which is owned as to
68.5% by Vaplus Group Corporation (a BVI company wholly-owned by Mr. DU Chao), 24.0% by
SinoCAMC Investment Funds SPC (a Cayman Islands company managed by SinoCAMC Fund
Management Limited, which in turn is ultimately controlled by Mr. LIU Teng), and 7.5% by Mr.
LAU Hau Ming. Mr. DU Chao, Mr. LIU Teng and Mr. LAU Hau Ming are our independent third
parties.
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Princess Capital Limited
Princess Capital Limited is a Bermuda company managed by Misland Capital Limited, an
investment firm incorporated in England and Wales. Princess Capital Limited is part of a group of
companies owned by a single family office, for which Misland Capital Limited manages a portfolio
of investments, across several sectors, for the Green Family of Bermuda. Princess Capital Limited’s
ultimate beneficiary is the Green Family of Bermuda, an independent third party of our Company.
Kofu International Limited
Kofu International Limited is a company incorporated in the BVI with limited liabilities which
is indirectly wholly owned by Mr. YIN Chung Yao, an independent third party of our Company.
Eagle View Global Limited
Eagle View Global Limited is a company incorporated in the BVI with limited liabilities
which is owned as to 50% SHEN Wei and 50% by GAN Ching, both independent third parties of
our Company.
Family Members of Mr. SHI Mingheng
Solarion Partners Limited is a company incorporated in the BVI with limited liabilities which
is wholly owned by Mr. SHI Mingheng, an independent third party of our Company. On November
7, 2022, for estate planning purposes, Mr. SHI Mingheng gifted the shares held by Solarion Partners
Limited to the respective holding companies of his family members.
Beijing Freesia Management Consulting Corporation
Beijing Freesia Management Consulting Corporation is established in the PRC and is a wholly
owned subsidiary of China Investment Corporation (“ CIC”), a state-owned sovereign wealth fund
headquartered in Beijing. CIC operates on an international, market-driven, and professional basis.
CIC is an independent third party of our Company.
J.P . Morgan Trust Company of Delaware
J.P. Morgan Trust Company of Delaware holds shares in our Company solely in trust as
Trustee of the NGM Family 2006 Irrevocable Trust, a trust created by Dr. ZHAO Ning in 2006. Dr.
ZHAO Ning is an executive director and a senior vice president of WuXi AppTec Co., Ltd., and is
an independent third party of our Company.
InvestWise Holdings Limited
InvestWise Holdings Limited is a company incorporated in the BVI with limited liabilities
which is 100% owned by WONG Yuen Ling, an independent third party of our Company.
Pantai Juara Investments Limited
Pantai Juara Investments Limited is a wholly-owned subsidiary of Khazanah Nasional Berhad
(“Khazanah ”). Khazanah is the sovereign wealth fund of Malaysia tasked with growing the
long-term wealth of the nation. Khazanah invests in companies and assets across multiple sectors
and geographies. Khazanah was incorporated under the Companies Act 1965 on September 3, 1993
as a public limited company. Except for one share owned by the Federal Lands Commissioner of
Malaysia, all the share capital of Khazanah is owned by the Minister of Finance Incorporated, a
body established under the Ministry of Finance (Incorporation) Act 1957 of Malaysia. Pantai Juara
Investments Limited is an independent third party of our Company.
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LBC Sunshine Healthcare Fund II L.P .
LBC Sunshine Healthcare Fund II L.P. (“ LBC Sunshine II ”) is managed by Lake Bleu Capital
(Hong Kong) Limited. LBC Sunshine II, an exempted limited partnership registered in the Cayman
Islands, is a sophisticated investor specializing in investing in healthcare companies in Asia and the
Greater China. The investment scope of LBC Sunshine II includes pharmaceuticals, biotech,
medical devices, and healthcare services. LBC GP II Limited, an exempted company incorporated
in the Cayman Islands, acts as the general partner of LBC Sunshine II. LBC Sunshine II is an
independent third party of our Company.
BlackRock Health Sciences Master Unit Trust and BlackRock Health Sciences Trust II
BlackRock Health Sciences Master Unit Trust and BlackRock Health Sciences Trust II
(“BlackRock Funds ”) are managed by investment subsidiaries of BlackRock, Inc. (“ BlackRock ”),
and have discretionary investment management power over the BlackRock Funds. BlackRock is
listed on the New York Stock Exchange (NYSE: BLK). As of December 31, 2022, the firm managed
approximately US$8.6 trillion in assets on behalf of investors worldwide. BlackRock Funds are
independent third parties of our Company.
Mirae Asset Securities (HK) Limited
Mirae Asset Securities (HK) Ltd. (“ Mirae Asset Securities ”), investing through Mirae Asset
New Economy Investments, is a wholly-owned subsidiary of Mirae Asset Daewoo Co., Ltd
(KRX:006800). Mirae Asset Securities was established in Hong Kong in July 2005 with the vision
of becoming the leading Asia Pacific financial services company. Mirae Asset Securities’
professional and experienced Hong Kong-based analysts, traders, and financial advisors cover the
Asia market. Its customer-focused approach translates into a broad range of investment services and
activities including securities trading, futures and option trading, principal investments, investment
management, private equity and credit, banking and wealth management. As of March 31, 2023,
Mirae Asset Securities manages approximately KRW385.8 trillion in client assets. Mirae Asset
Securities is an independent third party of our Company.
OrbiMed Genesis Master Fund, L.P . and OrbiMed New Horizons Master Fund, L.P .
OrbiMed Genesis Master Fund, L.P. and OrbiMed New Horizons Master Fund, L.P.
(collectively, the “ OrbiMed Funds ”) are each exempted limited partnerships incorporated under
the laws of the Cayman Islands with OrbiMed Advisors LLC acting as the investment manager.
OrbiMed Advisors LLC exercises voting and investment power through a management committee
consisting of Carl L. Gordon, Sven H. Borho, and W. Carter Neild. OrbiMed Funds are independent
third parties of our Company.
Reach Sight Limited
Reach Sight Limited, an investment holding company incorporated in BVI, is wholly-owned
by Cenova China Healthcare Fund IV , L.P., which is an exempted limited partnership registered in
the Cayman Islands. Cenova China Healthcare GP IV Limited, a Cayman Islands exempted
company, is the general partner of Cenova China Healthcare Fund IV , L.P.. Cenova China
Healthcare GP IV Limited is 65% owned by Mr. WU Jun, an independent third party of our
Company.
Public float
Pearl Group Limited, as one of our Controlling Shareholders, Mr. GAO Song, as our executive
Director and chief executive officer, and Mr. LIN Jixun, as our non-executive Director, are the core
connected persons of our Company. The Shares held by Pearl Group Limited, Nice Sure Holding
Co., Limited (a company wholly-owned by Mr. GAO Song), Corelink (a company wholly-owned by
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Mr. LIN Jixun), and Ingenuity Capital Holdings Limited and Proteus Capital Holdings Limited (the
shareholding platforms for our Employee Incentive Plans managed by a plan administrator who is
a Director designated by the Board) representing approximately 60.56% of our issued Shares upon
completion of the Global Offering (assuming the Over-allotment Option is not exercised), will not
be counted towards our public float upon the Listing.
Except as stated above, the Pre-IPO Investors are not our core connected persons (as defined
in the Listing Rules) and are not accustomed to taking instructions from our core connected persons
in relation to the acquisition, disposal, voting or other disposition of our Shares held or to be
allotted to them. Therefore, the Shares held by the Pre-IPO Investors (except Pearl Group Limited)
will count towards our public float upon Listing.
Based on the above, the public float of the Company will be 39.44% (assuming the
Over-allotment Option is not exercised) or 39.86% (assuming the Over-allotment Option is
exercised in full) upon Listing.
Divestment of Shanghai Mei Ai
On September 26, 2018, Shanghai Mei Ai, a wholly-owned subsidiary of Meinian Onehealth
Healthcare Holdings Co., Ltd. (ʮ̡) (SZSE: 002044), entered into a
share purchase agreement with Corelink and Mega Stream for acquiring 2,872,875,500 Shares from
each of Corelink and Mega Stream, respectively, for US$10.90 million, respectively. Shanghai Mei
Ai agreed to obtain approvals for its outbound direct investment within 12 months of its investment
on October 12, 2018. As Shanghai Mei Ai did not obtain approval for its outbound direct
investment, on December 24, 2019, Shanghai Mei Ai divested its investment by transferring
2,872,875,500 Shares back to each of Corelink and Mega Stream for US$10.90 million,
respectively.
Compliance with Stock Exchange guidance
On the basis that (i) the consideration for the Pre-IPO Investments was settled more than 28
clear days before the date of our first submission of the listing application form to the Listing
Department of the Stock Exchange in relation to the Listing and (ii) all special rights granted to the
Pre-IPO Investors will not survive Listing, the Joint Sponsors have confirmed that the Pre-IPO
Investments are in compliance with the Guidance Letter HKEX-GL29-12 issued by the Stock
Exchange in January 2012 and as updated in March 2017, the Guidance Letter HKEX-GL43-12
issued by the Stock Exchange in October 2012 and as updated in July 2013 and March 2017 and
the Guidance Letter HKEX-GL44-12 issued by the Stock Exchange in October 2012 and as updated
in March 2017.
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CAPITALIZATION
The table below is a summary of the capitalization of our Company as of the date of this Prospectus, unless otherwise indicated:
Number of Shares Subscribed in Number of Shares
after the Share
Consolidation and
as of the date of
this Prospectus (3)
Ownership
percentage as of
the date of this
Prospectus (4)
Ownership
percentage
immediately
after completion
of the Global
Offering (5)
Round A
Pre-IPO
Investment
Hangzhou Huitu
and Manson Grand
restructuring (1)
Round B
Pre-IPO
Investment
Shanghai Adicon
restructuring (2)
Controlling Shareholder
Pearl Group Limited (6) ................. 56,308,361,000 56,308,361,000 56,308,361,000 56,308,361,000 281,541,805 39.87% 38.92%
Founders
Corelink ........................... 17,581,998,609 17,581,998,609 17,581,998,609 17,581,998,609 87,909,994 12.45% 12.45%
(11)
Mega Stream ....................... 17,581,998,609 17,581,998,609 17,581,998,609 17,581,998,609 87,909,994 12.45% 9.95%
Pre-IPO Investors
Huge King ......................... 5,745,751,000 5,745,751,000 5,745,751,000 5,745,751,000 28,728,755 4.07% 3.97%
Princess Capital Limited ............... 3,907,111,000 3,907,111,000 3,907,111,000 3,907,111,000 19,535,555 2.77% 2.70%
Kofu International Limited .............. 2,643,046,000 2,643,046,000 2,643,046,000 2,643,046,000 13,215,230 1.87% 1.83%
Eagle View Global Limited ............. 1,149,150,000 1,149,150,000 1,149,150,000 1,149,150,000 5,745,750 0.81% 0.79%
Family members of Mr. SHI Minheng
(7)..... 804,405,092 804,405,092 804,405,092 804,405,092 4,022,026 0.57% 0.56%
Beijing Freesia Management Consulting
Corporation ........................ 5,745,751,000 5,745,751,000 5,745,751,000 5,745,751,000 28,728,755 4.07% 3.97%
J.P. Morgan Trust Company of Delaware .... 2,068,470,414 2,068,470,414 2,068,470,414 2,068,470,414 10,342,353 1.47% 1.43%
InvestWise Holdings Limited ............ 1,378,980,276 1,378,980,276 1,378,980,276 1,378,980,276 6,894,902 0.98% 0.95%
Pantai Juara Investments Limited ......... – – 5,396,078,131 5,396,078,131 26,980,391 3.82% 3.73%
BlackRock Health Sciences Trust II ........ – – 2,139,245,197 2,139,245,197 10,696,226 1.51% 1.48%
BlackRock Health Sciences Master Unit
Trust ............................. – – 19,186,055 19,186,055 95,931 0.01% 0.01%
Reach Sight Limited .................. – – 1,199,128,473 1,199,128,473 5,995,643 0.85% 0.83%
LBC Sunshine Healthcare Fund II L.P. ..... – – 839,389,931 839,389,931 4,196,950 0.59% 0.58%
OrbiMed Genesis Master Fund, L.P. ....... – – 299,782,118 299,782,118 1,498,911 0.21% 0.21%
OrbiMed New Horizons Master Fund, L.P. . . . – – 299,782,118 299,782,118 1,498,911 0.21% 0.21%
Mirae Asset Securities (HK) Limited ....... – – 359,738,542 359,738,542 1,798,693 0.25% 0.25%
Employee Incentive Plan Platforms
Ingenuity Capital Holdings Limited
(8) ...... – – – – 52,743,281 7.47% 7.29%
Proteus Capital Holdings Limited (8) ........ – – – – 13,462,235 1.91% 1.86%
Others
Alltrees Holding Ltd .................. – 873,354,175 873,354,175 873,354,175 4,366,771 0.62% 0.60%
Boke Holding Ltd .................... – 473,066,845 473,066,845 473,066,845 2,365,335 0.34% 0.33%
Certain senior employees
(9) ............. – – – – 4,107,115 0.58% 0.57%
Liye HK ........................... – – – 295,705,697 1,478,529 0.21% 0.20%
Nice Sure Holding Co., Limited (10) ........ – – – – 303,750 0.04% 0.04%
Other public Shareholders ............. – – – – – – 4.29%
Total issued Shares .................. 114,915,023,000 116,261,444,020 126,813,774,585 127,109,480,282 706,163,791 100.00% 100.00%
HISTORY, REORGANIZATION AND CORPORATE STRUCTURE
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Notes:
(1) For details, please refer to the paragraph headed “– Reorganization – Acquiring the remaining interests of Hangzhou Huitu and Manson Grand” in thi s section.
(2) For details, please refer to the paragraph headed “– Reorganization – Restructuring of Shanghai Adicon” in this section.
(3) On June 3, 2021, our Board approved the consolidation of our share capital from US$50,000 divided into 500,000,000,000 shares of US$0.0000001 eac h to US$50,000 divided into
2,500,000,000 shares of US$0.00002 each.
(4) Assuming the Preferred Shares issued under the Round B Pre-IPO Investment are converted into Shares immediately before the Listing.
(5) Assuming all Preferred Shares issued under the Round B Pre-IPO Investment are converted into Shares immediately before the Listing and the Over-a llotment Option is not exercised.
(6) Pearl Group Limited is 94.57% owned by Carlyle Asia Partners V , L.P. and 5.43% owned by CAP V Co-Investment, L.P.. The general partner of Carlyle Asi a Partners V , L.P. and CAP
V Co-Investment, L.P. is CAP V General Partner, L.P.. The general partner of CAP V General Partner, L.P. is CAP V , L.L.C., an indirect subsidiary of Carl yle. CAP V , L.L.C. is
wholly-owned by TC Group Cayman Investment Holdings Sub L.P.. The general partner of TC Group Cayman Investment Holdings Sub L.P. is TC Group Cayman In vestment Holdings
L.P.. The general partner of TC Group Cayman Investment Holdings L.P. is CG Subsidiary Holdings L.L.C.. The managing member of CG Subsidiary Holdings L.L.C. is Carlyle Holdings
II L.L.C.. The managing member of Carlyle Holdings II L.L.C. is Carlyle Holdings II GP L.L.C.. The sole member of Carlyle Holdings II GP L.L.C. is Carlyl e.
(7) Mr. SHI Minheng first invested in the Company through his wholly-owned investment vehicle, Solarion Partners Limited, during the Round A Pre-IPO Investments. On November 7, 2022,
for estate planning purposes, Mr. SHI Minheng gifted the shares held by Solarion Partners Limited to the respective holding companies of his family me mbers.
(8) For the purpose of the Employee Incentive Plans, our Company allowed and issued (i) 10,548,656,083 Shares (later consolidated into 52,743,281 Sh ares after the share consolidation on
June 3, 2021) to Ingenuity Capital Holdings Limited on April 26, 2021; and (ii) 2,692,446,947 Shares (later consolidated into 13,462,235 Shares afte r the share consolidation on June 3,
2021) to Proteus Capital Holdings Limited on May 7, 2021. Ingenuity Capital Holdings Limited and Proteus Capital Holdings Limited are the special pur pose vehicles wholly owned by
the Perseverance Capital Trust and the Callisto Capital Trust, respectively, both managed by Trident Trust Company (HK) Limited for the purpose of ho ldings Shares under the Employee
Incentive Plans. For details, please refer to the section headed “Statutory and General Information – D. Employee Incentive Plans” in Appendix IV to t his Prospectus.
(9) Upon the exercise of options granted under the Employee Incentive Plans, our Company allotted and issued in March 2021, April 2021 and June 2021 a to tal of 4,107,115 new Shares
(as adjusted after the share consolidation on June 3, 2021) to the investment holding companies of certain existing and previous senior employees of o ur Group.
(10) Upon the exercise of options granted under the Employee Incentive Plans, our Company allotted and issued in March 2021 a total of 60,750,000 (late r consolidated into 303,750 Shares
after the share consolidation on June 3, 2021) new Shares to Nice Sure Holding Co., Limited, an investment holding company wholly-owned by Mr. GAO Song , our executive Director
and chief executive officer.
(11) After taking into account Corelink’s subscription of Offer Shares as a cornerstone investor. For further details, see “Cornerstone Investors” .
HISTORY, REORGANIZATION AND CORPORATE STRUCTURE
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SAFE REGISTRATION AND PRC LEGAL COMPLIANCE
Pursuant to the Circular on Relevant Issues Concerning Foreign Exchange Control on
Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special
Purpose Vehicles (ஷ
ٝ“,Circular 37 ”), promulgated by SAFE and which became effective on July 4, 2014, (a) a PRC
resident must register with the local SAFE branch before he or she contributes assets or equity
interests to an overseas special purpose vehicle (the “ Overseas SPV ”) that is directly established
or indirectly controlled by the PRC resident for the purpose of conducting investment or financing,
and (b) following the initial registration, the PRC resident is also required to register with the local
SAFE branch for any major change, in respect of the Overseas SPV , including, among other things,
a change of Overseas SPV’s PRC resident shareholder(s), the name of the Overseas SPV , terms of
operation, or any increase or reduction of the Overseas SPV’s capital, share transfer or swap, and
merger or division.
Pursuant to Circular 37, failure to comply with these registration procedures may result in
penalties. Pursuant to the Circular of Further Simplifying and Improving the Policies of Foreign
Exchange Administration Applicable to Direct Investment (ટҳ༟̮ි၍
ٝ“,Circular 13 ”), promulgated by SAFE and which became effective on June 1, 2015,
the power to accept SAFE registration was delegated from local SAFE branches to local banks
where the domestic entity is registered.
As advised by our PRC Legal Advisor, each of our senior management who indirectly hold
shares in our Company, being PRC residents and subject to the SAFE regulations (namely Mr. GAO
Song, Mr. PAN Chao and Mr. WANG Chengdong) have completed the initial registrations with the
local SAFE branch or qualified banks as required by Circular 37 by April 2021.
Our PRC Legal Advisor has confirmed that our PRC subsidiaries in our Group have obtained
requisite government approvals which they shall obtain in all material aspects in respect of the
equity transfers of our PRC subsidiaries as described in this section. Except as otherwise disclosed,
the transfers of equity interests of our PRC subsidiaries described in this section have been properly
and legally completed.
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CORPORATE STRUCTURE
Corporate structure before the Global Offering
The following diagram illustrates the operation and shareholding structure of our Group after
reorganization and immediately prior to completion of the Global Offering:
Company
(Cayman Islands)
Pearl Group Limited(1)
39.87%
Corelink(2)
12.45%
Mega Stream(2)
12.45%
Pre-IPO Investors(4)
24.07%
Employee Incentive
Plan Platforms(5)
9.38%
Others(6)
1.79%
Adicon HK
(Hong Kong)
Manson Grand
(Hong Kong)
100.00% 100.00%
Aidiken WFOE
Hangzhou Huitu
Shanghai Lv’angjie
Hangzhou Aiyijian
100%
100%
100%
Guangzhou Adicon
Tianjin Adicon
Wuhan Adicon
Changsha Adicon
Chengdu Adicon
Hefei Adicon
40%
40%
40%
Hangzhou Adicon(7)
100%
60%
100%
60%
60%
100%
Fuzhou Adicon
Sanming Adicon
Nanjing Adicon
Shenyang Adicon
Jilin Adicon
Zhengzhou Adicon(10)
40%
40%
40%
60%
100%
60%
60%
100% Shanghai Adicon
Beijing Adicon
Xi’an Adicon
Qingdao Adicon(13)(19)
Shenzhen Adicon(14)(19)
100%
Quzhou Adicon(15)(19)Nanning AdiconChongqing Adicon
100%
100%
99%
1%
100% 100%
60%
60%
70%
Nanchang Adicon100% Yunnan Adicon
100%
100.00%
Contractual
Arrangements
Offshore
Onshore
Shangrao Adicon(16)
61%
Heilongjiang Adicon(8)(19)
75%
Xiamen Adicon(11)
51%
Entities controlled
under the Contractual
Arrangements
Jiangxi Jince(16)
61%
Wenzhou Adicon(9)(19)
65%
100%
Linyi Adicon(12)(19)
70%
Henan Adicon(21)
51%
Wenzhou (Ouhai) Adicon
100%
Jinan Adicon
100%
Suzhou Adicon(17)(19)
51%
Guizhou Adicon(18)(19)
51%
Xinyang Adicon(19)(20)
65%
Shijiazhuang Adicon
Shaoxing Adicon(19)(22)65%
Notes:
1. Pearl Group Limited is 94.57% owned by Carlyle Asia Partners V , L.P. and 5.43% owned by CAP V Co-Investment,
L.P.. The general partner of Carlyle Asia Partners V , L.P. and CAP V Co-Investment, L.P. is CAP V General Partner,
L.P.. The general partner of CAP V General Partner, L.P. is CAP V , L.L.C., an indirect subsidiary of Carlyle. CAP
V , L.L.C. is wholly-owned by TC Group Cayman Investment Holdings Sub L.P.. The general partner of TC Group
Cayman Investment Holdings Sub L.P. is TC Group Cayman Investment Holdings L.P.. The general partner of TC
Group Cayman Investment Holdings L.P. is CG Subsidiary Holdings L.L.C.. The managing member of CG Subsidiary
Holdings L.L.C. is Carlyle Holdings II L.L.C.. The managing member of Carlyle Holdings II L.L.C. is Carlyle
Holdings II GP L.L.C.. The sole member of Carlyle Holdings II GP L.L.C. is Carlyle.
2. Corelink is wholly-owned by Mr. LIN Jixun, one of our Founders and a non-executive Director. Mr. LIN Jixun is the
brother of Mr. LIN Feng.
3. Mega Stream is wholly-owned by Mr. LIN Feng, one of our Founders. Mr. LIN Feng is the brother of Mr. LIN Jixun.
4. This refers to the Pre-IPO Investors, except Pearl Group Limited, to our Pre-IPO Investments. For the individual
shareholdings of our Pre-IPO Investors, see the paragraph headed “Capitalization” in this section.
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5. Employee Incentive Plan Platforms refer to Ingenuity Capital Holdings Limited and Proteus Capital Holdings
Limited, the special purpose vehicles wholly owned by the Perseverance Capital Trust and the Callisto Capital Trust,
respectively, both managed by Trident Trust Company (HK) Limited for the purpose of holding Shares under the
Employee Incentive Plans. As the Employee Incentive Plans will be managed by a plan administrator who is a
Director designated by the Board, the Shares held by Ingenuity Capital Holdings Limited and Proteus Capital
Holdings Limited will not be counted towards the public float.
6. “Others” refers to (i) Alltrees Holding Ltd. (the BVI holding vehicle of Mr. XU Chenhuai, an independent third party)
and Boke Holding Ltd. (the BVI holding vehicle of Mr. CHEN Shanwen, an independent third party), see the
paragraph headed “Reorganisation – Acquiring the remaining interests of Hangzhou Huitu and Manson Grand” in this
section for details; (ii) Liye HK; (iii) certain existing and previous senior employees who are not the core connected
person of the Company; and (iv) Nice Sure Holding Co., Limited (the BVI holding vehicle of Mr. GAO Song, our
executive Director and chief executive officer). For their individual shareholdings, see the paragraph headed
“Capitalization” in this section.
7. The registered shareholders of Hangzhou Adicon are Ms. LAN Jia, Ms. LIAN Hailun and Hangzhou Kangming,
owned as to 49.82%, 49.82% and 0.36%, respectively.
8. Heilongjiang Adicon is owned as to 75% by Hangzhou Adicon and 25% by independent third parties.
9. Wenzhou Adicon is owned as to 65% by Hangzhou Adicon and 35% by an independent third party.
10. Zhengzhou Adicon is a partnership owned as to 1% by Jinan Adicon and 99% by Shenyang Adicon. In June 2020,
Jinan Adicon and Shenyang Adicon established a limited liability company in Zhengzhou (“ Zhengzhou Company ”),
which is owned as to 1% by Jinan Adicon and 99% by Shenyang Adicon. Zhengzhou Adicon plans to undertake a
restructuring by transferring all of its business from Zhengzhou Adicon to Zhengzhou Company and dissolving
Zhengzhou Adicon after the Listing.
11. Xiamen Adicon is owned as to 51% by Hangzhou Adicon and 49% by an independent third party.
12. Linyi Adicon is owned as to 70% by Hangzhou Adicon and 30% by an independent third party.
13. Qingdao Adicon is owned as to 60% by Hangzhou Adicon and 40% by independent third parties.
14. Shenzhen Adicon is owned as to 60% by Hangzhou Adicon and 40% by independent third parties.
15. Quzhou Adicon is owned as to 70% by Hangzhou Adicon and 30% by an independent third party.
16. Shangrao Adicon is owned as to 61% by our Group, 35% by Mr. ZHENG Shaojun, an independent third party, and
4% by Mr. SHEN Zhuhao, the manager of Guizhou Adicon. Jiangxi Jince is owned as to 61% by our Group, 35% by
Mr. ZHENG Shaojun, an independent third party, and 4% by Mr. SHEN Zhuhao, the manager of Guizhou Adicon.
Please refer to the paragraph headed “– Reorganization – Shangrao Adicon and Jiangxi Jince” in this section for
details.
17. Suzhou Adicon is owned as to 51% by Hangzhou Adicon and 49% by an independent third party.
18. Guizhou Adicon is owned as to 51% by Hangzhou Adicon, 44% by an independent third party, and 5% by Mr. SHEN
Zhuhao, the manager of Guizhou Adicon.
19. Pursuant to agreements entered into between Hangzhou Adicon and the minority shareholders of these entities,
Hangzhou Adicon has the option to acquire all or part of the remaining equity interests of such entities.
20. Xinyang Adicon is owned as to 65% by Hangzhou Adicon and 35% by an independent third party.
21. Henan Adicon is owned as to 51% by Hangzhou Adicon and 49% by an independent third party. Please refer to the
paragraph headed “Reorganization – Acquisition of Henan Adicon” in this section for details.
22. Shaoxing Adicon is owned as to 65% by Hangzhou Adicon and 35% by an independent third party.
HISTORY, REORGANIZATION AND CORPORATE STRUCTURE
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Corporate structure immediately after the Global Offering
The following diagram illustrates the operation and shareholding structure of our Group
immediately after the completion of the Global Offering (assuming the Over-allotment Option is not
exercised):
Company
(Cayman Islands)
Pearl Group Limited(1)
38.92%
Corelink(2)
12.45%
Mega Stream(2)
9.95%
Pre-IPO Investors(4)
23.50%
Adicon HK
(Hong Kong)
Manson Grand
(Hong Kong)
100.00% 100.00%
Aidiken WFOE
Hangzhou Huitu
Shanghai Lv’angjie
Hangzhou Aiyijian
100%
100%
100%
100.00%
Contractual
Arrangements
Offshore
Onshore
Entities controlled
under the Contractual
Arrangements
Jiangxi Jince(16)
61%
Public
4.29%
Employee Incentive
Plan Platforms(5)
9.15%
Others(6)
1.74%
Guangzhou Adicon
Tianjin Adicon
Wuhan Adicon
Changsha Adicon
Chengdu Adicon
Hefei Adicon
40%
40%
40%
Hangzhou Adicon(7)
100%
60%
100%
60%
60%
100%
Fuzhou Adicon
Sanming Adicon
Nanjing Adicon
Shenyang Adicon
Jilin Adicon
Zhengzhou Adicon(10)
40%
40%
40%
60%
100%
60%
60%
100% Shanghai Adicon
Beijing Adicon
Xi’an Adicon
Qingdao Adicon(13)(19)
Shenzhen Adicon(14)(19)
100%
Quzhou Adicon(15)(19)Nanning AdiconChongqing Adicon
100%
100%
99%
1%
100% 100%
60%
60%
70%
Nanchang Adicon100% Yunnan Adicon
100% Shangrao Adicon(16)
61%
Heilongjiang Adicon(8)(19)
75%
Xiamen Adicon(11)
51%
Wenzhou Adicon(9)(19)
65%
100%
Linyi Adicon(12)(19)
70%
Henan Adicon(21)
51%
Wenzhou (Ouhai) Adicon
100%
Jinan Adicon
100%
Suzhou Adicon(17)(19)
51%
Guizhou Adicon(18)(19)
51%
Xinyang Adicon(19)(20)
65%
Shijiazhuang Adicon
Shaoxing Adicon(19)(22)65%
Note: Please refer to the notes to “– Corporate Structure – Corporate Structure before the Global Offering” above.
HISTORY, REORGANIZATION AND CORPORATE STRUCTURE
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OVERVIEW
We are one of the top three independent clinical laboratory, or ICL, service providers in China
in terms of total revenues during the Track Record Period, according to Frost & Sullivan. Our
business has demonstrated strong growth during the Track Record Period, with our total revenues
increasing at a CAGR of 33.1% from RMB2,741.7 million in 2020 to RMB4,860.6 million in 2022.
We offer comprehensive and best-in-class testing services primarily to hospitals and health check
centers through an integrated network of 33 self-operated laboratories across China. The high
quality of our services is backed by our strong performance in terms of international accreditation
and comprehensive testing menu. As of December 31, 2022, 18 of our laboratories were accredited
by ISO15189, which enabled us to provide customers with the quality assurance that comes with
this rigorous international standard. Our testing portfolio consists of over 4,000 medical diagnostic
tests, including over 1,700 routine tests and over 2,300 esoteric tests, as of December 31, 2022.
During the Track Record Period, our testing volume increased by 33.9% from 60.1 million in 2020
to 80.5 million in 2021, and further increased by 104.8% to 164.9 million in 2022. We are
committed to continuously serving patients and the general public with our high-quality testing
services as a leading ICL service provider in China, and becoming a trusted and reliable partner for
medical professionals and the general public.
We believe that we are well-positioned to benefit from the growing demand for testing
services in China. Driven by a series of favorable government policies and industry tailwinds, the
ICL market size in China grew rapidly at a CAGR of 10.9% from RMB14.7 billion in 2017 to
RMB22.3 billion in 2021, and is expected to further grow at a CAGR of 18.2% to RMB51.3 billion
in 2026, according to Frost & Sullivan. In addition, China’s ICL market is still at a nascent stage
compared to that of other developed countries. For example, China’s ICL penetration rate, measured
by the ICL testing market size as a percentage of the total clinical testing market size, in 2021 was
approximately 6%, significantly less than 60% for Japan, 44% for Germany and 35% for the United
States. China also lags behind in terms of expenditures on clinical testing per patient, with this
figure one-sixth the size of that of the United States in 2021. As a result, there remains significant
room for China’s ICL market to further develop and continue to grow.
In response to the continuing growth of healthcare expenditures, healthcare reforms in China
have emphasized the implementation of cost-control measures, where ICLs have played an
increasingly important role. As budgetary pressure intensifies, hospitals are increasingly
incentivized to outsource clinical tests to qualified ICL service providers like us to reduce costs. In
addition, as part of overall healthcare reforms, implementation of hierarchical diagnosis and
treatment systems have propelled patient flow shifting from Class III hospitals in major cities
towards Class II and Class I hospitals and community health centers in lower tiered cities. With
increased testing volume and limited testing capability, these hospitals are more inclined to use
ICLs for assured quality, comprehensive test menus, competitive pricing, and timely reporting,
while improving their own ability to diagnose accurately. The Chinese government has vigorously
encouraged collaboration between hospitals and ICLs and streamlined the approval process for
chain ICLs, which has and will continue to accelerate the growth of the ICL market. Furthermore,
increasing awareness for preventive treatment and emergence of new therapies in recent years have
spurred the demand for specialized testing. It is costly for hospital-based laboratories to introduce
such new tests, as they often lack sufficient patient volume and advanced testing technologies. As
a result, demand for cost-competitive and high-value testing services, which ICLs are capable of
providing has been growing.
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At the same time, the ICL industry in China is characterized by its significant entry barriers.
The complex regulatory framework, high standards for advanced testing technologies and logistics
capabilities, as well as the demand for experienced professionals, largely limit the growth of new
entrants. In particular, the ICL market in China is heavily regulated and it is difficult and
time-consuming for new market players to obtain approval for licenses and certificates to open
laboratories. As such, hospitals often prefer incumbent and established ICLs that they are familiar
with, and new entrants are often faced with unfavorable terms from hospitals, or if they are able to
get business from such hospitals at all. In addition, successful ICLs generally have a large network
of laboratories, which require large amounts of capital investment and take years to decades to
establish. Therefore, large-scale chain ICLs with comprehensive test offerings and stronger
technical capabilities usually enjoy economies of scale and higher cost efficiency, and are better
positioned to further increase their market shares.
As a market leader in providing ICL services in China, we believe that we are well-positioned
to benefit from the aforementioned barriers to entry and capture a greater share of the fast-growing
market. The success of our operations is underpinned by our industry-leading laboratories, robust
logistics capabilities, dedicated sales force, advanced IT infrastructure and strong R&D capabilities,
which we believe constitute a combined set of formidable entry barriers over other market
participants.
 Industry-leading laboratories . Our comprehensive test offerings are supported by
state-of-the-art laboratories equipped with advanced testing technologies, ranging from
chemical analyzers, hematology analyzers, histopathology, flow cytometry, molecular
pathology, mass spectrometry, next-generation sequencing (NGS), and digital
polymerase chain reaction (dPCR). Our advanced testing technologies also allow us to
efficiently expand into various specialty areas and rapidly develop innovative testing
offerings to cater the evolving clinical needs.
 Robust logistics capabilities. We operate a dedicated cold-chain logistics network
covering more than 19,000 customers across 30 provinces and municipalities and over
1,600 cities and counties in China by the end of 2022. We deployed a total of more than
750 vehicles and over 1,300 personnel providing sample logistics services, as of the
same date. Our logistics capabilities ensure speedy transportation of our samples and
timely reporting of testing results. During the Track Record Period and up to the Latest
Practicable Date, we were able to achieve daily same-day delivery of up to 540,000
samples.
 Dedicated sales force . Our sales and marketing activities further fuel our business
growth. As of December 31, 2022, we had a highly trained and educated sales and
marketing team of over 1,500 personnel nationwide, over 200 of whom specializes in
promoting esoteric testing services. Our sales and marketing team regularly interacts
with medical institutions, physicians and key opinion leaders to promote our services,
which enables us to align our R&D and marketing priorities with market demand.
 Advanced IT infrastructure. Our IT infrastructure is crucial to ensure swift processing
and secured storage of data, as well as effective customer management across our
national laboratory network. Our proprietary and industry-leading, Laboratory
Information System, or LIS, helps us attain tremendous operational efficiencies and
enables us to achieve consistent, structured, and standardized operating results and
superior customer service. In addition, we also developed our proprietary logistics IT
system, AiLogistics (ݴيwhich digitalizes and automates the sample requisition
process through mobile digital technologies and AI recognition technologies.
BUSINESS
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 Strong R&D capabilities. We had a dedicated R&D team led by industry veterans who
have over 10 years of industry experience and expertise. Our R&D team consists of
Ph.D. and master’s degree holders specializing in molecular biology, genetics and
bio-engineering, toxicology, pathology and other related areas, and are devoted to
developing new testing methodologies and improving existing testing processes to
enhance cost efficiency. We also proactively collaborate with reputable medical research
institutions, universities and hospitals to develop new testing methods and technologies.
Our strong R&D capabilities were evidenced by our fast expanding testing menu, which
grew from 1,800 test items in 2018 to over 4,000 test items in 2022. In particular, our
esoteric test grew from over 650 in 2018 to over 2,300 in 2022.
Aided by the changes implemented by our Controlling Shareholders since 2018, we have
experienced rapid growth and strong financial performance during the Track Record Period. Our
total revenues grew at a CAGR of 33.1% from RMB2,741.7 million in 2020 to RMB4,860.6 million
in 2022. Our net profit increased at a CAGR of 53.8% from RMB289.5 million in 2020 to
RMB684.9 million in 2022. Our adjusted EBITDA (non-IFRS measure) grew at a CAGR of 34.0%
from RMB567.6 million in 2020 to RMB1,019.8 million in 2022. Our adjusted EBITDA margin
(non-IFRS measure) increased from 20.7% in 2020 and 2021 to 21.0% in 2022. Our adjusted net
profit (non-IFRS measure) grew at a CAGR of 30.1% from RMB367.0 million in 2020 to
RMB621.1 million in 2022. Our adjusted net profit margin (non-IFRS measure) decreased from
13.4% in 2020 and 2021 to 12.8% in 2022. See “Financial Information – Non-IFRS Measures”.
OUR STRENGTHS
We believe that the following strengths have contributed to our success and differentiated us
from our competitors:
A market leader in the rapidly growing ICL industry
We are one of the top three ICL service providers in China in terms of total revenues during
the Track Record Period, according to Frost & Sullivan. We offer comprehensive and best-in-class
testing services primarily to hospitals and health check centers through an integrated network of
self-operated laboratories across China.
Driven by the growth of the outsourcing demand from hospitals under the pressure of cost
control, the promotion of hierarchical medical system and other favorable policies, the acceleration
of population aging as well as people’s ever growing awareness of health, China’s ICL market grew
at a CAGR of 10.9% from RMB14.7 billion in 2017 to RMB22.3 billion in 2021, and is expected
to further grow at a CAGR of 18.2% to RMB51.3 billion by 2026. We believe that we are
well-positioned to capture this growth in China. We have built an extensive service network of 33
self-operated laboratories covering over 30 provinces and municipalities across China. As of
December 31, 2022, 18 of our laboratories were accredited by ISO15189, which enabled us to
provide customers with the quality assurance that comes with this rigorous global standard. We also
maintained an industry-leading comprehensive test menu with over 4,000 test items as of December
31, 2022, including over 1,700 routine tests and over 2,300 esoteric tests, allowing us to provide
testing services to over 19,000 customers by the end of 2022, ranging from medical institutions,
health check centers, to biopharmaceutical companies and CROs.
We pride ourselves in industry-leading operational and R&D capabilities. Leveraging our
“headquarters – laboratory” two-tier internal management, economies of scale and effective cost
control measures, we are able to provide testing services with competitive pricing, which helps us
establish a strong market presence in health check center in China. Moreover, our relentless R&D
efforts successfully expanded our test menu, in particular esoteric tests, and quickly made us a
top-of-mind choice among world’s leading CROs and biopharmaceutical companies for
collaboration in China.
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Comprehensive, high-quality and advanced test portfolio underpinned by our strong R&D and
quality control capabilities
Our testing portfolio is at the core of our services. We offer a competitive and comprehensive
catalog of over 4,000 medical diagnostic tests, comprising over 1,700 routine tests and over 2,300
esoteric tests, as of December 31, 2022, spanning a variety of specialty groups, including among
others, clinical immunologic testing, clinical chemistry testing, clinical molecular biology testing,
and pathology testing. Our testing portfolio allows us to offer a broad spectrum of testing options
that facilitate physicians’ diagnostic and treatment decisions, and we can customize our test menu
to fulfill the specific testing demands from medical institutions, pharmaceutical companies, CROs
and other customers.
Our comprehensive testing offerings are supported by state-of-the-art laboratories equipped
with advanced testing technologies, ranging from chemical analyzers, hematology analyzers,
histopathology, flow cytometry, molecular pathology, mass spectrometry, next-generation
sequencing (NGS), and digital polymerase chain reaction (dPCR). Our advanced testing
technologies also allow us to efficiently expand into various specialty areas and rapidly develop
innovative testing offerings to cater the evolving clinical needs.
Strong R&D capabilities are the backbone of our high-quality test offerings. We had a
dedicated R&D team led by industry veterans who have over 10 years of industry experience and
expertise. Our R&D team consists of Ph.D. and master’s degree holders specializing in molecular
biology, genetics and bio-engineering, toxicology, pathology and other related areas, and are
devoted to developing new testing methodologies and improving the existing testing processes. Our
relentless R&D efforts are further evidenced by our intellectual property assets. As of the Latest
Practicable Date, we owned 228 registered patents, covering our major business focuses, namely
infectious diseases and blood diseases, as well as fields with large and unaddressed clinical demand
such as personalized medication, single-gene genetic diseases and solid tumors. We also proactively
collaborate with reputable medical research institutions, universities and hospitals to develop new
testing methods and technologies to further strengthen our testing capabilities.
Furthermore, quality control underpins our abilities to constantly offer high-quality testing
services to earn trust and loyalty from our customers. As of December 31, 2022, 18 of our
laboratories were accredited by ISO15189, which enabled us to provide customers with the
assurance that comes with rigorous global standard. We have established a “headquarters −
laboratory” two-level quality assurance system, with all facets of our services subject to stringent
quality control standards and measures, including laboratory operations, accuracy and
reproducibility of tests, as well as customer service and satisfaction. During the Track Record
Period, we received over 4,100 external quality assurance, or EQA, certificates and participated in
a total number of over 40,000 EQA programs, covering clinical chemistry, immunology, molecular
biology, and pathology areas, enjoying a passing rate of 98.5% on average. We believe our quality
assurance has positioned us strongly to broaden our customer base and capture an increasing market
share.
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Industry-leading ICL operational capabilities
As an industry leading ICL service provider with a national footprint, our leadership position
is backed by our excellent operational capabilities. To support our extensive service coverage, we
maintain a robust and nimble logistics network via ground, rail, and air, covering more than 19,000
customers across 30 provinces and municipalities and over 1,600 cities and counties in China by the
end of 2022. We deployed a total of more than 760 vehicles and 1,300 personnel providing sample
logistics services, as of December 31, 2022. Our logistics capacities ensure speedy transportation
of samples and timely reporting of testing results. During the Track Record Period and up to the
Latest Practicable Date, we were able to achieve daily same-day delivery of up to 540,000 samples.
Moreover, each sample in transit is kept in our proprietary incubators equipped with thermal control
equipment and GPS tracking devices to preserve sample quality and prevent contamination.
Furthermore, we believe our logistics capabilities also enable cross-coverage of our laboratories and
rapid expansion of our services to untapped geographic markets.
In addition, our effective sales and marketing activities further fueled our business growth. As
of December 31, 2022, we had a highly trained and educated in-house sales and marketing team of
over 1,500 personnel nationwide. Our sales and marketing team actively interact with medical
institutions, physicians and key opinion leaders on a regular basis to introduce and promote our
services. In particular, as we believe the market requires further education on esoteric testing, we
assembled a special sales team of over 200 industry veteran who have extensive knowledge in the
relevant specialty area to promote our esoteric tests. We provide comprehensive trainings to our
sales and marketing team regularly to keep them abreast with the latest industry development and
better align our marketing priorities with market demand. Moreover, we place strong emphasis on
academic marketing to strengthen our brand awareness among medical professionals. We regularly
organize, sponsor and participate in industry-leading academic conferences, seminars, and
symposia which include large-scale international and national conferences, as well as smaller events
tailored for specific cities and hospital departments. In 2022, we hosted a total of over 110
conferences across the country, successfully enhancing our presence in the market.
Furthermore, our IT infrastructure is crucial to ensure timely preparation and delivery of
accurate and informative clinical testing reports to our customers, as well as effective customer
management across the national network of our laboratories. Our proprietary and industry-leading
Laboratory Information System, or LIS, is responsible for tremendous operational efficiencies,
enabling us to achieve consistent, structured, and standardized operating results and superior
customer service.
Finally, we have carried out a series of operational initiatives in monitoring and measuring our
laboratory productivity, and improve our overall operational efficiencies, which primarily focus on
employee, and reagents and consumables efficiency. During the Track Record Period, our employee
productivity, measured by testing volume performed per laboratory employee, grew by 12.4% from
2020 to 2021, and further by 53.5% from 2021 to 2022. We have also adopted a lean management
scheme to control the usage of reagents and consumables across our laboratories, by closely and
precisely monitoring the level of wastage for each reagent for different tests performed.
Strong growth trajectory fueled by expanding service offerings and superior execution
evidenced by robust financial performance
We had a strong growth trajectory since 2018 following a series of changes implemented by
our Controlling Shareholders.
Network Expansion . The number of our laboratories grew from 19 as of December 31, 2018
to 32 as of December 31, 2022, allowing us to serve from over 11,000 customers in 2018 to over
19,000 customers in 2022, ranging from medical institutions and health check centers to
biopharmaceutical companies and CROs across 30 provinces and municipalities. Such impressive
expansion record is supported by the replicable “headquarters − laboratory” two-level management
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scheme developed by us, which covers major aspects of our business operations, including quality
assurance, sales and marketing and supply chain management. Under this scheme, we plan
strategies and initiatives centrally and monitor qualities of local executions effectively. Our
headquarters establishes unified standardized operating procedures and policies which can be
carried through and implemented across our laboratories nationwide, which allows us to open new
laboratories and integrate acquired ones cost-effectively and efficiently. As a result, we have rapidly
expanded our footprint across the country.
Expanding Service Offerings . Our test menu expanded significantly from approximately 1,800
test items in 2018 to over 4,000 test items in 2022. In particular, our esoteric test grew from over
650 in 2018 to over 2,300 in 2022. As an illustration of our continuing quest to expand our service
offerings, we entered into partnership agreements with world’s leading and internationally
acclaimed companies in life science industry. For example, in June 2022, we entered into a strategic
partnership agreement with Guardant Health (Nasdaq: GH), a leading precision oncology company,
pursuant to which, we are granted the exclusive rights to perform Guardant’s industry-leading
comprehensive genomic profiling (CGP) tests, including the first blood-only test that detects
residual disease and monitors for cancer recurrence, to researchers in China to help them identify
patients whose cancer has the right molecular profile for their clinical programs, streamlining
patient screening and clinical trial enrollment. Moreover, we are the exclusive licensee to process
Guardant’s proprietary liquid and tissue biopsy assays in China. In addition, in April 2021, we
entered into a master lab agreement with a leading global CRO providing comprehensive, integrated
drug development, laboratory and lifecycle management services, to provide testing services for its
designated clinical research study or projects. Recognition by world’s leading CROs and
biopharmaceutical companies reinforces our market leadership, and gives us competitive edge in
the industry.
Broader Customer Range . Our comprehensive test menu and strong testing expertise allowed
us to deliver value proposition to a broader range of customers. After four years of rapid
development, we significantly expanded our services to all types of medical institutions, health
check centers, biopharmaceutical companies and CROs. In April 2019, we started collaboration
with Meinian, a leading health examination and consulting service provider and provided testing
services for its health check centers across the country, and soon established a strong presence in
the health check market in China. By the end of 2022, we served a total of over 930 health check
centers in China. Moreover, leveraging our strong testing capabilities, we also offered testing
services to globally and domestically reputable biopharmaceutical companies and CROs, assisting
them in streamlining their drug development process and accelerating clinical trials.
Top-tier and experienced management team solidified by shareholder support
We have assembled a senior management team with in-depth industry insights and extensive
experience, which was further bolstered by the addition of Pearl Group Limited as one of our
Controlling Shareholders. Our management team has deep industry experience spanning global and
Chinese healthcare companies and a track record of success. In particular, our chairwoman of the
Board, Ms. YANG Ling has over 15 years of experience in private equity with a focus on the
healthcare industry. Our executive Director and chief executive officer, Mr. GAO Song, has over 10
years of experience in healthcare industry and held various positions at GlaxoSmithKline (China)
Investment Co., Ltd. (ʮ̡) from September 1997 to April 2019, a
subsidiary of GlaxoSmithKline PLC (LSE: GSK; NYSE: GSK). Our chief financial officer, Mr.
WANG Lawrence Allen, has worked in various capacities in private equity and investment banking,
and enjoys an extensive experience in business management and capital markets, while also holding
a master degree in business administration and a doctorate degree in medicine. Our head of
laboratory, Mr. PAN Chao, has approximately 40 years of experience in medical research and
diagnosis, and served as a laboratory director of a Class III hospital prior to joining us. In addition,
we also have strong support from our shareholders. Our Controlling Shareholders have provided us
with substantial strategic insights and helped us to strengthen management capabilities, operational
efficiency, business development capabilities, and corporate governance.
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OUR STRATEGIES
To achieve our mission and vision, we will pursue the following strategies:
Further strengthen our testing capabilities and portfolio to drive future growth
We plan to further strengthen our routine testing capabilities through further extending our
routine test portfolios and enhancing the cost efficiency through the introduction of new testing
technologies.
In addition, we believe that our comprehensive esoteric testing services have been crucial to
maintaining our leading position in the ICL market. We plan to further improve our in-house R&D
capabilities, prioritizing the development and deployment of cutting-edge esoteric testing
technologies with a focus on OB-GYN, infertility, neonatal, hematology, solid tumors, and
infectious diseases areas with strong market growth potential and in which we have a competitive
advantage. We also intend to continuously explore opportunities in novel types of esoteric tests
leveraging our relationships with hospitals in the disciplines set forth above. Our collaboration with
hospitals will enable us to validate the effectiveness and utility of new types of esoteric tests in a
clinical setting and provide us access to clinically well-characterized and highly annotated data.
Furthermore, we plan to further enhance and tailor our esoteric testing module offerings that group
related testing items together to make the diagnosis process more convenient and efficient. We also
plan to purchase new testing equipment with advanced technologies to enhance our testing
capabilities and expand our testing portfolio.
Moreover, we plan to extend and strengthen our dedicated esoteric testing sales force to serve
our growing customer base. Additionally, we intend to further solidify and broaden our network of
key opinion leaders, physicians, hospitals, medical associations, universities, and research centers
in the key regions and target fields by, for example, supporting academic forums and seminars, as
well as establishing joint research initiatives.
Enhance the breadth and depth of our ICL network by strategically penetrating untapped
markets
We intend to further expand our service coverage by opening new laboratories to serve Class
III hospitals facing immense cost-cutting pressures that are willing to outsource clinical testing
services. We also intend to build more laboratories to capture the growing demand for quality and
price-competitive testing services from Class I and Class II hospitals in lower tier cities and rural
areas that have received patient flow from Class III hospitals resulting from implementation of
tiered diagnosis and treatment schemes in China.
Continue to develop new testing methods and apply innovative technologies
We intend to enhance our operating efficiency and offer a broader spectrum of testing items
through introducing advanced testing technologies and new testing methods. We will continue to
capture the latest technological developments in the market and transform pioneering technologies
into diagnostic applications. We plan to further invest in the research and development in the areas
such as mass spectrometry, metagenomics and technologies for early cancer screening.
In addition, we plan to fully capitalize on our strong R&D capabilities and leverage our
industry resources and collaborations with in vitro diagnostic, or IVD, companies on reagents to
advance diagnostic equipment and enrich testing modality. We also plan to invest in our proprietary
artificial intelligence technology to further enhance our test capabilities, including optimizing the
data input process, delivering more precise pathological analysis for more accurate testing results
and increasing the capacity and bandwidth of pathology tests.
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Further optimize IT infrastructure as well as automate our laboratory processes and logistics
We intend to further optimize and increase the level of automation in our laboratory processes.
We will continue to closely monitor the efficiency of our laboratories through various benchmarks
and assessments. We will adopt advanced automation systems and implement optimized standards
for processes in laboratories to further enhance the cost-efficiency of our operation. We also intend
to further strengthen our quality control, optimize the performance and accuracy of our testing
services by increasing our investment in automation, robotics, and connected equipment.
To sustain corporate outperformance, we intend to further advance our IT infrastructure by
building our cloud-based business information system and our proprietary laboratory internet
network for faster and more secured transmission of laboratory data. We also plan to upgrade our
information security system to better safeguard the privacy of patient data. Furthermore, we intend
to invest in data-mining technologies and data infrastructure to help us discover new information
from our existing database of anonymized test results to provide better diagnostic insight to our
customers.
We will further expand and upgrade our dedicated logistics network by providing broader
coverage in lower tier cities to support opening of new laboratories and building a transportation
management system to monitor logistics activities in real time.
Selectively pursue strategic investment and alliances, and other emerging growth
opportunities
We intend to expand strategic collaboration and actively seek opportunities for strategic
investment and alliances. For example, we intend to explore opportunities to acquire or collaborate
with: (i) laboratories with new testing technologies, (ii) regional laboratories with strong
performance and market share in their respective markets and specialties, and (iii) international
laboratories and companies with new testing technologies seeking to enter the China market. We
believe that our track record in implementing new technologies, strong logistics and sales and
marketing capabilities and national footprint, will enable us to successfully integrate or collaborate
with these companies.
We intend to further explore emerging opportunities in the DTC business. As the COVID-19
pandemic has increased users’ awareness and knowledge of medical services, especially clinical
testing services, we have launched and intend to continue to develop DTC offerings and reach
consumers with testing and other health-related needs through internet-based channels, such as
working with e-commerce platforms to provide health check packages.
In addition, we plan to capture the opportunities in clinical studies driven by strong demand
from biopharmaceutical companies and CROs in China. We aim to become a central laboratory in
China for global clinical trials conducted by international and domestic biopharmaceutical
companies and CROs. We currently have a facility in Shanghai accredited by the College of
American Pathologists (“CAP”) as the primary laboratory servicing our biopharmaceutical and
CRO clients. We believe that our current facilities and testing services will be able to cater to the
growing testing demand from this sector and will continue to target it for future growth. We believe
that active collaboration with our biopharmaceutical and CRO partners will position us to be a
leading participant in future early screening, companion diagnostic and disease monitoring
diagnostic markets in both a central laboratory capacity and clinical diagnostic capacity. We believe
that this approach allows us to rapidly expand our test and service offerings and differentiates us
from other ICLs. As of December 31, 2022, we had a total of 81 CROs and biopharmaceutical
company customers. Testing revenues from biopharmaceutical companies and CROs were
RMB18.6 million, RMB19.5 million and RMB27.5 million in 2020, 2021 and 2022, respectively.
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OUR BUSINESS MODEL
We are one of the top three independent clinical laboratory, or ICL, service providers in China
in terms of total revenues during the Track Record Period, according to Frost & Sullivan. We offer
comprehensive and high-quality testing services primarily to medical institutions through an
integrated network of 33 self-operated laboratories across China. As of December 31, 2022, 18 of
our laboratories were accredited by ISO15189, which enabled us to provide customers with the
assurance that comes with this rigorous global standard. Supported by advanced technical
capabilities, nimble and efficient logistics and a sophisticated information technology system, we
are able to produce and deliver accurate testing results to aid physicians in diagnosis and individuals
in disease prevention.
As an industry leading ICL service provider, we play a crucial role in the healthcare
ecosystem, and the following diagram illustrates how we interact with industry participants and
bring value to each stakeholder:
Our Customers
Direct-to-Consumer (DTC)Hospitals and Medical
Institutions
• Level III public hospitals
 Level II public hospitals
 Level I and below public and private
hospitals as well as medical
institutions
Health Check Centers
 Health check departments
affiliate to hospitals
 Independent chained
health check providers
Pharmaceutical Companies
& CROs
 Collaboration with leading
international and domestic
CROs and pharmaceutical
companies
 Direct-to-consumer
business
 Providing COVID-19 test to
individual consumers
Our Service
 5 specialty groups:
 Clinical immunologic testing
 Clinical chemistry testing
 Clinical molecular biology
testing
 Pathology testing
 Others
 Medical diagnostic
tests:
 Routine tests
 Esoteric tests
Testing
Service
 Self-operated laboratories
 Supporting national testing service coverage
 Accreditation from various regulatory agencies or
accrediting organizations
Laboratories
 Self-operated laboratories
 Supporting national testing service coverage
 Accreditation from various regulatory agencies or
accrediting organizations
Laboratories
Our Capabilities
Sales and
Marketing Team
Logistics
Network
Quality
Assurance
Operational
Efficiency R&D Technology and
IT Infrastructure
 Supply Chain
Management
 Laboratory Operation
Efficiency
 Inventory Management
 In-house R&D team
 In-house projects
 Collaborative projects
 R&D Publications
 Sales and marketing
team with employees
nationwide
 Organizing, co-hosting
and participating
academic conference
 In-house logistics team
providing sample logistic
services
 Nationwide coverage of
medical institutions
 Two level quality
assurance system
 In-house quality
assurance team
 Proprietary logistic IT
system: AiLogistics
 Storage of billions of
testing data and results
OUR ICL BUSINESS
Our primary business is providing ICL services. Revenues generated from our ICL business
were RMB2,513.2 million, RMB3,144.8 million and RMB4,400.7 million in 2020, 2021 and 2022
respectively, representing 91.7%, 93.1% and 90.5% of our total revenues in the same years,
respectively.
The following describes our typical clinical laboratory process, in case of a medical institution
customer:
 We enter into cooperation agreements with medical institutions with each agreement
specifies testing items, prices and pricing formulas.
 When a patient visits a physician at the medical institution, the physician may order
laboratory tests to inform a diagnosis or monitor treatment. The medical institution will
then collect samples such, as blood, urine, stool or tissue biopsies, from the patient, and
assign a unique barcode for each sample for easy tracking.
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 Once the patient’s samples have been collected by the medical institution, our expertly
trained sample logistics staff will obtain samples from the medical institution on a daily
basis and record the sample information into our information center.
 The samples are then transported to our laboratory through our cold chain logistics.
 When samples arrive at our laboratory, we will check each sample status and its
respective patient information to ensure accuracy. All patient information is treated in
the strictest confidence.
 Each sample, depending upon the specific test requested by the medical institution, is
generally examined by our experienced technicians using sophisticated instruments and
advanced technologies. Each collected sample may undergo multiple tests.
 Test results are either automatically aggregated into reports, or interpreted by our
specialists who provide diagnostic comments to assist referring physicians.
 Test results are generally delivered within 24 hours electronically to the medical
institutions, or are delivered by our logistics personnel.
We have developed a highly scalable business model with excellent quality standards. We
operate a network of 33 self-operated laboratories as of the Latest Practicable Date, strategically
located across China, providing testing services covering 30 provinces and municipalities. The
following map* presents the network of our laboratories:
Adicon lab
Secondary coverage
Primary coverage
 Shenzhen
Guangzhou
Nanning
Chongqing
Changsha
Sanming
 Fuzhou
Xi’an
Zhengzhou
Jinan
Qingdao
Beijing
Tianjin
Shenyang
Nanchang
Shangrao
Quzhou
Hangzhou
Shanghai
Nanjing
Hefei
Xiamen
Suzhou
Henan
Guizhou
Wenzhou
Heilongjiang
Xinyang
Jilin
Yunnan
Chengdu Wuhan
Linyi
* This map is for illustration purposes only.
Note: Primary coverage refers to areas where we have our laboratories. Secondary coverage refers to areas where we do not
have our laboratories but we can provide testing services through our logistics network.
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The following table sets forth details relating to our self-operated laboratories as of the Latest
Practicable Date.
No. Name Location
Date of
Establishment (1)
Area
(sqm)
Time of Initial
ISO15189
Accreditation
Utilization
Rate (3)
1. Hangzhou Adicon Zhejiang January 16, 2004 14,780 May 2010 93.95%
2. Hefei Adicon Anhui June 5, 2006 3,400 January 2011 89.04%
3. Shanghai Adicon Shanghai August 2, 2006 4,850 July 2014 87.53%
4. Jinan Adicon Shandong October 19, 2006 5,285 May 2017 93.78%
5. Beijing Adicon Beijing December 7, 2007 3,497 November 2011 89.84%
6. Nanchang Adicon Jiangxi September 10, 2008 4,265 December 2014 88.43%
7. Fuzhou Adicon Fujian February 6, 2009 4,599 October 2015 91.30%
8. Jilin Adicon Jilin April 23, 2009 4,031 May 2014 90.33%
9. Wuhan Adicon Hubei November 24, 2009 4,972 June 2015 87.39%
10. Nanjing Adicon Jiangsu December 4, 2009 4,986 August 2014 93.45%
11. Changsha Adicon Hunan April 19, 2010 2,738 February 2017 88.36%
12. Chengdu Adicon Sichuan June 11, 2010 2,668 May 2015 87.40%
13. Shenyang Adicon Liaoning March 16, 2011 2,900 March 2015 91.08%
14. Zhengzhou Adicon Henan August 8, 2012 3,649 December 2019 88.38%
15. Guangzhou Adicon Guangdong August 21, 2013 4,000 February 2020 91.56%
16. Tianjin Adicon Tianjin June 3, 2014 5,625 February 2018 91.50%
17. Yunnan Adicon Yunnan February 2, 2015 3,153 December 2019 89.44%
18. Xi’an Adicon Shaanxi May 23, 2016 2,292 August 2022 84.58%
19. Sanming Adicon Fujian May 30, 2016 2,421 –
(2) 74.48%
20. Chongqing Adicon Chongqing September 21, 2016 2,621 – (2) 86.78%
21. Nanning Adicon Guangxi November 23, 2017 3,000 – (2) 75.76%
22. Qingdao Adicon Shandong May 13, 2019 1,906 – (2) 89.83%
23. Shenzhen Adicon Guangdong May 13, 2019 2,256 – (2) 94.27%
24. Quzhou Adicon Zhejiang January 6, 2020 1,982 – (2) 87.69%
25. Shangrao Adicon Jiangxi December 7, 2020 2,000 – (2) 73.06%
26. Xiamen Adicon Fujian September 25, 2020 3,178 – (2) 71.60%
27. Suzhou Adicon Jiangsu August 3, 2021 5,298 – (2) 87.33%
28. Henan Adicon Henan October 16, 2019 4,000 – (2) 73.79%
29. Guizhou Adicon Guizhou July 16, 2021 3,421 – (2) 64.13%
30. Wenzhou Adicon Zhejiang November 29, 2021 3,420 – (2) 50.58%
31. Heilongjiang
Adicon
Heilongjiang January 13, 2020 4,066 – (2) 52.35%
32. Xinyang Adicon Henan May 13, 2022 2,544 – (2) 17.54%
33. Linyi Adicon Shandong November 10, 2021 2,468 – (2) –(4)
Notes:
(1) Date of establishment refers to the date that such laboratory received its business license.
(2) Laboratories for which we plan to apply for ISO15189 accreditation.
(3) Utilization rate equals actual testing volume ÷ (number of equipment × theoretical testing volume per equipment per
hour × actual testing duration per day × days of equipment in operation) in 2022.
(4) Linyi Adicon started generating revenues in May 2023, and no meaningful utilization rate is available as of the Latest
Practicable Date.
OUR LABORATORIES
Self-operated Laboratories
We set up our central laboratories in the capital city or the second largest city of a province
to easily collect samples from medical institutions in that province or nearby provinces. We believe
that establishing a laboratory involves a massive amount of work and requires a structured approach
to ensure its success. We have a dedicated team composed of thoughtfully selected and experienced
personnel in laboratory operation and laboratory administration, who conduct thorough research on
regulatory requirements related to setting up an independent clinical laboratory in the target city to
ensure compliance with local regulations and rules throughout the process.
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We also perform comprehensive industry analysis with a focus on demographics, economic
status and allocation of medical resources to estimate the testing demand in local market and
determine the scope and volume of available testing that can meet such demand. Our industry
analysis also includes a detailed evaluation of the competitive landscape, such as an analysis of
existing market players, prospective new entrants and the testing penetration rate. In general, our
laboratories are between 2,000 to 5,000 square meters in size and strategically located at economic
development zones or high-tech industrial zones of a city with well-established transportation
infrastructure to support ease of sample collection and delivery.
After taking into account all relevant factors, our network expansion department will
formulate a detailed business plan, including among others, a selected location, probable project
costs and budget model. Once a proposal is approved, we then proceed with other related
preparation work, including entering into lease agreements, applying for a series of required
licenses, permits and approvals from applicable regulatory authorities, construction, procuring
testing equipment and devices, building information technology infrastructure, recruiting local
employees, and among others. This whole process generally takes eight to 12 months.
In addition to central laboratories, we also set up regional laboratories in lower-tiered cities
in collaboration with local governments. Local government support allows us to effectively expand
our local customer base and secure the regional market. We plan to continue exploring opportunities
in setting up such regional laboratories to better penetrate into untapped markets.
Accreditation
The credibility of laboratories is paramount to the health and safety of the patients relying on
the testing services provided by laboratories. Our laboratory operations are accredited with various
international and domestic regulatory agencies or accrediting organizations.
ISO 15189 Certification. ISO15189 is an international standard that specifies the quality
management system requirements particular to medical laboratories. The standard was developed by
the International Organization for Standardization’s Technical Committee 212 (ISO/TC 212). As of
December 31, 2022, 18 of our self-operated laboratories were ISO15189-certified by China
National Accreditation Service for Conformity Assessment (“CNAS”), providing customers with
the assurance that comes with this rigorous global standard. CNAS is the national accreditation
body of China unitarily responsible for the accreditation of certification bodies, laboratories and
inspection bodies, which is established under the approval of the Certification and Accreditation
Administration (“CNCA”) and authorized by CNCA in accordance with the Regulations of the
People’s Republic of China on Certification and Accreditation.
CAP Certification . We also participate in multiple externally administered quality surveillance
programs, including the College of American Pathologists (“CAP”) program. CAP is an
independent, non-governmental organization of board-certified pathologists approved by The
Centers for Medicare and Medicaid Services (“CMS”) to inspect laboratories to determine
compliance with the standards required by Clinical Laboratory Improvement Amendments of 1988
of United States (“CLIA”). This accreditation is not only recognized by medical community as one
of the most stringent international standards of laboratory quality but also sought after by
international biopharmaceutical companies. The CAP program involves both on-site inspections of
the laboratory and participation in a CAP accepted proficiency testing program for all categories in
which the laboratory is accredited. A laboratory’s receipt of accreditation by CAP satisfies the CMS
requirement for CLIA certification. In March 2008, our Shanghai laboratory was accredited by CAP,
being the first ICL to obtain such accreditation in China.
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OUR TESTS AND SERVICE OFFERINGS
We offer a competitive and comprehensive catalog of over 4,000 medical diagnostic tests,
comprising over 1,700 routine tests and over 2,300 esoteric tests, as of December 31, 2022. In
comparison, the size of testing portfolio of Class III hospital in-house clinical laboratories is
typically ranging from 500 to 1,000 in China, according to Frost & Sullivan. Our testing volume
increased by 33.9% from 60.1 million in 2020 to 80.5 million in 2021, and further increased by
104.8% to 164.9 million in 2022.
To deliver more attractive value propositions to our customers, we are one of a few ICL
service providers in China to generate comprehensive testing reports for our customers. Instead of
evaluating medical value of test results on an isolated basis, our laboratory technicians interpret all
previous test results of the same patient available in our database based on extensive medical
knowledge and clinical correlation, so as to generate a comprehensive report to better assist
physicians’ diagnosis and treatment. We are currently a market leader in the comprehensive
reporting of blood diseases, and we plan to further strengthen our comprehensive reporting
capabilities.
We offer two types of tests, routine tests and esoteric tests. Routine tests typically measure
various important health parameters, such as the condition and functions of the kidneys, heart, liver,
thyroid and other organs. The results of these tests are generally straightforward and many of them
require no interpretation by experts. Routine tests follow well-established and uniform protocols
with standardized pricing. Commonly ordered routine tests include blood chemistries, urinalysis,
allergy tests and complete blood cell counts. According to Frost & Sullivan, we maintained one of
the most comprehensive routine test menu among all nationwide ICL players in China, as of the
Latest Practicable Date.
The following table sets forth our frequently used routine testing methods during the Track
Record Period:
Test Method Description
Primary Clinical Uses
in Diagnostics
Complete Blood Count
(CBC) ...................
Is a set of laboratory tests that
provides information about the
cells in a person’s blood. The
CBC indicates the counts of
white blood cells, red blood
cells and platelets, the
concentration of hemoglobin,
the hematocrit, as well as
physical characteristics of
certain red blood cell indices
and white blood cell profiling.
The CBC test is an essential
tool of hematology, used for the
prognosis, treatment, and
prevention of diseases related to
blood, and many related
conditions such as anemias,
bone marrow disorders, clotting
disorders, cancers, allergies,
etc., and plays an extremely
important role in the diagnosis
and treatment of diseases.
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Test Method Description
Primary Clinical Uses
in Diagnostics
Liver Function Test (LFT) . Is a set of biochemical tests to
measure indicators related to the
metabolic functioning of the
liver.
The LFT is used to detect the
presence or absence of various
types of liver and blood
disorders, the degree of liver
damage, and to determine the
prognosis and identify the cause
of certain liver and blood
related diseases.
Thyroid Function Test ..... Chemiluminescence detection
technology is used to detect
thyroid function related
indicators to determine the
metabolic functioning of the
thyroid.
Thyroid function can effectively
reveal disorders relating to
hypothalamic, pituitary and
thyroid dysfunction, thyroid
disease, such as
hyperthyroidism,
hypothyroidism, thyroid cancers
and other diseases.
Lipid Profile ............. Blood lipid examination is
mainly a method of quantitative
determination of the lipids
contained in the blood,
including cholesterol and
triglycerides.
By checking the blood lipids,
you can detect and monitor the
progression of lipid related
diseases such as arteriosclerosis,
hyperlipidemia, coronary heart
disease, diabetes, certain genetic
diseases, nephrotic syndrome,
and other cardiovascular
diseases.
Blood Culture ............ Blood culture is a kind of
inoculation of freshly isolated
blood samples into blood culture
bottles, under certain conditions
of temperature and humidity, so
that pathologic bacteria and
fungi can be grown and
identified.
Blood culture is used to detect
and monitor blood infections
such as bacteremia, sepsis and
catheter-related blood stream
infection as well as monitor the
sensitivity and efficacy of drug
therapies used to treat
infections.
Liquid-based cytology for
cervical cancer screening . .
The liquid-based thin-layer cell
detection system is used to
detect cervical cells and perform
cytological classification
diagnosis.
Liquid based cytology is used in
the screening and diagnosis of
abnormal cervical cells
indicative of cervical cancer.
Esoteric tests are more complex tests that generally require interpretation by experts and/or
sophisticated technology. Esoteric tests are typically ordered when a physician requires additional
detailed information to complete a diagnosis, establish a prognosis or select a
therapeutic/monitoring regimen.
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During the Track Record Period, we made significant progress in strengthening our esoteric
testing capabilities. Our esoteric test menu grew from over 800 items in 2020 to over 2,300 in 2022.
In 2022 alone, we introduced over 850 new esoteric test items, focusing mainly on genetic diseases,
solid tumors, and hematological diseases, which significantly strengthened our testing capabilities
and extended our abilities to serve customers with demand for more complex and informative test
results, such as Class III hospitals and CROs. In addition, through the introduction of
pharmacogenetic, drug concentration detection projects and neuroimmune tests, we further
diversified our service offerings to meet growing market demand.
As an illustration of our continuing quest to expand our service offerings, we entered into
partnership agreements with world’s leading and internationally acclaimed companies. For
example, in June 2022, we entered into a strategic partnership agreement with Guardant Health
(Nasdaq: GH), a leading precision oncology company, pursuant to which, we are granted the
exclusive rights to perform Guardant’s industry-leading comprehensive genomic profiling (CGP)
tests, including the first blood-only test that detects residual disease and monitors for cancer
recurrence, to researchers in China to help them identify patients whose cancer has the right
molecular profile for their clinical programs, streamlining patient screening and clinical trial
enrollment. Moreover, we are the exclusive licensee to process Guardant’s proprietary liquid and
tissue biopsy assays in China. Guardant RevealTM, the first blood-only test that detects residual
disease and monitors for cancer recurrence, will also be offered to biopharmaceutical companies for
early-stage cancer research and development. In addition, in April 2021, we entered into a master
lab agreement with a leading global CRO providing comprehensive, integrated drug development,
laboratory and lifecycle management services, to provide testing services for its designated clinical
research study or projects. Recognition by world’s leading CROs and biopharmaceutical companies
reinforces our market leadership, and gives us competitive edge in the industry.
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The following table sets forth our frequently used esoteric testing methods during the Track
Record Period:
Test Method Description Primary Clinical Uses in Diagnostics
Non-invasive Prenatal
Testing (NIPT) ...........
This testing analyzes small
fragments of DNA which comes
from placenta tissue of a
developing fetus and are shed
into the mother’s bloodstream.
These DNA fragments are free-
floating and not within cells,
and so are called cell-free DNA
(cfDNA) and are detected
through a maternal blood draw,
which is non-invasive to the
fetus.
Detects risk factor of
chromosomal aneuploidy in the
fetus, and determines whether
the fetus has Down syndrome
(Trisomy 21), Edward’s
syndrome (Trisomy 18), Patau’s
syndrome (Trisomy 13), other
chromosomal disorders and
genetic abnormalities.
Metabolic Profile
Screening ................
It is a qualitative and
quantitative analysis instrument
for substances by detecting the
mass and charge ratio (m/z) of
substances. The feature of
detecting multiple diseases at
the same time through the same
specimen greatly improves the
efficiency of large-scale
screening for multiple newborn
diseases.
Metabolic profile screening
through liquid-phase tandem
mass spectrometry has high
sensitivity for diseases that are
difficult to detect by commonly
used screening methods, and
improves the scope and
accuracy of screening of
newborn diseases, including
amino acid metabolism disorders
(such as phenylketonuria, maple
syrup urine disease,
homocystinuria), fatty acid
oxidation defects (such as
medium-chain acyl-coenzyme A
dehydrogenase deficiency,
carnitine uptake defect), organic
acid metabolic disorders (such
as glutaric acidemia,
methylmalonic acidemia).
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Test Method Description Primary Clinical Uses in Diagnostics
Immunophenotyping
Analysis .................
Use fluorescein-labeled
monoclonal antibodies to detect
the presence of cell membrane
and cytoplasmic antigens of
leukemia or lymphoma cells
from blood, lymph nodes or
bone marrow samples, and to
characterize and differentiate
various types of the leukemia or
lymphoma cells. Through flow
cytometry, the distribution and
quantity of each antibody-
labeled cell in the abnormal cell
population can also be
determined.
It is used to assist the diagnosis
and classification of leukemias
and lymphomas including acute
myeloid leukemia (AML), acute
lymphoblastic leukemia (ALL),
chronic lymphocytic leukemia
(CLL), B-cell and T-cell non-
Hodgkin lymphomas, multiple
myeloma (MM) and
characterizes the presence of
certain cell markers such as
CD34, CD19, CD20, CD22,
CD16, etc. which can determine
susceptibility to certain targeted
therapies such as Car-T,
bispecific T-cell engagers, and
monoclonal antibody treatments.
Immunofluorescence tissue
assays ...................
The fluorescein linked
antibodies are used to react with
the antigen in tissue specimens,
and viewed under a fluorescent
microscope to observe the
fluorescence emitted by the
antigen-antibody complex,
thereby identifying and
positioning of the targeted
antigen in a specimen.
It is often used for
immunopathological
examination of renal, vascular,
skin and connective tissue
biopsies to determine the
histopathological diagnosis of
various diseases such as renal
nephritis, autoimmune diseases,
vasculitis, and connective tissue
disorders.
Metagenomic NGS... ...... Metagenomic NGS refers to
next generation high-throughput
sequencing of all biological
genomes in a specimen,
including bacteria, fungi,
parasites, and viruses. In the
field of infectious disease
diagnosis, a variety of
pathogenic microorganisms can
be detected without prior
knowledge of a specific
pathogen, and it is gradually
being applied to clinical
infectious disease pathogen
detection.
Metagenomic sequencing can be
performed on blood, stool,
cerebrospinal fluid (CSF), urine,
nasopharyngeal swabs, etc., and
can be used in a targeted or
untargeted approach for the
detection of difficult to diagnose
infections such as meningitis,
encephalitis, detection of novel
pathogens or identifying
infections in
immunocompromised patients.
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Test Method Description Primary Clinical Uses in Diagnostics
Tumor molecular profiling . Molecular profiling of cancers
is performed through high-
throughput sequencing of genes
from tumor samples or from
circulating tumor DNA, where
certain genetic markers are
detected to help stratify a
tumor’s susceptibility to targeted
therapies in order to prolong the
survival time of patients,
improve the quality of life, or
bring the cancer to remission.
Molecular profiling enables the
identification of susceptible
tumor mutations that can be
treated with specific targeted
therapies or chemotherapy. Such
molecular mutations such as
HER2, ALK fusions, EGFR,
BRCA1/BRCA2, BTK, Bcl-2,
etc. are some of the mutations
with approved targeted therapies
in China.
Our medical diagnostic testing services are divided into five specialty groups: clinical
immunologic testing, clinical chemistry testing, clinical molecular biology testing, pathology
testing and other comprehensive testing. The following table sets forth details relating to frequently
requested tests by specialty group during the Track Record Period.
Specialty Group Description Techniques Test Sub-items
Primary Clinical
Uses in Diagnostics
Clinical
Immunologic
Testing .........
Clinical immunologic tests
employ an antigen to detect
presence of antibodies to a
pathogen, or an antibody to
detect the presence of an
antigen
Chemiluminescence
technique,
immunofluorescence
technique, Enzyme-Linked
Immunosorbent Assay
(ELISA), etc.
Tumor marker tests (alpha-
fetoprotein (AFP), for
example); Hepatitis B
Virus tests (consists of
hepatitis B surface antigen
(HBsAg) test, anti-HBs
test, hepatiti s B e antigen
(HBeAg) test, anti-HBe
test and anti-HBc test);
Thyroid function test
(testing the level of
thyroid-stimulating
hormone (TSH), for
example); Antinuclear
antibody (ANA) test, etc.
Auxiliary diagnosis,
differential diagnosis,
treatment monitoring,
effect evaluation,
prognostic judgment
and recurrence
monitoring of tumors,
evaluation of thyroid
function, as well as
auxiliary diagnosis,
disease activity
assessment and
medication instruction
of infectious diseases
and autoimmune
disorders such as
rheumatism and
systemic lupus
erythematosus (SLE)
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Specialty Group Description Techniques Test Sub-items
Primary Clinical
Uses in Diagnostics
Clinical Chemistry
Testing .........
Clinical Chemistry tests, by
measuring the components of
body fluids, mostly on serum
or plasma, reveal the changes
of diseases and the effects of
drug treatments on body’s
biochemical processes, so as to
provide useful information for
disease diagnosis, disease
monitoring, prognostic
judgment and disease
prevention
Biochemical technique,
immunoturbidimetric
technique, high pressure
liquid analysis method,
etc.
Testing of sugar and its
metabolites (such as
glucose); protein detection
(albumin and total protein,
for example); enzyme
assay such as Alanine
aminotransferase (ALT) for
the purpose of discovering
hepatobiliary diseases;
measuring of urea and
creatinine for the purpose
of discovering kidney
diseases, etc.
Diagnosis and
treatment of various
diseases including
diabetes, hepatobiliary
diseases, kidney
diseases,
cardiovascular
diseases, and
electrolyte metabolism
disorder
Clinical Molecular
Biological Testing . .
As a mainstay in the repertoire
of infectious disease
diagnostics, molecular
biological tests primarily relies
upon the methods of
polymerase chain reaction
(PCR) and
immunochromatography, with
the advantage of
simultaneously analyzing
resistance determinants and
virulence factors
PCR technique, multiplex
fluorescence PCR method,
constant temperature PCR
method, hybridization
method, high-throughput
sequencing (NGS), etc.
Hepatitis B virus
deoxyribonucleic acid,
human papillomavirus
genotyping, CYP2C19
gene polymorphism
detection; tumor free DNA
EGFR gene mutation
detection; nucleic acid
detection of
Mycobacterium
tuberculosis, nucleic acid
detection of Chlamydia
trachomatis; thalassemia
gene mutation detection;
detection of genes related
to individualized
medication for lung cancer,
NIPT, etc.
Detection of infectious
diseases related genes
(such as hepatitis B
virus, hepatitis C virus,
human papillomavirus,
tuberculosis, venereal
disease), blood cell-
free DNA tumor-
related gene detection,
genetic related gene
detection, drug
metabolism related
gene detection,
maternal Non-invasive
prenatal testing of free
fetal DNA in blood
Pathology Testing . . Pathology tests involve
examining and testing body
tissues (from biopsies and pap
smears, for example) and
bodily fluids (from samples
including blood and urine)
under a microscope to
determine whether they are
cancerous by identifying
structural abnormalities
Histopathological slide
preparation,
cytopathological slide
preparation,
immunohistochemistry
technique, fluorescence in
situ hybridization
technique (FISH), etc.
Histopathological
diagnosis; ThinPrep
Cytologic Test (TCT);
Bone marrow biopsy;
Immunohistochemical
examination, etc.
Diagnosis and
differential diagnosis
of tumor and non-
tumor tissues;
molecular diagnosis,
individualized
treatment and
prognostic judgment of
hematological tumor
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Specialty Group Description Techniques Test Sub-items
Primary Clinical
Uses in Diagnostics
Other Comprehensive
Inspections .......
Other tests that cannot be
classified into the above four
types of testing, in which the
technology applied is
relatively extensive
Complete blood count
technique, atomic
absorption spectrometry
(AAS), liquid
chromatography-mass
spectrometry technique,
cell culture technique,
flow cytometry, microbial
culture, microbial mass
spectrometry technology,
biochemical identification
technique, instrument MIC
method, paper diffusion
method, etc.
Complete blood count
(CBC); urine routine test;
Trace element tests;
chromosome karyotype
analysis; culture and
identification of bacteria;
culture and identification
of fungi; culture and
identification of
Anaerobic; antibiotic
susceptibility analysis, etc.
Diagnosis and
treatment basis for
body infection, anemia,
blood diseases, urinary
system diseases,
infertility, repeated
abortion; monitoring of
trace element balance;
evaluation of
nutritional status;
etiological diagnosis of
infectious diseases,
rational use of
antibacterial drugs and
epidemiological
investigation
The following table sets forth a revenue breakdown of our medical diagnostic testing services
by specialty groups for the periods indicated.
For the Y ear Ended December 31,
2020 2021 2022
RMB % RMB % RMB %
(RMB in thousands, except for percentages)
Specialty Group
Clinical Immunologic
Testing ............. 698,817 27.8 770,724 24.5 808,785 18.4
Clinical Chemistry
Testing ............. 160,424 6.4 193,490 6.2 218,499 5.0
Clinical Molecular
Biology Testing ...... 1,198,891 47.7 1,629,928 51.8 2,707,682 61.5
Pathology Testing .... 256,783 10.2 296,910 9.4 305,919 6.9
Other Comprehensive
Inspections .......... 198,269 7.9 253,780 8.1 359,863 8.2
Total(1) ............... 2,513,184 100.0 3,144,832 100.0 4,400,748 100.0
Note:
(1) COVID-19 testing services contributed RMB924.5 million, RMB1,232.4 million and RMB2,284.6 million of our total
revenues in 2020, 2021 and 2022, respectively.
OUR ICL CUSTOMERS
As a nationwide ICL service provider with a comprehensive test catalog and competitive
pricing, we are able to offer differentiated value propositions to a broad array of customers we
serve.
We believe that we are an industry leader in servicing medical institutions. As of December
31, 2022, our testing services covered over 16,000 medical institutions across China, including over
6,000 public medical institutions, and over 10,000 private medical institutions, including hospitals,
clinics and health check centers.
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Hospitals
Generally, hospitals maintain an on-site laboratory to perform clinical testing for their
patients. However, in light of continued pressure to reduce healthcare costs, hospitals are more
inclined to outsource tests to ICL service providers like us to improve profitability and better utilize
their internal laboratory capacity. According to Frost & Sullivan, the cost of using ICL services is
typically 10% to 15% lower than in-house testing costs due to underutilization of reagents,
laboratory technicians and instruments within hospitals. Moreover, continuing medical advances in
recent years have allowed for earlier diagnosis and treatment of diseases, which heavily rely on new
sophisticated and specialized diagnostic tests. These tests generally require large up-front
investments for testing technologies and trained laboratory technicians. As a large-scale ICL chain
operator with quality testing capabilities, we are increasingly recognized by hospitals as a go-to
choice for esoteric tests.
We have extensive coverage of public hospitals, community health centers and private
hospitals and clinics. We provide both routine and esoteric testing services to help them ease the
cost pressures from their in-house testing operation and increasing needs for esoteric testing where
they have limited in-house testing capabilities. Public hospitals in China are organized according
to a three-tier system that recognizes a hospital’s ability to provide medical care and medical
education, and conduct medical research. Based on this, hospitals in China are generally designated
as primary, secondary and tertiary institutions, or Class I, Class II and Class III. Community health
centers are typically unrated or rated as Class I under the three-tier system.
A Class I hospital is typically a township medical institution that contains less than 100 beds.
They primarily focus on providing preventive care, basic health care and rehabilitation services. As
mandated by NHC Medical Institute Basic Standards, Class I hospitals are required only to have a
basic laboratory with minimal staffing. Class II hospitals, on the other hand, tend to be affiliated
with a medium-sized city, county or district and contain between 100 and 500 beds. They typically
can provide comprehensive health services, as well as medical education and conducting research
on a regional basis. Class II hospitals are typically equipped with clinical testing and pathology
departments. Limited by sample volume and the shortage of qualified laboratory technicians, Class
I and Class II hospitals and community health centers are more inclined to outsourcing their tests
to high-value and cost competitive service providers, like us, who will be able to effectively expand
their test menu without further capacity or investments. We leverage our economies of scale as a
nationwide player and our continuous efforts in cost control to offer more competitive pricing to
secure customers. During the Track Record Period, we primarily provided routine testing services
to Class I and Class II hospitals and community health centers.
Class III hospitals are typically comprehensive or general hospitals at the city, provincial or
national level with over 500 beds. They are responsible for providing specialist health services,
perform a bigger role with regard to medical education and scientific research and serve as medical
hubs providing care to multiple regions. As mandated by NHC Medical Institute Basic Standards,
Class III hospitals are required to have clinical testing departments and pathology departments, and
therefore are able to ensure their internal capacity in terms of routine tests, and only occasionally
outsource routine tests when their capacity is exceeded. However, we support Class III hospitals in
gaining access to esoteric tests which may require significant upfront investment, even at smaller
testing volumes.
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During the Track Record Period, we secured our hospital customers mainly through
one-on-one commercial negotiation by our dedicated in-house sales and marketing personnel, and
to a lessor extent, through participation in tendering process organized by certain public hospitals,
pursuant to regulatory requirements or their respective internal policies. In 2020, 2021 and 2022,
1.2%, 1.8% and 1.4% of our customers were secured through tendering process, respectively.
Specifications contained in each tender document for different hospitals may vary, but hospitals
typically require testing service providers to be equipped with certain high-end testing technologies,
such as polymerase chain reaction, or PCR, gene sequencing, metagenomics, mass spectrometry and
pathological diagnosis. Hospitals may also require testing service providers to be equipped with
certain accredited and established quality control systems. We normally enter into service
agreements with hospitals and the following summarizes the salient terms of such agreements:
Duration . Our service agreements with hospitals typically range from one to two years,
subject to renewal.
Customers’ Obligations . Our customers shall ensure the samples they provide are compliant
with our relevant prerequisites for testing, and shall designate personnel to assist with the delivery
and acceptance of the samples. Our customers will be solely responsible for any consequence
resulting from their failure to comply with our sample requirement.
Our Obligations . We shall provide specific testing services to our customers in accordance
with the pre-determined testing methods, and issue a testing report within prescribed period of time.
We warrant to keep the information related to the samples and testing results confidential, unless
otherwise required by applicable laws and regulations.
Fee arrangement . The service agreements typically set forth a list of tests that a hospital
outsources to us with a pre-determined fee schedule. In the event of a price change as a result of
regulatory or policy changes during the term of the agreement, we may negotiate price adjustments
with our customers accordingly.
Payment . Payment shall be settled on a monthly basis.
In addition to our testing services, we also provide technical services to Class I and Class II
hospitals to optimize the operations of their clinical laboratory departments. Class I and Class II
hospitals face a variety of challenges to effectively utilize their in-house laboratory capacity,
including laboratory operation, supply chain and inventory management, data processing and
analytics as well as human resources management. Leveraging our market leadership, especially our
experience in operational efficiency, we were chosen by a number of Class I and Class II hospitals
to provide technical services to them. As of December 31, 2022, we provided technical services to
41 hospitals and seven other medical institutions, primarily located in Shanghai, Zhejiang, Jiangsu,
Anhui and Shaanxi provinces. We enter into technical service agreements with these hospitals, with
terms typically ranging from five to eight years. The services that we provide include holding
regular trainings for the physicians and technicians to keep them abreast of the latest industry
advances and market practice, and assisting these hospitals on building quality control and
operations systems to reach ISO15189 standards. We also bring in our experiences in building up
the laboratory information technology infrastructure to ensure optimal laboratory performance.
Furthermore, we also assist these hospital customers with overall supply chain management,
including procurement of reagents, consumable materials and equipment for performing clinical
testing in their laboratories.
Health Check Center
In recent years, the value of disease detection and prevention, wellness and personalized
healthcare has been increasingly recognized by consumers in China. Individuals, employers and
government agencies have been growingly focused on helping the healthy stay healthy, detecting
symptoms among those at risk and providing preventive insight and care that helps avoid diseases.
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According to Frost & Sullivan, health check industry in China has grown with a CAGR of 4.3%
from RMB118.3 billion in 2017 to RMB140.0 billion in 2021, and is expected to reach RMB178.4
billion by 2026. The number of people who seek medical check-ups in China reached 447.4 million
in 2021, and is expected to grow with a CAGR of 4.4% to 521.1 million by 2026. Driven by
increasing demand from customers, there has been a growing outsourcing rate of tests from health
check centers as they are incentivized to seek cost competitive tests performed with premium
quality.
We serve both health check departments affiliated with hospitals and independent chain health
check providers to fulfill their increasing health check testing demand with high quality and
cost-competitive testing services. Our nationwide laboratory coverage enables us to cooperate with
large independent chain health check providers that have an extensive consumer outreach, where we
could intake testing samples from a wide range of locations. Moreover, for health check centers, it
is of vital importance that their cooperative partners are able to perform a large volume of routine
tests in a cost-effective and efficient manner. Our outstanding cost control efforts and advanced
logistics capabilities position us to effectively serve health check centers and capture the growing
opportunities. In addition to health check departments affiliated with hospitals, we served a total of
over 930 health check centers in China as of December 31, 2022.
Tests outsourced by health check centers are typically routine tests. We normally enter into a
framework agreement with independent chain health check providers at their group level which sets
forth general guidelines and pricing for our cooperation. On top of that, our laboratories then
separately enter into cooperation agreements with individual health check centers based on their
geographic locations. Such individual agreements entered into by each laboratory set out key
provisions and details of our cooperation, for example, pricing, test menu, sample transportation
and delivery arrangement, and settlement mechanism. The following summarizes the salient terms
of such agreements:
Duration . The agreements with health check centers typically have an initial term ranging
from one to three years subject to automatic renewal.
Customers’ Obligations . Health check centers shall use their best efforts to prioritize us when
outsourcing their testing services.
Fee Arrangement . Both parties agree to revisit and reevaluate the pricing of services for the
previous year in the first quarter of each year and negotiate new prices for testing services, if
necessary.
Payment . Payment shall be settled on a monthly basis.
An example of noteworthy collaboration with independent chain health check providers is our
relationship with Meinian, a leading health examination and health consulting service provider in
China that we started cooperating with in April 2019. We provide testing services on samples
provided by Meinian’s health check centers across the country.
The following summarizes the salient terms of the currently effective collaboration and
strategic partnership framework agreement we entered into with Meinian:
Duration
 The term of the agreement is three years.
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Scope of Cooperation
 Meinian shall use its best efforts to prioritize us when outsourcing their testing services,
including testing items that are currently handled by Meinian itself with an intention to
be outsourced to us going forward (“Meinian self-tested items”), and those already
outsourced to third-party ICLs. If it is our reason that we are not able to take certain
orders from Meinian, Meinian may seek other ICL service providers.
 For certain Meinian self-tested items, we shall consult with Meinian as to whether we
may need to engage their corresponding technicians and equipment for such testing
items. If such engagement is deemed necessary, we shall enter into separate agreement
with Meinian’s technicians and equipment suppliers, where applicable, to ensure the
smooth handover of the relevant testing items.
Our Obligations
 We shall timely deliver our testing services and reports in compliance with applicable
regulatory requirements and industry specifications.
 We shall provide trainings and guidance to Meinian to help them (i) better understand
the testing report issued by us, and (ii) perform their duties under the collaboration,
which mainly include proper sample treatment, storage and handover.
 In the event of a dispute between Meinian and its customer with regard to testing results,
we shall provide relevant backups for such results upon Meinian’s notification.
 We warrant to keep the information related to the samples and testing results
confidential, unless otherwise required by applicable laws and regulations.
Meinian’s Obligations
 Meinian shall collect, treat and store the samples properly pursuant to the guidelines we
provide. We may refuse and return the order if the samples fail to meet our requirements.
 Meinian shall store all samples in its health check centers and arrange relevant personnel
to take care of the sample handover.
 Meinian shall make sure any question on the testing results shall be raised within
relevant sample retention period.
Pricing Arrangement
 Both parties agree to set the price through amicable consultation with reference to the
fair market price.
 For certain Meinian self-tested items, we may also refer to a cost-plus pricing
mechanism upon consultation with Meinian under limited circumstances, where our
reagent costs experienced unexpected increase.
 Both parties agree to revisit and reevaluate the pricing of services regularly and
negotiate new prices for testing services, if necessary.
Payment
 Payment shall be settled on a monthly basis.
Besides such collaboration with Meinian, we have no other relationships in terms of business,
financing, family, or management, with Meinian, its subsidiaries, shareholders, directors, senior
management or close associates of such parties as of the Latest Practicable Date.
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The following table sets forth a revenue breakdown of Meinian associated customers for the
periods indicated.
For the Y ear Ended December 31,
2020 2021 2022
(RMB in thousands)
Meinian controlled entities ............................ 97,251.0 104,469.3 181,788.6
Meinian non-controlled associated entities (1) ............ 154,837.4 185,414.3 109,833.2
Total ............................................... 252,088.4 289,883.6 291,621.8
Note:
(1) Including entities associated with Meinian’s brands through a franchise model, as well as entities operated by the
related parties of Meinian but not the subsidiaries or franchisees of Meinian.
Biopharmaceutical Companies and Contract Research Organizations
The past few years have seen the rise of research on innovative drugs in China, creating an
increasing demand for clinical trials and studies and leading to the development of the contract
research organizations, or CROs. Due to a high proportion of unfulfilled testing and research
demand and in an effort to improve the outcome of clinical trials and studies, biopharmaceutical
companies and CROs have been increasingly looking to collaborate with ICLs that have both
proprietary disease insights and comprehensive and high quality testing services.
As a leading ICL player in China, we are a forerunner in serving biopharmaceutical companies
and CROs. Our strong testing expertise and effective quality control adherence to global standards
allow us to offer an array of services to support our customers in streamlining drug development
process and to help accelerate clinical trials and speed of drugs to market. These services include
sample testing, sample storage, and logistics for test sample and test kits and data management of
the clinical trial test results. During the Track Record Period and to the Latest Practicable Date, we
collaborated with approximately 300 leading international and domestic biopharmaceutical
companies and CROs, primarily through our Shanghai laboratory, which is accredited by both
ISO15189 and CAP. Through cooperation with internationally reputable CROs, we participated in
various multi-center clinical trials in China of innovative drugs. We believe that we have been able
to meet the demands of biopharmaceutical companies and CROs for testing by offering uniform
testing methodology and having the ability to provide complex protocol-specific tests such as
pharmacokinetic parameters, metabolite concentration, genetic mutation and biomarker tests that
meet the stringent requirements of research and clinical trials.
In order to form collaborations with biopharmaceutical companies and CROs, we must go
through their rigorous quality assurance audits and technical validations to demonstrate that the
design, specification, and performance of our tests as well as our testing workflow meet their
quality and technical requirements. We normally enter into laboratory service agreements with
biopharmaceutical companies and CROs, and the following summarizes salient terms of such
agreements:
Duration . The agreements normally end upon customers’ receipt of our testing results.
Our Obligations . We are normally required to perform tests by strictly following
specifications and requirements set out by our customers. We are obligated to retain all raw data and
documents required by applicable industry guidelines and local laws for a certain period of time
after the completion of laboratory services to our customers.
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Customers’ Rights . Under these agreements, biopharmaceutical companies and CROs are
entitled to perform audits at our laboratories at any time during the normal business hours to verify
our compliance with the principals set by them. Biopharmaceutical companies and CROs own the
exclusive rights to all testing results we perform.
Fee Arrangement . The price is determined upon the nature, duration and sophistication of our
testing services.
Payment . For certain types of long-term cooperation, we typically require biopharmaceutical
companies and CROs to pay partial service fees as prepayment upon the signing of the agreement,
and with the rest of the fee paid upon delivery of our testing results.
Employers and Consumers
The outbreak of COVID-19 created tremendous market opportunities for large-scale ICL
service providers like us. During the pandemic, ICLs played a crucial role in meeting growing test
demand, and broadening access to laboratory insights to help people lead healthier and safer lives.
Our industry-leading testing capabilities enabled us to quickly respond to the pandemic by
developing COVID-19 testing capacities and offering testing services to a broad array of customers.
During the pandemic, we further expanded our offerings directly to employers to assist their
pandemic response to create safer workplaces, and to consumers who voluntarily take COVID-19
tests for ease of travel within the country. We soon established our brand awareness among
individual customers in selecting COVID-19 test service providers.
Capitalizing on such opportunity, in 2020, we significantly upgraded our touch points on
major internet platforms to enable consumers to order our services online. We also built our mini
program on WeChat to enhance consumer experience in making online reservation for diagnostic
tests. We plan to continue expanding our consumer directed menu to offer more comprehensive test
options, such as colorectal cancer screening tests to the extent permitted by applicable laws.
The following table sets forth the number of customers we served for the periods indicated:
For the Y ear Ended December 31,
2020 2021 2022
Public medical institutions ........................... 6,156 6,335 6,035
Public hospitals ...................................... 4,752 4,765 4,825
Other public medical institutions ....................... 1,404 1,570 1,210
Private medical institutions .......................... 8,970 10,242 10,724
Private hospitals and clinics ........................... 8,201 9,347 9,793
Health check centers ................................. 7 6 9 8 9 5 9 3 1
Others (1) ........................................... 4,678 3,653 2,604
Total ............................................... 19,804 20,230 19,363
Note:
(1) Others include pharmaceutical companies and CROs, as well as employers and individuals. All individual customers
in each period are counted as one unit.
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The following table sets forth a revenue breakdown by customer types during the Track
Record Period:
For the Y ear Ended December 31,
2020 2021 2022
RMB % RMB % RMB %
(RMB in thousands, except for percentages)
Public medical
institutions ......... 1,230,274 44.9 1,401,207 41.4 1,721,959 35.5
Public hospitals ........ 1,109,257 40.5 1,251,383 37.0 1,612,262 33.2
Other public medical
institutions .......... 121,017 4.4 149,824 4.4 109,697 2.3
Private medical
institutions ......... 899,424 32.8 1,199,207 35.5 1,404,223 28.8
Private hospitals and
clinics .............. 602,687 22.0 819,145 24.3 1,003,252 20.6
Health check centers . . . 296,737 10.8 380,062 11.2 400,971 8.2
Others
(1) ............. 612,033 22.3 779,101 23.1 1,734,431 35.7
Total ................. 2,741,731 100.0 3,379,515 100.0 4,860,613 100.0
Note:
(1) Others include pharmaceutical companies and CROs, as well as employers and individuals.
Revenues across all customer segments experienced steady growth during the Track Record
Period. In 2020, the revenue growth was largely driven by public hospitals and other customers as
a result of increasing demand in COVID-19 testing. In 2021, private hospitals and health check
centers drove higher revenue growth as 2021 saw return of patient volume and demand, when
COVID-19 impacts had gradually become more manageable. Public hospitals tend to be larger in
scale and serve a larger patient base on average in China than other public medical institutions and
private hospitals. As a result, we experienced a larger than average revenue per customer from this
customer segment. In terms of private medical institutions, private hospitals generally have lower
patient flow with smaller outsourcing scale. However, our average revenues per health check center
customer was the highest category with the revenues per customer due to the relatively larger
diagnostic testing share we are able to secure from these customers over public and private
hospitals. As compared to 2021, revenue growth in 2022 was primarily driven by (i) continued
growth contributed by public and private medical institutions, and (ii) revenues contributed by other
customers in connection with COVID-19 mass testing.
SALES AND MARKETING
Sales and marketing is an important function for our business growth and expansion. Effective
and efficient sales and marketing efforts enable us to establish our brand recognition and awareness
for attracting new customers and retaining existing ones. As of December 31, 2022, we had a
dedicated sales and marketing team of over 1,500 employees nationwide. We also deployed a
special esoteric sales and marketing team that have more specialized knowledge base and expertise
for esoteric testing services to target various clinical departments at medical institutions. In
addition, we also designated two special teams of sales and marketing personnel for health check
centers and biopharmaceutical companies and CROs.
We provide regular training to our sales and marketing personnel to enhance their knowledge
about our services, professional skills and keep them abreast with the latest technique and
technology development in the ICL industry. We also sponsor external training courses and
programs for our sales and marketing personnel from time to time. We believe that an in-house sales
and marketing team with high level of industry knowledge and expertise is important to implement
our marketing approach and to enhance our reputation and brand image.
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We have adopted a “headquarters − laboratory” two-level sales and marketing management
scheme. Our headquarters is responsible for laying out strategies, goals and overall planning for
business expansion, whereas the sales department in each laboratory carries out detailed tasks as
required to achieve such goals. To effectively promote our brand awareness, during the Track
Record Period, our sales and marketing efforts primarily focused on the following aspects:
 Academic Marketing . We place strong emphasis on the academic marketing and
promotion of our services. We organize, co-host and participate in a wide variety of
academic conferences, seminars and symposia, ranging from large-scale national and
regional conferences to smaller local events tailored for specific hospital departments.
 Key Opinion Leader Engagement . We have established long-term relationships with a
number of renowned physicians and other healthcare professionals in our target
therapeutic areas. We consider these physicians and other healthcare professionals as
KOLs based on their professional qualifications, previous publications as well as
academic standing and recognition within their respective specialties. We invite KOLs
to attend national and regional conferences, share the latest industry developments, and
when time allows, we also invite them to our laboratories to share their experiences with
our technicians. We believe our engagement with KOLs helps us enhance our brand
awareness within the industry and build up our reputation.
 Insight-based New Service Offerings. Sponsoring and participating in various academic
conferences allow us to gain insights into recent clinical developments and identify
service offering trends in a timely manner. Leveraging our testing capabilities, we
proactively introduce tests that cater to new changes in the industry. Once a new test is
introduced, we provide comprehensive trainings for our sales and marketing team, who
will then provide detailing services for physicians and KOLs.
The following table sets forth a summary of major academic conferences that we sponsored
or participated in during the Track Record Period.
Name of Conference Theme of Conference
The 2nd “Vision and Detection”
Infectious Diseases Case Study in 2022
(2022ੰช
ึ)......................
The conference built a platform for multidisciplinary
academic exchanges and collaborations in clinical
infectious diseases and microbiological testing.
The 2022 China Oncology Conference
(2022 ʕ਷໕ᆯኪɽึ)...............
The conference aimed to promote academic exchanges
in the field of clinical oncology in China, with special
focus on precision oncology based on
multidisciplinary standardized and comprehensive
treatment.
Launch of the 2022 National Campaign
for Public Education of Cervical
Cancer (2022઺ʮूБ
Ό਷઼ਗึ)........................
The campaign focused on the latest developments in
the treatment of cervical cancer treatment in China.
2022 Symposium on Precision and
Screening of Spinal Muscular Atrophy
(SMA)(2022Єൂᐵस(SMA)
ਖ਼ᕚึ)..................
The conference held presentations and discussions on
genetic screening and diagnostic strategy, disease
overview, therapy progress, detection method, and
strategy and application of preventive screening, etc.
with regard to SMA.
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Name of Conference Theme of Conference
2022 Consensual Clinical Interpretation
and Promotion of Experts at Humoral
Cells as Hydrothorax and Ascites
(2022ٙ
ᑗґ༆ᛘၾપᄿ)....................
The conference focused on discussions of the
consensual definitions of humoral cells and the
clinical application of flow cytometry of body fluid.
2022 Interpretation on Chinese Experts
Consensus on Prevention of Perinatal
Group B Streptococcal Disease (GBS)
(2021 V ersion) (2022 ϋཫԣఖପಂBૄ
ᗡଢഽष(ʕ਷)΍ᗆ(2021و)༆ᛘ).
The conference attended to the interpretation of
expert consensus on prevention of GBS, GBS
detection technology and progress on its application.
2021 Symposium on Acquired
Immunodeficiency Syndrome (AIDS)
Diagnosis and Treatment (2021 ϋЎಿ
ীึ)....................
The conference covered mainly the clinical
application of projects regarding viral load and drug
resistance of AIDS, etc.
The 14th Summit on Infections of
Female Reproductive Tract in China in
2021 (Baiyun Meeting) (2021 ϋୋɤ̬
ึ(ͣථึ) ) ...
The conference focused on the latest developments in
the progress of female reproductive tract infections
and the correct diagnosis and treatment of
reproductive tract infections in China and other core
topics.
The 16th National Academic
Conference on Leukemia and
Lymphoma of the Chinese Medical
Association in 2021 (2021 ϋʕശᔼኪ
ึୋɤʬϣΌ਷ͣАष-૸ˋᆯኪஔึ
ᙄ)................................
The conference held academic thesis discussions on
leukemia, lymphoma, myeloma, immunotherapy of
malignant hematological diseases, hematopoietic stem
cell transplantation, MDS and MPN, etc.
The 24th National Clinical Oncology
Conference and 2021 CSCO Annual
Academic Meeting (Ό਷ᑗ
ґ໕ᆯኪɽึ࿬2021 ϋCSCO ኪஔϋ
ึ)................................
The conference held lectures on the cellular pyrotopia
and tumor immunity, cellular medicine development
strategy, and new practice of precision oncology,
delivered by domestic experts and scholars.
The 2021 National Tuberculosis
Academic Conference of the Chinese
Medical Association ( ʕശᔼኪึ2021
षኪஔɽึ)..............
The conference held academic presentations on the
diagnosis, prevention, testing, basic research, surgery,
nursing and intervention of tuberculosis.
Forum of Young Physicians of the
Branch of Gynecological Oncology of
the Chinese Medical Association in
2021 (2021໕ᆯኪʱ
ሞእ)....................
The conference organized lectures, debates and youth
salons focusing on the history and developments of
cervical screening strategies and clinical applications.
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OUR LOGISTICS CAPABILITIES
To support our broad geographic operation, we have developed a comprehensive and nimble
supply chain that effectively moves samples from the point of collection to the testing laboratory.
We believe every sample represents a life. Extending across the entire life cycle of a patient sample,
from receiving the sample to the delivery of the test result, our supply chain leverages optimized
logistics, sample intake, tracking and processing procedures that minimize errors and expedite the
performance of testing and delivery of results.
As of December 31, 2022, we had a dedicated in-house logistics team of over 1,300 personnel
providing sample logistics services, covering more than 19,000 customers across 30 provinces and
municipalities and over 1,600 cities and counties in China. Leveraging our extensive and
standardized logistics network, we were able to achieve daily same-day delivery of up to 540,000
samples during the Track Record Period and up to the Latest Practicable Date.
To ensure timely transportation of samples and quick turnaround for testing results, we use
automobiles for in-city or cross-city deliveries, railway transport for in-province or close-distance
cross-province delivery and air transport for long distance cross-province delivery. As of the Latest
Practicable Date, our sample collection and transportation were primarily completed within
province and delivered by our fleet of vehicles. As of December 31, 2022, we had a fleet of 767
vehicles to support our transportation needs, including 89 self-owned vehicles and 678 leased
vehicles. We have established a strict automobile intake process to ensure service quality and
transportation safety and efficiency. For leased vehicles, we normally enter into leasing agreements
with reputable leasing companies with a term of one year, which specify the models of vehicles to
be leased. We also have vehicle leasing arrangements with our employees pursuant to which we
reimburse our employees for their logistics services. We require every vehicle we lease be covered
with motor vehicle liability insurance of not less than RMB500,000.
In case there is no coverage of nearby local laboratories for the relevant testing items, for
cross-city or cross-province transportation, we primarily engage reliable logistics partners to
transport samples for us after our logistics team has collected the samples. In addition, we require
the logistics companies to transport our samples on time, following the delivery counts confirmed
by us in advance and they shall bear risks of loss in transit. The payments are generally settled on
a monthly basis.
Each of our laboratories is equipped with a local logistics team, the size of which is dependent
upon the number of customers that laboratory covers. Our in-house logistics teams pick up and
collect samples at customer locations in the late morning and early afternoon every day and deliver
the samples to one of our nearby laboratories for testing. If the nearby laboratories are not capable
of performing certain large scale or esoteric tests, the relevant samples will then be delivered to the
nearest capable laboratory via high-speed railway or plane. Upon receipt of samples, our laboratory
technicians perform the requested testing, with results typically available before 8:00 am the next
day and in most cases, electronically delivered to the physician via electronic medical record
interfaces on our website or through the in-house system of the medical institutions.
Before a sample is picked up by our logistics team, physicians at our partnering medical
institutions perform sample preparation to produce laboratory-ready samples that can be tested upon
receipt by the testing laboratory, expediting the delivery of test results. Each sample and the
associated test order is checked for completeness and given a unique identification number, which
associates the results to the appropriate patient and the details of testing orders, including patient
demographics, specific testing requested, a sample inventory, and billing information.
During transportation, all of the samples are kept in our proprietary incubators, which are
designed to provide temperature uniformity and contamination prevention. Our proprietary
incubators are available in three sizes for human carriage, small vehicles and large vehicles. Each
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incubator is equipped with thermal control equipment and GPS tracking devices. Incubators are
tracked by our team throughout the entire logistics process. As such, we are able to easily locate
our samples and constantly control and monitor the temperature of each sample in transit.
A Type of Our V ehicle Our Proprietary Incubators
QUALITY ASSURANCE
Our goal is to provide every customer with services of superior quality. All facets of our
services are subject to stringent quality control standards and measures, including laboratory
operations, accuracy and reproducibility of tests, as well as customer service and satisfaction. We
had established a “headquarters − laboratory” two-level quality assurance system, with a quality
assurance team consisting a total of approximately 40 employees. We also assign one to two staffs
responsible for documentation management and quality control to each laboratory department. Our
quality assurance team is led by Ms. LI Dan, who has over 20 years of experience in laboratory
operations and diagnostic testing.
The main responsibilities of the quality assurance team at our headquarters are:
 formulating a unified quality standard and specification policies and manual for each
laboratory to follow;
 monitoring each laboratory’s quality assurance efforts through unscheduled inspections
and regular internal audits;
 establishing quality assurance evaluating indicators for each laboratory to ensure
continuous improvement of quality control;
 conducting unified management of LIS and monitoring the operation of each laboratory
in real-time by keeping track of key operating data in the LIS, including among others,
the usage of reagent and consumables, replacement of equipment and instrument,
changes in material inventories; and
 closely supervising the qualifications of each laboratory, including timely application for
certifications and accreditations.
The main responsibilities of the quality assurance team in the laboratories are:
 implementing the unified quality management specifications stipulated by our
headquarters, and reporting to the quality assurance team in the headquarters on a
monthly basis in respect to its work progress;
 formulating specified and detailed work guidance and daily operating standards to
ensure that our employees in each laboratory comply with the quality control
requirements; and
 taking preventive and corrective measures in a timely manner to improve quality control
through regular self-inspections.
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Failure in service quality control may adversely affect our reputation and business, and may
subject us to medical liability claims. During the Track Record Period and up to the Latest
Practicable Date, medical liability claims against us did not, individually or aggregately, have a
material adverse effect on our business, results of operations or financial conditions.
Laboratory Operations
Disciplined operation of laboratories is the pillar of our overall quality control, and serves as
the foundation for delivering quality services to our customers. Our quality assurance efforts for
laboratory operations primarily focus on the management of onsite laboratory employee,
management of equipment and instruments, and management over reagents and consumables.
Employee Management
We have set up strict employee management procedures which cover personnel qualifications,
training and continuing education. All of our newly recruited employees are required to complete
a set of comprehensive trainings to ensure that they adhere to and implement our quality control
policies and procedures. For newly recruited employees who will be working in the laboratories, we
provide them with additional trainings on professional skills, primarily focusing on quality control
and management system, work process and procedures, operations of technology infrastructure,
patient information confidentiality and others. We also have designed strict assessment for such
professional skills, and only employees who can pass the assessment are eligible to work in our
laboratories. In addition, employee review and performance evaluation are carried out every year
to ensure that their capabilities can continue to meet our standards.
Equipment and Instrument Management
We employ a wide range of professional equipment and instrument to examine the patients’
samples and generate test reports. Therefore, the quality, durability and proper functioning of
testing equipment is of vital importance for the stability and accuracy of test results we deliver. We
have developed comprehensive management procedures to standardize the selection, purchase,
acceptance, use, calibration, maintenance, repair, and scrap management of testing equipment and
instrument. Each equipment, before being put into use, is required to be calibrated and verified
strictly to make sure it could meet the requirements for clinical tests, and will be issued with a status
label for internal record keeping after being accepted to use. Furthermore, we also conduct regular
maintenance and calibration for the equipment and instrument to keep close track of the use status
of the equipment. We cease the use of any malfunctioned equipment and perform root cause
identification. Once repaired, the performance of the equipment will be re-calibrated and the impact
of such malfunction on the test samples will be re-validated concurrently. If necessary, emergency
measures or corrective actions will be carried out according to our internal procedures.
Reagents and Consumables Management
We regard management over reagents and consumables an integral part of our quality control
over laboratory operations, as minor mismanagement of which would directly affect the accuracy
of testing results we deliver. Before any suppliers for reagents and consumables are selected, we
conduct on-site examination and inspection of their products. We have established stringent
procedures for the receipt, storage, acceptance and inventory management of reagents and
consumables. Once reagents and consumables are received, each laboratory is required to inspect
the products in a timely manner to identify any unqualified ones, report such issues to the
headquarters and store them separately from the qualified ones to avoid any misuse. Upon
completion of the initial inspection, we require that the reagents and consumables are stored strictly
following the manufacturers’ instructions. Moreover, considering that reagents and testing kit may
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be received in different batches, as new batches may be slightly different from those already put in
use or under storage, we require any new batches coming in go through strict inspection and
performance test to avoid any negative impacts such minor differences may have over the accuracy
of our testing results.
Testing Quality Evaluation and Assurance
In terms of testing, our quality assurance efforts focus on pre-analytic, analytic and
post-analytic processes, including verification of sample status, appropriate sample transport,
analysis and report accuracy, external quality assessment, reference range relevance, process audits,
statistical process control and personnel training for all of our laboratories and patient service
centers. We observe test results to identify trends, biases or imprecision in our analytical processes.
We also closely monitor the qualification, training and competence of our professional and technical
staff.
Pre-analytic Phase
The pre-analytic phase starts with a test order and ends with preparation of samples ready for
testing, including test application, patient preparation, verification of sample status, sample
collection, sample pre-treatment, sample delivery and laboratory reception. The pre-analytic phase
is the most vulnerable part of the total testing process and is considered to be among the most
significant challenges to the laboratory professionals. To minimize errors and enhance the
credibility of our test results, we have adopted systematic quality control measures and maintained
standardized protocols which encompass all steps involved in the pre-analytic phase to safeguard
the quality.
Contract Signing . During the contract signing process, we carefully listen to and record the
testing method, quality standards and specifications for report generation set by our customers and
make sure we put in place sufficient resources to meet the requirements. Right after the contract is
signed, we normally distribute our sample collection manual to the customers and organize trainings
to help them get familiar with our daily practices.
Sample Collection . Improper sample collection can lead to delays in reporting, unnecessary
retesting and even decreased customer satisfaction. We set detailed and heightened criteria on all
aspects of sample collection process, including among others, patients’ preparation, sample
collection and container labeling, timing of collection and the volume of different samples. We also
provide trainings for personnel who are responsible for sample collection to reduce defects.
Sample Pre-treatment . We require our customers to strictly follow instructions and
requirements set forth in our sample collection manual for centrifugation, aliquoting, pipetting,
dilution, and sorting of the samples. We also assign each sample a unique identification barcode for
our internal tracking and record.
Sample Delivery and Transportation . Timely and safe transportation of samples is a crucial
step in the pre-analytic phase. We established a nimble cold-chain logistics network to support the
sample transportation and we also adopt a series of stringent requirements for each step in the whole
process. For details, please see “– Our Logistics Capabilities”.
Sample Receipt . We have identified a series of quality indicators to help our laboratories staff
to closely monitor the qualities of samples. Once the samples are delivered to our laboratories, we
require our responsible team to conduct thorough inspection on the quality, thermal control,
completeness and accuracy of identification information, and other aspects of the samples to
identify any unqualified ones. Information of each qualified sample will then be entered into our
LIS for tracking.
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Analytic Phase
The analytic phase begins when the patient sample is prepared for testing and ends when the
test result is interpreted and verified. Analytical quality is a significant issue in the whole testing
process. To minimize any unrecognized analytical errors, we have established and maintained
testing process and procedure manuals according to internationally recognized standards. We also
verify test method performance specifications as to test accuracy, precision, sensitivity, specificity,
and linearity.
Committed to continuous improvement of quality standards, we proactively participate in
external quality assessment, or EQA, annual programs carried out by National Center for Clinical
Laboratory, provincial and municipal clinical laboratory centers as well as industry management
organizations. Participation in EQA programs helps us evaluate reliability of testing methods,
materials, and equipment, indicates areas to be improved, identifies training needs, and provides
early warning for systematic problems associated with kits or operations. During the Track Record
Period, we received over 4,100 EQA certificates and participated a total number of over 40,000
EQA programs, covering clinical chemistry, immunology, molecular biology, and pathology areas,
enjoying a passing rate of 98.5% on average. The successful performance in an EQA program
reflects the effectiveness of our laboratory’s quality management and ensure that test results are the
same across different laboratories for the same sample.
Furthermore, we implement a comprehensive internal quality control program to assess the
repeatability of each testing item. We closely monitor and analyze our daily internal quality control
result, and generate Levey-Jennings or Z-score quality control charts to identify changes in test
performance and to discover and eliminate unsatisfactory factors of our quality control program in
a timely manner. In addition to specific testing procedures, we also carry out other extensive
laboratory operational measures. For details, please see “– Quality Assurance – Laboratory
Operations.”
Post-analytic Phase
In the post-analytic phase, results are reviewed and released to physicians, upon which they
will make diagnostic and therapeutic decisions. We have established a multipronged review
mechanism to ensure the accuracy of the testing reports, including using critical data generated
from internal quality assurance programs, clinical information and previous test results. During the
Track Record Period, we maintained an acceptable error rate of less than 0.1% across all of our
testing reports.
Customer Service
The customer is at the center of everything we do. We have been dedicated to improving our
customer service quality through enhancing our logistics network to expedite sample collection
process, and ensure the timely issuance of accurate testing results.
We have formulated a detailed internal protocol in dealing with customer complaints to ensure
that rectification and corrective actions will be properly carried out. Upon receiving any customer
complaint or feedback on improvement, personnel from customer service department shall complete
“Customer Complaint Handling Form” on Corrective Action and Preventive Action Electronic
system, or E-CAPA system. Such form will then be forwarded to quality assurance department for
handling. Our quality assurance department normally conduct investigations to determine the
vesting of accountability before passing on to the responsible department. The responsible
department shall record real causes of such complaints in accordance with quality control
procedures, as well as implementing rectified or corrective actions for improvement. Subsequently,
the business department shall directly relay rectification and corrective improvements to customers.
Where timely improvements cannot be made to customer complaints, or their causes or vesting of
accountability remain uncertain, business department shall directly discuss and negotiate with
customers until a solution satisfactory to the customers is achieved.
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OPERATIONAL EFFICIENCY
We strive to enhance operational excellence and improve efficiency across every segment of
our value chain and operations, which we believe will strengthen our foundation for growth and
competitiveness. During the Track Record Period, our initiatives on operational efficiency primarily
focus on supply chain management, laboratory operation, inventory management and fixed asset
management.
Supply Chain Management
We primarily procure testing instrument, reagents, and other consumables. To ensure
uniformity in quality and to secure efficiency, we adopt a centralized procurement system. The
bidding and selection process of testing instruments and reagents suppliers are centrally managed
by our headquarters, including negotiation of prices, volumes, rebates and credit terms. Framework
supply agreements are signed between our headquarters and suppliers, whereas actual purchases are
made by each laboratory by directly placing orders with the suppliers.
Supplier Selection and Management
As of December 31, 2022, we sourced from over 1,500 suppliers, mostly reputable domestic
and international brands. Suppliers are selected based on stringent criteria. Before engaging a new
supplier, our procurement department pre-screens supplier candidates based on their reputation,
reliability, product offering, pricing, product quality and capacity. In addition, we sample their
products or conduct on-site inspections to ensure that they and their products comply with our
quality standards. We periodically review and evaluate the performance of our suppliers. If the
performance of a supplier does not meet our requirements and cannot be improved, we will
terminate our relationship with such supplier. For the five largest suppliers in each year during the
Track Record Period, please see “– Top Customers and Suppliers – Top Suppliers.” To prevent any
kickback arrangements with the suppliers, we request each of our suppliers to undertake in writing
not to violate our anti-bribery and corruption policy. Our anti-bribery and anti-corruption policy
prohibits our suppliers to offer any unauthorized payment, such as bribes, kickbacks, or benefit to
our employees in order to secure an improper benefit. They are not allowed to conceal their
relationships with our management, or deal with any relatives or related parties of our employees
with respect to our supplies. Our anti-bribery and anti-corruption policy also prohibits other
misconducts, such as fraud or other illegal activities. If any violation of the undertaking is
identified, it will be deemed as a material breach of our master supply agreement.
We typically retain multiple suppliers for each major category of procurement to reduce
reliance on any particular supplier. We have since our inception identified and established stable
business relationships with reliable suppliers. During the Track Record Period and up to the Latest
Practicable Date, we did not rely on any single supplier for any of our major laboratory instruments,
reagents, or consumables. During the Track Record Period, we did not experience any significant
fluctuation in prices set by our suppliers, material breach of contract on the part of our suppliers,
or interruption or delay in supplies, which had a material adverse effect on us.
Procurement of Testing Instruments
We implement heightened criteria for selection of our suppliers for testing equipment and
instrument and we periodically review and evaluate the performance of such suppliers. We maintain
a list of qualified suppliers, who have a proven record of reliable and stable supply, and we only
partner with such qualified suppliers. Our testing instruments are either leased or purchased from
our suppliers. Most international brands adopt the leasing model. For testing instrument we
purchased from our suppliers, we normally enter into agreements on a single order basis.
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Procurement of Reagents and Consumables
Our typical supply agreements for reagents and consumables have a term of one year subject
to review and renewal. Pursuant to the terms of the agreements, our suppliers are responsible for
arranging the delivery of products to our laboratories at their costs. We shall examine and inspect
the reagents and consumables upon receipt and are entitled to exchange or return any products that
are below quality standards. We are generally given a credit period of 60 to 120 days by our
suppliers. In addition, each supply agreement we enter into with our suppliers is annexed with an
anti-bribery undertaking letter and product quality assurance warranty we require our supplier to
provide.
Laboratory Operation
Operating our laboratories effectively and efficiently is the key of maintaining our
competitiveness in the market. We have carried out a series of industry leading initiatives in
monitoring and measuring our laboratory productivity, and improving our overall operational
efficiencies, which primarily focus on employee productivity and reagents and consumables
efficiency.
Employee Productivity . We include employee productivity as one of the metrics in evaluating
the overall laboratory productivity. We closely track the working hours of each employee and their
respective tasks, through which we are able to evaluate how productive each employee is and easily
identify the top performers. By observing the top performers, we meticulously design our training
programs to improve overall employees’ performance. In addition, our employee incentive
mechanism is tightly associated with their productivity analysis. Our headquarters perform monthly
statistical analysis on employee productivity by laboratory, and issue comprehensive reports and
action plans. Our successful implementation of employee productivity analysis has made us a
market leader in cost saving. During the Track Record Period, our employee productivity, measured
by testing volume performed per laboratory employee, grew by 12.4% from 2020 to 2021, and
further by 53.5% from 2021 to 2022.
Reagents and Consumables Efficiency . To use reagents and consumables cost effectively is of
vital importance for our overall efficiency. We have adopted lean management scheme to monitor
the usage of reagents and consumables across our laboratories. We closely track the level of wastage
for each reagent under different tests performed. For example, our system alerts us when the
wastage rate for certain reagents exceeds our standard levels. We then analyze the reasons and put
forward remedial plans to prevent reoccurrence. This is also used as one of the KPIs for evaluating
laboratory performance across our network. Through such management, we are able to minimize
reagents and consumables wastages.
Inventory Management
In order to improve overall laboratory operational efficiency, we have adopted a centralized
inventory management system, which easily tracks vital information and movement associated with
every reagent and consumable and analyzes inventory level for each of our laboratory. In addition,
we provide comprehensive trainings for our employees to make sure that our high standards and
criteria could be adhered to thoroughly and completely.
 Timely Registration of Inventory . We register and inspect each reagent or consumable upon
their arrival at our laboratories. Our inventory management system digitally captures general
information for each item from its extensive database, and then generates unique identifiers
or barcode labels for such item for our internal tracking.
 Automatic Alerts of Expiration and Low-Stock . Unlike traditional manual record and tracking,
we rely on our inventory system to track the whole life cycle of our reagents and consumables
digitally, including among others, open/expiry dates, location, ownership and per-unit
consumption. Our inventory management system captures the opening date and calculate the
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expiration date based on when the tamper-proof seal is removed. It also has built-in
notifications for expiration that timely informs us when our specific inventory is about to
expire before it actually expires, leaving us with sufficient time to properly dispose of it and
replenish it. Moreover, we are able to keep track all of our inventories at both macro and micro
levels and always have appropriate amount on hand to support our operations.
 Established Purchase Request Management . To better improve the efficiency of our inventory
management, we have set up submission and approval procedures of purchase requests. In
addition, through our inventory management system, we also institute visibility into what has
and has not been ordered, and whether or not the materials have been received, so as to reduce
laboratory wastages.
RESEARCH AND DEVELOPMENT
We believe research and development is critical to our future growth and our ability to remain
competitive in the ICL market in China. We have strong medical and scientific expertise and aspire
to be a trusted authority in clinical testing, provide insights and tools to support public and personal
health, lead and facilitate scientific discussion and inspire innovation. We are dedicated to
discovering, developing and innovating new and advanced testing methods and techniques to better
improve testing process and enhance testing efficiency, which thereby provide higher quality
services to our ever growing customer base. As of December 31, 2022, we had nine high-tech R&D
laboratories, including two industry leading central R&D laboratories in Shanghai and Hangzhou
and seven high-tech R&D laboratories located in Hefei, Jinan, Beijing, Nanchang, Fuzhou, Wuhan
and Nanjing. As of the Latest Practicable Date, all of our nine laboratories had obtained High and
New Tech Enterprise Certificates issued by relevant local authorities. As of December 31, 2022, we
had over 380 R&D personnel, including Ph.D. and master degree holders across molecular biology,
genetics and bio-engineering, toxicology, pathology, and other related areas. Our R&D activities are
centrally led by our R&D laboratories in Shanghai and Hangzhou.
As of the Latest Practicable Date, we owned 228 registered patents, 324 registered software
copyrights, and 120 pending patents applications in China. Our invention patents primarily include
LDTs covering our major business focuses, namely infectious diseases and blood diseases, as well
as fields with large and unaddressed clinical demands such as personalized medication, single-gene
genetic diseases and solid tumors. Leveraging our first-hand clinical knowledge and proprietary
technological capacities, our intellectual properties enable us to effectively address the unmet
clinical demand and solidify our leadership within the industry. We have invested RMB102.0
million, RMB125.4 million and RMB162.7 million in research and development in 2020, 2021 and
2022, respectively. As our key focus, we expect our research and development expenses to increase
in line with the growth of our business.
Our research and development efforts are primarily used to further develop and improve our
testing process, efficiency and modalities, broaden our testing portfolio as well as optimize our
testing accuracy. We categorize our main research and development efforts into the following
categories, and retain the ownership of the intellectual properties developed in the process:
Broadening Our Testing Portfolio
We develop new testing items by leveraging our research and development capabilities, which
primarily focus on the prevention, diagnosis, efficacy monitoring, and recurrence monitoring of
diseases such as infectious diseases, hematological tumors and genetic diseases.
Optimizing Existing Testing Projects
We optimize and improve the operation efficiency, testing stability and detection sensitivity
of our existing products and products acquired from the market. Specifically, we have optimized our
products on the flow cytometry, immunohistochemistry and molecular diagnostic platforms.
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In addition, we also invest in the improvement of our testing process to optimize our workflow
thereby improving our labor efficiency. For sample transportation, we use incubators with frozen
liquid-filled features and easy-to-identify embedding instruments in pathological sample
circulation.
Developing New Testing Modalities
As the clinical testing technologies are diversified and refined, we continue to upgrade the
modalities of our clinical test offerings, including NGS detection of lung cancer markers, ICP-MS
trace element detection, liquid mass spectrometry drug concentration detection and multi-functional
flow cytometry cytokine detection, to meet the evolving customer and market demands.
The following table summarizes a selection of the highlights of our research and development
efforts during the Track Record Period.
Project Description and Significance
Application of pyrosequencing
technology in HPV testing .......
Pyrosequencing technology enables fast and accurate
detection of short DNA fragments ( /H1134950bp), without
fluorescent labeling of DNA sequence. It can be automated,
and suitable for rapid testing for large sample volume.
Application of one-tube multi-
primer pyrosequencing technology
in HPV typing detection ........
To explore the clinical application value of one-tube multi-
primer pyrosequencing technology in the typing and
detection of HPV . Highly specific sequencing primers are
designed for seven different HPV subtypes, using one-tube
multi-primer sequencing method, through semi-nested PCR
Amplify and obtain HPV gene fragments and perform
pyrosequencing analysis.
Mass spectrometry detection
methods for genetic metabolic
diseases related testing ..........
We established liquid-phase tandem mass spectrometry and
gas-phase mass spectrometry detection methods for genetic
metabolic diseases. Based on the accumulated data, we
established laboratory reference value range, where the two
methods were used simultaneously to provide a basis for the
accurate detection and diagnosis of genetic metabolic
diseases.
Detection of full amino acid
profile .....................
Accurate detection of a comprehensive panel of amino acids
has always been a difficult point in detection. Through the
establishment of liquid-phase mass spectrometry detection
methods, the detection of full amino acid profiles (40 amino
acids) has been achieved, improving upon the traditional
methodology of amino acid detection. It is a comprehensive
perspective to detect and evaluate the balance of amino acid
metabolism.
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Project Description and Significance
Whole blood immunosuppressive
agents ......................
We have established a mass spectrometry method for the
clinically commonly used immunosuppressants
(cyclosporine A, sirolimus, everolimus, tacrolimus,
mycophenolic acid). Such method provides objective
indicators for the implementation of individualized dosing
regimens, reducing the impact of individual drug
differences. It can be used as an observation indicator of
drug efficacy, determining the best treatment plan, and
avoiding or reducing possible side effects for patients.
NGS Detection of
Pharmacogenomics related genes . .
We have completed pharmacogenomic testing Panel (PGx
Panel), including 124 genes, which enables us to detect
mutations such as SNV/indel/CNV and hybrid, well
distinguish pseudogene CYP2D7 from CYP2D6 homolog.
According to the genotype, the corresponding metabolic
types (slow metabolism, conventional metabolism, fast
metabolism, ultra-fast metabolism) can be determined,
which can meet the above needs of clinical drug safety
assessment as well as new drug development.
Hematology NGS testing ........ W e have developed a series of panels for hematology
testing, covering 426 genes related to hematology tumors in
the databases of NCCN, ESMO, WHO, FDA, CSCO and
other guidelines and OncoKB, CIViC, PMKB, CGI, DoCM,
COSMIC, including somatic mutations, germline mutations,
drug treatment guidance, rearrangements and fusions, and
other gene mutation detection. We have NGS test for
ALL-related genes, NGS test for B-cell lymphoma-related
genes, NGS test for T-cell lymphoma-related genes, NGS
test for diffuse large B-related genes, NGS test for multiple
myeloma-related genes, as well as myeloid large panel and
gonadal large panel to meet clinical needs in diagnostic
staging, treatment guidance, prognosis determination,
micro-residue monitoring, clonal evolution, etc. The test is
designed to meet clinical needs in diagnostic staging,
therapeutic guidance, prognosis, micro-residue monitoring
and clonal evolution.
CAR-T clinical testing solution . . . With the development of tumor immunotherapy, chimeric
antigen receptor (CAR)-T cell immunotherapy, which
combines the advantages of antibodies and immune cells,
has received great attention. We have developed clinical
testing solutions for CAR-T and other cellular therapeutics
on nucleic acid, protein and cellular testing platforms, and
have completed the following: exogenous gene copy
number detection by fluorescent quantitative PCR; CAR
gene copy number detection by digital PCR; lentivirus
replication RCL detection by fluorescent quantitative PCR;
and CD19 CAR expression detection by flow cytometry.
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Project Description and Significance
Clinical application of mass
spectrometry .................
 Serum antidepressant detection: We have completed
the mass spectrometry methods for 17 commonly used
antidepressants such as venlafaxine, mirtazapine,
paroxetine, bupropion, nortriptyline and citalopram.
 Serum schizophrenic/sedative drugs testing: We have
completed the mass spectrometry methods for 16
commonly used schizophrenic/sedative drugs such as
quetiapine, risperidone, aripiprazole, sulpiride,
olanzapine, clozapine, etc. have been completed.
 Serum antiepileptic drug testing: We have completed
the mass spectrometry methods for 13 commonly used
antiepileptic drugs such as valproic acid, phenytoin
sodium, lamotrigine, oxcarbazepine, levetiracetam,
carbamazepine, etc.
 Serum antibiotics detection: We have completed the
mass spectrometry method for 13 commonly used
antibiotics, including amikacin, imipenem,
meropenem, voriconazole, itraconazole, and
desmethyl-vancomycin.
 Serum antipyretic and analgesic detection: We have
completed the mass spectrometry analysis method for
acetaminophen, acetaminophen cysteine,
acetaminophen glucuronide, acetaminophen sulfate,
which helps to understand the effect of the antipyretic
and analgesic acetaminophen on the liver.
 Serum steroid detection program: We have completed
the mass spectrometry method of 25 hormones,
including 17 /H9251-hydroxyprogesterone,
dihydrotestosterone, dehydroepiandrosterone sulfate,
androstenedione and testosterone, which is helpful for
the diagnosis and treatment of endocrine diseases such
as primary aldosteronism and polycystic ovary
syndrome (PCOS).
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The following table summarizes a selection of the pending patents applications as of the Latest
Practicable Date:
Type Patent Patent Number Application Date
Invention ....... Primers, probes, compositions and
methods for screening and identifying
Ph-like ALL-related fusion genes
using fluorescent PCR technology
202011121074.2 October 19,
2020
Invention ....... T echnology for detecting tumor-
related multi-gene mutations by using
high-throughput sequencing
202011528444.4 December 22,
2020
Invention ....... Free DNA preservation reagent and
preparation technology
202110005990.8 January 5, 2021
Invention ....... T echnology for large volume
extraction of trace amount nucleic
acids in mixed swab samples
202110125242.3 January 29,
2021
Invention ....... As e t o f probes and library building
kit for detecting CYP3A4
polymorphisms in pharmacogenomics-
related genes using hybridization
capture method
202210030225.6 January 12,
2022
Invention ....... As e t o f probes and library building
kit for detecting CYP2D6
polymorphisms in pharmacogenomics-
related genes using hybridization
capture method
202210032720.0 January 12,
2022
In addition, we provide testing services to advanced research projects headed by reputable
medical research institutions, universities, and hospitals. During the Track Record Period, we
worked on research projects with renowned hospitals, medical research institutions and universities
related to CAR-T affinity detection, viral typing and detection, select mRNA expression, brain
tissue genotyping and genetic expression in cryopreserved stem cells.
Research and Development Publications
The following table describes a selection of some of our publications based on clinical trials
and research studies during the Track Record Period and up to the Latest Practicable Date:
Name of Publication Journal or Book Title
Collaborating
Institution Publication Time
Analysis of 46 fusion genes in
1,058 newly diagnosed acute
leukemia patients (1,058ܢ
٫46ʱ
ؓ.........................)
Chinese Journal of Clinical
Laboratory Science (Issue 6,
2022) ( ᑗґᏨ᜕ᕏႦ2022
ϋୋ6ಂ)
– 2022
The analysis of two deaf
genealogies with mitochondrial
12S rRNA A1555G and tRNAThr
mutations (2ᙳ੭ᇞ୐᜗12S
rRNA A1555G ձtRNAThrٙ
ؓ................)
Zhejiang Clinical Medical
Journal (Issue 3, 2022) ( ए
Ϫᑗґᔼኪ2022 ϋୋ3ಂ)
– 2022
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Name of Publication Journal or Book Title
Collaborating
Institution Publication Time
Research progress in the clinical
use of new immunohistochemical
antibodies in the pathological
diagnosis of soft tissue tumors
(ޥ
Ӻආ
࢝.........................)
Medical Diet and Health
(Issue 21, 2022) (ᐕ
ၾ਄ੰ2022 ϋୋ21ಂ)
– 2022
Performance comparison of
different nucleic acid extraction
Methods for HBV-DNA detection
(جHBV-DNA Ꮸ಻
ঐˢ༰)..................
Capital Medicine (Issue 17,
2022) (ၾᔼᖹ 
2022 ϋୋ17ಂ)
– 2022
Observe the Clinical Diagnostic
Value of TCT and Biopsy
Pathology for Early Cervical
Cancer and Cervical Intraepithelial
Lesions (᎕ɪ
ͤʫषᜊમ͜TCTᑗ
࠽..................)
China Practical Medicine
(V olume 16, Issue 13) ʕ਷
ྼ͜ᔼᖹୋ16՜13ಂ
– May 1, 2021
Analysis on the Fluctuation of
Blood Uric Acid Level in Patients
with Hypertension Complicated by
Different Diseases ( ৷АᏀԻ೯ʔ
ମʱ
ؓ.........................)
Medicine and Health (2021
April) ( ᔼᖹሊ͛2021 ϋ
4˜̊)
– April 1, 2021
The Diagnostic Value of
Combined Detection of Serum
AFU, AFP, GGT, LAP And APT
In Primary Liver Cancer
Discussion And Development of
Mutual Recognition of Regional
Inspection Results ( А૶AFUe
AFPeGGTeLAP ʿ APT ᑌΥᏨ
ਜਹ
࢝.....)
Contemporary Medicine
(August 2020, V olume 26,
Issue 22) ( ຅˾ᔼኪ2020
ϋ8˜ୋ26՜22ಂ)
– August 1,
2020
Chromosome Karyotype Analysis
of Umbilical Cord Blood of
48,600 Newborns in Zhejiang
Province (޲48,600 Էอ͛Յ
ؓ.........)
Chinese Journal of Eugenics
and Genetics
, (2020, V olume
28, Issue 4) ( ʕ਷Ꮄ͛ၾ፲
ෂᕏႦ2020 ϋୋ28՜ୋ4ಂ)
The National
Health
Commission
(ሊ͛਄ੰ
ึ)
April 25, 2020
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Name of Publication Journal or Book Title
Collaborating
Institution Publication Time
Analysis and Research of Anti-
Müllerian Hormone Detection on
Ovarian Function in Patients after
Hysterectomy (ਔˤ၍ዧ९Ꮸ
ٙ
Ӻ)....................
Medicine and Health
(February 2020) ( ᔼᖹሊ
͛2020 ϋ2˜̊)
– February 1,
2020
SALES OF MEDICAL PRODUCTS
Aiming to provide well-rounded services to our customers, and as a supplement to our ICL
business, we started to sell medical products to our own laboratories and third-party customers,
primarily medical institutions in 2010. We primarily procure testing instruments, reagents and
consumables from internationally and domestically reputable brands. During the Track Record
Period, revenues generated from sales of medical products amounted to RMB228.5 million,
RMB234.7 million and RMB459.9 million in 2020, 2021 and 2022, respectively, representing 8.3%,
6.9% and 9.5% of our total revenues in the same years, respectively. As part of our quality assurance
effort, we deploy extensive screenings and stringent due diligence initiatives to selectively engage
only industry-leading and trustworthy suppliers. We normally enter into agreements with suppliers
for reagents and consumables with terms ranging from one to two years, and we enter into
agreements with suppliers for instruments normally on a single order basis.
PRICING
Pursuant to the Opinions on Promoting Further Reform of the Healthcare System ( ʕ΍ʕ
จԈ), the PRC government and its local counterparts
set the benchmark for the price of certain of our testing services. For such services with benchmark
prices, our prices are tied to the price benchmark with adjustment made to competitors’ pricing, our
production costs and service premiums. We may also adjust our testing item pricings from time to
time to respond to market demand as well as our competitor’s pricing strategy. For our testing
services that do not have the benchmark price, we determine preliminary prices with reference to
prices of competitors’ products and our production costs, off which we will give our partner
hospitals respective discounts in light of their different size, ranking and competitiveness, as well
as historical transaction track record with us. We generally are able to charge a more premier price
for testing services that are not benchmark controlled. The price of our clinical services provided
to CROs, pharmaceutical companies, research institutes and other non-hospital customers are made
on a case-by-case basis, taking into account the cost and size of the research programs and the size,
competitiveness or the budget of our customers.
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IMPACT OF COVID-19 ON OUR BUSINESS
Since late December 2019, the COVID-19 outbreak disrupted the normal life and daily routine
of the global population, and in amidst of this global pandemic, the performance of and access to
many of our testing services were disrupted. As a result, our business, operations and financial
conditions were affected.
Impact on Testing Volume
In response to the COVID-19 pandemic, the Chinese government imposed a series of
measures to contain its spread, including travel bans, quarantine measures, social distancing,
restrictions on business operations and freedom of movement. Such measures had resulted in,
among others, a significant reduction in patients’ hospital visits, cancellation of elective medical
procedures and decrease in routine health checks, which caused a material decline in our base
testing volume in the first quarter of 2020 as compared to the same period in 2019. In addition, with
the outbreak of COVID-19, many hospitals in China allocated significant resources to contain the
spread of COVID-19, and had scaled back or postponed non-emergency care, which also led to a
significant decline in demand for testing services.
Notwithstanding the above, COVID-19 also provided national ICLs with new opportunities.
In February 2020, Meetings of the Central Leading Group for COVID-19 Containment allowed
qualified third party testing service providers, like us, to carry out COVID-19 nucleic acid tests.
Leveraging our testing capabilities and national laboratory network, we quickly mobilized our
teams across multiple fronts to develop COVID-19 testing capacities and protocols across our
laboratories. We launched nucleic acid testing capability using PCR methods, and immuno-based
detection tests. We started to offer COVID-19 testing services in February 2020, and soon turned
it into a regular line of service. During the Track Record Period, we performed a total of over 133
million COVID-19 tests, with a daily capacity of up to approximately 996,000 tests. Revenues
generated from COVID-19 tests amounted to RMB924.5 million, RMB1,232.4 million and
RMB2,284.6 million in 2020, 2021 and 2022, respectively.
Our strong performance for COVID-19 testing during the pandemic validated our capabilities
to process large amount of testing volume with high quality and operating efficiency. Leveraging
such opportunity, we have successfully built up new business relationships with hospitals and health
check centers that did not partner with us before, expanded our cooperation with them beyond
COVID-19 tests, and turned them into our regular customers for base tests, which further drove the
growth of our non-COVID-19 business. As a result, the number of our public and private hospital
customers and health check center customers continued to grow during the Track Record Period.
The slight decrease of our total number of customers from 2021 to 2022 was primarily due to the
decrease in the number of corporate customers who engaged us for COVID-19 testing for their
employees in 2021. However, starting from 2022, COVID-19 testing was more often organized by
local governments than by corporations. Our total non-COVID business experienced strong
recovery in 2020, evidenced by a 5.1% revenue growth from 2019 to 2020. By the end of the second
quarter of 2020, our monthly non-COVID-19 business revenues had recovered back to 2019 levels.
Starting from the third quarter of 2020, our non-COVID-19 business registered positive growth
compared to the same period in previous year. As a result, revenues generated by non-COVID-19
business increased by 18.2% from 2020 to 2021, and further by 20.0% from 2021 to 2022. Our
Directors believe that, with our continuous focus on further strengthening our testing capabilities
and portfolio, strategically penetrating untapped markets, developing new testing methods and
applying innovative technologies, our business is expected to grow further.
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The following table sets forth a breakdown of our revenues by COVID-19 testing and
non-COVID-19 business during the Track Record Period:
For the Y ear Ended December 31,
2020 2021 2022
RMB % RMB % RMB %
(RMB in thousands, except for percentages)
Non-COVID-19
business .............. 1,817,195 66.3 2,147,080 63.5 2,576,057 53.0
COVID-19 testing ...... 924,536 33.7 1,232,435 36.5 2,284,556 47.0
Total ................. 2,741,731 100.0 3,379,515 100.0 4,860,613 100.0
In December 2022, Chinese government began to lift most of the COVID-19 related
restrictions, and canceled mass testings previously implemented in various regions across the
country. This had reduced the need for our COVID-19 related testing services nationwide and is
expected to result in significant decline in revenues generated from such services in the future. The
extent to which the pandemic impacts our results of operations going forward will depend on future
developments which are uncertain and unpredictable. With respect to related risks, please see “Risk
Factors – Risks Relating to Our Business and Industry – Revenues generated from COVID-19
related testing services may not be sustainable.”
Impact on Daily Operations
In response to Chinese government’s policies to contain the spread of the COVID-19, in early
2020, we implemented temporary adjustments to work schedules and travel plans, mandating
employees to work from home and collaborate remotely. We had incurred additional costs for the
safety of our employees and the continuity of our operations, including increased frequency of deep
cleaning and sanitation at each of our laboratory, additional safety training and processes, enhanced
hygiene practices and materials, more efforts in keeping track of the travel history and the health
of our employees and their immediate family members, flexible and remote working where
possible, and allowing for greater social distancing for the employees who must work on-site. In
addition, we had also provided our logistics team with masks, hand sanitizers and other protective
gear immediately after the outbreak, which increased and may continue to increase costs and
expenses of our operations. As of the Latest Practicable Date, all of our employees had returned to
work.
In addition, dual impact of the massive upsurge of the COVID-19 testing demand as well as
logistics disruptions caused by the pandemic, led to a shortage of supplies of reagents and other raw
materials dictating the course of COVID-19 testing services, resulting in a leap in the prices of the
raw materials. As a result, we experienced temporary difficulties in securing adequate supplies of
reagents and consumables used in COVID-19 tests at the beginning of the outbreak.
Our management had been and continue to closely monitoring the impact of COVID-19 on all
material aspects of our business operation and respond to any challenges and opportunities the
pandemic may bring about. Due to the unpredictability of the duration and impact of the current
COVID-19 pandemic, the extent to which the COVID-19 pandemic will have a material effect on
our business, results of operations or financial condition is uncertain. For details, please see “Risk
Factors – Risks Relating to Our Business and Industry – The COVID-19 pandemic had and may
continue to have material impacts on our business, results of operations and financial performance”.
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OUR TECHNOLOGY AND IT INFRASTRUCTURE
We are committed to developing proprietary information technology systems to support the
daily operation of our laboratories. We have a proprietary and industry-leading information system,
namely, Laboratory Information System, or LIS, which are responsible for tremendous operational
efficiencies, enabling us to achieve consistent, structured, and standardized operating results and
superior customer service. It is extensively used in all aspects of our business, including clinical
testing, test ordering and reporting, billing, customer service, logistics and management of medical
data. LIS is responsible for the receipt and processing of sample testing application information,
patient information and the pre-processing of samples, including sample verification and
management. After the samples enter our laboratories, LIS is also responsible for a series of
functions related to testing, including among others, the grouping of samples, test report generation,
abnormal testing results alerts, and data classification and storage. We also built in ISO15189
requirements into LIS to conduct review on our reports with global quality standards.
We developed our proprietary logistics IT system, AiLogistics (ݴيwhich digitalized and
automated the sample receipt process through mobile digital and AI recognition technologies.
Sample information is processed beforehand through AiLogistics, which reduced the time needed
for sample requisition process, prevented errors when processing sample information, thereby
enhancing our laboratory operational efficiencies.
The successful delivery of our services depends, in part, on the continued and uninterrupted
performance of our IT systems and standardization of the operating processes across our laboratory
network through our IT systems. After over a decade of research and development and upgrades,
our proprietary systems are able to support our ever scaling business operation. Currently, our
systems stored and managed over 10 billion accumulative laboratory testing data and results, which
we believe are great assets for our future growth and development.
We have developed effective operating procedures, protocols and standards to fulfill high
industry standards with respect to daily operation, maintenance, troubleshooting, backup and
disaster recovery with respective to our IT infrastructure.
Data Security
Data security is one of our top priorities. Securing personal and health information is critical
to our business operations and to future growth, as we are committed to using technology to
improve the delivery of care. A security breach could have a material adverse operational, financial,
regulatory, and reputational impact to us.
We are informed by our customers that they are duly authorized by their patients or research
participants to grant us the access and use of their personal data, and we are entitled to collect a
minimum amount of personal information that is necessary for us to perform our testing services.
Unless otherwise permitted by laws and regulations, we inform our patients of the purposes, method
and scope of our collection, use and storage of their personal and health information. We strictly
prohibit disclosing or reusing patients’ personal data without their prior consent.
To protect data privacy, we employ a secure technology framework that covers laboratory
devices, computers, and communications systems. We use state-of-the art tools and advanced
analytics to proactively identify and protect against potential information system disruptions and
breaches, to monitor, test and secure key networks and services, and to facilitate prompt resumption
of operations if a system disruption or interruption should occur. We perform periodic security audit
against our systems to ensure its proper function and minimize potential risks. Coupled with the
technologies we have in place and to further safeguard our data security, we have implemented
comprehensive policies and procedures to preserve and manage all patient information in
compliance with relevant laws and regulations. Our internal policies and procedures administer
various scenarios including network and system securities, data center security, organization
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management, cybersecurity emergency preparedness and response, as well as complaint and
reporting. We have formed an information security management team to overlook the formulation,
modification, and abolition of our cybersecurity and data privacy related policies and procedures.
Our employees must obtain relevant authorization before they are allowed any access to the
minimum amount of personal and health information that is necessary for their performance of
duties. We also request our employees to report any incidents in violation of our data protection
requirements. Externally, we follow protocols for evaluating the cybersecurity status of any vendor
or third-party that will have access to our data or information technology systems. We monitor and
keep track of the information security incidents, changed requests and other abnormalities during
our interaction with these third-parties, and enforce information security assessments on a periodic
basis. During the Track Record Period, we have not experienced cyber breaches or interruptions to
our systems and data.
INTELLECTUAL PROPERTY
Intellectual property rights are essential to our business, and we devote significant time and
resources to their development and protection. As of the Latest Practicable Date, we owned 228
patents, 126 registered trademarks, 324 registered software copyrights and 32 registered domain
names in China. We believe, however, that no single patent, technology, trademark, intellectual
property asset, or license is material to our business as a whole. Our approach is to manage our
intellectual property assets, to safeguard them and to maximize their value to our enterprise. We
actively defend our important intellectual property assets and pursue protection of our products,
processes and other intellectual property where possible.
During the Track Record Period, we did not find any of such breaches of our intellectual
property rights. However, unauthorized use of our intellectual property by third parties and the
expenses incurred in protecting our intellectual property rights from such unauthorized use may
adversely affect our business and results of operations. See “Risk Factors – Risks Relating to Our
Business and Industry – We may not be able to obtain, maintain, or enforce our intellectual property
rights and may be subject to intellectual property litigations that could adversely impact our
business.” We did not have any material disputes or any other pending legal proceedings of
intellectual property rights with third parties during the Track Record Period and up to the Latest
Practicable Date.
SEASONALITY
Our business is subject to seasonal fluctuations. Our testing volume generally declines in
January and February due to lower patient flow and decreasing needs for health checks during the
Chinese New Year holiday. Declines in testing volume reduce revenues, operating margins and cash
flows.
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A W ARDS AND RECOGNITIONS
The following table sets forth some of our major awards and recognitions during the Track
Record Period and up to the Latest Practicable Date.
Name of Subsidiary Award/Recognition Issuing Entity
Y ear of
Receipt
Nanchang Adicon. . . “Specialized, Refined,
Distinctive and Novel”
Enterprise of Jiangxi
Province (ਖ਼ၚतอΆ
ุ)
Department of Industry and
Information Technology
Jiangxi Province (ʈุ
ʷᝂ)
2022
Zhengzhou Adicon. . Excellent Anti-epidemic
Entity (΋ආఊЗ)
Social Affairs Bureau of
Zhengzhou Economic and
Technological Development
Zone ( ቍψ̹຾᏶Ҧஔක೯ਜ
ึԫุ҅)
2021
Shanghai Adicon . . . “Specialized, Refined,
Distinctive and Novel”
Enterprise of Shanghai (2021
ɪऎ̹ਖ਼ၚतอΆุ)
Shanghai Municipal
Commission of Economy and
Informatization ( ɪऎ̹຾᏶
ึ)
2021
Pilot Enterprise of National
Standard for Standardization
of Drug Cold Chain Logistics
Operation (༶Ъ
ᅺ๟༊ᓃΆุ)
China Federation of Logistics
and Purchasing
Pharmaceutical Logistics
Division (ၾમᒅᑌ
ʱึ)
2020
Jinan Adicon ....... Enterprise Technology Center
Recognized by Jinan
Municipal Government (ی
ΆุҦஔʕː)
Bureau of Industry and
Information Technology of
Jinan (ʷ
҅)
2020
Outstanding Innovation
Achievement Certificate for
Enterprises in Shandong ( ʆ
ࣣ
(ɓഃᆤ))
Shandong Small and
Medium-sized Enterprises
Development and Promotion
Center/Shandong Industry and
Information Innovation
Achievement Evaluation
Expert Committee (ʕ
ආʕː/޲؇
൙ᄆ൙
ึ)
2020
Wuhan Adicon ..... (2020ઋᎴ
ӸΆุ)
High Tech Enterprises
Association of Jianghan
District, Wuhan (ဏ̹Ϫဏ
ਜ৷อҦஔΆุ՘ึ)
2020
Shenyang Adicon . . . Recognition of Excellence
(ᎴӸ༺ᅺఊЗ)
Shenyang Health Workers
Association ( ᓨජ̹ሊ͛ʈЪ
՘ึ)
2020
Chongqing Adicon. . Anti-epidemic Testing
Pioneer Group (Ꮸ᜕΋ቜ
ྠඟ)
Chongqing Clinical
Laboratory Center (ᅅ̹ᑗ
ґᏨ᜕ʕː
)
2020
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COMPETITION
We expect competition in the ICL industry in China to intensify. Our major competitors are
other ICL service providers with national network. See “Industry Overview – Overview of the ICL
Market in China – Competitive Landscape” for a detailed description on the competitive landscape
in our industry.
TOP CUSTOMERS AND SUPPLIERS
Top Customers
Customers of our ICL business are mainly medical institutions (which include public
hospitals, community health centers, private hospitals and clinics, and health check centers),
pharmaceutical companies and CROs. Our health check center customers can be grouped under four
individual chain health check providers, some of which are wholly owned by the chain health check
providers and others are affiliated. We enter into cooperation agreements with individual health
check centers as opposed to the chain health check providers, with which we enter into framework
agreement. See “– Our ICL Customers – Health Check Center” for details. We sell medical products
mainly to medical institutions. In 2020, 2021 and 2022, our five largest customers in each year
generated RMB114.3 million, RMB164.4 million and RMB321.6 million of revenues, accounting
for approximately 4.3%, 4.8% and 6.6% of our total revenues in the same periods, respectively. All
of our five largest customers in each year are Independent Third Parties during the Track Record
Period. To the best of our knowledge and as of the Latest Practicable Date, we were not aware of
any information or arrangement that would lead to the termination of our relationships with any of
our major customers. None of our Directors and their respective associates, or Shareholders who
own 5% or more of the total issued Shares had an interest in any of our Group’s five largest
customers in each year during the Track Record Period.
Top Suppliers
Our suppliers primarily consist of our suppliers for equipment, reagent and other consumable
material for testing. We consider several factors in the evaluation and selection of suppliers,
including but not limited to the supplier’s background, reputation, and industry experience, and
most importantly the quality and price of their supplies. All new suppliers must go through our
internal supplier admission process before entering into supply agreements with us. Some of them
are subject to an onsite inspection conducted by us on their production plants on an as-needed basis
to evaluate the production processes and quality management and test the raw material and
packaging material samples.
In 2020, 2021 and 2022, purchases from our five largest suppliers in each year were
RMB510.8 million, RMB427.2 million and RMB718.0 million, representing 43.1%, 28.1% and
35.6% of our total purchases, respectively. Purchases from the single largest supplier of each
respective period in 2020, 2021 and 2022, were RMB150.1 million, RMB99.9 million and
RMB203.6 million, representing 12.7%, 6.6% and 10.1% of total purchases, respectively. We
believe that adequate alternative sources for such supplies exist and we have developed alternative
sourcing strategies for these supplies. We normally settle our payment with these suppliers through
bank transfer.
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The following table sets forth the details of our five largest suppliers in each year during the
Track Record Period.
Rank Supplier
Type of
products/
services
provided Principal business
Listing
Status (1)
Credit
Period
Y ear of
commencement of
business
relationship
Purchase
amount
Percentage of
our total
purchase
(RMB’000)
For the year ended December 31, 2020
1 Company A Testing equipment,
reagents and
consumables
Research,
development and sales
of medical instruments
and related reagents
Listed 60 days 2012 150,110 12.7%
2 Company B Reagents and
consumables
Sales of medical
instruments and
reagents
Listed 90 days 2014 145,854 12.3%
3 Company C Reagents and
consumables
Research,
development and sales
of medical instruments
and related reagents
Private 60 days 2004 107,899 9.1%
4 Company D Testing equipment Sales of medical
instruments
Listed 30 days 2010 69,684 5.9%
5 Company E Reagents and
consumables
Sales of medical
instruments and
reagents
Listed 90 days 2013 37,224 3.1%
For the year ended December 31, 2021
1 Company F Reagents and
consumables
Research,
development and sales
of medical instruments
and related reagents
Listed 90 days 2020 99,860 6.6%
2 Company C Reagents and
consumables
Research,
development and sales
of medical instruments
and related reagents
Private 60 days 2004 99,668 6.5%
3 Company G Reagents and
consumables
Research,
development and sales
of medical instruments
and related reagents
Listed 90 days 2020 76,399 5.0%
4 Company B Reagents and
consumables
Sales of medical
instruments and
reagents
Listed 90 days 2014 75,841 5.0%
5 Company A Testing equipment,
reagents and
consumables
Research,
development and sales
of medical instruments
and related reagents
Listed 90 days 2012 75,418 5.0%
For the year ended December 31, 2022
1 Company F Reagents and
consumables
Research,
development and sales
of medical instruments
and related reagents
Listed 90 days 2020 203,616 10.1%
2 Company A Testing equipment,
reagents and
consumables
Research,
development and sales
of medical instruments
and related reagents
Listed 90 days 2012 155,566 7.7%
3 Company H Testing equipments Sales of medical
instruments
Private 30 days 2010 146,717 7.3%
4 Company G Reagents and
consumables
Research,
development and sales
of medical instruments
and related reagents
Listed 90 days 2020 133,169 6.6%
5 Company C Reagents and
consumables
Research,
development and sales
of medical instruments
and related reagents
Private 60 days 2004 78,915 3.9%
Note:
(1) A supplier is marked as “listed” if its group company is publicly listed on a recognized stock exchange.
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We and ACON Biotech (Hangzhou) Company Limited (Ҧஔ(ψ)ʮ̡)
(“ACON”) entered into a purchase and equipment lease framework agreement (the “ Purchase and
Equipment Lease Framework Agreement ”) pursuant to which we agreed to purchase certain
testing equipment and reagents from, and to lease certain testing equipment from, ACON from time
to time in our ordinary course of business. ACON is currently indirectly owned as to 50% by Mr.
LIN Jixun (our founder and one of our non-executive Directors), and is therefore a connected person
of our Company under Rule 14A.07(4) of the Listing Rules. In 2020, 2021 and 2022, the historical
fees paid to ACON amounted to RMB107.9 million, RMB102.0 million and RMB78.9 million,
representing 9.1%, 6.7% and 3.9% of total purchases, respectively. See “Connected Transactions –
Non-Exempt Continuing Connected Transaction.” Other than ACON, none of our directors, their
respective associates or any of our shareholders holding more than 5% of our issued share capital
after the Global Offering, to the knowledge of our directors, held any interests in any of our five
largest suppliers in each year during the Track Record Period.
EMPLOYEES
As of December 31, 2022, we had a total of 6,128 full-time employees. The following table
sets forth our employees by functions as of December 31, 2022:
Function
Number of
Employees % of Total
Laboratory operation (technical professionals) ....................... 1,992 32.5
Laboratory operation (supporting staffs) ............................ 2 2 5 3 . 7
Logistics ....................................................... 1,370 22.4
Sales and marketing ............................................. 1,551 25.3
Research and development ........................................ 3 8 1 6 . 2
Management and administrative ................................... 6 0 9 9 . 9
Total .......................................................... 6,128 100.0
We believe that maintaining a stable and motivated employee force is critical to the success
of our business. We organize various training programs on a regular basis for our employees to
enhance their knowledge, to improve time management skills and communications skills, and to
strengthen their teamwork spirit. We also provide various incentives to better motivate our
employees. We primarily recruit our employees through job fairs, employee referrals, industry
referrals and online channels including our corporate website and social networking platforms.
The remuneration package of our employees includes salary, benefits and bonus. Our
compensation programs are designed to remunerate our employees based on their performance,
measured against specified objective criteria. As required by PRC laws and regulations, we have
made contributions to the various mandatory social security funds, including funds for basic
pension insurance, unemployment insurance, basic medical insurance, occupational injury
insurance and maternity leave insurance, and to mandatory housing provident funds, for or on
behalf of our employees. During the Track Record Period and up to the Latest Practicable Date, we
have not experienced any strikes or labor disputes that had any material adverse effect to our
operations.
INSURANCE
In line with industry practices, we maintain a variety insurance for our business operation,
including medical liability insurance policies for a limited number of esoteric tests (for example,
non-invasive prenatal testing), auto insurance, property insurance and employer’s liability
insurance and COVID-19 insurance for employees.
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Our Directors believe that our insurance coverage is adequate and in line with industry norm.
However, the risks related to our business and operations may not be fully covered by insurance.
Please see “Risk Factors – Risks Relating to Our Business and Industry – Our insurance may not
sufficiently cover, or may not cover at all, losses and liabilities we may encounter during the
ordinary course of operation.”
PROPERTIES
As of the Latest Practicable Date, we did not own any real property for our operations and we
entered into 44 lease agreements for premises across different regions for our current business
operations in the PRC. Our leased properties are primarily used as premises for our operating
laboratories and offices. The relevant lease agreements generally provide a duration ranging from
five to ten years, some with renewal options. These properties are used for non-property activities
as defined under Rule 5.01(2) of the Listing Rules.
As of the Latest Practicable Date, the landlords of five of our leased properties in Hangzhou,
Changchun, Qingdao, Harbin and Xiamen, did not provide valid title certificates of the relevant
leased properties to us. The leased property in Hangzhou is used for our offices, and the remaining
four are used for our laboratories. Revenues generated from the concerned laboratories accounted
for 4.3%, 5.3% and 5.7% of our total revenues in 2020, 2021 and 2022, respectively. In addition,
the landlords of the leased properties used as warehouse and laboratory operation by our newly
acquired laboratory in Henan also failed to provide relevant valid title certificates.
As advised by our PRC Legal Advisor, lack of valid title certificates does not inevitably affect
the validity of the relevant lease agreements we entered into, and it is the landlords’ responsibilities
to obtain the valid title certificates, and therefore, as a tenant, we will not be subject to any
administrative punishment or penalties in this regard. The lessors may be subject to challenges,
lawsuits or other actions taken against the properties leased by us. If the lessors’ rights with respect
to any of such properties were successfully challenged, we may be forced to relocate our operations
on the affected properties. We have obtained confirmation from the competent government
authorities for all of the relevant properties, which have confirmed that our laboratories have not
violated any applicable laws or regulations, or been subject to any administrative punishment or
penalties during the Track Record Period, or the risk of forced relocation is remote.
As of the Latest Practicable Date, we leased one property each in Jinan and Kunming as our
laboratories from the landlords who obtained these parcel of land by way of government allocation,
and the landlords of these properties did not obtain approval from local competent land and housing
administrative authorities for the lease of land as requested by applicable regulations. Revenues
generated from these laboratories accounted for 6.9%, 5.6% and 4.8% of our total revenues in 2020,
2021 and 2022, respectively.
Pursuant to the Provisional Regulations of the People’s Republic of China Concerning the
Grant and Assignment of the Right to Use State-owned Land in Urban Areas (۬
ᕄ਷ϞɺήԴ͜ᛆ̈ᜫձᔷᜫᅲБૢԷ), lease of any property built on allocated land should be
approved by local competent land and housing administrative authorities. According to
consultations with the competent government authorities, according to the local practice in Tianqiao
District of Jinan and Wuhua District of Kunming, and as advised by our PRC Legal Advisor, we,
as the tenant, will not be subject to administrative penalties as a result of leasing properties on an
allocated land. The landlords of Jinan Adicon and Yunnan Adicon may be subject to challenges,
lawsuits or other actions taken against the properties leased by us. If the landlords’ rights with
respect to such properties were successfully challenged, we may be forced to relocate our operations
in Jinan and Yunnan. We have obtained confirmation from the Natural Resources and Planning
Bureau of Jinan and Wuhua District of Kunming and the Housing and Urban-Rural Development
Bureau of Tianqiao District of Jinan and Kunming, being the competent government authorities
that, no approval is required in practice for the lease of premises built on the allocated land in
Tianqiao District of Jinan and Wuhua District of Kunming. Furthermore, the landlords of the
relevant properties have agreed to indemnify the damages or losses that Jinan Adicon and Yunnan
Adicon may suffer due to the lack of government approval for the lease of allocated land.
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As of the Latest Practicable Date, the actual land use of the properties leased for our
laboratories is inconsistent with the designated land use as specified in their land use right
certificates. As of the Latest Practicable Date, two of our laboratories are located on land for
commercial use, one of our laboratories is located on land for warehousing use, two of our
laboratories are located on land for scientific study and educational use, one of our laboratories is
located on construction land without specific use restrictions, one of our laboratories is located on
land to be used as general plants for biology, medical and pharmaceutical industry and the rest of
our operating laboratories are located on land for industrial use. The following table sets forth the
related details.
Causes of
Inconsistencies
The inconsistent land use is primarily due to the limited land
available for medical purposes. In practice, medical land is
mainly allocated or granted to non-profit medical institutions. In
recent years, to promote the development of socially-run medical
institutions, medical land may also be granted to certain
qualified large-scale for-profit hospitals or specialized medical
parks in some regions intended to be utilized by large hospitals
based on local regulations or practices. However, it is still
difficult for small-scale for-profit medical institutions which
mainly use leased properties for operations (such as independent
clinical laboratories and clinics) to find suitable premises on
medical land for their operation. This results in a large number
of non-hospital for-profit medical institutions using non-medical
properties in practice.
Risk Associated and
PRC Legal Advisor’s
Assessments on
Potential Legal
Consequences and
Liabilities
Pursuant to the Civil Code of the PRC (ج
Պ), the Law on the Administration of Urban Real Estate of
the PRC (), the Land
Administration Law of the PRC ( ʕശɛ͏΍ձ਷ɺή၍ଣ
) and other relevant laws and regulations, any change in the
use of land within an urban planning area shall be approved by
the competent land and natural resources administration
authorities and submitted to the competent authority that
originally approved the land use for approval.
As advised by our PRC Legal Advisor, if the use of a premise is
inconsistent with the approved purpose of the state-owned land
where the premise locates and deemed by competent natural
resources and planning bureaus as a violation of applicable land
related laws and regulations, the landlords of properties will be
required to rectify the noncompliance, imposed on a penalty
ranging from RMB100 to RMB500 per square meter of the
concerned land and even be ordered to return the land if the
noncompliance could not be rectified within a required time
period. As a tenant, we will not be subject to the aforesaid
administrative penalties. However, if a landlord of the properties
for our leases is required by competent authorities to rectify
such land use or return the land, we may have to relocate and
bear relocation costs. We may not be able to find other suitable
property to lease for our laboratory testing facility in a timely
manner or at all, which may affect our future business
operations.
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Rectification Actions
Taken
In light of the above, we have obtained confirmation from
relevant natural resources and planning bureaus at provincial
level, municipal or county level for all of our operating
laboratories, and based on such confirmation, (i) the use of the
leased properties for laboratory operations is subject to review
and approval by competent local NHCs, and no approval from
natural resources and planning bureaus is required, and (ii) the
likelihood of our operating laboratories being deemed as
violating applicable land related laws and regulations due to
inconsistent land use and then be ordered to relocate is remote.
All of our laboratories have obtained Medical Institution
Practicing Licenses and the relevant leases were duly reviewed
and approved by competent local NHCs in accordance with
applicable rules and regulations during the application of the
licenses.
Based on the forgoing, our PRC Legal Advisor is of the view
that the risk of our laboratories being forced to relocate due to
inconsistent land use is remote.
Internal Control
Measures
We have formulated a laboratory establishment manual and a
standardized laboratory site selection checklist covering all
material aspects including title certificate, property ownership,
land use specifications and mortgage status, so as to guide
responsible personnel in selecting sites when setting up a new
laboratory. For details of enhanced internal control measures we
have taken, please see “– Properties – Enhanced Internal Control
Measures.” Moreover, we plan to enhance our due diligence
efforts and review more prudently when we lease additional
premises, particularly on the nature, designated use and title
certificates for such properties, and submit all leases to our legal
department for their compliance review and approval before
entering into lease agreement with the lessors.
For associated risks of the above mentioned defects, please see “Risk Factors − Risks Relating
to Our Business and Industry − Certain of our leased properties are subject to land defects, and we
could be required to vacate such properties which may adversely affect our business, financial
condition and results of operations.”
Since our inception and up to the Latest Practicable Date, we were not subject to any action,
claim, fine or investigation being conducted or threatened by any third parties or the competent
government authorities with respect to the above mentioned leased properties. Based on the
confirmation we obtained from competent government authorities, and as advised by our PRC Legal
Advisor, our Directors believe that the properties with defects described above did not and will not,
individually or in the aggregate, have a material adverse effect on our business or results of
operation, and the risk of us being required to vacate or relocate is remote. Furthermore, we
undertake that we will (i) closely monitor the regulatory development associated with the use of
land in China, (ii) take necessary actions to be in compliance with applicable local laws and
regulations, (iii) use reasonable efforts to seek assurances from competent authorities to confirm
that the land chosen for future new laboratories’ will be compliant with applicable laws and
regulations, and (iv) disclose in periodical reports once we become a public company.
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Having considered the view of the Directors and based on the due diligence work conducted,
including discussing with the PRC legal advisors to the Company and the Joint Sponsors, having
reviewed the confirmations from, and the notes taken by the PRC legal advisors to the Company
and the Joint Sponsors during oral interviews with, the relevant natural resources and planning
bureaus at provincial level or, where necessary, relevant municipal or county level, nothing has
come to the Joint Sponsors’ attention that would reasonably cause them to cast doubt on the
reasonableness of the view of the Directors that the risk of forced relocation is remote.
In the unlikely scenario if we were required to vacate the properties, our Directors are of the
view that it would not have a material adverse effect on our business or results of operations.
Typically it takes approximately six months to prepare a new laboratory in an established market.
If we were forced to relocate without prior notice, we would be able to transit testing volume and
move equipment to nearby laboratories within our network within three weeks while we set up a
new laboratory. Based on the gross floor area of a typical laboratory of ours, total relocation costs
for a laboratory is estimated to be no more than RMB3.0 million incremental costs, primarily taking
into consideration of the courier costs for temporary sample transportation, equipment shipment
costs, and relocation expenses.
Lease Registration
As of the Latest Practicable Date, we had not completed lease registration for 12 of the
properties we leased in the PRC, primarily due to the difficulty of procuring the relevant landlords’
cooperation to register such leases. As advised by our PRC Legal Advisor, failure to register such
lease agreements with the relevant PRC government authorities does not affect the validity and
enforceability of the relevant lease agreements but the relevant PRC government authorities may
order us or the lessors to, within a prescribed time limit, register the lease agreements. Our
Directors are of the view that the unregistered leases will not individually or collectively have a
material adverse impact on our business or financial condition because, as confirmed by our PRC
Legal Advisor, the estimated aggregate maximum penalty is RMB120,000 with respect to the
unregistered leases of properties leased by our Group. Also, we are not subject to any action, claim
or investigation being conducted or threatened by any third parties or the competent government
authorities with respect to the registration in our leased properties as of the Latest Practicable Date.
According to section 6(2) of the Companies (Exemption of Companies and Prospectuses from
Compliance with Provisions) Notice (Chapter 32L), this Prospectus is exempted from compliance
with the requirements of section 342(1)(b) of the Companies (Winding Up and Miscellaneous
Provisions) Ordinance in relation to paragraph 34(2) of the Third Schedule to the Companies
(Winding Up and Miscellaneous Provisions) Ordinance which require a valuation report with
respect to all of our Group’s interests in land or buildings, for the reason that, as of December 31,
2022, none of the properties held or leased by us had a carrying amount of 15% or more of our
consolidated total assets.
Enhanced Internal Control Measures
We also implemented enhanced laboratory site selection policies, pursuant to which our legal
department shall review the lease agreements together with a standardized laboratory site selection
checklist covering all material compliance aspects including title certificate, property ownership,
land use specifications, mortgage status, and the ability to obtain approval on the environmental
impact form prior to laboratory operation. We will organize training programs for the relevant
project managers to familiarize them with our site selection manual and more importantly,
applicable laws, regulations and local policies, which enable them to identify and collect sufficient
and valid licenses, certificates and other relevant documents for each type of properties during the
site selection process. The legal team will then review and verify the completeness and authenticity
of such documents collected, and perform assessment on the compliance status of a potential new
premise. The project managers shall also seek written indemnification from the lessor when
selecting new premises. The corresponding departments at our headquarters shall monitor and
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review the procedures conducted by the relevant local departments and re-ensure the completeness
and authenticity of all the licenses, certificates and other relevant documents. We will consult with
our external legal counsel to review the title certificates and other documents to ensure the
compliance with all relevant laws and regulations. We will ensure the land use of our future ICLs
are compliant with the applicable regulations by, including but not limited to, seeking for prior
assurances from competent authorities.
Having considered the internal controls adopted by the Company above and based on the due
diligence work conducted, including but not limited to reviewing the Group’s internal policies on
site-selection of laboratories with the help of an independent internal control advisor, discussing
with the Company to understand the revisions made to the Company’s site-selection policies and
procedures, nothing has come to the Joint Sponsors’ attention that would reasonably cause them to
cast doubt on the effectiveness of the enhanced internal controls mentioned above.
Our Directors believe that leased properties issues described above will not impugn on the
Directors’ suitability under Rules 3.08 and 3.09, for the following reasons: (i) the current urban land
use planning in China makes it difficult for the Company to find suitable medical land, and the
Company’s current practices in selecting premises to set up laboratories are in line with market
practices, (ii) during the Track Record Period and up to the Latest Practicable Date, the Company
has not been subject to any action, claim, fine or investigation being conducted or threatened by any
third parties or the competent government authorities with respect to the above mentioned leased
properties, (iii) the Company has taken sufficient rectification actions by obtaining positive
confirmations from competent government authorities with respect to each of the above mentioned
leased properties, (iv) the Company’s PRC Legal Advisor is of the view that issues with respect to
the Company’s leased properties, individually or in the aggregate, did not and will not have a
material adverse effect on the Company’s business operations, and (v) the Company have
implemented enhanced internal control measures aiming to minimize reoccurrence risks in the
future, and it undertakes to continue to work on compliance issues with respect to their business
operations.
Having considered the plans of the Group above and based on the following due diligence
steps, nothing has come to the Joint Sponsors’ attention that would reasonably cause them to cast
doubt on the Directors’ suitability under Rule 3.08 and 3.09 of the Listing Rules: (i) reviewed the
Group’s internal policies on site-selection of laboratories with the help of an independent internal
control advisor, discussing with the Company to understand the revisions made to their
site-selection policies and procedures; (ii) interviewed with the management and the chief
compliance officer of the Company and understood that, among others, the chief compliance officer
of the Company is set to be under the supervision of the Board and to overview the Group’s
compliance work since October 2018; (iii) interviewed with the management of the Company and
understood that, among others, (a) the executive Director has discussed with the Company’s legal
advisors to understand and evaluate the risks relating to the Leased Labs and (b) continuous efforts
have been made to improve the Company’s internal policies over site-selection of laboratories; and
(iv) interviewed with each Director to understand their education background, working experience
and professional qualifications and understood their knowledge to serve as directors of a listed
company on the Stock Exchange.
HEALTH, SAFETY AND ENVIRONMENTAL MATTERS AND CORPORATE SOCIAL
RESPONSIBILITY
Our operations involve the use of hazardous and flammable chemical materials and disposal
of hazardous waste. We take steps to ensure that wastes generated as a result of our operations are
properly disposed of in order to reduce adverse effects to the environment. In addition, we strive
to operate our facilities in a manner that protects the environment and the health and safety of our
employees and communities. If we fail to comply with environmental protection and health and
safety laws and regulations, we may be subject to fines, monetary damages or suspensions of our
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business operations. In the event of any accidental contamination, biological hazards or personal
injury at our facilities during normal operations, we could be held liable for damages and clean-up
costs that, to the extent not covered by existing insurance or indemnification, could be burdensome
to our business. For details, see “Risk Factors – Risks Relating to Our Business and Industry – We
are subject to environmental, health and safety laws and regulations. If we fail to comply with such
regulations, our business may be adversely impacted”.
Governance on ESG-related Matters
Our Board has the collective and overall responsibility for establishing, adopting and
reviewing environmental, social and governance (“ ESG”) related strategies and policies of our
group. Set forth below is a summary of principal responsibilities of our Board in respect of ESG
related matters:
 formulating and adopting policies on ESG matters (the “ ESG Policy ”);
 keeping abreast of latest ESG-related laws and regulations, including the applicable
sections of the Listing Rules, and updating our ESG Policy in accordance with the latest
regulatory updates;
 identifying key stakeholders based on our business operations, understanding such
stakeholders’ influences with respect to ESG matters, and establishing and maintaining
the communication channels to engage with them;
 monitoring the effectiveness and ensuring the implementation of our ESG Policy, and
improving internal ESG governing structure; and
 identifying key performance indicators, the relevant measurements and the mitigating
measure.
According to our ESG Policy, we assign the ESG-related responsibilities to our environment,
health and safety department, or EHS department, which is in charge of the occupational health,
safe production as well as environmental protection and waste reduce. Alongside with the EHS
department, our internal audit department supervises the regulatory compliance of our operations,
including following developments in environmental laws, regulations and related interpretations
and identifying environment-related risks. Both EHS and internal audit teams report to our chief
compliance officer on a regular basis. Our chief compliance officer, Ms. LAN Jia, overlooks the
overall management and assessment of environment-related risks and incidents, and periodically
reports to the executive committee and senior management on our overall EHS performance and
sustainability status. See “− Incidents − Incidents Relating To Bribery − Remedial actions taken by
the Company following the Incidents − Implementation of Anti-corruption Policies and Procedures”
for details of the background and qualification of our chief compliance officer.
Measures to Ensure Compliance with ESG Regulatory Requirements
In order to effectively implement the relevant work of ESG management, we have
implemented a number of company-wide measures to ensure compliance with the stringent
regulatory requirements and standard operating procedures relating to emissions of air, water and
other materials, bio-waste generation and treatment, handling, use, storage, treatment and disposal
of hazardous substances, worker health and safety requirements, and emergency planning and
response.
 Laboratory Site Selection . We are required by the relevant governmental authorities to
carry out an environmental impact assessment before establishing a new laboratory to
minimize the impact of our business operation on the environment. See “Regulatory
Overview – Regulations Relating to Environmental Protection” for details. When
selecting leased properties for our laboratory sites, we carefully review their
environmental and safety qualifications, and assess relevant risks with regard to fire
control and sewage, pollutants and waste discharge to ensure the compliance of relevant
requirements under applicable laws and regulations.
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 Laboratory Planning . We take into consideration environment, social and health
requirements prescribed in relevant laws and regulations when planning functional areas
within our laboratories to ensure the proper treatment, sterilization and disposal of our
medical waste and sewage.
 Detailed Internal Procedural Guidance . We have formulated a set of internal waste
disposal procedures setting forth detailed guidelines on the classification, collection,
transportation and disposal of the waste generated from our laboratories. In accordance
with our internal waste disposal procedures, technical professionals of our laboratories
are required to make sure all the disposals are properly sanitized and categorized before
being collected by our laboratory janitors. Our laboratory janitors then sort and place
such disposals in a designated area, where the disposals will be properly contained,
sealed, labeled and timely recorded before further passed to professional third-party
service providers we engaged for further processing. During the process, our janitors are
required to wear protective gear while handling the waste, and will disinfect the
designated area on a regular basis.
 Engagement with Third-Party Service Providers . Before engaging third-party service
providers for centralized disposal of our wastes, we closely review and verify their
qualification, and we only cooperate with those licensed by relevant authorities. Upon
engagement, we record their qualification and the service agreement in our system. The
system notifies us in advance of the expiration of their qualification or the terms of the
agreement, thereby enabling us to facilitate needed adjustments or renewal of
agreements in a timely manner.
 Headquarters-Laboratory Two-tiered Management . Our headquarter organizes monthly
compliance inspection of our subsidiaries, primarily focusing on the licenses, personnel
qualifications, working environment, quality control, and overall operations, and
conducts annual audits on each subsidiary, including environmental and biosafety audits.
 Comprehensive Training for Employees . We have dedicated biosafety experts
responsible for biosafety training, compliance of our operations with biosafety-related
legal requirements, biosafety risk assessment and review of corrective actions and
preventative actions that we will take upon the occurrence of any biosafety emergency.
To ensure smooth internal communication, we encourage our employees to make ad hoc
reports to relevant departments upon their identification of any emergency or red flag,
or to the manager, chief compliance officer, and subsequently the chief executive officer
or the Board, depending on the nature of the event. We also invite qualified institutions
to deliver periodic training on the emission control and climate impact to relevant
personnel on a regular basis.
During the Track Record Period, we incurred compliance costs in connection with applicable
environmental rules and regulations of RMB8.4 million, RMB12.6 million and RMB25.3 million in
2020, 2021 and 2022, respectively. Costs incurred during the Track Record Period in connection
with our environmental compliance efforts primarily included environmental impact assessments on
new construction projects and expansion projects as well as installation and upgrades of our waste
control and treatment facilities in our laboratories to improve the economic benefits of our
operation while promoting environmental protection, thereby achieving sustainable growth of our
business.
We are subject to unannounced inspections from competent government authorities on our
biosafety, waste and disposal. During the Track Record Period and up to the Latest Practicable Date,
we have complied with relevant environmental laws and regulations in China in all material
respects, had not been subject to any material claims, lawsuits, fines, penalties or disciplinary
actions, neither did we experience any material accidents involving personal injury or property
damages.
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Metrics and Targets to Assess and Manage ESG-related Risks
We enforce strict metrics and targets to assess and manage the waste disposal and gas
emissions pursuant to the requirements of the national guide to clinical laboratory procedures and
the relevant discharge and emission standards for medical institutions. We target to maintain zero
environmental pollution accidents across all discharge and emission categories.
 Wastewater . We track and record the level of residuals of our wastewater with close
attention paid to the containment of infectious substance. In 2022, our laboratories used
135,117 tons of water, which accounted for around 10.7 tons of chemical oxygen
demand, or COD, and 0.3 ton of ammonia nitrogen waste. We target to maintain 100%
compliance rate in relation to wastewater disposal going forward, and to reduce the level
of residuals, including COD and ammonia nitrogen per RMB10,000 revenue by 1% to
3% over the next three years.
 Liquid Waste . Our liquid waste is primarily liquid that contains solvents and reagents
that may be toxic, corrosive, flammable, and/or reactive chemical substances. In 2020,
2021 and 2022, the discharge volume of our liquid waste was 21.1 tons, 34.4 tons and
56.3 tons, respectively. The increase during the Track Record Period was in line with the
increase in the sample volume of our medical diagnostic testing services. We target to
maintain 100% compliance rate in relation to liquid waste disposal going forward, and
to reduce the discharge volume of liquid waste per RMB10,000 revenue by 1% to 3%
over the next three years.
 Exhaust Gas . The exhaust gas emissions during our business operations can be
calculated based on our electricity usage level. In 2022, our laboratories used 22.3
million kilowatt-hour of electricity in total, which accounted for around 5.1 tons of
dimethylbenzene xylene, 1.8 tons of formaldehyde and 2.2 tons of nonmethane
hydrocarbons. We target to maintain 100% compliance rate in relation to the gas
emission, and to reduce the level of exhaust gas emission, including dimethylbenzene
xylene, formaldehyde, and nonmethanehydrocarbons per RMB10,000 revenue by 1% to
3% over the next three years. We establish compliance files for our gas outlets to record
the basic statistics including the temperature, types of the main pollutants and their
respective level of concentration, as well as the activated carbon replacement timetable,
so as to control the emissions and monitor possible climate impact. We also engage
qualified institutions to assess and evaluate our emission control performance. In
addition, we require our employees to report promptly to relevant health authorities in
occurrence of any loss, leakage or diffusion of hazardous waste within 48 hours.
 Solid Waste . Our solid waste primarily consists of disposable protective gear as well as
used or contaminated instruments, including bottles and testing tubes. In 2020, 2021 and
2022, the discharge volume of our solid waste was 1,382.9 tons, 2,210.9 tons and 4,028.9
tons, respectively. The increase during the Track Record Period was in line with the
increase in the sample volume of our medical diagnostic testing services. We target to
maintain 100% compliance rate in relation to solid waste disposal going forward, and to
reduce the discharge volume of solid waste per RMB10,000 revenue by 1% to 3% over
the next three years.
As our business continues to expand, we expect the absolute discharge volume of our waste
to grow concurrently. However, we strive to use our resources effectively to minimize the discharge
of wastes. Our current target is to gradually adopt more environmentally friendly measures and
reduce our energy consumption in our daily operation.
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Potential Impact of Climate Change on Our Business
In view of the nature of our business, we do not anticipate the climate change and other
environment-related risks to have any material impact on our business operation, financial
performance and strategy. During the Track Record Period and up to the Latest Practicable Date,
our business, results of operation and financial condition had not been materially adversely
impacted by any climate-related incident.
Despite that we don’t see climate-related risks affecting our business or financial condition in
a short term, it may potentially affect our business and financial condition in medium and long term.
Potential transition risk may result from the transitioning to a lower-carbon economy which entails
change in climate-related regulations and policies. In the medium term, we may be subject to
heightened pollutant discharge policies, which may result in higher operating costs due to increased
cost for pollutant charge, fines and penalties as a result of non-compliance and higher operating
costs incurred in connection with investment in new facilities. In the long term, alongside with
worldwide initiatives for reducing carbon emissions, we may be subject to higher operational costs
or tax burdens.
Tightened environmental regulations may require significant investment to be made in
transforming our business and operations, which may have a material adverse impact on our
business, results of operations and financial condition. Our Board and EHS department will evaluate
the likelihood of occurrence and the estimated magnitude of resulting impacts over medium and
long term horizons. The decision of transfer, accept or control a risk is influenced by various factors
such as the laboratory’s geographic location, transportation network and policy change. If the risks
and opportunities are considered to be material, we will incorporate them into our strategy and
financial planning process. We also aim to minimize the transition risk in the long term through
enhanced energy efficiency and consumption of renewable energy.
Greenhouse Gas Emissions
Reducing Scope 1 and 2 emissions, those under the direct ownership and operational control
of the business is usually the first target in a company’s carbon reduction strategy. Scope 3
emissions, as categorized by the Greenhouse Gas (GHG) Protocol, include indirect emissions that
occur in a company’s value chain such as business travel, purchased goods and services, and
employee commuting. With the climate emergency demanding more immediate action, there is a
growing need to reduce GHG emissions wherever possible. As a responsible enterprise, we have
been endeavoring to take more responsibilities in accounting for Scope 3 emissions. For instance,
when choosing upstream or downstream participants in the value chain, including suppliers for
reagents and consumables, we prioritize those that use clean energy. We strive to gradually replace
vehicles we leased for sample transportation with electronic vehicles to minimize the impact on the
environment. Moreover, in the ordinary course of business, we actively engage employees in
energy-saving practices, and raise their awareness. For example, we encourage staff to switch office
equipment, such as printers and computers, to power-saving mode when not in use, and keep indoor
air-conditioning temperature at 26°C during summer.
Environmental Report Form
As of the Latest Practicable Date, Jinan Adicon failed to obtain the Report Form on
Environmental Impact of Construction Project (“ Report Form ”) for an expansion area of
approximately 890 square meters (the “ Expanded Area ”), due to a limitation of the condition of
the leased site. Pursuant to the Environmental Impact Assessment Law of the People’s Republic of
China (), the Administrative Regulations on Environmental
Protection in Construction Projects (ᚐ၍ଣૢԷ) and other applicable rules,
failure to obtain the Report Form may subject us to a fine ranging from 1% to 5% of total
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investment amount of the related construction, which equals RMB9,600 to RMB48,000, or restore
to original operating status, by suspending all operations on or the construction of the concerned
areas and to only operate on the approved areas.
The Expanded Area is primarily used for warehouse, waste room and to a lesser extent, for
testing services, and accounts for approximately 18% of total area of Jinan Adicon. In the case
where Jinan Adicon is ordered to suspend operation within the Expanded Area, it may rearrange the
site layout to move the facilities on the Expanded Area to the rest of the laboratory. Given that (i)
the Expanded Area contributes minimal gross floor area of Jinan Adicon, and (ii) no core business
was operated on the Expanded Area, and the operations thereon can be easily rearranged to the rest
of the laboratory, our Directors are of the view that, failure to obtain Report Form for the Expanded
Area is of no significance to our overall operation, and does not have a material adverse effect on
our business or results of operations.
Corporate Social Responsibility
We are committed to contributing to the welfare of society and sharing our corporate social
responsibility. For example, we have made charitable contribution in university educational
foundations to support the training, scientific research, international exchanges, materials and
equipment procurement, and student scholarships of certain medical subjects. We have also
contributed to anti-HPV educational campaign hosted by provincial woman and children’s
foundation, volunteered free testing services for an assortment of communities, and donated
medical supplies to anti-epidemic campaigns against COVID-19.
LEGAL PROCEEDINGS AND COMPLIANCE
During the Track Record Period and up to the Latest Practicable Date, we had not been
involved in any actual or pending legal, arbitration or administrative proceedings, including any
bankruptcy or receivership proceedings, that we believe would have a material adverse effect on our
business, results of operations, financial condition or reputation. Our Directors are not involved in
any actual or threatened claims or litigations. There are no material legal, arbitral or administrative
proceedings before any court current or pending against, or involving the properties, or the
businesses of our Company or to which any of the properties or members of our Company is subject.
However, we may from time to time become a party to various legal, arbitration or administrative
proceedings arising in the ordinary course of business.
Non-Compliance
During the Track Record Period and up to the Latest Practicable Date, we did not have any
non-compliance incidents which our Directors believe would, individually or in the aggregate, have
a material operational or financial impact on our business as a whole. As advised by our PRC Legal
Advisor, unless otherwise disclosed, during the Track Record Period and up to the Latest
Practicable Date, we had complied with the applicable PRC laws and regulations in all material
respects, except for the non-compliance which would not have a material adverse effect on our
business as a whole.
Social insurance and housing provident fund contributions
During the Track Record Period, some of our PRC subsidiaries engaged third-party human
resources agencies to pay social insurance premium and housing provident funds for certain of our
employees. Pursuant to the agreements entered into between such third-party human resources
agencies and our relevant PRC subsidiaries, the third-party human resources agencies have the
obligation to pay social insurance premium and housing provident funds for our relevant employees.
These third-party human resources agencies have confirmed in writing that they have paid such
contributions in strict compliance with the agreements with us. Pursuant to the PRC laws and
regulations, the contributions to social insurance premium and housing provident funds made
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through third-party accounts may not be viewed as contributions made by us. As of the Latest
Practicable Date, neither our Company nor our PRC subsidiaries had received any administrative
penalty or labor arbitration application from employees for its agency arrangement with third-party
human resources agencies. As of December 31, 2022, our PRC subsidiaries paid contributions to
social insurance premium and housing provident funds for seven employees through third party
agencies per such employees’ written agreements.
Our PRC Legal Advisor has advised us that, pursuant to relevant PRC laws and regulations,
if we fail to pay the full amount of social insurance contributions as required, we may be ordered
to pay the outstanding social insurance contributions within a prescribed time limit and may be
subject to an overdue charge of 0.05% of the delayed payment per day from the date on which the
payment is payable. If such payment is not made within the stipulated period, the competent
authority may further impose a fine from one to three times the amount of any overdue payment.
Our PRC Legal Advisor has further advised us that, pursuant to relevant PRC laws and regulations,
if we fail to pay the full amount of housing provident fund as required, the housing provident fund
management center may order us to make the outstanding payment within a prescribed time limit.
If the payment is not made within such time limit, an application may be made to the PRC courts
for compulsory enforcement. As of the Latest Practicable Date, no competent government
authorities had imposed administrative action, fine or penalty to us with respect to this
non-compliance incident nor had any competent government authorities required us to settle the
outstanding amount of social insurance payments and housing provident fund contributions.
During the Track Record Period and as of the Latest Practicable Date, some of our PRC
subsidiaries did not pay social security insurance and housing provident fund contributions in full
for some of our employees in accordance with the relevant PRC laws and regulations. As of
December 31, 2022, we did not pay social security insurance for 22 of our full-time employees as
their social security insurance have been paid by other entities or themselves; we did not pay
housing provident fund contributions for 24 of our full-time employees as their housing provident
fund contributions have been paid by other entities or themselves, or they agreed not to make such
contributions. Our non-compliance was primarily due to our large labor force and relatively high
mobility, the lack of experience of our human resources personnel who did not fully understand the
relevant requirements of the relevant PRC laws and regulations, and the preference of many of our
employees not to contribute to such funds. We have taken the following rectification measures to
prevent future occurrence of such non-compliance:
Training . Strengthen legal compliance training to our employees to increase their awareness
of the relevant PRC laws and regulations and encourage their cooperation in making payments for
social insurance and housing provident funds;
Policy . Formulate and distribute to our employees an internal control policy with respect to
social insurance and housing provident fund contribution in compliance with relevant PRC laws and
regulations, which we have started to implement; and
Review and record-keeping . Designate our human resources staff to monitor the payment
status and prepare monthly reports of salary and contribution amounts, which shall be reviewed by
our human resources department head and our finance department head to ensure that we make these
payments and on time in accordance with relevant laws and regulations.
We began to make full payment of social security insurance and housing provident fund
contributions based on the actual salaries of our employees gradually from July 2021 to the extent
practicable under local practices. Despite our efforts, we were unable to make full contributions of
social insurance and housing provident fund for all our employees as of the Latest Practicable Date
because some employees did not cooperate and chose to not to contribute to such funds. We will
continue to actively encourage the cooperation of such employees and make the relevant
contributions once they agree to participate in the social insurance and housing provident funds
programs.
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Our Directors believe that such non-compliance would not have a material and adverse effect
on our business and results of operations, considering that: (i) as of the Latest Practicable Date, we
had not received any notification from the relevant PRC authorities requiring us to pay material
shortfalls or the penalties with respect to social insurance and housing provident funds; (ii) we had
not been subject to any material administrative penalties during the Track Record Period and up to
the Latest Practicable Date; (iii) we were not aware of any material employee complaints nor were
involved in any material labor disputes with our employees with respect to social insurance and
housing provident funds; and (iv) we have made provisions of RMB24.5 million, RMB62.2 million
and RMB42.4 million for the social insurance and housing provident fund contribution shortfall in
2020, 2021 and 2022, respectively. We also undertake to make timely payments for the deficient
amount and overdue charges and take practical measures to mitigate the practice of engaging third
party agencies to make contributions, as soon as requested by the competent government
authorities.
For more details, please see “Risk Factors − Risks Relating to Doing Business in China − We
may be subject to penalties under relevant PRC laws and regulations due to failure to be in full
compliance with social insurance and housing provident fund regulation.”
INCIDENTS
Incidents Relating To Bribery
Shanghai Incident
According to (2015) Min Xing Chu Zi No. 3087 judgment, the People’s Procuratorate of
Minhang District, Shanghai prosecuted Shanghai Adicon, due to bribery conducts in a total amount
of RMB1,814,378 paid to relevant personnel of several medical institutions in Shanghai from
January 2011 to May 2014 in order to seek and maintain a business advantage (the “ Shanghai
Incident ”). As stated in the judgment, the relevant payments were normally initiated by the sales
supervisors or sales representatives, and then summarized and reviewed by the sales assistants.
Then such payments were progressively approved by the sales manager, the assistant general
manager and the general manager. Once approved, the assistant general manager supervised and
delivered the payments and then the sales supervisors or sales representatives paid to relevant
personnel of the medical institutions.
None of our then and current director or senior management were involved in the Shanghai
Incident. We believe the Shanghai Incident was uncovered by an on-site anti-corruption
investigation carried out by relevant government authorities against the staff concerned. In
December 2015, Shanghai Adicon was fined RMB600,000 and became disqualified to participate in
government procurement activities for the following three years. After the Shanghai Incident, we
terminated the employment agreements with these aforementioned employees and relevant sales
representatives, and none of them worked for us during the Track Record Period and up to the Latest
Practicable Date. Moreover, the relevant medical institutions had no longer served as our customers
during the Track Record Period and up to the Latest Practicable Date.
Other than Shanghai Adicon, the business of our other subsidiaries has not been affected by
the Shanghai Incident. The impact of the Shanghai Incident on Shanghai Adicon was not material
and Shanghai Adicon has been eligible to participate in government procurement activities from
2019. As of the Latest Practicable Date, the main business of Shanghai Adicon is to provide testing
services for CRO or pharmaceutical companies for scientific research or clinical trial purpose. It is
not expected that the Shanghai Incident will have any further material negative impact on our future
business, financial condition or results of operations.
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Other Incidents
(i) The Tang and Wang Case (People’ s Procuratorate of Minhang District of Shanghai vs. Xu)
This is a criminal prosecution against Xu, the former deputy director of Minhang Community
Medical Service Center in Shanghai (the “ Minhang Medical Center ”). Xu was accused of
accepting a number of bribes for an aggregate amount of RMB106,000 during his service in
Minhang Medical Center from February 2011 to July 2013, when he took advantage of his position
of being in charge of purchasing drugs and medical equipment, and selecting suppliers. Among his
seven bribes, Xu received a total amount of RMB20,000 from the former sales supervisor of
Shanghai Adicon, Tang, in February 2012, and a total amount of RMB6,000 from the then sales
supervisor of Shanghai Adicon, Wang, in 2013. Tang and Wang attended the trial as witnesses. Xu
was convicted of bribery and sentenced to five years imprisonment. The concerned sales
supervisors, Tang and Wang, left Shanghai Adicon after the incident. The incident did not have a
material adverse impact on Shanghai Adicon. During the Track Record Period and up to the Latest
Practicable Date, Minhang Medical Center had no longer been our customer.
(ii) The Chen and Xu Case (People’ s Procuratorate of Pudong New District of Shanghai vs. Qiao)
This is a criminal prosecution against Qiao, the former deputy director of Huinan Community
Medical Service Center in Shanghai (the “ Huinan Medical Center ”). Qiao was accused of
accepting a number of bribes for an aggregate amount of RMB86,000 from the then employees of
Shanghai Adicon, Chen and Xu, during his service in Huinan Medical Center from the end of 2010
to September 2012, when he took advantage of his position of being in charge of public health. Qiao
was convicted of bribery and sentenced to two years imprisonment with a suspension of sentence
for two years. The two concerned employees, Chen and Xu, left Shanghai Adicon after the incident.
The incident did not have a material adverse impact on Shanghai Adicon. During the Track Record
Period and up to the Latest Practicable Date, Huinan Medical Center had no longer been our
customer.
(iii) The Zhu Case (People’ s Procuratorate of Shanxian County of Shandong vs. Ding)
This is a criminal prosecution against Ding, the former director of the Basic Level Health
Department of Shandong Provincial Health and Family Planning Commission. Ding was accused of
accepting a number of bribes for an aggregate amount of RMB737,886 from the end of 2008 to April
2013. Among the bribers, Ding accepted a total amount of RMB261,886 from Zhu, the then general
manager of Jinan Adicon in January 2012 and April 2013, and assisted Jinan Adicon with its bid to
provide cervical cancer screening services in rural area of Shandong province (the “ Project ”). Jinan
Adicon later successfully won the bids for the Project in August 2012, May 2013 and July 2014.
Ding was convicted of bribery and sentenced to four years imprisonment. The concerned general
manager, Zhu, left Jinan Adicon after the incident. The incident did not have a material adverse
impact on Jinan Adicon. During the Track Record Period and up to the Latest Practicable Date,
Basic Level Health Department of Shandong Provincial Health and Family Planning Commission
had no longer been our customer.
(iv) The Huang Case (People’ s Procuratorate of Xihu District of Hangzhou vs. Li)
This is a copyright infringement and criminal prosecution against Li, an employee of an
authorized distributor for Kingdee software. In August 2011, Li cracked the Kingdee software
without the permission of the copyright holder, and installed the pirate version of the software on
Hangzhou Adicon’s server, with the permission of Huang Qinghe, the then IT manager of Hangzhou
Adicon. In June 2012, Huang took kickback for a total amount of RMB30,000 from Li. Li was
convicted of copyright infringement and bribery to non-state officials, and was sentenced to three
years imprisonment with a suspension of sentence for four years. The concerned IT manager,
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Huang, left Hangzhou Adicon after the incident. The incident did not have a material adverse impact
on the Company. During the Track Record Period and up to the Latest Practicable Date, the software
distributor had no longer served as our supplier.
Given that (i) each of the incident described above occurred at the subsidiary level of the
Group prior to the Track Record Period, and none of our subsidiary was prosecuted or convicted in
any of the incidents, (ii) the concerned amount of payment or kickback was minimal, (iii) the
concerned customer or supplier, individually or in the aggregate, was not material to the relevant
subsidiary or the Group as a whole, (iv) none of the concerned parties in the incidents served as our
customers or suppliers after the incidents, or during the Track Record Period and up to the Latest
Practicable Date, (v) the concerned employees already left the relevant subsidiary after the incident,
and (vi) none of the current directors or senior management of the Company was involved in any
of the incidents, our Directors believe that the aforementioned incidents, individually or in the
aggregate, did not have a material adverse effect on our business as a whole.
Remedial actions taken by the Company following the Incidents
We have taken the following measures to prevent the recurrence of similar incidents in the
future, and there was no recurrence of incidents of similar kind in which our Group or any of our
subsidiaries was held liable for any bribery activities subsequent to the Shanghai Incident.
Implementation of Anti-corruption Policies and Procedures
In November 2018, we implemented anti-corruption policies and procedures (the “ Anti-
corruption Policies and Procedures ”), which sets forth our commitment to ensure that each
subsidiary and employee abides by applicable anti-corruption laws and internal policies.
We prohibit bribery in any form. Employees may not, whether directly or through a third party,
offer, give, promise, authorize the payment of anything of value to any person or entity, including
any government official, in order to improperly influence or reward any decision or act related to
our business, including to improperly obtain or retain business or a business advantage. Receiving,
requesting, or agreeing to receive a bribe is also prohibited, as are facilitation payments. In addition,
we set up different management approval authority to ensure approval roles are effectively
separated, and expenditures are properly reviewed, approved and authorized. In general, our chief
compliance officer is in charge of the approval of the exceptional cases to our internal procedures
and guidelines, whereas our chief financial officer takes to scrutinize and approve any large
expenditures and proposed engagements of third-party service providers. The management monitors
the third party payments during regular internal audits to identify non-compliance incidents.
Moreover, we extend our anti-corruption and anti-bribery efforts not only to our management and
employees, but also to third-party intermediaries and agents. They are strictly prohibited from
providing improper payments or gifts on behalf of the company to any entity or individual,
including but not limited to government officials.
We require our engagement with third parties to be made in the form of written agreement,
which shall include complete and accurate descriptions of salient terms such as the scope of service
and fee arrangement. All fee arrangement shall be in line with market practice and comply with
applicable laws. We prohibit any cash payment to third party service providers. Payment to third
parties shall be made through bank transfer to a bank account opened in the place where the service
is provided or where the party’s office is located. Any other payment methods shall be subject to
the approval from our chief compliance officer on a case by case basis. There may be very few cases
where exceptions to our internal procedures and guidelines are urged in response to emergencies
such as imminent threat to the health and safety of our employees. Nevertheless, any exceptions to
our procedures and guidelines are subject to written approval by our chief compliance officer.
Before engaging any third parties, detailed background check must be conducted to ensure that we
cooperate with reliable partners. Our sales team conducts background check before engaging new
customers, including reviewing business license, tax registration certificate, medical practice permit
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and physician license, based on different customer groups. For intermediaries and agents, our sales
team reviews their business scope and conduct public research to make sure such agents are not
subject to any non-compliance incidents. Before engaging new suppliers, our procurement team
runs background check on their licenses and certificates required for the performance of relevant
service as per relevant laws and regulations, and investigates the manufacturing and operation of
such suppliers to make sure they have the capacity required for the performance of relevant
services. If the amount to be paid to third party service providers is in excessive of RMB50,000,
regardless of whether it is in the form of remuneration or reimbursement, the introducing and
supervising personnel must first obtain approval from senior management within our finance
department who shall conduct a thorough background check on the third party. The introducing and
supervising personnel shall cooperate with our finance department to collect materials and
information required for the performance of background check, and to negotiate the compliance
terms of the relevant agreement pursuant to the instructions of the chief financial officer.
In addition, our Anti-corruptions Policies set out red flags indicating higher risks leading to
a possible violation from detailed aspects, such as irregular payment or reimbursement requests
from the third party service providers, their relationships with government officials, their refusal of
committing to our Anti-corruption Policies or disclosing responsible personnel or organizational
structure, or if they are subject to any non-compliance incidents. We require employees who have
knowledge of any violation of this policy, or any risk that may lead to a violation, to immediately
report the corresponding situation directly to our chief compliance officer. To this regard, we
established whistleblowing policies to protect those employees who report probable violations they
are aware of. Our internal audit team has set up hot line, e-mail and mail address for reporting. The
internal audit team evaluates the alleged risk or violation received and make report to the board,
who will then decide if further investigation is required. We maintain the confidentiality of the
anonymous whistleblower during the investigation and strictly prohibit any discrimination or
retaliation against such whistleblower. Those who were found to break the protection measures will
be subject to penalties pursuant to our internal employees’ code of conduct, and transferred to the
judicial department in accordance with applicable laws and regulations. Violations of the
Anti-corruption Policies and Procedures may result in disciplinary actions, up to and including
termination of employment.
Establishment of Internal Control Department and Appointment of Chief Compliance Officer
After discovering the Shanghai Incident, in June 2014, we enhanced out internal control
measures and established an internal control department. Our internal control department conducts
regular internal audits and reviews to assess the compliance of departments and individual
employees with our internal control policies including the Anti-corruption Policies and Procedures.
We constantly monitor the implementation of those measures and procedures through our on-site
internal control teams, and we regularly review and enhance our internal control system.
In addition, we have appointed a chief compliance officer, Ms. LAN Jia, who is responsible
for the management and enforcement of our internal control policies, under the supervision of our
chief executive officer and the Board. Ms. LAN takes to update the Anti-corruption Policies and
Procedures, as well as the training materials on a regular basis, and to coordinate with the Board
to assess and evaluate the performing status and effectiveness of our relevant internal control
efforts. Ms. LAN enjoys extensive experience in management, finance, accounting and compliance.
Prior to joining us, Ms. LAN worked for more than five years in Meinian Onehealth, where she had
been primarily responsible for the company’s finance, investment and financial compliance. Prior
to that, she worked as the head of internal audit in a Shenzhen listed company, and concurrently as
an independent director of another Shenzhen listed company. Ms. LAN obtained the Certified
Public Accountant qualification in China in 2001. Leveraging her versatility and rich experience,
she is capable of taking charge of the overall risk management of our Company, and implementing
consistent and effective policies and procedures accommodating our organization structure.
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Training
All of our employees are required to complete compulsory and comprehensive training on our
Anti-corruption Policies and Procedures covering outlines of prohibited behaviors, our supervisory
policies, and penalties for violation of such policies and procedures and coupled with illustrative
case studies. All employees are required to execute Compliance Assurance Letter on a periodic basis
in which they agree to comply with the Anti-corruption Policies and Procedures and will not engage
in any bribery or corruption behaviors. In addition, we require our sales and marketing personnel
to pass our tests on such policies and procedures to ensure they acknowledge the key topic areas
of bribery and the best practice. Moreover, we also require the managers of each of our departments
to take an anti-corruption annual questionnaire by the end of each fiscal year, and report to our chief
compliance officer for assessment and inspection.
Directors’ and Joint Sponsors’ Views
Based on our investigations, our Directors are of the view that (i) the Shanghai Incident and
the other incidents occurred at the subsidiary level and our directors and senior management then
and now held in office were not aware of, were not involved in and did not in any way endorse the
misconduct in the Shanghai Incident, the Tang and Wang Case, the Chen and Xu Case, the Zhu Case
and the Huang Case; (ii) our Group has implemented enhanced internal control measures to prevent
similar incidents in the future, which our Directors believe are effective, as no similar incidents in
which our Group or any of our subsidiaries was held liable for any bribery activities occurred after
the incidents; and (iii) all of the incidents, individually or in the aggregate, did not and will not have
any material effect on our business, financial condition and results of operations.
Having considered the view of the Directors and based on the due diligence work conducted
by the Joint Sponsors, including but not limited to reviewing the internal control policies and
measures of the Group with the assistance of an internal control consulting firm (the “ Internal
Control Consultant ”) pursuant to the scope agreed among the Company, the Joint Sponsors and the
Internal Control Consultant, understanding that the Internal Control Consultant did not identify
deficiencies in such controls that would warrant rectification recommendations within the Group
and interviewing with relevant management of the Company, nothing has come to the Joint
Sponsors’ attention that would reasonably cause them to cast doubt on the reasonableness of the
view of the Directors above.
Incident Relating To Bidding
Background
Hefei Adicon participated the bidding for Mingguang Municipal People’s Hospital in June
2019 and initially won the bid. As Hefei Adicon obtained a certificate of “Highly Specialized and
Innovative Small and Medium-sized Enterprise of Anhui Province” (ਖ਼ၚतอʕʃΆุ)
issued by the Economic and Information Technology Commission of Anhui Province (຾᏶
ึ) in 2015 and a certificate of “Excellent Entity for Employment of People with
Disabilities” ( ಞशɛఱุ΋ආණ᜗) issued by Hefei municipal government in 2010, Hefei Adicon’s
staff erroneously checked the relevant items of small and medium-sized enterprise status and
welfare enterprise for people with disabilities ( ಞशɛ၅лΆุ) status in the electronic bidding
submission system (the “Hefei Incident”). Upon investigation conducted by Mingguang Municipal
Development and Reform Commission Office, as Hefei Adicon was neither a small enterprise nor
a welfare enterprise for people with disabilities in accordance with applicable rules, the aforesaid
information submitted by Hefei Adicon during the bidding process was deemed as false
information. As a result, Hefei Adicon was determined to be disqualified for the bid with
Mingguang Municipal People’s Hospital. It was imposed a fine of RMB5,100 and banned from
participating in government procurement activities for one year from October 31, 2019 and the
Hefei Incident was recorded and publicly disclosed as an ordinary dishonest conduct (Б
މon website of Credit China ( www.creditchina.gov.cn) .
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Upon Hefei Adicon’s application based on the reasons that (i) the allegation of a small
enterprise and welfare enterprise for people with disabilities didn’t add any point to Hefei Adicon
in the bidding valuation process, (ii) the allegation was made purely due to uninformed carelessness
of relevant employees, (iii) the Hefei Incident did not result in any material negative impact on
Mingguang Municipal People’s Hospital and other participants in the bidding and Hefei Adicon did
not receive any economic benefits due to its negligence in the Hefei Incident, and (iv) Hefei Adicon
has fully paid the fine and made all necessary rectification measures, the competent government
authorities made the decision, on February 12, 2020, to restore the credibility of Hefei Adicon and
the public disclosure of the ordinary dishonest conduct was subsequently withdrawn from Credit
China.
After the Hefei Incident, the concerned staff resigned from our Company. As the Hefei
Incident was purely due to uninformed carelessness of the relevant staff, based on our internal
investigation, the concerned staff did not obtain any benefits from the incident. The impact of the
Hefei Incident on Hefei Adicon was not material and Hefei Adicon is now eligible to participate in
government procurement activities. It is not expected that the Biding Incident will have any further
material negative impact on our future business, financial condition or results of operations.
Remedial actions taken by the Company following the Hefei Incident
We have taken the following measures to prevent the recurrence of similar incidents in the
future, and there was no recurrence of similar incidents in which our Group or any of our
subsidiaries was held liable for any noncompliance in participating in any government procurement
activities subsequent to the Hefei Incident.
Establishment of a Bidding Management Team
To effectively prevent any similar incident from happening in the future, we built a dedicated
bidding team to closely manage and supervise the bidding process. Our bidding team consists of a
material preparation group and a participating group, both of which have a handful of specialists
with extensive experience. By engaging a group of specialists each handling specific procedures
they are familiar with, we are able to effectively enhance our bidding quality and significantly
reduce potential mistakes.
Enhancement of Policies and Procedures
Coupled with our specialists, we also enhanced the standardization of our procedures and
established review mechanism to further ensure the accuracy of our information provided in bidding
materials. Once the bidding material is composed, it will be subject to in-depth review by our
bidding material review specialists to ensure that we take due care to meet all relevant requirements
set by the customer. We have also made it clear that in the case of similar bidding incidents caused
by carelessness or any other malpractice of the relevant staff, the staff will be subject to disciplinary
actions, dependent upon the severity of such incident.
Training
We organized multiple training sessions on bidding process for our employees, including
trainings on laws and regulations on bidding and our enhanced internal bidding procedures. We will
continue to conduct regular trainings for our bidding team.
Views of our Directors
Based on our investigations, our Directors are of the view that (i) the inaccuracy of the
information provided in the Hefei Incident was not willful and was purely out of uninformed
carelessness; (ii) our Group has enhanced the internal bidding procedures to prevent similar incident
in the future and no similar incidents in which our Group or any of our subsidiaries was held liable
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for any noncompliance in participating in any government procurement activities occurred after the
Hefei Incident; and (iii) the Hefei Incident did not and will not have any material effect on our
business, financial condition and results of operations.
RISK MANAGEMENT AND INTERNAL CONTROL
Risk Management
We are dedicated to the establishment and maintenance of a robust risk management and
internal control system. We have adopted and implemented risk management policies and corporate
governance measures in various aspects of our business operations to identify, assess, evaluate and
monitor key risks associated with our strategic objectives on an on-going basis. Our audit
committee, and ultimately our Directors supervise the implementation of our risk management
programs. Risks identified by management will be analyzed on the basis of likelihood and impact,
and will be properly followed up and mitigated and rectified by our Group and reported to our
Directors.
The following key principles outline our approach to risk management and internal control:
Our Audit Committee oversees and manages the overall risks associated with our business
operations, including (i) reviewing and approving our risk management programs and procedures
to ensure that it is consistent with our corporate objectives; (ii) monitoring the most significant risks
associated with our business operation and our management’s handling of such risks; (iii) reviewing
our corporate risk matrix in the light of our corporate risk tolerance; (iv) reviewing the significant
residual risks and the needs to set up mitigating controls; and (v) monitoring and ensuring the
appropriate application of our risk management framework across our Group.
Our chief financial officer, Mr. WANG Lawrence Allen, is responsible for (i) formulating and
updating our risk management program and target; (ii) reviewing and approving major risk
management issues of our Company; (iii) promulgating risk management measures; (iv) providing
guidance on our risk management approach to the relevant departments in our Company; (v)
reviewing the relevant departments’ reporting on key risks and providing feedbacks; (vi)
supervising the implementation of our risk management measures by the relevant departments; (vii)
ensuring that the appropriate structure, processes and competences are in place across our Group;
and (viii) reporting to our Audit Committee on our material risks.
Our finance department, legal and compliance department, and human resources department
are responsible for implementing our risk management program and carrying out our day-to-day
risk management practice. In order to formalize risk management across our Group and set a
common level of transparency and risk management performance, the relevant departments will (i)
gather information about the risks relating to their operation or function; (ii) conduct risk
assessments, which include the identification, prioritization, measurement and categorization of all
key risks that could potentially affect their objectives; (iii) continuously monitor the key risks
relating to their operation or function; (iv) implement appropriate risk responses where necessary;
and (v) develop and maintain an appropriate mechanism to facilitate the application of our risk
management framework.
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Internal Control
Our Board is responsible for establishing our internal control system and reviewing its
effectiveness. We have engaged the Internal Control Consultant to perform certain agreed-upon
procedures (the “ Internal Control Review ”) in connection with our internal control and our major
operating subsidiaries and to report factual findings on our entity-level controls and internal
controls of various processes, including financial reporting and disclosure controls, sales accounts
receivable and collection, procurement and vendor management, accounts payable and payment,
fixed assets and assets under construction, human resources and payroll management, cash and
treasury management, inventory management, general controls of IT system, taxation management,
production and costing, insurance management, research and development and intangible assets.
The Internal Control Consultant performed the Internal Control Review. As of the Latest Practicable
Date, there were no material outstanding issues relating to our internal control.
We regularly reviewed and enhanced our internal control system. The following is a summary
of the internal control policies, measures and procedures we have implemented or plan to
implement:
We have adopted various measures and procedures regarding each aspect of our business
operation, such as sample management, sample collection and transportation, quality control over
laboratory operations, protection of intellectual property, information security, adverse event
reporting, environmental protection and occupational health and safety, etc. We provide periodic
training about these measures and procedures to our employees as part of our employee training
program. We also constantly monitor the implementation of those measures and procedures through
our on-site internal control teams.
Our senior management team and our Directors, with help from our legal advisors, will also
periodically review our compliance status with all relevant laws and regulations. We have internally
established a set of compliance policies to provide guidance to our employees on expected business
practices and ethical and moral behaviors, such as Code of Conduct and Ethics Policy and
Anti-corruption Policies and Procedures. We strictly require our employees to comply with
applicable anti-corruption laws. Such anti-corruption laws generally prohibit the offer, promise,
payment or receipt of anything of value to obtain, retain or grant business opportunities or to
exchange in an improper advantage. Any employee that violates the Anti-corruption Policies and
Procedures can be subject to disciplinary actions, up to and including termination of employment.
We also prohibit employees from engaging in any illegal or unethical economic behavior and
seeking benefits from it, and implement strict management and audit procedures to prevent lack of
transparency and corruption during the sale or procurement process.
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LICENSES, PERMITS AND APPROV ALS
Our PRC Legal Advisor has advised us that as of the Latest Practicable Date, except as
otherwise disclosed, we had obtained all requisite licenses, approvals and permits from the relevant
government authorities that are material for our business operations in China. In addition, the
Company believes that there is no foreseeable difficulty in renewing the material licenses that will
expire in the next 12 months after listing.
The following table sets forth a list of material licenses currently held by us:
License Holder License Issuance/Grant Date Expiration Date
Hangzhou Adicon Medical Institution Practicing License June 18, 2020 June 17, 2025
Hefei Adicon Medical Institution Practicing License March 29, 2023 March 28, 2028
Shanghai Adicon Medical Institution Practicing License May 31, 2021 July 14, 2026
Jinan Adicon Medical Institution Practicing License May 24, 2023 November 25, 2035
Beijing Adicon Medical Institution Practicing License October 25, 2022 December 17, 2024
Nanchang Adicon Medical Institution Practicing License May 13, 2022 May 12, 2027
Fuzhou Adicon Medical Institution Practicing License January 5, 2021 January 4, 2024*
Jilin Adicon Medical Institution Practicing License May 6, 2021 May 5, 2026
Wuhan Adicon Medical Institution Practicing License November 22, 2021 December 4, 2026
Nanjing Adicon Medical Institution Practicing License November 12, 2019 May 3, 2024*
Changsha Adicon Medical Institution Practicing License March 15, 2023 April 2, 2028
Chengdu Adicon Medical Institution Practicing License July 6, 2020 July 14, 2025
Shenyang Adicon Medical Institution Practicing License January 21, 2022 January 20, 2027
Zhengzhou Adicon Medical Institution Practicing License April 23, 2020 April 17, 2025
Guangzhou Adicon Medical Institution Practicing License March 26, 2021 August 7, 2023*
Tianjin Adicon Medical Institution Practicing License February 9, 2022 February 8, 2027
Yunnan Adicon Medical Institution Practicing License September 5, 2022 December 2, 2024
Xi’an Adicon Medical Institution Practicing License October 26, 2021 November 23, 2026
Sanming Adicon Medical Institution Practicing License October 26, 2022 November 14, 2025
Chongqing Adicon Medical Institution Practicing License May 25, 2023 May 24, 2028
Nanning Adicon Medical Institution Practicing License December 16, 2022 December 8, 2024
Qingdao Adicon Medical Institution Practicing License December 20, 2019 December 19, 2024
Shenzhen Adicon Medical Institution Practicing License April 7, 2023 January 20, 2025
Quzhou Adicon Medical Institution Practicing License April 22, 2022 July 26, 2035
Shangrao Adicon Medical Institution Practicing License December 14, 2020 November 27, 2034
Xiamen Adicon Medical Institution Practicing License June 9, 2021 June 8, 2024*
Suzhou Adicon Medical Institution Practicing License May 23, 2022 May 22, 2027
Henan Adicon Medical Institution Practicing License July 9, 2020 July 8, 2035
Guizhou Adicon Medical Institution Practicing License June 7, 2022 June 7, 2025
Heilongjiang Adicon Medical Institution Practicing License August 8, 2022 August 7, 2027
Wenzhou Adicon Medical Institution Practicing License September 23, 2022 September 22, 2027
Xinyang Adicon Medical Institution Practicing License November 14, 2022 November 13, 2037
Linyi Adicon Medical Institution Practicing License January 13, 2023 January 12, 2028
Hangzhou Huitu Medical Device Operation License May 8, 2021 April 1, 2026
Shanghai Lv’angjie Medical Device Operation License March 22, 2021 January 24, 2026
Jiangxi Jince Medical Device Operation License June 28, 2021 December 6, 2025
* We will renew the license before it expires.
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INTRODUCTION
We conduct our ICL business in the PRC through the PRC Operating Entities, namely
Hangzhou Adicon and its subsidiaries. As of the Latest Practicable Date, the PRC Operating Entities
operated 33 laboratories across the PRC in Beijing, Changsha, Chengdu, Chongqing, Fuzhou,
Guangzhou, Guizhou, Hangzhou, Hefei, Heilongjiang, Henan, Jilin, Jinan, Kunming, Nanchang,
Nanjing, Nanning, Qingdao, Quzhou, Sanming, Shanghai, Shangrao, Shenyang, Shenzhen, Suzhou,
Tianjin, Wenzhou, Wuhan, Xi’an, Xinyang, Xiamen, Linyi and Zhengzhou. Our laboratories provide
a variety of ICL testing services, many of which involved a technology called “polymerase chain
reaction (“ PCR”o r ਿΪᓒᄣҦஔ in Chinese)”, a mature and advanced laboratory technology
widely used for genetic testing services, which require rapidly making millions to billions of copies
of a specific DNA sample.
Due to foreign investment restrictions, our Company and our indirect wholly foreign owned
subsidiary, Aidiken WFOE, as foreign investors, are prohibited from holding any equity interests in
laboratories performing ICL testing services with PCR (the “ Relevant Business ”). In order to
conduct the Relevant Business in the PRC, since December 26, 2008, our Company has been,
through Aidiken WFOE, controlled Hangzhou Adicon and its subsidiaries as the subsidiaries of our
Company through the Contractual Arrangements.
PRC LA WS AND REGULATIONS ON FOREIGN OWNERSHIP RESTRICTIONS
Foreign investment activities in the PRC were mainly governed by (i) the Encouraged Industry
Catalogue for Foreign Investment (2022 version) ( ོᎸ̮ਠҳ༟ପุͦ፽(2022و)) (the
“Catalogue ”), which was promulgated and is amended from time to time jointly by the MOFCOM
and the NDRC; and (ii) the Special Administrative Measures on Access of Foreign Investment
(Negative List) (݄(૶ఊ)), the latest amended version of which
was jointly promulgated by the MOFCOM and the NDRC on December 27, 2021 and took effect
as of January 1, 2022 (the “ Negative List ”). The Catalogue and the Negative List stipulate
industries in which foreign investment is restricted and prohibited.
Our PRC Legal Advisor has confirmed that, pursuant to the Negative List and based on
interviews with competent government authorities, foreign investors are prohibited from investing
in the Relevant Business.
Recent Regulatory Development in China
According to Article 6 of the 2021 Negative List which took effect on January 1, 2022, where
a domestic company engaging in business prohibited in the Negative List seeks to offer shares and
list securities in an overseas market, such offering and listing shall be approved by relevant
competent PRC authorities. Foreign investors must not participate in the operation and management
of the company, and their shareholding percentage shall be subject to relevant provisions on the
administration of domestic securities investment by foreign investors.On December 27, 2021, a
spokesman from the NDRC held a press conference in relation to the 2021 Negative List. During
the conference, it was held that the supervision and administration of the overseas issuance and
listing by a domestic enterprise under 2021 Negative List shall be led by CSRC and the CSRC will
seek the view of the competent authority in the relevant industry or sector after receipt of the
application materials for an “overseas listing” (“ ྤ̮ɪ̹”).
On January 18, 2022, the NDRC held another press conference, to further clarify the 2021
Negative List, during which the spokesperson of NDRC make it clear that Article 6 of the Negative
List shall only be applicable where a domestic company is seeking a direct overseas issuance and
listing. With reference to the definition under the Overseas Listing Trial Measures, a direct overseas
issuance and listing of a domestic company refers to a PRC-incorporated joint stock company issues
shares or seeks to be listed overseas, where the listed company is the domestic company itself, such
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as H shares listing (the “ Direct Overseas Listing ”). Based on the clarification made by the NDRC,
our PRC Legal Advisor is of the view that our proposed Listing does not constitute a Direct
Overseas Listing, which is a case applicable under the Article 6 of the Negative List.
On February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas
Securities Offering and Listing by Domestic Companies ( ྤʫΆุྤ̮೯БᗇՎձɪ̹၍ଣ༊Б፬
جthe “ Overseas Listing Trial Measures ”) and five supporting guidelines, which came into
effect on March 31, 2023. The Overseas Listing Trial Measures will regulate both direct and indirect
overseas offering and listing of PRC domestic companies’ securities by adopting a filing-based
regulatory regime. Where an issuer submits an application for initial public offering to competent
overseas regulators, such issuer must file with the CSRC within three business days after such
application is submitted.
On the same day, the CSRC also held a press conference for the release of the Overseas Listing
Trial Measures and issued the Notice on Administration for the Filing of Overseas Offering and
Listing by Domestic Companies (ٝwhich, among
others, clarifies that companies that satisfy all of the following conditions shall be deemed as
“Existing Applicants ( πඎΆุ)” and are not required to complete the overseas listing filing
immediately, but shall complete filings as required if they conduct refinancing or are involved in
other circumstances that require filing with the CSRC (i) the application for overseas offering or
listing shall have been approved by the relevant overseas regulatory authority or stock exchange
(such as passing the hearing for the listing application of its shares on the Stock Exchange) prior
to March 31, 2023, (ii) the company is not required to reapply for offering and listing procedures
to the overseas regulatory authority or securities exchanges (such as a new hearing for the listing
application of its shares on the Stock Exchange) after March 31, 2023, and (iii) such overseas
securities offering or listing shall be completed on or prior to September 30, 2023. The CSRC will
solicit opinions from relevant regulatory authorities and complete the filing of the overseas listing
of companies with contractual arrangements which duly meet the compliance requirements, and
support the development and growth of these companies by enabling them to utilize two markets
and two kinds of resources. See “Regulatory Overview – Regulations Relating to Foreign
Investment”.
Based on the foregoing and as advised by our PRC Advisor, if we are not deemed as an
Existing Applicant, we will be required to complete the filing procedures with the CSRC in
connection with the Listing.
If we fail to complete the filing with the CSRC in a timely manner or at all for any capital
raising activities, which are subject to the filings under the Overseas Listing Trial Measures, due
to our Contractual Arrangements, our ability to raise or utilize funds could be materially and
adversely affected, and we may even need to unwind our Contractual Arrangements or restructure
our business operations to rectify the failure to complete the filings. However, given that the
Overseas Listing Trial Measures were recently promulgated, there remains substantial uncertainties
as to their interpretation, application, and enforcement and how they will affect our operations and
our future financing. See “Risk Factors – Risks Relating to Doing Business in China – Filing with
the CSRC may be required in connection with the Listing, and, if required, we cannot predict
whether we will be able to complete such filing.”
Although as of the date of this Prospectus, we had not received any inquiry, notice, warning,
or sanctions regarding the proposed Listing or our corporate structure from the CSRC or any other
PRC government authorities with respect to the filing requirement under the new regulatory regime
or with respect to the Contractual Arrangements, we cannot guarantee that new rules or regulations
promulgated in the future will not impose any additional requirements on us or otherwise tighten
the regulations on the Contractual Arrangements. For further details, see “Risk Factors – Risks
Relating to Our Contractual Arrangements”.
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OUR CONTRACTUAL ARRANGEMENTS
The following simplified diagram illustrates the existing structure of the Contractual
Arrangements:
Our Company
Aidiken WFOE
Hangzhou Adicon
Registered Shareholders(1)
100%
100%
• Exclusive Option Agreement
• Loan Agreement
• Equity Pledge Agreement
• Powers of Attorney
• Exclusive Business Cooperation
Agreement
Offshore
Onshore
33 laboratories operated
by Hangzhou Adicon and
its subsidiaries
Entities controlled under the Contractual Arrangements
Note:
(1) Mr. LIN Jixun and Mr. LIN Feng, through their respective holding company, were the registered shareholders of
Hangzhou Adicon prior to October 2018. After the investment of Pearl Group Limited in October 2018, Ms. LAN Jia
and Ms. LIAN Hailun were designated by our Pre-IPO Investors to become the Registered Shareholders of Hangzhou
Adicon in October 2018. Ms. LAN Jia is the chief compliance officer of our Group and is the general manager and
legal representative of Hangzhou Adicon. Ms. LIAN Hailun is a principal of Carlyle’s Asia Buyout Fund and is a
supervisor of Hangzhou Adicon and Aidiken WFOE. On October 14, 2020, Hangzhou Kangming, on behalf of certain
PRC senior management of our Company (namely Mr. GAO Song, Mr. PAN Chao, Mr. WANG Chengdong and four
other existing and previous senior employees who are neither our Directors nor our senior management, see the
section headed “Directors and Senior Management” in this Prospectus for details), subscribed 0.36% equity interests
in Hangzhou Adicon. Since then, Hangzhou Adicon has been owned as to 49.82%, 49.82% and 0.36% by Ms. LAN
Jia, Ms. LIAN, Hailun and Hangzhou Kangming, respectively.
If the applicable PRC laws and regulations allow the Relevant Business to be conducted by
laboratories with foreign investments, we will, as soon as practicable, unwind and terminate the
Contractual Arrangements, and directly hold the maximum percentage of ownership interests of the
PRC Operating Entities to the extent permissible under applicable PRC laws and regulations.
Our Directors believe that the Contractual Arrangements are fair and reasonable as (i) the
Contractual Arrangements were freely negotiated and entered into between Hangzhou Adicon,
Aidiken WFOE and the Registered Shareholders; (ii) by entering into the Exclusive Business
Cooperation Agreement (as defined below), Hangzhou Adicon will enjoy better economic and
technical support from Aidiken WFOE, and (iii) a number of other foreign-owned companies use
similar arrangements to accomplish the same purpose.
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SUMMARY OF THE CONTRACTUAL ARRANGEMENTS
Exclusive Business Cooperation Agreement
Under the amended and restated exclusive business cooperation agreement dated November
23, 2020 (the “ Exclusive Business Cooperation Agreement ”) entered into among Aidiken WFOE,
Hangzhou Adicon and the Registered Shareholders, Hangzhou Adicon agreed to engage Aidiken
WFOE as its exclusive provider of comprehensive business support, technical services and
consultancy services, in exchange for service fees. Under this agreement, the yearly service fees
shall be all the after-tax profit of Hangzhou Adicon (including all the distributable profit obtained
by Hangzhou Adicon from its subsidiaries) in the financial year, but Aidiken WFOE is entitled to
adjust the service fees at its sole discretion based on the quantity and content of the services
provided.
Pursuant to the Exclusive Business Cooperation Agreement, Aidiken WFOE has the exclusive
and complete proprietary rights to all intellectual properties developed in performance of
obligations under the Exclusive Business Cooperation Agreement, whether developed by Hangzhou
Adicon or its subsidiaries, Aidiken WFOE, or jointly.
The Exclusive Business Cooperation Agreement shall remain effective until Aidiken WFOE
exercises its unilateral right to terminate by prior written notice to other parties. Subject to
applicable laws and unless stated otherwise in the agreement, Hangzhou Adicon does not have the
right to unilaterally terminate the contract.
Exclusive Option Agreement
Under the amended and restated exclusive option agreement dated November 23, 2020 (the
“Exclusive Option Agreement ”) entered into among Aidiken WFOE, Hangzhou Adicon and the
Registered Shareholders, Aidiken WFOE (or its designee) was granted an irrevocable, unconditional
and exclusive right to purchase all or any of the equity interest in and/or assets of Hangzhou Adicon
held at present or in the future for a consideration equivalent to the lowest price permitted under
PRC laws at the time of purchasing. At Aidiken WFOE’s request, the Registered Shareholders
and/or Hangzhou Adicon will promptly and unconditionally transfer their respective equity interests
in and/or the relevant assets of Hangzhou Adicon to Aidiken WFOE (or its designee) after Aidiken
WFOE exercises its purchase right. Subject to relevant PRC laws and regulations, the Registered
Shareholders shall compensate Aidiken WFOE with an amount equivalent to any purchase price, or
profits, distributions, dividends or bonus received from Hangzhou Adicon. The Registered
Shareholders (as registered shareholders of Hangzhou Adicon) have covenanted to Aidiken WFOE
that they shall not, among other things: (i) sell or transfer the equity interests of Hangzhou Adicon,
or allow such equity interests be subject to a guarantee or other forms of encumbrances; (ii) approve
any distribution of dividends to the Registered Shareholders, unless with the prior consent of
Aidiken WFOE; and (iii) enter into any arrangements to reduce the value of the equity interests of
Hangzhou Adicon. Hence, the potential adverse effect on Aidiken WFOE and us in the event of any
loss suffered from Hangzhou Adicon and/or its subsidiaries can be limited to a certain extent.
If Aidiken WFOE exercises its purchase right, all or any part of the equity interests in and/or
assets of Hangzhou Adicon acquired shall be transferred to Aidiken WFOE and the benefits of
equity ownership and/or assets, as applicable, will flow to us and our Shareholders.
The Exclusive Option Agreement will remain effective until (i) all equity interests in and/or
assets of Hangzhou Adicon are transferred to Aidiken WFOE (and/or its designee) pursuant to the
terms of the agreement; or (ii) Aidiken WFOE exercises its unilateral right to terminate the
Exclusive Option Agreement by prior written notice to other parties. Subject to applicable laws and
unless stated otherwise in the agreement, Hangzhou Adicon and the Registered Shareholders do not
have the right to unilaterally terminate the contract.
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Loan Agreements
Under the amended and restated loan agreements dated November 23, 2020 (the “ Loan
Agreements ”) entered into respectively by Ms. LAN Jia and Ms. LIAN Hailun with Aidiken
WFOE, Aidiken WFOE agreed to extend to each of Ms. LAN Jia and Ms. LIAN Hailun a loan (the
“Loans ”) to be used exclusively for acquiring the equity interests in Hangzhou Adicon. The Loans
must not be used for any other purposes. Such Loans will become immediately due and payable
under any of the following circumstances: (i) twenty years has elapsed from the date of the Loans;
or (ii) the operating period of Aidiken WFOE expires; or (iii) Ms. LAN Jia or Ms. LIAN Hailun
ceases to hold any equity interests in Hangzhou Adicon; or (iv) Aidiken WFOE demands from Ms.
LAN Jia and Ms. LIAN Hailun repayment of the Loans without cause at any time after serving 10
days notice as and when Aidiken WFOE considers appropriate at its absolute discretion. The Loans
can only be repaid by transferring all of the equity interests in Hangzhou Adicon held by Ms. LAN
Jia and Ms. LIAN Hailun to Aidiken WFOE (or its designee).
Equity Pledge Agreement
Under the amended and restated equity pledge agreement dated November 23, 2020 (the
“Equity Pledge Agreement ”) entered into among Aidiken WFOE, Hangzhou Adicon and the
Registered Shareholders, the Registered Shareholders pledged all of their respective equity interests
in Hangzhou Adicon to Aidiken WFOE as collateral security to secure performance of their
obligations and Hangzhou Adicon’s obligations under the Equity Pledge Agreement, the Exclusive
Option Agreement, the Exclusive Business Cooperation Agreement, the Loan Agreements and the
Powers of Attorney (as defined below). In addition, under the Equity Pledge Agreement, none of the
Registered Shareholders or Hangzhou Adicon may transfer or permit the encumbrance of any of the
equity interests in Hangzhou Adicon without Aidiken WFOE’s prior written consent.
Should an event of default (as provided in the Equity Pledge Agreement) occur, unless it is
successfully resolved to Aidiken WFOE’s satisfaction, Aidiken WFOE is entitled to implement the
pledge under the Equity Pledge Agreement if the above default is not successfully resolved to
Aidiken WFOE’s satisfaction at the time of issuing the written demand or at any time thereafter.
The pledges under the Equity Pledge Agreement have been duly registered with the relevant
PRC legal authority pursuant to PRC laws and regulations.
The Equity Pledge Agreement will remain effective until all obligations under the Exclusive
Option Agreement, the Exclusive Business Cooperation Agreement, the Loan Agreements and the
Powers of Attorney have been fully performed.
Powers of attorney
Under the amended and restated powers of attorney dated November 23, 2020 (the “ Powers
of Attorney ”), the Registered Shareholders irrevocably appointed Aidiken WFOE (or its designee)
as their attorneys-in-fact to exercise all of their rights as registered shareholders of Hangzhou
Adicon pursuant to applicable laws and the memorandum of association of Hangzhou Adicon at the
time. These rights include the right to, among others, (i) propose and attend shareholders’ meetings,
and sign the relevant shareholders’ resolutions and meeting minutes; (ii) receive dividends of
Hangzhou Adicon; (iii) sell or transfer or pledge or dispose of all or part of Hangzhou Adicon’s
equity interests; (iv) obtain the properties of Hangzhou Adicon when it is liquidated; (v) designate
and appoint Hangzhou Adicon’s legal representative, directors, supervisors, chief executive officer
and other senior management personnel; (vi) submit to government authorities any documents that
need to be submitted by Hangzhou Adicon’s shareholders; (vii) dissolve and liquidate Hangzhou
Adicon and to serve as a member of the liquidation committee to exercise the powers of the
liquidation committee during the liquidation period in accordance with PRC laws and regulations;
and (viii) inspect Hangzhou Adicon’s shareholders resolutions, board resolutions, records and
financial records. Under the Powers of Attorney, if there are any conflicts between the rights of the
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Registered Shareholders and the instructions from Aidiken WFOE, the instructions from Aidiken
WFOE shall prevail. As a result of the Powers of Attorney, we, through Aidiken WFOE, are able
to exercise management control over the activities that most significantly impact the economic
performance of Hangzhou Adicon.
The Powers of Attorney remain effective until (i) the parties agree to terminate in writing; or
(ii) the Registered Shareholders transfer all of their respective equity interests in Hangzhou Adicon
to Aidiken WFOE (or its designee) with Aidiken WFOE’s prior written consent. Subject to
applicable laws and unless stated otherwise in the agreement, the Registered Shareholders do not
have the right to unilaterally terminate the contract.
Spouse undertakings
The respective spouse of Ms. LAN Jia and Ms. LIAN Hailun executed an irrevocable
undertaking dated November 23, 2020, whereby they expressly acknowledged and undertook that,
among others, (i) they do not hold any right or interest in any equity interests held by their
respective spouses as the registered shareholders in Hangzhou Adicon; and (ii) they will not take
any measures that are in conflict with the Contractual Arrangements.
The spouse of Ms. LAN Jia and Ms. LIAN Hailun also undertook that should they by any
reason hold any equity interests in Hangzhou Adicon, they will be bound by, as amended from time
to time, the Exclusive Business Cooperation Agreement, the Exclusive Option Agreement, the Loan
Agreements, the Equity Pledge Agreement and the Powers of Attorney. They undertook to comply
with the obligations of Hangzhou Adicon’s shareholders as set out in the aforementioned
agreements, and for this purpose, to execute agreements on substantially similar terms as the
aforementioned agreements upon Aidiken WFOE’s request.
Dispute resolution
Each of the Contractual Arrangements contains dispute resolution clauses, and stipulates that
the parties shall first negotiate in good faith to resolve any dispute with respect to the agreements
under the Contractual Arrangements. In the event the parties fail to reach an agreement on the
resolution of such a dispute within 30 days after any party’s request for resolution of the dispute
through negotiations, any party may submit the relevant dispute to Shanghai International
Arbitration Center for arbitration, in accordance with the then effective arbitration rules. The
arbitration shall be conducted in Shanghai, and the language used during arbitration shall be
Chinese. The arbitration shall be final and binding on all parties.
In addition, pursuant to the dispute resolution clause, the arbitral tribunal may award remedies
over the equity interests or assets of the PRC Operating Entities, including restrictions over the
conduct of business, restrictions or prohibitions over transfer or disposal of the equity interests or
assets or order the winding up of the PRC Operating Entities, and the courts of the PRC (being the
place of incorporation of the PRC Operating Entities and the place where our Company’s and the
PRC Operating Entities’ principal assets are located), Hong Kong and the Cayman Islands (being
the place of incorporation of our Company) shall have jurisdiction to grant and/or enforce the
arbitral award and to grant interim remedies over the equity interests or assets of the PRC Operating
Entities.
However, our PRC Legal Advisor has advised that (i) a tribunal normally would not grant
injunctive relief or a winding up order regarding PRC Operating Entities under PRC laws; (ii)
interim remedies or enforcement orders granted by courts outside the PRC such as Hong Kong and
the Cayman Islands may not be recognizable or enforceable in the PRC; and (iii) even if the
abovementioned provisions may not be enforceable under PRC laws, the remaining provisions of
the dispute resolution clauses are legal, valid and binding on the parties to the agreement under the
Contractual Arrangements.
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As a result of the above, in the event that Hangzhou Adicon or the Registered Shareholders
breach any of the Contractual Arrangements, we may not be able to obtain sufficient remedies in
a timely manner, and our ability to exert effective control over Hangzhou Adicon and conduct our
business could be materially and adversely affected. For further details, see “Risk Factors – Risks
Relating to Our Contractual Arrangements” in this Prospectus.
Succession
In the event of death, loss of capacity, divorce, bankruptcy or under other circumstance which
would affect the Registered Shareholders’ exercise of equity interest in Hangzhou Adicon, the
provisions set out in the Exclusive Option Agreement, the Exclusive Business Cooperation
Agreement, the Equity Pledge Agreement and the Powers of Attorney are also binding on the
successors of the Registered Shareholders, as if the successors were signing parties to the
Contractual Arrangements. Under the succession laws of the PRC, the statutory successors include
the spouses, children, parents, brothers, sisters, paternal grandparents and maternal grandparents of
the Registered Shareholders and any breach by the successors would be deemed to be a breach of
the aforementioned Contractual Arrangements.
In case of a breach, Aidiken WFOE can enforce its rights against the successors. Pursuant to
the aforementioned Contractual Arrangements, any inheritor of the Registered Shareholders shall
inherit any and all rights and obligations of the Registered Shareholders under such Contractual
Arrangements, as if the inheritor was a signing party to such Contractual Arrangements.
In addition, the spouses of Ms. LAN Jia and Ms. LIAN Hailun have executed an irrevocable
undertaking dated November 23, 2020. See “– Summary of the Contractual Arrangements – Spouse
Undertakings” in this section for details of the undertaking.
Arrangements to address potential conflicts of interests
The Registered Shareholders have undertaken that they will not execute any documents with
or make any undertaking to any third parties that may have conflicts of interest with any agreements
entered into between the Registered Shareholders and Aidiken WFOE.
Loss sharing
None of the agreements constituting the Contractual Arrangements provides that our
Company, Aidiken WFOE or other PRC subsidiaries of ours, are obligated to share the losses of or
provide financial support to Hangzhou Adicon. Further, Hangzhou Adicon is a limited liability
company and shall be solely liable for its own debts and losses with assets and properties owned
by it.
Under PRC laws and regulations, neither our Company nor Aidiken WFOE is expressly
required to share the losses of Hangzhou Adicon or provide financial support to Hangzhou Adicon.
Despite the foregoing, given that our Group conducts the Relevant Business in the PRC through
Hangzhou Adicon and its subsidiaries which hold the requisite PRC licenses and approvals,
including the licences for performing PCR testing, and that Hangzhou Adicon’s results of operations
and assets and liabilities are consolidated into our results of operations and assets and liabilities
under the applicable accounting principles, our business, financial condition and results of
operations would be adversely affected if Hangzhou Adicon suffered losses.
Liquidation
Pursuant to the Exclusive Option Agreement, in the event of a liquidation of Hangzhou Adicon
under PRC laws, Hangzhou Adicon shall transfer all its assets in which the Registered Shareholders
have a proprietary interest in to Aidiken WFOE (or its designee) at the lowest price permitted under
PRC laws.
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Insurance
We do not maintain an insurance policy to cover the risks relating to the Contractual
Arrangements. For further details, see “Risk Factors – Risks Relating to Our Business and Industry
– Our insurance may not sufficiently cover, or may not cover at all, losses and liabilities we may
encounter during the ordinary course of operation” in this Prospectus.
Company’s confirmation
As of the Latest Practicable Date, we had not encountered any interference or encumbrance
from any PRC governing bodies in operating the Relevant Business through Hangzhou Adicon and
its subsidiaries under the Contractual Arrangements.
LEGALITY OF THE CONTRACTUAL ARRANGEMENTS
On January 19, 2021, our PRC Legal Advisor interviewed the Health Commission of Zhejiang
Province (ึ)( “ Zhejiang NHC ”) and obtained the following verbal
confirmations: (i) Zhejiang NHC is the competent government authority governing foreign
investment into Hangzhou Adicon and its subsidiaries; (ii) the Relevant Business falls into the
category of “development and application of genetic diagnosis and treatment technologies” of the
Negative List, in which foreign investors are prohibited from investing; and (iii) the Contractual
Arrangements do not require any approvals from or filings with Zhejiang NHC.
On January 19, 2021, our PRC Legal Advisor interviewed the Zhejiang Ministry of Commerce
(ਠਕᝂ)( “Zhejiang MOFCOM ”) and obtained the following verbal confirmations: (i) after
the Foreign Investment Law of the People’s Republic of China ()
(the “FIL”) became effective on January 1, 2020, foreign investments in business sections under the
Negative List are mainly subject to administrative approvals and supervision by the competent
government authorities in charge of the relevant business sectors (i.e., Zhejiang NHC in the case of
Hangzhou Adicon and its subsidiaries), and (ii) the Contractual Arrangements are not subject to any
approvals from or filings with Zhejiang MOFCOM.
Our PRC Legal Advisor is of the opinion that:
(i) each of Aidiken WFOE, Hangzhou Adicon, the Registered Shareholders and their
spouses has the legal capacity to execute and deliver the Contractual Arrangements and
carry out the transactions contemplated thereby;
(ii) the Contractual Arrangements will not be deemed void under Articles 144, 146, 153 and
154 of the Civil Code of the People’s Republic of China or violate the articles of
association of each of Aidiken WFOE and the PRC Operating Entities;
(iii) each of the agreements underlying the Contractual Arrangements is valid, legally
binding and enforceable on the parties thereof in accordance with their terms and
provisions under applicable PRC laws and regulations, except that interim remedies or
enforcement orders granted by overseas courts such as Hong Kong and the Cayman
Islands as set out in the dispute resolution provisions of the Contractual Arrangements
may not be enforceable in China unless recognized by PRC courts, as set out in the
paragraph headed “– Summary of the Contractual Arrangements – Dispute resolution” in
this section;
(iv) the execution, delivery and performance of each of the agreements underlying the
Contractual Arrangements do not require any approvals from or filings with PRC
governmental authorities, except that (a) the equity pledges under the Equity Pledge
Agreement are required to be registered with the relevant Administration for Market
Regulation, which were duly completed on December 10, 2020, and (b) any transfer of
equity interests in Hangzhou Adicon pursuant to the terms of the Exclusive Option
Agreement will have to be filed and registered with the relevant governmental
authorities upon the exercise of the call option under the Exclusive Option Agreements.
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However, we have been advised by our PRC Legal Advisor that there are uncertainties
regarding the interpretation and application of the current and future PRC laws and regulations.
Accordingly, there can be no assurance that PRC regulatory authorities and PRC courts will not take
a view that is contrary or otherwise different from the above opinions of our PRC Legal Advisor
in the future. We have been further advised by our PRC Legal Advisor that if the PRC government
authorities find that the Contractual Arrangements do not comply with PRC government authorities’
prohibition or restrictions on foreign investment in the aforesaid businesses we engage in, we could
be subject to severe penalties including being prohibited from continuing operation.
THE CONTRACTUAL ARRANGEMENTS ARE NARROWLY TAILORED
According to the Negative List, foreign investors are prohibited from holding interests in the
Relevant Business (i.e. performing ICL testing services with PCR). According to the Negative List
and the Interim Administrative Measures on Sino-Foreign Equity Medical Institutions and
Sino-Foreign Cooperative Medical Institutions (),
foreign investors (other than the qualified service providers from Hong Kong, Macao and Taiwan)
are allowed to have no more than 70% equity interests in ICLs which are not engaged in foreign
investment prohibited business (such as the Relevant Business).
The Contractual Arrangements are narrowly tailored because, on the basis set forth below,
PCR related testing services form an inseparable part of our ICL business:
(i) providing PCR and non-PCR related testing through different laboratories would
disqualify our Company from bidding for certain tenders, or significantly reduce our
success rate to bid for customers’ testing services contracts for both PCR and non-PCR
related testing. This would severely and adversely affect our business and financial
performance;
(ii) it would be extremely difficult for a laboratory performing only PCR-related testing to
obtain the ISO15189 accreditation, which is an important accreditation for ICL business
in the PRC. According to Frost & Sullivan, as of December 31, 2022, none of the
hospitals and medical diagnostic testing institutions with ISO15189 accreditation only
applied PCR technology in offering testing services. Laboratories without ISO15189
accreditation would not be able to meet the key bidding criteria of many of our
customers. This would severely and adversely affect our business and financial
performance;
(iii) it is operationally and practically infeasible to provide PCR and non-PCR through
separate laboratories, as PCR is highly interconnected and correlated with, and forms an
inseparable part of, our ICL business. Our Company often uses the PCR technology in
conjunction with other laboratory technologies to provide clinically appropriate
diagnostic testing solutions based on the relevant industry standards and guidelines for
our customers and patients. Such industry standards and guidelines do not distinguish
PCR technology from other laboratory technologies;
(iv) if our Company is to provide PCR and non-PCR related testing through separate
laboratories, the laboratory-ready samples, which are often perishable and limited in size
and/or quantity, would have to be tested twice in different laboratories by different
laboratory technicians, or be manually divided by our laboratory technicians for
transportation to a second laboratory. Additional handling or transfer of human
specimens could affect the reliability and accuracy of diagnostic results, which could
directly impact patient care, and severely and adversely affect our abilities to meet
industry standards of care;
(v) longer turnaround times for testing results would adversely affect our ability to market
our services in comparison with our competitors; and
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(vi) providing PCR and non-PCR testing through separate laboratories is not in line with the
market practices. Our leading market position would be significantly impaired as a result
of such separation.
In the event that MOFCOM and/or other relevant government authorities loosen the relevant
restrictions on foreign investments in the Relevant Business, depending on the maximum
percentage of equity interests permitted to be held by foreign investors, the Registered Shareholders
undertake to work with Aidiken WFOE to partially unwind the Contractual Arrangements so that
Aidiken WFOE will hold (directly or indirectly) equity interest in the PRC Operating Entities as
soon as practicable and to the extent permissible; and if there is no prescribed limit on the
percentage of equity interest permitted to be held by Aidiken WFOE as a foreign investor, the
Registered Shareholders undertake to work with Aidiken WFOE to fully unwind and terminate the
Contractual Arrangements so that Aidiken WFOE will hold (directly or indirectly) 100% equity
interests in our PRC Operating Entities as soon as practicable.
Regulatory assurance on our compliance with the “narrowly tailored” requirements
On the basis set forth below, our PRC Legal Advisor is of the view that we have obtained
sufficient regulatory assurance on our compliance with the “narrowly tailored” requirements for
using our existing Contractual Arrangements after the Listing under Listing Decision HKEX-
LD43-3:
(i) in December 2020, our PRC Legal Advisor consulted the competent government
authority in charge of the ICL business of Hangzhou Adicon, namely Hangzhou NHC.
In the consultation with Hangzhou NHC, the responsible officer, who our PRC Legal
Advisor confirmed to be a competent person to speak for Hangzhou NHC, confirmed
that, among others:
(A) our existing ICL business is 100% foreign investment prohibited, as PCR-related
testing forms a part of our existing ICL business, and is prohibited from foreign
investment in accordance with the Negative List;
(B) setting up a laboratory which only provides PCR-related testing is not in line with
the market practices. In practice, such laboratory would not be able to bid for
comprehensive medical diagnostic testing services. The interviewee of Hangzhou
NHC is not aware of any cases approved by Hangzhou NHC where laboratories
only provide PCR-related testing; and
(C) the separation of our existing ICL business into two laboratories providing PCR
and non-PCR related testing respectively in the same administrative region and/or
in close proximity is not encouraged and in practice may not be workable.
Hangzhou Adicon operates our largest laboratory in terms of revenue, and is also the
holding company of the rest of our laboratories located across the PRC. Also, Hangzhou
NHC is the competent government authority in charge of local planning for the
establishment of medical institutions and ICL business in Hangzhou. Our PRC Legal
Advisor is of the view that the verbal confirmations from Hangzhou NHC have provided
authoritative and representative assurance from the regulator’s perspective about the
infeasibility of the separation of our existing ICL business into two laboratories
providing PCR and non-PCR related testing respectively;
(ii) to demonstrate that Hangzhou NHC’s verbal confirmations were authoritative and
representative with respect to our ICL business in China, in December 2020 and January
2021, our PRC Legal Advisor also consulted the local NHCs of Fuzhou, Hefei and
Wuhan, and received similar confirmations as provided by the interviewee of Hangzhou
NHC. Our PRC Legal Advisor confirms that the relevant local NHCs in Fuzhou, Hefei
and Wuhan are the competent government authorities in charge of our ICL business in
Fuzhou, Hefei and Wuhan, and that the relevant interviewees are competent persons to
provide the regulatory confirmations in the relevant interviews;
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(iii) in February 2021, our PRC Legal Advisor interviewed local NHCs in charge of certain
other ICLs, including (A) the local NHCs of four administrative regions, namely
Kunming, Nanning, Qingdao and Zhengzhou, advised that it would be operationally,
practically and commercially infeasible for us to attend biddings for comprehensive
medical testing services if it is going to provide PCR and non-PCR related testing
through separate ICL; and (B) the local NHCs of seven administrative regions, namely
Chengdu, Guangzhou, Jinan, Quzhou, Sanming, Shenyang and Shenzhen, advised that
we should consider the operational, practical and commercial feasibility to provide PCR
and non-PCR related testing through separate ICL under our existing business model. As
advised by our PRC Legal Advisor, the interviewed local NHCs are the competent
government authorities in charge of the Company’s ICL business in the relevant regions,
and the relevant interviews were conducted through calling the official telephone
number of the relevant local NHCs; and
(iv) Our PRC Legal Advisor has also reviewed the written local administrative planning
documents for the establishment of medical institutions and reached out in January 2021
to local NHCs in Beijing, Chongqing, Jinan, Nanchang, Hefei, Changchun, Wuhan,
Tianjin and Shanghai, pursuant to which the relevant local administrative regions do not
allow the establishment of another laboratory by our Company which only provides
PCR-related testing, as there is no available quota under the relevant local administrative
planning for establishing ICLs.
COMPLIANCE WITH THE CONTRACTUAL ARRANGEMENTS
Our Group has adopted the following measures to ensure (i) the effective operation of our
Group with the implementation of the Contractual Arrangements; (ii) the compliance of the
Registered Shareholders with the Contractual Arrangements; and (iii) the potential conflict of
interests between our Group and the Registered Shareholders:
(a) major issues arising from the implementation and compliance with the Contractual
Arrangements or any regulatory enquiries from government authorities will be submitted
to our Board, if necessary, for review and discussion on an occurrence basis;
(b) our Board (including the independent non-executive Directors) will review the overall
performance of and compliance with the Contractual Arrangements at least once a year;
(c) our Company will disclose the overall performance of and compliance with the
Contractual Arrangements in our annual reports to update our Shareholders and potential
investors;
(d) our Company will engage external legal advisors or other professional advisors, if
necessary, to assist the Board to review the implementation of the Contractual
Arrangements and the legal compliance of Hangzhou Adicon, Aidiken WFOE, the
Registered Shareholders and the PRC Operating Entities to deal with specific issues or
matters arising from the Contractual Arrangements;
(e) the company seals, financial seals, contract seals and crucial corporate certificates of the
PRC Operating Entities are kept by our Group’s designated personnel. Any employee of
our Group who wishes to use the seals will have to obtain internal approval following
our Group’s established policies and procedures. The business, legal and/or finance
departments constitute our Group’s central management system and the persons in
charge of these departments as well as the department members responsible for the
custody and handling of the seals and crucial corporate certificates are employees of our
Group;
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(f) in the event of the occurrence of a conflict of interests between our Group and the
Registered Shareholders (where our Group has the sole and absolute discretion to
determine whether such conflict arises), Hangzhou Adicon shall take appropriate
measures upon the consent of Aidiken WFOE or its designee to eliminate such conflicts,
failing which Aidiken WFOE will exercise, to the extent permitted under the PRC laws,
the option under the Exclusive Option Agreement;
(g) in order to further secure Aidiken WFOE’s rights under the Exclusive Option Agreement,
the Registered Shareholders have also entered into the Equity Pledge Agreements with
Aidiken WFOE and Hangzhou Adicon, pursuant to which the Registered Shareholders
pledged all their equity interests in Hangzhou Adicon in favor of Aidiken WFOE as
security to guarantee the Registered Shareholders’ performance of the contractual
obligations under the Contractual Arrangement (including their obligations under the
Exclusive Option Agreement);
(h) pursuant to the Loan Agreements, Aidiken WFOE can demand from Ms. LAN Jia and
Ms. LIAN Hailun repayment of the Loans without cause at any time after serving 10
days notice as and when Aidiken WFOE considers appropriate at its absolute discretion.
The Loans can only be repaid by transferring all of the equity interests in Hangzhou
Adicon held by Ms. LAN Jia and Ms. LIAN Hailun to Aidiken WFOE (or its designee);
and
(i) pursuant to a deed of undertaking dated March 19, 2021 given by all the partners of
Hangzhou Kangming (namely Mr. GAO Song, Mr. PAN Chao, Mr. WANG Chengdong
and four other existing and previous senior employees who are neither our Directors nor
our senior management), each of the partners undertook that he/she will ensure the
enforceability of the Contractual Arrangements.
In the event that Ms. LAN Jia, Ms. LIAN Hailun or the partners of Hangzhou Kangming
(namely Mr. GAO Song, Mr. PAN Chao, Mr. WANG Chengdong and four other existing and
previous senior employees who are neither our Directors nor our senior management) terminate
their employment with our Group and/or our Shareholder (as the case may be), Aidiken WFOE will
exercise its option under the Exclusive Option Agreement to require Ms. LAN Jia, Ms. LIAN Hailun
or Hangzhou Kangming, to the extent permitted under the PRC laws, transfer their equity interests
in Hangzhou Adicon to Aidiken WFOE or its designee so that our Group can maintain the same
level of protection in controlling Hangzhou Adicon and/or enforcing the Contractual Arrangements.
DEVELOPMENTS IN PRC LA WS ON FOREIGN INVESTMENT
Background of the FIL
On March 15, 2019, the National People’s Congress approved the Foreign Investment Law of
the People’s Republic of China () (the “ FIL”) and became effective
on January 1, 2020. The FIL has replaced the Law of the People’s Republic of China on
Sino-Foreign Equity Joint Ventures (), the Law of the
People’s Republic of China on Sino-Foreign Contractual Joint Ventures ( ʕശɛ͏΍ձ਷ʕ̮Υ
) and the Law of the People’s Republic of China on Foreign-Capital Enterprises
() and constitutes the legal foundation for foreign investment in the
PRC.
CONTRACTUAL ARRANGEMENTS
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The Potential Impact of the FIL on the Contractual Arrangements
Conducting operations through contractual arrangements has been adopted by many PRC-
based companies, and has been adopted by our Company in the form of the Contractual
Arrangements, to establish control of our PRC Operating Entities, through which we operate the
Relevant Business in the PRC. As advised by our PRC Legal Advisor, since the definition of “actual
control” and “variable interest entities” are not explicitly provided in the FIL, nor does it explicitly
stipulate that obtaining control over or holding interests in domestic enterprises through contractual
arrangements is a form of foreign investment, if there are no other laws, regulations, rules,
normative documents formulated or no regulatory practices adopted or implemented in the future
that consider or interpret contractual arrangements as a form of foreign investment, then the
possibility is relatively low that the legal effectiveness of the Contractual Arrangements becomes
materially adversely affected due to violation of the entry requirements under the FIL.
Notwithstanding the above, the FIL stipulates that foreign investment includes “Foreign
Investors invest in China through many other methods under laws, administrative regulations or
provisions prescribed by the State Council” without elaboration on the meaning of “other methods”.
It is possible that future laws, administrative regulations or provisions prescribed by the State
Council may regard Contractual Arrangements as a form of foreign investment, at which time it
would be uncertain whether the Contractual Arrangements would be deemed to be in violation of
the foreign investment access requirements and how the above-mentioned Contractual
Arrangements would be handled. Therefore, there is no guarantee that the Contractual
Arrangements and the business of the PRC Operating Entities will not be materially and adversely
affected in the future due to changes in PRC laws and regulations. In the event that such measures
are not complied with, the Stock Exchange may take enforcement actions against us which may
have a material adverse effect on the trading of our Shares. For further details, see “Risk Factors
– Risks Relating to Our Contractual Arrangements” in this Prospectus.
ACCOUNTING ASPECTS OF THE CONTRACTUAL ARRANGEMENTS
According to IFRS 10 – Consolidated Financial Statements, a subsidiary is an entity that is
controlled by another entity (known as the parent). An investor controls an investee when it is
exposed, or has rights to variable returns from its involvement with the investee and has the ability
to affect those returns through its power over the investee. Although our Company does not directly
or indirectly own Hangzhou Adicon, the Contractual Arrangements as mentioned above enable our
Company to exercise control over Hangzhou Adicon.
Under the Exclusive Business Cooperation Agreement entered into by and among Aidiken
WFOE, the Registered Shareholders and Hangzhou Adicon, it is agreed that, in consideration of the
services provided by Aidiken WFOE, Hangzhou Adicon will pay service fees to Aidiken WFOE.
The service fees are to be determined by Aidiken WFOE based on the quantity and commercial
value of technical services provided. Aidiken WFOE may adjust the service fees at its sole
discretion. Accordingly, Aidiken WFOE has the ability, at its sole discretion, to extract substantially
all of the economic benefit of Hangzhou Adicon through the Exclusive Business Cooperation
Agreement. In addition, under the Exclusive Option Agreement among the parties, Aidiken WFOE
has absolute control over the distribution of any dividends, as the prior consent of Aidiken WFOE
is required for dividend distribution, and Aidiken WFOE can request immediate distribution of
profits be made. Further, under the Powers of Attorney, Aidiken WFOE assumes all rights as
shareholder and exercises control over Hangzhou Adicon, including the rights as set out in
paragraph “– Summary of the Contractual Arrangements – Powers of Attorney” in this section.
As a result of the Contractual Arrangements, we have obtained control of Hangzhou Adicon
through Aidiken WFOE and, under our sole discretion, can receive substantially all of the economic
interest returns generated by Hangzhou Adicon and its subsidiaries. Accordingly, Hangzhou
Adicon’s results of operations, assets and liabilities, and cash flows are consolidated into our
financial statements.
CONTRACTUAL ARRANGEMENTS
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OUR CONTROLLING SHAREHOLDERS
Pearl Group Limited was entitled to exercise the voting rights to approximately 39.87% of the
total issued Shares of our Company as of the Latest Practicable Date, and will be entitled to exercise
the voting rights to approximately 38.92% of our total issued Shares immediately upon completion
of the Global Offering (assuming the Over-allotment Option is not exercised).
Pearl Group Limited is an investment holding company incorporated in Cayman Islands and
is 94.57% owned by Carlyle Asia Partners V , L.P. and 5.43% owned by CAP V Co-Investment, L.P..
The general partner of Carlyle Asia Partners V , L.P. and CAP V Co-Investment, L.P. is CAP V
General Partner, L.P.. The general partner of CAP V General Partner, L.P. is CAP V , L.L.C., an
indirect subsidiary of Carlyle. CAP V , L.L.C. is wholly-owned by TC Group Cayman Investment
Holdings Sub L.P.. The general partner of TC Group Cayman Investment Holdings Sub L.P. is TC
Group Cayman Investment Holdings L.P.. The general partner of TC Group Cayman Investment
Holdings L.P. is CG Subsidiary Holdings L.L.C.. The managing member of CG Subsidiary Holdings
L.L.C. is Carlyle Holdings II L.L.C.. The managing member of Carlyle Holdings II L.L.C. is
Carlyle Holdings II GP L.L.C.. The sole member of Carlyle Holdings II GP L.L.C. is Carlyle.
Accordingly, Carlyle, Carlyle Holdings II GP L.L.C., Carlyle Holdings II L.L.C., CG Subsidiary
Holdings L.L.C., TC Group Cayman Investment Holdings L.P., TC Group Cayman Investment
Holdings Sub L.P., CAP V , L.L.C., CAP V General Partner, L.P., Carlyle Asia Partners V , L.P., CAP
V Co-Investment, L.P. and Pearl Group Limited are our Controlling Shareholders under the Listing
Rules.
CLEAR DELINEATION OF BUSINESS
Carlyle, a company listed on Nasdaq Global Select Market (ticker symbol: CG), is one of the
world’s largest and most diversified global investment firms, with approximately US$381 billion in
assets under management as of March 31, 2023 across three business segments: Global Private
Equity, Global Credit and Investment Solutions. Carlyle’s purpose is to invest wisely and create
value on behalf of their investors, portfolio companies and the communities in which they live and
invest.
To the best knowledge and belief of our Directors, as of the Latest Practicable Date, our
Controlling Shareholders and Directors did not control more than 10% voting capital of any listed
companies in Hong Kong and the PRC, and with a business similar to the principal business of our
Group that competes, either directly or indirectly, with our Group’s business in the PRC, which
would require disclosure under Rule 8.10 of the Listing Rules.
INDEPENDENCE FROM OUR CONTROLLING SHAREHOLDERS
Having considered the following factors, our Directors are satisfied that we are able to carry
on our business independently from our Controlling Shareholders and their respective close
associates after the Listing.
Management Independence
Our Board consists of eight Directors, comprising one executive Director, four non-executive
Directors and three independent non-executive Directors. Our core management team is led by Mr.
GAO Song, our executive Director and chief executive officer, and consists of five of our senior
management members, namely Mr. PAN Chao, Mr. WANG Chengdong, Ms. HU Yuanyuan, Mr.
CHU Jianing and Ms. LI Dan. None of the members of our core management team held a position
in our Controlling Shareholders as of the Latest Practicable Date. For details of our Directors and
senior management members, please refer to the section headed “Directors and Senior
Management” in this Prospectus.
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
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Our core management team is able to manage our Group independently from our Controlling
Shareholders for the following reasons:
(a) save for two non-executive Directors, namely Ms. YANG Ling and Ms. FENG Janine
Junyuan, none of our Directors and senior management members held an ongoing
position with our Controlling Shareholders as of the Latest Practicable Date. Although
Pearl Group Limited nominated Ms. YANG Ling and Ms. FENG Janine Junyuan as our
Directors to supervise the development and strategic direction of our Group, they are not
involved in our day-to-day business management;
(b) each Director is aware of his/her fiduciary duties as a Director which require, among
others, that he/she acts for the benefit and in the interest of our Company and all our
Shareholders as a whole, and does not allow any conflict between his/her duties as a
Director and his/her personal interests;
(c) our Directors believe that our Board has a balanced composition of executive,
non-executive and independent non-executive Directors, which ensures the
independence of the Board in making decisions affecting our Company. Specifically, our
independent non-executive Directors (i) account for one-third of the Board, (ii) do not
and will not take up any position in our Controlling Shareholders or their close
associates, and (iii) together possess the requisite industry experience and qualifications
for their views to carry weight. Our Directors believe that our independent non-
executive Directors are able to bring impartial and sound judgment to the decision-
making process of our Board and protect the interests of our Company and our
Shareholders as a whole;
(d) under the Articles, matters discussed at board meetings shall be determined by a majority
of votes by our Board, including our independent non-executive Directors. Since the
investment of Pearl Group Limited in our Group in October 2018, Pearl Group Limited
has not appointed a majority of the directors of our Board nor the boards of any of our
subsidiaries;
(e) under the Articles, for any resolution in respect of any contract or arrangement or any
other proposal in which a Director of any of his/her close associates has any material
interest, the interested Director shall not vote nor be counted towards the quorum in
respect of such transactions; and
(f) we have adopted/will adopt a set of corporate governance measures to manage conflicts
of interest, if any, between our Group and our Controlling Shareholders. For details,
please refer to the paragraph headed “– Corporate Governance Measures” in this section.
Based on the above, our Directors are of the view that we are capable of managing our
business independently from our Controlling Shareholders and/or their close associates after the
Listing.
Operational Independence
Our operations do not depend on our Controlling Shareholders and/or their close associates for
the following reasons:
(a) our Group possesses sufficient capital, facilities, equipment, technology and human
resources to operate its business independently from our Controlling Shareholders, and
holds licenses and qualifications that are necessary for our business independently from
our Controlling Shareholders;
(b) our Group has an established and complete organizational structure, comprising various
separate departments each charged with specific responsibilities;
(c) our Group has independent access to, among others, customers, suppliers, experts and
other resources required for our Group’s business. We can exercise independent rights
to make and implement our operational decisions without regard to our Controlling
Shareholders;
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
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(d) we maintain a set of internal control procedures to facilitate the effective operation of
our business. For details, please refer to the section headed “Business – Risk
management and internal control” in this Prospectus; and
(e) we have adopted/will adopt a set of corporate governance measures pursuant to the
Listing Rules and other applicable laws and regulations. For details, please refer to the
paragraph headed “– Corporate Governance Measures” in this section.
Based on the above, our Directors are satisfied that we are able to operate independently from
our Controlling Shareholders and/or their close associates after the Listing.
Financial Independence
We have an independent financial system and finance team responsible for our own treasury
functions and we have made, and will continue to make, financial decisions based on our own
business needs. We are financially independent of our Controlling Shareholders and/or their close
associates.
We have sufficient capital and banking facilities to operate our business independently, and
have adequate resources to support our daily operations. In addition, our Group has an independent
financial system and makes financial decision according to our own business needs. Our source of
funding is independent from our Controlling Shareholders and/or their close associates. As of
December 31, 2022, there were no loans, advances and balances due to and from and guarantee
provided by our Controlling Shareholders and/or their close associates. Further, there is no security
over assets and guarantees provided by our Controlling Shareholders and/or their close associates
on our Group’s borrowing. Our Directors confirm that our Group does not intend to obtain any
borrowing, guarantees, pledges and mortgages from our Controlling Shareholders and/or their close
associates.
Based on the above, our Directors believe that we are able to maintain financial independence
from our Controlling Shareholders and/or their close associates after the Listing.
CORPORATE GOVERNANCE MEASURES
Our Directors recognize the importance of good corporate governance in protecting our
Shareholders’ interests. We have adopted/will adopt the following measures to safeguard good
corporate governance standards and to avoid potential conflict of interests between our Group and
our Controlling Shareholders and/or their close associates:
(a) under the Articles, where a Shareholders’ meeting is to be held for considering proposed
transactions in which our Controlling Shareholders and/or their close associates have a
material interest, our Controlling Shareholders will not vote on the resolutions and shall
not be counted in the quorum present at the meeting;
(b) our Company has established internal control mechanisms to identify connected
transactions. Upon Listing, if our Company enters into connected transactions with our
Controlling Shareholders and/or their close associates, our Company will comply with
the applicable Listing Rules;
(c) as required by the Listing Rules, our independent non-executive Directors will (i)
review, any connected transactions annually and disclose in our annual report or by way
of announcements that, such connected transactions have been entered into in our
ordinary and usual course of business, are either on normal commercial terms or on
terms no less favourable to us than those available to or from independent third parties
and on terms that are fair and reasonable and in the interests of our Shareholders as a
whole (the “ Annual Review ”); and (ii) provide impartial and professional advice to
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
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protect the interests of our minority Shareholders. Where our Directors reasonably
request the advice of independent professionals, such as financial advisors, for this
purpose, the appointment of such independent professionals will be made at our
Company’s expenses;
(d) our Controlling Shareholders agree to provide all information reasonably requested by
the independent non-executive Directors for the Annual Review, including all relevant
financial, operational and market information; and
(e) we have appointed Somerley Capital Limited as our compliance advisor pursuant to the
Rule 3A.19 of the Listing Rules to provide advice and guidance to us in respect of
compliance with the Listing Rules, including various requirements relating to corporate
governance.
Based on the above, our Directors are satisfied that sufficient corporate governance measures
have been put in place to manage conflicts of interest between our Group and our Controlling
Shareholders, and to protect minority Shareholders’ interests after the Listing.
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
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OVERVIEW
Pursuant to Chapter 14A of the Listing Rules, our Directors, Substantial Shareholders and
chief executive of our Company and our subsidiaries (other than the Directors, Substantial
Shareholders and chief executive of our insignificant subsidiaries), any person who was a director
of our Company or our subsidiaries within 12 months preceding the Listing Date and any of their
respective associates will be connected persons of our Company upon the Listing.
Our Group has entered into a number of transactions with our connected persons in our
ordinary and usual course of business. Upon completion of the Global Offering, the transactions
disclosed in this section will constitute connected transactions under Chapter 14A of the Listing
Rules.
NON-EXEMPT CONTINUING CONNECTED TRANSACTION
Purchase and Equipment Lease Framework Agreement
Principal terms
On January 10, 2022, our Company and ACON Biotech (Hangzhou) Company Limited ( Ўੰ
Ҧஔ(ψ)ʮ̡)( “ ACON”) entered into a purchase and equipment lease framework
agreement (the “ Purchase and Equipment Lease Framework Agreement ”), pursuant to which we
agreed to purchase certain testing equipment and reagents from, and to lease certain testing
equipment from, ACON from time to time in our ordinary course of business. ACON is currently
indirectly owned as to 50% by Mr. LIN Jixun (our founder and one of our non-executive Directors),
and is therefore a connected person of our Company under Rule 14A.07(4) of the Listing Rules.
The Purchase and Equipment Lease Framework Agreement is for a term commencing on the
Listing Date until December 31, 2025, and will be renewed for another three years upon expiration,
conditional upon the fulfillment of requirements under the Listing Rules and other applicable laws
and regulations. The parties will enter into separate agreements setting out the specific terms and
conditions in respect of the relevant purchases and leases, including the relevant transaction
amounts, the types of testing equipment and/or reagents involved, and the payment methods.
Reasons for the transactions
We purchase or lease testing equipment and purchase testing reagents in our ordinary course
of business. While our Group did not lease or purchase any testing equipment from ACON during
the Track Record Period, and does not currently plan to lease or purchase testing equipment from
ACON after the Listing, as ACON offers a wide range of testing equipment, we have covered in the
framework agreement the potential leasing of testing equipment from ACON to allow us to have the
flexibility to lease testing equipment from ACON in case (i) ACON offers certain equipment only
for leasing; or (ii) we consider the terms offered by ACON for leasing the relevant equipment to be
more commercially viable.
Our Group does not exclusively source the relevant testing equipment and reagents from
ACON, and could procure the relevant testing equipment and reagents from other suppliers in the
PRC. Our Group is not the sole customer of ACON.
CONNECTED TRANSACTIONS
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We have a long standing business relationship with ACON, and ACON has been one of our
major suppliers during the Track Record Period. As ACON has a proven track record in providing
our Group with a broad range of high quality and reliable testing equipment and reagents at
competitive pricing, our Directors are of the view that it is in the interest of our Group in terms of
cost and stability to continue procuring testing equipment and reagents from ACON, instead of
procuring from other suppliers which offer higher price or we are less familiar with.
Pricing policy
We procure testing equipment and reagents through bids from our list of approved qualified
suppliers, taking into account their bidding price, product quality, reliability and specifications,
product delivery time, range of offerings and their track records with our Group. ACON is an
approved qualified supplier of our Group. The amounts payable by us under the Purchase and
Equipment Lease Framework Agreement will be determined after a bidding process involving
ACON and other approved qualified suppliers. Any successful bids from ACON should not be less
favourable than bids from other suppliers and bids offered by ACON to independent third parties.
After a successful bid of ACON, we enter into a separate agreement on terms which will be
determined on an arm’s length basis, with reference to, among others, (i) the historical transaction
amounts paid by us to ACON for the purchase of similar testing equipment and reagents from
ACON, (ii) the amount, quality and specifications of the relevant testing equipment and reagents,
and (iii) the bidding price, product quality, reliability and specifications, product delivery time and
range of offerings of ACON as compared to other suppliers in the list of our approved qualified
suppliers.
Historical Transaction Amounts
For the years ended December 31, 2020, 2021 and 2022, the historical fees paid to ACON
amounted to approximately RMB107.9 million, RMB102.0 million and RMB78.9 million,
respectively.
Annual Caps on Future Transaction Amounts
The maximum amounts payable by us to ACON under the Purchase and Equipment Lease
Framework Agreement for the years ending December 31, 2023, 2024 and 2025 shall not exceed the
annual caps as set out below:
Proposed annual cap for the years
ending December 31,
2023 2024 2025
(RMB in millions)
Fees payable by us to ACON
(including applicable taxes) ........................... 1 10.0 110.0 110.0
The above annual caps are determined based on (i) the historical transaction amounts we paid
to ACON in consideration for the purchase of testing equipment and reagents; (ii) the improvement
in our business after recovering from the impact of COVID-19; (iii) the possibility that we will
experience an increasing need for testing equipment and reagents in view of the continual expansion
of our ICL business; and (iv) the market prices and expected trends in relation to the relevant testing
equipment and reagents.
The Company foresees the need to set annual caps at such levels despite the decreasing
historical transaction amounts for the years ended December 31, 2020, 2021 and 2022. Our
historical transaction amounts decreased by approximately 29.3% from RMB102.0 million for the
year ended December 31, 2021 to RMB78.9 million for the year ended December 31, 2022,
primarily due to the unexpected change in demand in relation to some of ACON’s products
(including HPV products) in 2022. The change in demand was primarily attributable to the
availability of certain HPV products at more competitive prices from other manufacturers and
decline in elective checkups due to impact from COVID-19.
CONNECTED TRANSACTIONS
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Based on (i) the increase of 10.4% in our transaction amounts with ACON between December
31, 2018 and December 31, 2021; (ii) anticipated recovery of demand for ACON’s products
(including HPV products) in 2023 and beyond, taking into account ACON’s consistent efforts to
develop quality products at competitive prices, respond to market pressures and expected recovery
in elective checkups after zero Covid policy was relaxed; (iii) potential for quality molecular
biology and ELISA based products to be produced by ACON which meets Adicon’s end market
demands in the future; and (iv) our expectation that transaction amounts with ACON will continue
to grow over the long term as we expand our business, we consider it to be fair and reasonable to
set our annual caps at RMB110.0 million for each of the three years ending December 31, 2025.
Listing Rules Implications
In respect of the purchase of testing equipment and reagents from ACON as contemplated
under the Purchase and Equipment Lease Framework Agreement, as the highest applicable
percentage ratio (other than the profit ratio) under the Listing Rules is expected to be more than
0.1% but less than 5% on an annual basis, the transactions will be subject to the reporting, annual
review and announcement requirements but exempt from the circular and independent
Shareholders’ approval requirements under Chapter 14A of the Listing Rules.
In respect of the leasing of testing equipment from ACON as contemplated under the Purchase
and Equipment Lease Framework Agreement, in the event that we lease any testing equipment from
ACON in the future, we will, in accordance with HKFRS 16 “Leases”, recognize a right-of-use asset
and a lease liability on our balance sheet in connection with the lease of the testing equipment from
ACON. Accordingly, the leasing of testing equipment from ACON will be regarded as a one-off
connected transaction of our Company for the purposes of the Listing Rules. We will comply with
the reporting, announcement, annual review and independent shareholders’ approval requirements,
as applicable, in Chapter 14A of the Listing Rules if we lease any testing equipment from ACON
under the Purchase and Equipment Lease Framework Agreement in the future.
CONTRACTUAL ARRANGEMENTS
Background
Due to regulatory restrictions on foreign ownership in the PRC, we entered into the
Contractual Arrangements whereby Aidiken WFOE has acquired effective control over Hangzhou
Adicon and its subsidiaries, and become entitled to all the economic benefits derived from the
laboratories operated by Hangzhou Adicon and its subsidiaries.
The Contractual Arrangements currently in effect mainly comprise the following agreements,
namely (i) the exclusive business cooperation agreement; (ii) the exclusive option agreement; (iii)
the loan agreements; and (iv) the equity pledge agreements, which were entered into between or
amongst Aidiken WFOE, Hangzhou Adicon and the Registered Shareholders, and the irrevocable
power of attorney executed by the Registered Shareholders. For details, please refer to the section
headed “Contractual Arrangements” in this Prospectus.
Listing Rules Implications
For the purposes of Chapter 14A of the Listing Rules, our PRC Operating Entities will be
treated as our wholly-owned subsidiaries, and their directors, chief executives or substantial
shareholders (as defined in the Listing Rules) and their respective associates will be treated as our
connected persons.
CONNECTED TRANSACTIONS
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Our Directors, including the independent non-executive Directors, and the Joint Sponsors are
of the view that the Contractual Arrangements and the transactions contemplated thereunder are
fundamental to our Group’s legal structure and business operation and it is justifiable and normal
business practice for agreements under the Contractual Arrangements to have a term of longer than
three years to ensure that (i) the financial and operational policies of the PRC Operating Entities
can be effectively controlled by Aidiken WFOE; (ii) Aidiken WFOE can obtain the economic
benefits derived from the PRC Operating Entities; and (iii) any possible leakage of assets and values
of the PRC Operating Entities can be prevented on an uninterrupted basis. Such transactions have
been entered into on normal commercial terms and are fair and reasonable, or advantageous, so far
as our Group is concerned and in the interests of our Company and our Shareholders as a whole.
Our Directors also believe that our Group’s structure, whereby the financial results of the PRC
Operating Entities are consolidated into our Group’s financial statements as subsidiaries and the
flow of economic benefit of their business to our Group, places our Group in a special position in
relation to relevant rules concerning connected transactions under the Listing Rules. Accordingly,
notwithstanding that the transactions contemplated under the Contractual Arrangements and any
new transactions, contracts and agreements or renewal of existing agreements to be entered into
between the PRC Operating Entities and any member of our Group (“ New Intergroup
Agreements ”) technically constitute continuing connected transactions under Chapter 14A of the
Listing Rules, our Directors consider that it is unduly burdensome and impracticable, and would add
unnecessary administrative costs to our Company if the Contractual Arrangements are subject to the
requirements set out under Chapter 14A of the Listing Rules.
W AIVER APPLICATIONS
Purchase and Equipment Lease Framework Agreement
As illustrated above, the purchase of testing equipment and reagents under the Purchase and
Equipment Lease Framework Agreement constitute continuing connected transactions that are
subject to the reporting, annual review and announcement requirements but exempt from the
circular and independent Shareholders’ approval requirements of the Listing Rules.
Pursuant to Rule 14A.105 of the Listing Rules, we have applied for, and the Stock Exchange
has granted, a waiver exempting us from strict compliance with the announcement requirement
under Chapter 14A of the Listing Rules.
The Contractual Arrangements
In relation to the Contractual Arrangements, we have applied to the Stock Exchange for, and
the Stock Exchange has granted, a waiver pursuant to Rule 14A.102 of the Listing Rules from strict
compliance with (i) the announcement, circular and independent Shareholders’ approval
requirements under Rule 14A.105 of the Listing Rules, (ii) the annual cap requirement for the
transactions under the Contractual Arrangements under Rule 14A.53 of the Listing Rules, and (iii)
the requirement for limiting the term of the Contractual Arrangements to three years or less under
Rule 14A.52 of the Listing Rules, for so long as the Shares are listed on the Stock Exchange subject,
however, to the following conditions:
(a) No change without independent non-executive Directors’ approval
No change to the Contractual Arrangements will be made without the approval of the
independent non-executive Directors.
CONNECTED TRANSACTIONS
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(b) No change without independent Shareholders’ approval
Save as described in paragraph (d) below, no change to the agreements governing the
Contractual Arrangements will be made without the approval of our Company’s independent
Shareholders. Once independent Shareholders’ approval of any change has been obtained, no
further announcement to or approval of the independent Shareholders will be required under
Chapter 14A of the Listing Rules unless and until further changes are proposed. However, the
periodic reporting requirement regarding the Contractual Arrangements in the annual reports
of our Company (as set out in paragraph (e) below) will continue to be applicable.
(c) Economic benefits flexibility
The Contractual Arrangements shall continue to enable our Group to receive the
economic benefits derived by the PRC Operating Entities through (i) our Group’s option, to
the extent permitted under PRC laws and regulations, to acquire all or part of the equity
interest in the PRC Operating Entities at the minimum purchase price permitted under PRC
laws and regulations, (ii) the business structure under which the profit generated by the PRC
Operating Entities is substantially retained by our Group, such that no annual cap shall be set
on the amount of service fees payable to Aidiken WFOE by the PRC Operating Entities under
the exclusive business cooperation agreement, and (iii) our Group’s right to control the
management and operation of, as well as, in substance, all of the voting rights of, the PRC
Operating Entities.
(d) Renewal and reproduction
On the basis that the Contractual Arrangements provide an acceptable framework for the
relationship between our Company and its subsidiaries in which our Company has direct
shareholding on the one hand, and the PRC Operating Entities on the other hand, that
framework may be renewed and/or reproduced upon the expiry of the existing arrangements
or in relation to any existing or new wholly foreign owned enterprise or operating company
(including branch company) engaging in the same business as that of our Group which our
Group might wish to establish when justified by business expediency, without obtaining the
prior approval of our Shareholders, on substantially the same terms and conditions as the
existing Contractual Arrangements. The directors, chief executive or substantial shareholders
of any existing or new wholly foreign owned enterprise or operating company (including
branch company) engaging in the same business as that of our Group which our Group may
establish will, upon renewal and/or reproduction of the Contractual Arrangements, however be
treated as connected persons of our Company and transactions between these connected
persons and our Company other than those under similar contractual arrangements shall
comply with Chapter 14A of the Listing Rules. This condition is subject to relevant PRC laws,
regulations and approvals.
(e) Ongoing reporting and approvals
Our Group will disclose details relating to the Contractual Arrangements on an ongoing
basis as follows:
 the Contractual Arrangements in place during each financial period will be
disclosed in our Company’s annual report and accounts in accordance with relevant
provisions of the Listing Rules;
 our independent non-executive Directors will review the Contractual
Arrangements annually and confirm in our Company’s annual report and accounts
for the relevant year that (i) the transactions carried out during such year have been
entered into in accordance with the relevant provisions of the Contractual
Arrangements, and that the profit generated by the PRC Operating Entities has
been substantially retained by Aidiken WFOE, (ii) no dividends or other
CONNECTED TRANSACTIONS
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distributions have been made by the PRC Operating Entities or any non-wholly
owned subsidiary of our Group to the holders of its equity interests which are not
otherwise subsequently assigned or transferred to our Group, and (iii) any new
contracts entered into, renewed or reproduced between our Group and the PRC
Operating Entities during the relevant financial period under paragraph (d) above
are fair and reasonable, or advantageous, so far as our Group is concerned and in
the interests of our Shareholders as a whole;
 Our Company’s auditor will carry out review procedures annually on the
transactions carried out pursuant to the Contractual Arrangements and will provide
a letter to our Directors with a copy to the Stock Exchange confirming that the
transactions have received the approval of our Directors, have been entered into in
accordance with the relevant Contractual Arrangements and that no dividends or
other distributions have been made by the PRC Operating Entities or any
non-wholly owned subsidiary of our Group to the holders of its equity interests
which are not otherwise subsequently assigned or transferred to our Group;
 For the purpose of Chapter 14A of the Listing Rules, and in particular the
definition of “connected person”, the PRC Operating Entities and each of its
subsidiaries will be treated as our Company’s subsidiaries, but at the same time, the
directors, chief executives or substantial shareholders of the PRC Operating
Entities, its subsidiaries and their associates will be treated as connected persons
of our Company (excluding for this purpose, the PRC Operating Entities), and
transactions between these connected persons and our Group (including for this
purpose, the PRC Operating Entities), other than those under the Contractual
Arrangements, will be subject to requirements under Chapter 14A of the Listing
Rules; and
 The PRC Operating Entities will undertake that, for so long as the Shares are listed
on the Stock Exchange, the PRC Operating Entities will provide our Group’s
management and our Company’s auditor with full access to their relevant records,
and (where applicable) relevant records of their subsidiaries, for the purpose of our
Company’s auditor’s review of the connected transactions.
In addition, we have also applied to the Stock Exchange for, and the Stock Exchange has
granted, a waiver pursuant to Rule 14A.105 of the Listing Rules from strict compliance with (i) the
announcement, circular and independent Shareholders’ approval requirements under Rule 14A.105
of the Listing Rules in respect of the transactions contemplated under any New Intergroup
Agreement, (ii) the requirement of setting an annual cap for the fees payable by/to any member of
our Group to/from the PRC Operating Entities under any New Intergroup Agreements under Rule
14A.53 of the Listing Rules, and (iii) the requirement of limiting the term of any New Intergroup
Agreement to three years or less under Rule 14A.52 of the Listing Rules, for so long as Shares are
listed on the Stock Exchange subject however to the condition that the Contractual Arrangements
subsist and that the PRC Operating Entities will continue to be treated as our Company’s
subsidiaries, but at the same time, the directors, chief executives or substantial shareholders of the
PRC Operating Entities and their associates will be treated as connected persons of our Company
(excluding for this purpose, the PRC Operating Entities), and transactions between these connected
persons and our Group (including for this purpose, the PRC Operating Entities), other than those
under the Contractual Arrangements, will be subject to requirements under Chapter 14A of the
Listing Rules.
We will comply with the applicable requirements under the Listing Rules, and will
immediately inform the Stock Exchange if there are any changes to these continuing connected
transactions.
CONNECTED TRANSACTIONS
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JOINT SPONSORS’ AND DIRECTORS’ VIEWS
Our Directors (including our independent non-executive Directors) are of the view that the
connected transactions set out above have been entered into (i) in the ordinary and usual course of
business of our Company, (ii) on normal commercial terms or better that are fair and reasonable and
in the interests of our Company and our Shareholders as a whole and (iii) the proposed monetary
annual caps in respect of the Purchase and Equipment Lease Framework Agreement are fair and
reasonable and in the interests of our Company and our Shareholders as a whole.
The Joint Sponsors have reviewed the relevant documents and information provided by our
Group, have participated in the due diligence and discussions with our management and our PRC
Legal Advisor, and have obtained necessary representations and confirmations from our Company
and our Directors. The Joint Sponsors are of the view that the non-exempted continuing connected
transaction set out above (i) have been entered into in the ordinary and usual course of business of
our Company, and on normal commercial terms or better; (ii) are fair and reasonable and in the
interests of our Company and our Shareholders as a whole; and (iii) the proposed monetary annual
caps in respect of the Purchase and Equipment Lease Framework Agreement are fair and reasonable
and in the interests of our Company and our Shareholders as a whole.
CONNECTED TRANSACTIONS
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--- page 252 ---
BOARD OF DIRECTORS
Our Board consists of eight Directors, comprising one executive Director, four non-executive
Directors and three independent non-executive Directors:
Name Age Position
Roles and
responsibilities
Date of
joining our
Group
Date of
appointment as a
Director
Ms. YANG Ling
(ࡗ............)
43 Chairwoman
and Non-
executive
Director
Providing
professional opinion
and judgment to the
Board
September
27, 2018
October 12,
2018
Mr. GAO Song
(৷෽) ...........
51 Executive
Director, Chief
executive
officer
Overall
management of our
Group
December
16, 2019
November 24,
2021
Mr. LIN Jixun
(ᘱԘ)..........
58 Non-executive
Director
Providing
professional opinion
and judgment to the
Board
January 16,
2004
December 19,
2008
Ms. FENG Janine
Junyuan
(ʩ)..........
54 Non-executive
Director
Providing
professional opinion
and judgment to the
Board
August 12,
2020
August 12,
2020
Ms. LIM Kooi
June ..............
45 Non-executive
Director
Providing
professional opinion
and judgment to the
Board
December
17, 2020
December 17,
2020
Mr. MI Brian
Zihou (ێ...)
57 Independent
non-executive
Director
Supervising and
providing
independent
judgement to the
Board
April 15,
2021
April 15, 2021
Mr. YEH Richard
(໢ᎌ)............
55 Independent
non-executive
Director
Supervising and
providing
independent
judgement to the
Board
June 24,
2021
June 24, 2021
Mr. ZHANG Wei
(ੵ⑸)............
52 Independent
non-executive
Director
Supervising and
providing
independent
judgement to the
Board
June 3,
2023
*
June 3, 2023 *
* The appointment will become effective upon the date of Listing.
DIRECTORS AND SENIOR MANAGEMENT
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Executive Director
Mr. GAO Song ( ৷෽), aged 51, has served as our executive Director and chief executive
officer since November 2021. Prior to his appointment to our Board, he served as our vice president
of business operations from December 2019 to November 2021 and was responsible for (i) overall
management of our sales force, marketing team and commercial operations; (ii) supervision of our
technical support team for in-house hospital laboratory service lines; (iii) relationship management
of CRO and biopharma customers; and (iv) supervision of our DTC business lines.
Prior to joining our Group, Mr. GAO served as a general manager of Shanghai Yaoshiquanyun
Health Technology Development Co., Ltd. (ʮ̡) from July 2019
to December 2019. He also held various positions at GlaxoSmithKline (China) Investment Co., Ltd.
(ʮ̡) from September 1997 to April 2019, a subsidiary of
GlaxoSmithKline PLC (LSE: GSK; NYSE: GSK) including as vice president and head of
respiratory BU, head of commercial excellence department, head of hepatitis sales department,
North-China sales director in respiratory and antibiotics and sales excellence manager in esprit
program in GSK house in London.
Mr. GAO received his bachelor’s degree in biochemistry from Fudan University ( ూ͇ɽኪ)
in China in July 1995, and his master’s degree in business management from China Europe
International Business School ( ʕᆄ਷ყʈਠኪ৫) in China in September 2009.
Non-executive Directors
Ms. YANG Ling (ࡗ)aged 43, is the chairwoman of the Board and one of our
non-executive Directors. Ms. YANG led the investment by Pearl Group Limited in our Company in
October 2018, and became the chairwoman of our Company at that time. She is a managing director
of Carlyle’s Asia Buyout Fund and has co-headed Carlyle Asia Healthcare since November 2021.
She joined Carlyle Asia as a vice president in May 2011.
Ms. YANG has served as (i) a non-executive director of Shenzhen Salubris Pharmaceuticals
Co., Ltd. (ʮ̡) (SZSE: 002294) since October 2020; and (ii) a non-
executive director of Ambio Pharmaceuticals since August 2018. Ms. YANG also worked (i) at KKR
Asia Limited from July 2008 to February 2011, where her last position was a principal primarily
responsible for carrying out investments made by KKR Asia Limited; (ii) as an associate in
Carlyle’s U.S. leveraged buyout healthcare group from May 2005 to August 2006; and (iii) as an
analyst in the investment banking division of The Goldman Sachs Group, Inc. from July 2002 to
July 2004.
Ms. YANG graduated summa cum laude and as a member of the Phi Beta Kappa with
bachelor’s degrees in economics and computer science from Smith College in the United States in
May 2002, and she received her master’s of business administration from Harvard Business School
in the United States in June 2008.
Mr. LIN Jixun (ᘱԘ), aged 58, is one of our non-executive Directors and is one of our
Founders. Mr. LIN was an executive director of our Company between February 2014 and October
2018, and has been a passive financial investor of our Group and a non-executive Director since
October 2018. From November 2007 to December 2010, he served as an independent director of
Mindray Medical International Limited (ʮ̡) (NYSE: MR, from September
2006 to March 2016; and then SZSE: 300760, since October 2018). Prior to founding our Group,
Mr. Lin founded ACON Laboratories Inc. (“ ACON Laboratories ”) in 1995 and currently serves as
its director. ACON Laboratories is the U.S.-incorporated affiliate of ACON Biotech (Hangzhou)
Company Limited (Ҧஔ(ψ)ʮ̡)( “ ACON”), one of our suppliers of testing
equipment and reagents.
DIRECTORS AND SENIOR MANAGEMENT
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--- page 254 ---
Mr. LIN received his bachelor’s degree in medicine from Zhejiang University School of
Medicine ( एϪɽኪᔼኪ৫) (formerly known as Zhejiang Medical University (ɽኪ)) in
China in July 1987, and his doctoral degree in philosophy from Medical University of South
Carolina in the United States in December 1995.
Ms. FENG Janine Junyuan (ʩ), aged 54, is one of our non-executive Directors. Ms.
FENG joined Carlyle Management Hong Kong Limited of Carlyle in October 1998 and is currently
holding the position of managing director of Carlyle Asia Buyout Fund. Prior to joining Carlyle, she
worked in the global project finance group of the investment banking department at Credit Suisse
First Boston Corporation from July 1992 to June 1994 and then August 1996 to September 1998.
Ms. FENG also served as (i) a director of Meinian Onehealth Healthcare Holdings Co., Ltd. (ϋ
ʮ̡) (SZSE: 002044) from October 2015 to February 2019, (ii) a
non-executive director of MicroPort Scientific Corporation (ʮ̡) (HKEX: 853)
from March 2016 to November 2018, and (iii) a director of Hedy Holding Company Limited ( ɖః
ʮ̡) (now known as Focus Media Information Technology Co., Ltd. ( ʱ଺ෂద༟ৃ
ʮ̡)) (SZSE: 002027) from January 2016 to November 2016. Ms. FENG was
appointed as an independent non-Executive director and the audit committee member of Jardine
Matheson Holdings Limited, a multinational conglomerate primary listing on the London Stock
Exchange (LSE: JAR) and secondary listings on the Singapore Exchange Limited (SGX: J36) and
Bermuda Stock Exchange (BSX: JMHBD.BH), since May 2023.
Ms. FENG graduated summa cum laude and as a member of Phi Beta Kappa with Bachelor
of Arts degree in mathematics, computer science and economics from Middlebury College in the
United States in 1992, and she received her master’s of business administration from Harvard
University Graduate School of Business Administration in the United States in June 1996.
Ms. LIM Kooi June , aged 45, is one of our non-executive Directors. Ms. LIM has served as
a director of investments of Khazanah Nasional Business Consulting (Shanghai) Co., Ltd. ( ৵ҳਠ
ਕፔ༔(ɪऎ)ʮ̡) since November 2019. Ms. LIM has also served as a board member of
Shanghai Jinghua Medical Management Co., Ltd. (ʮ̡) (formerly known as
Shanghai Lianji Biotechnology Co., Ltd. (ʮ̡)) since September 2020. Ms.
LIM also served as a director of investments of Khazanah Nasional Consulting (Beijing) Co., Ltd.
(৵ҳፔ༔(̏ԯ)ʮ̡)( “ Khazanah ”) from January 2012 to October 2019 primarily
responsible for carrying out investments made by Khazanah. Prior to that, Ms. LIM served at (i)
Khazanah Nasional Berhad, Beijing Representative Office as a director of investment from April
2008 to December 2011, (ii) the Citi technology infrastructure department of Citibank, N.A. from
April 2004 to May 2005, where her last position was a senior auditor, and (iii) Deloitte LLP from
August 2002 to April 2004, where her last position was an assistant manager.
Ms. LIM received her bachelor degree with honors in law from University of Nottingham in
England in July 2000 and was awarded the Professional Accountancy Certificate by the Institute of
Chartered Accountants in England and Wales in May 2002.
Independent Non-executive Directors
Mr. MI Brian Zihou (ێ)aged 57, is one of our independent non-executive Directors.
Mr. MI has served as the president of Asia Pacific for IQVIA (NYSE: IQV , formerly known as
Quintiles and IMS Health, Inc.) since April 2020, a company providing full spectrum of services,
including information, technology and contract clinical research, to healthcare industry. He also
held various positions at IQVIA, including the president for Greater China from December 2016 to
April 2020, the president for China and Southeast Asia from April 2015 to December 2016, the
general manager for Greater China from July 2011 to April 2015, and a senior principal for
management consulting from December 2008 to July 2011.
DIRECTORS AND SENIOR MANAGEMENT
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--- page 255 ---
Mr. MI received his Ph.D. degree in pharmaceutical chemistry from the Ohio State University
in December 1995, and his MBA degree from University of Chicago Booth School of Business in
June 2000.
Mr. YEH Richard ( ໢ᎌ), aged 55, is one of our independent non-executive Directors. Mr.
YEH has served as a director and the chief operating officer at I-MAB, a clinical stage
biopharmaceutical company traded on the NASDAQ (NASDAQ: IMAB), since April 2022. Since
September 2022, Mr. YEH has also served concurrently as I-MAB’s interim chief financial officer.
Before joining IMAB, he took leadership positions in certain biopharmaceutical companies,
including serving as (i) a director of Medlive Technology Co., Ltd. (ʮ̡) (HKEX:
2192) since June 2021; (ii) a director of Abbisko Therapeutics Co., Ltd. (ҦϞ
ʮ̡)( “Abbisko ”) (HKEX: 2256) from January 2021 until his resignation in April 2022, (iii) as
chief financial officer and the head of strategic operations at Abbisko from November 2020 to April
2022, and (iv) the chief financial officer of CStone Pharmaceuticals, a company listed on the Stock
Exchange (HKEX: 2616), from July 2018 to April 2020. Prior to joining CStone Pharmaceuticals,
Mr. YEH was a managing director and the business unit leader of Asia Pacific healthcare equity
research at Goldman Sachs (Asia) L.L.C. in Hong Kong from July 2015 to July 2018. Before that,
Mr. YEH worked at Citigroup Capital Markets Asia Limited from July 2009 to June 2015 where he
last served as the head of China healthcare research team. In October 1995, he joined Amgen Inc.,
a leading global biotechnology company traded on the NASDAQ (NASDAQ: AMGN), as a research
associate conducting drug discovery research.
Mr. YEH received his master’s of business administration from Cornell University in the
United States in May 2002 and a Master of Science in medical biophysics from the University of
Toronto and Ontario Cancer Institute in Canada in November 1995. Mr. YEH received a Bachelor
of Science with a major in biochemistry from University of Manitoba in Canada in May 1993.
Mr. ZHANG Wei ( ੵ⑸), aged 52, is one of our independent non-executive Directors. Mr.
ZHANG has served as an independent non-executive director at various public companies,
including (i) as an independent director of Biostage, Inc. (NASDAQ: BSTG), a US biotechnology
company developing bioengineered organ implants, from May 2018 to June 2021, (ii) an
independent director of Dong-E-E-Jiao Co., Ltd. (ʮ̡) (SZSE: 000423), a
company primarily manufacturing and selling traditional Chinese medicine and healthcare products,
from January 2015 to June 2021, (iii) an independent director of Yunan Jianzhijia Health-Chain Co.,
Ltd. (ʮ̡) (SHA: 605266) from March 2015 to December 2020, (iv)
an independent director of Huadong Medicine Co., Ltd. (ʮ̡) (SZSE: 000963)
from January 2016 to June 2019, and (v) an independent director of China Merchants Property
Development Co., Ltd. (ʮ̡) (SZSE: 000024) from December 2011 to
December 2015, which was privatized in December 2015.
Mr. ZHANG has also served as the senior executive of China Merchants Health Care Holdings
Company Limited (ʮ̡) since September 2020 primarily responsible for
its strategy and operation.
Mr. ZHANG received his doctoral degree in clinical medicine from Peking Union Medical
College (ɽኪ, currently known as ̏ԯ՘ձᔼኪ৫) in July 1998, and his doctoral
degree in medical management and policy from Harvard University in June 2005.
DIRECTORS AND SENIOR MANAGEMENT
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--- page 256 ---
SENIOR MANAGEMENT
In addition to our executive Director, the senior management team of our Group comprises the
following persons:
Name Age Position
Roles and
responsibilities
Date of joining
our Group
Date of
appointment
Mr. PAN Chao
(ᆙ൴) ............. 60 Senior vice
president, head
of laboratory
Laboratory
overall
management
July 7, 2004 October 26,
2018
Mr. WANG
Lawrence Allen ( ˮ
ʘጫ) .............
46 Chief financial
officer, senior
vice president
and joint
company
secretary
Financial
strategy,
financial
management and
investor relation
September 9,
2020
September 9,
2020
Mr. WANG
Chengdong
(ˮϓಊ) ...........
46 National
purchasing
director, national
project
management
director
National
purchasing,
technical
cooperation and
project
management
July 5, 2011 April 19, 2019
Ms. HU Yuanyuan
(ʩధ) ...........
38 Vice president Daily work of
the Board
October 13,
2014
October 26,
2018
Mr. CHU Jianing
(ႣԳྐྵ) ...........
42 Internal audit
director, strategic
intelligence
officer
Overseeing
internal control
and risk
management and
the management
of operating data
analysis and
applications
June 3, 2014 June 3, 2014
Ms. LI Dan
(ҽఊ) .............
44 National quality
director
Laboratory
quality control
January 1,
2004
April 19, 2019
Mr. PAN Chao ( ᆙ൴), aged 60, has been in charge of the operation of the ICLs of Hangzhou
Adicon during the Track Record Period, and has served as our senior vice president since July 2021
and our head of laboratory since October 2018. Mr. PAN also held various positions at Hangzhou
Adicon, including as a laboratory deputy manager from March 2017 to October 2018, a laboratory
director from January 2010 to March 2017, and a laboratory supervisor from October 2007 to
January 2010.
Prior to joining our Group, he served as a laboratory director of People’s Hospital of Jiangsu
Gaoyou ( Ϫᘽ৷ඉ̹ɛ͏ᔼ৫)( “ Gaoyou Hospital ”) from November 1991 to July 2004, during
which, he served as (i) a deputy director of its outpatient department from October 1998 to July
2004, and (ii) a technician responsible its medical laboratory technology from September 1989 to
November 1991. From May 1982 to August 1989, he served as a technician of Hospital of Integrated
Traditional Chinese and Western Medicine of Jiangsu Gaoyou ( Ϫᘽ৷ඉ̹ʕГᔼഐΥᔼ৫).
DIRECTORS AND SENIOR MANAGEMENT
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--- page 257 ---
Mr. PAN received (i) his technical degree in laboratory from Zhenjiang Medical College ( ᕄ
ࣧcurrently known as Jiangsu University ( Ϫᘽɽኪ)) in March 1982,
(ii) his college degree in medical laboratory from Jiangsu Staff Medical University (߅
ɽኪ) (currently known as Jiangsu Health V ocational College ( Ϫᘽሊ͛਄ੰᔖุኪ৫)) in January
1998 through part-time study, and (iii) his bachelor’s degree in medical laboratory science from
Jiangsu University ( Ϫᘽɽኪ) (evening courses) in July 2003. Mr. PAN was accredited as (i) a
member of the Second Committee of Laboratory Medicine Branch of Zhejiang Medical Doctor
Association (ࡰby Zhejiang Medical Doctor
Association in April 2019, (ii) a member of the First Committee of Heath Examination Branch of
Chinese Non-Government Medical Institutions Association (ʮͭᔼᐕዚ࿴՘ึ਄ੰ᜗Ꮸʱ
ࡰby Chinese Non-Government Medical Institutions Association in October
2019, and (iii) a member of the Third Committee of Clinical Laboratory Management of Zhejiang
Hospital Association (ࡰby Zhejiang Hospital
Association in December 2020. Mr. PAN received (i) the qualification of Deputy Chief Technician
of clinical medical laboratory and clinical basic laboratory technology awarded by Zhejiang
Provincial Department of Human Resources and Social Security in November 2010 and (ii) his
Clinical Genetic Diagnosis Laboratory Certificate ( ᑗґਿΪൢᓙྼ᜕ɪ੪ᗇ) awarded by Jiangsu
Clinical Laboratory Center in March 2004.
Mr. W ANG Lawrence Allen ( ˮʘጫ), aged 46, has served as our chief financial officer and
senior vice president since September 2020.
Prior to joining our Group, Mr. WANG worked in various capacities in private equity and
investment banking, including as a managing director of Vivo Capital, LLC from November 2015
to August 2020, a managing director of Primavera Capital Limited from December 2010 to July
2015, an associate director of Macquarie Group Limited (ASX: MQG) from July 2009 to September
2010, an executive director of Goldman Sachs (Asia) L.L.C., a subsidiary of Goldman Sachs Group,
Inc. (NYSE: GS) from March 2004 to May 2009, and an associate of Bank of America Corporation
(NYSE: BAC) from August 2003 to March 2004.
Mr. WANG received his bachelor’s degree in medical science from Boston University in the
United States in May 1999, his doctorate degree in medicine from Boston University School of
Medicine in the United States in May 2003, and his MBA degree from Massachusetts Institute of
Technology Sloan School of Management in the United States in June 2003.
Mr. W ANG Chengdong ( ˮϓಊ), aged 46, has been in charge of our supply chain
management during the Track Record Period, and has served as our national purchasing director and
national project management director since April 2019. Mr. WANG also held various positions at
Hangzhou Adicon, including as (i) a national purchasing manager from July 2011 to March 2013,
(ii) a national purchasing, planning and warehousing senior manager from March 2013 to January
2018, (iii) a national purchasing, planning and warehousing deputy director from January 2018 to
April 2019, and (iv) a national purchasing, planning and warehousing director, national technical
cooperation and project manager from April 2019 to December 2019.
Prior to joining our Group, he served as a purchasing manager of ACON from February 2011
to July 2011, a purchasing specialist of ACON from August 2003 to January 2011, an assistant
agronomist of Shengzhou Silkworm Eggs Farm ( ⎾ψ̹ᜨ၇ఙ) from January 2000 to March 2003.
Mr. WANG received his bachelor’s degree in sericology from Zhejiang University ( एϪɽኪ)
in China in June 1999.
Ms. HU Yuanyuan (ʩధ), aged 38, has been in charge of many of our internal
administrative functions, and was responsible for overseeing, among others, our (i) human
resources department, (ii) business administrative department, (iii) engineering project department,
and (iv) legal department.
DIRECTORS AND SENIOR MANAGEMENT
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--- page 258 ---
Prior to joining our Group, Ms. HU served as (i) an administrative director of AJON Medical
Device (Hangzhou) Co., Ltd. ( Ў਄ᔼᐕኜ૛(ψ)ʮ̡)( “AJON”) from July 2012 to October
2014, (ii) a director of the general manager office of AJON from November 2010 to June 2012, (iii)
an assistant to general manager of AJON from November 2008 to November 2010, (iv) a personal
assistant to the general manager of Junglerock Biological Cloning Technology (Hangzhou) Co., Ltd.
(дඤҦஔ(ψ)ʮ̡) from November 2007 to November 2008 and (v) a translator
for Mahindra (China) Tractor Co., Ltd. ( ৵㛬༺(ʕ਷)ʮ̡) from March 2007 to October
2007.
Ms. HU received her bachelor’s degree in international economics and trade from Jiangxi
University of Finance and Economics ( ϪГৌ຾ɽኪ) in China in July 2006.
Mr. CHU Jianing ( ႣԳྐྵ), aged 42, has been in charge of our internal audit department
overseeing our risk management and internal controls system since he joined our Group in June
2014, during which he has consecutively served as our internal audit manager, internal audit deputy
director and internal audit director. From July 2020 to July 2021, he also served as our war room
director. Mr. CHU Jianing has served concurrently as our internal audit director and strategic
intelligence officer since July 2021.
Prior to joining our Group, Mr. CHU served as (i) an internal audit manager of Hi-P
(Shanghai) Housing Appliance Co., Ltd ( Ⴚˢ(ɪऎ)ʮ̡), a subsidiary of Hi-P
International Limited ( Ⴚˢ(਷ყ)ʮ̡) (SGX: H17) from January 2010 to May 2014, and (ii)
a risk management deputy manager of Shanghai Lotus Supermarket Chain Store Co., Ltd. (׸
ʮ̡) from December 2002 to December 2009.
Mr. CHU received his bachelor’s degree in finance from Shanghai University ( ɪऎɽኪ)i n
China in July 2002. Mr. CHU was accredited as a certified internal auditor by China Institute of
Internal Audit in November 2009.
Ms. LI Dan ( ҽఊ), aged 44, has served as our national quality director since April 2019. Ms.
LI also held various positions at Hangzhou Adicon, including as a national quality deputy director
from November 2016 to April 2019, a national quality manager from June 2013 to November 2016,
a laboratory manager from May 2008 to June 2013 and a laboratory supervisor from March 2006
to May 2008.
Prior to joining our Group, she served in technical support for the international sales
department of ACON from July 2002 to May 2003.
Ms. LI received her bachelor’s degree in clinical medicine from Qiqihar Medical University
(ဧᔼኪ৫) in China in July 2002.
GENERAL
None of our Directors and senior management members are related to other Directors or
members of our senior management. Save as disclosed above, none of our Directors and senior
management members held any directorship in public companies, whose securities were listed on
any securities market in Hong Kong or overseas in the three years immediately preceding the date
of this Prospectus. Save as disclosed above, to the best knowledge, information and belief of our
Directors having made all reasonable enquiries, there are no other matters in respect of our
Directors that are required to be disclosed pursuant to Rule 13.51(2)(a) to (v) of the Listing Rules,
and there is no other material matter relating to our Directors that needs to be brought to the
attention of our Shareholders.
DIRECTORS AND SENIOR MANAGEMENT
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--- page 259 ---
JOINT COMPANY SECRETARIES
Mr. W ANG Lawrence Allen ( ˮʘጫ) is one of our joint company secretaries and has been
appointed with effect from April 15, 2021. Mr. WANG is also one of our authorized representatives.
For details of his biography, please refer to the paragraph headed “– Senior Management” in this
section.
Ms. SO Ka Man ( ᘽྗઽ) is one of our joint company secretaries and has been appointed with
effect from November 5, 2021.
Ms. SO is a director of the corporate services division of Tricor Services Limited and has been
providing professional corporate services to Hong Kong listed companies as well as multi-national,
private and offshore companies. Ms. SO has over 20 years of experience in the corporate secretarial
and compliance service field. Ms. SO is currently acting as the company secretary or joint company
secretary of a few listed companies on the Stock Exchange.
Ms. SO graduated from The Hong Kong Polytechnic University in November 1996 with a
bachelor’s degree of Arts in Accountancy. Ms. SO is a Chartered Secretary, a Chartered Governance
Professional and a fellow of both The Hong Kong Chartered Governance Institute and The
Chartered Governance Institute in the United Kingdom.
BOARD COMMITTEES
Audit Committee
We have established an audit committee with written terms of reference in compliance with
Rule 3.21 of the Listing Rules and the Corporate Governance Code. The primary duties of the audit
committee are to review and supervise the financial reporting process and internal controls system
of the Group, review and approve connected transactions and provide advice and comments to the
board of Directors. The audit committee consists of three members, namely Mr. YEH Richard ( ໢
ᎌ), Mr. ZHANG Wei ( ੵ⑸) and Mr. MI Brian Zihou (ێMr. YEH Richard ( ໢ᎌ) (being an
independent non-executive Director with the appropriate professional qualification) has been
appointed as the chairman of the audit committee.
Remuneration Committee
We have established a remuneration committee with written terms of reference in compliance
with Rule 3.25 of the Listing Rules and the Corporate Governance Code. The primary duties of the
remuneration committee are to review and make recommendations to the Board on the terms of
remuneration packages, bonuses and other compensation payable to our Directors and other senior
management. The remuneration committee consists of three members, namely Mr. MI Brian Zihou
(ێMs. YANG Ling (ࡗand Mr. ZHANG Wei ( ੵ⑸). Mr. MI Brian Zihou (ێhas
been appointed as the chairman of the remuneration committee.
Nomination Committee
We have established a nomination committee with written terms of reference in compliance
with Rule 3.27A of the Listing Rules and the Corporate Governance Code. The primary duties of
the nomination committee are to make recommendations to our Board on the appointment of
Directors and management of Board succession. The nomination committee consists of three
members, namely Ms. YANG Ling (ࡗMr. ZHANG Wei ( ੵ⑸) and Mr. YEH Richard ( ໢ᎌ).
Ms. YANG Ling (ࡗhas been appointed as the chairwoman of the nomination committee.
DIRECTORS AND SENIOR MANAGEMENT
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Strategy Committee
We have established a strategy committee with written terms of reference. The primary duties
of the strategy committee is to formulate and evaluate the business development strategy of our
Group and to facilitate and monitor the implementation of the business development and the
strategy planning of our Group. The strategy committee consists of three members, namely
Ms. YANG Ling (ࡗMr. GAO Song ( ৷෽) and Mr. MI Brian Zihou (ێMs. YANG Ling
(ࡗhas been appointed as the chairwoman of the strategy committee.
FORMER EXECUTIVE DIRECTOR AND CHIEF EXECUTIVE OFFICER
On January 20, 2021, we appointed Mr. XU Ke as our executive Director and chief executive
officer. Due to family reasons, Mr. XU Ke subsequently resigned on 24 November 2021, and we
appointed Mr. GAO Song as our executive Director and chief executive officer. After the
resignation, Mr. Xu ceased to hold any position or title in our Company. Mr. Xu has confirmed that
he has no disputes or disagreements with our Company, our Board or the senior management of our
Company and no other matters in relation to his resignation that need to be brought to the attention
of our Shareholders or the Stock Exchange.
Prior to joining our Group in January 2021, Mr. XU served at Meinian Onehealth Healthcare
Holdings Co., Ltd. (ʮ̡) (SZSE: 002044) (“ Meinian Onehealth ”)
as president from November 2011 to January 2021 and as director from November 2011 to October
2021, and was primarily responsible for the overall management and strategy planning of Meinian
Onehealth. During Mr. XU Ke’s tenure at Meinian Onehealth, he was primarily responsible for the
overall management and strategy planning of Meinian Onehealth through making decisions in board
and management meetings based on the business and financial reporting from different departments
and responsible officers of Meinian Onehealth. Mr. XU ceased to hold any position or title in
Meinian Onehealth since October 2021.
DIRECTORS’ AND SENIOR MANAGEMENT’S REMUNERATION
Our Directors and senior management receive remuneration, including salaries, allowances
and benefits in kind, equity-settled share-based payment expense and pension scheme contributions.
The aggregate amount of remuneration for the five highest paid individuals of our Group, excluding
our Directors, for the years ended December 31, 2020, 2021 and 2022 was approximately RMB14.2
million, RMB25.5 million and RMB16.1 million, respectively.
The aggregate amount of remuneration for our Directors for the years ended December 31,
2020, 2021 and 2022 was approximately RMB36.0 million, RMB14.6 million and RMB6.1 million,
respectively.
Save as disclosed above, no other payments have been paid or are payable, in respect of the
years ended December 31, 2020, 2021 and 2022 by our Company to our Directors or senior
management.
Under the arrangements currently in force as of the date of this Prospectus, it is estimated that
the aggregate amount of remuneration to our Directors for the year ending December 31, 2023 is
estimated to be no more than approximately US$1,100,000.
No remuneration was paid to our Directors or the five highest paid individuals as an
inducement to join, or upon joining, our Group. No compensation was paid to, or receivable by, our
Directors or past directors for the Track Record Period for the loss of office as director or any
member of our Group or of any other office in connection with the management of the affairs of
any member of our Group. None of our Directors waived any emoluments during the Track Record
Period.
DIRECTORS AND SENIOR MANAGEMENT
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COMPLIANCE ADVISOR
We have appointed Somerley Capital Limited as our compliance advisor pursuant to Rule
3A.19 of the Listing Rules. The compliance advisor will provide us with guidance and advice as to
compliance with the requirements under the Listing Rules and applicable Hong Kong laws. Pursuant
to Rule 3A.23 of the Listing Rules, the compliance advisor will advise our Company, among others,
in the following circumstances:
(a) before the publication of any regulatory announcement, circular, or financial report;
(b) where a transaction, which might be a notifiable or connected transaction, is
contemplated, including share issues and share repurchases;
(c) where we propose to use the proceeds of the Global Offering in a manner different from
that detailed in this Prospectus or where the business activities, development or results
of our Group deviate from any forecast, estimate or other information in this Prospectus;
and
(d) where the Stock Exchange makes an inquiry to the Company regarding unusual
movements in the price or trading volume of its listed securities or any other matters in
accordance with Rule 13.10 of the Listing Rules.
The term of appointment of the compliance advisor shall commence on the Listing Date and
is expected to end 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 Listing Date.
COMPETITION
Each of our Directors confirms that as of the Latest Practicable Date, he/she did not have any
interest in a business which competes or is likely to compete, directly or indirectly, with our
business and requires disclosure under Rule 8.10 of the Listing Rules.
CORPORATE GOVERNANCE CODE
We aim to achieve high standards of corporate governance because these are crucial to our
development and safeguard the interests of our Shareholders. In order to accomplish this, we expect
to comply with the Corporate Governance Code set out in Appendix 14 to the Listing Rules after
the Listing.
MANAGEMENT PRESENCE
Pursuant to Rule 8.12 of the Listing Rules, an issuer must have a sufficient management
presence in Hong Kong. This will normally mean that at least two of its executive directors must
be ordinarily resident in Hong Kong. We do not have sufficient management presence in Hong Kong
for the purpose of Rule 8.12 of the Listing Rules.
Accordingly, we have applied for, and the Stock Exchange has granted, a waiver from strict
compliance with Rule 8.12 of the Listing Rules. Please refer to the section headed “Waivers from
Strict Compliance with the Listing Rules” in this Prospectus for further details.
BOARD DIVERSITY POLICY
We recognize and embrace the benefits of having a diverse Board and see increasing diversity
at the Board level as an essential element in maintaining our competitive advantage. The
Nomination Committee will review annually the structure, size and composition of our Board and
where appropriate, make recommendations on changes to our Board to complement our corporate
strategy.
DIRECTORS AND SENIOR MANAGEMENT
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In relation to reviewing and assessing our Board composition, our nomination committee will
consider a number of aspects, including but not limited to gender, age, cultural and educational
background, ethnicity, professional qualifications, skills, knowledge, length of service and industry
and regional experience. Meanwhile, our Company will consider the above factors based on our
business mode and our specific needs, and the ultimate decision will be based on merit and
contribution that the selected candidates will bring to our Board.
Our Nomination Committee will discuss and where necessary, agree on the measurable
objectives for achieving diversity on the Board and recommend them to the Board for adoption. We
aim to maintain an appropriate balance of diversity perspectives of our Board that are relevant to
our business growth.
DIRECTORS AND SENIOR MANAGEMENT
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SUBSTANTIAL SHAREHOLDERS
So far as our Directors are aware, immediately following completion of the Global Offering
(assuming the Over-allotment Option is not exercised) the following persons will have an interest
or short position in our Shares or underlying Shares which would fall to be disclosed to us under
the provisions of Divisions 2 and 3 of Part XV of the SFO, or, will be, directly or indirectly,
interested in 5% or more of the issued voting shares of our Company or any other member of our
Group:
Name Capacity/Nature of interest
Number of
Shares (1)
Approximate
ownership
percentage in our
Company after
the Global
Offering (2)
Pearl Group Limited (3) ........... Beneficial owner 281,541,805 38.92%
Mr. LIN Jixun (4)................. Interest in a controlled
corporation
90,061,994 12.45%
Corelink (4) ...................... Beneficial owner 90,061,994 12.45%
Mr. LIN Feng (5) ................. Interest in a controlled
corporation
72,005,994 9.95%
Mega Stream (5) .................. Beneficial owner 72,005,994 9.95%
Notes:
(1) The number of Shares held following conversion of Preferred Shares.
(2) It is assumed that the Over-allotment Option is not exercised.
(3) Pearl Group Limited is 94.57% owned by Carlyle Asia Partners V , L.P. and 5.43% owned by CAP V Co-Investment,
L.P.. The general partner of Carlyle Asia Partners V , L.P. and CAP V Co-Investment, L.P. is CAP V General Partner,
L.P.. The general partner of CAP V General Partner, L.P. is CAP V , L.L.C., an indirect subsidiary of Carlyle. CAP
V , L.L.C. is wholly-owned by TC Group Cayman Investment Holdings Sub L.P.. The general partner of TC Group
Cayman Investment Holdings Sub L.P. is TC Group Cayman Investment Holdings L.P.. The general partner of TC
Group Cayman Investment Holdings L.P. is CG Subsidiary Holdings L.L.C.. The managing member of CG Subsidiary
Holdings L.L.C. is Carlyle Holdings II L.L.C.. The managing member of Carlyle Holdings II L.L.C. is Carlyle
Holdings II GP L.L.C.. The sole member of Carlyle Holdings II GP L.L.C. is Carlyle. As such, under the SFO, each
of Carlyle Asia Partners V , L.P., CAP V General Partner, L.P., CAP V L.L.C., TC Group Cayman Investment Holdings
Sub L.P., TC Group Cayman Investment Holdings L.P., CG Subsidiary Holdings L.L.C., Carlyle Holdings II L.L.C.,
Carlyle Holdings II GP L.L.C. and Carlyle is deemed to be interested in the equity interests held by Pearl Group
Limited.
(4) Corelink is wholly-owned by Mr. LIN Jixun, one of our Founders and a non-executive Director. Mr. LIN Jixun is the
brother of Mr. LIN Feng.
(5) Mega Stream is wholly-owned by Mr. LIN Feng, one of our Founders. Mr. LIN Feng is the brother of Mr. LIN Jixun.
Except as disclosed above, our Directors are not aware of any other person who will,
immediately following completion of the Global Offering (assuming the Over-allotment Option is
not exercised), have an interest or short position in our Shares or underlying Shares which would
fall to be disclosed to us under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, will
be, directly or indirectly, interested in 10% or more of the issued voting shares of our Company or
any other member of our Group.
SUBSTANTIAL SHAREHOLDERS
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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 forth below (each a “ Cornerstone Investor ”, and together, the “ Cornerstone
Investors ”) who have agreed to subscribe, or cause their designated entities to subscribe, for such
number of our Offer Shares (rounded down to the nearest whole board lot of 500 Shares) which may
be purchased at the Offer Price with an aggregate amount of approximately US$37.17 million (or
approximately HK$291.33 million) (exclusive of the brokerage fee, the SFC transaction levy, the
AFRC transaction levy and the Stock Exchange trading fee) (the “ Cornerstone Placing ”).
Based on an Offer Price of HK$12.32, the total number of Offer Shares to be subscribed by
the Cornerstone Investors would be approximately 23,647,000 Shares, representing approximately
(i) 71.24% of the Offer Shares, assuming that the Over-allotment Option is not exercised, (ii) 3.27%
of our total issued share capital upon completion of the Global Offering and assuming that the
Over-allotment Option is not exercised, and (iii) 3.25% of our total issued share capital upon
completion of the Global Offering and assuming full exercise of the Over-allotment Option.
The Cornerstone Investors will acquire the Offer Shares pursuant to, and as part of, the
International Offering. The Cornerstone Investors have agreed to pay for the relevant Offer Shares
that they have subscribed before dealings in the Shares commence on the Stock Exchange. There
will be no deferred delivery of the Offer Shares to be subscribed by the Cornerstone Investors. The
Offer Shares to be subscribed by the Cornerstone Investors will rank pari passu in all respects with
the other fully paid Shares in issue and, save for the Offer Shares subscribed by Corelink (a
substantial shareholder), will be counted towards the public float of our Company.
Immediately following the completion of the Global Offering, (i) save for Corelink, which
was already a substantial shareholder as of the date of this Prospectus, none of the Cornerstone
Investors will become substantial shareholders of our Company; and (ii) the Cornerstone Investors
or their close associates will not, by virtue of their cornerstone investments, have any Board
representation in our Company. No preferential treatment or right has been granted by our Company
to the Cornerstone Investors other than the preferential placings to the Cornerstone Investors
following the principles as set out in the Stock Exchange Guidance Letter HKEX-GL51-13.
Each of the Cornerstone Investors have confirmed that all necessary approvals have been
obtained with respect to the Cornerstone Placing. One of our Cornerstone Investors, namely
Corelink, is an existing Shareholder of the Company. We have applied to the Stock Exchange for
a waiver from strict compliance with Rule 10.04 of the Listing Rules and sought written consent
from the Stock Exchange under paragraph 5(2) of Appendix 6 to the Listing Rules, and the Stock
Exchange has granted us such waiver and consent to permit us to allocate the Offer Shares to
Corelink. For further details, see “Waivers from Strict Compliance with the Listing Rules – Waiver
and Consent in relation to Subscription of the Offer Shares by an Existing Shareholder, Corelink”.
Our Company is of the view that the Cornerstone Placing will help raise the profile of our
Company and signify that such investors have confidence in our business and prospects.
To the best knowledge of our Company:
(i) Save for Corelink (a substantial shareholder), each Cornerstone Investor (and, for the
Cornerstone Investor who will subscribe for our Offer Shares through a qualified
domestic institutional investor (“ QDII”), such QDII and the Cornerstone Investor) is an
Independent Third Party and is not our connected person (as defined in the Listing
Rules) nor an existing Shareholder;
CORNERSTONE INVESTORS
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(ii) Each of the Cornerstone Investors is independent from each other;
(iii) Save for Corelink (a company wholly-owned by Mr. LIN Jixun, a non-executive
Director), none of the Cornerstone Investors are accustomed to taking instructions from
our Company, the Directors, the chief executive of the Company, Controlling
Shareholders, substantial Shareholders, or existing Shareholders or any of its
subsidiaries or their respective close associates in relation to the acquisition, disposal,
voting or other disposition of the Offer Shares; and
(iv) Save for Corelink (a company wholly-owned by Mr. LIN Jixun, a non-executive
Director), none of the subscriptions made by the Cornerstone Investors was financed by
the Company, the Directors, the chief executive of the Company, Controlling
Shareholders, substantial Shareholders, other existing Shareholders or any of its
subsidiaries or their respective close associates.
(v) Each Cornerstone Investor has confirmed that their subscriptions under the Cornerstone
Placing would be financed by their own internal financial resources and/or the financial
resources of their ultimate beneficial owners, and that they have sufficient funds to settle
their respective investments under the Cornerstone Placing.
There are no side agreements/arrangements between our Company and the Cornerstone
Investors or any benefit, direct or indirect, conferred on the Cornerstone Investors by virtue of or
in relation to the Cornerstone Placing, other than a guaranteed allocation of the relevant Offer
Shares at the Offer Price. None of the Cornerstone Investors will subscribe for any Offer Shares
under the Global Offering (other than pursuant to the respective cornerstone investment
agreements).
Details of the actual number of Offer Shares to be allocated to the Cornerstone Investors will
be disclosed in the allotment results announcement to be issued by the Company on or around
June 29, 2023.
The Offer Shares to be subscribed for by each Cornerstone Investor may be affected by any
reallocation of the Offer Shares between the International Offering and the Hong Kong Public
Offering in the event of oversubscription under the Hong Kong Public Offering, as described in the
section headed “Structure of the Global Offering – The Hong Kong Public Offering – Reallocation
and clawback” in this Prospectus. The number of Offer Shares under the International Offering may
be deducted to satisfy the public demands under the Hong Kong Public Offering. Each of the
Cornerstone Investors has agreed that, in the event that the requirement pursuant to Rules 8.08(3)
of the Listing Rules (providing that no more than 50% of our Shares in public hands on the Listing
Date can be beneficially owned by the three largest public Shareholders) cannot be satisfied, the
Company and the Overall Coordinators have the right to adjust the allocation of the number of Offer
Shares to be purchased by the Cornerstone Investor in their sole and absolute discretion to satisfy
the requirement under Rule 8.08(3) of the Listing Rules.
CORNERSTONE INVESTORS
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OUR CORNERSTONE INVESTORS
Based on the Offer Price of HK$12.32
Cornerstone Investor
(each as defined below) Investment amount
Number of Offer
Shares (rounded
down to nearest
whole board lot of
500 Shares)
Approximate % of total
number of Offer Shares
Approximate % of total issued
share capital immediately
following the completion of the
Global Offering
Assuming the
Over-allotment
Option is not
exercised
Assuming the
Over-allotment
Option is
exercised in full
Assuming the
Over-allotment
Option is not
exercised
Assuming the
Over-allotment
Option is
exercised in full
(US$ in million)
MR Global .......... 15.00 9,542,500 28.75% 25.00% 1.32% 1.31%
Snibe Hong Kong ...... 10.00 6,361,500 19.17% 16.67% 0.88% 0.87%
Fosun Diagnostics ...... 5.00 3,180,500 9.58% 8.33% 0.44% 0.44%
Timestar Elite ........ 3.79 2,410,500 7.26% 6.32% 0.33% 0.33%
Corelink ........... 3.38 2,152,000 6.48% 5.64% 0.30% 0.30%
37.17 23,647,000 71.24% 61.95% 3.27% 3.25%
MR Global
MR Global (HK) Limited (“ MR Global ”), a limited company incorporated under the laws of
Hong Kong on January 6, 2016, is principally engaged in sales and marketing of medical devices
as well as investment management.
MR Global is directly wholly owned by Shenzhen Mindray Bio-medical Electronics Co., Ltd.
(ʮ̡)( “ Mindray ”), a company listed on the Shenzhen Stock
Exchange (SSZ stock code: 300760) and principally engaged in the R&D, manufacturing, marketing
and service of medical devices. Mindray’s products currently cover three main areas, namely patient
monitoring and life support, IVD and medical imaging system. Over the years, Mindray has become
one of the world’s leading suppliers of medical devices and solutions. Mindray is currently a
supplier of the Group for IVD equipment and reagents.
Approvals from Mindray’s shareholders and the Shenzhen Stock Exchange are not required
for MR Global to subscribe for the Shares under the Cornerstone Placing.
Snibe Hong Kong
Snibe Diagnostic (Hong Kong) Company Limited (“ Snibe Hong Kong ”), a limited company
incorporated under the laws of Hong Kong on July 11, 2016, is principally engaged in the sales of
chemiluminescent immunoassay instruments and in vitro diagnostics reagents.
Snibe Hong Kong is directly wholly owned by Shenzhen New Industries Biomedical
Engineering Co., Ltd. (ʮ̡)( “ Snibe ”), a biomedical
company listed on the Shenzhen Stock Exchange (SZSE: 300832) specialized in research,
production, sales and services in relation to clinical laboratory instruments and in vitro diagnostic
reagents. Snibe is currently a supplier of the Group for IVD equipment and reagents.
Approvals from Snibe’s shareholders and the Shenzhen Stock Exchange are not required for
Snibe Hong Kong to subscribe for the Shares under the Cornerstone Placing.
CORNERSTONE INVESTORS
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Fosun Diagnostics
Fosun Diagnostics (Shanghai) Co., Ltd. (Ҧ(ɪऎ)ʮ̡)( “ Fosun
Diagnostics ”) is a company established in the PRC on February 9, 1989. Focused on the IVD
industry, Fosun Diagnostics promotes the development and implementation of innovative
technologies and products and is committed to becoming a world-leading scientific and
technological innovator in the field of comprehensive solutions for medical diagnosis. Fosun
Diagnostics has developed a variety of products for clinical chemistry, immunoassays, molecular
diagnosis, microbiology and POCT, among others, and has built an automatic pipeline and a small
POCT product group focusing on tumors, digestive and metabolic diseases, cardiovascular and
cerebrovascular diseases, reproductive diseases, central nervous system diseases and infections.
Fosun Diagnostics is currently a supplier of the Group for IVD equipment and reagents.
Fosun Diagnostics is directly wholly owned by Shanghai Fosun Pharmaceutical (Group) Co.,
(ᔼᖹ(ණྠ)ʮ̡)( “Fosun Pharma ”), a company listed on the Hong Kong Stock
Exchange (stock code: 02196) and the Shanghai Stock Exchange (SSE stock code: 600196). Fosun
Pharma’s businesses include pharmaceutical manufacturing, medical devices, medical diagnosis
and healthcare services.
Approvals from Fosun Pharma’s shareholders, the Stock Exchange and the Shanghai Stock
Exchange are not required for Fosun Diagnostics to subscribe for the Shares under the Cornerstone
Placing. For the purpose of this cornerstone investment, Fosun Diagnostics has engaged CITIC
Trust Company Limited (ப΂ʮ̡), an asset manager that is a QDII, to subscribe for
and hold such Offer Shares as the manager of Fosun Diagnostics QDII Trust Finance Investment
Product 202301 (ൢᓙQDIIፄҳ༟ධͦ202301 ಂ).
Timestar Elite
Timestar Elite Limited (“ Timestar Elite ”) is a limited company incorporated in the British
Virgin Islands on January 25, 2021. It is principally engaged in investment holding. Timestar Elite
is wholly-owned by Ms. YIP Yu Kwan, a former director of Shenzhen Salubris Pharmaceuticals Co.,
Ltd. (ʮ̡) (SSZ stock code: 002294) (“ Shenzhen Salubris ”). Ms. YIP
has extensive experience with investments and business operations in the healthcare industry.
Ms. YIP is personally acquainted with certain Directors of our Company. Timestar Elite
decided to make the investment due to its confidence in our business, corporate culture and
historical performance.
Corelink
Corelink is a limited liability company incorporated in the British Virgin Islands on January
2, 2008. It is principally engaged in investment holding. Corelink is wholly-owned by Mr. LIN
Jixun, one of our Founders and a non-executive Director.
Corelink is an existing Shareholder of our Company. As of the Latest Practicable Date,
Corelink held 87,909,994 Shares, representing 12.45% of our total issued share capital. For the
biographical details of Mr. LIN Jixun, see “Directors and Senior Management – Board of Directors
– Non-executive Directors – Mr. LIN Jixun”.
CORNERSTONE INVESTORS
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CONDITIONS PRECEDENT
The obligations of the Cornerstone Investors to acquire Offer Shares under their respective
Cornerstone Investment Agreements are subject to, among others, the following closing conditions:
(a) the Hong Kong Underwriting Agreement and the International Underwriting Agreements
entered into and having become effective and unconditional (in accordance with their
respective original terms or as subsequently waived or varied by agreement of the parties
thereto) by no later than the time and date as specified in these underwriting agreements,
and neither of the underwriting agreements having been terminated;
(b) the Offer Price having been agreed upon between the Company and the Overall
Coordinators (for themselves and on behalf of the Underwriters);
(c) the Listing Committee having granted approval for the listing of, and permission to deal
in, the Shares (including the Offer Shares to be subscribed for by the Cornerstone
Investors) as well as other applicable waivers and approvals and that such approvals,
permission or waivers have not been revoked prior to the commencement of dealings in
the Shares on the Stock Exchange;
(d) no laws or regulations shall have been enacted or promulgated by any governmental
authority which prohibits the consummation of the transactions contemplated in the
Global Offering or the Cornerstone Investment Agreements, and there shall be no orders
or injunctions from a court of competent jurisdiction in effect precluding or prohibiting
consummation of such transactions; and
(e) the respective representations, warranties, undertakings, acknowledgements and
confirmations of the Cornerstone Investors, or their guarantor (as applicable) under their
respective Cornerstone Investment Agreements are accurate and true in all material
respects and not misleading and that there is no material breach of any of the
Cornerstone Investment Agreements on the part of their respective Cornerstone
Investors.
RESTRICTIONS ON THE CORNERSTONE INVESTORS
Each of the Cornerstone Investors has agreed that without the prior written consent of each
of the Company, the Overall Coordinators and the Joint Sponsors, it will not, whether directly or
indirectly, at any time during the period of six months following the Listing Date (the “ Lock-up
Period ”), (i) dispose of any of the Offer Shares they have subscribed for pursuant to the relevant
Cornerstone Investment Agreements (the “ Relevant Shares ”) or any interest in any company or
entity holding any of the Relevant Shares; (ii) allow itself to undergo a change of control (as defined
in the Takeovers Code) at the level of its ultimate beneficial owner; or (iii) enter into any
transactions directly or indirectly with the same economic effect as any aforesaid transaction.
Each Cornerstone Investor may transfer the Relevant Shares in certain limited circumstances
set out in Cornerstone Investment Agreements, such as a transfer to a wholly owned subsidiary that
will be bound by the relevant Cornerstone Investor’s obligations under its Cornerstone Investment
Agreement, and be subject to the restrictions on disposal of Relevant Shares imposed on such
Cornerstone Investor.
CORNERSTONE INVESTORS
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AUTHORIZED AND ISSUED SHARE CAPITAL
The following is a description of our authorized share capital and the amount in issue and to
be issued as fully paid or credited as fully paid immediately prior to and following completion of
the Global Offering assuming that all Preferred Shares are converted into Shares based on their
respective conversion terms as disclosed in this Prospectus:
Number of Shares
Aggregate
nominal value
Authorized share capital as of the date
of this Prospectus ............................... 2,500,000,000 US$50,000.00
– Shares in issue as of the date of this Prospectus
and immediately prior to the Global Offering ....... 706,163,791 US$14,123.28
– Shares to be issued under the Global Offering ..... 17,288,500 US$345.77
Shares in issue immediately following the Global
Offering ....................................... 723,452,291 US$14,469.05
Assumptions
The above table (i) assumes that the Global Offering becomes unconditional and Shares are
issued pursuant to the Global Offering, (ii) does not take into account any Shares that may be issued
or canceled or any other potential change to the share capital as described in “– Potential changes
to share capital” below, (iii) assumes the Over-allotment Option is not exercised.
Ranking
The Offer Shares are ordinary shares in our share capital and rank equally with all Shares
currently in issue and, in particular, will rank equally for all dividends or other distributions
declared, made or paid on the Shares in respect of a record date which falls after the date of this
Prospectus.
POTENTIAL CHANGES TO SHARE CAPITAL
Circumstances under which general meeting and class meeting are required
Pursuant to the Cayman Companies Act and the terms of the Memorandum and Articles, the
Company may from time to time by ordinary resolution in a general meeting: (a) increase its capital;
(b) consolidate and divide all or any of its share capital into shares of a larger amount than its
existing shares; (c) cancel any shares which at the date of the passing of the resolution have not been
taken or agreed to be taken by any person, and diminish the amount of its share capital by the
amount of the shares so canceled subject to the provisions of the Cayman Companies Act; (d) divide
its share into several classes; and (e) sub-divide its shares or any of them into shares of smaller
amount than is fixed by the Memorandum.
For details, please refer to the section headed “Summary of the Constitution of the Company
and Cayman Islands Company Law and Taxation – 2. Articles of Association – 2.1(c). Alteration of
capital” in Appendix III to this Prospectus.
If at any time the share capital of the Company is divided into different classes of shares, all
or any of the rights attached to any class of shares for the time being issued (unless otherwise
provided for in the terms of issue of the shares of that class) may, subject to the provisions of the
Cayman Companies Act and the terms of the Memorandum and Articles, be varied or abrogated
either with the consent in writing of the holders of not less than three-fourths of the voting rights
of the holders of the issued shares of that class or with the sanction of a special resolution passed
at a separate meeting of the holders of the shares of that class.
SHARE CAPITAL
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--- page 270 ---
For details, please refer to the section headed “Summary of the Constitution of the Company
and Cayman Islands Company Law and Taxation – 2. Articles of Association – 2.1(b). Variation of
rights of existing shares or classes of shares” in Appendix III to this Prospectus for details.
General mandate to issue Shares
Subject to the Global Offering becoming unconditional, our Directors were granted a general
mandate to allot, issue and deal with any Shares or securities convertible into Shares of not more
than the sum of:
 20% of the total number of Shares in issue immediately following completion of the
Global Offering (but excluding any Shares which may be issued pursuant to the exercise
of the Over-allotment Option); and
 the total number of Shares repurchased by our Company pursuant to the authority
referred to in “– General mandate to repurchase Shares” below.
This general mandate to issue Shares will remain in effect until the earliest of:
 the conclusion of the next annual general meeting of our Company unless, by ordinary
resolution passed at that meeting, the authority is renewed, either unconditionally or
subject to condition;
 the expiration of the period within which the next annual general meeting of our
Company is required to be held under any applicable laws of the Cayman Islands or the
Memorandum and Articles of our Company; and
 the passing of an ordinary resolution by our Shareholders in a general meeting revoking
or varying the authority.
General mandate to repurchase Shares
Subject to the Global Offering becoming unconditional, our Directors were granted a general
mandate to repurchase our own Shares up to 10% of the total number of Shares in issue immediately
following completion of the Global Offering (but excluding any Shares which may be issued
pursuant to the exercise of the Over-allotment Option).
This mandate only relates to repurchases on the Stock Exchange or on any other stock
exchange on which the securities of our Company may be listed and which is recognized by the SFC
and the Stock Exchange for this purpose, and in accordance with all applicable laws and the
requirements under the Listing Rules or equivalent rules or regulations of any other stock exchange
as amended from time to time.
This general mandate to repurchase Shares will remain in effect until the earliest of:
 the conclusion of the next annual general meeting of our Company unless, by ordinary
resolution passed at that meeting, the authority is renewed, either unconditionally or
subject to condition;
 the expiration of the period within which the next annual general meeting of our
Company is required to be held under any applicable laws of the Cayman Islands or the
Memorandum and Articles of our Company; and
 the passing of an ordinary resolution by our Shareholders in a general meeting revoking
or varying the authority.
See “Statutory and general information – A. Further Information About Our Company and our
Subsidiaries – 5. Explanatory Statement on Repurchase of our Own Securities” in Appendix IV to
this Prospectus for further details of this general mandate to repurchase Shares.
SHARE CAPITAL
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You should read the following discussion and analysis with our audited consolidated
financial information, including the notes thereto, included in the Accountant’ s Report in
Appendix I to this Prospectus. Our consolidated financial information has been prepared in
accordance with IFRS, which may differ in material aspects from generally accepted
accounting principles in other jurisdictions, including the United States.
The following discussion and analysis contains forward-looking statements that reflect
our current views with respect to future events and financial performance. These statements
are based on our assumptions and analysis in light of our experience and perception of
historical trends, current conditions and expected future developments, as well as other factors
we believe are appropriate under the circumstances. However , whether actual outcomes and
developments will meet our expectations and predictions depends on a number of risks and
uncertainties. In evaluating our business, you should carefully consider the information
provided in this prospectus, including the sections headed “Risk Factors” and “Business”.
OVERVIEW
We are one of the top three ICL service providers in China in terms of total revenues during
the Track Record Period, according to Frost & Sullivan. Our business has demonstrated strong
growth during the Track Record Period, with our total revenues increasing at a CAGR of 33.1%
from RMB2,741.7 million in 2020 to RMB4,860.6 million in 2022. We offer comprehensive and
best-in-class testing services primarily to hospitals and health check centers through an integrated
network of 33 self-operated laboratories across China. The high quality of our services is backed
by our strong performance in terms of international accreditation and comprehensive testing menu.
As of December 31, 2022, 18 of our laboratories were accredited by ISO15189, which enabled us
to provide customers with the quality assurance that comes with this rigorous international standard.
Our testing portfolio consists of over 4,000 medical diagnostic tests, including over 1,700 routine
tests and over 2,300 esoteric tests, as of December 31, 2022. Our testing volume increased by 33.9%
from 60.1 million in 2020 to 80.5 million in 2021, and further increased by 104.8% to 164.9 million
in 2022. We are committed to continuously serving patients and the general public with our
high-quality testing services as a leading ICL service provider in China, and becoming a trusted and
reliable partner for medical professionals and the general public.
Aided by the changes implemented by our Controlling Shareholders since 2018, we have
experienced rapid growth and strong financial performance during the Track Record Period. Our
total revenues grew at a CAGR of 33.1% from RMB2,741.7 million in 2020 to RMB4,860.6 million
in 2022. Our net profit increased at a CAGR of 53.8% from RMB289.5 million in 2020 to
RMB684.9 million in 2022. Our adjusted EBITDA (non-IFRS measure) grew at a CAGR of 34.0%
from RMB567.6 million in 2020 to RMB1,019.8 million in 2022. Our adjusted EBITDA margin
(non-IFRS measure) increased from 20.7% in 2020 and 2021 to 21.0% in 2022. Our adjusted net
profit (non-IFRS measure) grew at a CAGR of 30.1% from RMB367.0 million in 2020 to
RMB621.1 million in 2022. Our adjusted net profit margin (non-IFRS measure) decreased from
13.4% in 2020 and 2021 to 12.8% in 2022. See “– Non-IFRS Measures”.
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BASIS OF PRESENTATION
The consolidated statements of profit or loss and other comprehensive income, statements of
changes in equity and statements of cash flows, and the consolidated statements of financial
position and a summary of significant accounting policies and other explanatory information of our
Group for the Track Record Period (together, the “ Historical Financial Information ”) has been
prepared in accordance with International Financial Reporting Standards (“ IFRSs ”), which
comprise all standards and interpretations approved by the International Accounting Standards
Board (the “ IASB”). During the Track Record Period, our subsidiaries were principally engaged in
providing clinical testing services in the PRC. Pursuant to the Reorganization, as more fully
explained in the paragraph headed “Reorganization” in the section headed “History, Development
and Reorganization” in this Prospectus, the Company became the holding company of the
companies now comprising the Group on 26 December 2008. As the Reorganization only involved
inserting new holding companies at the top of an existing company and has not resulted in any
changes of economic substance, the Historical Financial Information for the Relevant Periods has
been presented as a continuation of the existing company using the pooling of interests method.
Accordingly, the Group resulting from the Reorganization is regarded as a continuation of the
business operations under Hangzhou Adicon and, for the purpose of this report, the Historical
Financial Information has been prepared and presented as a continuation of the Historical Financial
Information of Hangzhou Adicon and its subsidiaries, with the assets and liabilities of the Group
recognized and measured at the carrying amounts of the business operations under the Historical
Financial Information of Hangzhou Adicon for all periods presented.
Hangzhou Adicon and its subsidiaries (collectively, the “ PRC Operating Entities ”) are
engaged in the medical diagnostic testing services. Due to the restrictions imposed by the relevant
laws and regulatory regime of the PRC on foreign ownership of companies engaging in the medical
diagnostic testing services carried out by subsidiaries of the Group, Aidiken WFOE entered into a
series of contractual arrangements with Hangzhou Adicon and their equity holders on December 26,
2008 (“ the 2008 Contractual Arrangements ”). The 2008 Contractual Arrangements enable
Aidiken WFOE to exercise effective control over the PRC Operating Entities and, accordingly,
Aidiken WFOE has rights to variable returns from its involvement with the PRC Operating Entities
and has the ability to affect those returns through its power over the PRC Operating Entities.
Aidiken WFOE entered into a new series of contractual arrangements (“ the 2018 Contractual
Arrangements ”) with Hangzhou Adicon and their equity holders on October 12, 2018. The 2008
Contractual Arrangements terminated hereafter. The 2018 Contractual Arrangements enable Aidiken
WFOE to exercise effective control over the PRC Operating Entities and, accordingly, Aidiken
WFOE has rights to variable returns from its involvement with the PRC Operating Entities and has
the ability to affect those returns through its power over the PRC Operating Entities. Accordingly,
the Company regards the PRC Operating Entities as indirect subsidiaries for the purpose of the
Historical Financial Information and the historical financial information of the PRC Operating
Entities are combined in the Historical Financial Information for the Relevant Periods. Details of
the contractual arrangements are disclosed in the section headed “Contractual Arrangements” in this
Prospectus.
All IFRSs effective for the accounting period commencing on/or before January 1, 2020,
including IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers, IFRS 16
Leases and IFRS 16 Amendments on COVID-19 Related Rent Concession, together with the
relevant transitional provisions, have been early adopted in the preparation of the Historical
Financial Information throughout the Track Record Period.
The Historical Financial Information has been prepared under the historical cost convention,
except for derivative financial instruments, contingent consideration and convertible redeemable
preferred shares which have been measured at fair value.
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MAJOR FACTORS AFFECTING OUR RESULTS OF OPERATIONS
Our results of operations have been, and are expected to continue to be, affected by a number
of factors, some of which are outside of our control, including the following:
Our ability to capture the growth of ICL market and strengthen our testing capabilities
We believe that our ability to capture the growth of the ICL market is crucial to drive our
future growth. According to Frost & Sullivan, the ICL market size in China has been growing
rapidly in recent years, reaching RMB22.3 billion in 2021 with a 10.9% CAGR from RMB14.7
billion in 2017, and it is expected to reach up to RMB51.3 billion in 2026, representing a CAGR
of 18.2%. During the Track Record Period, we have broadened our test offerings and increased
testing volume. Our testing portfolio expanded from approximately 2,400 items in 2020 to 3,100
items in 2021, and further to over 4,000 items in 2022. Our testing volume based on the number of
samples tested increased by 33.9% from 60.1 million in 2020 to 80.5 million in 2021, and further
by 104.8% to 164.9 million in 2022. For details, see “Business – Our ICL Business” and “Business
– Our Tests and Service Offerings” in this Prospectus.
We strive to enhance our testing capabilities to further drive our business growth. To this end,
we will continue to place a high priority on the development of the latest cutting-edge esoteric tests.
We will also continue to increase the number of our ISO15189 accredited laboratories. Our
continued ability to capture the growth of the ICL market and strengthen our testing capabilities to
drive our business growth directly affect our revenues and results of operations.
Our ability to enhance the breadth and depth of our service network to strengthen our
customer base
Revenues generated from our medical diagnostic testing services contributed a substantial
majority of our total revenues during the Track Record Period, accounting for 91.7%, 93.1% and
90.5% of our total revenues in 2020, 2021 and 2022, respectively. Accordingly, the breadth and
depth of our coverage of medical institutions can greatly affect our revenues. Leveraging our
national laboratory network, we provided services to approximately 19,000, 20,000 and 19,000
customers in 2020, 2021 and 2022, respectively.
Our ability to successfully expand into new markets affects our ability to increase our
revenues. We plan to develop our infrastructure in additional geographic markets to further broaden
our customer base. In particular, we have built laboratories, sales force, and logistics coverage in
provincial capitals as well as lower-tier cities with strong growth potential. We also collaborate with
regional market participants to fulfill testing demand in lower-tier cities and rural areas.
Our ability to engage in new technologies and develop new testing methods
Our ability to leverage new technologies and develop new testing methods for our customers
impacts our ability to increase revenues. R&D serves as the backbone of our business. To this end,
we are dedicated to continuously developing and refining our technologies and testing methods. We
have invested RMB102.0 million, RMB125.4 million and RMB162.7 million in our research and
development initiatives in 2020, 2021 and 2022, respectively. As of December 31, 2022, we had
nine high-tech R&D laboratories, including two industry leading central R&D laboratories in
Shanghai and Hangzhou, as well as seven high-tech R&D laboratories in Hefei, Jinan, Beijing,
Nanchang, Fuzhou, Wuhan and Nanjing.
Going forward and in line with our plan to continue to upgrade our offerings, we expect to
further increase our R&D investment to fuel the business growth.
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Our capabilities to increase operating efficiency and cost management for sustainable growth
and profitability
Enhanced operating efficiency is critical to our success. During the Track Record Period, we
have carried out a series of operational initiatives to monitor and measure our laboratory
productivity, and improve our overall operating efficiencies, which primarily focuses on employee
productivity, and reagents and consumables usage. Our employee productivity, measured by testing
volume performed per laboratory employee, grew by 12.4% from 2020 to 2021, and further by
53.5% from 2021 to 2022. As a result, during the Track Record Period, our gross profit grew at a
CAGR of 30.3% from RMB1,116.7 million in 2020 to RMB1,896.2 million in 2022. Our gross
profit margin decreased from 40.7% in 2020 to 39.0% in 2022. Our adjusted EBITDA (non-IFRS
measure) grew at a CAGR of 34.0% from RMB567.6 million in 2020 to RMB1,019.8 million in
2022. Our adjusted EBITDA margin (non-IFRS measure) increased from 20.7% in 2020 and 2021
to 21.0% in 2022. See “– Non-IFRS Measures”.
To sustain our profitability, we will continue to control costs and operating expenses.
Additionally, we intend to further enhance laboratory automation, and will closely monitor the
efficiency of our laboratories through various benchmarks and indicators.
Our ability to capture emerging growth opportunities
As one of the top ICL service providers in China, we closely monitor market trends, in order
to capture growth opportunities when they emerge.
According to Frost & Sullivan, the value of detection, prevention, wellness and personalized
care has been increasingly recognized in China, as evidenced by the growth of the health check
industry. As of December 31, 2022, we have grown our footprint to span over 930 health check
centers.
During the Track Record Period, we have also offered testing services to globally and
domestically reputable biopharmaceutical companies and CROs assisting them in streamlining drug
development processes, and accelerating clinical trials. We believe that active collaboration with
our biopharmaceutical and CRO partners will position us to be a leading participant in future early
screening, companion diagnostic and minimal residual disease monitoring diagnostic markets in
both a central laboratory capacity and clinical diagnostic capacity.
CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES
We have identified certain accounting policies and estimates that we believe are most
significant to the preparation of our consolidated financial statements. See Note 2.3 and Note 3 to
the Accountants’ Report included in Appendix I to this Prospectus for details of these accounting
policies and estimates.
Critical Accounting Policies
Revenue Recognition
Revenue from contracts with customers
Revenue from contracts with customers is recognized when control of goods or services is
transferred to the customers at an amount that reflects the consideration to which we expect to be
entitled in exchange for those goods or services.
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When the consideration in a contract includes a variable amount, the amount of consideration
is estimated to which we will be entitled in exchange for transferring the goods or services to the
customer. The variable consideration is estimated at contract inception and constrained until it is
highly probable that a significant revenue reversal in the amount of cumulative revenue recognized
will not occur when the associated uncertainty with the variable consideration is subsequently
resolved.
When the contract contains a financing component which provides the customer with a
significant benefit of financing the transfer of goods or services to the customer for more than one
year, revenue is measured at the present value of the amount receivable, discounted using the
discount rate that would be reflected in a separate financing transaction between us and the
customer at contract inception. When the contract contains a financing component which provides
us a significant financial benefit for more than one year, revenue recognized under the contract
includes the interest expense accreted on the contract liability under the effective interest method.
For a contract where the period between the payment by the customer and the transfer of the
promised goods or services is one year or less, the transaction price is not adjusted for the effects
of a significant financing component, using the practical expedient as allowed in IFRS 15.
(a) Medical diagnostic testing services
We earn revenue by providing specialized diagnostic testing to hospitals or individual
customers based on a written test requisition form. The service period of each specialized diagnostic
testing is generally within two to seven business days.
Revenue from specialized diagnostic testing is recognized at a point in time when control of
the asset is transferred to the customer, generally on delivery of the testing report.
(b) Sales of medical products
Revenue from the sale of medical products is recognized at the point in time when control of
the asset is transferred to the customer, generally on delivery of the medical products to the
customer.
(c) Testing services for R&D projects and others
We generally enter into contracts with CROs with sponsors of clinical trials, pharmaceutical
and medical device companies and research institutes to provide research and clinical trial services
ranging in duration from one month to several years.
Revenue from testing services for R&D projects and others is recognized overtime when we
have an enforceable right to payment for performance completed to date. The progress of research
services is measured based on outputs to the satisfaction of related performance obligation of
research services (output method). In an output method, revenue is determined by multiplying that
percentage of the actual units of output achieved by the total contract value.
Some contracts for the sale of medical products provide customers with rights of return. The
rights of return give rise to variable consideration. For contracts which provide a customer with a
right to return the goods within a specified period, the expected value method is used to estimate
the goods that will not be returned because this method best predicts the amount of variable
consideration to which we will be entitled. The requirements in IFRS 15 on constraining estimates
of variable consideration are applied in order to determine the amount of variable consideration that
can be included in the transaction price. For goods that are expected to be returned, instead of
revenue, a refund liability is recognized. A right-of-return asset (and the corresponding adjustment
to costs of sales) is also recognized for the right to recover products from a customer.
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Other income
Interest income is recognized on an accrual basis using the effective interest method by
applying the rate that exactly discounts the estimated future cash receipts over the expected life of
the financial instrument or a shorter period, when appropriate, to the net carrying amount of the
financial asset.
Rental income is recognized on a time proportion basis over the lease terms.
Fair V alue Measurement
We measure certain financial instruments at fair value at the end of each period. Fair value is
the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value measurement is
based on the presumption that the transaction to sell the asset or transfer the liability takes place
either in the principal market for the asset or liability, or in the absence of a principal market, in
the most advantageous market for the asset or liability. The principal or the most advantageous
market must be accessible by us. The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the asset or liability, assuming that
market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s
ability to generate economic benefits by using the asset in its highest and best use or by selling it
to another market participant that would use the asset in its highest and best use.
We use valuation techniques that are appropriate in the circumstances and for which sufficient
data are available to measure fair value, maximizing the use of relevant observable inputs and
minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial
statements are categorized within the fair value hierarchy, described as follows, based on the lowest
level input that is significant to the fair value measurement as a whole:
Level 1 – based on quoted prices (unadjusted) in active markets for identical assets or
liabilities.
Level 2 – based on valuation techniques for which the lowest level input that is significant to
the fair value measurement is observable, either directly or indirectly.
Level 3 – based on valuation techniques for which the lowest level input that is significant to
the fair value measurement is unobservable.
For assets and liabilities that are recognized in the financial statements on a recurring basis,
we determine whether transfers have occurred between levels in the hierarchy by reassessing
categorization (based on the lowest level input that is significant to the fair value measurement as
a whole) at the end of each period.
In respect of the assessment of fair value of the equity investments and debts investments,
with reference to the guidance under the “Guidance Note on Directors’ Duties in the Context of
Valuations in Corporate Transactions” issued by the SFC in May 2017 applicable to directors of
companies listed on the Stock Exchange, our Directors have undertaken the following key actions:
(i) considering available information in assessing the financial forecast and assumptions, including
but not limited to, the historical financial performance, market prospects, comparable companies’
conditions, economic, political and industry conditions; (ii) engaging an independent external
valuer to assist our management to assess the fair value; (iii) considering the independence,
reputation, capabilities and objectivity of the external valuer to ensure the suitability of such valuer;
FINANCIAL INFORMATION
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(iv) reviewing and discussing with our management and the external valuer on the valuation models
and approaches; and (v) reviewing the valuation work papers and results prepared by the valuer.
Valuation techniques are verified by the independent and recognized international business valuer
before being implemented for valuation and are calibrated to ensure that outputs reflect market
conditions.
The Reporting Accountants have carried out necessary audit works in accordance with Hong
Kong Standard on Investment Circular Reporting Engagement 200 “Accountants’ Reports on
Historical Financial Information in Investment Circulars” issued by the Hong Kong Institute of
Certified Public Accountants for the purpose of expressing an opinion on our Group’s historical
financial information for the Track Record Period as a whole in Appendix I to this Prospectus. Their
opinion on the historical financial information of the Group for the Track Record Period as a whole
is set out on pages I-21 and I-22 of Appendix I to this Prospectus.
Having considered work done by the Directors and the Reporting Accountants and based on
the due diligence work conducted by the Joint Sponsors, including but not limited to, (i) review of
relevant notes in the Accountants’ Report as contained in Appendix I of this Prospectus and relevant
documents provided by the independent external valuer (the “ Valuer”); (ii) obtained and reviewed
the credentials of the Valuer including the background, qualifications and work experience of its
core team members; and (iii) discussed with the Company, the Reporting Accountants and the
Valuer about the policies and procedures, key basis and assumptions for the valuation, nothing has
come to the Joint Sponsors’ attention that would reasonably cause them to cast doubt on the
reasonableness of the explanations of the Directors and Reporting Accountants above.
Property and Equipment and Depreciation
Property and equipment, other than construction in progress, are stated at cost less
accumulated depreciation and any impairment losses. The cost of an item of property and equipment
comprises its purchase price and any directly attributable costs of bringing the asset to its working
condition and location for its intended use. Cost may also include transfers from equity of any gains
or losses on qualifying cash flow hedges of foreign currency purchases of property and equipment.
Expenditure incurred after items of property and equipment have been put into operation, such
as repairs and maintenance, is normally charged to the profit or loss in the period in which it is
incurred. In situations where the recognition criteria are satisfied, the expenditure for a major
inspection is capitalized in the carrying amount of the asset as a replacement. Where significant
parts of property and equipment are required to be replaced at intervals, we recognize such parts
as individual assets with specific useful lives and depreciates them accordingly.
Depreciation is calculated on the straight-line basis to write off the cost of each item of
property and equipment to its residual value over its estimated useful life. The estimated useful lives
of property and equipment are as follows:
Office and electronic equipment 5 years
Laboratory equipment 5 years
Motor vehicles 5 years
Leasehold improvements 5-8 years
Where parts of an item of property and equipment have different useful lives, the cost of that
item is allocated on a reasonable basis among the parts and each part is depreciated separately.
Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate,
at least at each financial year end.
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An item of property and equipment including any significant part initially recognized is
derecognized upon disposal or when no future economic benefits are expected from its use or
disposal. Any gain or loss on disposal or retirement recognized in the profit or loss in the year the
asset is derecognized as the difference between the net sales proceeds and the carrying amount of
the relevant asset.
Construction in progress represents a building under construction, which is stated at cost less
any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and
capitalized borrowing costs on related borrowed funds during the period of construction.
Construction in progress is reclassified to the appropriate category of property and equipment when
completed and is ready for use.
Impairment of Non-Financial Assets
Where an indication of impairment exists, or when annual impairment testing for an asset is
required (other than inventories, deferred tax assets, and financial assets), the asset’s recoverable
amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating
unit’s value in use and its fair value less costs of disposal, and is determined for an individual asset,
unless the asset does not generate cash inflows that are largely independent of those from other
assets or groups of assets, in which case the recoverable amount is determined for the
cash-generating unit to which the asset belongs.
An impairment loss is recognized only if the carrying amount of an asset exceeds its
recoverable amount. In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset. An impairment loss is charged to the statement
of profit or loss in the period in which it arises in those expense categories consistent with the
function of the impaired asset.
An assessment is made at the end of each of the Track Record Periods as to whether there is
an indication that previously recognized impairment losses may no longer exist or may have
decreased. If such an indication exists, the recoverable amount is estimated. A previously
recognized impairment loss of an asset other than goodwill is reversed only if there has been a
change in the estimates used to determine the recoverable amount of that asset, but not to an amount
higher than the carrying amount that would have been determined (net of any
depreciation/amortization) had no impairment loss been recognized for the asset in prior years. A
reversal of such an impairment loss is credited to the statement of profit or loss in the period in
which it arises.
Impairment assessment for goodwill
Goodwill of RMB14,348,000 and RMB11,343,000 was generated from the acquisition of
Shangrao Adicon and Jiangxi Jince on February 28, 2021 and goodwill of RMB54,111,000 was
generated from the acquisition of Henan Adicon on May 31, 2022. The cash flows generated from
Shangrao Adicon and Jiangxi Jince acquired are expected to benefit from the synergies of each other
for impairment testing, but are independent from those of our other subsidiaries. Therefore,
Goodwill is monitored by our management at the level of the group of cash-generating unit
(“CGU”) including Shangrao Adicon and Jiangxi Jince. The goodwill of Henan Adicon CGU is
monitored independently.
The recoverable amounts of each CGU have been determined based on value-in-use
calculations using pre-tax cash flow projections, which is based on financial budgets approved by
our management covering a five-year period.
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Shangrao Adicon and
Jiangxi Jince CGU
As of December 31,
2021 2022
Revenue (% compound growth rate) .............................. 8 % 5 %
Terminal growth rate ............................................ 3 % 2 %
Pre-tax discount rate ............................................ 1 8 % 1 9 %
Henan Adicon CGU
As of December 31, 2022
Revenue (% compound growth rate) ................................ 1 0 %
Terminal growth rate ............................................. 2 %
Pre-tax discount rate ............................................. 2 2 %
The following describes each key assumption on which management has based its cash flow
projections to undertake impairment testing of goodwill for the group of CGUs including Shangrao
Adicon and Jiangxi Jince as of December 31, 2022.
Revenue – The basis used to determine the budgeted revenue is based on management’s
expectation of market development.
Terminal Growth rate – The forecasted terminal growth rate is based on management’s
expectations and does not exceed the long-term average growth rate for the industry relevant to the
CGUs.
The pre-tax discount rate used is before tax and reflects specific risks relating to the CGUs.
Based on the result of impairment assessment, there was no impairment as of December 31,
2022.
Our management has performed sensitivity test by decreasing 1% of expected revenue,
decreasing 1% of terminal growth rate or increasing 1% of pre-tax discount rate, with all other
assumptions held constant. The impacts on the amount by which each CGU’s recoverable amount
above its carrying amount (headroom) are as below:
Shangrao Adicon and
Jiangxi Jince CGU
As of December 31,
2021 2022
RMB’000 RMB’000
Headroom ................................................ 23,904 33,104
Impact by decreasing expected revenue ....................... (1,266) (1,421)
Impact by decreasing terminal growth rate .................... (5,175) (5,161)
Impact by increasing pre-tax discount rate ..................... (8,480) (7,901)
Shangrao Adicon and
Jiangxi Jince CGU
As of December 31, 2022
RMB’000
Headroom .................................................. 24,903
Impact by decreasing expected revenue ........................ (4,902)
Impact by decreasing terminal growth rate ...................... (5,822)
Impact by increasing pre-tax discount rate ...................... (9,138)
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Considering there was still sufficient headroom based on the assessment, our management
believes that a reasonably possible change in the above key parameters would not cause the carrying
amount of the group of CGUs to exceed its recoverable amount.
Critical Accounting Estimates
Provision for Expected Credit Losses of Trade and Bills Receivables
We use a provision matrix to calculate Expected Credit Losses (“ ECLs”) for trade and bills
receivables. The provision rates are based on days past due for groupings of various customer
segments that have similar loss patterns (i.e., by geography, product type, customer type and rating,
and coverage by letters of credit and other forms of credit insurance).
The provision matrix is initially based on our historical observed default rates. We will
calibrate the matrix to adjust the historical credit loss experience with forward-looking information.
At each reporting date, the historical observed default rates are updated and changes in the
forward-looking estimates are analyzed.
The assessment of the correlation among historical observed default rates, forecast economic
conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in
circumstances and forecast economic conditions. Our historical credit loss experience and forecast
of economic conditions may also not be representative of a customer’s actual default in the future.
The information about the ECLs on our trade and bills receivables is disclosed in notes 22 and 39
to the Accountants’ Report included in Appendix I to this Prospectus, respectively.
Deferred Tax Assets
Deferred tax assets are recognized for unused tax losses to the extent that it is probable that
taxable profit will be available against which the losses can be utilized. Significant management
estimation is required to determine the amount of deferred tax assets that can be recognized, based
upon the likely timing and level of future taxable profits together with future tax planning
strategies. The carrying values of deferred tax assets relating to recognized tax losses as of
December 31, 2020, 2021 and 2022 were RMB6.4 million, RMB16.9 million and RMB29.3 million,
respectively. Further details are given in note 20 to the Accountants’ Report included in Appendix
I to this Prospectus.
Fair V alue of Financial Instruments
The convertible redeemable preferred shares issued by the Group are not traded in an active
market and the respective fair values are determined by using valuation techniques, including
Black-Scholes option pricing model. The fair values of convertible redeemable preferred shares as
of December 31, 2022 were RMB589.2 million. Further details are set out in note 30 to the
Accountants’ Report included in Appendix I to this Prospectus.
The fair values of contingent consideration arising from acquisitions were RMB13.7 million
and RMB27.0 million as of December 31, 2021 and 2022, respectively. In connection with the
acquisition of Shangrao Adicon and Jiangxi Jince, the Group acquired 61% equity interests in
Shangrao Adicon and Jiangxi Jince during 2021 at a total consideration of RMB45.7 million in cash,
of which RMB27.7 million had been paid, RMB4.4 million remained in payables for investment and
RMB18.1 million recognized as contingent consideration as of December 31, 2022. The Group was
also obligated to purchase the remaining non-controlling interests in Shangrao Adicon and Jiangxi
Jince from minority shareholders upon satisfaction of certain condition precedents in the relevant
share purchase agreements. In addition, in connection with the acquisition of Henan Adicon, the
Group acquired 51% equity interests in Henan Adicon during 2022 at a total consideration of
RMB88.9 million in cash, of which RMB62.2 million had been paid and RMB26.7 million
recognized as contingent consideration. The fair value of the contingent consideration is RMB13.4
FINANCIAL INFORMATION
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million as of December 31, 2022 and the subsequent fair value changes was recognized in profit or
loss. The Group is also obligated to purchase 19% equity interests in Henan Adicon from minority
shareholders upon satisfaction of certain condition precedents in the relevant share purchase
agreements. Further details are set out in note 27 to the Accountants’ Report included in Appendix
I to this Prospectus.
The fair values of derivative financial instruments was RMB8.1 million as of December 31,
2022. Further details are set out in note 24 to the Accountants’ Report included in Appendix I to this
Prospectus.
CONSOLIDATED INCOME STATEMENTS
The following table presents items of our consolidated income statements as well as their
percentage of our total revenues during the Track Record Period.
For the Y ear Ended December 31,
2020 2021 2022
RMB % RMB % RMB %
(RMB in thousands, except for percentages)
Revenues ............ 2,741,731 100.0 3,379,515 100.0 4,860,613 100.0
Costs of sales ......... (1,625,071) (59.3) (1,937,126) (57.3) (2,964,448) (61.0)
Gross profit .......... 1,116,660 40.7 1,442,389 42.7 1,896,165 39.0
Other income and gains 12,686 0.5 14,763 0.4 50,811 1.0
Selling and marketing
expenses ............. (359,051) (13.1) (489,783) (14.5) (553,272) (11.4)
Administrative
expenses .............. (236,566) (8.6) (263,003) (7.8) (282,262) (5.8)
Research and
development expenses . . (102,009) (3.7) (125,446) (3.7) (162,746) (3.3)
Other expenses ........ (37,712) (1.4) (48,530) (1.4) (128,440) (2.6)
Listing expenses ...... (16,179) (0.6) (35,290) (1.0) (9,664) (0.2)
Finance costs ......... (19,644) (0.7) (16,326) (0.5) (76,824) (1.6)
Fair value (loss)/gain on
financial liabilities
at FVTPL ............ – – (61,531) (1.8) 87,044 1.8
Profit before tax ...... 358,185 13.1 417,243 12.3 820,812 16.9
Income tax expense .... (68,732) (2.5) (94,948) (2.8) (135,928) (2.8)
Profit for the year ..... 289,453 10.6 322,295 9.5 684,884 14.1
Attributable to:
Owners of the parent . . . 284,121 10.4 315,540 9.3 680,793 14.0
Non-controlling
interests .............. 5,332 0.2 6,755 0.2 4,091 0.1
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NON-IFRS MEASURES
To supplement our consolidated financial statements which are presented in accordance with
IFRS, we also use non-IFRS measures, namely EBITDA (non-IFRS measure), adjusted EBITDA
(non-IFRS measure), and adjusted net profit (non-IFRS measure) as additional financial measures,
which are not required by or presented in accordance with IFRS. We believe that such non-IFRS
measures facilitate comparisons of operating performance from period to period and company to
company by eliminating potential impacts of certain items. We exclude share-based compensation
expenses, listing expenses and fair value loss/(gain) on convertible redeemable preferred shares at
FVTPL when presenting non-IFRS measures. Share-based compensation expenses are non-cash in
nature and do not result in cash outflow, and the adjustment has been consistently made during the
Track Record Period. We also exclude listing expenses with respect to this Global Offering. In
addition, we account for the convertible preferred shares as financial liabilities at fair value through
profit or loss. The convertible preferred shares will automatically convert into ordinary shares upon
the completion of the Global Offering, and no further loss or gain on fair value changes is expected
to be recognized afterwards. The reconciling item is non-cash, and does not result in cash outflow.
We believe that such measures provide useful information to investors and others in
understanding and evaluating our consolidated results of operations in the same manner as it helps
our management. However, our presentation of EBITDA (non-IFRS measure), adjusted EBITDA
(non-IFRS measure) and adjusted net profit (non-IFRS measure) may not be comparable to
similarly titled measures presented by other companies. The use of such non-IFRS measures has
limitations as an analytical tool, and you should not consider it in isolation from, or as substitute
for analysis of, our results of operations or financial condition as reported under IFRS.
We define EBITDA (non-IFRS measure) as profit before tax plus depreciation and
amortization expenses and finance costs, minus bank interest income. We define adjusted EBITDA
(non-IFRS measure) as EBITDA (non-IFRS measure) for the period adjusted by adding back
share-based compensation expenses, listing expenses and fair value loss/(gain) on convertible
redeemable preferred shares at FVTPL.
For the Y ear Ended December 31,
2020 2021 2022
(RMB in thousands)
Profit for the year ................................... 289,453 322,295 684,884
Add:
Income tax expenses: ................................ 68,732 94,948 135,928
Profit before tax ..................................... 358,185 417,243 820,812
Add:
Depreciation ......................................... 1 13,118 136,235 188,565
Amortization ........................................ 6 6 2 1,617 4,853
Finance costs ........................................ 19,644 16,326 76,824
Less:
Bank interest income ................................ 3,765 6,289 8,874
EBITDA (non-IFRS measure) ........................ 487,844 565,132 1,082,180
Add:
Share-based compensation expenses .................... 63,598 37,325 15,049
Listing expenses ..................................... 16,179 35,290 9,664
Fair value loss/(gain) on convertible redeemable
preferred shares at FVTPL ............................ – 61,531 (87,044)
Adjusted EBITDA (non-IFRS measure) ............... 567,621 699,278 1,019,849
We define adjusted net profit (non-IFRS measure) as profit for the year adjusted by adding
back, net of tax, share-based compensation expenses, listing expenses and fair value loss/(gain) on
convertible redeemable preferred shares at FVTPL.
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For the Y ear Ended December 31,
2020 2021 2022
(RMB in thousands)
Profit for the year ................................... 289,453 322,295 684,884
Add:
Share-based compensation expenses .................... 63,598 37,325 15,049
Listing expenses .................................... 16,179 35,290 9,664
Fair value loss/(gain) on convertible redeemable
preferred shares at FVTPL ............................ – 61,531 (87,044)
Less:
Tax shield adjustment ................................ 2,195 5,203 1,460
Adjusted net profit (non-IFRS measure) .............. 367,035 451,238 621,093
DESCRIPTION OF MAJOR COMPONENTS OF OUR RESULTS OF OPERATIONS
Revenues
During the Track Record Period, we generated revenues primarily from our medical diagnostic
testing services, and to a lesser extent, from sales of medical products. The following table sets
forth our revenues from each source for the years indicated:
For the Y ear Ended December 31,
2020 2021 2022
RMB % RMB % RMB %
(RMB in thousands, except for percentages)
Medical diagnostic
testing services ....... 2,513,184 91.7 3,144,832 93.1 4,400,748 90.5
Sales of medical
products .............. 228,547 8.3 234,683 6.9 459,865 9.5
Total ................ 2,741,731 100.0 3,379,515 100.0 4,860,613 100.0
Revenues from Medical Diagnostic Testing Services
Revenues generated from our medical diagnostic testing services contributed a substantial
majority of our total revenues during the Track Record Period, accounting for 91.7%, 93.1% and
90.5% of our total revenues in 2020, 2021 and 2022, respectively.
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The following table sets forth a breakdown of revenues generated from medical diagnostic
testing services by specialty group during the Track Record Period:
For the Y ear Ended December 31,
2020 2021 2022
RMB % RMB % RMB %
(RMB in thousands, except for percentages)
Specialty Group
Clinical Immunologic
Testing ............. 698,817 27.8 770,724 24.5 808,785 18.4
Clinical Chemistry
Testing ............. 160,424 6.4 193,490 6.2 218,499 5.0
Clinical Molecular
Biology Testing ...... 1,198,891 47.7 1,629,928 51.8 2,707,682 61.5
Pathology Testing .... 256,783 10.2 296,910 9.4 305,919 6.9
Other Comprehensive
Inspections .......... 198,269 7.9 253,780 8.1 359,863 8.2
Total(1) ............... 2,513,184 100.0 3,144,832 100.0 4,400,748 100.0
Note:
(1) COVID-19 testing services contributed RMB924.5 million, RMB1,232.4 million and RMB2,284.6 million of our total
revenues in 2020, 2021 and 2022, respectively.
The following table sets forth a breakdown of the sample volume and average price of our
medical diagnostic testing services by specialty groups during the Track Record Period:
For the Y ear Ended December 31,
2020 2021 2022
Sample
Volume
Average
Price (1)
Sample
Volume
Average
Price (1)
Sample
Volume
Average
Price (1)
(’000) (RMB) (’000) (RMB) (’000) (RMB)
Clinical Immunologic
Testing ..................... 17,408 40.1 17,641 43.7 17,450 46.4
Clinical Chemistry Testing .... 10,405 15.4 12,350 15.7 14,206 15.4
Clinical Molecular Biology
Testing ..................... 15,611 76.8 29,564 55.1 107,790 25.1
Pathology Testing ........... 10,794 23.8 12,140 24.5 11,855 25.8
Other Comprehensive
Inspections ................. 5,880 33.7 8,767 28.9 13,631 26.4
Total ....................... 60,098 41.8 80,462 39.1 164,932 26.7
Note:
(1) Average price equals revenues of medical diagnostic testing services for the year divided by the total sample volume
during the same year.
We experienced strong revenue growth during the Track Record Period, primarily driven by
(i) an increasing demand for testing services, (ii) an expanding customer base, and (iii) our offering
of COVID-19 tests following the outbreak of pandemic. Alongside with our business expansion, our
sample volume increased steadily over the Track Record Period, from 60.1 million in 2020 to 80.5
million in 2021, and further to 164.9 million in 2022. Testing volume in 2020 was adversely
affected by the outbreak of COVID-19 pandemic, which resulted in a decline in hospital patient
flow, leading to reduced demand of our testing services. Such impact was gradually eased due to
the recovery from the COVID-19 impact starting from 2021, when we witnessed steady growth of
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testing volumes. The substantial increase of testing volume in 2022 was primarily attributable to the
more frequent COVID-19 tests taken by individuals and mass testings organized by local
governments to contain the spread of Omicron variant across the country.
During the Track Record Period, our average price per sample decreased by 6.5% from
RMB41.8 in 2020 to RMB39.1 in 2021 and further decreased by 31.7% to RMB26.7 in 2022,
especially in clinical molecular biology testing, which was primarily due to a decline in average
price per COVID-19 test, during the Track Record Period.
The following table sets forth a breakdown of the sample volume and average price of our
medical diagnostic testing services by COVID-19 testing and non-COVID-19 testing business
during the Track Record Period:
For the Y ear Ended December 31,
2020 2021 2022
Sample
Volume
Average
Price (1)
Sample
Volume
Average
Price (1)
Sample
Volume
Average
Price (1)
(‘000) (RMB) (‘000) (RMB) (‘000) (RMB)
Non-COVID-19 testing ....... 49,654 32.0 57,332 33.4 64,708 32.7
COVID-19 testing ............ 10,444 88.5 23,130 53.3 100,224 22.8
Total ....................... 60,098 41.8 80,462 39.1 164,932 26.7
Note:
(1) Average price equals revenues of respective testing services for a given year divided by the sample volume for each
type during the same year.
Revenues from Sales of Medical Products
As a supplement to our core business, we also sell equipment, reagents and consumables used
in connection with clinical testing to our customers. Revenues generated from sales of medical
products contributed 8.3%, 6.9% and 9.5% of our total revenues in 2020, 2021 and 2022,
respectively. For details of our sales of medical products, see “Business – Sales of Medical
Products”.
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The following table sets forth a breakdown of revenues generated from our sales of medical
products by major product types during the Track Record Period:
For the Y ear Ended December 31,
2020 2021 2022
RMB % RMB % RMB %
(RMB in thousands, except for percentages)
Equipment ............ 133,146 58.3 66,430 28.3 225,243 49.0
Reagents and
consumables ........... 95,401 41.7 168,253 71.7 234,622 51.0
Total ................. 228,547 100.0 234,683 100.0 459,865 100.0
The following table sets forth a breakdown of the sales volume and average price of our
medical products by major product type during the Track Record Period:
For the Y ear Ended December 31,
2020 2021 2022
Sales
Volume
Average
Price (1)
Sales
Volume
Average
Price (1)
Sales
Volume
Average
Price (1)
(RMB) (RMB) (RMB)
Equipment ............. 6 9 7 191,027.3 420 158,166.7 4,646 48,481.0
Reagents and
consumables ........... 497,421 191.8 2,461,781 68.4 10,765,858 21.8
Note:
(1) Average price equals revenues generated from sales of medical products for the year divided by sales volume during
the same year.
Sales volume and average price for equipment declined by 39.7% and 17.2% from 2020 to
2021, respectively, primarily due to an increase of sales of equipment with relatively lower unit
prices in 2021. As compared to 2021, sales volume for equipment had a significant increase in 2022
whereas the average price for equipment decreased by 69.3%, primarily attributable to an increasing
sales of an equipment needed for COVID-19 tests with relatively lower unit prices.
Our sales volume of reagents and consumables increased by 394.9% from 2020 to 2021,
whereas the average prices declined by 64.3% during the same period, primarily because we
introduced a blood sample collection container with lower unit prices in late 2020 which had strong
demand throughout 2021. As compared to 2021, sales volume of reagents and consumables
increased by over four-fold in 2022, whereas the average prices declined by 68.1%, primarily due
to an increase of sales of reagents and consumables with lower unit prices.
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Costs of Sales
Our costs of sales consists of (i) reagents and consumables costs utilized during the course of
processing our test samples, or our purchase costs for our sale of products, (ii) staff costs relating
to employee salaries, benefits, social insurance and share based compensation, (iii) laboratory
operating costs associated with operation of our laboratory equipment and logistics, (iv)
depreciation and amortization, and (v) tax surcharges. The following table sets forth a breakdown
of our costs of sales by nature during the Track Record Period:
For the Y ear Ended December 31,
2020 2021 2022
RMB % RMB % RMB %
(RMB in thousands, except for percentages)
Reagents and
consumables .......... 1,073,649 66.1 1,193,148 61.6 1,821,220 61.5
Staff costs ............ 314,708 19.4 408,443 21.1 593,946 21.0
Laboratory operating
costs ................. 156,465 9.6 225,625 11.6 394,939 13.3
Depreciation and
amortization .......... 78,612 4.8 108,081 5.6 151,062 5.1
Tax surcharges ........ 1,637 0.1 1,829 0.1 3,281 0.1
Total ................ 1,625,071 100.0 1,937,126 100.0 2,964,448 100.0
Gross Profit and Gross Profit Margin
The following table sets forth a breakdown of our gross profit and gross profit margin by
business lines during the Track Record Period:
For the Y ear Ended December 31,
2020 2021 2022
(RMB in thousands, except for
percentages)
Gross Profit
Medical diagnostic testing services ..................... 1,067,662 1,369,702 1,801,912
Sales of medical products ............................ 48,998 72,687 94,253
Total .............................................. 1,116,660 1,442,389 1,896,165
Gross Profit Margin
Medical diagnostic testing services .................... 42.5% 43.6% 40.9%
Sales of medical products ............................ 21.4% 31.0% 20.5%
Total ............................................... 40.7% 42.7% 39.0%
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Selling and Marketing Expenses
Our selling and marketing expenses primarily consist of (i) staff costs in relation to our selling
and marketing personnel, (ii) marketing and business development expenses, which refers to
expenses associated with various marketing and business development activities, such as business
travels for marketing purposes and participation in conferences, and (iii) office expenses, including
rental, depreciation and amortization. The following table sets forth a breakdown of our total selling
and marketing expenses during the Track Record Period:
For the Y ear Ended December 31,
2020 2021 2022
RMB % RMB % RMB %
(RMB in thousands, except for percentages)
Staff costs .................. 223,978 62.4 299,443 61.2 345,261 62.4
Marketing and business
development expenses ....... 91,747 25.6 112,830 23.0 118,735 21.5
Office expenses ............. 12,717 3.5 18,332 3.7 23,446 4.2
Others (1) ................... 30,609 8.5 59,178 12.1 65,830 11.9
Total ...................... 359,051 100.0 489,783 100.0 553,272 100.0
Note:
(1) Others include professional service fees, communication expenses, shipping expenses, and utilities expenses.
Administrative Expenses
Our administrative expenses primarily consist of (i) staff costs in relation to our
administrative personnel, (ii) office expenses, including rental, depreciation and amortization, and
(iii) consulting and professional service fees. The following table sets forth a breakdown of our total
administrative expenses during the Track Record Period:
For the Y ear Ended December 31,
2020 2021 2022
RMB % RMB % RMB %
(RMB in thousands, except for percentages)
Staff costs .................. 147,343 62.3 168,411 64.0 174,536 61.8
Consulting and professional
service fees ................. 44,295 18.7 31,886 12.1 27,299 9.7
Office expenses ............. 23,549 10.0 32,954 12.6 42,383 15.0
Others (1) ................... 21,379 9.0 29,752 11.3 38,044 13.5
Total ...................... 236,566 100.0 263,003 100.0 282,262 100.0
Note:
(1) Others include conference, travel, maintenance and utilities expenses.
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Research and Development Expenses
Our research and development expenses primarily consist of (i) staff costs in relation to our
research and development personnel, (ii) laboratory expenses, including rental, depreciation and
amortization, and (iii) reagent and consumables cost used in our research and development
processes. The following table sets forth a breakdown of our total research and development
expenses during the Track Record Period:
For the Y ear Ended December 31,
2020 2021 2022
RMB % RMB % RMB %
(RMB in thousands, except for percentages)
Staff costs .................. 43,058 42.2 67,943 54.2 84,982 52.2
Laboratory expenses ......... 1 1,916 11.7 6,906 5.5 8,031 4.9
Reagent and consumables cost . 44,851 44.0 47,430 37.8 63,296 38.9
Others
(1) ................... 2,183 2.1 3,167 2.5 6,527 4.0
Total ...................... 102,009 100.0 125,446 100.0 162,746 100.0
Note:
(1) Others include utilities expenses and maintenance expenses.
Other Expenses
Our other expenses primarily consist of impairment losses, net of reversal, on inventories and
financial assets under ECL model, bank charges, foreign exchange losses or gains, net, losses on
disposal of property and equipment and other intangible assets, losses on disposal of items of
right-of-use assets. The following table sets forth a breakdown of our other expenses during the
Track Record Period:
For the Y ear Ended December 31,
2020 2021 2022
RMB % RMB % RMB %
(RMB in thousands, except for percentages)
Impairment losses, net of
reversal ...................
– Inventories ................ – – – – 1,421 1.1
– Financial assets under
ECL model ................ 32,556 86.3 39,704 81.8 111,653 86.9
Bank charges ............... 2,785 7.4 777 1.6 1,580 1.2
Foreign exchange
losses/(gains), net ......... (1,427) (3.8) 50 0.1 6,743 5.3
Losses on disposal of property
and equipment and other
intangible
assets .................... 1,684 4.5 3,713 7.7 2,408 1.9
Loss on disposal of items of
right-of-use assets ......... 3 1 2 0 . 8 – – – –
Donation .................... – – 2,582 5.3 3,523 2.7
Others ..................... 1,802 4.8 1,704 3.5 1,112 0.9
Total ...................... 37,712 100.0 48,530 100.0 128,440 100.0
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Other Income and Gains
Other income and gains primarily consist of (i) discretionary government grants income,
including various one-off government grants to support our employment, innovation and technology
efforts, as well as grants related to COVID-19, (ii) bank interest income, (iii) gain on contingent
consideration, and (iv) gain on derivative financial instruments. The following table sets forth a
breakdown of our total other income and gains during the Track Record Period:
For the Y ear Ended December 31,
2020 2021 2022
RMB % RMB % RMB %
(RMB in thousands, except for percentages)
Bank interest income ........ 3,765 29.7 6,289 42.6 8,874 17.5
Government grants
income ..................... 5,651 44.5 5,547 37.6 15,916 31.3
Gain on disposal of property,
plant and equipment and other
intangible assets ............. 2 6 7 2 . 1 3 7 9 2 . 6 6 5 0 1 . 3
Gain on disposal of items of
right-of-use assets ........... – – 4 1 9 2 . 8 6 0 . 0
COVID-19 related rent
concessions ................. 2,439 19.2 – – – –
Gain on derivative financial
instruments ................. – – – – 7,827 15.4
Gain on contingent
consideration ................ – – – – 13,337 26.2
Others ..................... 5 6 4 4 . 5 2,129 14.4 4,201 8.3
Total ...................... 12,686 100.0 14,763 100.0 50,811 100.0
Finance Costs
Finance costs consist of (i) interest expenses on bank borrowings, lease liabilities and loans
from shareholders, and (ii) transaction costs for derivative financial instruments. The following
table sets forth the breakdown of our finance costs during the Track Record Period:
For the Y ear Ended December 31,
2020 2021 2022
RMB % RMB % RMB %
(RMB in thousands, except for percentages)
Interest expenses on:
Bank borrowings .......... 6,613 33.7 5,702 34.9 49,667 64.7
Lease liabilities ........... 10,833 55.1 10,624 65.1 13,705 17.8
Loans from shareholders . . . 2,198 11.2 – – – –
Transaction costs for derivative
financial instruments ......... – – – – 13,452 17.5
Total ...................... 19,644 100.0 16,326 100.0 76,824 100.0
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Income Tax Expenses
Income tax expenses consist of current income tax and deferred income tax. The following
table sets forth the breakdown of our income tax expenses during the Track Record Period:
For the Y ear Ended December 31,
2020 2021 2022
(RMB in thousands)
Current income tax .................................. 82,613 113,302 175,122
Deferred income tax ................................. (13,881) (18,354) (39,194)
Total .............................................. 68,732 94,948 135,928
Our effective income tax rate, calculated by dividing total income tax expenses by profit
before tax, was 19.2%, 22.8% and 16.6% in 2020, 2021 and 2022, respectively. Our effective
income tax rate increased slightly in 2021 as compared to 2020, primarily because certain of our
subsidiaries turned profitable in 2021 whose enterprise income tax rates were 25%, resulting in an
increase in our overall effective tax rate. Our effective income tax rate decreased from 22.8% in
2021 to 16.6% in 2022, primarily because the Company recognized RMB87.0 million gains of
changes in fair value of convertible redeemable preferred shares, which was subject to zero tax rate
in its offshore jurisdiction. During the Track Record Period and up to the Latest Practicable Date,
we paid all relevant taxes that were due and applicable to us and had no disputes or unresolved tax
issues with relevant tax authorities.
We are subject to income tax on an entity basis on profit arising in or derived from the
jurisdictions in which members of the Group are domiciled and operate.
Cayman Islands
Under the current laws of the Cayman Islands, we are not subject to tax on income or capital
gains.
Hong Kong
The subsidiary which operates in Hong Kong is subject to profits tax at a rate of 8.25% applies
to the first HKD2,000,000 of assessable profits, the remaining assessable profits is subject to profits
tax at a rate of 16.5%.
Pursuant to the PRC Enterprise Income Tax Law, a 10% withholding tax is levied on dividends
declared to foreign investors from the foreign investment enterprises established in the PRC. The
requirement is effective from January 1, 2008 and applies to earnings after December 31, 2007. A
lower withholding tax rate may be applied if there is a tax treaty between the PRC and the
jurisdiction of the foreign investors. For the Group, the applicable rate is 10%. The Group is
therefore liable to withholding taxes on dividends distributed by those subsidiaries established in
the PRC in respect of earnings generated from January 1, 2008.
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PRC
Pursuant to the Enterprise Income Tax Law of the PRC and the respective regulations (the
“EIT Law”), the subsidiaries which operate in the PRC are subject to EIT at a rate of 25% on the
taxable income, unless those subsidiaries are eligible for the following tax concessions (i) high and
new technology enterprises which are entitled to a preferential EIT rate of 15%, (ii) qualified
enterprises incorporated in western regions which are entitled to a preferential EIT rate of 15%, and
(iii) small enterprises which are entitled to a preferential EIT rate of 20%. The following table sets
forth applicable tax rates for our subsidiaries during the Track Record Period:
For the Y ear Ended December 31,
Entity 2020 2021 2022
Hangzhou Adicon .................................... 1 5 % 1 5 % 1 5 %
Hefei Adicon ........................................ 1 5 % 1 5 % 1 5 %
Shanghai Adicon ..................................... 1 5 % 1 5 % 1 5 %
Jinan Adicon ........................................ 1 5 % 1 5 % 1 5 %
Beijing Adicon ...................................... 1 5 % 1 5 % 1 5 %
Nanchang Adicon .................................... 1 5 % 1 5 % 1 5 %
Fuzhou Adicon ...................................... 1 5 % 1 5 % 1 5 %
Nanjing Adicon ...................................... 1 5 % 1 5 % 1 5 %
Wuhan Adicon ....................................... 1 5 % 1 5 % 1 5 %
Chengdu Adicon ..................................... 1 5 % 1 5 % 1 5 %
Xi’an Adicon ........................................ 1 5 % 1 5 % 1 5 %
Chongqing Adicon ................................... 1 5 % 1 5 % 1 5 %
Yunnan Adicon ...................................... 1 5 % 1 5 % 1 5 %
Hangzhou Huitu ..................................... 2 5 % 2 5 % 2 5 %
Shanghai Lv’angjie ................................... 2 0 % 2 5 % 2 5 %
Guizhou Adicon ..................................... N / A 1 5 % 1 5 %
Xiamen Adicon ..................................... N / A 2 0 % 2 5 %
Nanning Adicon ..................................... N / A 2 0 % 2 0 %
Qingdao Adicon ..................................... N / A 2 0 % 2 5 %
Quzhou Adicon ..................................... N / A 2 0 % 2 0 %
Profit for the Y ear
As a result of the foregoing, our profit amounted to RMB289.5 million, RMB322.3 million
and RMB684.9 million in 2020, 2021 and 2022, respectively.
YEAR-TO-YEAR COMPARISON OF RESULTS OF OPERATIONS
Y ear Ended December 31, 2021 Compared to Y ear Ended December 31, 2022
Revenues
Our revenues increased by 43.8% from RMB3,379.5 million in 2021 to RMB4,860.6 million
in 2022, primarily attributable to the growth in our clinical molecular biology, clinical immunology
and other comprehensive inspections.
Revenues generated from our medical diagnostic testing services increased by 39.9% from
RMB3,144.8 million in 2021 to RMB4,400.7 million in 2022, primarily due to (i) an increase of
sample volume driven by our newly opened laboratories, and (ii) continued growth in clinical
molecular biology testing group, as a result of increased amount of COVID-19 mass testing during
2022 in response to the Omicron variant spread across the country.
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Revenues generated from our sales of medical products increased by 96.0% from RMB234.7
million in 2021 to RMB459.9 million in 2022, primarily due to (i) significant growth in sales
volume of reagents and consumables, which increased by over four-fold from 2.5 million to 10.8
million, and (ii) an increase in sales volume of molecular biology equipment.
Cost of Sales
Our cost of sales increased by 53.0% from RMB1,937.1 million in 2021 to RMB2,964.4
million in 2022, primarily attributable to (i) an increase of RMB628.1 million in reagents and
consumables costs in line with our increased testing volume, (ii) an increase of RMB185.5 million
in staff costs due to the increased number of staff and the increased remuneration and compensation
paid to our laboratory personnel, and (iii) an increase of RMB169.3 million in laboratory operating
costs in connection with our increased testing volume.
Gross Profit and Gross Profit Margin
As a result of the foregoing, our gross profit increased by 31.5% from RMB1,442.4 million
in 2021 to RMB1,896.2 million in 2022, with that of (i) medical diagnostic testing services
increased by 31.6% from RMB1,369.7 million to RMB1,801.9 million, and (ii) medical products
increased by 29.7% from RMB72.7 million to RMB94.3 million. Our gross profit margin decreased
from 42.7% to 39.0%, with that of (i) medical diagnostic testing services decreased from 43.6% to
40.9%, primarily due to an increased volume of COVID-19 mass tests that were subject to a
continued decline in average price per test during the period, and (ii) medical products decreased
from 31.0% to 20.5%, primarily attributable to the increased sales of molecular biology equipment
in 2022 with relatively lower margin contribution.
Selling and Marketing Expenses
Our selling and marketing expenses increased by 13.0% from RMB489.8 million in 2021 to
RMB553.3 million in 2022, primarily due to an increase of RMB45.8 million in staff costs,
primarily driven by the increase in sales and marketing personnel, particularly those focusing on
esoteric tests.
Administrative Expenses
Our administrative expenses increased by 7.3% from RMB263.0 million in 2021 to RMB282.3
million in 2022, primarily due to the increase in our office expenses, staff cost and other expenses
such as those related to the establishment of additional subsidiaries, as well as conference and travel
expenses which is in line with our expansion.
Research and Development Expenses
Our research and development expenses increased by 29.7% from RMB125.4 million in 2021
to RMB162.7 million in 2022, primarily attributable to (i) an increase of RMB16.9 million in staff
costs due to the increased number of R&D personnel, and (ii) an increase of RMB15.9 million in
reagent and consumables costs as a result of our increased R&D efforts in strengthening our testing
capabilities.
Other Expenses
Our other expenses increased from RMB48.5 million in 2021 to RMB128.4 million in 2022,
primarily due to (i) an increase of RMB73.4 million in impairment losses, net of reversal, consisting
of RMB71.9 million in financial assets under ECL model primarily due to an increasing amount of
COVID-19 mass testing we performed in 2022, which drove (a) the increase of ECL rate for trade
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receivables due within one year, and (b) the balance of our trade and bill receivables due from
customers, as local governments who organized mass testing normally have longer payment terms,
and (ii) an increase of RMB6.7 million in foreign exchange losses, net, resulting from currency
fluctuations in 2022.
Listing Expenses
We incurred expenses of RMB9.7 million in connection with this proposed Global Offering
in 2022, as compared to RMB35.3 million in 2021.
Other Income and Gains
Our other income and gains increased from RMB14.8 million in 2021 to RMB50.8 million in
2022, primarily due to (i) an additional RMB13.3 million of fair value gain on contingent
consideration under valuation adjustment mechanism relating to our acquisition of Henan Adicon,
(ii) an increase of RMB10.4 million in government grants, primarily consist of employment and
enterprise supporting grants and high-tech enterprise grants, and (iii) an addition of RMB7.8 million
of gain on derivative financial instruments, referring to the hedging products we purchased to
manage the interest rate risk associated with our credit facilities.
Finance Costs
Our finance costs increased from RMB16.3 million in 2021 to RMB76.8 million in 2022,
primarily due to (i) an additional transaction costs of RMB13.5 million for derivative financial
instruments, representing primarily arrangement fees charged by banks for credit facilities we
entered in July 2022, as well as additional hedging products we purchased to manage the interest
rate risk associated with such credit facilities, and (ii) an increase of RMB44.0 million in interest
from bank borrowings.
Income Tax Expenses
Our income tax expenses increased by 43.2% from RMB94.9 million in 2021 to RMB135.9
million in 2022, primarily because our profit before tax increased by 96.7% from RMB417.2
million in 2021 to RMB820.8 million in 2022. Our effective income tax rate decreased from 22.8%
in 2021 to 16.6% in 2022, primarily because we recognized RMB87.0 million of gains on changes
in fair value of convertible redeemable preferred shares which was subject to zero tax rate.
Profit for the Y ear
As a result of the foregoing, our profit for the year increased by 112.5% from RMB322.3
million in 2021 to RMB684.9 million in 2022, primarily attributable to our increased economies of
scale, and the overall growth across all specialty testing groups.
Y ear Ended December 31, 2020 Compared to Y ear Ended December 31, 2021
Revenues
Our revenues increased by 23.3% from RMB2,741.7 million in 2020 to RMB3,379.5 million
in 2021, primarily attributable to the growth in our molecular biology, clinical immunology and
other comprehensive inspections testing groups.
Revenues generated from our medical diagnostic testing services increased by 25.1% from
RMB2,513.2 million in 2020 to RMB3,144.8 million in 2021. All of our specialty groups registered
growth in both revenues and sample volume, in particular the molecular biology and other
comprehensive inspections segments, which was due to the continued expansion of our overall
business and focus on the growth of esoteric testing in 2021.
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Revenues generated from our sales of medical products increased by 2.7% from RMB228.5
million in 2020 to RMB234.7 million in 2021, primarily due to significant growth in sales volume
of our reagents and consumables because we put more efforts in expanding sales of reagents in
2021.
Cost of Sales
Our cost of sales increased by 19.2% from RMB1,625.1 million in 2020 to RMB1,937.1
million in 2021, primarily attributable to (i) an increase of RMB119.5 million in reagent and
consumable costs in connection with our increased testing volume, (ii) an increase of RMB93.7
million in staff costs due to the increased number of staff and the increased remuneration and
compensation paid to our laboratory personnel, and (iii) an increase of RMB69.2 million in
laboratory operating costs in connection with our increased testing volume.
Gross Profit and Gross Profit Margin
As a result of the foregoing, our gross profit increased by 29.2% from RMB1,116.7 million
in 2020 to RMB1,442.4 million in 2021, and our gross profit margin increased from 40.7% in 2020
to 42.7% in 2021. Specifically, gross profit for medical diagnostic testing services increased by
28.3% from RMB1,067.7 million in 2020 to RMB1,369.7 million in 2021, and the gross profit
margin increased from 42.5% in 2020 to 43.6% in 2021. Gross profit for sales of medical products
increased by 48.4% from RMB49.0 million in 2020 to RMB72.7 million in 2021, and the gross
profit margin increased from 21.4% in 2020 to 31.0% in 2021. Such increases were primarily
attributable to an improvement in our reagents and consumables margins resulting from our
centralized procurement initiatives and localization of reagents as well as continuing improvements
in operating scale.
Leveraging our nationwide laboratory network and strong purchasing power, we initiated
centralized procurement for reagents and consumables to achieve cost savings. In general, our
experienced procurement team in headquarters negotiates with and coordinates suppliers and
vendors to aggregate purchase volume and thereby secure better terms for our subsidiaries. All of
our suppliers and vendors are periodically tendered to ensure that we are able to take advantage of
our operating scale effectively and ensure optimal and cost-effective reagents and consumables for
delivering testing services. Moreover, our continued improvements in operating scale and business
growth enabled us to gain stronger bargaining power with our suppliers, which further fueled
increase of margins.
Since 2019, we have begun to systematically look for supplier alternatives that can replace the
use of typically more costly imported reagents. In order to ensure that local suppliers can provide
a comparable level of quality and consistency, we internally validate local suppliers’ offerings, and
only cooperate with those that meet our standards. For suppliers that meet our requirements, we will
make an effort to transit our testing volume to lower cost local suppliers for these reagents. We are
in a continuous process of assessing and validating new local supplier alternatives on a test-by-test
or testing group-by-testing group basis and have been able to secure the benefits of lower costs
while maintaining the same strict quality standards of imported equipment and reagents.
Selling and Marketing Expenses
Our selling and marketing expenses increased by 36.4% from RMB359.1 million in 2020 to
RMB489.8 million in 2021, primarily due to an increase of RMB75.5 million in staff cost as a result
of expansion of our sales and marketing team to further strengthen our esoteric sales capabilities.
Administrative Expenses
Our administrative expenses increased by 11.2% from RMB236.6 million in 2020 to
RMB263.0 million in 2021, primarily due to an increase of RMB21.1 million in staff cost primarily
as a result of the addition of certain management personnel.
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Research and Development Expenses
Our research and development expenses increased by 23.0% from RMB102.0 million in 2020
to RMB125.4 million in 2021, primarily attributable to an increase of RMB24.9 million in staff
costs as a result of our efforts in expanding our test offerings.
Other Expenses
Our other expenses increased by 28.7% from RMB37.7 million in 2020 to RMB48.5 million
in 2021, primarily due to (i) an increase of RMB7.1 million in provisions for expected credit losses,
net of reversal, and (ii) an increase of RMB2.6 million in charity donations and contributions for
disaster relief.
Listing Expenses
Our listing expenses increased by 118.1% from RMB16.2 million in 2020 to RMB35.3 million
in 2021.
Other Income and Gains
Our other income and gains increased by 16.4% from RMB12.7 million in 2020 to RMB14.8
million in 2021, primarily due to an increase of RMB2.5 million in bank interest income, which is
partially offset by the cessation of COVID-19 related rent concessions in 2021.
Finance Costs
Our finance costs decreased by 16.9% from RMB19.6 million in 2020 to RMB16.3 million in
2021, primarily due to a decrease in outstanding balance of interest-bearing bank borrowings and
the repayment of shareholder loans.
Income Tax Expenses
Our income tax expenses increased by 38.1% from RMB68.7 million in 2020 to RMB94.9
million in 2021, primarily because our profit before tax increased by 16.5% from RMB358.2
million in 2020 to RMB417.2 million in 2021. Our effective income tax rate increased from 19.2%
in 2020 to 22.8% in 2021, primarily because certain of our subsidiaries turned profitable in 2021
whose enterprise income tax rates were 25%, resulting in an increase in the overall effective tax
rate.
Profit for the year
As a result of the foregoing, our profit for the year increased by 11.3% from RMB289.5
million in 2020 to RMB322.3 million in 2021, primarily attributable to the overall growth across
all specialty groups and increased gross profit margin, which is partially offset by listing expenses
and fair value losses.
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DISCUSSION OF CERTAIN KEY CONSOLIDATED BALANCE SHEETS ITEMS
The table below sets forth selected information from our consolidated statements of financial
position as of the dates indicated, which have been extracted from the Accountants’ Report included
in Appendix I to this Prospectus:
As of December 31,
2020 2021 2022
(RMB in thousands)
Total non-current assets ............................... 388,629 571,734 959,261
Total current assets ................................... 2,334,912 2,538,104 3,894,972
Total assets ......................................... 2,723,541 3,109,838 4,854,233
Total current liabilities ................................ 1,008,970 1,387,774 2,418,432
Net current assets ................................... 1,325,942 1,150,330 1,476,540
Total assets less current liabilities .................... 1,714,571 1,722,064 2,435,801
Total non-current liabilities ............................ 675,453 869,217 1,823,465
Total liabilities ...................................... 1,684,423 2,256,991 4,241,897
Net assets .......................................... 1,039,118 852,847 612,336
Share capital ........................................ 7 7 8 6 8 6
Reserves ............................................ 1,024,262 804,155 510,738
Non-controlling interests .............................. 14,779 48,606 101,512
Total equity ......................................... 1,039,118 852,847 612,336
Current Assets/Liabilities
The following table sets forth our current assets and current liabilities as of the dates
indicated:
As of December 31,
As of
April 30,
2020 2021 2022 2023
(RMB in thousands)
(unaudited)
Current assets:
Inventories ............................... 102,932 109,395 229,413 177,044
Trade and bills receivables ................. 942,041 1,213,512 1,856,847 1,857,237
Prepayments, deposits and other receivables . . 61,120 105,716 127,860 116,259
Amounts due from related parties ........... 1 9 9 2 7 0 2 2 7 7 2
(1)
Cash and bank balances ................... 1,228,620 1,109,211 1,680,625 1,289,804
Total current assets ...................... 2,334,912 2,538,104 3,894,972 3,440,416
Current liabilities:
Trade payables ........................... 383,775 510,691 1,062,452 783,984
Other payables and accruals ................ 365,428 689,136 985,104 850,154
Contract liabilities ........................ 1 1,665 20,683 21,060 24,066
Interest-bearing bank borrowings ............ 120,178 49,141 112,792 59,771
Profit tax payable ......................... 44,078 50,303 124,553 89,515
Amounts due to related parties ............. 55,430 36,167 61,071 21,500 (1)
Lease liabilities ........................... 28,416 31,653 51,400 48,392
Financial assets at fair value through profit
or loss .................................. – – – 599,065
Total current liabilities ................... 1,008,970 1,387,774 2,418,432 2,476,447
Net current assets ........................ 1,325,942 1,150,330 1,476,540 963,969
Note:
(1) Amounts due from/to related parties as of April 30, 2023 were trade in nature.
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Our net current assets decreased from RMB1,325.9 million as of December 31, 2020 to
RMB1,150.3 million as of December 31, 2021, primarily due to an increase of RMB323.7 million
in other payables and accruals, an increase of RMB126.9 million in in trade and bill payables, and
a decrease of RMB119.4 million in cash and bank balances. The decrease was partially offset by an
increase of RMB271.5 million in trade and bill receivables.
Our net current assets increased from RMB1,150.3 million as of December 31, 2021 to
RMB1,476.5 million as of December 31, 2022, primarily due to an increase of RMB643.3 million
in trade and bills receivables and RMB571.4 million in cash and bank balances. The increase was
partially offset by an increase of RMB551.8 million in trade payables and an increase of RMB296.0
million in other payables and accruals.
Inventories
Our inventories consist of reagents, finished goods and consumables. Finished goods refer to
equipment and instruments we sell to our customers. The table below sets forth our inventory
balances as of the dates indicated:
As of December 31,
2020 2021 2022
(RMB in thousands)
Reagents ............................................ 72,705 85,557 137,936
Finished goods ...................................... 13,869 6,821 69,827
Consumables ........................................ 16,358 17,017 21,650
Total ............................................... 102,932 109,395 229,413
Our inventory balance increased by 6.3% from RMB102.9 million as of December 31, 2020
to RMB109.4 million as of December 31, 2021, primarily due to a continued increase in our
reagents and consumables in line with our business growth during the Track Record Period. Our
inventory balance increased by 109.7% from RMB109.4 million as of December 31, 2021 to
RMB229.4 million as of December 31, 2022, primarily due to an earlier stock-up of reagents,
equipment and instruments as a result of early Chinese New Year season in 2023.
Our inventory turnover days remained relatively stable during the Track Record Period. The
table below sets forth our inventory turnover days during the Track Record Period:
For the Y ear Ended December 31,
2020 2021 2022
Inventory turnover days (1) ............................ 2 1 2 0 2 1
Note:
(1) We calculate the inventory turnover days using the average balance of inventory for the year, divided by costs of sales
for the same year, multiplied by 365 days for 2020, 2021 and 2022.
As of April 30, 2023, RMB189.2 million, or 82.0% of our inventories outstanding as of
December 31, 2022 was sold or utilized. This was primarily due to an early Chinese New Year in
2023, which resulted in seasonal slowdown in January 2023.
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Trade and Bills Receivables
Our trade and bills receivables primarily consist of: (i) trade receivables, (ii) bills receivables
and (iii) allowance for expected credit losses. Trade receivables are amounts due from customers,
in most cases for our business during the Track Record Period, for our medical diagnostic testing
services and sales of medical products as agreed in pre-determined arrangements. Trade receivables
are classified as current assets if they are expected to be collected in one year or less (or more than
one year within the normal operating cycle of the applicable business). Otherwise, they are
presented as non-current.
The following table sets forth our trade and bills receivables as of the dates indicated:
As of December 31,
2020 2021 2022
(RMB in thousands)
Trade receivables ..................................... 988,040 1,285,447 2,043,901
Bills receivables (1) .................................... – 3,140 3,253
Allowance for expected credit losses ................... (45,999) (75,075) (190,307)
Total................................................ 942,041 1,213,512 1,856,847
Note:
(1) Bills receivables are subject to impairment under the general approach and it is considered to be minimal.
Our trade and bills receivables increased by 28.8% from RMB942.0 million as of December
31, 2020 to RMB1,213.5 million as of December 31, 2021, and further by 53.0% to RMB1,856.8
million as of December 31, 2022, primarily due to an increase in trade receivables as a result of
increases in our testing volume, in particular, COVID-19 tests. As compared to 2021, we recorded
increased amount of allowance for expected credit losses in 2022 to recognize the risks relating to
receivables of COVID-19 mass testing, which may have relatively longer payment periods.
The following table sets forth an aging analysis of our trade receivables based on invoice dates
as of the dates indicated:
As of December 31,
2020 2021 2022
(RMB in thousands)
Within 4 months ...................................... 712,820 862,541 1,193,621
4 months to 1 year .................................... 191,736 316,367 605,992
1 year to 2 years ..................................... 65,061 87,890 196,608
2 years to 3 years .................................... 14,775 14,643 38,161
3 years to 4 years .................................... 2,810 3,428 7,090
4 years to 5 years .................................... 4 2 5 4 8 7 1,846
Over 5 years ......................................... 4 1 3 9 1 5 8 3
Total ............................................... 988,040 1,285,447 2,043,901
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Our trade and bills receivables turnover ratio is affected by various factors, including the
different settlement habits of our customers. The credit period we extend to our customers is
normally 90 to 120 days. The following table sets forth the number of turnover days for our trade
and bills receivables for the years indicated:
For the Y ear Ended December 31,
2020 2021 2022
Trade and bills receivables turnover days (1) .............. 1 1 5 1 2 3 1 2 5
Note:
(1) We calculate the trade receivables turnover days using the average balance of trade receivables for the year, divided
by revenue for the relevant year, multiplied by 365 days for 2020, 2021 and 2022.
Our trade receivables turnover days increased from 115 days in 2020 to 123 days in 2021, and
to 125 days in 2022. In line with industry practice, we generally extend a longer settlement period
to institutional customers, such as public hospitals, considering their good credit standing.
Furthermore, the settlement period of certain customers has been prolonged as a result of the
COVID-19 pandemic.
As of April 30, 2023, RMB624.6 million, or 30.5% of our trade and bills receivables
outstanding as of December 31, 2022 had been subsequently settled.
The following table sets forth an aging analysis of our trade and bills receivables outstanding
on December 31, 2022 as of April 30, 2023 and the ECLs:
Trade and bills
receivables as of
December 31, 2022
Amount unsettled
as of April 30, 2023 ECLs
(RMB in thousands, except for percentages)
(Unaudited)
Within 1 year ......................... 1,802,866 1,219,534 67.6% 52,142
1 year to 2 years ...................... 196,608 163,070 82.9% 62,944
Over 2 years .......................... 47,680 39,903 83.7% 33,261
Total................................. 2,047,154 1,422,507 69.5% 148,347
We perform impairment analysis and make sufficient provision using a provision matrix to
measure ECLs for trade and bills receivables related to each testing item. We have factored in our
ECLs through ECL model which includes the historical loss experience of all our customers. The
ECL model has been reviewed and validated by independent third-party valuation firm. See
“– Critical Accounting Estimates – Provision for Expected Credit Losses of Trade and Bills
Receivables” for details of of our provision matrix. As of April 30, 2023, the ECL on our unsettled
amount of outstanding trade and bills receivables on December 31, 2022 was RMB148.3 million.
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Having considered the following reasons, our Directors are of the view that the recoverability
of trade receivables is reasonably assured, and the relevant impairment provision is adequate:
(i) Effective Internal Risk Management Measures . We closely monitor the recoverability of
our trade and bill receivables. Our sales and business operation teams communicate with
our customers on a regular basis to monitor the progress on the recoverability of our
trade and bill receivables. In addition, we maintain strict control over outstanding
receivables. We have a designated credit control department to review the ages of the
receivables regularly, and overdue balances are reviewed by our senior management
periodically.
(ii) Lack of Significant Concentration . Our trade and bills receivables relate to a diverse
group of customers, and there is no significant concentration risks relating to such
receivables.
(iii) Enhanced Collection Efforts . In 2022, we participated in an increasing number of
COVID-19 mass testing organized by local governments, which may have longer
payment periods. To navigate the risks of these receivables, we have been, and will
continue to put further focus on its collection efforts and will closely monitor these
accounts to ensure proper and timely settlement in line with our historical experience.
(iv) Reasonable Impairment Policies . We use a provision matrix to calculate the expected
credit losses for trade receivables. The provision rates are based on days past due for
groupings of diversified customer segments that have similar loss patterns, for example,
by geographical locations, product types, customer rating, and other forms of credit
insurance. The provision matrix is initially based on our historical observed default
rates, which are subject to updates and changes based on our forward-looking estimates
analysis. We have already made sufficient provision using such model to measure the
expected credit losses for trade and bills receivables related to each testing.
For risk related to the recoverability of our trade receivables, please see “Risk Factors – Risks
Relating to Our Business and Industry – We are subject to credit risks in relation to trade and bill
receivables and customers could default on their obligations to pay our fees.”
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Prepayments, Deposits and Other Receivables
Our prepayments, deposits and other receivables primarily consist of: (i) prepayments, (ii)
deposits, (iii) value-added tax, and (iv) advance lease payments for short-term leases.
As of December 31,
2020 2021 2022
(RMB in thousands)
Deposits ............................................ 13,486 18,597 20,920
Advanced payment for investment ..................... – 30,000 18,200
Advance lease payments for short-term leases ........... 7,804 4,968 10,610
Prepayments ......................................... 30,335 35,788 54,613
Others .............................................. 4,743 5,913 9,940
Value-added tax recoverable ........................... 9,037 8,566 14,300
Deferred listing expenses ............................. 3,984 11,952 12,682
69,389 115,784 141,265
Less:
Provision of impairment .............................. 5 2 2 4 2 3 5 6 6
Total .............................................. 68,867 115,361 140,699
Our prepayments, deposits and other receivables increased by 67.5% from RMB68.9 million
as of December 31, 2020 to RMB115.4 million as of December 31, 2021, primarily due to (i) an
increase of RMB30.0 million in advanced payments for a proposed acquisition in Henan, and (ii)
an increase of deferred listing expenses of RMB8.0 million.
Our prepayments, deposits and other receivables increased by 22.0% from RMB115.4 million
as of December 31, 2021 to RMB140.7 million as of December 31, 2022, primarily due to an
increase of RMB18.8 million in prepayments for equipments, reagents and consumables used for
sales of medical products business.
As of April 30, 2023, RMB99.5 million, or 70.4% of our prepayments, deposits and other
receivables outstanding as of December 31, 2022 had been subsequently settled.
Trade Payables
Trade payables are amounts due to suppliers, primarily for our purchase of equipment,
reagents and consumables. The following table sets forth our trade payables as of the dates
indicated:
As of December 31,
2020 2021 2022
(RMB in thousands)
Trade payables ....................................... 383,775 510,691 1,062,452
Our trade payables increased by 33.1% from RMB383.8 million as of December 31, 2020 to
RMB510.7 million as of December 31, 2021, and further increased by 108.0% to RMB1,062.5
million as of December 31, 2022, primarily in line with our business growth. The trade payables are
non-interest-bearing and are normally settled on terms of 60 to 120 days.
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The following table sets forth the aging analysis of our trade payables based on invoice date
as of the dates indicated:
As of December 31,
2020 2021 2022
(RMB in thousands)
Within 1 year ........................................ 377,594 506,444 1,010,329
1 to 2 years ......................................... 3,573 2,126 50,484
Over 2 years ........................................ 2,608 2,121 1,639
Total .............................................. 383,775 510,691 1,062,452
The following table sets forth the number of turnover days for our trade payables for the years
indicated:
For the Y ear Ended December 31,
2020 2021 2022
Trade payables turnover days (1) ........................ 7 2 8 4 9 7
Note:
(1) We calculate the trade payables turnover days using the average balance of trade payables for the year, divided by
costs of sales for the relevant year, multiplied by 365 days for 2020, 2021 and 2022.
The increase in average trade payables turnover days during the Track Record Period was
primarily due to longer credit terms granted by our suppliers due to our stronger bargaining power
resulting from increased purchase amounts.
As of April 30, 2023, RMB624.0 million, or 58.7% of our trade payables outstanding as of
December 31, 2022 had been subsequently settled. Our Directors confirm that we had no material
defaults in our trade and other payables during the Track Record Period and up to the Latest
Practicable Date.
Other Payables and Accruals
The following table sets forth the breakdown of other payables and accruals as of the dates
indicated:
As of December 31,
2020 2021 2022
(RMB in thousands)
Payroll payables ..................................... 207,625 340,319 438,351
Accruals (1) .......................................... 80,717 90,409 172,162
Accrued listing expenses ............................. 16,783 35,370 11,011
Other payables (2) ..................................... 31,935 76,992 83,938
Advance payments from non-controlling shareholders ..... 4 5 0 – –
Advance payments received for subscription of share
options ............................................. 27,918 70,510 97,036
Payables arising from acquisitions (3) .................... – 75,536 132,682
Amount due to non-controlling shareholders ............. – – 49,884
Total ............................................... 365,428 689,136 985,104
Notes:
(1) Accruals mainly include accrued operating expenses, professional services fees and utilities expenses.
(2) Other payables mainly include payables for purchase of property, plant and equipment, deposits and other tax
payables, which were trade in nature, non-interest bearing and repayable on demand.
(3) Represents the acquisitions of 61% of the equity interests in each of the Shangrao Adicon and Jiangxi Jince in 2021,
51% of the equity interest in Henan Adicon in 2022. For acquisition of Shangrao Adicon and Jiangxi Jince, (i)
RMB4.4 million remained in payables as of December 31, 2022, (ii) RMB13.7 million was recognized as contingent
consideration as of December 31, 2022, and (iii) RMB57.5 million remained in payables estimated based on the
present value of the put option’s strike price over the non-controlling interests, as of December 31, 2021 and 2022.
For acquisition of Henan Adicon, as of December 31, 2022 (i) RMB13.3 million was recognized as contingent
consideration, and (ii) RMB43.8 million remained in payables estimated based on the present value of the put option’s
strike price over the non-controlling interests. For details of the acquisitions, see Note 27 in Appendix I to this
Prospectus.
FINANCIAL INFORMATION
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Our other payables and accruals increased from RMB365.4 million as of December 31, 2020
to RMB689.1 million as of December 31, 2021, primarily due to (i) an increase of RMB132.7
million in payroll payables, resulting from the change in our payroll cycle, (ii) payables arising
from acquisitions of two subsidiaries of RMB75.5 million, namely for majority interests in
Shangrao Adicon and Jiangxi Jince, (iii) an increase of RMB45.1 million in other payables, mainly
consisting of payables for the purchases of testing equipment, to supplement the expansion of our
business growth, and (iv) an increase of RMB42.6 million for advanced payments received for
subscription of share options.
Our other payables and accruals increased from RMB689.1 million as of December 31, 2021
to RMB985.1 million as of December 31, 2022, primarily due to (i) an increase of RMB107.3
million in payables arising from acquisitions of subsidiaries, namely for the majority acquisition of
Henan Adicon, (ii) an increase of RMB98.0 million in payroll payables, mainly comprising
increases in employee bonus and social insurance, and (iii) an increase of RMB81.8 million in
accruals, which mainly consists of professional service fees due to ancillary service providers we
engaged primarily for sample collection and transportation, information intake, and on-site
management, and (iv) RMB49.9 million for amounts due to non-controlling shareholders at some
of our non-wholly owned subsidiaries.
Contract Liabilities
Our contract liabilities represent the equipment and service payment received from customers
in advance. During the Track Record Period, our contract liabilities increased from RMB11.7
million as of December 31, 2020 to RMB20.7 million as of December 31, 2021, and further to
RMB21.1 million as of December 31, 2022, primarily due to the increase in advances received from
customers which is in line with our business expansion.
As of April 30, 2023, all our contract liabilities outstanding as of December 31, 2022 had been
subsequently recognized as revenue.
LIQUIDITY AND CAPITAL RESOURCES
During the Track Record Period and up to the Latest Practicable Date, we have funded our
cash requirements principally from cash generated from our operating activities and bank loans. As
of December 31, 2020, 2021 and 2022, we had cash and cash equivalents of RMB1,226.8 million,
RMB1,109.2 million and RMB1,680.6 million, respectively.
The following table sets forth a summary of our cash flows for the years indicated:
For the Y ear Ended December 31,
2020 2021 2022
(RMB in thousands)
Operating cash flows before movements in working
capital .............................................. 582,128 707,036 1,111,891
– Changes in working capital ......................... (53,169) (35,697) (118,081)
– Income tax paid ................................... (46,970) (107,077) (100,872)
Net cash generated from operating activities ............. 481,989 564,262 892,938
Net cash used in investing activities .................... (100,913) (197,329) (333,301)
Net cash generated from/(used in) financing activities .... 537,722 (476,193) 3,722
Interest paid and/or tax paid ........................... (55,696) (112,983) (138,588)
Net increase/(decrease) in cash and cash equivalents ...... 918,798 (109,260) 563,359
Cash and cash equivalents at the beginning of
the year ............................................. 304,523 1,226,819 1,109,211
Effects of foreign exchange rate ....................... 3,498 (8,348) 8,055
Cash and cash equivalents at end of the year .......... 1,226,819 1,109,211 1,680,625
FINANCIAL INFORMATION
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Net cash generated from operating activities
For the year ended December 31, 2022, net cash generated from operating activities was
RMB892.9 million. This net cash inflow was attributable to (i) our profit before tax of RMB820.8
million, as adjusted by non-cash items, principally comprising depreciation of property and
equipment of RMB129.4 million, and impairment losses on financial assets under expected credit
losses model of RMB111.7 million, and (ii) changes in operating assets and liabilities, which
primarily results from (a) an increase of RMB511.9 million in trade payables, which is primarily
in line with our business growth, and (b) an increase of RMB167.0 million in other payables and
accruals, partially offset by (i) an increase of RMB649.7 million in trade and bills receivables which
is in line with our business growth, and (ii) an increase of RMB115.2 million in inventories.
For the year ended December 31, 2021, net cash generated from operating activities was
RMB564.3 million. This net cash inflow was attributable to (i) our profit before tax of RMB417.2
million, as adjusted primarily by non-cash items, principally comprising loss on fair value
adjustment of RMB61.5 million, depreciation of property and equipment of RMB85.1 million and
depreciation of right-of-use assets of RMB51.2 million with respect to the lease arrangements for
properties and equipment, and (ii) changes in operating assets and liabilities, which was primarily
the result of (a) an increase of RMB183.9 million in other payables and accruals attributable to an
increased amount of (x) payroll payables mainly due to the change in our payroll cycle, and (y)
other payables, mainly consisting payables for the acquisition of testing equipment and (b) an
increase of RMB104.9 million in trade payables in line with our business growth, partially offset
by (c) an increase of RMB304.9 million in trade and bills receivables attributable to an increase in
our testing volume and number of customers and (d) an increase of RMB15.0 million in
prepayments, deposits and other receivables.
For the year ended December 31, 2020, net cash generated from operating activities was
RMB482.0 million. This net cash inflow was attributable to (i) our profit before tax of RMB358.2
million, as adjusted by non-cash items, principally comprising depreciation of property and
equipment of RMB64.9 million and depreciation of right-of-use assets of RMB48.2 million with
respect to the lease arrangements for properties and equipment, and (ii) changes in operating assets
and liabilities, which was primarily the result of (a) an increase of RMB160.6 million in other
payables and accruals attributable to an increased amount of (x) employee bonus, (y) COVID-19
related service fees, and (z) listing expenses and (b) an increase of RMB121.3 million in trade
payables in line with our business growth, partially offset by (c) an increase of RMB285.2 million
in trade and bills receivables attributable to an increase in our testing volume and number of
customers and (d) an increase of RMB22.2 million in inventories primarily due to the continued
increase in our reagent and consumables in line with our business growth.
Net cash used in investing activities
For the year ended December 31, 2022, net cash used in investing activities was RMB333.3
million, primarily attributable to (i) purchases of property and equipment of RMB228.3 million, (ii)
purchases of other intangible assets of RMB69.1 million in license acquisitions, and (iii)
acquisitions of subsidiaries of RMB48.7 million, which is partially offset by RMB8.9 million of
interest income.
For the year ended December 31, 2021, net cash used in investing activities was RMB197.3
million, primarily attributable to (i) purchases of property and equipment of RMB155.0 million, (ii)
advance payments of RMB30 million for the equity investment in an ICL in Henan, and (iii)
acquisition of subsidiaries of RMB21.1 million, partially offset by RMB6.3 million of interest
income.
FINANCIAL INFORMATION
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For the year ended December 31, 2020, net cash used in investing activities was RMB100.9
million, primarily attributable to purchases of property and equipment of RMB106.1 million,
partially offset by (i) RMB3.8 million of interest income and (ii) proceeds from disposal of property
and equipment of RMB3.8 million.
Net cash generated from/(used in) financing activities
For the year ended December 31, 2022, net cash generated from financing activities was
RMB3.7 million, primarily attributable to (i) new bank loans of RMB1,098.4 million and (ii)
advance payments received for subscription of share options of RMB26.5 million, partially offset
by (i) payment of dividends of RMB865.0 million, (ii) repayment of bank loans of RMB155.3
million and (iii) lease payments of RMB62.5 million.
For the year ended December 31, 2021, net cash used in financing activities was RMB476.2
million, primarily attributable to (i) payments of dividends of RMB452.6 million, (ii) repayment of
share interest consideration of RMB138.8 million to shareholders, and (iii) repayment of bank loans
of RMB120.1 million, partially offset by proceeds from issuance of convertible redeemable
preferred shares of RMB129.2 million.
For the year ended December 31, 2020, net cash generated from financing activities was
RMB537.7 million, primarily attributable to proceeds from (i) our issuance of convertible
redeemable preferred shares with a fair value of RMB443.9 million, and (ii) new bank loans and
other borrowings of RMB230.5 million, partially offset by repayment of bank loans and other
borrowings of RMB181.0 million.
WORKING CAPITAL
We intend to finance our working capital with our cash and bank balances, cash generated
from our operations, bank and other loans, the net proceeds from the Global Offering and other
funds raised from capital markets from time to time. We will closely monitor the level of our
working capital, and diligently review future cash flow requirements and, particularly in view of our
strategy to continue enhancing our service capabilities and expanding our service network, adjust
our operation and expansion plans, if necessary, to ensure that we maintain sufficient working
capital to support our business operations.
During the Track Record Period and up to the Latest Practicable Date, we have financed our
operations primarily through our cash and bank balances, cash generated from our operations and
bank and other loans. We have obtained two banking facilities in a sum of RMB180.0 million from
two licensed commercial banks in 2021 and 2022, of which RMB170.2 million was unutilized as
of April 30, 2023. As of April 30, 2023, we had RMB1,289.8 million in cash and bank balances.
Our Directors are of the view that, taking into account the net proceeds of the Global Offering, our
current cash and bank balances, our anticipated cash flows from operations, the available bank
facilities, and the special dividend to be paid by us, we have sufficient working capital for our
present requirements, that is, for at least 12 months following the date of this Prospectus.
FINANCIAL INFORMATION
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INDEBTEDNESS
During the Track Record Period, we incurred borrowings to finance our capital expenditure
and working capital requirements, which were primarily denominated in RMB. The following table
sets forth a breakdown of our outstanding borrowings as of the dates indicated:
As of December 31, As of April 30,
2020 2021 2022 2023
(RMB in thousands)
(Unaudited)
Current liabilities:
Interest-bearing bank borrowings (1) .... 120,178 49,141 112,792 59,771
Lease liabilities ..................... 28,416 31,653 51,400 48,392
Financial liabilities at FVTPL ......... – – – 599,065
Non-current liabilities:
Interest-bearing bank borrowings
(1) .... 100,276 90,790 1,023,329 1,017,222
Lease liabilities ..................... 129,710 146,297 182,455 159,431
Financial liabilities at FVTPL ........ 443,931 621,870 589,179 –
Total .............................. 822,511 939,751 1,959,155 1,883,881
Note:
(1) For details of our interest-bearing bank borrowings, see Note 29 in Appendix I to this Prospectus.
Interest-Bearing Bank Borrowings
The following table sets forth the maturity profile of our interest-bearing bank borrowings, as
of the dates indicated:
As of December 31,
2020 2021 2022
(RMB in thousands)
Within one year ...................................... 120,178 49,141 112,792
In the second year ................................... 7,312 11,711 41,321
In the third to fifth years .............................. 92,964 79,079 982,008
Total ............................................... 220,454 139,931 1,136,121
All the interest-bearing bank loans in 2020, 2021 and 2022 were unsecured loans with
effective annual interest rates ranging from 2.85% to 6.76% as of December 31, 2022.
FINANCIAL INFORMATION
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Lease liabilities
As of December 31, 2020, 2021 and 2022, we had total lease liabilities of RMB158.1 million,
RMB178.0 million and RMB233.9 million, respectively.
The following table sets forth a maturity analysis of the lease liabilities as of the dates
indicated:
As of December 31,
2020 2021 2022
(RMB in thousands)
Less than 3 months ................................... 10,273 12,061 17,113
3 to less than 12 months .............................. 18,143 19,592 34,287
1 to 3 years ......................................... 60,730 72,806 95,644
Over 3 years ........................................ 68,980 73,491 86,811
Total ............................................... 158,126 177,950 233,855
Convertible Redeemable Preferred Shares
Convertible redeemable preferred shares was designated as whole as financial liabilities
carried at FVTPL. As of December 31, 2020, 2021 and 2022, financial liabilities at FVTPL relating
to our convertible redeemable preferred shares had fair value of RMB443.9 million, RMB621.9
million and RMB589.2 million respectively. We recognized fair value gain on financial liabilities
at FVTPL for 2022, primarily due to the decrease in the fair value of the convertible redeemable
preferred shares.
CONTINGENT LIABILITIES
As of December 31, 2020, 2021 and 2022, we were not involved in any material legal,
arbitration or administrative proceedings that, if adversely determined, we expect would materially
adversely affect our financial position or result of operations.
OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTS
As of December 31, 2022, we had not entered into any off-balance sheet transactions.
CAPITAL EXPENDITURES
Our capital expenditures during the Track Record Period primarily consisted of expenditures
on (i) property and equipment, and (ii) other intangible assets, which primarily include patents,
softwares and customer relationship.
The following table sets forth our capital expenditures during the Track Record Period:
For the Y ear Ended December 31,
2020 2021 2022
(RMB in thousands)
Purchases of property and equipment ................... 106,075 155,005 228,297
Purchase of other intangible assets ..................... 5 9 0 1 , 1 1 5 69,058
Total ............................................... 106,665 156,120 297,355
FINANCIAL INFORMATION
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Purchase of other intangible assets increased from RMB0.6 million in 2020 to RMB1.1
million in 2021, primarily due to an increase of RMB0.5 million in purchase of office softwares.
Purchase of other intangible assets further increased from RMB1.1 million in 2021 to RMB69.1
million in 2022, primarily due to an increase of RMB68.3 million in patents, resulting from our
cooperation with Guardant Health starting in June 2022, through which we are granted exclusive
rights to process Guardant’s proprietary liquid and tissue biopsy assays in China. For details, please
see “Business – Our Tests and Service Offerings”.
We intend to fund our planned capital expenditures through a combination of the net proceeds
from the Global Offering as well as cash generated from operations. See “Future Plans and Use of
Proceeds” for further details. Our current capital expenditure plans for any future period are subject
to change, and we may adjust our capital expenditures according to our future cash flows, results
of operations and financial condition, our business plans, market conditions and various other
factors.
CAPITAL COMMITMENTS
Our capital commitments are related to our purchase of property and equipment for the
construction, expansion and enhancement of our facilities. We expect to satisfy our capital
commitments using cash from operations, net proceeds to be received from the Global Offering and
bank borrowings available to us.
The following table sets forth our capital commitments as of the dates indicated:
As of December 31,
2020 2021 2022
(RMB in thousands)
Contracted, but not provided for acquisition of property
and equipment ....................................... 13,449 37,549 15,418
MATERIAL RELATED PARTY TRANSACTIONS
Related party transactions are set out in note 37 to “Appendix I – Accountants’ Report.” Our
Directors confirm that these transactions were conducted in the ordinary and usual course of
business and on an arm’s length basis and would not distort our results of operations or make our
historical results not reflective of our future performance. Our Directors further confirm that save
for the lease deposit of approximately RMB4.2 million we paid to AJON Medical Device
(Hangzhou) Company Limited, all of our non-trade related party transactions have been settled as
of December 31, 2022.
FINANCIAL INFORMATION
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KEY FINANCIAL RATIOS
The following table sets forth certain of our key financial ratios as of the dates or for the years
indicated:
For the Y ear Ended December 31,
2020 2021 2022
Profitability ratios
Gross profit margin (1) ................................ 40.7% 42.7% 39.0%
Net profit margin (2) .................................. 10.6% 9.5% 14.1%
Adjusted net profit margin (non-IFRS measure) (3) ....... 13.4% 13.4% 12.8%
EBITDA margin (non-IFRS measure) (4) ................ 17.8% 16.7% 22.3%
Adjusted EBITDA margin (non-IFRS measure) (5) ........ 20.7% 20.7% 21.0%
Return on equity (6) .................................. 35.4% 34.1% 93.5%
Return on assets (7) ................................... 13.8% 11.1% 17.2%
As of December 31,
2020 2021 2022
Liquidity ratios
Current ratio (8) ...................................... 2.31 1.83 1.61
Quick ratio (9) ....................................... 2.21 1.75 1.52
Capital adequacy ratios
Gearing ratio
(10) ..................................... 0.21 0.16 1.86
Notes:
(1) Gross profit for the year divided by revenue for the same year and multiplied by 100.0%.
(2) Profit for the year divided by revenue for the same year and multiplied by 100.0%.
(3) Adjusted net profit margin is a non-IFRS measure. It equals adjusted net profit for a year (non-IFRS measure) divided
by revenue for the same year and multiplied by 100.0%. For a reconciliation of adjusted net profit (non-IFRS
measure) to net profit, see “– Non-IFRS Measures”.
(4) EBITDA margin is a non-IFRS measure. It equals EBITDA for the year (non-IFRS measure) divided by revenue for
the same year and multiplied by 100.0%. For reconciliation of EBITDA (non-IFRS measure) from profit before tax,
see “– Non-IFRS Measures”.
(5) Adjusted EBITDA margin is a non-IFRS measure. It equals adjusted EBITDA for the year (non-IFRS measure)
divided by revenue for the same year and multiplied by 100.0%. For reconciliation of adjusted EBITDA (non-IFRS
measure) from profit before tax, see “– Non-IFRS Measures”.
(6) Net profit for the year divided by average total equity as of the beginning and the end of such year and multiplied
by 100.0%.
(7) Net profit for the year divided by average total assets as of the beginning and the end of such year and multiplied
by 100.0%.
(8) Current assets divided by current liabilities as of the end of the year.
(9) Current assets less inventories divided by current liabilities as of the end of the year.
(10) Total borrowings divided by total equity as of the end of the year.
See “– Year-to-Year Comparison of Results of Operations” in this Prospectus for a discussion
of the factors affecting our gross profit margin and net profit margin during the respective years.
FINANCIAL RISK DISCLOSURE
We are exposed to a variety of financial risks, including credit risk, liquidity risk, interest rate
risk and currency risk. We regularly monitor our exposure to these risks. Risk management is
carried out by our senior management.
FINANCIAL INFORMATION
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Credit risk
Credit risk arises from cash and cash equivalents, restricted cash and trade and other
receivables. The carrying amount of each class of the above financial assets represents our
maximum exposure to credit risk in relation to the corresponding class of financial assets. We have
a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis.
To manage this risk, deposits are mainly placed with state-owned financial institutions in the
PRC and reputable international financial institutions outside of the PRC. There has been no recent
history of default in relation to these financial institutions.
Our trade and other receivables primarily comprise of amounts receivable from customers
with no recent history of material defaults. Our exposure to credit risk is influenced mainly by the
individual characteristics of each customer. We perform credit evaluations that focus on the
customer’s past history of making payments and current ability to pay. We do not obtain collateral
from customers.
We do not provide any other guarantees which would expose the Group to credit risk.
Liquidity risk
Our individual operating entities are responsible for their own cash management, including
the short term investment of cash surpluses and the raising of loans to cover expected cash demands,
subject to approval by the management and directors when the borrowings exceed certain
predetermined levels of authority. Our policy is to regularly monitor our liquidity requirements to
ensure that we maintain sufficient reserves of cash to meet our liquidity requirements in the short
and longer term.
Interest rate risk
Our interest rate risk arises primarily from variable rates bank loans, which expose us to cash
flow interest rate risk.
Currency risk
We are exposed to currency risk primarily through sales and purchases giving rise to
receivables, payables and cash balances that are denominated in a foreign currency, i.e. a currency
other than the functional currency of the operations to which the transactions relate.
DIVIDENDS
On June 23, 2021, our Board declared a dividend of US$69.9 million out of our share
premium, and which will be paid before the Listing with our internal resources. On May 18, 2022,
we declared a special dividend of RMB865 million, representing 100% of retained earnings as of
March 31, 2022 to the shareholders of the Company whose names appear on the register of members
of the Company at the time of such dividend declaration. All the dividend declared had been paid
by the end of 2022.
We entered into a credit facility agreement of US$150 million on July 20, 2022, for the
purposes of paying the special dividend we declared on May 18, 2022 and other general corporate
purposes, so as to avoid uncertainties in the timing to settle the special dividend. The debt facilities
were subject to a number of customary covenants. We have fully drawn the credit facilities in July
2022 and will have sufficient cash from existing cash balances and from future cash from operations
to meet the repayment terms of this loan.
FINANCIAL INFORMATION
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We are a holding company incorporated under the laws of the Cayman Islands. As a result, the
payment and amount of any future dividend will also depend on the availability of dividends
received from our subsidiaries. PRC laws require that dividends be paid only out of the profit for
the year calculated according to PRC accounting principles, which differ in many aspects from the
generally accepted accounting principles in other jurisdictions, including IFRS. PRC laws also
require a foreign-invested enterprise to set aside at least 10% of its after-tax profits, if any, to fund
its statutory reserves, which are not available for distribution as cash dividends. Distributions from
us and our subsidiaries may also become subject to any restrictive covenants in bank credit
facilities, convertible bond instruments or other agreements that we or our subsidiaries may enter
into in the future. No dividend may be declared or paid other than out of profits and reserves of the
Company lawfully available for distribution, including share premium.
The amount of dividend actually distributed to our shareholders will depend upon our earnings
and financial condition, operating requirements, capital requirements and any other conditions that
our Directors may deem relevant and will be subject to approval of our shareholders. Our Board has
the absolute discretion to recommend any dividend. We currently intend to retain most, if not all,
of our available funds and any future earnings after the Global Offering to fund the development
and growth of our business. As a result, we do not expect to pay any cash dividends in the
foreseeable future.
LISTING EXPENSES
Listing expenses are estimated to be approximately RMB117.1 million (based on an Offer
Price of HK$12.32 per Share, and assuming that the Over-allotment Option is not exercised),
accounting for approximately of 60.6% of our gross proceeds. Listing expenses primarily consist of
(i) RMB7.7 million of underwriting commissions, and (ii) RMB109.4 million of non-underwriting
related expenses, including (x) RMB67.4 million of fees and expenses of legal advisors and
accountants, and (y) RMB42.0 million of other fees and expenses. An estimated amount of
RMB113.9 million for our listing expenses, accounting for 59.0% of our gross proceeds, is expected
to be charged to our consolidated income statements and the remaining amount of RMB3.2 million
is expected to be recognized directly as a deduction from equity upon the Listing. Listing expenses
of RMB73.8 million were incurred on or before December 31, 2022, of which RMB61.1 million was
charged to our consolidated income statements, while the remaining amount of RMB12.7 million
was recorded as a prepayment and will be subsequently charged to equity upon completion of the
Global Offering. We estimate we will further incur underwriting commission and other listing
expenses of RMB43.3 million after December 31, 2022, which will be charged to our consolidated
income statements upon the completion of Global Offering.
The Selling Shareholder is responsible for the underwriting commission of 3%, and a
discretionary incentive fee of up to 1%, of the aggregate Offer Price of the Sale Shares which equals
to an aggregate amount of RMB7.8 million (calculated based on an Offer Price of HK$12.32). Such
underwriting commission and incentive fee will be solely borne by the Selling Shareholder and are
not included in the listing expenses of the Group.
NON-RECURRING LONG-TERM CASH INCENTIVE PLAN
In October 2018, we granted a non-recurring long-term cash incentive plan, which is fully
cash-based, to our employees in connection with the investments of Pearl Group Limited in our
Group (details of the investments are set out in “History, Reorganization and Corporate Structure
– Round A Pre-IPO Investments”) for long-term retention purposes. The cost of the cash incentive
plan will be recognized as expenses once incurred. The total incentives of RMB9.9 million were
fully paid from 2020 to 2022 in cash to qualified management and employees in three installments
in 2020, 2021 and 2022, respectively, resulting in RMB9.9 million, nil and nil debit in operating
expenses and credit in cash in the Group’s financial statements for the respective years.
FINANCIAL INFORMATION
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UNAUDITED PRO FORMA STATEMENT OF 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 attributable to the equity holders of the Company as of
December 31, 2022 as if the Global Offering had taken place on that date.
The unaudited pro forma statement of adjusted consolidated net tangible assets of the Group
has been prepared for illustrative purposes only and, because of its hypothetical nature, it may not
provide a true picture of the consolidated net tangible assets attributable to owners of the Company
had the Global Offering been completed as of December 31, 2022 or at any future date.
It is prepared based on the consolidated net tangible assets of the Group attributable to the
owners of the Company as of December 31, 2022 as set out in the Accountants’ Report in Appendix
I to this Prospectus, and adjusted as described below. The unaudited pro forma adjusted
consolidated net tangible assets does not form part of the Accountants’ Report as set out in
Appendix I to this Prospectus.
Consolidated net
tangible assets
attributable to
owners of the
Company as of
December 31, 2022
Estimated impact to
the consolidated net
tangible assets upon
conversion of
Preferred Shares
Estimated net
proceeds from
the Global
Offering
Unaudited Pro forma
adjusted consolidated
net tangible assets
attributable to
owners of the
Company as of
December 31, 2022
Unaudited pro forma adjusted
consolidated net tangible assets
attributable to owners of the
Company per Share as of
December 31, 2022
RMB’000 RMB’000 RMB’000 RMB’000 RMB HK$
(Note 1) (Note 2) (Note 3) (Note 4) (Note 5)
Based on an Offer Price
of HK$12.32 per Offer
Share .......... 287,313 589,179 137,116 1,013,608 1.40 1.54
Notes:
(1) The consolidated net tangible assets of the Group attributable to owners of the Company as of December 31,
2022 was equal to the audited net assets attributable to owners of the Company as of December 31, 2022 of
RMB510,824,000 after deducting of other intangible assets of RMB143,709,000 and goodwill of
RMB79,802,000 as of December 31, 2022 set out in the Accountants’ Report in Appendix I to this Prospectus.
(2) The Preferred Shares would have been converted into ordinary shares upon completion of Global Offering. The
conversion of Preferred Shares would have been reclassified such preferred shares amounting to
RMB589,179,000 from liabilities to equity and accordingly increased the unaudited pro forma adjusted
consolidated net tangible assets of the Group as of December 31, 2022 by RMB589,179,000.
(3) The estimated net proceeds from the Global Offering are based on an estimated Offer Price of HK$12.32 per
share, after deduction of the underwriting fees and other related expenses payable by the Company and do not
take into account any Shares which may be issued upon the exercise of the Over-Allotment Option.
(4) The unaudited pro forma adjusted consolidated net tangible assets attributable to owners of the Company per
Share is arrived at after adjustments referred in note 2 above and on the basis of 723,452,291 Shares are in
issue, assuming that the Share Consolidation and the Global Offering has been completed on December 31,
2022 but does not take into account any Shares which may be sold pursuant to the exercise of the
Over-allotment Option.
(5) For the purpose of this unaudited pro forma statement of adjusted net tangible assets attributable to owners of
the Company, the balances stated in RMB are converted into HK$ at the rate of RMB1.00 to HK$1.1028.
(6) No adjustment has been made to the unaudited pro forma adjusted consolidated net tangible assets to reflect
any trading results or other transactions of the Group entered into subsequent to December 31, 2022.
FINANCIAL INFORMATION
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--- page 314 ---
NO MATERIAL ADVERSE CHANGE
Our Directors confirm that, up to the date of this Prospectus, there has been no material
adverse change in our financial or trading position since December 31, 2022 (being the date on
which the latest audited consolidated financial information of our Group was prepared) and there
is no event since December 31, 2022 which would materially affect the information shown in our
consolidated financial statements included in the Accountant’s Report in Appendix I to this
Prospectus.
DISCLOSURE UNDER RULES 13.13 TO 13.19 OF THE LISTING RULES
Our Directors confirm that, as of the Latest Practicable Date, there was no circumstance that
would give rise to a disclosure requirement under Rules 13.13 to 13.19 of the Listing Rules.
FINANCIAL INFORMATION
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--- page 315 ---
FUTURE PLANS
For further details of our future plans, see “Business – Our Strategies” in this Prospectus.
USE OF PROCEEDS
We estimate that we will receive net proceeds from the Global Offering of approximately
HK$83.9 million, after deducting underwriting commissions, fees and estimated expenses payable
by us in connection with the Global Offering, assuming no Over-allotment Opinion is exercised and
based on the Offer Price of HK$12.32 per Share.
We intend to use the net proceeds from the Global Offering over the next three years as
follows, assuming the Over-allotment Option is not exercised:
 approximately HK$12.6 million (representing 15% of the net proceeds) for
strengthening our routine and esoteric testing capabilities, including research and
development and sales and marketing capabilities. We intend to (i) enhance our in-house
R&D capabilities and external R&D collaboration in routine and esoteric testing in
various disciplines, primarily focusing on OB-GYN/infertility, solid tumor, hematology,
infectious disease and other related categories, and will recruit and expand R&D teams
and relevant supporting staff. These identified areas, we believe, present strong growth
opportunities in the near future, and are areas over which we have competitive advantage
in the ICL market; (ii) purchase new and advanced esoteric technologies in areas such
as NGS testing modalities, mass spectrometry, and flow cytometry and enhance our
laboratory capacity; and (iii) expand our sales and marketing team and strengthen our
sales and marketing initiatives, including building more extensive network, hosting and
participating in academic forums and seminars;
 approximately HK$21.0 million (representing 25% of the net proceeds) for network
expansion through establishing new laboratories, partnership investments and
development of new channels. We intend to (i) establish new laboratories on our own or
through collaborating with local partners in untapped provincial capitals and lower-tier
cities; and (ii) enhance technical cooperation with Class I and Class II medical
institutions to capture the patient flow and address demand from lower-tier cities and
rural areas. Specifically, we plan to more than double our laboratory count over the next
five years and will include approximately one third of these new laboratories to be
provincial level laboratories to provide primary coverage across China, and
approximately two thirds of these new laboratories will be located in tier-two cities to
deepen our service penetration within local geographic markets. The overall market
penetration of the ICL industry in China was only approximately 6% in 2021, according
to Frost & Sullivan, significantly less than 60% for Japan, 44% for Germany and 35%
for the United States. By the end of 2021, there were over 2,100 ICLs in China, whereas
there were over 7,500 ICLs in the United States according to Frost & Sullivan. China’s
ICL market is still in its infancy and has great growth potential, which is expected to
grow at a CAGR of 18.2% by 2026, according to Frost & Sullivan. Our Directors believe
that such growth momentum will support our laboratory expansion plans;
 approximately HK$21.0 million (representing 25% of the net proceeds) for business
development activities to form strategic collaborations with industry participants as well
as strategic and bolt-on acquisitions. We intend to (i) enhance our industry resources and
collaborations with In Vitro Diagnostic (IVD) companies on reagents to enrich our
testing modalities; (ii) further build up our CRO sales team to capture the opportunities
in clinical studies driven by strong demand from biopharmaceutical companies and
CROs; (iii) acquire established regional laboratories. According to Frost & Sullivan,
there were over 2,100 ICLs in China by the end of 2021, however, less than 30% of these
were chain network companies. The majority of these ICLs, according to Frost &
Sullivan are single laboratory facilities, which could be a potential takeover target for
us; and (iv) expand our business development team to actively pursue strategic
FUTURE PLANS AND USE OF PROCEEDS
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--- page 316 ---
collaborations and investment opportunities for inorganic growth. When selecting
acquisition targets, we look into a multitude of factors, including the local market
dynamics, competitive dynamics, competitive positioning, history and development of
the target company, shareholder of the target company, valuation of the target company,
potential synergies able to be realized under our ownership, ability to retain key
employees, ability to maintain customer relationships, likelihood of achieving earn-out
targets, if any, among others;
 approximately HK$12.6 million (representing 15% of the net proceeds) for upgrade and
expansion of our existing laboratories. We intend to (i) upgrade the equipment and
strengthen the testing capabilities of our existing laboratories; (ii) expand the facilities
of our existing laboratories; and (iii) expand our laboratory operation team;
 approximately HK$8.4 million (representing 10% of the net proceeds) for investment in
operating infrastructure including logistics facilities, artificial intelligence technologies
and IT infrastructure. We intend to (i) invest in our cold-chain logistics infrastructure,
in particular vehicles and storage and related technologies; (ii) invest in data-mining
technologies and data infrastructure to help us discover new information from our
existing database of anonymized test results to provide better diagnostic insights to our
customers; (iii) invest in the development of proprietary artificial intelligence
technologies that could further enhance our analytical capabilities and enable the
digitalization of pathology framework, in particular, we plan to invest into AI
technologies that will provide assisted diagnosis for our pathology tests, as pathology
testing is an area that is ready for AI based assisted diagnosis. Pathology slides are
generally two-dimensional images which allow for easier processing by AI based
assisted diagnosis based on two-dimensional image recognition algorithms and
correlation analysis; and (iv) expand our in-house team dedicated to IT management and
logistics; and
 approximately HK$8.4 million (representing 10% of the net proceeds) for working
capital and general corporate purposes.
The above allocation of use of net proceeds is projected based on our current business plan
and the amount of net proceeds that we expect to receive from the Global Offering. If we are unable
to raise the expected amount of net proceeds from the Global Offering, we expect to adjust the
allocation of the net proceeds for the above purposes on a pro rata basis.
If the Over-allotment Option is fully exercised by the Joint Sponsors, we will receive net
proceeds of HK$142.7 million for a total of 22,267,000 Shares to be sold and transferred upon the
full exercise of the Over-allotment Option, after deducting the underwriting fees and commissions
payable by us. We intend to apply the additional net proceeds to the above uses in the proportions
stated above.
To the extent that the net proceeds of the Global Offering are not immediately used for the
above purposes and to the extent permitted by applicable laws and regulations, we will only place
such net proceeds into short-term interest-bearing accounts with licensed banks and/or authorized
financial institutions (as defined under the Securities and Futures Ordinance). We will issue an
appropriate announcement if there is any material change to the above proposed use of proceeds.
We will not receive any of the proceeds from the sale of the Sale Shares by the Selling
Shareholder in the Global Offering. The Selling Shareholder, after deduction of underwriting fees,
discretionary incentive fees, the SFC transaction levy, the AFRC transaction levy, the Stock
Exchange trading fee and stamp duty for the Sale Shares payable by it in the Global Offering which
equals to an aggregate amount of approximately HK$8.4 million based on an Offer Price of
HK$12.32, will receive aggregate net proceeds from the Global Offering of approximately
HK$187.6 million.
FUTURE PLANS AND USE OF PROCEEDS
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--- page 317 ---
HONG KONG UNDERWRITERS
Morgan Stanley Asia Limited
Jefferies Hong Kong Limited
CLSA Limited
Deutsche Bank AG, Hong Kong Branch
Haitong International Securities Company Limited
The Hongkong and Shanghai Banking Corporation Limited
CCB International Capital Limited
Futu Securities International (Hong Kong) Limited
Huatai Financial Holdings (Hong Kong) Limited
ICBC International Securities Limited
Tiger Brokers (HK) Global Limited
Valuable Capital Limited
UNDERWRITING
The Hong Kong Public Offering is fully underwritten by the Hong Kong Underwriters on a
conditional basis. The International Offering is expected to be fully underwritten by the
International Underwriters.
The Global Offering comprises the Hong Kong Public Offering of initially 3,320,000 Hong
Kong Offer Shares and the International Offering of initially 29,872,500 International Offer Shares
(including 15,904,000 Sale Shares), subject, in each case, to reallocation on the basis as described
in the section headed “Structure of the Global Offering” as well as to the Over-Allotment Option
(in the case of the International Offering).
UNDERWRITING ARRANGEMENTS AND EXPENSES
The Hong Kong Public Offering
Hong Kong Underwriting Agreement
Pursuant to the Hong Kong Underwriting Agreement, the Company is offering initially
3,320,000 Hong Kong Offer Shares for subscription by the public in Hong Kong on and subject to
the terms and conditions of this document and the GREEN Application Form at the Offer Price.
Subject to (a) the Listing Committee of the Stock Exchange granting approval for the listing
of, and permission to deal in, the Shares in issue and to be offered pursuant to the Global Offering
as mentioned herein and such approval not having been withdrawn and (b) certain other conditions
set out in the Hong Kong Underwriting Agreement, the Hong Kong Underwriters have agreed
severally and not jointly to subscribe or procure subscribers for their respective applicable
proportions of the Hong Kong Offer Shares being offered which are not taken up under the Hong
Kong Public Offering on and subject to the terms and conditions set out in this document, GREEN
Application Form and the Hong Kong Underwriting Agreement. The Hong Kong Underwriting
Agreement is conditional upon and subject to, among other things, the International Underwriting
Agreements (as defined below) having been executed and becoming unconditional and not having
been terminated in accordance with its terms.
For applicants applying under the Hong Kong Public Offering, this document and the GREEN
Application Form contain the terms and conditions of the Hong Kong Public Offering. The
International Offering is expected to be fully underwritten by the International Underwriters.
UNDERWRITING
– 309 –


--- page 318 ---
Grounds for Termination
If at any time prior to 8:00 a.m. on the List Date:
A. there develops, occurs, exists or comes into force:
(a) any new law or regulation or any change or development involving a prospective
change in 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 Hong Kong, the PRC, Singapore, the Cayman
Islands, the United States, the United Kingdom or the European Union (or any
member thereof) (each a “ Relevant Jurisdiction ”); or
(b) any change or development involving a prospective change or development, or any
event or series of events likely to result in or representing a change or
development, or prospective change or development, in local, national, regional or
international financial, political, military, industrial, economic, currency market,
fiscal or regulatory or market conditions or any monetary or trading settlement
system (including, without limitation, conditions in stock and bond markets,
money and foreign exchange markets and inter-bank 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 or a change of the Hong Kong dollars or of the
Renminbi against any foreign currencies) in or affecting any Relevant Jurisdiction;
or
(c) any event or series of events, whether in continuation, or circumstances in the
nature of force majeure (including, without limitation, acts of government, labour
disputes, strikes, lock-outs, fire, explosion, earthquake, flooding, tsunami,
volcanic eruption, civil commotion, riots, rebellion, public disorder, acts of war
(whether declared or undeclared), acts of terrorism (whether or not responsibility
has been claimed), acts of God, accident or interruption in transportation,
destruction of power plant, outbreak, escalation, mutation or aggravation of
diseases, epidemics or pandemics including, but not limited to, SARS, swine or
avian flu, H5N1, H1N1, H1N7, H7N9, Ebola virus, Middle East respiratory
syndrome (MERS), COVID-19 and such related/mutated forms, economic
sanction, 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 whatever form) political change, paralysis of government
operations, interruption or delay in transportation, other industry action in or
directly or indirectly affecting any Relevant Jurisdiction; or
(d) any moratorium, suspension or restriction (including, without limitation, any
imposition of or requirement for any minimum or maximum price limit or price
range) in or on trading in securities of generally on the Stock Exchange, the New
York Stock Exchange, the NYSE Amex, the NASDAQ Global Market, the London
Stock Exchange, the Tokyo Stock Exchange, the Singapore Stock Exchange, the
Shanghai Stock Exchange or the Shenzhen Stock Exchange; or
(e) any general moratorium on commercial banking activities in Hong Kong (imposed
by the Financial Secretary or the Hong Kong Monetary Authority or other
competent Governmental Authority), New York (imposed at Federal or New York
State level or other competent Governmental Authority), London, Singapore, the
PRC, the European Union (or any member thereof) or any Relevant Jurisdiction or
any disruption in commercial banking or foreign exchange trading or securities
settlement or clearance services, procedures or matters in any Relevant
Jurisdiction; or
(f) any (i) change or prospective change in exchange controls, currency exchange
rates or foreign investment regulations (including, without limitation, a change of
the Hong Kong dollars or RMB against any foreign currencies, a change in the
system under which the value of the Hong Kong dollars is linked to that of the
UNDERWRITING
– 310 –


--- page 319 ---
United States dollars or RMB is linked to any foreign currency or currencies), or
(ii) any change or prospective change in Taxation in any Relevant Jurisdiction
adversely affecting an investment in the Shares; or
(g) the issue or requirement to issue by the Company of a supplemental or amendment
to the Prospectus, Green Application Form, preliminary offering circular or
offering circular or other documents in connection with the offer and sale of the
Shares pursuant to the Companies Ordinance or the Listing Rules or upon any
requirement or request of the Stock Exchange or the SFC; or
(h) any change or development involving a prospective change which has the effect of
materialisation of any of the risks set out in the section headed “Risk Factors” in
the Prospectus; or
(i) any litigation or claim being threatened or instigated against any member of the
Group or any Director; or
(j) any contravention by any member of the Group or any Director of the Companies
Ordinance, the PRC Company Law or the Listing Rules; or
(k) the executive Director, the chief executive officer or the chief financial officer of
the Company vacating his or her office; or
(l) a Governmental Authority or a regulatory body or organisation in any Relevant
Jurisdiction commencing any investigation or other action or proceedings, or
announcing an intention to investigate or take other action or proceedings, against
any Group Company or any Director; or
(m) any litigation or claim being threatened or instigated against, or a Governmental
Authority or a regulatory body or organisation in any Relevant Jurisdiction
commencing any investigation or action or other proceedings, or announcing an
intention to investigate or take other action or proceedings against any member of
the Group or any of the chairman, president or the Director of the Company, or any
of them being charged with an indictable offence or prohibited by operation of
Laws or otherwise disqualified from taking part in the management of a company
or the commencement by any governmental, political, regulatory body of any
action against any Director or any announcement by any governmental, political,
regulatory body that it intends to take any such action; or
(n) any material adverse change or prospective material adverse change in the
earnings, results of operations, business, business prospects, financial or trading
position, conditions (financial or otherwise) or prospects of any Group Company
(including any litigation or claim of any third party being threatened or instigated
against any Group Company); or
(o) any order or petition for, or any valid demand by creditors for repayment of loan
or indebtedness before its repayment or maturity date due to any event of default
(as provided in the relevant agreement) or a petition being presented for the
winding-up or liquidation of any member of the Group, or any member of the
Group making any composition or arrangement with its creditors or entering into
a scheme of arrangement or any resolution being passed for the winding-up of any
member of the Group or a provisional liquidator, receiver or manager being
appointed over all or part of the material assets or undertaking of any member of
the Group or anything analogous thereto occurs in respect of any member of the
Group; or
(p) a prohibition by a competent regulatory authority on the Company for whatever
reason from allotting, issuing or selling the Shares (including the Over-allotment
Option Shares (if any)) pursuant to the terms of the Global Offering; or
(q) the imposition of sanctions, in whatever form, directly or indirectly, by, or for, any
Relevant Jurisdiction on the Company or any member of the Group; or
UNDERWRITING
–3 1 1–


--- page 320 ---
which, in any such case individually or in the aggregate, in the sole and absolute opinion
of the Joint Sponsors and the Overall Coordinators (for themselves and on behalf of the
Hong Kong Underwriters): (A) has or will have or may have material adverse effect on
any present or prospective shareholder of the Company in its capacity as such; or (B) has
or will have or may have a material adverse effect on the success of the Global Offering
or the level of Offer Shares being applied for or accepted or subscribed for or purchased
or the distribution of Offer Shares and/or has made or is likely to make or may make it
impracticable or inadvisable or incapable for any material part of the Hong Kong
Underwriting Agreement, the Hong Kong Public Offering or the Global Offering to be
performed or implemented as envisaged; or (C) makes or will make it or may make it
impracticable or inadvisable or incapable to proceed with the Hong Kong Public
Offering and/or the Global Offering or the delivery of the Offer Shares on the terms and
in the manner contemplated by the Prospectus, the Green Application Form, the Formal
Notice, the preliminary offering circular or the offering circular; or (D) would have or
may have the effect of making a part of the Hong Kong Underwriting Agreement
(including underwriting) incapable of performance in accordance with its terms or which
prevents the processing of applications and/or payments pursuant to the Global Offering
or pursuant to the underwriting thereof; or
B. there has come to the notice of the Joint Sponsors and the Overall Coordinators (for
themselves and on behalf of the Hong Kong Underwriters):
(a) that any statement contained in the offering documents, the operative documents,
the preliminary offering circular and/or any notices, announcements,
advertisements, communications issued or used by or on behalf of the Company in
connection with the Hong Kong Public Offering (including any supplement or
amendment thereto) was or has become untrue, incomplete or inaccurate in any
material respect or misleading or any forecasts, estimate, expressions of opinion,
intention or expectation expressed in the Prospectus, the Green Application Form
and the formal notice and/or any notices, announcements, advertisements,
communications so issued or used are not fair and honest and made on reasonable
grounds or, where appropriate, based on reasonable assumptions, when taken as a
whole; or
(b) any contravention by any member of the Group or any Director of any Law which
has a material adverse effect on the success of the Global Offering; or
(c) non-compliance of the Prospectus (or any other documents used in connection with
the contemplated subscription and sale of the Offer Shares) or any aspect of the
Global Offering with the Listing Rules or any other applicable Law; or
(d) any matter has arisen or has been discovered which would, had it arisen or been
discovered immediately before the date of the Prospectus, not having been
disclosed in the Offering Documents, constitutes an omission therefrom; or
(e) either (i) there has been a breach of any of the representations, warranties,
undertakings or provisions of either the Hong Kong Underwriting Agreement or
the International Underwriting Agreements by the Company and the Controlling
Shareholder or (ii) any of the representations, warranties and undertakings given
by the Company and Pearl Group Limited in the Hong Kong Underwriting
Agreement or the International Underwriting Agreements, as applicable, is (or
would when repeated be) untrue, incorrect, incomplete or misleading; or
(f) any event, act or omission which gives or is likely to give rise to any liability of
the Company and Pearl Group Limited pursuant to the indemnities given by them
under the Hong Kong Underwriting Agreement; or
(g) any breach of any of the obligations of the Company, Pearl Group Limited and/or
the Selling Shareholder under the Hong Kong Underwriting Agreement or the
International Underwriting Agreements; or
UNDERWRITING
– 312 –


--- page 321 ---
(h) any breach of, or any event rendering any of the warranties untrue or incorrect or
misleading in any material respect; or
(i) a material portion of the orders placed or confirmed in the bookbuilding process
at the time of the International Underwriting Agreements is entered into, or the
investment commitments by any cornerstone investors after signing of agreements
with such cornerstone investors, have been withdrawn, terminated or cancelled; or
(j) any expert, whose consent is required for the issue of the Prospectus with the
inclusion of its reports, letters or opinions and references to its name included in
the form and context in which it respectively appears, has withdrawn its respective
consent (other than the Joint Sponsors) prior to the issue of the Prospectus; or
(k) any development that would have a material adverse effect; or
(l) Listing and permission to deal in the Shares on the Main Board is refused or not
granted, other than subject to customary conditions, on or before the Listing Date,
or if granted, it is subsequently withdrawn, cancelled, qualified (other than by
customary conditions), revoked or withheld; or
(m) the Company has withdrawn the offering documents (and/or any other documents
issued or used in connection with the Global Offering) or the Global Offering;
then the Joint Sponsors and the Overall Coordinators may (for themselves and on behalf
of the Hong Kong Underwriters), in their sole and absolute discretion and upon giving
notice in writing to the Company, terminate the Hong Kong Underwriting Agreement
with immediate effect.
Undertakings to the Stock Exchange pursuant to the Listing Rules
Undertakings by the Company
Pursuant to Rule 10.08 of the Listing Rules, the Company has undertaken to the Stock
Exchange that no further Shares or securities convertible into Shares (whether or not of a class
already listed) may be issued or form the subject of any agreement to such an issue within six
months from the Listing Date (whether or not such issue of shares or securities will be completed
within six months from the Listing Date), except pursuant to the Global Offering, the exercise of
the Over-allotment Option and/or under the circumstances prescribed by Rule 10.08 of the Listing
Rules.
Undertakings by Pearl Group Limited
Pursuant to Rule 10.07(1) of the Listing Rules, Pearl Group Limited has undertaken to the
Stock Exchange and to us that, except pursuant the Global Offering and the Over-allotment Option,
it will not, and will procure the registered holder(s) will not:
(a) in the period commencing on the date of the Prospectus and ending on the date which
is six months from the 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 Shares or securities of the Company in respect of which it is shown in the
Prospectus to be the beneficial owner.
(b) in the period of six months commencing on the date on which the period referred to in
paragraph (a) above expires, 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
Shares referred to in paragraph (a) above if, immediately following such disposal or
upon the exercise or enforcement of such options, rights, interests or encumbrances, it
would cease to be a controlling shareholder of our Company (as defined in the Listing
Rules).
UNDERWRITING
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--- page 322 ---
Further, pursuant to Note 3 to Rule 10.07(2) of the Listing Rules, Pearl Group Limited has
undertaken to the Stock Exchange and to us that, within the period commencing on the date of the
Prospectus and ending on the date which is 12 months from the Listing Date it will:
(a) when it pledges or charges any Shares or securities of the Company beneficially owned
by it in favor of an authorized institution (as defined in the Banking Ordinance, Chapter
155 of the Laws of Hong Kong) pursuant to Note 2 to Rule 10.07(2) of the Listing Rules,
immediately inform us and the Stock Exchange of such pledge or charge together with
the number of Shares or securities of the Company so pledged or charged; and
(b) when it receives indications, either verbal or written, from the pledgee or chargee that
any of the pledged or charged Shares or securities of the Company will be disposed of,
immediately inform us in writing of such indications;
We will inform the Stock Exchange as soon as we have been informed of the above matters,
if any, by Pearl Group Limited and disclose such matters by way of an announcement in accordance
with Rule 2.07C of the Listing Rules as soon as possible.
Undertakings pursuant to the Hong Kong Underwriting Agreement
Undertakings by the Company
The Company has, pursuant to the Hong Kong Underwriting Agreement, undertaken to each
of the Joint Sponsors, the Overall Coordinators, the Joint Global Coordinators, the Joint
Bookrunners, the Joint Lead Managers, the Capital Market Intermediaries and the Hong Kong
Underwriters that, except pursuant to the Global Offering (including pursuant to the Over-Allotment
Option (if any)), it will not, and will procure that other members of the Group will not without the
prior written consent of the Joint Sponsors and the Overall 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 during the period after the date of the Hong Kong Underwriting
Agreement up to and including, the date falling six months after the Listing Date (the “ First
Six-Month Period ”):
(a) allot, issue, sell, accept subscription for, offer to allot, issue or sell, contract or agree to
allot, issue or sell, assign, mortgage, charge, pledge, assign, hypothecate, lend, grant or
sell any option, warrant, contract or right to subscribe for or purchase, grant or purchase
any option, warrant, contract or right to allot, issue or sell, or otherwise transfer or
dispose of or create an Encumbrance (as defined in the Hong Kong Underwriting
Agreement) over, or agree to transfer or dispose of or create an Encumbrance over, either
directly or indirectly, conditionally or unconditionally, or repurchase, any legal or
beneficial interest in the share capital or any other securities of the Company, or any
interest in any of the foregoing (including, without limitation, any securities convertible
into or exchangeable or exercisable for or that represents the right to receive, or any
warrants or other rights to purchase any share capital or other securities of the
Company), or deposit any share capital or other securities of the Company, as applicable,
with a depositary in connection with the issue of depositary 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 (legal or beneficial) of the Shares or
any other equity securities of the Company or any interest in any of the foregoing
(including, without limitation, any securities convertible into or exchangeable or
exercisable for or that represent the right to receive, or any warrants or other rights to
purchase, any Shares or any other equity securities of the Company); or
(c) enter into any transaction with the same economic effect as any transaction described in
(a) or (b) above; or
(d) offer to or agree to do any of the foregoing or announce any intention to do so,
UNDERWRITING
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--- page 323 ---
in each case, whether any of the foregoing transactions is to be settled by delivery of share capital
or such other equity securities of the Company, in cash or otherwise (whether or not the issue of
such share capital or other equity securities will be completed within the First Six-Month Period)
except permissible under Rule 10.08 of the Listing Rules. The Company further agrees that, in the
event the Company is allowed to enter into any of the transactions described in paragraphs (a), (b)
or (c) above or offers to or agrees to or announces any intention to effect any such transaction
during the period of six months commencing on the date on which the First Six-Month Period
expires (the “ Second Six-Month Period ”), we will take all reasonable steps to ensure that such an
issue or disposal will not, and no other act of the Company will, create a disorderly or false market
for any Shares or other securities of the Company.
Undertakings by Pearl Group Limited
Pearl Group Limited hereby undertakes to each of the Company, the Joint Sponsors, the
Overall Coordinators, the Joint Global Coordinators, the Joint Bookrunners, the Joint Lead
Managers, the Capital Market Intermediaries and the Hong Kong Underwriters that except pursuant
to the Global Offering (including pursuant to the Over-allotment Option and the relevant Stock
Borrowing Agreement), without the prior written consent of the Overall Coordinators (for
themselves and on behalf of the Hong Kong Underwriters) except as otherwise in compliance with
the requirements of the Listing Rules, or pursuant to Note (2) to Rule 10.07(2) of the Listing Rules:
(a) it will not, and will procure none of its associates will, during the First Six-Month
Period, (i) offer, accept subscription for, pledge, charge, allot, issue, sell, lend,
mortgage, assign, contract to allot, issue or 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 or dispose of, either
directly or indirectly, conditionally or unconditionally, or repurchase any of its share
capital or other securities of the Company or any interest therein (including but not
limited to any securities convertible into or exercisable or exchangeable for or that
represent the right to receive any such share capital or securities or any interest therein);
or (ii) enter into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership (legal or beneficial) of such share
capital or securities or any interest therein, as applicable, or any interest in any of the
foregoing (including, without limitation, any securities convertible into or exchangeable
or exercisable for or that represent the right to receive, or any warrants or other rights
to purchase, any Shares); or (iii) enter into any transaction with the same economic
effect as any transaction specified in (i) or (ii) above; or (iv) offer to or agree to do any
of the foregoing or announce any intention to do so, in each case, whether any of the
foregoing transactions is to be settled by delivery of share capital or such other
securities, in cash or otherwise;
(b) it will not, and will procure none of its associates will, during the Second Six-Month
Period, enter into any transaction described in paragraph (a) (i), (ii), (iii) or (iv) above
or offer to or agree to or announce any intention to effect any such transaction, if,
immediately following such transaction, it would cease to be a controlling shareholder
(as defined in the Listing Rules) of the Company; and
(c) until the expiry of the Second Six-Month Period, in the event that it enters into any such
transactions specified in paragraph (a) (i), (ii), (iii) or (iv) above, or offers to or agrees
to or announces any intention to effect any such transaction, it will take all reasonable
steps to ensure that it will not create a disorderly or false market in the Shares or other
securities of the Company.
UNDERWRITING
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Indemnity
Each of the Company has agreed to indemnify each of the Joint Sponsors, the Joint Global
Coordinators, the Overall Coordinators, the Joint Bookrunners, the Joint Lead Managers, the
Capital Market Intermediaries and the Hong Kong Underwriters for certain losses which they may
suffer including, among other things, as a result of the Company’s breach of the provisions of the
Hong Kong Underwriting Agreement.
Hong Kong Underwriters’ Interests in our Company
Except for its obligations under the Hong Kong Underwriting Agreement, none of the Hong
Kong Underwriters has any shareholding interest in our Company or any right or option (whether
legally enforceable or not) to subscribe for or nominate persons to subscribe for securities in our
Company.
Following the completion of the Global Offering, the Hong Kong Underwriters and their
affiliated companies may hold a certain portion of the Shares as a result of fulfilling their
obligations under the Hong Kong Underwriting Agreement.
The International Offering
International Underwriting Agreement
In connection with the International Offering, it is expected that the Company will enter into
certain international underwriting agreements, consisting of (i) a primary international underwriting
agreement relating to the New Shares offered under the International Offering to be entered into by,
among other parties, our Company, the Overall Coordinators, the Joint Global Coordinators and the
International Underwriters on or about Friday, June 23, 2023, (the “Primary International
Underwriting Agreement”) and (ii) a secondary international underwriting agreement relating to the
Sale Shares offered under the International Offering to be entered into by, among other parties, our
Company, the Selling Shareholder, and certain International Underwriter on or about Friday, June
23, 2023, (the “Secondary International Underwriting Agreement”, together with the Primary
International Underwriting Agreement, the “International Underwriting Agreements”)). Under the
International Underwriting Agreements and subject to the Over-Allotment Option, the respective
International Underwriter(s) of each of the International Underwriting Agreements will, subject to
certain conditions set out therein, severally and not jointly, agree to subscribe for or purchase or
procure subscribers or purchasers for their respective proportions of the International Offer Shares
which are not taken up under the International Offering. See the section headed “Structure of the
Global Offering – the International Offering.”
Over-Allotment Option
The Company is expected to grant to the International Underwriters the Over-Allotment
Option, exercisable by the Overall Coordinators on behalf of the International Underwriters during
the 30-day period from the last day for lodging of applications under the Hong Kong Public
Offering to require the Company to issue and allot up to an aggregate of 4,978,500 additional Offer
Shares, representing approximately 15.0% of the Offer Shares initially available under the Global
Offering, at the Offer Price to cover over-allocations in the International Offering, if any. It is
expected that the International Underwriting Agreements may be terminated on similar grounds as
the Hong Kong Underwriting Agreement. Potential investors should note that if any of the
International Underwriting Agreements is not entered into, or is terminated, the Global Offering
will not proceed. See the section headed “ Structure of the Global Offering – the International
Offering – Over-Allotment Option. ”
UNDERWRITING
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Commissions and Expenses
According to the Hong Kong Underwriting Agreement, the Hong Kong Underwriters will
receive an underwriting commission of 3% of the Offer Price of all the Hong Kong Offer Shares
initially offered under the Hong Kong Public Offering, out of which they will pay any
sub-underwriting commission and other fees, if any. For unsubscribed Hong Kong Offer Shares
reallocated to the International Offering, will be paid an underwriting commission at the rate
applicable to the International Offering to the relevant International Underwriters (but not the Hong
Kong Underwriters). The International Underwriters are expected to receive an underwriting
commission of 3% of the Offer Price of the International Offer Shares (together with the
underwriting commission under the Hong Kong Public Offering, the “ Fixed Fees ”). In addition, the
Company may, at its sole discretion, pay any one or all of the Underwriters an additional incentive
fee of up to 1% of the Offer Price for each New Share and the Selling Shareholder may, at its sole
discretion, pay to the relevant International Underwriter an additional incentive fee of up to 1% of
the Offer Price for each Sale Share (the “ Discretionary Fees ”).
Assuming that the Discretionary Fees are paid in full, the ratio of the Fixed Fees and the
Discretionary Fees payable is therefore approximately 75:25.
Based on the Offer Price of HK$12.32 per Share, the fees and commissions, the Stock
Exchange trading fee and the SFC transaction levy payable by the Company in connection with the
offering of the Shares under the Hong Kong Public Offering and the New Shares under the
International Offering, together with the legal and other professional fees, printing and other
expenses payable by us in relation to the offering of New Shares, are estimated to amount to
HK$129.1 million in aggregate (assuming the Over-Allotment Option is not exercised). Such fees,
commissions, the Stock Exchange trading fee, the SFC transaction levy, the AFRC transaction levy
and the fees and expenses of professional advisors and service providers engaged in relation to the
Global Offering are payable and borne by us. The Selling Shareholder shall bear, and be responsible
for the payment of, all the underwriting commission, incentive fee (if any), the SFC transaction
levy, the AFRC transaction levy, the Stock Exchange trading fee and the stamp duty payable by the
Selling Shareholder in connection with the sale of the Sale Shares. Such listing expenses payable
by the Selling Shareholder in connection with the sale of the Sale Shares (based on the Offer Price
of HK$12.32 per Share) are estimated to be HK$8.4 million.
Joint Sponsors’ Fee
An amount of US$500,000 is payable by the Company as sponsor fee to each of the Joint
Sponsors.
Over-Allotment and Stabilization
Details of the arrangements relating to the Over-Allotment Option and stabilization are set
forth in the section headed “ Structure of the Global Offering. ”
INDEPENDENCE OF THE JOINT SPONSORS
The Joint Sponsors satisfy the independence criteria applicable to sponsors set out in Rule
3A.07 of the Listing Rules.
ACTIVITIES BY SYNDICATE MEMBERS
The Underwriters of the Hong Kong Public Offering and the International Offering (together,
the “ Syndicate Members ”) and their affiliates may each individually undertake a variety of
activities (as further described below) which do not form part of the underwriting or stabilizing
process.
UNDERWRITING
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The Syndicate Members and their affiliates are diversified financial institutions with
relationships in countries around the world. These entities engage in a wide range of commercial
and investment banking, brokerage, funds management, trading, hedging, investing and other
activities for their own account and for the account of others. In the ordinary course of their various
business activities, the Syndicate Members and their respective affiliates may purchase, sell or hold
a broad array of investments and actively trade securities, derivatives, loans, commodities,
currencies, credit default swaps and other financial instruments for their own account and for the
accounts of their customers. Such investment and trading activities may involve or relate to assets,
securities and/or instruments of the Company and/or persons and entities with relationships with the
Company and may also include swaps and other financial instruments entered into for hedging
purposes in connection with the Group’s loans and other debt.
In relation to the Shares, those activities could include acting as agent for buyers and sellers
of the Shares, entering into transactions with those buyers and sellers in a principal capacity,
including as a lender to initial purchasers of the Shares (which financing may be secured by the
Shares) in the Global Offering, proprietary trading in the 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, assets including the Shares. Those activities may require hedging activity by those entities
involving, directly or indirectly, the buying and selling of the Shares. All such activities could occur
in Hong Kong and elsewhere in the world and may result in the Syndicate Members and their
affiliates holding long and/or short positions in the Shares, in baskets of securities or indices
including the Shares, in units of funds that may purchase the Shares, or in derivatives related to any
of the foregoing.
In relation to issues by Syndicate Members or their affiliates of any listed securities having
the Shares as their underlying securities, whether on the Stock Exchange or on any other stock
exchange, the rules of the exchange may require the issuer of those securities (or one of its affiliates
or agents) to act as a market maker or liquidity provider in the security, and this will also result in
hedging activity in the Shares in most cases.
All such activities may occur both during and after the end of the stabilizing period described
in “ Structure of the Global Offering .” Such activities may affect the market price or value of the
Shares, the liquidity or trading volume in the Shares and the volatility of the price of the Shares,
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 Syndicate Members will
be subject to certain restrictions, including the following:
(a) the Syndicate Members (other than the Stabilizing Manager through its affiliates 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 Syndicate Members 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.
Certain of the Syndicate Members or their respective affiliates have provided from time to
time, and expect to provide in the future, investment banking and other services to us and our
affiliates for which such Syndicate Members or their respective affiliates have received or will
receive customary fees and commissions.
UNDERWRITING
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THE GLOBAL OFFERING
This document is published in connection with the Hong Kong Public Offering as part of the
Global Offering.
33,192,500 Offer Shares will be made available under the Global Offering comprising:
(a) the Hong Kong Public Offering of 3,320,000 Shares (subject to adjustment) in Hong
Kong as described in the paragraph headed “– The Hong Kong Public Offering ” below;
and
(b) the International Offering of an aggregate of initially 29,872,500 Shares (comprising
13,968,500 Shares being initially offered by our Company for subscription at the Offer
Price under the International Offering (together with the shares offered under the Hong
Kong Public Offering, the “New Shares”) and 15,904,000 Shares being offered by the
Selling Shareholder for sale at the Offer Price under the International Offering (the “Sale
Shares”) and subject to adjustment and the Over-Allotment Option) (a) in the United
States to QIBs in reliance on Rule 144A or another available exemption; and (b) outside
the United States in reliance on Regulation S, as described in the paragraph headed “–
The International Offering ” below.
Investors may either:
(a) apply for Hong Kong Offer Shares under the Hong Kong Public Offering; or
(b) apply for or indicate an interest for International Offer Shares under the International
Offering, but may not do both.
The Offer Shares will represent approximately 4.59% of the total Shares in issue immediately
following the completion of the Global Offering, assuming the Over-Allotment Option is not
exercised. If the Over-Allotment Option is exercised in full, the Offer Shares will represent
approximately 5.24% of the total Shares in issue immediately following the completion of the
Global Offering.
THE HONG KONG PUBLIC OFFERING
Number of Offer Shares initially offered
The Company is initially offering 3,320,000 Offer Shares for subscription by the public in
Hong Kong at the Offer Price, representing approximately 10% of the total number of Offer Shares
initially available under the Global Offering. The number of Shares offered under the Hong Kong
Public Offering, subject to any adjustment of Offer Shares between the International Offering and
the Hong Kong Public Offering, will represent approximately 0.46% of the total Shares in issue
immediately following the completion of the Global Offering, assuming the Over-Allotment Option
is not exercised.
The Hong Kong Public Offering is open to members of the public in Hong Kong as well as
to institutional and professional investors. Professional investors generally include brokers, dealers,
companies (including fund managers) whose ordinary business involves dealing in shares and other
securities and corporate entities which regularly invest in shares and other securities.
Completion of the Hong Kong Public Offering is subject to the conditions as set out in the
paragraph headed “– Conditions of the Global Offering ” below.
STRUCTURE OF THE GLOBAL OFFERING
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Allocation
Allocation of the Offer Shares to investors under the Hong Kong Public Offering will be based
solely on the level of valid applications received under the Hong Kong Public Offering. The basis
of allocation may vary, depending on the number of Hong Kong Offer Shares validly applied for
by applicants. Such allocation could, where appropriate, consist of balloting, which would mean
that some applicants may receive a higher allocation than others who have applied for the same
number of Hong Kong Offer Shares, and those applicants who are not successful in the ballot may
not receive any Hong Kong Offer Shares.
For allocation purposes only, the total number of the Offer Shares initially available under the
Hong Kong Public Offering (after taking account of any reallocation referred to below) is to be
divided into two pools (with any odd board lots being allocated to pool A), pool A (being an
aggregate of 1,660,000 Shares) and pool B (being an aggregate of 1,660,000 Shares). The Hong
Kong Offer Shares in pool A will be allocated on an equitable basis to applicants who have applied
for Hong Kong Offer Shares with an aggregate price of HK$5 million (excluding the brokerage,
SFC transaction levy, Stock Exchange trading fee and AFRC transaction levy payable) or less. The
Hong Kong Offer Shares in pool B will be allocated on an equitable basis to applicants who have
applied for Hong Kong Offer Shares with an aggregate price of more than HK$5 million (excluding
the brokerage, SFC transaction levy, Stock Exchange trading fee and AFRC transaction levy
payable) and up to the total value in pool B. Investors should be aware that applications in pool A
and applications in pool B may receive different allocation ratios. If any Hong Kong Offer Shares
in one (but not both) of the pools are undersubscribed, such unsubscribed Hong Kong Offer Shares
will be transferred to the other pool to satisfy demand in that other pool and be allocated
accordingly. For the purpose of this paragraph only, the “price” for the Offer Shares means the price
payable on application therefore (without regard to the Offer Price as finally determined).
Applicants can only receive an allocation of Hong Kong Offer Shares from either pool A or pool
B but not from both pools. Multiple or suspected multiple applications and any application for more
than 1,660,000 Hong Kong Offer Shares, being 50% of the 3,320,000 Hong Kong Offer Shares
initially available under the Hong Kong Public Offering are liable to be rejected.
Reallocation and clawback
The allocation of the Offers 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 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 (“ Mandatory Reallocation ”):
(a) 3,320,000 Offer Shares available in the Hong Kong Public Offering, representing
approximately 10% of the Offer Shares initially available under the Global Offering;
in the event that the International Offer Shares are fully subscribed or oversubscribed
(b) if the number of Offer Shares validly applied for under the Hong Kong Public Offering
represents 15 times or more but less than 50 times the number of Offer Shares initially
available for subscription under the Hong Kong Public Offering, then the Offer Shares
will be reallocated to the Hong Kong Public Offering from the International Offering
such that the total number of Offer Shares initially available under the Hong Kong
Public Offering will be 9,958,000 Offer Shares, representing approximately 30% of the
Offer Shares initially available under the Global Offering;
(c) if the number of Offer Shares validly applied for under the Hong Kong Public Offering
represents 50 times or more but less than 100 times the number of Offer Shares initially
available for subscription under the Hong Kong Public Offering, then the Offer Shares
will be reallocated to the Hong Kong Public Offering from the International Offering
STRUCTURE OF THE GLOBAL OFFERING
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such that the total number of Offer Shares initially available under the Hong Kong
Public Offering will be 13,277,000 Offer Shares, representing 40% of the Offer Shares
initially available under the Global Offering; and
(d) if the number of Offer Shares validly applied for under the Hong Kong Public Offering
represents 100 times or more the number of Offer Shares initially available for
subscription under the Hong Kong Public Offering, then the Offer Shares will be
reallocated to the Hong Kong Public Offering from the International Offering such that
the total number of Offer Shares initially available under the Hong Kong Public Offering
will be 16,596,500 Offer Shares, representing approximately 50% of the Offer Shares
initially available under the Global Offering.
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 Overall Coordinators
deem appropriate. In addition, the Overall Coordinators may reallocate the 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 for, the Overall Coordinators have
the authority to reallocate all or any unsubscribed Hong Kong Offer Shares to the International
Offering, in such proportions as the Overall Coordinators deem appropriate. In addition to any
Mandatory Reallocation which may be required, the Overall Coordinators (for themselves and on
behalf of the Underwriters) may, at their discretion, reallocate Offer Shares initially allocated for
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. In the event that (i) the International Offer Shares
are undersubscribed and the Hong Kong Offer Shares are fully subscribed or oversubscribed
irrespective of the number of times; or (ii) the International Offer Shares are fully subscribed or
oversubscribed and the Hong Kong Offer Shares are fully subscribed or oversubscribed as to less
than 15 times of the number of Hong Kong Offer Shares initially available under the Hong Kong
Public Offering provided that the Offer Price being HK$12.32, up to 3,320,000 Offer Shares may
be reallocated to the Hong Kong Public Offering from the International Offering, so that the total
number of the Offer Shares available under the Hong Kong Public Offer will be increased to
6,640,000 Offer Shares, representing approximately 20.00% of the number of the Offer Shares
initially available under the Global Offering (before any exercise of the Over-Allotment Option),
in accordance with Guidance Letter HKEX-GL91-18 issued by the Stock Exchange.
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 Overall Coordinators.
Applications
Each applicant under the Hong Kong Public Offering will also be required to give an
undertaking and confirmation in the application submitted by him that he and any person(s) for
whose benefit he is making 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. Such applicant’s application is liable to be rejected if such undertaking
and/or confirmation is/are breached and/or untrue (as the case may be) or it has been or will be
placed or allocated International Offer Shares under the International Offering.
Applicants under the Hong Kong Public Offering are required to pay, on application, the Offer
Price of HK$12.32 per Offer Share in addition to the brokerage, the SFC transaction levy, AFRC
transaction levy and the Stock Exchange trading fee payable on each Offer Share, amounting to a
total of HK$6,222.13 for one board lot of 500 Shares. Further details are set out below in the section
headed “ How to apply for the Hong Kong Offer Shares .”
STRUCTURE OF THE GLOBAL OFFERING
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References in this document to applications, application monies or the procedure for
application relate solely to the Hong Kong Public Offering.
THE INTERNATIONAL OFFERING
Number of Offer Shares initially offered
Subject to reallocation as described above, the International Offering will consist of an
offering of initially 29,872,500 Shares (comprising 13,968,500 New Shares and 15,904,000 Sale
Shares), representing approximately 90% of the total number of Offer Shares initially available
under the Global Offering and approximately 4.13% of the total Shares in issue immediately after
the completion of the Global Offering, assuming the Over-Allotment Option is not exercised.
Allocation
The International Offering will include selective marketing of Offer Shares to QIBs in the
United States as well as institutional and professional investors and other investors anticipated to
have a sizeable demand for such Offer Shares in Hong Kong and other jurisdictions outside the
United States only in reliance on Regulation S. Professional investors generally include brokers,
dealers, companies (including fund managers) whose ordinary business involves dealing in shares
and other securities and corporate entities which regularly invest in shares and other securities.
Allocation of Offer Shares pursuant to the International Offering will be effected in accordance with
the “book-building” process described in the paragraph headed “ – Pricing of the Global Offering ”
below and based on a number of factors, including the level and timing of demand, the total size
of the relevant investor’s invested assets or equity assets in the relevant sector and whether or not
it is expected that the relevant investor is likely to buy further Offer Shares, and/or hold or sell its
Offer Shares, after the Listing. Such allocation is intended to result in a distribution of the Offer
Shares on a basis which would lead to the establishment of a solid professional and institutional
shareholder base to the benefit of the Company and the Shareholders as a whole.
The Overall Coordinators (on behalf of the Underwriters) may require any investor who has
been offered the Offer Shares under the International Offering, and who has made an application
under the Hong Kong Public Offering to provide sufficient information to the Overall Coordinators
so as to allow them to identify the relevant application under the Hong Kong Public Offering and
to ensure that it is excluded from any application of Offer Shares under the Hong Kong Public
Offering.
Reallocation and clawback
The total number of Offer Shares to be issued or sold pursuant to the International Offering
may change as a result of, amongst others, the clawback arrangement described in the paragraph
headed “ – The Hong Kong Public Offering – Reallocation and clawback ” above, the exercise of the
Over-Allotment Option in whole or in part and/or any reallocation of unsubscribed Offer Shares
originally included in the Hong Kong Public Offering.
Over-Allotment Option
In connection with the Global Offering, the Company is expected to grant an Over-Allotment
Option to the International Underwriters exercisable by the Overall Coordinators on behalf of the
International Underwriters.
STRUCTURE OF THE GLOBAL OFFERING
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Pursuant to the Over-Allotment Option, the International Underwriters have the right,
exercisable by the Overall Coordinators (on behalf of the International Underwriters) at any time
from the Listing Date until Sunday, July 23, 2023, the 30th day after the last date for the lodging
of applications under the Hong Kong Public Offering, to require the Company to issue and allot up
to an aggregate of 4,978,500 additional Offer Shares, representing approximately 15.0% of the
initial Offer Shares, at the same price per Offer Share under the International Offering to cover
over-allocations in the International Offering, if any. If the Over-Allotment Option is exercised in
full, the additional Offer Shares will represent approximately 0.68% of the total Shares in issue
immediately following the completion of the Global Offering and the exercise of the Over-
Allotment Option. In the event that the Over-Allotment Option is exercised, an announcement will
be made.
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 securities in the secondary
market, during a specified period of time, to retard and, if possible, prevent, a decline in the market
price of the securities below the offer price. 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, including those of Hong Kong. In Hong Kong, the price at which stabilization is
effected is not permitted to exceed the offer price.
In connection with the Global Offering, the Stabilizing Manager through its affiliates or any
person acting for it, on behalf of the Underwriters, may over-allocate or effect short sales or any
other stabilizing transactions with a view to stabilizing or maintaining the market price of the
Shares for a limited period after the Listing Date at a level higher than that which might otherwise
prevail in the open market. Short sales involve the sale by the Stabilizing Manager through its
affiliates of a greater number of Shares than the Underwriters are required to purchase in the Global
Offering. “Covered” short sales are sales made in an amount not greater than the Over-Allotment
Option. The Stabilizing Manager through its affiliates may close out the covered short position by
either exercising the Over-Allotment Option to purchase additional Shares or purchasing Shares in
the open market. In determining the source of the Shares to close out the covered short position, the
Stabilizing Manager through its affiliates will consider, among others, the price of Shares in the
open market as compared to the price at which they may purchase additional Shares pursuant to the
Over-Allotment Option. Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the Shares while the Global
Offering is in progress. Any market purchases of the Shares may be effected on any stock exchange,
including the Stock Exchange, any over-the-counter market or otherwise, provided that they are
made in compliance with all applicable laws and regulatory requirements. However, there is no
obligation on the Stabilizing Manager through its affiliates or any person acting for it to conduct
any such stabilizing action, which if taken, (a) will be conducted at the absolute discretion of the
Stabilizing Manager through its affiliates or any person acting for it, (b) may be discontinued at any
time, and (c) is required to be brought to an end on Sunday, July 23, 2023, being the 30th day after
the last day for the lodging of applications under the Hong Kong Public Offering. The number of
the Shares that may be over-allocated will not exceed the number of the Shares that may be sold
and transferred pursuant to the exercise of the Over-Allotment Option, namely, 4,978,500 Offer
Shares, which is approximately 15.0% of the number of Offer Shares initially available under the
Global Offering, in the event that the whole or part of the Over-Allotment Option is exercised.
In Hong Kong, stabilizing activities must be carried out in accordance with the Securities and
Futures (Price Stabilizing) Rules. Stabilizing actions permitted pursuant to the Securities and
Futures (Price Stabilizing) Rules include:
(a) over-allocating for the purpose of preventing or minimizing any reduction in the market
price of the Shares;
STRUCTURE OF THE GLOBAL OFFERING
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(b) selling or agreeing to sell the Shares so as to establish a short position in them for the
purpose of preventing or minimizing any deduction in the market price of the Shares;
(c) subscribing, or agreeing to subscribe, for the Shares to be sold and transferred pursuant
to the exercise of the Over-Allotment Option in order to close out any position
established under (a) or (b) above;
(d) purchasing, or agreeing to purchase, any of the Shares for the sole purpose of preventing
or minimizing any reduction in the market price of the Shares;
(e) selling or agreeing to sell any Shares to liquidate any position established as a result of
those purchases; and
(f) offering or attempting to do anything described in (b), (c), (d) and (e) above.
Stabilizing actions by the Stabilizing Manager through its affiliates, or any person acting for
it, will be entered into in accordance with the laws, rules and regulations in place in Hong Kong
on stabilization.
Prospective applications for investors in the Offer Shares should note that:
(a) as a result of effecting transactions to stabilize or maintain the market price of the
Shares, the Stabilizing Manager through its affiliates, or any person acting for it, may
maintain a long position in the Shares;
(b) the size of the long position, and the period for which the Stabilizing Manager through
its affiliates, or any person acting for it, will maintain the long position is at the
discretion of the Stabilizing Manager through its affiliates and is uncertain;
(c) liquidation of any such long position by the Stabilizing Manager through its affiliates
and selling in the open market may lead to a decline in the market price of the Shares;
(d) no stabilizing action can be taken to support the price of the Shares for longer than the
stabilizing period, which begins on the Listing Date, and is expected to expire on
Sunday, July 23, 2023, being the 30th day after the last day for the lodging of
applications under the Hong Kong Public Offering. After this date, when no further
stabilizing action may be taken, demand for the Shares, and their market price, could fall
after the end of the stabilizing period. These activities by the Stabilizing Manager
through its affiliates may stabilize, maintain or otherwise affect the market price of the
Shares. As a result, the price of the Shares may be higher than the price that otherwise
may exist in the open market;
(e) any stabilizing action taken by the Stabilizing Manager through its affiliates, or any
person acting for it, may not necessarily result in the market price of the Shares staying
at or above the Offer Price either during or after the stabilizing period; and
(f) stabilizing bids or transactions effected in the course of the stabilizing action may be
made at a price at or below the Offer Price and therefore at or below the price paid by
applicants for, or investors in, the Offer Shares.
An announcement in compliance with the Securities and Futures (Price Stabilizing) Rules will
be made within seven days of the expiration of the stabilizing period.
STOCK BORROWING ARRANGEMENTS
In order to facilitate the settlement of over-allocations in connection with the Global Offering,
the Stabilizing Manager, its affiliates or any person acting for it may choose to borrow up to
4,978,500 Shares, representing approximately 15.0% of the Offer Shares, from Pearl Group Limited
and Corelink Group Limited, collectively, to cover over-allocations (being the maximum number of
additional Shares which may be allotted and issued upon exercise of the Over-allotment Option),
or acquire Shares from other sources, including the exercising of the Over-allotment Option.
STRUCTURE OF THE GLOBAL OFFERING
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If such Stock Borrowing Arrangements are entered into, the borrowing of Shares will only be
effected by the Stabilizing Manager or any person acting for it for settlement of over-allocations in
the International Offering and such arrangement is not subject to the restrictions of Rule 10.07(1)(a)
of the Listing Rules, provided that the requirements set out in Rule 10.07(3) of the Listing Rules
are complied with, being that (a) the Stock Borrowing Agreements will be for the sole purpose of
covering any short position prior to the exercise of the Over-allotment Option in connection with
the International Offering; (b) the maximum number of Shares to be borrowed from Pearl Group
Limited and Corelink Group Limited collectively pursuant to the Stock Borrowing Agreements are
the maximum number of Shares that may be issued upon full exercise of the Over-Allotment
Option; (c) the same number of Shares so borrowed must be returned to Pearl Group Limited and
Corelink Group Limited or their nominees, as the case may be, on or before the third business day
following the earlier of (i) the last day for exercising the Over-Allotment Option, and (ii) the day
on which the Over-Allotment Option is exercised in full or such earlier time as may be agreed in
writing between the parties; (d) the stock borrowing arrangements will be effected in compliance
with all applicable laws, rules and regulatory requirements; and (e) no payments will be made to
Pearl Group Limited or Corelink Group Limited by the Stabilizing Manager in relation to the stock
borrowing arrangements.
PRICING OF THE GLOBAL OFFERING
The Offer Price will be HK$12.32 per Offer Share unless otherwise announced, as further
explained below.
The International Underwriters will be soliciting from prospective investor indications of
interest in acquiring International Offer Shares in the International Offering. Prospective
professional and institutional investors will be required to specify the number of International 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 Overall Coordinators, on behalf of the Underwriters, may, where considered appropriate,
based on the level of interest expressed by prospective professional and institutional investors
during the book-building process, and with the consent of the Company, reduce the number of Offer
Shares offered in the Global Offering and/or the Offer Price below that stated in this document at
any time on or prior to the morning of the last day for lodging applications under the Hong Kong
Public Offering. In such a case, the Company will, as soon as practicable following the decision to
make such reduction, and in any event not later than the morning of the day which is the last day
for lodging applications under the Hong Kong Public Offering, cause to be posted on the website
of the Stock Exchange ( www.hkexnews.hk ) and on the website of the Company
(www.adicon.com.cn ) notices of the reduction. Upon issue of such a notice, the number of Offer
Shares offered in the Global Offering and/or the revised Offer Price will be final and conclusive.
If the number of Offer Shares and/or the Offer Price is so reduced, all applicants who have already
submitted an application will be entitled to withdraw their applications and will need to confirm
their applications in accordance with the procedures set out in the supplemental Prospectus. Failure
to confirm within the prescribed time will lead to the application being lapsed and all unconfirmed
applications will not be valid.
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
Offer Price may not be made until the last day for lodging applications under the Hong Kong Public
Offering. Such notice will also include confirmation or revision, as appropriate, of the working
capital statement and the Global Offering statistics as currently set out in this Prospectus, and any
other financial information which may change as a result of any such reduction. In the absence of
any such notice so published, the number of Offer Shares and/or the Offer Price will not be reduced.
STRUCTURE OF THE GLOBAL OFFERING
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HONG KONG UNDERWRITING AGREEMENT
The Hong Kong Public Offering is fully underwritten by the Hong Kong Underwriters under
the terms of the Hong Kong Underwriting Agreement and is conditional upon the International
Underwriting Agreements being signed and becoming unconditional.
Our Company expects to enter into the International Underwriting Agreements relating to the
International Offering on or around Friday, June 23, 2023.
These underwriting arrangements, and the respective Underwriting Agreements, are
summarized in the section headed “ Underwriting .”
SHARES WILL BE ELIGIBLE FOR CCASS
All necessary arrangements have been made enabling the Shares to be admitted into CCASS.
If the Stock Exchange grants the listing of, and permission to deal in, the Shares and our Company
complies with the stock admission requirements of HKSCC, the 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 Shares on the Stock Exchange or any other date HKSCC chooses.
Settlement of transactions between participants of the Stock Exchange is required to take place in
CCASS on the second settlement 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.
CONDITIONS OF THE GLOBAL OFFERING
Acceptance of all applications for Offer Shares will be conditional on:
(i) the Listing Committee granting approval for the listing of, and permission to deal in, the
Shares in issue and to be issued pursuant to the Global Offering and such approval not
having been withdrawn;
(ii) the execution and delivery of the International Underwriting Agreements on or around
Friday, June 23, 2023; and
(iii) the obligations of the Underwriters under each of the respective Underwriting
Agreements becoming and remaining unconditional and not having been terminated in
accordance with the terms of the respective agreements.
In each case on or before the dates and times specified in the respective Underwriting
Agreements (unless and to the extent such conditions are validly waived on or before such dates and
times) and, in any event, not later than the date which is 30 days after the date of this document.
The consummation of each of the Hong Kong Public Offering and the International Offering
is conditional upon, among other things, the other offering becoming unconditional and not having
been terminated in accordance with its terms.
If the above conditions are not fulfilled or waived prior to the times and dates specified, the
Global Offering will lapse and the Stock Exchange will be notified immediately. Notice of the lapse
of the Hong Kong Public Offering will be published by the Company on the website of the Stock
Exchange ( www.hkexnews.hk ) and the website of the Company ( www.adicon.com.cn ) on the next
day following such lapse. In such event, all application monies will be returned, without interest,
on the terms set out in the section headed “ How to apply for the Hong Kong Offer Shares .” In the
meantime, all application monies will be held in (a) separate bank account(s) with the receiving
banker or other licensed bank(s) in Hong Kong licensed under the Banking Ordinance (Chapter 155
of the Laws of Hong Kong) (as amended).
STRUCTURE OF THE GLOBAL OFFERING
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--- page 335 ---
Share certificates for the Offer Shares are expected to be issued on Thursday, June 29, 2023
but will only become valid evidence of title at 8:00 a.m. on Friday, June 30, 2023 provided that
(i) the Global Offering has become unconditional in all respects and (ii) the right of termination as
described in the section headed “ Underwriting – Underwriting arrangements and expenses – The
Hong Kong Public Offering – Grounds for Termination ” has not been exercised at or before that
time.
DEALING IN THE SHARES
Assuming that the Hong Kong Public Offering becomes unconditional at or before 8:00 a.m.
in Hong Kong on Friday, June 30, 2023, it is expected that dealings in the Shares on the Stock
Exchange will commence at 9:00 a.m. on Friday, June 30, 2023. The Shares will be traded in board
lots of 500 Shares each and the stock code of the Shares will be 9860.
STRUCTURE OF THE GLOBAL OFFERING
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--- page 336 ---
IMPORTANT NOTICE TO INVESTORS:
FULLY ELECTRONIC APPLICATION PROCESS
We have adopted a fully electronic application process for the Hong Kong Public
Offering. We will not provide any printed copies of this document or printed copies of any
application forms to the public in relation to the Hong Kong Public Offering.
This document is available at the website of the Hong Kong Stock Exchange
at www.hkexnews.hk under the “HKEXnews > New Listings > New Listing Information”
section, and our website at www.adicon.com.cn. If you require a printed copy of this
document, you may download and print from the website addresses above.
The contents of the electronic version of the document are identical to the printed
document as registered with the Registrar of Companies in Hong Kong pursuant to Section
342C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance.
Set out below are procedures through which you can apply for the Hong Kong Offer
Shares electronically. We will not provide any physical channels to accept any application for
the Hong Kong Offer Shares by the public.
If you are an intermediary, broker or agent, please remind your customers, clients or
principals, as applicable, that this document is available online at the website addresses above.
A. APPLICATIONS FOR HONG KONG OFFER SHARES
1. How To Apply
We will not provide any printed application forms for use by the public.
If you apply for Hong Kong Offer Shares, then you may not apply for or indicate an interest
for International Offer Shares.
To apply for Hong Kong Offer Shares, you may:
(1) apply online via the HK eIPO White Form service in the IPO App (which can be
downloaded by searching “ IPO App ” in App Store or Google Play or downloaded at
www.hkeipo.hk/IPOApp or www.tricorglobal.com/IPOApp )o ra t www.hkeipo.hk ;o r
(2) apply through the CCASS EIPO service electronically cause HKSCC Nominees to
apply on your behalf, including by:
(i) instructing your broker or custodian who is a CCASS Clearing Participant or a
CCASS Custodian Participant to give electronic application instructions via
CCASS terminals to apply for the Hong Kong Offer Shares on your behalf; or
(ii) (if you are an existing CCASS Investor Participant ) giving electronic
application instructions through the CCASS Internet System
(https://ip.ccass.com ) or through the CCASS Phone System by calling 2979 7888
(using the procedures in HKSCC’s “An Operating Guide for Investor Participants”
in effect from time to time). HKSCC can also input electronic application
instructions for CCASS Investor Participants through HKSCC’s Customer Service
Centre by completing an input request.
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
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--- page 337 ---
If you apply through channel (1) above, the Hong Kong Offer Shares successfully applied for
will be issued in your own name.
If you apply through channels (2)(i) or (2)(ii) above, the Hong Kong Offer Shares successfully
applied for will 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.
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.
The Company, the Overall Coordinators, the HK eIPO White Form 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 if you or the person(s) for whose benefit you are
applying:
 are 18 years of age or older;
 are outside the United States (within the meaning of Regulation S), and are a person
described in paragraph (h)(3) of Rule 902 of Regulation S;
 you are not an existing beneficial owner of Shares or a substantial shareholder of any of
our subsidiaries, or a close associate of any of them;
 you are not a Director or chief executive officer and/or a director or chief executive
officer of our subsidiaries, or a close associate of any of them;
 you have been allocated or have applied for any International Offer Shares or otherwise
participate in the International Offering.
If you apply for Hong Kong Offer Shares online through the HK eIPO White Form service,
in addition to the above, you must also:
 have a valid Hong Kong identity card number/passport number (for individual applicant)
or Hong Kong business registration number/certificate of incorporation number (for
body corporate applicant);
 have a Hong Kong address; and
 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.
The number of joint applicants may not exceed four.
If you are applying for the Hong Kong Offer Shares online by instructing your broker or
custodian who is a CCASS Clearing Participant or a CCASS Custodian Participant to give
electronic application instructions via CCASS terminals, please contact them for the items
required for the application.
Unless permitted by the Hong Kong Listing Rules or any relevant waivers that have been
granted by the Hong Kong Stock Exchange (details of the relevant waivers are set out in
“W AIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES ”), you cannot
apply for any Hong Kong Offer Shares if:
(a) you are an existing beneficial owner of Shares and/or a substantial shareholder of any
of our subsidiaries;
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
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(b) you are a Director or chief executive officer and/or a director or chief executive officer
of our subsidiaries;
(c) you are a close associate of any of the above persons; or
(d) you 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, apply online through the HK
eIPO White Form service in the IPO App or on the designated website at 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,
electronically instruct HKSCC via CCASS to cause HKSCC Nominees to apply for you.
Minimum Application Amount and Permitted Numbers
You may apply through the HK eIPO White Form service or the CCASS EIPO service must
be for a minimum of 500 Hong Kong Offer Shares. Instructions for more than 500 Hong Kong Offer
Shares must be in one of the numbers set out in the table. You are required to pay the amount next
to the number you select. No application for any other number of Hong Kong Offer Shares will be
considered and any such application is liable to be rejected.
No. of
Hong Kong
Offer Shares
applied for
Amount
payable on
application
No. of
Hong Kong
Offer Shares
applied for
Amount
payable on
application
No. of
Hong Kong
Offer Shares
applied for
Amount
payable on
application
No. of
Hong Kong
Offer Shares
applied for
Amount
payable on
application
HK$ HK$ HK$ HK$
500 6,222.13 7,000 87,109.73 50,000 622,212.35 700,000 8,710,973.05
1,000 12,444.25 8,000 99,553.98 60,000 746,654.83 800,000 9,955,397.75
1,500 18,666.37 9,000 111,998.22 70,000 871,097.30 900,000 11,199,822.48
2,000 24,888.50 10,000 124,442.47 80,000 995,539.78 1,000,000 12,444,247.20
2,500 31,110.62 15,000 186,663.71 90,000 1,119,982.25 1,200,000 14,933,096.65
3,000 37,332.75 20,000 248,884.94 100,000 1,244,424.72 1,400,000 17,421,946.08
3,500 43,554.86 25,000 311,106.18 200,000 2,488,849.45 1,660,000
(1) 20,657,450.35
4,000 49,776.98 30,000 373,327.41 300,000 3,733,274.15
4,500 55,999.11 35,000 435,548.65 400,000 4,977,698.88
5,000 62,221.23 40,000 497,769.89 500,000 6,222,123.60
6,000 74,665.49 45,000 559,991.12 600,000 7,466,548.32
(1) Maximum number of Hong Kong Offer Shares you may apply for.
4. Terms And Conditions Of An Application
By applying through the application channels specified in this document, among other things,
you:
(i) undertake to execute all relevant documents and instruct and authorize the Company
and/or the Overall Coordinators (or their agents or nominees), as agents of the 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 the Articles of Association;
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--- page 339 ---
(ii) agree to comply with the Companies Ordinance, the Companies (Winding Up and
Miscellaneous Provisions) Ordinance and the Articles of Association;
(iii) confirm that you have read the terms and conditions and application procedures set out
in this document, and agree to be bound by them;
(iv) confirm that you have received and read this document and have relied only on the
information and representations contained in this document in making your application
and will not rely on any other information or representations except those in any
supplement to this document;
(v) confirm that you are aware of the restrictions on the Global Offering set out in this
document;
(vi) agree that none of the Company, the Joint Sponsors, the Overall Coordinators, the Joint
Global Coordinators, the Underwriters, the Capital Market Intermediaries, any of them
or the Company’s respective directors, officers, employees, partners, agents, advisors
and any other parties involved in the Global Offering (the “ Relevant Persons ”) and the
HK eIPO White Form Service Provider is or will be liable for any information and
representations not in this document (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 International Offer Shares nor
participated in the International Offering;
(viii) agree to disclose to the Company, the Hong Kong Share Registrar, the receiving banks
and the Relevant Persons 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 the Company nor the Relevant
Persons 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 document;
(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 allocated
to you under the application;
(xv) authorize the Company to place your name(s) or the name of HKSCC Nominees on the
Company’s register of members as the holder(s) of any Hong Kong Offer Shares
allocated to you, and the Company and/or its agents to send any Share certificate(s)
and/or any e-Auto Refund payment instruction 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 are eligible to collect the Share
certificate(s) and/or refund cheque(s) in person;
(xvi) understand that the Company and the Overall Coordinators will rely on your declarations
and representations in deciding whether or not to allocate any of the Hong Kong Offer
Shares to you and that you may be prosecuted for making a false declaration;
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
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--- page 340 ---
(xvii) (if the application is made for your own benefit) warrant that no other application has
been or will be made for your benefit by giving electronic application instructions to
HKSCC or through the HK eIPO White Form service by you or by any one as your
agent or by any other person; and
(xviii) (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
by giving electronic application instructions to HKSCC or to the HK eIPO White
Form Service Provider; and (ii) you have due authority to give electronic application
instructions on behalf of that other person as their agent.
5. Applying Through The HK eIPO White Form Service
General
Applicants who meet the criteria in the paragraph headed “– 2. Who Can Apply ” in this
section, may apply through the HK eIPO White Form service for the Offer Shares to be allotted
and registered in their own names through the IPO App or the designated website at
www.hkeipo.hk .
Detailed instructions for application through the HK eIPO White Form service are in the
IPO App or on the designated website. If you do not follow the instructions, your application may
be rejected and may not be submitted to the Company. If you apply through the IPO App or the
designated website, you authorize the HK eIPO White Form Service Provider to apply on the
terms and conditions in this document, as supplemented and amended by the terms and conditions
of the HK eIPO White Form service.
Time for Submitting Applications under the HK eIPO White Form Service
You may submit your application through the HK eIPO White Form service in the IPO App
or at www.hkeipo.hk (24 hours daily, except on the last day for applications) from 9:00 a.m. on
Monday, June 19, 2023 until 11:30 a.m. on Friday, June 23, 2023 and the latest time for completing
full payment of application monies in respect of such applications will be 12:00 noon on Friday,
June 23, 2023, the last day for applications, or such later time under the paragraph headed “– C.
Effect of bad weather and/or Extreme Conditions on the Opening and Closing of the Application
Lists ” in this section.
No Multiple Applications
If you apply by means of the HK eIPO White Form service, 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 the HK eIPO White Form service 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.
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
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--- page 341 ---
Section 40 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance
For the avoidance of doubt, the Company and all other parties involved in the preparation of
this document 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 Companies
(Winding Up and Miscellaneous Provisions) Ordinance (as applied by Section 342E of the
Companies (Winding Up and Miscellaneous Provisions) Ordinance).
6. Applying Through The CCASS EIPO Service
General
CCASS Participants may give electronic application instructions to apply for the Hong
Kong Offer Shares and to arrange payment of the monies due on application and payment of refunds
under their participant agreements with HKSCC and the General Rules of CCASS and the CCASS
Operational Procedures.
If you are a CCASS Investor Participant , you may give these electronic application
instructions through the CCASS Phone System by calling +852 2979 7888 or through the CCASS
Internet System ( https://ip.ccass.com ) (using the procedures in HKSCC’s “ An Operating Guide 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 Limited
Customer Service Centre
1/F, One & Two Exchange Square
8 Connaught Place, Central
Hong Kong
and complete an input request form.
If you are not a CCASS Investor Participant , you may instruct your broker or custodian who
is a CCASS Clearing Participant or a CCASS Custodian Participant to give electronic application
instructions via CCASS terminals to apply for the Hong Kong Offer Shares on your behalf.
You will be deemed to have authorized HKSCC and/or HKSCC Nominees to transfer the
details of your application to the Company, the Overall Coordinators, the Joint Global Coordinators
and our Hong Kong Share Registrar.
Applying through the CCASS EIPO service
Where you have applied through the CCASS EIPO service (either indirectly through a broker
or custodian or directly) and an application is made by HKSCC Nominees on your behalf:
(i) HKSCC Nominees will only be acting as a nominee for you and is not liable for any
breach of the terms and conditions of this document;
(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 the name
of HKSCC Nominees and deposited directly into CCASS for the credit of the
CCASS Participant’s stock account on your behalf or your CCASS Investor
Participant’s stock account;
 agree to accept the Hong Kong Offer Shares applied for or any lesser number
allocated;
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
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--- page 342 ---
 undertake and confirm that you have not applied for or taken up, will not apply for
or take up, or indicate an interest for, any Offer Shares under the International
Offering;
 (if the electronic application instruction are given for your benefit) declare that
only one set of electronic application instructions has been given for your
benefit;
 (if you are an agent for another person) declare that you have only given one set
of electronic application instructions for the other person’s benefit and are duly
authorized to give those instructions as their agent;
 confirm that you understand that the Company, the Directors, the Overall
Coordinators will rely on your declarations and representations in deciding
whether or not to allocate any of the Hong Kong Offer Shares to you and that you
may be prosecuted if you make a false declaration;
 authorize the Company to place HKSCC Nominees name on the Company’s
register of members as the holder of the Hong Kong Offer Shares allocated to you
and to send Share certificate(s) and/or refund monies under the arrangements
separately agreed between us and HKSCC;
 confirm that you have read the terms and conditions and application procedures set
out in this document and agree to be bound by them;
 confirm that you have received and read a copy of this document and have relied
only on the information and representations in this document in causing the
application to be made, save as set out in any supplement to this document;
 agree that none of the Company or the Relevant Persons is or will be liable for any
information and representations not contained in this document (and any
supplement to it);
 agree to disclose to the Company, the Hong Kong Share Registrar, the receiving
banks and the Relevant Persons any personal data which they may require about
you;
 agree (without prejudice to any other rights which you may have) that once
HKSCC Nominees application has been accepted, it cannot be rescinded for
innocent misrepresentation;
 agree that any application made by HKSCC Nominees on your behalf is
irrevocable on or before the fifth day after the time of the opening of the
application lists (excluding any day which is a Saturday, Sunday or public holiday
in Hong Kong), such agreement to take effect as a collateral contract with the
Company, and to become binding when you give the instructions and such
collateral contract to be in consideration of the Company agreeing that it will not
offer any Hong Kong Offer Shares to any person on or before the fifth day after
the time of the opening of the application lists (excluding any day which is a
Saturday, Sunday or public holiday in Hong Kong), except by means of one of the
procedures referred to in this document. However, HKSCC Nominees may revoke
the application on or before the fifth day after the time of the opening of the
application lists (excluding for this purpose any day which is a Saturday, Sunday
or public holiday in Hong Kong) if a person responsible for this document under
Section 40 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 document;
 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 the Company’s announcement of the
results of the Hong Kong Public Offering;
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 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 application
instructions to apply for Hong Kong Offer Shares;
 agree with the Company, for itself and for the benefit of each Shareholder (and so
that the Company will be deemed by its 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 electronic application
instructions ) to observe and comply with the Companies Ordinance, the
Companies (Winding Up and Miscellaneous Provisions) Ordinance and the
Articles of Association; and
 agree that your application, any acceptance of it and the resulting contract will be
governed by and construed in accordance with the Laws of Hong Kong.
Effect of Applying through the CCASS EIPO Service
By applying through the CCASS EIPO service, 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 the Company or any other person in respect of the things
mentioned below:
 instructed and authorized HKSCC to cause HKSCC Nominees (acting as nominee for the
relevant CCASS Participants) to apply for the Hong Kong Offer Shares on your behalf;
 instructed and authorized HKSCC to arrange payment of the Offer Price, brokerage, SFC
transaction levy, the Stock Exchange trading fee and the AFRC transaction levy by
debiting your designated bank account and, in the case of a wholly or partially
unsuccessful application, refund of the application monies (including brokerage, SFC
transaction levy, the Stock Exchange trading fee and the AFRC transaction levy) by
crediting your designated bank account; and
 instructed and authorized HKSCC to cause HKSCC Nominees to do on your behalf all
the things stated in this document.
Time for Inputting Electronic Application Instructions
1
CCASS Clearing/Custodian Participants can input electronic application instructions at the
following times on the following dates:
Monday, June 19, 2023 – 9:00 a.m. to 8:30 p.m.
Tuesday, June 20, 2023 – 8:00 a.m. to 8:30 p.m.
Wednesday, June 21, 2023 – 8:00 a.m. to 8:30 p.m.
Friday, June 23, 2023 – 8:00 a.m. to 12:00 noon
CCASS Investor Participants can input electronic application instructions from 9:00 a.m. on
Monday, June 19, 2023 until 12:00 noon on Friday, June 23, 2023 (24 hours daily, except on Friday,
June 23, 2023, the last day for applications).
The latest time for inputting your electronic application instructions will be 12:00 noon on
Friday, June 23, 2023, the last day for applications or such later time as described in the paragraph
headed “– C. Effect of bad weather and/or Extreme Conditions on the Opening and Closing of the
Application Lists ” in this section.
1 These times in this sub-section are subject to change as HKSCC may determine from time to time with prior
notification to CCASS Clearing/Custodian Participants and/or CCASS Investor Participants.
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If you are instructing your broker or custodian who is a CCASS Clearing Participant or a
CCASS Custodian Participant to give electronic application instructions via CCASS terminals to
apply for the Hong Kong Offer Shares on your behalf, you are advised to contact your broker or
custodian for the latest time for giving such instructions which may be different from the latest time
as stated above.
No Multiple Applications
If you are suspected of having made multiple applications or if more than one application is
made for your benefit, the number of Hong Kong Offer Shares applied for by HKSCC Nominees
will be automatically reduced by the number of Hong Kong Offer Shares for which you have given
such instructions and/or for which such instructions have been given for your benefit. Any
electronic application instructions to make an application for the Hong Kong Offer Shares given
by you or for your benefit to HKSCC shall be deemed to be an actual application 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, the Company and all other parties involved in the preparation of
this document acknowledge that each CCASS Participant who gives or causes to give electronic
application instructions is a person who may be entitled to compensation 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).
Personal Data
The following Personal Information Collection Statement applies to any personal data held by
the Company, the Hong Kong Share Registrar, the receiving banks and the Relevant Persons about
you in the same way as it applies to personal data about applicants other than HKSCC Nominees.
By applying through the CCASS EIPO service, you agree to all of the terms of the Personal
Information Collection Statement below.
Personal Information Collection Statement
This Personal Information Collection Statement informs the applicant for, and holder of, Hong
Kong Offer Shares, of the policies and practices of the Company and the Hong Kong Share
Registrar in relation to personal data and the Personal Data (Privacy) Ordinance (Chapter 486 of the
Laws of Hong Kong).
Reasons for the collection of your personal data
It is necessary for applicants and registered holders of the Hong Kong Offer Shares to supply
correct personal data to the Company or its agents and the Hong Kong Share Registrar when
applying for the Hong Kong Offer Shares or transferring the Hong Kong Offer Shares into or out
of their names or in procuring the services of the Hong Kong Share Registrar.
Failure to supply the requested data may result in your application for the Hong Kong Offer
Shares being rejected, or in delay or the inability of the Company or the Hong Kong Share Registrar
to effect transfers or otherwise render their services. It may also prevent or delay registration or
transfers of the Hong Kong Offer Shares which you have successfully applied for and/or the
dispatch of Share certificate(s) to which you are entitled.
It is important that the holders of the Hong Kong Offer Shares inform the Company and the
Hong Kong Share Registrar immediately of any inaccuracies in the personal data supplied.
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Purposes
Your personal data may be used, held, processed, and/or stored (by whatever means) for the
following purposes:
 processing your application and refund cheque and e-Auto Refund payment
instruction(s), where applicable, verification of compliance with the terms and
application procedures set out in this document and announcing results of allocation of
the Hong Kong Offer Shares;
 compliance with applicable laws and regulations in Hong Kong and elsewhere;
 registering new issues or transfers into or out of the names of the holders of the Shares
including, where applicable, HKSCC Nominees;
 maintaining or updating the register of members of the Company;
 verifying identities of the holders of the Shares;
 establishing benefit entitlements of holders of the Shares, such as dividends, rights
issues, bonus issues, etc.;
 distributing communications from the Company and its subsidiaries;
 compiling statistical information and profiles of the holder of the Shares;
 disclosing relevant information to facilitate claims on entitlements; and
 any other incidental or associated purposes relating to the above and/or to enable the
Company and the Hong Kong Share Registrar to discharge their obligations to holders
of the Shares and/or regulators and/or any other purposes to which the holders of the
Shares may from time to time agree.
Transfer of personal data
Personal data held by the Company and the Hong Kong Share Registrar relating to the holders
of the Hong Kong Offer Shares will be kept confidential but the Company and the Hong Kong Share
Registrar may, to the extent necessary for achieving any of the above purposes, disclose, obtain or
transfer (whether within or outside Hong Kong) the personal data to, from or with any of the
following:
 the Company’s appointed agents such as financial advisors, receiving banks and
overseas principal share registrar;
 where applicants for the Hong Kong Offer Shares request a deposit into CCASS,
HKSCC or HKSCC Nominees, who will use the personal data for the purposes of
operating CCASS;
 any agents, contractors or third-party service providers who offer administrative,
telecommunications, computer, payment or other services to the Company or the Hong
Kong Share Registrar in connection with their respective business operation;
 the Hong Kong Stock Exchange, the SFC and any other statutory regulatory or
governmental bodies or otherwise as required by laws, rules or regulations; and
 any persons or institutions with which the holders of the Hong Kong Offer Shares have
or propose to have dealings, such as their bankers, solicitors, accountants or
stockbrokers etc.
Retention of personal data
The Company and the Hong Kong Share Registrar will keep the personal data of the applicants
and holders of the Hong Kong Offer Shares for as long as necessary to fulfil the purposes for which
the personal data were collected. Personal data which is no longer required will be destroyed or
dealt with in accordance with the Personal Data (Privacy) Ordinance.
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Access to and correction of personal data
Holders of the Hong Kong Offer Shares have the right to ascertain whether the Company or
the Hong Kong Share Registrar hold their personal data, to obtain a copy of that data, and to correct
any data that is inaccurate. The Company and the Hong Kong Share Registrar have the right to
charge a reasonable fee for the processing of such requests. All requests for access to data or
correction of data should be addressed to the Company and the Hong Kong Share Registrar, at their
registered address disclosed in the section headed “ Corporate information ” in this document or as
notified from time to time, for the attention of the company secretary, or the Hong Kong Share
Registrar for the attention of the privacy compliance officer.
7. Warning For Electronic Applications
The application for the Hong Kong Offer Shares by the CCASS EIPO service (directly or
indirectly through your broker or custodian) is only a facility provided to CCASS Participants.
Similarly, the application for Hong Kong Offer Shares through the HK eIPO White Form service
is also only 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 you are
advised not to wait until the last day for applications to make your electronic applications. The
Company, the Relevant Persons and the HK eIPO White Form Service Provider take no
responsibility for such applications and provide no assurance that any CCASS Participant or person
applying through the HK eIPO White Form service will be allocated any Hong Kong Offer Shares.
To ensure that CCASS Investor Participants can give their electronic application
instructions , they are advised not to wait until the last minute to input their instructions to the
systems. In the event that CCASS Investor Participants have problems in the connection to CCASS
Phone System/CCASS Internet System for submission of electronic application instructions, they
should go to HKSCC’s Customer Service Centre to complete an input request form for electronic
application instructions before 12:00 noon on Friday, June 23, 2023.
8. How Many Applications Can Y ou Make
Multiple applications for the Hong Kong Offer Shares are not allowed except by nominees.
If you are a nominee and apply through the HK eIPO White Form service, in the box 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 beneficial owner when you
fill in the application details. If you do not include this information, the application will be treated
as being made for your own benefit.
All of your applications will be rejected if more than one application through the CCASS
EIPO service (directly or indirectly through your broker or custodian) or through the HK eIPO
White Form service, is made for your benefit (including the part of the application made by
HKSCC Nominees acting on electronic application instructions ).
For the avoidance of doubt, giving an electronic application instruction through the HK
eIPO White Form service more than once and obtaining different application reference numbers
without effecting full payment in respect of a particular reference number will not constitute an
actual application. However, any electronic application instructions to make an application for the
Hong Kong Offer Shares given by you or for your behalf to HKSCC will be deemed to be an actual
application for the purposes of considering whether multiple applications have been made.
The Hong Kong Share Registrar would record all applications into its system and identify
suspected multiple applications with identical names, identification document numbers and
reference numbers according to the Best Practice Note on Treatment of Multiple/Suspected Multiple
Applications (“ Best Practice Note ”) issued by the Federation of Share Registrars Limited.
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With regard to the announcement of results of allocations under the section headed “Results
of Applications Made by Giving Electronic Application Instructions to HKSCC via CCASS”, the
list of identification document number(s) may not be a complete list of successful applicants, only
successful applicants whose identification document numbers are provided to HKSCC by CCASS
Participants are disclosed. Applicants who applied for the Offer Shares through their brokers can
consult their brokers to enquire about their application results.
Since applications are subject to personal information collection statements, beneficial owner
identification codes displayed are redacted. Applicants with beneficial names only but not
identification document numbers are not disclosed due to personal privacy issue.
If an application 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 Stock
Exchange. “ 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 part of
it which carries no right to participate beyond a specified amount in a distribution of
either profits or capital).
B. HOW MUCH ARE THE HONG KONG OFFER SHARES
You must pay the Offer Price, brokerage of 1.0%, SFC transaction levy of 0.0027%, the Stock
Exchange trading fee of 0.00565% and the AFRC transaction levy of 0.00015% in full upon
application for the Hong Kong Offer Shares under the terms set out in the paragraph “– Minimum
Application Amount and Permitted Numbers ” in this section. This means that for one board lot of
500 Hong Kong Offer Shares, you will pay HK$6,222.13.
You may submit an application through the HK eIPO White Form service or the CCASS
EIPO service in respect of a minimum of 500 Hong Kong Offer Shares. Each application or
electronic application instruction in respect of more than 500 Hong Kong Offer Shares must be
in one of the numbers set out in the paragraph “– Minimum Application Amount and Permitted
Numbers ” in this section, or as otherwise specified in the IPO App or on the designated website
at www.hkeipo.hk .
If your application is successful, brokerage will be paid to the Exchange Participants (as
defined in the Listing Rules), and the SFC transaction levy and the Stock Exchange trading fee and
the AFRC transaction levy 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 and in the case of the AFRC transaction
levy, collected by the Stock Exchange on behalf of the AFRC).
For further details on the Offer Price, see the section headed “ Structure of the Global Offering
– Pricing of the Global Offering ” in this document.
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C. EFFECT OF BAD WEATHER AND/OR EXTREME CONDITIONS ON THE OPENING
AND CLOSING OF THE APPLICATION LISTS
The application lists will not open or close if there is:
 a tropical cyclone warning signal number 8 or above;
 a “black” rainstorm warning; and/or
 Extreme Conditions,
in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon on Friday, June 23, 2023.
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 and/or Extreme Conditions 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, June 23, 2023 or if there is a tropical
cyclone warning signal number 8 or above or a “black” rainstorm warning signal and/or Extreme
Conditions in force in Hong Kong that may affect the dates mentioned in the section headed
“Expected timetable” in this document, an announcement will be made in such event.
D. PUBLICATION OF RESULTS
The Company expects to announce the final Offer Price, the level of indications of interest in
the International Offering, the level of applications in the Hong Kong Public Offering and the basis
of allocations of the Hong Kong Offer Shares on Thursday, June 29, 2023 on the Company’s website
at www.adicon.com.cn 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/certificate of incorporation 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 the Company’s website at www.adicon.com.cn and
the Stock Exchange’s website at www.hkexnews.hk by no later than 9:00 a.m. on
Thursday, June 29, 2023;
 from the “IPO Results” function in the IPO App and the designated results of allocations
website at www.tricor.com.hk/ipo/result or www.hkeipo.hk/IPOResult with a “search by
ID” function on a 24-hour basis from 8:00 a.m. on Thursday, June 29, 2023 to 12:00 midnight
on Wednesday, July 5, 2023;
 from the allocation results telephone enquiry line by calling +852 3691 8488 between
9:00 a.m. and 6:00 p.m. from Thursday, June 29, 2023 to Tuesday, July 4, 2023
(excluding Saturday, Sunday and public holiday in Hong Kong).
If the 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 of the Global Offering ”
in this document.
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.
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E. CIRCUMSTANCES IN WHICH YOU WILL NOT BE ALLOCATED HONG KONG
OFFER SHARES
You should note the following situations in which the Hong Kong Offer Shares will not be
allocated to you:
(i) If your application is revoked:
By applying through the CCASS EIPO service or through the HK eIPO White Form
service, 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 a Saturday, Sunday
or public holiday in Hong Kong). This agreement will take effect as a collateral contract
with the 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 document under
Section 40 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 document.
If any supplement to this document is issued, applicants who have already submitted an
application will be notified that they are required to confirm their applications. If
applicants have been so notified but have not confirmed their applications in accordance
with the procedure to be notified, all unconfirmed applications will be deemed revoked.
If your application or the application made by HKSCC Nominees on your behalf has
been accepted, it cannot be revoked. For this purpose, acceptance of applications which
are not rejected will be constituted by notification in the press of the results of
allocation, and where such 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 ballot respectively.
(ii) If the Company or its agents exercise their discretion to reject your application:
The Company, the Overall Coordinators, the Joint Global Coordinators, the HK eIPO
White Form Service Provider and their respective agents and nominees have full
discretion to reject or accept any application, or to accept only part of any application,
without giving any reasons.
(iii) If the allocation of Hong Kong Offer Shares is void:
The allocation of Hong Kong Offer Shares will be void if the Listing Committee of the
Stock Exchange does not grant permission to list the 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 the
Company of that longer period within three weeks of the closing date of the
application 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 (including
conditionally and/or provisionally) Hong Kong Offer Shares and International
Offer Shares;
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 your electronic application instructions through the HK eIPO White Form
service are not completed in accordance with the instructions, terms and conditions
in the IPO App or on the designated website at www.hkeipo.hk ;
 your payment is not made correctly;
 the Underwriting Agreements do not become unconditional or are terminated;
 the Company or the Overall Coordinators believes or believe that by accepting
your application, it 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.
F. REFUND OF APPLICATION MONIES
If an application is rejected, not accepted or accepted in part only, or if the conditions of the
Global Offering as set out in the section headed “ Structure of the Global Offering – Conditions of
the Global Offering ” in this document are not satisfied or if any application is revoked, the
application monies, or the appropriate portion thereof, together with the related brokerage, SFC
transaction levy, the Stock Exchange trading fee and the AFRC transaction levy, will be refunded,
without interest.
Any refund of your application monies will be made on or before Thursday, June 29, 2023.
G. 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 through the CCASS EIPO
service where the Share certificates will be deposited into CCASS as described below).
No temporary document of title will be issued in respect of the Shares. No receipt will be
issued for sums paid on application.
Subject to arrangement on dispatch/collection of Share certificates and refund monies as
mentioned below, any refund cheques and Share certificates are expected to be posted on or before
Thursday, June 29, 2023. The right is reserved to retain any 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 Friday, June 30, 2023, provided that
the Global Offering has become unconditional in all respects at or before that time and the right of
termination described in the section headed “ Underwriting ” has not been exercised. Investors who
trade Shares prior to the receipt of Share certificates or the Share certificates becoming valid do so
entirely at their own risk.
Personal Collection
(i) If you apply through the HK eIPO White Form service
If you apply for 1,000,000 or more Hong Kong Offer Shares through the HK eIPO White
Form service, and your application is wholly or partially successful, you may collect your Share
certificate(s) (where applicable) in person from the Hong Kong Share Registrar, Tricor Investor
Services Limited, at 17/F, Far East Finance Centre, 16 Harcourt Road, Hong Kong, from 9:00 a.m.
to 1:00 p.m. on Thursday, June 29, 2023, or such other place or date as notified by the Company
in the newspapers as the date of despatch/collection of Share certificates/e-Auto Refund payment
instructions/refund cheques.
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If you are an individual who is eligible for personal collection, you must not authorize any
other person to collect for you. If you are a corporate applicant which is eligible for personal
collection, your authorized representative must bear a letter of authorization from your corporation
stamped with your corporation’s chop. Both individuals and authorized representatives must
produce, at the time of collection, evidence of identity acceptable to the Hong Kong Share Registrar.
If you do not collect your Share certificate(s) personally within the time specified for
collection, it/they will be sent to the address specified in your application instructions by ordinary
post at your own risk.
If you apply for less than 1,000,000 Hong Kong Offer Shares through the HK eIPO White
Form service, your Share certificate(s) (where applicable) will be sent to the address specified in
your application instructions on or before Thursday, June 29, 2023 by ordinary post at your own
risk.
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) in favour of the applicant (or, in the case of joint applications, the first-named applicant)
by ordinary post at your own risk.
(ii) If you apply through the CCASS EIPO Service
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 electronic
application 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 Thursday, June 29, 2023, or, on any other date determined by HKSCC
or HKSCC Nominees.
 The Company expects to publish the application results of CCASS Participants (and
where the CCASS Participant is a broker or custodian, the 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 allocations of the Hong Kong Public Offering
in the manner specified in the paragraph headed “– D. Publication of Results ” in this
section on Thursday, June 29, 2023. You should check the announcement published by
the Company and report any discrepancies to HKSCC before 5:00 p.m. on Thursday,
June 29, 2023 or such other date as determined by HKSCC or HKSCC Nominees.
 If you have instructed your broker or custodian to give electronic application
instructions on your behalf, you can also check the number of Hong Kong Offer Shares
allocated to you and the amount of refund monies (if any) payable to you with that
broker or custodian.
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 If you have applied as a CCASS Investor Participant, you can also check the number of
Hong Kong Offer Shares allocated 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 Thursday, June 29, 2023. Immediately following the credit
of the Hong Kong Offer 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 will be credited to your designated bank account or the
designated bank account of your broker or custodian on Thursday, June 29, 2023.
H. ADMISSION OF THE SHARES INTO CCASS
If the Stock Exchange grants the listing of, and permission to deal in, the Shares on the Stock
Exchange and we comply with the stock admission requirements of HKSCC, the 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 Exchange Participants (as defined in the Listing Rules) is required to take place in CCASS
on the second settlement 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 advisor for details
of the settlement arrangement as such arrangements may affect their rights and interests.
All necessary arrangements have been made enabling the Shares to be admitted into CCASS.
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The following is the text of a report received from the Company’s reporting accountants,
Ernst & Young, Certified Public Accountants, Hong Kong, for the purpose of incorporation in
this Prospectus.
ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE
DIRECTORS OF ADICON HOLDINGS LIMITED AND MORGAN STANLEY ASIA
LIMITED AND JEFFERIES HONG KONG LIMITED
INTRODUCTION
We report on the historical financial information of ADICON Holdings Limited (the
“Company”) and its subsidiaries (together, the “Group”) set out on pages I-3 to I-86, which
comprises the consolidated statements of profit or loss and other comprehensive income, the
consolidated statements of changes in equity and the consolidated statements of cash flows of the
Group for each of the years ended 31 December 2020, 2021 and 2022 (the “Relevant Periods”), and
the consolidated statements of financial position of the Group, and the statements of financial
position of the Company as at 31 December 2020, 2021 and 2022 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-3 to I-86 forms an integral
part of this report, which has been prepared for inclusion in the prospectus of the Company dated
19 June 2023 (the “Prospectus”) in connection with the initial listing of the shares of the Company
on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).
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 presentation and the basis
of preparation set out in note 2.1 and note 2.2 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.
REPORTING ACCOUNTANTS’ RESPONSIBILITY
Our responsibility is to express an opinion on the Historical Financial Information and to
report our opinion to you. We conducted our work in accordance with Hong Kong Standard on
Investment Circular Reporting Engagements 200 Accountants’ Reports on Historical Financial
Information in Investment Circulars issued by the 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
accountants’ judgement, including the assessment of risks of material misstatement of the Historical
Financial Information, whether due to fraud or error. In making those risk assessments, the
reporting accountants consider internal control relevant to the entity’s preparation of the Historical
APPENDIX I ACCOUNTANTS’ REPORT
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Financial Information that gives a true and fair view in accordance with the basis of preparation set
out in note 2.1 and note 2.2 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 accountants’
report, a true and fair view of the financial position of the Group and the Company as at 31
December 2020, 2021 and 2022, and of the financial performance and cash flows of the Group for
each of the Relevant Periods in accordance with the basis of preparation set out in note 2.1 and note
2.2 to the Historical Financial Information.
REPORT ON MATTERS UNDER THE RULES GOVERNING THE LISTING OF
SECURITIES ON THE STOCK EXCHANGE 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-3 have been made.
Dividends
We refer to note 13 to the Historical Financial Information which contains information about
the dividends declared by the Company in respect of the Relevant Periods.
No historical financial statements for the Company
As at the date of this report, no statutory financial statements have been prepared for the
Company since its date of incorporation.
Certified Public Accountants
Hong Kong
19 June 2023
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I. HISTORICAL FINANCIAL INFORMATION
Preparation of Historical Financial Information
Set out below is the Historical Financial Information which forms an integral part of this
accountants’ report.
The financial statements of the Group for the Relevant Periods, on which the Historical
Financial Information is based, were audited by Ernst & Young in accordance with Hong Kong
Standards on Auditing issued by the HKICPA (the “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.
APPENDIX I ACCOUNTANTS’ REPORT
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CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME
Y ear ended 31 December
Notes 2020 2021 2022
RMB’000 RMB’000 RMB’000
REVENUE .............................. 5 2,741,731 3,379,515 4,860,613
Cost of sales ............................. (1,625,071) (1,937,126) (2,964,448)
Gross profit 1,116,660 1,442,389 1,896,165
Other income and gains . ................... 6 12,686 14,763 50,811
Selling and marketing expenses . . . . . . . . . ..... (359,051) (489,783) (553,272)
Administrative expenses . . . . ................ (236,566) (263,003) (282,262)
Research and development costs. . . . .......... (102,009) (125,446) (162,746)
Other expenses ........................... 7 (37,712) (48,530) (128,440)
Listing expenses .......................... (16,179) (35,290) (9,664)
Finance costs ............................ 9 (19,644) (16,326) (76,824)
Fair value change of financial liabilities at
FVTPL ................................ 30 – (61,531) 87,044
PROFIT BEFORE TAX ................... 8 358,185 417,243 820,812
Income tax expense. . . . . . . ................. 12 (68,732) (94,948) (135,928)
PROFIT FOR THE YEAR ................. 289,453 322,295 684,884
Attributable to:
Owners of the parent . . .................... 284,121 315,540 680,793
Non-controlling interests. . .................. 5,332 6,755 4,091
289,453 322,295 684,884
OTHER COMPREHENSIVE INCOME/(LOSS)
Other comprehensive income/(loss) that may be
reclassified to profit or loss in subsequent
periods:
Exchange differences on translation of the
financial statement of the subsidiaries ...... 3,675 6,490 (26,179)
Other comprehensive (loss)/income that will not
be reclassified to profit or loss in subsequent
periods:
Exchange differences on translation of the
financial statements of the Company ....... ( 7 1 1 ) 4 0 6 (54,254)
OTHER COMPREHENSIVE INCOME/(LOSS)
FOR THE YEAR, NET OF TAX . . ......... 2,964 6,896 (80,433)
TOTAL COMPREHENSIVE INCOME FOR
THE YEAR ............................ 292,417 329,191 604,451
Attributable to:
Owners of the parent . . .................... 286,926 322,436 600,360
Non-controlling interests. . .................. 5,491 6,755 4,091
292,417 329,191 604,451
EARNINGS PER SHARE ATTRIBUTABLE
TO ORDINARY EQUITY HOLDERS OF
THE PARENT (Expressed in RMB
per share)
Basic ................................... 14 0.49 0.50 1.04
Diluted ................................. 14 0.48 0.50 0.96
APPENDIX I ACCOUNTANTS’ REPORT
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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at 31 December
Notes 2020 2021 2022
RMB’000 RMB’000 RMB’000
NON-CURRENT ASSETS
Property and equipment . . . ................. 16 168,579 266,137 375,428
Right-of-use assets ........................ 17 155,458 173,381 218,853
Goodwill ................................ 18 – 25,691 79,802
Other intangible assets . . . .................. 19 3,011 20,504 143,709
Deferred tax assets ........................ 20 51,982 74,560 118,403
Prepayments, deposits and other receivables .... 23 7,747 9,645 12,839
Amounts due from related parties. . ........... 37 1,852 1,816 2,123
Financial assets at fair value through
profit or loss ........................... 24 – – 8,104
Total non-current assets ................... 388,629 571,734 959,261
CURRENT ASSETS
Inventories .............................. 21 102,932 109,395 229,413
Trade and bills receivables .................. 22 942,041 1,213,512 1,856,847
Prepayments, deposits and other receivables .... 23 61,120 105,716 127,860
Amounts due from related parties. . ........... 37 199 270 227
Cash and bank balances . . . . ................ 25 1,228,620 1,109,211 1,680,625
Total current assets ....................... 2,334,912 2,538,104 3,894,972
CURRENT LIABILITIES
Trade payables ........................... 26 384,034 510,691 1,062,452
Other payables and accruals . . . . . . . . . ........ 27 365,428 689,136 985,104
Contract liabilities ......................... 28 11,665 20,683 21,060
Interest-bearing bank borrowings . . . .......... 29 120,178 49,141 112,792
Profit tax payable ......................... 44,078 50,303 124,553
Amounts due to related parties ............... 37 55,171 36,167 61,071
Lease liabilities ........................... 17 28,416 31,653 51,400
Total current liabilities .................... 1,008,970 1,387,774 2,418,432
NET CURRENT ASSETS .................. 1,325,942 1,150,330 1,476,540
TOTAL ASSETS LESS CURRENT
LIABILITIES .......................... 1,714,571 1,722,064 2,435,801
NON-CURRENT LIABILITIES
Interest-bearing bank borrowings . . . .......... 29 100,276 90,790 1,023,329
Lease liabilities ........................... 17 129,710 146,297 182,455
Deferred tax liabilities . . ................... 20 1,536 10,260 28,502
Convertible redeemable preferred shares ....... 30 443,931 621,870 589,179
Total non-current liabilities ................ 675,453 869,217 1,823,465
NET ASSETS ............................ 1,039,118 852,847 612,336
EQUITY
Equity attributable to owners of the parent
Share capital ............................. 31 77 86 86
Reserves ................................ 32 1,024,262 804,155 510,738
1,024,339 804,241 510,824
Non-controlling interests. . .................. 14,779 48,606 101,512
Total equity ............................. 1,039,118 852,847 612,336
APPENDIX I ACCOUNTANTS’ REPORT
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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Attributable to owners of the parent
Share
capital
Capital
reserve
Share
option
reserve
Other
reserve
Exchange
fluctuation
reserve
Retained
profits Total
Non-controlling
interests Total equity
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
(Note 31) (Note 32) (Note 32) (Note 32) (Note 32)
At 1 January 2020 ................... 7 6 435,721 2,735 (304,859) (1,556) 443,537 575,654 20,968 596,622
Profit for the year . . . ................. –––– – 284,121 284,121 5,332 289,453
Other comprehensive income
for the year:
Exchange differences on translation of
the financial statement of the
subsidiaries . . . . .................. –––– 3,516 – 3,516 159 3,675
Exchange differences on translation of
the financial statement of the
Company. . . . . . . ................. –––– ( 7 1 1 ) – ( 7 1 1 ) – ( 7 1 1 )
Issue of share capital (note 32 (i)) ....... – 76,770 – – – – 76,770 – 76,770
Capital injection into a subsidiary by
non-controlling shareholders .......... –––– – –– 12,561 12,561
Share awards (note 33) ................ – – 63,598 – – – 63,598 – 63,598
Acquisition of non-controlling interests .... 1 16,025 – 5,365 – – 21,391 (24,241) (2,850)
At 31 December 2020 and 1 January
2021 ............................ 7 7 528,516 66,333 (299,494) 1,249 727,658 1,024,339 14,779 1,039,118
APPENDIX I ACCOUNTANTS’ REPORT
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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (continued)
Attributable to owners of the parent
Share
capital
Capital
reserve
Share
option
reserve
Other
reserve
Exchange
fluctuation
reserve
Retained
profits Total
Non-controlling
interests Total equity
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
(Note 31) (Note 32) (Note 32) (Note 32) (Note 32)
At 1 January 2021 ................... 7 7 528,516 66,333 (299,494) 1,249 727,658 1,024,339 14,779 1,039,118
Profit for the year . . . ................. –––– – 315,540 315,540 6,755 322,295
Other comprehensive income
for the year:
Exchange differences on translation of
the financial statement of the
subsidiaries . . . . .................. –––– 6,490 – 6,490 – 6,490
Exchange differences on translation of
the financial statement of the
Company. . . . . . . ................. –––– 4 0 6 – 4 0 6 – 4 0 6
Issue of share capital (note 31/32 (i)) ..... 9 68,894 – – – – 68,903 – 68,903
Consideration paid to equity holders of
PRC Operating Entities (note 32 (i)) .... – – – (138,841) – – (138,841) – (138,841)
Capital injection into a subsidiary by
non-controlling shareholders .......... – – – 7,708 – – 7,708 16,069 23,777
Share awards (note 33) ................ – – 37,325 – – – 37,325 – 37,325
Acquisition of non-controlling interests
(note 31(d)/27(c)) . . ................. – 14,840 – (22,419) – – (7,579) (492) (8,071)
Acquisition of subsidiaries (note 34) ...... –––– – –– 1 1,495 11,495
Dividends declared (note 13) ............ –––– – (452,585) (452,585) – (452,585)
Put option over non-controlling interests
(note 27 (c)) ....................... – – – (57,465) – – (57,465) – (57,465)
At 31 December 2021 ................. 8 6 612,250 103,658 (510,511) 8,145 590,613 804,241 48,606 852,847
APPENDIX I ACCOUNTANTS’ REPORT
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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (continued)
Attributable to owners of the parent
Share
capital
Capital
reserve
Share
option
reserve
Other
reserve
Exchange
fluctuation
reserve
Retained
profits Total
Non-controlling
interests Total equity
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
(Note 31) (Note 32) (Note 32) (Note 32) (Note 32)
At 1 January 2022 ................... 8 6 612,250 103,658 (510,511) 8,145 590,613 804,241 48,606 852,847
Profit for the year . . . ................. –––– – 680,793 680,793 4,091 684,884
Other comprehensive income for the year:
Exchange differences on translation of
the financial statement of the
subsidiaries . . . . .................. –––– (26,179) – (26,179) – (26,179)
Exchange differences on translation of
the financial statement of the
Company. . . . . . . ................. –––– (54,254) – (54,254) – (54,254)
Capital injection into a subsidiary by
non-controlling shareholders .......... –––– – –– 15,375 15,375
Share awards (note 33) ................ – – 15,049 – – – 15,049 – 15,049
Acquisition of subsidiaries (note 34) ...... –––– – –– 33,440 33,440
Dividends declared (note 13) ............ –––– – (865,017) (865,017) – (865,017)
Put option over non-controlling interests
(note 27 (c)) ....................... – – – (43,809) – – (43,809) – (43,809)
At 31 December 2022 ................. 8 6 612,250 118,707 (554,320) (72,288) 406,389 510,824 101,512 612,336
APPENDIX I ACCOUNTANTS’ REPORT
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Y ear ended 31 December
Notes 2020 2021 2022
RMB’000 RMB’000 RMB’000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax: .................................... 358,185 417,243 820,812
Adjustments for:
Bank interest income ................................. 6 (3,765) (6,289) (8,874)
Foreign exchange (gains)/losses, net ....................... 7 (1,427) 50 6,743
Finance costs ...................................... 9 19,644 16,326 76,824
Losses on disposal of property and equipment and other intangible
assets .......................................... 6/7 1,684 3,713 3,058
Loss/(Gain) on disposal of items of
right-of-use assets, net ............................... 6/7 312 (419) (6)
Depreciation of property and equipment ..................... 16 64,897 85,078 129,402
Depreciation of right-of-use assets ........................ 17 48,221 51,157 59,163
Amortization of intangible assets ......................... 19 662 1,617 4,853
Impairment losses, net of reversal:
– Financial assets under expected credit losses (“ECL”) model ...... 32,556 39,704 111,653
– Inventories ...................................... – – 1,421
Share awards ...................................... 63,598 37,325 15,049
COVID-19 related rent concessions ........................ 17 (2,439) – –
Fair value loss/(gain) on convertible redeemable preferred shares .... 30 – 61,531 (87,044)
Fair value gain on derivative financial instruments .............. 6 – – (7,826)
Fair value gain on contingent consideration .................. 6 – – (13,337)
582,128 707,036 1,111,891
Increase in inventories ................................ (22,243) (4,536) (115,209)
Increase in trade and bills receivables ...................... (285,171) (304,911) (649,726)
Increase in prepayments, deposits and other receivables .......... (27,611) (15,026) (32,049)
Increase in trade payables .............................. 121,263 104,855 511,878
Increase in other payables and accruals ..................... 160,593 183,921 167,025
Cash generated from operations .......................... 528,959 671,339 993,810
Income tax paid .................................... (46,970) (107,077) (100,872)
Net cash flows from operating activities ..................... 481,989 564,262 892,938
CASH FLOWS USED IN INVESTING ACTIVITIES
Interest received .................................... 3,765 6,289 8,874
Purchase of items of property and equipment ................. (106,075) (155,005) (228,297)
Purchase of other intangible assets ........................ (590) (1,115) (69,058)
Proceeds from disposal of property and equipment ..............
3,788 1,782 3,866
Increase in restricted bank balances ........................ (1,801) 1,801 –
Acquisition of subsidiaries ............................. 34 – (21,081) (48,686)
Advance payment for an equity investment ................... 23(c) – (30,000) –
Net cash flows used in investing
activities ........................................ (100,913) (197,329) (333,301)
APPENDIX I ACCOUNTANTS’ REPORT
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CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Y ear ended 31 December
Notes 2020 2021 2022
RMB’000 RMB’000 RMB’000
CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES
New bank loans .................................... 230,454 42,000 1,098,395
Proceeds from issue of convertible redeemable preferred shares ..... 30 443,931 129,156 –
Proceeds from issue of ordinary shares ..................... 76,770 64,811 –
Repayment of bank loans .............................. (90,000) (120,080) (155,313)
Repayment of borrowings from related parties ................. (90,992) – –
Interest paid ....................................... (8,726) (5,906) (37,716)
Purchase of derivative financial instruments .................. – – (13,452)
Consideration payable to shareholders ...................... 32(i) – (138,841) –
Lease payments ..................................... 17 (58,207) (59,461) (62,500)
Payment of listing expenses ............................. (677) (4,065) (2,576)
Contribution from non-controlling shareholders ................ 10,101 23,327 15,375
Advance payments received for subscription of share options ....... 27(b) 27,918 46,747 26,526
Acquisition of non-controlling interests ..................... (2,850) (1,296) –
Payments of dividends ................................ 13 – (452,585) (865,017)
Net cash flows from/(used in) financing activities .............. 35 537,722 (476,193) 3,722
NET INCREASE/(DECREASED) IN CASH AND CASH
EQUIV ALENTS .................................. 918,798 (109,260) 563,359
Cash and cash equivalents at beginning of year ................ 304,523 1,226,819 1,109,211
Effect of foreign exchange rate changes, net .................. 3,498 (8,348) 8,055
CASH AND CASH EQUIV ALENTS AT
END OF YEAR ................................... 1,226,819 1,109,211 1,680,625
APPENDIX I ACCOUNTANTS’ REPORT
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STATEMENTS OF FINANCIAL POSITION OF THE COMPANY
As at 31 December
Notes 2020 2021 2022
RMB’000 RMB’000 RMB’000
NON-CURRENT ASSETS
Interests in subsidiaries ....................... 15 82,366 278,847 307,039
Total non-current assets ...................... 82,366 278,847 307,039
CURRENT ASSETS
Prepayment, deposits and
other receivables .......................... 3 9 2 1,570 1,692
Amounts due from related parties ............... 37 86,202 3,933 9,928
Cash and cash balances ....................... 25 535,073 144,100 125,642
Total current assets ......................... 621,667 149,603 137,262
CURRENT LIABILITIES
Other payables and accruals .................... 27 21,886 57,804 89,136
Amounts due to related parties .................. 37 88,202 – 838,891
Total current liabilities ...................... 1 10,088 57,804 928,027
NET CURRENT ASSETS/(LIABILITIES) ........ 5 1 1,579 91,799 (790,765)
TOTAL ASSETS LESS
CURRENT LIABILITIES .................. 593,945 370,646 (483,726)
NON-CURRENT LIABILITIES
Convertible redeemable preferred shares .......... 30 443,931 621,870 589,179
NET ASSETS/(LIABILITIES) ................. 150,014 (251,224) (1,072,905)
EQUITY
Equity attributable to owners of the parent
Share capital ............................... 31 77 86 86
Reserves .................................. 32 149,937 (251,310) (1,072,991)
Total equity ............................... 150,014 (251,224) (1,072,905)
APPENDIX I ACCOUNTANTS’ REPORT
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II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION
1. CORPORATE INFORMATION
ADICON Holdings Limited (“the Company”) is a limited liability company incorporated in
Cayman Islands on 20 August 2008. Its registered office is located at Third Floor, Century Yard,
Cricket Square, P.O. Box 902, Grand Cayman, KY1-1103, Cayman Islands.
The Company is an investment holding company. The Company and its subsidiaries now
comprising the Group underwent the reorganization as set out in the paragraph headed
“Reorganization” in the section headed “History, Reorganization and Corporate Structure” in this
Prospectus (the “Reorganization”). During the Relevant Periods, the Company’s subsidiaries were
principally engaged in providing medical testing services and trade of medical testing equipment
(“Listing Business”) in the People’s Republic of China (the “PRC”).
As at the date of this report, the Company has direct and indirect interest in its subsidiaries,
all of which are private limited liability companies (or if incorporated outside Hong Kong, have
substantially similar characteristics to a private company incorporated in Hong Kong), the
particulars of which are set out below:
Name Notes
Date and
place of
incorporation/
registration and
place of operations
Issued
ordinary share/
registered
capital
Percentage of
equity attributable
to the Company Principal activities
Direct Indirect
Adicon International Limited (“Adicon HK”). . . (z) Hong Kong
7 March 2008
USD1,282.05 100% – Investment holding
Manson Grand International Limited
(“Manson Grand”) ...............
(y)/(ee) Hong Kong
21 December 2010
USD12.82 100% – Trade of medical
testing equipments
ʮ̡
Adicon (Hangzhou) Clinical Laboratories
Co., Ltd. (“Hangzhou Adicon”) .........
(a) Hangzhou
16 January 2004
RMB45,059,724 – 100% Medical testing
services
ʮ̡
Adicon (Hefei) Clinical Laboratories
Co., Ltd. (“Hefei Adicon”) ...........
(b) Hefei
5 June 2006
RMB20,000,000 – 100% Medical testing
services
ʮ̡
Shanghai Jince Clinical Laboratories
Co., Ltd. (“Shanghai Adicon”) .........
(c)/(d) Shanghai
2 August 2006
RMB23,021,583 – 100% Medical testing
services
ʮ̡
Adicon (Jinan) Clinical Laboratories
Co., Ltd. (“Jinan Adicon”) ...........
(e) Jinan
19 October 2006
RMB20,000,000 – 100% Medical testing
services
ʮ̡
Adicon (Beijing) Clinical Laboratories
Co., Ltd. (“Beijing Adicon”) ..........
(f) Beijing
7 December 2007
RMB20,000,000 – 100% Medical testing
services
ʮ̡
Adicon (Nanchang) Clinical Laboratories
Co., Ltd. (“Nanchang Adicon”) .........
(g) Nanchang
10 September 2008
RMB5,000,000 – 100% Medical testing
services
ʮ̡
Adicon (Fuzhou) Clinical Laboratories
Co., Ltd. (“Fuzhou Adicon”) ..........
(h) Fuzhou
6 February 2009
RMB20,000,000 – 100% Medical testing
services
APPENDIX I ACCOUNTANTS’ REPORT
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Name Notes
Date and
place of
incorporation/
registration and
place of operations
Issued
ordinary share/
registered
capital
Percentage of
equity attributable
to the Company Principal activities
Direct Indirect
ʮ̡
Adicon (Jilin) Clinical Laboratories Co., Ltd.
(“Jilin Adicon”) .................
(i) Changchun
23 April 2009
RMB20,000,000 – 100% Medical testing
services
ʮ̡
Adicon (Wuhan) Clinical Laboratories
Co., Ltd. (“Wuhan Adicon”) ..........
(j) Wuhan
24 November 2009
RMB20,000,000 – 100% Medical testing
services
ʮ̡
Adicon (Nanjing) Clinical Laboratories
Co., Ltd. (“Nanjing Adicon”) ..........
(k) Nanjing
4 December 2009
RMB20,000,000 – 100% Medical testing
services
ʮ̡
Adicon (Changsha) Clinical Laboratories
Co., Ltd. (“Changsha Adicon”) .........
(l) Changsha
19 April 2010
RMB20,000,000 – 100% Medical testing
services
ʮ̡
Adicon (Chengdu) Clinical Laboratories
Co., Ltd. (“Chengdu Adicon”) .........
(m) Chengdu
11 June 2010
RMB20,000,000 – 100% Medical testing
services
ʮ̡
Adicon (Shenyang) Clinical Laboratories
Co., Ltd. (“Shenyang Adicon”) .........
(n) Shenyang
16 March 2011
RMB20,000,000 – 100% Medical testing
services
ה(౷ஷΥྫ)
Zhengzhou Adicon Clinical Partnership
(“Zhengzhou Adicon”) .............
(o) Zhengzhou
8 August 2012
RMB20,000,000 – 100% Medical testing
services
ʮ̡
Adicon (Guangzhou) Clinical Laboratories
Co., Ltd. (“Guangzhou Adicon”) ........
(p) Guangzhou
21 August 2013
RMB20,000,000 – 100% Medical testing
services
ʮ̡
Adicon (Tianjin) Clinical Laboratories
Co., Ltd. (“Tianjin Adicon”) ..........
(q) Tianjin
3 June 2014
RMB30,000,000 – 100% Medical testing
services
ʮ̡
Adicon (Yunnan) Clinical Laboratories
Co., Ltd. (“Yunnan Adicon”) ..........
(r) Kunming
2 February 2015
RMB20,000,000 – 100% Medical testing
services
ʮ̡
Adicon (Xi’an) Clinical Laboratories Co., Ltd.
(“Xi’an Adicon”) ................
(s) Xi’an
23 May 2016
RMB20,000,000 – 100% Medical testing
services
ʮ̡
Adicon (Sanming) Clinical Laboratories
Co., Ltd. (“Sanming Adicon”) .........
(t) Sanming
30 May 2016
RMB20,000,000 – 100% Medical testing
services
ʮ̡
Adicon (Chongqing) Clinical Laboratories
Co., Ltd. (“Chongqing Adicon”) ........
(u) Chongqing
21 September 2016
RMB20,000,000 – 100% Medical testing
services
ʮ̡
Adicon (Nanning) Clinical Laboratories
Co., Ltd. (“Nanning Adicon”) .........
(v) Nanning
23 November 2017
RMB20,000,000 – 100% Medical testing
services
ʮ̡
Qingdao Adicon Clinical Laboratories
Co., Ltd. (“Qingdao Adicon”) .........
(w)/(x) Qingdao
13 May 2019
RMB11,666,600 – 60% Medical testing
services
APPENDIX I ACCOUNTANTS’ REPORT
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--- page 366 ---
Name Notes
Date and
place of
incorporation/
registration and
place of operations
Issued
ordinary share/
registered
capital
Percentage of
equity attributable
to the Company Principal activities
Direct Indirect
ʮ̡
Hangzhou Huitu Biotechnology Co., Ltd.
(“Hangzhou Huitu”) ..............
(a)/(dd) Hangzhou
2 December 2010
RMB7,500,000 – 100% Trade of medical
testing equipments
ٵࠔ(ψ)ʮ̡
Aidiken (Hangzhou) Biotech Co., Ltd. (“Aidiken
WFOE”) ....................
(a) Hangzhou
18 July 2008
USD21,120,100 – 100% Investment holding
ʮ̡
Shanghai Lv’angjie BioTech Co., Ltd.
(“Shanghai Lv’angjie”) .............
(rr) Shanghai
15 October 2015
RMB1,000,000 – 100% Trade of medical
testing equipments
ʮ̡
Hangzhou Aiyijian Technology Co., Ltd.
(“Hangzhou Aiyijian”) .............
(hh) Hangzhou
8 April 2020
RMB10,000,000 – 100% Medical Technology
ʮ̡
Heilongjiang Adicon Clinical Laboratories
Co., Ltd. (“Heilongjiang Adicon”) .......
(ff)/(nn) Harbin
13 January 2020
RMB20,000,000 – 75% Medical testing
services
ʮ̡
Quzhou Adicon Clinical Laboratories Co., Ltd.
(“Quzhou Adicon”) ...............
(bb) Quzhou
6 January 2020
RMB20,000,000 – 70% Medical testing
services
ʮ̡
Chengdu Jinniu Aidikang Medical Inspection &
Testing Laboratories Co., Ltd.
(“Chengdu Jinniu Adicon”) ...........
(gg)/(ff) Chengdu
21 June 2019
RMB10,000,000 – 51% Medical testing
services
܃
Shenzhen Adicon Clinical Laboratories
Co., Ltd. (“Shenzhen Adicon”) .........
(aa) Shenzhen
13 May 2019
RMB13,333,300 – 60% Medical testing
services
ʮ̡
Xiamen Guomao Adicon Clinical Laboratories
Co., Ltd. (“Xiamen Adicon”) ..........
(cc) Xiamen
25 September 2020
RMB30,000,000 – 51% Medical testing
services
ʮ̡
Shangrao Adicon Clinical Laboratory Co., Ltd.
(“Shangrao Adicon”) ..............
(ii) Shangrao
7 December 2020
RMB3,625,000 – 61% Medical testing
services
ʮ̡
Jiangxi Jince BioTech Co., Ltd (“Jiangxi Jince”) .
(jj) Shangrao
6 August 2020
RMB8,000,000 – 61% Trade of medical
testing equipments
ʮ̡
Zhengzhou Adicon Clinical Laboratories
Co., Ltd. (“Zhengzhou Adicon”) ........
(ff) Zhengzhou
22 June 2020
RMB20,000,000 – 100% Medical technology
ʮ̡
Suzhou Adicon Clinical Laboratories Co., Ltd.
(“Suzhou Adicon”) ...............
(ff)/(kk) Suzhou
3 August 2021
RMB30,000,000 – 51% Medical testing
services
ʮ̡
Guizhou Adicon Clinical Laboratories Center
Co., Ltd. (“Guizhou Adicon”) .........
(ff)/(ll) Guiyang
16 July 2021
RMB15,000,000 – 51% Medical testing
services
ʮ̡
Wenzhou Adicon Clinical Laboratories
Co., Ltd. (“Wenzhou Adicon”) .........
(ff)/(mm) Wenzhou
29 November 2021
RMB20,000,000 – 65% Medical testing
services
ʮ̡
Linyi Adicon Clinical Laboratories Co., Ltd.
(“Linyi Adicon”) ................
(ff)/(oo) Linyi
10 November 2021
RMB20,000,000 – 70% Medical testing
services
ʮ̡
Shijiazhuang Adicon Clinical Laboratories
Co., Ltd. (“Shijiazhuang Adicon”) .......
(ff) Shijiazhuang
21 June 2022
RMB20,000,000 – 100% Medical testing
services
ʮ̡
Xinyang Adicon Clinical Laboratories
Co., Ltd. (“Xinyang Adicon”) .........
(ff)/(pp) Xinyang
13 May 2022
RMB15,000,000 – 65% Medical testing
services
APPENDIX I ACCOUNTANTS’ REPORT
– I-14 –


--- page 367 ---
Name Notes
Date and
place of
incorporation/
registration and
place of operations
Issued
ordinary share/
registered
capital
Percentage of
equity attributable
to the Company Principal activities
Direct Indirect
ʮ̡
Henan Adicon Clinical Laboratories Co., Ltd.
(“Henan Adicon”) ................
(ff)/(qq) Shangqiu
16 October 2019
RMB20,000,000 – 51% Medical testing
services
(a) The statutory financial statements of these companies, for the years ended 31 December 2020 and 2021
prepared in accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) were audited by
Zhonghui Certified Public Accountants LLP (ה(౷ஷΥྫ)).
(b) The statutory financial statements of the company, for the years ended 31 December 2020 and 2021 prepared
in accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) were audited by Anhui
Anpingda Certified Public Accountants LLP (ה(౷ஷΥྫ)).
(c) The statutory financial statements of the company, for the years ended 31 December 2020 and 2021 prepared
in accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) were audited by Shanghai
Honghua Certified Public Accountants Co., Ltd. (ʮ̡).
(d) In June 2019, Shanghai Liye Enterprise Management Partnership (“Shanghai Liye”) invested 13% of equity
interest in Shanghai Adicon from Hangzhou Adicon at a consideration of RMB7,000,000, which diluted
Hangzhou Adicon’s continuing interest from 100% to 87%. This transaction adjusted down Hangzhou Adicon’s
equity interest by RMB8,497,000. The proportionate share of the carrying amount of the net assets of Shanghai
Adicon attributable to non-controlling interests of RMB1,497,000 was recognized accordingly. In January
2021, Shanghai Liye transferred its 13.125% equity interests of Shanghai Adicon to Hangzhou Adicon. The
Company then issued 295,705,697 (1,478,529 as adjusted after Share Consolidation) new shares to Liye Asset
Management Co., Limited (“Liye HK”) as a consideration of USD2,290,000. Upon completion of the
restructuring, Shanghai Adicon became a wholly-owned subsidiary of the Group.
(e) The statutory financial statements of the company, for the years ended 31 December 2020 and 2021 prepared
in accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) were audited by Unitax
Zhenqing Certified Public Accountants LLP Jinan Branch (ה(౷ஷΥྫ)ʱ
ה.)
f) The statutory financial statements of the company, for the years ended 31 December 2020 and 2021 prepared
in accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) were audited by Beijing
Jinshi Dehe Certified Public Accountants LLP (ה(౷ஷΥྫ)).
(g) The statutory financial statements of the company, for the years ended 31 December 2020 and 2021 prepared
in accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) were audited by Jiangxi
Wanjia Certified Public Accountants Co., Ltd. (ப΂ʮ̡).
(h) The statutory financial statements of the company, for the years ended 31 December 2020 and 2021 prepared
in accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) was audited by Fujian
Zhongxinda Certified Public Accountants Co., Ltd. (ʮ̡).
(i) The statutory financial statements of the company, for the years ended 31 December 2020 and 2021 prepared
in accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) were audited by Jilin
Zhiyuan Certified Public Accountants LLP. (ה(౷ஷΥྫ)).
(j) The statutory financial statements of the company, for the years ended 31 December 2020 and 2021 prepared
in accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) were audited by Hubei
Yinhe Certified Public Accountants Co., Ltd. (ʮ̡).
(k) The statutory financial statements of the company, for the year ended 31 December 2020 prepared in
accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) were audited by and Nanjing
Huasheng Xinwei Certified Public Accountants LLP. (ה(౷ஷΥྫ)).
The statutory financial statements of the company, for the year ended 31 December 2021 prepared in
accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) was audited by Nanjing
Huasheng Certified Public Accountants LLP (ה(౷ஷΥྫ)).
(l) The statutory financial statements of the company, for the year ended 31 December 2020 prepared in
accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) were audited by Zhongxi
Certified Public Accountants LLP Hunan Branch (ה(౷ஷΥྫ)ה.)
The statutory financial statements of the company, for the year ended 31 December 2021 prepared in
accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) was audited by Hunan
Huahui Certified Public Accountants Co., Ltd. (ப΂ʮ̡).
APPENDIX I ACCOUNTANTS’ REPORT
– I-15 –


--- page 368 ---
(m) The statutory financial statements of the company, for the years ended 31 December 2020 and 2021 prepared
in accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) were audited by Sichuan
Delian Certified Public Accountants Co., Ltd. (ʮ̡).
(n) The statutory financial statements of the company, for the years ended 31 December 2020 and 2021 prepared
in accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) were audited by Liaoning
Zhongwangcheng United Certified Public Accountants LLP (ה(౷ஷΥྫ)).
(o) The statutory financial statements of the company, for the years ended 31 December 2020 and 2021 prepared
in accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) were audited by Henan
Wanhui Certified Public Accountants LLP (ה(౷ஷΥྫ)).
(p) The statutory financial statements of the company, for the years ended 31 December 2020 and 2021 prepared
in accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) were audited by WUYIGE
Certified Public Accountants LLP (ה(౷ஷΥྫ)).
(q) The statutory financial statements of the company, for the years ended 31 December 2020 and 2021 prepared
in accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) were audited by Tianjin
Guangxin Certified Public Accountants Co., Ltd. (ה.)
r) The statutory financial statements of the company, for the years ended 31 December 2020 and 2021 prepared
in accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) were audited by Yunnan
Huachuang Certified Public Accountants Co., Ltd. (ΥྫΆุ(౷ஷΥྫ)).
(s) The statutory financial statements of the company, for the years ended 31 December 2020 and 2021 prepared
in accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) were audited by Shaanxi
Zhongqing Certified Public Accountants Co., Ltd. (ப΂ʮ̡).
(t) The statutory financial statements of the company, for the years ended 31 December 2020 and 2021 prepared
in accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) were audited by Xiamen
Xinzhou Certified Public Accountants Co., Ltd (ʮ̡).
(u) The statutory financial statements of the company, for the years ended 31 December 2020 and 2021 prepared
in accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) were audited by
Chongqing Zhanhua Certified Public Accountants Co., Ltd. (ʮ̡).
(v) The statutory financial statements of the company, for the years ended 31 December 2020 and 2021 prepared
in accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) were audited by Guangxi
Yongming Certified Public Accountants Co., Ltd. (ʮ̡).
(w) The statutory financial statements of the company, for the years ended 31 December 2020 and 2021 prepared
in accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) were audited by Unitax
Zhenqing Certified Public Accountants LLP Jinan Branch (ה(౷ஷΥྫ)ʱ
ה.)
x) Qingdao Adicon was established on 13 May 2019 by Hangzhou Adicon and certain individual investors with
a registered capital of RMB10,000,000. These individual investors subscribed 30% equity interests of Qingdao
Adicon and injected RMB1,340,000 and RMB1,210,000 in 2019 and 2020, respectively. In June 2021, certain
individual investors invested 10% of equity interest in Qindao Adicon from Hangzhou Adicon at a
consideration of RMB3,000,000, which diluted Hangzhou Adicon’s continuing interest from 70% to 60%. This
transaction adjusted down Hangzhou Adicon’s equity interest by RMB2,191,000. The proportionate share of
the carrying amount of the net assets of Qindao Adicon attributable to non-controlling interests of
RMB809,000 was recognized accordingly.
(y) The statutory financial statements of the company, for the years ended 31 December 2020 and 2021 prepared
in accordance with Hong Kong Financial Reporting Standard for Private Entities (“HKFRS for Private
Entities”) were audited by Reachtop KSHK CPA Limited (ʮ̡).
(z) The statutory financial statements of the company, for the year ended 31 December 2020 prepared in
accordance with Hong Kong Financial Reporting Standard for Private Entities (“HKFRS for Private Entities”)
were audited by Reachtop KSHK CPA Limited (ʮ̡).
The statutory financial statements of the company, for the year ended 31 December 2021 prepared in
accordance with Hong Kong Financial Reporting Standard for Private Entities (“HKFRS for Private Entities”)
was audited by Ernst & Young Hua Ming LLP Shanghai branch (ה(౷ஷΥྫ)ɪऎ
ה.)
aa) Shenzhen Adicon was established on 13 May 2019 by Hangzhou Adicon and certain individual investors with
a registered capital of RMB10,000,000. These individual investors subscribed 20% equity interests of
Shenzhen Adicon at a total consideration of RMB2,000,000 in 2020. In June 2021, certain individual investors
invested 20% of equity interest in Shenzhen Adicon from Hangzhou Adicon at a consideration of
RMB5,000,000, which diluted Hangzhou Adicon’s continuing interest from 80% to 60%. This transaction
adjusted down Hangzhou Adicon’s equity interest by RMB5,515,000. The proportionate share of the carrying
amount of the net assets of Shenzhen Adicon attributable to non-controlling interests of RMB515,000 was
recognized accordingly.
APPENDIX I ACCOUNTANTS’ REPORT
– I-16 –


--- page 369 ---
The statutory financial statements of the company, for the year ended 31 December 2021 prepared in
accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) was audited by Shenzhen
Yongming Accountant Firm Co., Ltd. (ப΂ʮ̡). No audited statutory financial
statement was prepared for the year ended 31 December 2020.
(bb) Quzhou Adicon was established on 6 January 2020 by Hangzhou Adicon and Zhejiang Meinuo Health
Management Co., Ltd (“Meinuo”) with a registered capital of RMB20,000,000. Meinuo subscribed 30% equity
interests of Quzhou Adicon at a total consideration of RMB6,000,000 and injected RMB2,000,000 in 2020.
The statutory financial statements of the company, for the year ended 31 December 2021 prepared in
accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) was audited by Quzhou
Shangxin Certified Public Accountants LLP (ה(౷ஷΥྫ)). No audited statutory
financial statement was prepared for the year ended 31 December 2020.
(cc) Xiamen Adicon was established on 25 September 2020 by Hangzhou Adicon and Fujian Qirun Trade Co. Ltd.
(“Fujian Qirun”) with a registered capital of RMB30,000,000. Fujian Qirun subscribed 49% equity interests
of Xiamen Adicon at a total consideration of RMB1,470,000 and injected RMB7,350,000 in 2020.
The statutory financial statements of the company, for the year ended 31 December 2021 prepared in
accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) was audited by Xiamen Jiajie
Huijing Accounting Firm (הNo audited statutory financial statement was
prepared for the year ended 31 December 2020.
(dd) 60% and 40% equity interests of Hangzhou Huitu were held by Hangzhou Adicon and certain individual
investors respectively. In June 2020, Aidiken WFOE acquired 40% equity interests of Hangzhou Huitu from
these individual investors at a consideration of RMB2,850,000. Hangzhou Huitu became a wholly-owned
subsidiary of the Group since then.
(ee) 60% and 40% equity interests of Manson Grand were held by the Company and certain individual investors
respectively. In May 2020, the Group issued 1,346,421,020 (6,732,106 as adjusted after Share Consolidation)
new shares of the Company (corresponding to a total value of RMB16,026,000) to acquire 40% of equity
interests of Manson Grand from these individual investors. Manson Grand became a wholly-owned subsidiary
of the Group since then.
(ff) No audited statutory financial statements prepared for these subsidiaries as they are either newly incorporated
or not required to issue audited financial statements under the statutory requirements of their respective of
incorporation.
(gg) Chengdu Jinniu Adicon was dissolved in October 2020. Prior to its dissolution in October 2020, Chengdu
Jinniu Adicon was owned as to 51% by Hangzhou Adicon , and 49% by two independent third parties, namely
Chengdu Sike Health Management Center (LP) (̙਄ੰ၍ଣʕː(Υྫ)) and Mr. LIU Yi ( ᄎᆇ).
The Company dissolved Chengdu Jinniu Adicon in October 2020 to streamline its corporate structure as it
never commenced operations, nor obtained any of the required licenses and permits. During the Track Record
Period, Chengdu Jinniu Adicon did not contribute to the revenue and profits of the Group.
(hh) The statutory financial statements of the company, for the years ended 31 December 2020 and 2021 prepared
in accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) were audited by Zhonghui
Certified Public Accountants LLP (ה(౷ஷΥྫ)).
(ii) Shangrao Adicon was established on 7 December 2020 by certain individual investors with a registered capital
of RMB3,625,000. In February 2021 and September 2021, Hangzhou Adicon acquired an aggregate of 61%
equity interests of Shangrao Adicon from these individual investors at a total consideration of
RMB25,149,000.
The statutory financial statements of the company, for the year ended 31 December 2021 prepared in
accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) was audited by Shangrao
Huaxin United Certified Public Accountants (הNo audited statutory financial
statement was prepared for the year ended 31 December 2020.
(jj) Jiangxi Jince was established on 6 August 2020 by certain individual investors with a registered capital of
RMB8,000,000. In February 2021 and September 2021, Aidiken WFOE acquired an aggregate of 61% equity
interests of Jiangxi Jince from these individual investors at a total consideration of RMB20,577,000.
The statutory financial statements of the company, for the year ended 31 December 2021 prepared in
accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) was audited by Shangrao
Huaxin United Certified Public Accountants (הNo audited statutory financial
statement was prepared for the year ended 31 December 2020.
(kk) Suzhou Adicon was established on 3 August 2021 by Hangzhou Adicon and Nantong Shunkang Investment
Center (LP) (“Shunkang”) with a registered capital of RMB30,000,000. Shunkang subscribed 49% equity
interests of Suzhou Adicon and injected RMB7,350,000 in 2021.
(ll) Guizhou Adicon was established on 16 July 2021 by Hangzhou Adicon and Guizhou Runyao Enterprise
Management Service Co., Ltd. (“Runyao”) and certain individual investor with a registered capital of
RMB15,000,000. Runyao and the individual investor subscribed 44% and 5% equity interests of Guizhou
Adicon respectively and injected a total amount of RMB3,675,000 and RMB3,675,000 respectively in 2021
and 2022.
APPENDIX I ACCOUNTANTS’ REPORT
– I-17 –


--- page 370 ---
(mm) Wenzhou Adicon was established on 29 November 2021 by Hangzhou Adicon and Wenzhou Hongmai Medical
Service Co., Ltd. (“Hongmai”) with a registered capital of RMB20,000,000. Hongmai subscribed 35% equity
interests of Wenzhou Adicon and injected RMB3,500,000 and RMB1,750,000 in 2021 and 2022 respectively.
(nn) Heilongjiang Adicon was established on 13 January 2020 by Hangzhou Adicon with a registered capital of
RMB10,000,000. On 9 December 2021, Hangzhou Adicon and certain individual investors increased the
registered capital RMB20,000,000. Those individual investors subscribed 25% equity interests of Heilongjiang
Adicon and injected RMB800,000 and RMB2,950,000 in 2021 and 2022 respectively.
(oo) Linyi Adicon was established on 10 November 2021 by Hangzhou Adicon and Linyi Zhenyang Investment Co.,
Ltd. (“Linyi Zhenyang”) with a registered capital of RMB20,000,000. Linyi Zhenyang subscribed 30% equity
interests of Linyi Adicon and injected RMB4,500,000 in 2022.
(pp) Xinyang Adicon was established on 13 May 2022 by Hangzhou Adicon and Henan Weixiang Medical
Instrument Co., Ltd. (“Henan Weixiang”) with a registered capital of RMB15,000,000. Henan Weixiang
subscribed 35% equity interests of Xinyang Adicon and injected RMB2,500,000 in 2022.
(qq) Henan Adicon was established on 16 October 2019 by Henan Xiangde Biotechnology Co., Ltd. (“Henan
Xiangde”) with a registered capital of RMB20,000,000. In May 2022, Hangzhou Adicon acquired 51% equity
interests of Henan Adicon from Henan Xiangde at a total consideration of RMB88,916,000.
(rr) The statutory financial statements of these companies, for the year ended 31 December 2021 prepared in
accordance with PRC Generally Accepted Accounting Principles (“PRC GAAP”) was audited by Zhonghui
Certified Public Accountants LLP (ה(౷ஷΥྫ)). No audited statutory financial
statement was prepared for the year ended 31 December 2020.
(ss) No statutory financial statements of these companies above prepared in accordance with PRC GAAP have been
audited for the year ended 31 December 2022 as at the date of this report.
* The English names of the PRC companies and statutory auditors referred to above in this note represent
management’s best efforts in translating the Chinese names of those companies as no English names have been
registered or are available.
The above table lists the subsidiaries of the Company which, in the opinion of the directors,
principally affected the results for the Relevant Periods or formed a substantial portion of the net
assets of the Group. To give details of other subsidiaries would, in the opinion of the directors,
result in particulars of excessive length.
2.1 BASIS OF PREPARATION
Pursuant to the Reorganization, as more fully explained in the paragraph headed
“Introduction” in the section headed “Contractual Arrangements” in this Prospectus, the Company
became the holding company of the companies now comprising the Group on 26 December 2008.
As the Reorganization only involved inserting new holding companies at the top of an existing
company and has not resulted in any changes of economic substance, the Historical Financial
Information for the Relevant Periods has been presented as a continuation of the existing company
using the pooling of interests method.
Accordingly, the Group resulting from the Reorganization is regarded as a continuation of the
Listing Business under Hangzhou Adicon and, for the purpose of this report, the Historical
Financial Information has been prepared and presented as a continuation of the Historical Financial
Information of Hangzhou Adicon and its subsidiaries, with the assets and liabilities of the Group
recognized and measured at the carrying amounts of the Listing Business under the Historical
Financial Information of Hangzhou Adicon for all periods presented.
The Historical Financial Information has been prepared in accordance with International
Financial Reporting Standards (“IFRSs”), which comprise all standards and interpretations
approved by the International Accounting Standards Board (the “IASB”).
The Historical Financial Information has been prepared under the historical cost convention,
except for derivative financial instruments, contingent consideration and convertible redeemable
preferred shares which have been measured at fair value.
APPENDIX I ACCOUNTANTS’ REPORT
– I-18 –


--- page 371 ---
Contractual Arrangements
Hangzhou Adicon and its subsidiaries (collectively, the “PRC Operating Entities”) are
engaged in the medical diagnostic testing service. Due to the restrictions imposed by the relevant
laws and regulatory regime of the PRC on foreign ownership of companies engaging in the medical
diagnostic testing services carried out by subsidiaries of the Group, Aidiken WFOE entered into a
series of contractual arrangements with Hangzhou Adicon and their equity holders on 26 December
2008 (“the 2008 Contractual Arrangements”).
The 2008 Contractual Arrangements enable, Aidiken WFOE to exercise effective control over
the PRC Operating Entities and, accordingly, Aidiken WFOE has rights to variable returns from its
involvement with the PRC Operating Entities and has the ability to affect those returns through its
power over the PRC Operating Entities.
Aidiken WFOE entered into a new series of contractual arrangements (“the 2018 Contractual
Arrangements”) with Hangzhou Adicon and their equity holders on 12 October 2018. The 2008
Contractual Arrangements terminated hereafter.
The 2018 Contractual Arrangements enable, Aidiken WFOE to exercise effective control over
the PRC Operating Entities and, accordingly, Aidiken WFOE has rights to variable returns from its
involvement with the PRC Operating Entities and has the ability to affect those returns through its
power over the PRC Operating Entities.
Accordingly, the Company regards the PRC Operating Entities as indirect subsidiaries for the
purpose of the Historical Financial Information and the historical financial information of the PRC
Operating Entities are combined in the Historical Financial Information for the Relevant Periods.
Details of the contractual arrangements are disclosed in the section headed “Contractual
Arrangements” in this Prospectus.
Basis of consolidation
The historical financial information includes the financial statements of the Group for the
Relevant Periods. A subsidiary is an entity (including a structured entity), directly or indirectly,
controlled by the Company. Control is achieved when the Group is exposed, or has rights, to
variable returns from its involvement with the investee and has the ability to affect those returns
through its power over the investee (i.e., existing rights that give the Group the current ability to
direct the relevant activities of the investee).
Generally, there is a presumption that a majority of voting rights results in control. When the
Company has, directly or indirectly, less than a majority of the voting or similar rights of an
investee, the Group considers all relevant facts and circumstances in assessing whether it has power
over an investee, including:
(a) the contractual arrangement with the other vote holders of the investee;
(b) rights arising from other contractual arrangements; and
(c) the Group’s voting rights and potential voting rights.
The financial statements of the subsidiaries are prepared for the same reporting period as the
Company, using consistent accounting policies. The results of subsidiaries are consolidated from
the date on which the Group obtains control and continue to be consolidated until the date that such
control ceases.
APPENDIX I ACCOUNTANTS’ REPORT
– I-19 –


--- page 372 ---
Profit or loss and each component of other comprehensive income are attributed to the owners
of the parent of the Group and to the non-controlling interests, even if this results in the
non-controlling interests having a deficit balance. All intra-group assets and liabilities, equity,
income, expenses and cash flows relating to transactions between members of the Group are
eliminated in full on consolidation.
The Group reassesses whether or not it controls an investee if facts and circumstances indicate
that there are changes to one or more of the three elements of control described above. A change
in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity
transaction.
If the Group loses control over a subsidiary, it derecognizes (i) the assets (including goodwill)
and liabilities of the subsidiary, (ii) the carrying amount of any non-controlling interest and (iii) the
cumulative translation differences recorded in equity; and recognizes (i) the fair value of the
consideration received, (ii) the fair value of any investment retained and (iii) any resulting surplus
or deficit in profit or loss. The Group’s share of components previously recognized in other
comprehensive income is reclassified to profit or loss or retained profits, as appropriate, on the
same basis as would be required if the Group had directly disposed of the related assets or
liabilities.
2.2 ISSUED BUT NOT YET EFFECTIVE INTERNATIONAL FINANCIAL REPORTING
STANDARDS
The Group has not applied the following new and revised IFRSs, that have been issued but are
not yet effective, in the Historical Financial Information.
Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor
and its Associate or Joint V enture
3
Amendments to IAS 16 Lease Liability in a Sale and Leaseback 2
IFRS 17 Insurance Contracts 1
Amendments to IFRS 17 Insurance Contracts 1, 5
Amendments to IFRS 17 Initial Application of IFRS 17 and IFRS 9 –
Comparative Information 6
Amendments to IAS 1 Classification of Liabilities as Current or Non-
current 2, 4
Amendments to IAS 1 and IFRS
Practice Statement 2
Disclosure of Accounting Policies
1
Amendments to IAS 8 Definition of Accounting Estimates 1
Amendments to IAS 12 Deferred Tax related to Assets and Liabilities arising
from a Single Transaction 1
Amendments to IAS 12 International Tax Reform – Pillar Two Model Rules 1
1 Effective for annual periods beginning on or after 1 January 2023
2 Effective for annual periods beginning on or after 1 January 2024
3 No mandatory effective date yet determined but available for adoption
4 As a consequence of the 2022 Amendments, the effective date of the 2020 Amendments was deferred to annual
periods beginning on or after 1 January 2024. In addition, as a consequence of the 2020 Amendments and 2022
Amendments, Hong Kong Interpretation 5 Presentation of Financial Statements – Classification by the
Borrower of a Term Loan that Contains a Repayment on Demand Clause was revised to align the corresponding
wording with no change in conclusion
5 As a consequence of the amendments to IAS 17, issued in October 2020, IAS 4 was amended to extend the
temporary exemption that permits insurers to apply IAS 39 rather than IAS 9 for annual periods beginning
before 1 January 2023
6 An entity that chooses to apply the transition option relating to the classification overlay set out in this
amendment shall apply it on initial application of IAS 17
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The Group is in the process of making an assessment of the impact of these new or revised
IFRSs upon initial application. Up to now, the Group considers that these standards will not have
a significant impact on the Group’s financial performance and financial position.
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The consideration
transferred is measured at the acquisition date fair value which is the sum of the acquisition date
fair values of assets transferred by the Group, liabilities assumed by the Group to the former owners
of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree.
For each business combination, the Group elects whether to measure the non-controlling interests
in the acquiree that are present ownership interests and entitle their holders to a proportionate share
of net assets in the event of liquidation at fair value or at the proportionate share of the acquiree’s
identifiable net assets. All other components of non-controlling interests are measured at fair value.
Acquisition-related costs are expensed as incurred.
The Group determines that it has acquired a business when the acquired set of activities and
assets includes an input and a substantive process that together significantly contribute to the ability
to create outputs.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date. This includes the separation of
embedded derivatives in host contracts of the acquiree.
If the business combination is achieved in stages, the previously held equity interest is
remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit
or loss.
Any contingent consideration to be transferred by the acquirer is recognised at fair value at
the acquisition date. Contingent consideration classified as an asset or liability is measured at fair
value with changes in fair value recognised in profit or loss. Contingent consideration that is
classified as equity is not remeasured and subsequent settlement is accounted for within equity.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration
transferred, the amount recognised for non-controlling interests and any fair value of the Group’s
previously held equity interests in the acquiree over the identifiable net assets acquired and
liabilities assumed. If the sum of this consideration and other items is lower than the fair value of
the net assets acquired, the difference is, after reassessment, recognised in profit or loss as a gain
on bargain purchase.
After initial recognition, goodwill is measured at cost less any accumulated impairment
losses. Goodwill is tested for impairment annually or more frequently if events or changes in
circumstances indicate that the carrying value may be impaired. The Group performs its annual
impairment test of goodwill as at 31 December. For the purpose of impairment testing, goodwill
acquired in a business combination is, from the acquisition date, allocated to each of the Group’s
cash-generating units, or groups of cash-generating units, that are expected to benefit from the
synergies of the combination, irrespective of whether other assets or liabilities of the Group are
assigned to those units or groups of units.
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Impairment is determined by assessing the recoverable amount of the cash-generating unit
(group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the
cash-generating unit (group of cash-generating units) is less than the carrying amount, an
impairment loss is recognised. An impairment loss recognised for goodwill is not reversed in a
subsequent period.
Where goodwill has been allocated to a cash-generating unit (or group of cash-generating
units) and part of the operation within that unit is disposed of, the goodwill associated with the
operation disposed of is included in the carrying amount of the operation when determining the gain
or loss on the disposal. Goodwill disposed of in these circumstances is measured based on the
relative value of the operation disposed of and the portion of the cash-generating unit retained.
Subsidiaries
A subsidiary is an entity (including a structured entity) over which the Group has control. The
Group controls an entity when the Group is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the
entity. Subsidiaries are consolidated from the date on which control is transferred to the Group.
They are deconsolidated from the date that control ceases.
When the Company has, directly or indirectly, less than a majority of the voting or similar
rights of an investee, the Group considers all relevant facts and circumstances in assessing whether
it has power over an investee, including:
(a) the contractual arrangement with the other vote holders of the investee;
(b) rights arising from other contractual arrangements; and
(c) the Group’s voting rights and potential voting rights.
Fair value measurement
The Group measures certain financial instruments at fair value at the end of each of the
Relevant Periods. Fair value is the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. The fair
value measurement is based on the presumption that the transaction to sell the asset or transfer the
liability takes place either in the principal market for the asset or liability, or in the absence of a
principal market, in the most advantageous market for the asset or liability. The principal or the
most advantageous market must be accessible by the Group. The fair value of an asset or a liability
is measured using the assumptions that market participants would use when pricing the asset or
liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s
ability to generate economic benefits by using the asset in its highest and best use or by selling it
to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximising the use of relevant observable inputs
and minimising the use of unobservable inputs.
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All assets and liabilities for which fair value is measured or disclosed in the financial
statements are categorised within the fair value hierarchy, described as follows, based on the lowest
level input that is significant to the fair value measurement as a whole:
Level 1 – based on quoted prices (unadjusted) in active markets for identical assets or
liabilities
Level 2 – based on valuation techniques for which the lowest level input that is significant to
the fair value measurement is observable, either directly or indirectly
Level 3 – based on valuation techniques for which the lowest level input that is significant to
the fair value measurement is unobservable
For assets and liabilities that are recognized in the financial statements on a recurring basis,
the Group determines whether transfers have occurred between levels in the hierarchy by
reassessing categorisation (based on the lowest level input that is significant to the fair value
measurement as a whole) at the end of each of the Relevant Periods.
Impairment of non-financial assets
Where an indication of impairment exists, or when annual impairment testing for an asset is
required (other than inventories, deferred tax assets, financial assets), the asset’s recoverable
amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating
unit’s value in use and its fair value less costs of disposal, and is determined for an individual asset,
unless the asset does not generate cash inflows that are largely independent of those from other
assets or groups of assets, in which case the recoverable amount is determined for the
cash-generating unit to which the asset belongs. In testing a cash-generating unit for impairment,
a portion of the carrying amount of a corporate asset (e.g., a headquarters building) is allocated to
an individual cash-generating unit if it can be allocated on a reasonable and consistent basis or,
otherwise, to the smallest group of cash-generating units.
An impairment loss is recognized only if the carrying amount of an asset exceeds its
recoverable amount. In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset. An impairment loss is charged to the profit or
loss in the period in which it arises in those expense categories consistent with the function of the
impaired asset.
An assessment is made at the end of each of the Relevant Periods as to whether there is an
indication that previously recognized impairment losses may no longer exist or may have decreased.
If such an indication exists, the recoverable amount is estimated. A previously recognized
impairment loss of an asset other than goodwill is reversed only if there has been a change in the
estimates used to determine the recoverable amount of that asset, but not to an amount higher than
the carrying amount that would have been determined (net of any depreciation/amortization) had no
impairment loss been recognized for the asset in prior years. A reversal of such an impairment loss
is credited to profit or loss in the period in which it arises.
Related parties
A party is considered to be related to the Group if:
(a) the party is a person or a close member of that person’s family and that person
(i) has control or joint control over the Group;
(ii) has significant influence over the Group; or
(iii) is a member of the key management personnel of the Group or of a parent of the
Group;
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or
(b) the party is an entity where any of the following conditions applies:
(i) the entity and the Group are members of the same group;
(ii) one entity is an associate or joint venture of the other entity (or of a parent,
subsidiary or fellow subsidiary of the other entity);
(iii) the entity and the Group are joint ventures of the same third party;
(iv) one entity is a joint venture of a third entity and the other entity is an associate of
the third entity;
(v) the entity is a post-employment benefit plan for the benefit of employees of either
the Group or an entity related to the Group;
(vi) the entity is controlled or jointly controlled by a person identified in (a);
(vii) a person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity); and
(viii) the entity, or any member of a group of which it is a part, provides key management
personnel services to the Group or the parent of the Group.
Property and equipment and depreciation
Property and equipment, other than construction in progress, are stated at cost less
accumulated depreciation and any impairment losses. The cost of an item of property and equipment
comprises its purchase price and any directly attributable costs of bringing the asset to its working
condition and location for its intended use.
Cost may also include transfers from equity of any gains or losses on qualifying cash flow
hedges of foreign currency purchases of property and equipment.
Expenditure incurred after items of property and equipment have been put into operation, such
as repairs and maintenance, is normally charged to the profit or loss in the period in which it is
incurred. In situations where the recognition criteria are satisfied, the expenditure for a major
inspection is capitalized in the carrying amount of the asset as a replacement. Where significant
parts of property and equipment are required to be replaced at intervals, the Group recognizes such
parts as individual assets with specific useful lives and depreciates them accordingly.
Depreciation is calculated on the straight-line basis to write off the cost of each item of
property and equipment to its residual value over its estimated useful life. The estimated useful lives
of property and equipment are as follows:
Office and electronic equipment ..................................... 5 years
Laboratory equipment .............................................. 5 years
Motor vehicles .................................................... 5 years
Leasehold improvements ........................................... 5 - 8 years
Where parts of an item of property and equipment have different useful lives, the cost of that
item is allocated on a reasonable basis among the parts and each part is depreciated separately.
Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate,
at least at each financial year end.
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An item of property and equipment including any significant part initially recognized is
derecognized upon disposal or when no future economic benefits are expected from its use or
disposal. Any gain or loss on disposal or retirement recognized in the profit or loss in the year the
asset is derecognized is the difference between the net sales proceeds and the carrying amount of
the relevant asset.
Construction in progress represents a building under construction, which is stated at cost less
any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and
capitalized borrowing costs on related borrowed funds during the period of construction.
Construction in progress is reclassified to the appropriate category of property and equipment when
completed and ready for use.
Other intangible assets (other than goodwill)
Other intangible assets acquired separately are measured on initial recognition at cost. The
cost of other intangible assets acquired in a business combination is the fair value at the date of
acquisition. The useful lives of other intangible assets are assessed to be either finite or indefinite.
Other intangible assets with finite lives are subsequently amortized over the useful economic life
and assessed for impairment whenever there is an indication that the other intangible asset may be
impaired. The amortization period and the amortization method for other intangible asset with a
finite useful life are reviewed at least at each financial year end.
Other intangible assets with indefinite useful lives are tested for impairment annually either
individually or at the cash-generating unit level. Such other intangible assets are not amortized. The
useful life of other intangible assets with an indefinite life is reviewed annually to determine
whether the indefinite life assessment continues to be supportable. If not, the change in the useful
life assessment from indefinite to finite is accounted for on a prospective basis.
Other intangible assets are amortized on the straight-line basis over the following useful
economic lives:
Software ............................................................ 1 0 years
Patents .............................................................. 10-20 years
Customer Relationship ................................................ 2 0 years
Patents and software
Purchased patents and software are stated at cost less any impairment losses and are amortized
on the straight-line basis over their estimated useful lives of 10 to 20 years.
Customer Relationship
Customer Relationship acquired in a business combination and recognized separately from
goodwill is initially recognized at its fair value at the acquisition date. It is amortized on the
straight-line basis over its estimated useful life of 20 years.
The useful economic life of 10 to 20 years for the patents is based on the anticipated number
of years the patents will retire due to more advanced technologies. The useful economic life of 10
years for software is estimated by considering the period of the economic benefits to the Group. The
useful economic life of 20 years for customer relationship is based on the anticipated number of
years the existing customer of the acquired entities likely to contribute revenue to the Group.
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Research and development costs
All research costs are charged to the profit or loss as incurred.
Expenditure incurred on projects to develop new products is capitalized and deferred only
when the Group can demonstrate the technical feasibility of completing the intangible asset so that
it will be available for use or sale, its intention to complete and its ability to use or sell the asset,
how the asset will generate future economic benefits, the availability of resources to complete the
project and the ability to measure reliably the expenditure during the development. Product
development expenditure which does not meet these criteria is expensed when incurred.
Leases
The Group assesses at contract inception whether a contract is, or contains, a lease. A contract
is, or contains, a lease if the contract conveys the right to control the use of an identified asset for
a period of time in exchange for consideration.
Group as a lessee
The Group applies a single recognition and measurement approach for all leases, except for
short-term leases and leases of low-value assets. The Group recognizes lease liabilities to make
lease payments and right-of-use assets representing the right to use the underlying assets. At
inception or on reassessment of a contract that contains a lease component and non-lease
component(s), the Group adopts the practical expedient not to separate non-lease component(s) and
to account for the lease component and the associated non-lease component(s) (e.g., property
management services for leases of properties) as a single lease component.
(a) Right-of-use assets
Right-of-use assets are recognized at the commencement date of the lease (that is the date the
underlying asset is available for use). Right-of-use assets are measured at cost, less any
accumulated depreciation and any impairment losses, and adjusted for any remeasurement of lease
liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial
direct costs incurred, and lease payments made at or before the commencement date less any lease
incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of
the lease terms and the estimated useful lives of the assets as follows:
Properties ......................................................... 2 t o 1 0 years
Equipment ......................................................... 2 t o 5 years
If ownership of the leased asset transfers to the Group by the end of the lease term or the cost
reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life
of the asset.
(b) Lease liabilities
Lease liabilities are recognized at the commencement date of the lease at the present value of
lease payments to be made over the lease term. The lease payments include fixed payments
(including in-substance fixed payments) less any lease incentives receivable, variable lease
payments that depend on an index or a rate, and amounts expected to be paid under residual value
guarantees. The lease payments also include the exercise price of a purchase option reasonably
certain to be exercised by the Group and payments of penalties for termination of a lease, if the
lease term reflects the Group exercising the option to terminate. The variable lease payments that
do not depend on an index or a rate are recognized as an expense in the period in which the event
or condition that triggers the payment occurs.
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In calculating the present value of lease payments, the Group uses its incremental borrowing
rate at the lease commencement date because the interest rate implicit in the lease is not readily
determinable. After the commencement date, the amount of lease liabilities is increased to reflect
the accretion of interest and reduced for the lease payments made. In addition, the carrying amount
of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in
lease payments (e.g., a change to future lease payments resulting from a change in an index or rate)
or a change in assessment of an option to purchase the underlying asset.
The Group’s lease liabilities are included in interest-bearing bank borrowings.
(c) Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term leases of
machinery and equipment (that is those leases that have a lease term of 12 months or less from the
commencement date and do not contain a purchase option). It also applies the recognition
exemption for leases of low-value assets to leases of office equipment that are considered to be of
low value. Lease payments on short-term leases and leases of low-value assets are recognized as an
expense on a straight-line basis over the lease term.
Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently measured at amortized
cost, fair value through other comprehensive income, and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s
contractual cash flow characteristics and the Group’s business model for managing them. With the
exception of trade receivables that do not contain a significant financing component or for which
the Group has applied the practical expedient of not adjusting the effect of a significant financing
component, the Group initially measures a financial asset at its fair value, plus in the case of a
financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do
not contain a significant financing component or for which the Group has applied the practical
expedient are measured at the transaction price determined under IFRS 15 in accordance with the
policies set out for “Revenue recognition” below.
In order for a financial asset to be classified and measured at amortized cost or fair value
through other comprehensive income, it needs to give rise to cash flows that are solely payments
of principal and interest (“SPPI”) on the principal amount outstanding. Financial assets with cash
flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective
of the business model.
The Group’s business model for managing financial assets refers to how it manages its
financial assets in order to generate cash flows. The business model determines whether cash flows
will result from collecting contractual cash flows, selling the financial assets, or both. Financial
assets classified and measured at amortized cost are held within a business model with the objective
to hold financial assets in order to collect contractual cash flows, while financial assets classified
and measured at fair value through other comprehensive income are held within a business model
with the objective of both holding to collect contractual cash flows and selling. Financial assets
which are not held within the aforementioned business models are classified and measured at fair
value through profit or loss.
All regular way purchases and sales of financial assets are recognized on the trade date, that
is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are
purchases or sales of financial assets that require delivery of assets within the period generally
established by regulation or convention in the marketplace.
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Subsequent measurement
The subsequent measurement of financial assets depends on their classification as follows:
Financial assets at amortized cost (debt instruments)
Financial assets at amortized cost are subsequently measured using the effective interest
method and are subject to impairment. Gains and losses are recognized in the profit or loss when
the asset is derecognized, modified or impaired.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are carried in the statement of financial
position at fair value with net changes in fair value recognized in the profit or loss.
This category includes derivative instruments and equity investments which the Group had not
irrevocably elected to classify at fair value through other comprehensive income. Dividends on
equity investments classified as financial assets at fair value through profit or loss are also
recognized as other income in the profit or loss when the right of payment has been established, it
is probable that the economic benefits associated with the dividend will flow to the Group and the
amount of the dividend can be measured reliably.
A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is
separated from the host and accounted for as a separate derivative if the economic characteristics
and risks are not closely related to the host; a separate instrument with the same terms as the
embedded derivative would meet the definition of a derivative; and the hybrid contract is not
measured at fair value through profit or loss. Embedded derivatives are measured at fair value with
changes in fair value recognized in the profit or loss.
Reassessment only occurs if there is either a change in the terms of the contract that
significantly modifies the cash flows that would otherwise be required or a reclassification of a
financial asset out of the fair value through profit or loss category.
A derivative embedded within a hybrid contract containing a financial asset host is not
accounted for separately. The financial asset host together with the embedded derivative is required
to be classified in its entirety as a financial asset at fair value through profit or loss.
Derecognition of financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar
financial assets) is primarily derecognized (i.e., removed from the Group’s consolidated statement
of financial position) when:
 the rights to receive cash flows from the asset have expired; or
 the Group has transferred its rights to receive cash flows from the asset or has assumed
an obligation to pay the received cash flows in full without material delay to a third party
under a “pass-through” arrangement; and either (a) the Group has transferred
substantially all the risks and rewards of the asset, or (b) the Group has neither
transferred nor retained substantially all the risks and rewards of the asset, but has
transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered
into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risk and
rewards of ownership of the asset. When it has neither transferred nor retained substantially all the
risks and rewards of the asset nor transferred control of the asset, the Group continues to recognize
APPENDIX I ACCOUNTANTS’ REPORT
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the transferred asset to the extent of the Group’s continuing involvement. In that case, the Group
also recognizes an associated liability. The transferred asset and the associated liability are
measured on a basis that reflects the rights and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is
measured at the lower of the original carrying amount of the asset and the maximum amount of
consideration that the Group could be required to repay.
Impairment of financial assets
The Group recognizes an allowance for expected credit losses (“ECLs”) for all debt
instruments not held at fair value through profit or loss. ECLs are based on the difference between
the contractual cash flows due in accordance with the contract and all the cash flows that the Group
expects to receive, discounted at an approximation of the original effective interest rate. The
expected cash flows will include cash flows from the sale of collateral held or other credit
enhancements that are integral to the contractual terms.
General approach
ECLs are recognized in two stages. For credit exposures for which there has not been a
significant increase in credit risk since initial recognition, ECLs are provided for credit losses that
result from default events that are possible within the next 12 months (a 12-month ECL). For those
credit exposures for which there has been a significant increase in credit risk since initial
recognition, a loss allowance is required for credit losses expected over the remaining life of the
exposure, irrespective of the timing of the default (a lifetime ECL).
At each reporting date, the Group assesses whether the credit risk on a financial instrument
has increased significantly since initial recognition. When making the assessment, the Group
compares the risk of a default occurring on the financial instrument as at the reporting date with the
risk of a default occurring on the financial instrument as at the date of initial recognition and
considers reasonable and supportable information that is available without undue cost or effort,
including historical and forward-looking information.
For debt investments at fair value through other comprehensive income, the Group applies the
low credit risk simplification. At each reporting date, the Group evaluates whether the debt
investments are considered to have low credit risk using all reasonable and supportable information
that is available without undue cost or effort. In making that evaluation, the Group reassesses the
external credit ratings of the debt investments. In addition, the Group considers that there has been
a significant increase in credit risk when contractual payments are more than 30 days past due.
The Group considers a financial asset in default when contractual payments are 90 days past
due. However, in certain cases, the Group may also consider a financial asset to be in default when
internal or external information indicates that the Group is unlikely to receive the outstanding
contractual amounts in full before taking into account any credit enhancements held by the Group.
A financial asset is written off when there is no reasonable expectation of recovering the contractual
cash flows.
APPENDIX I ACCOUNTANTS’ REPORT
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Debt investments at fair value through other comprehensive income and financial assets at
amortized cost are subject to impairment under the general approach and they are classified within
the following stages for measurement of ECLs except for trade receivables and contract assets
which apply the simplified approach as detailed below.
Stage 1 – Financial instruments for which credit risk has not increased significantly since
initial recognition and for which the loss allowance is measured at an amount equal
to 12-month ECLs
Stage 2 – Financial instruments for which credit risk has increased significantly since initial
recognition but that are not credit-impaired financial assets and for which the loss
allowance is measured at an amount equal to lifetime ECLs
Stage 3 – Financial assets that are credit-impaired at the reporting date (but that are not
purchased or originated credit-impaired) and for which the loss allowance is
measured at an amount equal to lifetime ECLs
Simplified approach
For trade receivables and contract assets that do not contain a significant financing component
or when the Group applies the practical expedient of not adjusting the effect of a significant
financing component, the Group applies the simplified approach in calculating ECLs. Under the
simplified approach, the Group does not track changes in credit risk, but instead recognizes a loss
allowance based on lifetime ECLs at each reporting date. The Group has established a provision
matrix that is based on its historical credit loss experience, adjusted for forward-looking factors
specific to the debtors and the economic environment.
For trade receivables and contract assets that contain a significant financing component and
lease receivables, the Group chooses as its accounting policy to adopt the simplified approach in
calculating ECLs with policies as described above.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value
through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.
All financial liabilities are recognized initially at fair value and, in the case of loans and
borrowings and payables, net of directly attributable transaction costs.
The Group’s financial liabilities include trade and other payables, convertible redeemable
preferred shares, amounts due to related parties, lease liabilities and interest-bearing bank
borrowings.
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Subsequent measurement
The subsequent measurement of financial liabilities depends on their classification as follows:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for
trading and financial liabilities designated upon initial recognition as at fair value through profit or
loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of
repurchasing in the near term. This category also includes derivative financial instruments entered
into by the Group that are not designated as hedging instruments in hedge relationships as defined
by IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are
designated as effective hedging instruments. Gains or losses on liabilities held for trading are
recognized in the profit or loss. The net fair value gain or loss recognized in the profit or loss does
not include any interest charged on these financial liabilities.
Financial liabilities designated upon initial recognition as at fair value through profit or loss
are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied. Gains
or losses on liabilities designated at fair value through profit or loss are recognized in the profit or
loss, except for the gains or losses arising from the Group’s own credit risk which are presented in
other comprehensive income with no subsequent reclassification to the profit or loss. The net fair
value gain or loss recognized in the profit or loss does not include any interest charged on these
liabilities.
Financial liabilities at amortized cost (loans and borrowings)
After initial recognition, interest-bearing loans and borrowings are subsequently measured at
amortized cost, using the effective interest rate method unless the effect of discounting would be
immaterial, in which case they are stated at cost. Gains and losses are recognized in the profit or
loss when the liabilities are derecognized as well as through the effective interest rate amortization
process.
Amortized cost is calculated by taking into account any discount or premium on acquisition
and fees or costs that are an integral part of the effective interest rate. The effective interest rate
amortization is included in finance costs in the profit or loss.
Put option over non-controlling interests
The financial liability for the put option over non-controlling interests is recognized at the
present value of the amount payable upon exercise of the put option. On initial recognition, the
corresponding debit is made to another component of equity attributable to the parent. All
subsequent changes in the carrying amount of the financial liability that result from the
remeasurement are recognized in the profit or loss attributable to the parent.
Derecognition of financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged or
cancelled, or expires.
When an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially modified, such an
exchange or modification is treated as a derecognition of the original liability and a recognition of
a new liability, and the difference between the respective carrying amounts is recognized in the
profit or loss.
APPENDIX I ACCOUNTANTS’ REPORT
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Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the
statement of financial position if there is a currently enforceable legal right to offset the recognized
amounts and there is an intention to settle on a net basis, or to realize the asset and settle the
liabilities simultaneously.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined on the
first-in, first-out basis and, in the case of work in progress and finished goods, comprises direct
materials, direct labour and an appropriate proportion of overheads. Net realisable value is based
on estimated selling prices less any estimated costs to be incurred to completion and disposal.
Cash and bank balances
For the purpose of the consolidated statement of cash flows, cash and cash balances comprise
cash on hand and demand deposits, and short term highly liquid investments that are readily
convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and
have a short maturity of generally within three months when acquired, less bank overdrafts which
are repayable on demand and form an integral part of the Group’s cash management.
For the purpose of the consolidated statement of financial position, cash and cash balances
comprise cash on hand and at banks, including assets similar in nature to cash.
Provisions
A provision is recognized when a present obligation (legal or constructive) has arisen as a
result of a past event and it is probable that a future outflow of resources will be required to settle
the obligation, provided that a reliable estimate can be made of the amount of the obligation.
When the effect of discounting is material, the amount recognized for a provision is the
present value at the end of the reporting period of the future expenditures expected to be required
to settle the obligation. The increase in the discounted present value amount arising from the
passage of time is included in finance costs in the profit or loss.
Income tax
Income tax comprises current and deferred tax. Income tax relating to items recognized
outside profit or loss is recognized outside profit or loss, either in other comprehensive income or
directly in equity.
Current tax assets and liabilities are measured at the amount expected to be recovered from
or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period, taking into consideration interpretations
and practices prevailing in the countries in which the Group operates.
Deferred tax is provided, using the liability method, on all temporary differences at the end
of the reporting period between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, except:
 when the deferred tax liability arises from the initial recognition of goodwill or an asset
or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss; and
APPENDIX I ACCOUNTANTS’ REPORT
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 in respect of taxable temporary differences associated with investments in subsidiaries,
when the timing of the reversal of the temporary differences can be controlled and it is
probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, and the
carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to
the extent that it is probable that taxable profit will be available against which the deductible
temporary differences, the carryforward of unused tax credits and unused tax losses can be utilized,
except:
 when the deferred tax asset relating to the deductible temporary differences arises from
the initial recognition of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting profit nor
taxable profit or loss; and
 in respect of deductible temporary differences associated with investments in
subsidiaries, associates and joint ventures, deferred tax assets are only recognized to the
extent that it is probable that the temporary differences will reverse in the foreseeable
future and taxable profit will be available against which the temporary differences can
be utilized.
The carrying amount of deferred tax assets is reviewed at the end of each of the Relevant
Periods and reduced to the extent that it is no longer probable that sufficient taxable profit will be
available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax
assets are reassessed at the end of each of the Relevant Periods and are recognized to the extent that
it has become probable that sufficient taxable profit will be available to allow all or part of the
deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to
the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that
have been enacted or substantively enacted by the end of each of the reporting period.
Deferred tax assets and deferred tax liabilities are offset if and only if the Group has a legally
enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets
and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the
same taxable entity or different taxable entities which intend either to settle current tax liabilities
and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each
future period in which significant amounts of deferred tax liabilities or assets are expected to be
settled or recovered.
Government grants
Government grants are recognized at their fair value where there is reasonable assurance that
the grant will be received, and all attaching conditions will be complied with. When the grant relates
to an expense item, it is recognized as income on a systematic basis over the periods that the costs,
which it is intended to compensate, are expensed.
Where the grant relates to an asset, the fair value is credited to a deferred income account and
is released to the profit or loss over the expected useful life of the relevant asset by equal annual
instalments or deducted from the carrying amount of the asset and released to the profit or loss by
way of a reduced depreciation charge.
APPENDIX I ACCOUNTANTS’ REPORT
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Revenue recognition
Revenue from contracts with customers
Revenue from contracts with customers is recognized when control of goods or services is
transferred to the customers at an amount that reflects the consideration to which the Group expects
to be entitled in exchange for those goods or services.
When the consideration in a contract includes a variable amount, the amount of consideration
is estimated to which the Group will be entitled in exchange for transferring the goods or services
to the customer. The variable consideration is estimated at contract inception and constrained until
it is highly probable that a significant revenue reversal in the amount of cumulative revenue
recognized will not occur when the associated uncertainty with the variable consideration is
subsequently resolved.
When the contract contains a financing component which provides the customer with a
significant benefit of financing the transfer of goods or services to the customer for more than one
year, revenue is measured at the present value of the amount receivable, discounted using the
discount rate that would be reflected in a separate financing transaction between the Group and the
customer at contract inception. When the contract contains a financing component which provides
the Group a significant financial benefit for more than one year, revenue recognized under the
contract includes the interest expense accreted on the contract liability under the effective interest
method. For a contract where the period between the payment by the customer and the transfer of
the promised goods or services is one year or less, the transaction price is not adjusted for the
effects of a significant financing component, using the practical expedient in IFRS 15.
(a) Medical diagnostic testing services
The Group earns revenue by providing specialized diagnostic testing to hospitals or individual
patient customers based on a written test requisition form. The services period of each specialized
diagnostic testing is generally within two to seven business days.
Revenue from specialized diagnostic testing is recognized at a point in time when control of
the asset is transferred to the customer, generally on delivery of the testing report.
(b) Sales of medical products
Revenue from the sale of pharmaceutical products is recognized at the point in time when
control of the asset is transferred to the customer, generally on delivery of the medical products to
the customer.
(c) Testing services for R&D projects and others
The Group generally enters into contracts of Contract Research Organization Services (“CRO
services”) with sponsors of clinical trials, pharmaceutical and medical device companies and
research institutes to provide research and clinical trial services ranging in duration from one month
to several years.
Revenue from testing services for R&D projects and others is recognized overtime when the
Group has an enforceable right to payment for performance completed to date. The progress of
research services is measured based on outputs to the satisfaction of related performance obligation
of research services (output method). In an output method, revenue is determined by multiplying
that percentage of the actual units of output achieved by the total contract value.
APPENDIX I ACCOUNTANTS’ REPORT
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--- page 387 ---
Some contracts for the sale of medical products provide customers with rights of return. The
rights of return give rise to variable consideration. For contracts which provide a customer with a
right to return the goods within a specified period, the expected value method is used to estimate
the goods that will not be returned because this method best predicts the amount of variable
consideration to which the Group will be entitled. The requirements in IFRS 15 on constraining
estimates of variable consideration are applied in order to determine the amount of variable
consideration that can be included in the transaction price. For goods that are expected to be
returned, instead of revenue, a refund liability is recognized. A right-of-return asset (and the
corresponding adjustment to cost of sales) is also recognized for the right to recover products from
a customer.
Other income
Interest income is recognized on an accrual basis using the effective interest method by
applying the rate that exactly discounts the estimated future cash receipts over the expected life of
the financial instrument or a shorter period, when appropriate, to the net carrying amount of the
financial asset.
Rental income is recognized on a time proportion basis over the lease terms.
Share-based payments
The Company operates a share incentive plan for the purpose of providing incentives and
rewards to eligible participants who contribute to the success of the Group’s operations. Employees
(including directors) of the Group receive remuneration in the form of share-based payments,
whereby employees render services in exchange for equity instruments (“equity-settled
transactions”).
The cost of equity-settled transactions with employees for grants after 7 November 2002 is
measured by reference to the fair value at the date at which they are granted. The fair value is
determined by an external valuer using a binomial model, further details of which are given in note
33 to the Historical Financial Information.
The cost of equity-settled transactions is recognized in employee benefit expense, together
with a corresponding increase in equity, over the period in which the performance and/or service
conditions are fulfilled. The cumulative expense recognized for equity-settled transactions at the
end of each of the Relevant Periods until the vesting date reflects the extent to which the vesting
period has expired and the Group’s best estimate of the number of equity instruments that will
ultimately vest. The charge or credit to the profit or loss for a period represents the movement in
the cumulative expense recognized as at the beginning and end of that period.
Service and non-market performance conditions are not taken into account when determining
the grant date fair value of awards, but the likelihood of the conditions being met is assessed as part
of the Group’s best estimate of the number of equity instruments that will ultimately vest. Market
performance conditions are reflected within the grant date fair value. Any other conditions attached
to an award, but without an associated service requirement, are considered to be non-vesting
conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an
immediate expensing of an award unless there are also service and/or performance conditions.
For awards that do not ultimately vest because non-market performance and/or service
conditions have not been met, no expense is recognized. Where awards include a market or
non-vesting condition, the transactions are treated as vesting irrespective of whether the market or
non-vesting condition is satisfied, provided that all other performance and/or service conditions are
satisfied.
APPENDIX I ACCOUNTANTS’ REPORT
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--- page 388 ---
The dilutive effect of outstanding options/RSUs is reflected as additional share dilution in the
computation of earnings per share.
Other employee benefits
Pension scheme
The employees of the Group’s subsidiary which operates in Mainland China are required to
participate in a central pension scheme operated by the local municipal government. This subsidiary
is required to contribute a certain percentage of its payroll costs to the central pension scheme. The
contributions are charged to the profit or loss as they become payable in accordance with the rules
of the central pension scheme.
The Group contributes on a monthly basis to various defined contribution plans organized by
the relevant governmental authorities in various areas other than Mainland China. The Group’s
liability in respect of these plans is limited to the contributions payable at the end of each period.
Contributions to these plans are expensed as incurred.
Housing fund – Mainland China
The Group contributes on a monthly basis to a defined contribution housing fund plan
operated by the local municipal government. Contributions to this plan by the Group are expensed
as incurred.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of
qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their
intended use or sale, are capitalized as part of the cost of those assets. The capitalization of such
borrowing costs ceases when the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their
expenditure on qualifying assets is deducted from the borrowing costs capitalized. All other
borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of
interest and other costs that an entity incurs in connection with the borrowing of funds.
Foreign currencies
The Historical Financial Information is presented in RMB, which is different from the
Company’s functional currency, United States dollar (“USD”). As the major revenues and assets of
the Group are derived from operations in Mainland China, RMB is chosen as the presentation
currency to present the Historical Financial Information. Each entity in the Group determines its
own functional currency and items included in the financial statements of each entity are measured
using that functional currency. Foreign currency transactions recorded by the entities in the Group
are initially recorded using their respective functional currency rates prevailing at the dates of the
transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the
functional currency rates of exchange ruling at the end of each of the Relevant Periods. Differences
arising on settlement or translation of monetary items are recognized in profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency are
translated using the exchange rates at the dates of the initial transactions. Non-monetary items
measured at fair value in a foreign currency are translated using the exchange rates at the date when
the fair value was measured. The gain or loss arising on translation of a non-monetary item
measured at fair value is treated in line with the recognition of the gain or loss on change in fair
value of the item.
APPENDIX I ACCOUNTANTS’ REPORT
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--- page 389 ---
In determining the exchange rate on initial recognition of the related asset, expense or income
on the derecognition of a non-monetary asset or non-monetary liability relating to an advance
consideration, the date of initial transaction is the date on which the Group initially recognizes the
non-monetary asset or non-monetary liability arising from the advance consideration. If there are
multiple payments or receipts in advance, the Group determines the transaction date for each
payment or receipt of the advance consideration.
The functional currencies of the Company and certain overseas subsidiaries are currencies
other than RMB. As at the end of each of the Relevant Periods, the assets and liabilities of these
entities are translated into RMB at the exchange rates prevailing at the end of each of the reporting
period and their statements of profit or loss are translated into RMB at the exchange rates that
approximate to those prevailing at the dates of the transactions.
The resulting exchange differences are recognized in other comprehensive income and
accumulated in the exchange fluctuation reserve. On disposal of a foreign operation, the component
of other comprehensive income relating to that particular foreign operation is recognized in the
profit or loss. For the purpose of the consolidated statement of cash flows, the cash flows of
overseas subsidiaries are translated into RMB at the exchange rates ruling at the dates of the cash
flows.
Frequently recurring cash flows of overseas subsidiaries which arise throughout the year or
period are translated into RMB at the weighted average exchange rates for the year or period.
3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of the Group’s Historical Financial Information requires management to make
judgements, estimates and assumptions that affect the reported amounts of revenues, expenses,
assets and liabilities, and their accompanying disclosures, and the disclosure of contingent
liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could
require a material adjustment to the carrying amounts of the assets or liabilities affected in the
future.
Estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at
the end of each of the reporting period, that have a significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities within the next financial year, are described below.
Impairment of goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This requires
an estimation of the value in use of the cash-generating units to which the goodwill is allocated.
Estimating the value in use requires the Group to make an estimate of the expected future cash flows
from the cash-generating units and also to choose a suitable discount rate in order to calculate the
present value of those cash flows. The carrying amount of goodwill as at 31 December 2022 was
RMB79,802,000. Further details are given in note 18 to the Historical Financial Information.
Provision for expected credit losses of trade and bills receivables
The Group uses a provision matrix to calculate ECLs for trade receivables. The provision rates
are based on days past due for groupings of various customer segments that have similar loss
patterns (i.e., by geography, product type, customer type and rating, and coverage by letters of
credit and other forms of credit insurance).
APPENDIX I ACCOUNTANTS’ REPORT
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--- page 390 ---
The provision matrix is initially based on the Group’s historical observed default rates. The
Group will calibrate the matrix to adjust the historical credit loss experience with forward-looking
information. At each reporting date, the historical observed default rates are updated and changes
in the forward-looking estimates are analyzed.
The assessment of the correlation among historical observed default rates, forecast economic
conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in
circumstances and forecast economic conditions. The Group’s historical credit loss experience and
forecast of economic conditions may also not be representative of a customer’s actual default in the
future. The information about the ECLs on the Group’s trade and bills receivables is disclosed in
notes 22 and 39 to the Historical Financial Information, respectively.
Deferred tax assets
Deferred tax assets are recognized for unused tax losses to the extent that it is probable that
taxable profit will be available against which the losses can be utilized. Significant management
estimation is required to determine the amount of deferred tax assets that can be recognized, based
upon the likely timing and level of future taxable profits together with future tax planning
strategies. The carrying values of deferred tax assets relating to recognized tax losses at 31
December 2020, 2021 and 2022 were RMB6,413,000, RMB16,888,000 and RMB26,932,000,
respectively. Further details are given in note 20 to the Historical Financial Information.
Fair value of financial instruments
The convertible redeemable preferred shares issued by the Group are not traded in an active
market and the respective fair values are determined by using valuation techniques, including
Black-Scholes option pricing model.
The fair values of convertible redeemable preferred shares at 31 December 2021 and 2022
were RMB621,878,000 and RMB589,179,000. Further details are set out in note 30 to the Historical
Financial Information.
The fair values of contingent consideration arising from acquisitions at 31 December 2021 and
2022 were RMB13,718,000 and RMB27,055,000. Further details are set out in note 27(e) to the
Historical Financial Information.
The fair values of derivative financial instruments at 31 December 2022 was RMB8,104,000.
Further details are set out in note 24 to the Historical Financial Information.
Leases – Estimating the incremental borrowing rate
The Group cannot readily determine the interest rate implicit in a lease, and therefore, it uses
an incremental borrowing rate (“IBR”) to measure lease liabilities. The IBR is the rate of interest
that the Group would have to pay to borrow over a similar term, and with a similar security, the
funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic
environment. The IBR therefore reflects what the Group “would have to pay”, which requires
estimation when no observable rates are available (such as for subsidiaries that do not enter into
financing transactions) or when it needs to be adjusted to reflect the terms and conditions of the
lease (for example, when leases are not in the subsidiary’s functional currency). The Group
estimates the IBR using observable inputs (such as market interest rates) when available and is
required to make certain entity-specific estimates (such as the subsidiary’s stand-alone credit
rating).
APPENDIX I ACCOUNTANTS’ REPORT
– I-38 –


--- page 391 ---
Performance-based stock options/RSUs
The Group estimates the number of share awards contingently issuable when determine the
share-based expenses, which depends on the achievement rate of the performance targets of the
Group under the Employee Incentive Plans (as defined in note 33 to the Historical Financial
Information). This requires an estimation of the performance targets to be achieved by the Group,
including total sales, sales by specified categories and net profit target for the vesting period. The
Group recorded RMB63,598,000, RMB37,325,000 and RMB15,049,000 share-based expenses
during the year ended 31 December 2020, 2021 and 2022.
4. OPERATING SEGMENT INFORMATION
Information about geographical areas
For management purposes, the Group is organized into a whole business unit based on their
products and services. Management monitors the results of the Group’s operating as a whole for the
purpose of making decisions about resource allocation and performance assessment.
Since nearly all of the Group’s non-current assets were located in Mainland China, no
geographical segment information is presented in accordance with IFRS 8 Operating Segments .
Information about major customers
No revenue from the Group’s sales to a single customer amounted to 10% or more of the
Group’s revenue during the Relevant Periods.
5. REVENUE
An analysis of revenue is as follows:
(i) Disaggregated revenue information
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Revenue from contracts with customers
Medical diagnostic testing services .............. 2,513,184 3,144,832 4,400,748
Sales of medical products ...................... 228,547 234,683 459,865
Total Revenue from contracts with customers ..... 2,741,731 3,379,515 4,860,613
Timing of revenue recognition
Goods transferred at a point in time ............. 2,723,158 3,359,979 4,833,099
Services transferred over time .................. 18,573 19,536 27,514
Total Revenue from contracts with customers ..... 2,741,731 3,379,515 4,860,613
APPENDIX I ACCOUNTANTS’ REPORT
– I-39 –


--- page 392 ---
The following table shows the amounts of revenue recognized during the Relevant Periods
that were included in the contract liabilities at the beginning of each of the Relevant Periods and
recognized from performance obligations satisfied in previous periods:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Revenue recognized that was included in
the contract liabilities balance at the beginning
of year: ............................... 3,951 11,665 20,683
(ii) Performance obligations
Testing services for R&D projects and others
Under testing services for R&D projects and others, revenue is recognized at the amount
to which the Group has the right to invoice for services performed. Therefore, under practical
expedient allowed by IFRS 15, the Group does not disclose the value of unsatisfied
performance obligation.
6. OTHER INCOME AND GAINS
An analysis of other income and gains, net is as follows:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Other income and gains
Bank interest income ................ 3,765 6,289 8,874
Government grants – income* ........ (a) 5,651 5,547 15,916
Gain on disposal of property, plant and
equipment and other intangible
assets ........................... 2 6 7 3 7 9 6 5 0
Gain on disposal of items of right-of-
use assets, net .................... – 4 1 9 6
Fair value gain on derivative financial
instruments ...................... (b) – – 7,826
Fair value gain on contingent
consideration ..................... (c) – – 13,337
COVID-19 related rent concessions . . . 2,439 – –
Others ............................ 5 6 4 2,129 4,202
Total .............................. 12,686 14,763 50,811
Notes:
(a) The amount mainly includes grants related to subsidies for employment and enterprise support and high-tech
enterprises. The increase from 2021 to 2022 is mainly due to the increase of employment and enterprise
support related subsidy received during 2022.
(b) The amount represents fair value change recorded during 2022 on interest rate cap contracts. Further details
are set out in note 24 to the Historical Financial Information.
(c) The amount represents fair value change recorded during 2022 on contingent consideration arising from
acquisitions. Further details are set out in note 27(e) to the Historical Financial Information.
APPENDIX I ACCOUNTANTS’ REPORT
– I-40 –


--- page 393 ---
* The government grants related to income have been received as compensation for expenses or losses already
incurred or for the purpose of giving immediate financial support to the Group with no future related costs are
recognized in profit or loss in the period upon actual receipt. There are no unfulfilled conditions or
contingencies relating to these grants.
7. OTHER EXPENSE
An analysis of other expenses, net is as follows:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Other expenses
Impairment losses, net of reversal
– Inventories ................................. – – 1,421
– Financial assets under ECL model ............ 32,556 39,704 111,653
Bank charges ................................. 2,785 777 1,580
Foreign exchange (gains)/losses, net ............. (1,427) 50 6,743
Losses on disposal of property and equipment
and other intangible assets ................... 1,684 3,713 2,408
Loss on disposal of items of right-of-use
assets, net ................................. 3 1 2 – –
Donation ..................................... – 2,582 3,523
Others ....................................... 1,802 1,704 1,112
Total ........................................ 37,712 48,530 128,440
APPENDIX I ACCOUNTANTS’ REPORT
– I-41 –


--- page 394 ---
8. PROFIT BEFORE TAX
The Group’s profit before tax is arrived at after charging/(crediting):
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Cost of services provided ...................... 1,433,819 1,796,839 2,570,710
Cost of inventories sold ....................... 191,252 140,287 393,738
Depreciation of property and equipment ......... 64,897 85,078 129,402
Depreciation of right-of-use assets .............. 48,221 51,157 59,163
Amortization of other intangible assets .......... 6 6 2 1,617 4,853
Fair value losses/(gain) on convertible redeemable
preferred shares ............................ – 61,531 (87,044)
Fair value gain on derivative financial
instruments ................................ – – (7,826)
Fair value gain on contingent consideration ...... – – (13,337)
Research and development costs ................ 102,009 125,446 162,746
Auditors’ remuneration ........................ 6,651 7,339 7,192
Listing expenses .............................. 16,179 35,290 9,664
Employee benefit expense (including directors’
remuneration as set out in note 10): ........... 787,536 979,051 1,206,731
Share awards ............................... 63,598 37,325 15,049
Salaries and other benefits ................... 662,793 768,744 973,201
Long-term cash incentive* .................. 9,851 – –
Pension scheme contributions, social welfare
and other welfare ......................... 51,294 172,982 218,481
Lease payments not included in the measurement
of lease liabilities ........................... 13,082 13,834 13,387
Bank interest income .......................... (3,765) (6,289) (8,874)
Finance cost ................................. 19,644 16,326 76,824
Foreign exchange (gains)/losses, net ............. (1,427) 50 6,743
Losses on disposal of items of property and
equipment and other intangible assets ......... 1,417 3,334 1,758
Loss/(Gain) on disposal of items of right-of-use
asset, net .................................. 3 1 2 (419) (6)
Provision of expected credit losses, net
of reversal ................................. 32,556 39,704 111,653
* The cash incentive plan was in connection with the investments of Pearl Group Limited in the Group (details
of the investments are set out under the paragraph headed “History, Reorganization and Corporate Structure
– Round A Pre-IPO Investments” in this Prospectus) in order to motivate and retain the key management and
employees of the Group. Pursuant to the plan, a total of RMB42,461,000 incentives shall be paid in cash to
qualified management and employees in three installments in 2018, 2019 and 2020. The Group recorded
RMB9,851,000 operating expenses in 2020.
APPENDIX I ACCOUNTANTS’ REPORT
– I-42 –


--- page 395 ---
9. FINANCE COSTS
An analysis of finance costs is as follows:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Interest expenses on:
Bank borrowings ............................ 6,613 5,702 49,667
Lease liabilities ............................. 10,833 10,624 13,705
Loans from shareholders (note 37 (b)(i)) ....... 2,198 – –
Transaction costs for derivative financial
instruments ................................ – – 13,452
19,644 16,326 76,824
10. DIRECTORS’ REMUNERATION AND CHIEF EXECUTIVE’S REMUNERATION
Directors’ and chief executive’s remuneration for the year or the period, disclosed pursuant to
the Listing Rules, section 383(1)(a), (b), (c) and (f) of the Hong Kong Companies Ordinance and
Part 2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation, is as
follows:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Fees ......................................... – – –
Salaries and bonuses .......................... 2,774 7,639 4,880
Social welfare and other benefits ............... 3 1 4 7 1 3 7
Share-based compensation expenses ............. 33,272 6,818 1,036
36,049 14,604 6,053
During the year, certain directors were granted share awards, in respect of their services to the
Group, under the share incentive plan of the Company, further details of which are set out in note
33 to the Historical Financial Information. The fair value of such share awards, which has been
recognized in the profit or loss over the vesting period, was determined as at the date of grant and
the amount included in the Historical Financial Information for the years ended 31 December 2020,
2021 and 2022 is included in the above directors’ and chief executive’s remuneration disclosures.
APPENDIX I ACCOUNTANTS’ REPORT
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--- page 396 ---
Executive directors, a non-executive director and the chief executive:
Notes Fees
Salaries
and
bonuses
Share-
based
payment
Social
welfare
and other
benefits
Total
remuneration
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
2020
Executive directors:
Mr. SHI Chenyang ...... (i) – 1,473 9,971 – 11,444
Mr. WU Jesse Jen-Wei . . . (ii) –––– –
Mr. WEN Haiyan ........ (ix) – 1,301 23,301 3 24,605
– 2,774 33,272 3 36,049
Non-executive directors:
Mr. LIN Feng ........... (iii) –––– –
Mr. LIN Jixun .......... (iv) –––– –
Ms. YANG Ling ........ (v) –––– –
Ms. FENG Janine
Junyuan .............. (vii) –––– –
Ms. LIM Kooi June ..... (viii) –––– –
–––– –
Notes Fees
Salaries
and
bonuses
Share-
based
payment
Social
welfare
and other
benefits
Total
remuneration
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
2021
Executive directors:
Mr. WU Jesse Jen-Wei . . . (ii) –––– –
Mr. WEN Haiyan ........ (ix) – 646 5,757 125 6,528
M r . X U K e............. (vi) – 5,416 789 11 6,216
Mr. Gao Song .......... (xii) – 1,577 272 11 1,860
– 7,639 6,818 147 14,604
Non-executive directors:
Mr. LIN Jixun .......... (iv) –––– –
Ms. YANG Ling ........ (v) –––– –
Ms. FENG Janine
Junyuan .............. (vii) –––– –
Ms. LIM Kooi June ..... (viii) –––– –
Mr. MI Brian Zihou ..... (x) –––– –
Mr. YEH Richard ....... (xi) –––– –
–––– –
APPENDIX I ACCOUNTANTS’ REPORT
– I-44 –


--- page 397 ---
Notes Fees
Salaries
and
bonuses
Share-
based
payment
Social
welfare
and other
benefits
Total
remuneration
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
2022
Executive directors:
Mr. WU Jesse Jen-Wei . . (ii) –––– –
Mr. Gao Song ......... (xii) – 4,880 1,036 137 6,053
– 4,880 1,036 137 6,053
Non-executive directors:
Mr. LIN Jixun ......... (iv) –––– –
Ms. YANG Ling ....... (v) –––– –
Ms. FENG Janine
Junyuan ............... (vii) –––– –
Ms. LIM Kooi June .... (viii) –––– –
Mr. MI Brian Zihou .... (x) –––– –
Mr. YEH Richard ...... (xi) –––– –
–––– –
Notes:
(i) Mr. SHI Chenyang was appointed as a director of the Company on 12 October 2018 and resigned from the
position on 12 May 2020 due to his intention to devote time on other business engagements.
(ii) Mr. WU Jen-Wei was appointed as a director of the Company on 12 October 2018 and was removed from the
position on 10 April 2022 due to death.
(iii) Mr. LIN Feng was appointed as a director of the Company on 19 December 2008 and resigned from the
position on 7 July 2020 due to his intention to devote time on other business engagements.
(iv) Mr. LIN Jixun was appointed as a director of the Company on 19 December 2008.
(v) Ms. YANG Ling was appointed as a director of the Company on 12 October 2018.
(vi) Mr. XU Ke was appointed as a chief director of the Company on 20 January 2021 and was removed from the
list of the directors of the Company on 24 November 2021.
(vii) Ms. FENG Janine Junyuan was appointed as a director of the Company on 12 August 2020.
(viii) Ms. LIM Kooi June was appointed as a director of the Company on 17 December 2020.
(ix) Mr. WEN Haiyan was appointed as a director of the Company on 30 November 2018 and resigned from the
position on 7 May 2021 due to his intention to devote time on other business engagements.
(x) Mr. MI Brian Zihou was appointed as a director of the Company on 15 April 2021.
(xi) Mr. YEH Richard was appointed as a director of the Company on 24 June 2021.
(xii) Mr. GAO Song was appointed as a director of the Company on 24 November 2021.
11. FIVE HIGHEST PAID EMPLOYEES
The five highest paid employees of the Group during the Relevant Periods included 2, 3 and
1 directors, respectively, details of whose remuneration are set out in note 10 to the Historical
Financial Information. Details of the remuneration of the remaining 3, 2 and 4 highest paid
employees who are not directors of the Company are as follows:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Salaries and bonuses .......................... 3,592 5,009 9,952
Social welfare and other benefits ............... 1 8 7 1 2 1 4 1 7
Share-based compensation expenses ............. 10,383 20,320 5,701
14,162 25,450 16,070
APPENDIX I ACCOUNTANTS’ REPORT
– I-45 –


--- page 398 ---
The number of non-director, highest paid employees whose remuneration fell within the
following bands is as follows:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
HKD2,000,001 to HKD2,500,000 ............... 1 – 2
HKD3,000,001 to HKD3,500,000 ............... – 1 1
HKD4,000,001 to HKD4,500,000 ............... 1 – –
HKD7,500,001 to HKD8,000,000 ............... 1 – –
HKD8,000,001 to HKD8,500,000 ............... – – 1
HKD22,000,001 to HKD22,500,000 ............. – 1 –
324
During the years ended 31 December 2020, 2021 and 2022, share options/RSUs were granted
to 5 non-director and non-chief executive highest paid employees in respect of their services to the
Group, further details of which are included in the disclosures in note 33 to the Historical Financial
Information. The fair value of such options/RSUs, which has been recognized in the profit or loss
over the vesting period, was determined as at the date of grant and the amount included in the
Historical Financial Information is included in the above non-director and non-chief executive
highest paid employees’ remuneration disclosures.
12. INCOME TAX
The Group is subject to income tax on an entity basis on profit arising in or derived from the
jurisdictions in which members of the Group are domiciled and operate.
Cayman Islands
Under the current laws of the Cayman Islands, the Company is not subject to tax on income
or capital gains.
Hong Kong
The subsidiary which operates in Hong Kong is subject to profits tax at a rate of 8.25% applies
to the first HKD2,000,000 of assessable profits, the remaining assessable profits is subject to profits
tax at a rate of 16.5%.
Pursuant to the PRC Enterprise Income Tax Law, a 10% withholding tax is levied on dividends
declared to foreign investors from the foreign investment enterprises established in Mainland
China. The requirement is effective from 1 January 2008 and applies to earnings after 31 December
2007. A lower withholding tax rate may be applied if there is a tax treaty between Mainland China
and the jurisdiction of the foreign investors. For the Group, the applicable rate is 10%. The Group
is therefore liable to withholding taxes on dividends distributed by those subsidiaries established in
Mainland China in respect of earnings generated from 1 January 2008.
APPENDIX I ACCOUNTANTS’ REPORT
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--- page 399 ---
Mainland China
Pursuant to the Enterprise Income Tax Law of the PRC and the respective regulations (the
“EIT Law”), the subsidiaries which operate in Mainland China are subject to EIT at a rate of 25%
on the taxable income unless those subject to tax concession set out below:
Entity Notes 2020 2021 2022
Hangzhou Adicon .......................... 1 15% 15% 15%
Hefei Adicon .............................. 2 15% 15% 15%
Shanghai Adicon ........................... 3 15% 15% 15%
Jinan Adicon ............................... 4 15% 15% 15%
Beijing Adicon ............................. 4 15% 15% 15%
Nanchang Adicon ........................... 2 15% 15% 15%
Fuzhou Adicon ............................. 4 15% 15% 15%
Nanjing Adicon ............................ 4 15% 15% 15%
Wuhan Adicon ............................. 3 15% 15% 15%
Chengdu Adicon ............................ 5 15% 15% 15%
Xi’an Adicon .............................. 5 15% 15% 15%
Chongqing Adicon .......................... 5 15% 15% 15%
Yunnan Adicon ............................. 5 15% 15% 15%
Guizhou Adicon ............................ 5 N/A 15% 15%
Shanghai Lv’angjie ......................... 6 20% 25% 25%
Xiamen Adicon ............................ 6 N/A 20% 25%
Nanning Adicon ............................ 6 N/A 20% 20%
Qingdao Adicon ............................ 6 N/A 20% 25%
Quzhou Adicon ............................ 6 N/A 20% 20%
Notes:
(1) In 2018, Hangzhou Adicon was accredited as a “High and New Technology Enterprise” (“HNTE”) and was
entitled to a preferential income tax rate of 15% for a period of three years from 2018 to 2021. Hangzhou
Adicon subsequently renewed its HNTE qualification in 2021 and was entitled to the preferential tax rate of
15% from 2021 to 2024.
(2) In 2019, Hefei Adicon and Nanchang Adicon were accredited as HNTEs and were entitled to a preferential
income tax rate of 15% for a period of three years from 2019 to 2022. Hefei Adicon and Nanchang Adicon
subsequently renewed their HNTE qualification in 2022 and were entitled to the preferential tax rate of 15%
from 2022 to 2025.
(3) In 2018, Shanghai Adicon and Wuhan Adicon were accredited as HNTEs and were entitled to a preferential
income tax rate of 15% for a period of three years from 2018 to 2021. Shanghai Adicon and Wuhan Adicon
subsequently renewed their HNTE qualification in 2021 and were entitled to the preferential tax rate of 15%
from 2021 to 2024.
(4) In 2020, Beijing Adicon, Jinan Adicon, Fuzhou Adicon and Nanjing Adicon were accredited as HNTEs and
were entitled to a preferential income tax rate of 15% for a period of three years from 2020 to 2022.
(5) Under the policies for the Grand Western Development Program, the Group’s subsidiaries incorporated in
Western China (Chengdu Adicon, Xi’an Adicon, Chongqing Adicon, Yunnan Adicon and Guizhou Adicon)
were subject to corporate tax at 15% in the year from 2020 to 2022. The rate applied to companies located in
Western China which engaged in the encouraged industries listed in the Grand Western Development Program.
The policies were available during 2018 to 2030.
(6) Shanghai Lv’angjie is qualified as small-scaled minimal profit enterprises during 2020. Xiamen Adicon and
Qingdao Adicon are qualified as small-scaled minimal profit enterprises during 2021. Nanning Adicon and
Quzhou Adicon are qualified as small-scaled minimal profit enterprises during 2021 and 2022. Pursuant to
Caishui [2019] circular No.13, the first RMB1,000,000 of assessable profits of these subsidiaries may be
calculated as 25% and be taxed at the preferential EIT rate of 20%. The assessable profits between
RMB1,000,000 and RMB3,000,000 may be calculated as 50% and be taxed at the preferential EIT rate of 20%.
APPENDIX I ACCOUNTANTS’ REPORT
– I-47 –


--- page 400 ---
The income tax expense of the Group for the Relevant Periods is analyzed as follows:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Current income tax ............................ 82,613 113,302 175,122
Deferred income tax ........................... (13,881) (18,354) (39,194)
Total tax charge for the year ................... 68,732 94,948 135,928
A reconciliation of the tax expense applicable to profit before tax using the statutory rate for
the jurisdictions in which the majority of the Group’s subsidiaries are domiciled to the tax expense
at the effective tax rate is as follows:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Profit before tax .............................. 358,185 417,243 820,812
Tax at the statutory tax rate (25%) .............. 89,546 104,311 205,203
Lower tax rates for specific provinces or enacted
by local authority ........................... (24,474) (9,147) (71,350)
Effect on opening deferred tax assets or liabilities
resulting from change in applicable tax rate .... 1,215 – (7,212)
Additional deductible allowance for qualified
research and development costs ............... (9,768) (10,948) (18,403)
Expenses not deductible for tax ................. 12,181 7,366 1,777
Tax losses utilized from previous years .......... (9,708) (9,596) (6,723)
Tax losses not recognized ...................... 9,808 8,550 28,489
Effect of withholding tax at 10% on the
distributable profits of the Group’s PRC
subsidiaries ................................ (68) 4,412 4,147
Tax charge at the Group’s effective rate ......... 68,732 94,948 135,928
13. DIVIDENDS
On 23 June 2021, the board of directors of the Company declared a cash dividend in the total
amount of USD69,910,000 (equivalent to RMB452,585,000) to the members who were on the
register of members of the Company on 24 June 2021 on a pro rata basis. All the dividend declared
had been paid by the end of 2021.
On 18 May 2022, the board of directors of the Company declared a cash dividend in the total
amount of RMB865,017,000 to the members who were on the register of members of the Company
on 19 May 2022 on a pro rata basis. All the dividend declared had been paid by the end of 2022.
No dividend has been paid or declared by the Company for the year ended 31 December 2020.
APPENDIX I ACCOUNTANTS’ REPORT
– I-48 –


--- page 401 ---
14. EARNINGS PER SHARE
The calculation of the basic earnings per share amounts is based on the profit for the year
attributable to ordinary equity holders of the parent, and the weighted average number of ordinary
shares used in the calculation is the number of ordinary shares in issue during the year, as used in
the basic earnings per share calculation, and the weighted average number of ordinary shares
assumed to have been issued at no consideration on the deemed exercise or conversion of all
dilutive potential ordinary shares into ordinary shares during the Relevant Periods.
The calculation of basic earnings per share is based on:
Y ear ended 31 December
2020 2021 2022
Earnings
Profit attributable to ordinary equity holders of
the parent, used in the basic earnings per share
calculation: (RMB’000) ...................... 284,121 315,540 680,793
Ordinary shares (’000)
Weighted average number of ordinary shares in
issue during the year used in the basic earnings
per share calculation ........................ 578,209 630,966 653,402
Earnings per share (RMB per share) ............ 0.49 0.50 1.04
Effect of dilution – weighted average number
of ordinary shares:
Share awards .............................. 7,105 – –
Convertible redeemable preferred shares ...... 1,444 – 52,762
Weighted average number of ordinary shares in
issue during the year used in the dilutive
earnings per share calculation ................ 586,758 630,966 706,164
Diluted earnings per share* (RMB per share) .... 0.48 0.50 0.96
The weighted average number of shares for the purpose of basic and diluted earnings per share
for the years ended 31 December 2020, 2021 and 2022 is calculated based on the assumption that
the Share Split and Share Consolidation as defined in note 31 to the Historical Financial
Information have been adjusted retrospectively.
* Because the diluted earnings per share amount is increased when taking convertible redeemable preferred
shares into account, the convertible redeemable preferred shares had an anti-dilutive effect on the basic
earnings per share for year ended 31 December 2021 and were ignored in the calculation of diluted earnings
per share. Therefore, the diluted earnings per share amounts are based on the profit for year ended 31
December 2021 of RMB315,540,000, and the weighted average number of ordinary shares of 630,966 in issue
during the period.
APPENDIX I ACCOUNTANTS’ REPORT
– I-49 –


--- page 402 ---
15. INTERESTS IN SUBSIDIARIES
Company
As at 31 December
2020 2021 2022
Notes RMB’000 RMB’000 RMB’000
Investment cost .................... (a) 82,366 136,190 151,206
Loans to a subsidiary ................ (b) – 142,657 155,833
82,366 278,847 307,039
Notes:
(a) The investment cost in subsidiaries includes the equity-settled share-based compensation in respect of the
shares and share options/RSUs granted by the Company to certain employees of the subsidiaries for
employees’ service rendered to the subsidiaries under the Scheme as set out in note 33 to the Historical
Financial Information. Since the subsidiaries have no obligation to reimburse such expense, the amounts paid
are treated as deemed capital contribution by the Company to the subsidiaries and included in the Company’s
cost of investments in subsidiaries.
(b) The loans to a subsidiary are unsecured, interest-free and repayable on demand. At 31 December 2022, the
loans have been waived by the Company and are considered as part of the Company’s net investments in the
subsidiary, Adicon HK, a wholly owned subsidiary of the Company.
16. PROPERTY AND EQUIPMENT
Office and
electronic
equipment
Laboratory
equipment
Motor
vehicles
Leasehold
Improvements
Construction in
progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
31 December 2020
At 1 January 2020
Cost .................... 46,126 200,597 11,212 103,400 16,725 378,060
Accumulated depreciation ..... (30,171) (139,943) (8,506) (69,286) – (247,906)
Net carrying amount ........ 15,955 60,654 2,706 34,114 16,725 130,154
At 1 January 2020, net of
accumulated depreciation ..... 15,955 60,654 2,706 34,114 16,725 130,154
Additions .................. 8,513 68,609 1,150 11,732 18,790 108,794
Disposals .................. (476) (4,432) (121) (443) – (5,472)
Transfer ................... 1,183 1,593 – 27,416 (30,192) –
Depreciation provided during
the year ................. (6,329) (40,691) (983) (16,894) – (64,897)
At 31 December 2020, net of
accumulated depreciation ..... 18,846 85,733 2,752 55,925 5,323 168,579
At 31 December 2020:
Cost .................... 53,461 255,417 11,089 132,742 5,323 458,032
Accumulated depreciation ..... (34,615) (169,684) (8,337) (76,817) – (289,453)
Net carrying amount ........ 18,846 85,733 2,752 55,925 5,323 168,579
APPENDIX I ACCOUNTANTS’ REPORT
– I-50 –


--- page 403 ---
Office and
electronic
equipment
Laboratory
equipment
Motor
vehicles
Leasehold
Improvements
Construction in
progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
31 December 2021
At 1 January 2021
Cost .................... 53,461 255,417 11,089 132,742 5,323 458,032
Accumulated depreciation ..... (34,615) (169,684) (8,337) (76,817) – (289,453)
Net carrying amount ........ 18,846 85,733 2,752 55,925 5,323 168,579
At 1 January 2021, net of
accumulated depreciation ..... 18,846 85,733 2,752 55,925 5,323 168,579
Additions .................. 13,255 110,034 4,402 14,124 44,324 186,139
Acquisition of subsidiaries ...... 1 5 4 1,826 – – – 1,980
Disposals .................. (1,216) (2,559) (287) (1,421) – (5,483)
Transfer ................... – 1,071 – 35,845 (36,916) –
Depreciation provided during
the year ................. (6,415) (62,697) (1,815) (14,151) – (85,078)
At 31 December 2021, net of
accumulated depreciation ..... 24,624 133,408 5,052 90,322 12,731 266,137
At 31 December 2021
Cost .................... 51,475 352,193 12,524 152,775 12,731 581,698
Accumulated depreciation ..... (26,851) (218,785) (7,472) (62,453) – (315,561)
Net carrying amount ........ 24,624 133,408 5,052 90,322 12,731 266,137
31 December 2022
At 1 January 2022
Cost .................... 51,475 352,193 12,524 152,775 12,731 581,698
Accumulated depreciation ..... (26,851) (218,785) (7,472) (62,453) – (315,561)
Net carrying amount ........ 24,624 133,408 5,052 90,322 12,731 266,137
At 1 January 2022, net of
accumulated depreciation ..... 24,624 133,408 5,052 90,322 12,731 266,137
Additions .................. 16,392 148,594 2,846 23,355 38,474 229,661
Acquisition of a subsidiary ..... 8 3 6 5,123 1,436 1,672 6,889 15,956
Disposals .................. (698) (5,558) (218) (450) – (6,924)
Transfer ................... 4 6 6 – – 49,384 (49,850) –
Depreciation provided during
the year ................. (10,231) (96,734) (2,724) (19,713) – (129,402)
At 31 December 2022, net of
accumulated depreciation ..... 31,389 184,833 6,392 144,570 8,244 375,428
At 31 December 2022
Cost .................... 67,341 489,062 15,557 226,735 8,244 806,939
Accumulated depreciation ..... (35,952) (304,229) (9,165) (82,165) – (431,511)
Net carrying amount ........ 31,389 184,833 6,392 144,570 8,244 375,428
APPENDIX I ACCOUNTANTS’ REPORT
– I-51 –


--- page 404 ---
17. LEASES
The Group as a lessee
The Group has lease contracts for various items of properties and other equipment used in its
operations. Leases of properties generally have lease terms between 3 and 10 years. Other
equipment generally has lease terms of 12 months or less or is individually of low value. Generally,
the Group is restricted from assigning and subleasing the leased assets outside the Group.
(a) Right-of-use assets
The carrying amounts of the Group’s right-of-use assets and the movements during the
Relevant Periods are as follows:
Properties Equipment Total
RMB’000 RMB’000 RMB’000
As at 1 January 2020 ..................... 169,228 25,184 194,412
Additions ............................... 24,915 11,196 36,111
Revision of a lease term arising from
a change in the non-cancellable period of
a lease ................................ (26,844) – (26,844)
Depreciation charge ...................... (36,099) (12,122) (48,221)
As at 31 December 2020 .................. 131,200 24,258 155,458
As at 1 January 2021 ..................... 131,200 24,258 155,458
Additions ............................... 67,596 4,008 71,604
Revision of a lease term arising from a
change in the non-cancellable period of
a lease ................................ (1,693) (831) (2,524)
Depreciation charge ...................... (40,412) (10,745) (51,157)
As at 31 December 2021 .................. 156,691 16,690 173,381
As at 1 January 2022 ..................... 156,691 16,690 173,381
Additions .............................. 91,701 8,043 99,744
Acquisition of a subsidiary ................ 4,079 992 5,071
Revision of a lease term arising from a
change in the non-cancellable period of a
lease ................................. (180) – (180)
Depreciation charge ..................... (49,375) (9,788) (59,163)
As at 31 December 2022 .................. 202,916 15,937 218,853
APPENDIX I ACCOUNTANTS’ REPORT
– I-52 –


--- page 405 ---
(b) Lease liabilities
The carrying amount of lease liabilities and the movements during the relevant periods
are as follows:
2020 2021 2022
Lease
liabilities
Lease
liabilities
Lease
liabilities
RMB’000 RMB’000 RMB’000
At the beginning of year .................. 198,360 158,126 177,950
New leases ............................. 36,111 71,604 99,744
Acquisition of a subsidiary ................ – – 5,142
Accretion of interest recognized during
the year ............................... 10,833 10,624 13,705
Payments ............................... (58,207) (59,461) (62,500)
Revision of a lease term arising from a
change in the non-cancellable period of
a lease ................................ (26,532) (2,943) (186)
COVID-19 related rent concessions from
lessors ................................ (2,439) – –
Ending balance .......................... 158,126 177,950 233,855
Analyzed into:
Current portion .......................... 28,416 31,653 51,400
Non-current portion ...................... 129,710 146,297 182,455
A maturity analysis of the lease liabilities as at the end of each of the Relevant Periods
is as follows:
2020 2021 2022
RMB’000 RMB’000 RMB’000
Less than 3 months ....................... 10,273 12,061 17,113
3 to less than 12 months .................. 18,143 19,592 34,287
1 to 3 years ............................. 60,730 72,806 95,644
Over 3 years ............................ 68,980 73,491 86,811
158,126 177,950 233,855
APPENDIX I ACCOUNTANTS’ REPORT
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--- page 406 ---
(c) The amounts recognized in profit or loss in relation to leases are as follows:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Interest on lease liabilities ................ 10,833 10,624 13,705
Depreciation charge of right-of-use assets . . . 48,221 51,157 59,163
Expense relating to leases of short-term and
low-value assets ....................... 13,082 13,834 13,387
Revision of a lease term arising from a
change in the non-cancellable period
of a lease ............................. 3 1 2 (419) (6)
COVID-19-related rent concessions from
lessors ................................ (2,439) – –
Total amount recognized in profit or loss .... 70,009 75,196 86,249
(d) The following future cash outflows of the Group is potentially exposed to that are not
reflected in the measurement of lease liabilities:
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Future cash outflows for
short-term leases ....................... 4,262 5,975 4,342
18. GOODWILL
RMB’000
Cost at 1 January 2021, net of accumulated impairment .................... –
Acquisition of a subsidiary (note 34) ..................................... 25,691
Impairment during the year ............................................. –
Net carrying amount at 31 December 2021 ................................ 25,691
As at 31 December 2021:
Cost ............................................................... 25,691
Accumulated impairment ............................................. –
Net carrying amount ................................................. 25,691
Cost at 1 January 2022, net of accumulated impairment .................... 25,691
Acquisition of a subsidiary (note 34) ..................................... 54,111
Impairment during the year ............................................. –
Net carrying amount at 31 December 2022 ................................ 79,802
As at 31 December 2022:
Cost ............................................................... 79,802
Accumulated impairment ............................................. –
Net carrying amount ................................................. 79,802
APPENDIX I ACCOUNTANTS’ REPORT
– I-54 –


--- page 407 ---
Impairment assessment for goodwill
Goodwill of RMB14,348,000 and RMB11,343,000 was generated from the acquisition of
Shangrao Adicon and Jiangxi Jince on 28 February 2021 and goodwill of RMB54,111,000 was
generated from the acquisition of Henan Adicon on 31 May 2022 which is set out in note 34 to the
Historical Financial Information.
The cash flows generated from these two subsidiaries acquired are expected to benefit from
the synergies of each other, for impairment testing, but are independent from those of the other
subsidiaries of the Company. Therefore, Goodwill is monitored by the management of the Company
at the level of the group of cash-generating unit (“CGU”) including Shangrao Adicon and Jiangxi
Jince. The goodwill of Henan Adicon CGU is monitored independently.
The recoverable amounts of each CGU have been determined based on value-in-use
calculations using pre-tax cash flow projections, which is based on financial budgets approved by
the management of the Company covering a 5-year period.
Shangrao Adicon and
Jiangxi Jince CGU
As at
31 December
2021
As at
31 December
2022
Revenue (% compound growth rate) .................. 8 % 5 %
Terminal growth rate ............................... 3 % 2 %
Pre-tax discount rate ............................... 1 8 % 1 9 %
Henan Adicon
CGU
As at
31 December
2022
Revenue (% compound growth rate) ................................ 1 0 %
Terminal growth rate ............................................. 2 %
Pre-tax discount rate ............................................. 2 2 %
The following describes each key assumption on which management has based its cash flow
projections to undertake impairment testing of goodwill for the group of CGUs including Shangrao
Adicon and Jiangxi Jince as at 31 December 2021 and 31 December 2022.
Revenue – The basis used to determine the budgeted revenue is based on management’s
expectation of market development.
Terminal Growth rate – The forecasted terminal growth rate is based on management’s
expectations and does not exceed the long-term average growth rate for the industry relevant to the
CGUs.
The pre-tax discount rate used is before tax and reflects specific risks relating to the CGUs.
Based on the result of impairment assessment, there was no impairment as at 31 December
2022.
APPENDIX I ACCOUNTANTS’ REPORT
– I-55 –


--- page 408 ---
Sensitivity to changes in key assumptions:
The management of the Company has performed sensitivity test by decreasing 1% of expected
revenue, decreasing 1% of terminal growth rate or increasing 1% of pre-tax discount rate, with all
other assumptions held constant. The impacts on the amount by which each CGU’s recoverable
amount above its carrying amount (headroom) are as below:
Shangrao Adicon and
Jiangxi Jince CGU
As at
31 December
2021
As at
31 December
2022
RMB’000 RMB’000
Headroom ........................................ 23,904 33,104
Impact by decreasing expected revenue ............... (1,266) (1,421)
Impact by decreasing terminal growth rate ............ (5,175) (5,161)
Impact by increasing pre-tax discount rate ............ (8,480) (7,901)
Henan
Adicon CGU
As at
31 December
2022
RMB’000
Headroom ......................................................... 24,093
Impact by decreasing expected revenue ................................ (4,902)
Impact by decreasing terminal growth rate ............................. (5,822)
Impact by increasing pre-tax discount rate ............................. (9,138)
Considering there was still sufficient headroom based on the assessment, the management of
the Company believes that a reasonably possible change in the above key parameters would not
cause the carrying amount of the group of CGUs to exceed its recoverable amount as at
31 December 2021 and 31 December 2022.
APPENDIX I ACCOUNTANTS’ REPORT
– I-56 –


--- page 409 ---
19. OTHER INTANGIBLE ASSETS
Patents Software
Customer
relationship Total
RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2020:
Cost .................................. 8 9 6,842 – 6,931
Accumulated amortization ............... (63) (3,785) – (3,848)
Net carrying amount .................... 2 6 3,057 – 3,083
Cost at 1 January 2020, net of accumulated
amortization ........................... 2 6 3,057 – 3,083
Additions ............................... – 5 9 0 – 5 9 0
Amortization provided during the year ...... ( 9 ) (653) – (662)
At 31 December 2020 .................... 1 7 2,994 – 3,011
At 31 December 2020
Cost .................................. 8 9 7,432 – 7,521
Accumulated amortization ............... (72) (4,438) – (4,510)
Net carrying amount .................... 1 7 2,994 – 3,011
At 1 January 2021:
Cost .................................. 8 9 7,432 – 7,521
Accumulated amortization ............... (72) (4,438) – (4,510)
Net carrying amount .................... 1 7 2,994 – 3,011
Cost at 1 January 2021, net of accumulated
amortization ........................... 1 7 2,994 – 3,011
Additions ............................... – 1 , 1 1 5 – 1 , 1 1 5
Acquisition of subsidiaries ................ – 7 18,000 18,007
Disposals ............................... – (12) – (12)
Amortization provided during the year ...... ( 7 ) (860) (750) (1,617)
At 31 December 2021 .................... 1 0 3,244 17,250 20,504
At 31 December 2021
Cost .................................. 8 9 8,542 18,000 26,631
Accumulated amortization ............... (79) (5,298) (750) (6,127)
Net carrying amount .................... 1 0 3,244 17,250 20,504
At 1 January 2022:
Cost .................................. 8 9 8,542 18,000 26,631
Accumulated amortization ............... (79) (5,298) (750) (6,127)
Net carrying amount .................... 1 0 3,244 17,250 20,504
Cost at 1 January 2022, net of accumulated
amortization ........................... 1 0 3,244 17,250 20,504
Additions ............................... 68,344 714 – 69,058
Acquisition of subsidiaries ................ – – 59,000 59,000
Disposals ............................... – – – –
Amortization provided during the year ...... ( 4 ) (2,228) (2,621) (4,853)
At 31 December 2022 .................... 68,350 1,730 73,629 143,709
At 31 December 2022
Cost .................................. 68,433 9,256 77,000 154,689
Accumulated amortization ............... (83) (7,526) (3,371) (10,980)
Net carrying amount .................... 68,350 1,730 73,629 143,709
APPENDIX I ACCOUNTANTS’ REPORT
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--- page 410 ---
20. DEFERRED TAX
The movements in deferred tax assets during the Relevant Periods are as follows:
Deferred tax assets
Losses available
for offsetting
against future
taxable profits
Accelerated
depreciation
Accrued
expenses Leases
Impairment
of assets Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2020 ..... 8,573 – 15,160 1,572 12,862 38,167
Deferred tax recognized
in the profit or loss
during the year ...... (2,160) 3,227 7,454 361 4,933 13,815
At 31 December 2020
and 1 January 2021 . . 6,413 3,227 22,614 1,933 17,795 51,982
Deferred tax recognized
in the profit or loss
during the year ...... 10,475 (3,227) 9,732 (31) 5,629 22,578
At 31 December 2021
and 1 January 2022 . . 16,888 – 32,346 1,902 23,424 74,560
Deferred tax recognized
in the profit or loss
during the year ...... 12,443 – 16,245 395 14,760 43,843
At 31 December 2022 . . 29,331 – 48,591 2,297 38,184 118,403
Deferred tax liabilities
Fair value
adjustments
arising from
acquisition of
subsidiaries
Accrual for
withholding
tax Total
RMB’000 RMB’000 RMB’000
At 1 January 2020 ......................... – 1,602 1,602
Deferred tax recognized in the profit or loss
during the year .......................... – (66) (66)
At 31 December 2020 and 1 January 2021 .... – 1,536 1,536
Deferred tax recognized in the profit or loss
during the year .......................... 4,313 4,411 8,724
At 31 December 2021 and 1 January 2022 .... 4,313 5,947 10,260
Deferred tax recognized in the profit or loss
during the year .......................... 14,095 4,147 18,242
At 31 December 2022 ..................... 18,408 10,094 28,502
APPENDIX I ACCOUNTANTS’ REPORT
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--- page 411 ---
The Group has accumulated tax losses in Mainland China of RMB39,696,000,
RMB29,966,000 and RMB26,932,000 as at 31 December 2020, 2021 and 2022, respectively,
that will expire in one to five years for offsetting against future taxable profits of the Group’s
subsidiary in which the losses arose. Deferred tax assets have not been recognized in respect
of these losses as they have arisen in certain subsidiaries that has been loss-making for some
time and it is not considered probable that taxable profits will be available against which the
tax losses can be utilized.
Pursuant to the PRC Corporate Income Tax Law, a 10% withholding tax is levied on
dividends declared to foreign investors from the foreign invested enterprises established in
Mainland China. The requirement is effective from 1 January 2008 and applies to earnings
after 31 December 2007. The Group is therefore liable for withholding taxes on dividends
distributed by those subsidiaries directly or indirectly owned by the Group and established in
Mainland China in respect of earnings generated from 1 January 2008.
No deferred tax assets and liabilities have been offset in the consolidated statement of
financial position.
21. INVENTORIES
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Reagents ..................................... 72,705 85,557 137,936
Finished goods ............................... 13,869 6,821 69,827
Consumables ................................. 16,358 17,017 21,650
102,932 109,395 229,413
22. TRADE AND BILLS RECEIV ABLES
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Trade receivables ............................. 988,040 1,285,447 2,043,901
Bills receivable (Note) ........................ – 3,140 3,253
988,040 1,288,587 2,047,154
Allowance for expected credit losses ............ (45,999) (75,075) (190,307)
942,041 1,213,512 1,856,847
Note: Bills receivable is subject to impairment under the general approach and it is considered to be minimal.
The Group’s trading terms with its customers are mainly on credit, except for new customers,
where payment in advance is normally required. The credit period is generally from 90 to 120 days.
The Group seeks to maintain strict control over its outstanding receivables and has a credit control
department to minimise credit risk. Overdue balances are reviewed regularly by senior management.
In view of the aforementioned and the fact that the Group’s trade receivables relate to a large
number of diversified customers, there is no significant concentration of credit risk. The Group does
not hold any collateral or other credit enhancements over its trade and bills receivable balances.
Trade and bills receivables are non-interest-bearing.
APPENDIX I ACCOUNTANTS’ REPORT
– I-59 –


--- page 412 ---
An aging analysis of trade receivables as at the end of each of the Relevant Periods, based on
the invoice date and net of provisions, is as follows:
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Within 4 months .............................. 712,820 862,541 1,193,621
4 months to 1 year ............................ 191,736 316,367 605,992
1 year to 2 years .............................. 65,061 87,890 196,608
2 years to 3 years ............................. 14,775 14,643 38,161
3 years to 4 years ............................. 2,810 3,428 7,090
4 years to 5 years ............................. 4 2 5 4 8 7 1,846
Over 5 years ................................. 4 1 3 9 1 5 8 3
988,040 1,285,447 2,043,901
The movements in the loss allowance for impairment of trade receivables are as follows:
2020 2021 2022
RMB’000 RMB’000 RMB’000
At beginning of year .......................... 48,697 45,999 75,075
Acquisition of a subsidiary ..................... – – 4,640
Impairment losses ............................. 32,296 39,759 111,510
Amount written off as uncollectible ............. (34,994) (10,683) (918)
At end of year ................................ 45,999 75,075 190,307
For trade receivables, the Group has applied the simplified approach in IFRS 9 to measure the
loss allowance at lifetime ECL. The Group determines the ECL on these items by using a provision
matrix, estimated based on the financial quality of debtors and historical credit loss experience
based on the aging of the trade receivables, adjusted as appropriate to reflect current conditions and
estimates of future economic conditions. The following table details the risk profile of trade
receivables:
As at 31 December 2020
Amount
Expected
loss rate Impairment
RMB’000 % RMB’000
Within 4 months ............................ 712,820 7,345
4 months to 1 year .......................... 191,736 1,976
Subtotal-within 1 year ....................... 904,556 1.03 9,321
1 year to 2 years ............................ 65,061 33.87 22,037
2 years to 3 years ........................... 14,775 76.31 11,275
3 years to 4 years ........................... 2,810 89.96 2,528
4 years to 5 years ........................... 4 2 5 100.00 425
Over 5 years ............................... 4 1 3 100.00 413
988,040 45,999
APPENDIX I ACCOUNTANTS’ REPORT
– I-60 –


--- page 413 ---
As at 31 December 2021
Amount
Expected
loss rate Impairment
RMB’000 % RMB’000
Within 4 months ............................ 862,541 18,540
4 months to 1 year .......................... 316,367 6,800
Subtotal-within 1 year ....................... 1,178,908 2.15 25,340
1 year to 2 years ............................ 87,890 38.48 33,824
2 years to 3 years ........................... 14,643 81.30 11,905
3 years to 4 years ........................... 3,428 100.00 3,428
4 years to 5 years ........................... 4 8 7 100.00 487
Over 5 years ............................... 9 1 100.00 91
1,285,447 75,075
As at 31 December 2022
Amount
Expected
loss rate Impairment
RMB’000 % RMB’000
Within 4 months ............................ 1,193,621 49,532
4 months to 1 year .......................... 605,992 25,147
Subtotal-within 1 year ....................... 1,799,613 4.15 74,679
1 year to 2 years ............................ 196,608 38.99 76,658
2 years to 3 years ........................... 38,161 77.61 29,618
3 years to 4 years ........................... 7,090 97.64 6,923
4 years to 5 years ........................... 1,846 100.00 1,846
Over 5 years ............................... 5 8 3 100.00 583
2,043,901 190,307
23. PREPAYMENTS, DEPOSITS AND OTHER RECEIV ABLES
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Deposits ...................................... 13,486 18,597 20,920
– current ..................................... 5,217 8,529 7,515
– non-current .................................. (a) 8,269 10,068 13,405
Advanced payment for investment .................... (c) – 30,000 18,200
Advance lease payments for short-term leases ........... 7,804 4,968 10,610
Prepayments ................................... (b) 30,335 35,788 54,613
Value-added tax recoverable ........................ 9,037 8,566 14,300
Deferred listing expenses .......................... 3,984 11,952 12,682
Others ....................................... 4,743 5,913 9,940
Provision of impairment ........................... (522) (423) (566)
68,867 115,361 140,699
Notes:
(a) The amount represents deposits for lease of properties with over one-year lease terms and deposits with
suppliers.
(b) The amount represents prepayments for equipments, reagents and consumables. The increase in prepayments
in 2021 and 2022 was mainly due to the increase of sales of medical products.
APPENDIX I ACCOUNTANTS’ REPORT
– I-61 –


--- page 414 ---
(c) On 23 June 2021, Hangzhou Adicon entered into a letter of intent (the “Letter”) for the proposed acquisition
of three ICLs in Henan (the “ Henan Target Companies ”) from parties which are independent of the Company
and its connected persons. In June 2021, Hangzhou Adicon made an advance payment amounted to
RMB30,000,000 to the Seller, of which, RMB11,800,000 is for the acquisition of Henan Meikang Shengde
Medical Laboratory Co., Ltd., RMB18,200,000 is for the acquisition of Yongcheng Meikang Shengde Medical
Laboratory Co., Ltd. and Minquan County Meikang Shengde Medical Laboratory Co., Ltd.. The advance
payment was refundable if certain conditions set out in the Letter were not satisfied within twelve months. In
May 2022, the acquisition of Henan Meikang Shengde Medical Laboratory Co., Ltd. was completed. Hangzhou
Adicon further paid RMB48,686 consideration for the acquisition of Henan Meikang Shengde to the seller in
addition to the advance payment of RMB11,800,000. After the acquisition, Henan Meikang Shengde Medical
Laboratory Co., Ltd. changed its name to Henan Adicon Clinical Laboratories Co., Ltd..
Analyzed into:
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Current portion ............................... 61,120 105,716 127,860
Non-current portion-Deposits ................... 7,747 9,645 12,839
68,867 115,361 140,699
Other receivables had no recent history of default and past due amounts. The financial assets
included in the above balances related to receivables were categorised in stage 1 at the end of each
of the Relevant Periods. In calculating the expected credit loss rate, the Group considers the
historical loss rate and adjusts for forward-looking macroeconomic data. During the Relevant
Periods, the Group estimated that the expected credit loss rate for deposits and other receivables is
minimal.
The Group seeks to maintain strict control over its outstanding receivables to minimize credit
risk. Long aging balances are reviewed regularly by senior management. In view of the fact that the
Group’s deposits and other receivables related to a large number of diversified counterparties, there
is no significant concentration of credit risk. The Group does not hold any collateral or other credit
enhancements over its deposits and other receivables balances.
24. FINANCIAL ASSETS AT FVTPL
As at 31 December
2022
RMB’000
Non-current .........................................
Derivatives – interest rate cap contracts ................. (a) 8,104
Note:
(a) In October, the Group entered into interest rate cap contracts with certain financial institutions in order to
manage interest risk on the five-year loan facility amounted to USD150,000,000 with variable interest rate (the
details of the loan is further set out in note 29). These interest rate cap contracts are assessed as derivative
financial instruments and therefore are initially recognised as financial assets at FVTPL. The Group recorded
RMB7,826,000 fair value gain during the year ended 31 December 2022.
APPENDIX I ACCOUNTANTS’ REPORT
– I-62 –


--- page 415 ---
25. CASH AND BANK BALANCES
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Cash and cash equivalents ..................... 1,226,819 1,109,211 1,680,625
Restricted bank balances (Note) ................. 1,801 – –
Cash and bank balances ....................... 1,228,620 1,109,211 1,680,625
Note: The balance is restricted until the Group completes installation of certain medical equipment.
Group
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Denominated in:
R M B.................................... 674,653 954,205 1,503,584
U S D .................................... 550,754 153,978 176,112
H K D ................................... 1 1,028 929
E U R .................................... 3,212 – –
1,228,620 1,109,211 1,680,625
Cash at banks earns interest at floating rates based on daily bank deposit rates. The bank
balances are deposited with creditworthy banks with no recent history of default.
The RMB is not freely convertible into other currencies, however, under Mainland China’s
Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of
Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies
through banks authorised to conduct foreign exchange business.
Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term
time deposits are made for varying periods within three months depending on the immediate cash
requirements of the Group, and earn interest at the respective short-term time deposit rates. The
bank balances are deposited with creditworthy banks with no history of default.
Company
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Denominated in:
U S D .................................... 531,860 143,689 125,235
H K D.................................... 1 4 1 1 4 0 7
E U R .................................... 3,212 – –
535,073 144,100 125,642
APPENDIX I ACCOUNTANTS’ REPORT
– I-63 –


--- page 416 ---
26. TRADE PAYABLES
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Trade payable .............................. 384,034 510,691 1,062,452
An aging analysis of the trade payable as at the end of each of the Relevant Periods, based
on the invoice date, is as follows:
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Within 1 year ................................ 377,853 506,444 1,010,329
1 to 2 years .................................. 3,573 2,126 50,484
2 to 3 years .................................. 2,192 797 379
Over 3 years ................................. 4 1 6 1,324 1,260
384,034 510,691 1,062,452
The trade payables are non-interest-bearing and are normally settled on 60 to 120 day terms.
27. OTHER PAYABLES AND ACCRUALS
Group
As at 31 December
Notes 2020 2021 2022
RMB’000 RMB’000 RMB’000
Payroll payables ...................... 207,625 340,319 438,351
Accruals ............................ (a) 80,717 90,409 172,162
Accrued listing expenses ............... 16,783 35,370 11,011
Other payables ....................... (b) 31,935 76,992 83,978
Advance payments from non-controlling
shareholders ........................ (c) 4 5 0––
Advance payments received for
subscription of share options ......... (d) 27,918 70,510 97,036
Payables arising from acquisitions ...... (e) – 75,536 132,682
Amount due to non-controlling
shareholders of a subsidiary .......... (f) – – 49,884
365,428 689,136 985,104
APPENDIX I ACCOUNTANTS’ REPORT
– I-64 –


--- page 417 ---
Company
As at 31 December
Notes 2020 2021 2022
RMB’000 RMB’000 RMB’000
Accrued listing expenses ............... 4,079 3,870 575
Advance payments received for
subscription of share options ......... (d) 17,807 51,596 80,446
Payroll payables ...................... – 1,511 1,646
Accrued expenses ..................... – 7 0 2 6,262
Other payables ....................... – 1 2 5 2 0 7
21,886 57,804 89,136
Notes:
(a) Accruals mainly include accrued operating expenses, professional services fees and utilities expenses.
(b) Other payables mainly include payables for purchase of property, plant and equipment, deposits and other tax
payables, which were trade in nature, non-interest bearing and repayable on demand.
(c) In July 2019, Hangzhou Adicon received RMB2,910,000 from certain investors as advance payments for
subscribing equity interests of Qingdao Adicon and Shenzhen Adicon. From January to August 2020,
RMB2,460,000 were injected into Qingdao Adicon and Shenzhen Adicon by Hangzhou Adicon on behalf of
these investors and these investors became non-controlling shareholders of Qingdao Adicon and Shenzhen
Adicon. The remaining RMB450,000 in 2020 was injected into Qingdao Adicon in March 2021.
(d) The Company and the subsidiaries of the Company received RMB17,807,000 and RMB10,111,000 in 2020,
RMB37,858,000 and RMB8,889,000 in 2021 and RMB9,715,000 and RMB16,037,000 in 2022 from certain
domestic senior management and mid-level management of the Group for subscribing vested shares under the
Scheme (as defined in note 33 to the Historical Financial Information). At 31 December 2022, these vested
share options are yet to be legally registered and the subscription received from these individuals are recorded
as advance payments.
(e) In connection with the acquisition of Shangrao Adicon and Jiangxi Jince as set out in Note 34 to the Historical
Financial Information, the Group acquired 61% equity interests in Shangrao Adicon and Jiangxi Jince during
2021 at a total consideration of RMB45,726,000 in cash, of which RMB27,655,000 had been paid,
RMB4,353,000 remained in payables for investment and RMB18,071,000 recognized as contingent
consideration as of 31 December 2022. The Group was also obligated to purchase the remaining
non-controlling interests in Shangrao Adicon and Jiangxi Jince from minority shareholders upon satisfaction
of certain condition precedents in the relevant share purchase agreements. The Group estimated that the present
value of the put option’s strike price over the non-controlling interests in Shangrao Adicon and Jiangxi Jince
amounted to RMB57,465,000 as at 31 December 2021 and 2022, with the debit entry on recognizing the put
option as a debit to equity and the subsequent changes recognized in profit or loss.
In connection with the acquisition of Henan Adicon as set out in Note 34 to the Historical Financial
Information, the Group acquired 51% equity interests in Henan Adicon during 2022 at a total consideration of
RMB88,916,000 in cash, of which RMB62,241,000 had been paid and RMB26,675,000 recognized as
contingent consideration. The fair value of the contingent consideration is RMB13,374,000 as of 31 December
2022 and the subsequent fair value changes was recognized in profit or loss. The Group is also obligated to
purchase 19% equity interests in Henan Adicon from minority shareholders upon satisfaction of certain
condition precedents in the relevant share purchase agreements. The Group estimated that the present value of
the put option’s strike price over the non-controlling interests in Henan Adicon amounted to RMB43,809,000
as at 31 December 2022, with the debit entry on recognizing the put option as a debit to equity and the
subsequent changes recognized in profit or loss.
(f) Pursuant to the share purchase agreement entered between the Group and the then shareholders of Henan
Adicon, the collection of revenue from COVID-19 testing services earned by Henan Adicon during 2021 shall
be repaid to the then shareholders. The balance amounted to RMB49,884,000 represents the revenue collected
by the Group on behalf of the then shareholders as at 31 December 2022.
APPENDIX I ACCOUNTANTS’ REPORT
– I-65 –


--- page 418 ---
28. CONTRACT LIABILITIES
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Amounts received in advance of delivery of
services and equipment ........................ 1 1,665 20,683 21,060
Contract liabilities include the equipment and service payment received from customers in
advance.
The consistent increase in contract liabilities as at 31 December 2021 and 2022 was mainly
due to the increase in advances received from customers in relation to amount received of delivery
of services which increased in both 2021 and 2022.
29. INTEREST-BEARING BANK BORROWINGS
As at 31 December 2020
Effective
interest rate
per annum % Maturity RMB’000
Current
Bank loans – unsecured- ( a ).................. 3.98 2021 30,000
Bank loans – unsecured- ( b ).................. 3.70 2021 30,000
Bank loans – unsecured- ( c ).................. 3.95 2021 30,000
Bank loans – unsecured- ( d ).................. 3.75 2021 20,000
Bank loans – unsecured- ( e ) ................. 3.85 2021 5,000
Bank loans – unsecured- ( f ) .................. 3.85 2021 1,000
Bank loans – unsecured- ( g ) ................. 3.40 2021-2025 4,178
Total ...................................... 120,178
As at 31 December 2020
Effective
interest rate
per annum % Maturity RMB’000
Non-current
Bank loans – unsecured- ( g ).................. 3.40 2021-2025 100,276
Total ...................................... 100,276
APPENDIX I ACCOUNTANTS’ REPORT
– I-66 –


--- page 419 ---
As at 31 December 2021
Effective
interest rate
per annum % Maturity RMB’000
Current
Bank loans – unsecured- ( h ).................. 3.70 2022 30,000
Bank loans – unsecured- ( i ) .................. 3.90 2022 1,000
Bank loans – unsecured- ( j ) .................. 3.70 2022 10,000
Bank loans – unsecured- ( k ).................. 3.80 2022 1,000
Bank loans – unsecured- ( g ).................. 2.85 2021-2025 7,141
Total ...................................... 49,141
As at 31 December 2021
Effective
interest rate
per annum % Maturity RMB’000
Non-current
Bank loans – unsecured- ( g ).................. 2.85 2021-2025 90,790
Total ...................................... 90,790
As at 31 December 2022
Effective
interest rate
per annum % Maturity RMB’000
Current
Bank loans – unsecured- (l) .................. 3.70 2023 10,500
Bank loans – unsecured- (m) ................. 3.70 2023 10,000
Bank loans – unsecured- (n) .................. 3.70 2023 10,000
Bank loans – unsecured- (o) ................. 3.80 2023 9,178
Bank loans – unsecured- ( p ).................. 3.70 2023 30,000
Bank loans – unsecured- ( q ).................. 6.76 2023-2027 43,114
Total ...................................... 1 12,792
As at 31 December 2022
Effective
interest rate
per annum % Maturity RMB’000
Non-current
Bank loans – unsecured- ( q ).................. 6.76 2023-2027 1,013,349
Bank loans – unsecured- ( r ) .................. 3.90 2024 9,980
Total ...................................... 1,023,329
APPENDIX I ACCOUNTANTS’ REPORT
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Analyzed into:
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Repayable:
Within one year ............................ 120,178 49,141 112,792
In the second year .......................... 7,312 11,711 41,321
In the third to fifth years .................... 92,964 79,079 982,008
Notes:
a. On 18 February 2020, Hangzhou Adicon, the subsidiary of the Group, entered into one-year unsecured facility
agreements of RMB30,000,000 with ʕ਷ʈਠვБ (Industrial and Commercial Bank of China). Hangzhou
Adicon had repaid the loan on 31 January 2021.
b. On 25 December 2020, Hangzhou Adicon, the subsidiary of the Group, entered into one-year unsecured facility
agreements of RMB30,000,000 with ʕ਷ვБ (Bank of China). Hangzhou Adicon had repaid the loan on 23
December 2021.
c. On 18 February 2020, Hangzhou Adicon, the subsidiary of the Group, entered into one-year unsecured facility
agreements of RMB30,000,000 with ʕ਷ุ༵ვБ (Agriculture Bank of China). Hangzhou Adicon had repaid
the loan on 15 January 2021.
d. On 19 June 2020, Hangzhou Adicon, the subsidiary of the Group, entered into one-year unsecured facility
agreements of RMB20,000,000 withணვБ (China Construction Bank). Hangzhou Adicon had repaid
the loan on 18 June 2021.
e. On 3 March 2020, Jinan Adicon, the subsidiary of the Group, entered into one-year unsecured facility
agreements of RMB5,000,000 with ʕ਷ʈਠვБ (Industrial and Commercial Bank of China). Jinan Adicon
had repaid the loan on 12 January 2021.
f. On 1 April 2020, Jinan Adicon, the subsidiary of the Group, entered into one-year unsecured facility
agreements of RMB1,000,000 with ʕ਷ʈਠვБ (Industrial and Commercial Bank of China). Jinan Adicon
had repaid the loan on 12 January 2021.
g. On 18 July 2022, the Group has entered into a loan facility agreement of up to USD150,000,000 in aggregate
withৄਠุვБ (China Trust Commercial Bank). In July 2022, the Group has fully draw down the
credit facility for USD50,000,000 each from China Trust Commercial Bank, ௱ਿვБ (KGI Bank), and ͑ᔮ
ვБ (Bank SinoPac) as the mandated lead arrangers and original lenders, respectively. These loans bear an
interest rate of Secured Overnight Financing Rate (“SOFR”) plus a margin of 2.75% per annum with repayment
schedule of USD4,500,000 in 2023, USD4,500,000 in 2024, USD9,000,000 in 2025, USD12,000,000 in 2026
and USD120,000,000 in 2027, respectively.
h. On 1 March 2021, Hangzhou Adicon, the subsidiary of the Group, entered into one-year unsecured facility
agreements of RMB30,000,000 with ʕ਷ุ༵ვБ (Agriculture Bank of China). Hangzhou Adicon had repaid
the loan on 1 March 2022.
i. On 1 December 2021, Hangzhou Adicon, the subsidiary of the Group, entered into one-year unsecured facility
agreements of RMB1,000,000 with ʕ਷ʈਠვБ (Industrial and Commercial Bank of China). Hangzhou
Adicon had repaid the loan on 27 November 2022.
j. On 27 December 2021, Hangzhou Adicon, the subsidiary of the Group, entered into one-year unsecured facility
agreements of RMB10,000,000 with ʕ਷ვБ (Bank of China). Hangzhou Adicon had repaid the loan on 9
June 2022.
k. On 29 December 2021, Hangzhou Adicon, the subsidiary of the Group, entered into one-year unsecured facility
agreements of RMB1,000,000 withਠვБ (China Merchants Bank). Hangzhou Adicon had repaid the loan
on 30 November 2022.
l. On 28 July 2022, Hangzhou Adicon, the subsidiary of the Group, entered into one-year unsecured facility
agreements of RMB10,500,000 with ʕ਷ุ༵ვБ (Agriculture Bank of China).
m. On 22 June 2022, Hangzhou Adicon, the subsidiary of the Group, entered into one-year unsecured facility
agreements of RMB10,000,000 with ʕ਷ვБ (Bank of China).
n. On 25 June 2022, Hangzhou Adicon, the subsidiary of the Group, entered into one-year unsecured facility
agreements of RMB10,000,000 with ʕ਷ʈਠვБ (Industrial and Commercial Bank of China).
o. On 8 June 2022, Hangzhou Adicon, the subsidiary of the Group, entered into one-year unsecured facility
agreements of RMB9,000,000 withਠვБ (China Merchants Bank).
p. On 31 March 2022, Hangzhou Huitu, the subsidiary of the Group, entered into one-year unsecured facility
agreements of RMB30,000,000 with ʕ਷ʈਠვБ (Industrial and Commercial Bank of China).
APPENDIX I ACCOUNTANTS’ REPORT
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q. On 18 July 2022, Adicon HK, the subsidiary of the Group, entered into five-year unsecured facility agreements
of USD150,000,000 (equivalent to RMB1,044,690,000) withৄਠุვБ (China Trust Commercial
Bank), ௱ਿვБ (KGI Bank), and ͑ᔮვБ (Bank SinoPac) as the mandated lead arrangers and the original
lenders. TheৄਠุვБ (China Trust Commercial Bank) is also the facility agent of the other finance
parties. As at 31 December 2022, the total amount was split into USD50,000,000 (equivalent to
RMB348,230,000) each among the three original lenders. The interest rate is SOFR rate plus a margin of
2.75% per annum. The agreed repayment schedule is: USD4,500,000 in 2023, USD4,500,000 in 2024,
USD9,000,000 in 2025, USD12,000,000 in 2026 and USD120,000,000 in 2027, respectively.
r. On 6 July 2022, Hangzhou Adicon, the subsidiary of the Group, entered into two-year unsecured facility
agreement of RMB9,980,000 with ʕ਷͏͛ვБ (China Minsheng Bank).
30. CONVERTIBLE REDEEMABLE PREFERRED SHARES
Pursuant to the Preferred Share Purchase Agreement dated 17 December 2020, the Company
agreed to issue and allot 8,154,073,619 (40,770,368 as adjusted after Share Consolidation)
convertible redeemable preferred shares (“Preferred Shares”) in aggregate to investors for a total
consideration of USD68,000,000 (equivalent to RMB443,931,000).
Pursuant to the Preferred Share Purchase Agreement dated 22 January 2021 and 25 January
2021, the Company further allotted and issued 2,398,256,946 (11,991,285 as adjusted after Share
Consolidation) Preferred Shares in aggregate to investors for a total consideration of
USD20,000,000 (equivalent to RMB129,156,000).
The key terms of the preferred Shares are summarized as follows:
(a) Conversion features
Each Preferred Share shall be convertible, at the option of the holder thereof, at any time after
the date of issuance of such share and after such share has been fully paid, into such number of fully
paid ordinary shares as determined by dividing the corresponding issue price by the corresponding
Conversion Price (as defined below), determined as hereinafter provided, in effect at the time of the
conversion. The price at which the ordinary shares shall be issuable upon conversion of each
Preferred Share (the “Conversion Price”) shall initially be the original issuance price per Preferred
Share (“Preferred Share Original Issue Price”). Such initial Conversion Price shall be subject to
adjustment (including but not limited to ordinary shares issued or issuable in connection with any
share split, subdivisions, dividends, combinations or consolidations, combination, recapitalization,
a merger, joint venture, exchange of shares or other sale of the shares of the Company, capital
reorganization or reclassification, and adjustment upon issuance of new securities for consideration
per share less than the Conversion Price).
All Preferred Shares shall automatically be converted into ordinary shares at the then
respective effective Conversion Price upon (i) the consummation of a Qualified Public Offering, or
(ii) the closing of a Trade Sale (as defined below) provided that in the case of a Trade Sale that is
a sale of equity securities of the Company, and the Preferred Shares that are being Transferred as
part of such Trade Sale, or (iii) the receipt by the Company of the written consent of the holders
of fifty percent (50%) or more of the Preferred Shares. “Qualified Public Offering” means a public
offering on the Main Board of The Stock Exchange of Hong Kong Limited, the Shanghai Stock
Exchange, New York Stock Exchange or the Nasdaq National Market, or another internationally
recognized stock exchange agreed by the board of directors of the Company. Trade Sale means any
transaction or series of transactions (including, for the avoidance of doubt, any merger,
consolidation, amalgamation, scheme of arrangement or merger) which would, if consummated,
result in, any investor or group of investors in the aggregate acquiring no less than 50% of the
voting power and/or equity securities of the Company or the surviving entity or a right to elect
directors or managers with a majority of the voting power of the Company’s or the surviving entity’s
board of directors or managers, or otherwise result in a change of control of the Company.
APPENDIX I ACCOUNTANTS’ REPORT
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(b) Redemption features
In the event that the Company fails to consummate a Qualified Public Offering on or prior to
the last day of the three-year period following 17 December 2020 (the “Closing Date”) (period
following the Closing Date, the “Redemption Start Date”), then within the six months following the
Redemption Start Date, each of the Preferred Shareholders shall have the right, but not the
obligation, by sending a written notice (the “Redemption Notice”) to the Company, to request the
Company to redeem all or a portion of the then outstanding Preferred Shares held by such Preferred
Shareholder (the “Redemption Share”) (each such requesting Preferred Shareholder, a “Requesting
Holder”). Upon receipt of any Redemption Notice, the Company shall promptly give a written
notice of the redemption request to each Preferred Shareholder that has not requested redemption
stating the existence of such request and the Company shall propose the redemption date (the
“Redemption Date”) shall be no later than 45 days following the date of the Redemption Notice and
the mechanics of redemption. Each Requesting Holder is entitled to receive, with respect to each
of its respective Redemption Shares, an amount (the “Preferred Shareholder Preference Amount”)
equal to the sum of (a) the Preferred Share Original Issue Price (less the amount of any distributed
proceeds that have been received by such Requesting Holder on such Preferred Share from the
applicable Closing Date until the payment of the Redemption Price (as defined below)), plus (b) (i)
an interest accrued at a compound interest rate of 8% per annum (compounding every 12 months)
on the Preferred Share Original Issue Price for the period starting from (and including) the
applicable Closing Date until (and including) the Redemption Date and (ii) if such Preferred Share
is redeemed after the Redemption Date, a compound interest rate of 10% per annum (compounding
every 12 months) for the period starting from (and excluding) the Redemption Date until (and
including) the date of payment of the Redemption Price, provided that if at any time any distributed
proceeds have been received by such Requesting Holder on such Preferred Share, the foregoing
interest shall cease to accrue with respect to such portion of the Preferred Share Original Issue Price
that is equal to the amount of such distributed proceeds upon and after such time, plus (c) all
dividends declared and unpaid with respect to such Redemption Share, if any, at the time of delivery
of the Redemption Notice (as adjusted for any share splits, share dividends, combinations,
recapitalizations or similar transactions) (the “Redemption Price”).
(c) Presentation and Classification
The Group and the Company have designated the Preferred Shares as whole as financial
liabilities carried at FVTPL. The change in fair value of the Preferred Shares is charged to profit
or loss except for the portion attributable to credit risk change that shall be charged to other
comprehensive income. The management considered that the fair value change in the Preferred
Shares attributable to changes of own credit risk is not significant.
Pursuant to the memorandum and articles of association dated 17 December 2020, the holders
of Preferred Shares were entitled to an option to require the Company to early redeem the whole
preferred shares by sending the Redemption Notice to the Company when the Company fails to
consummate a Qualified Public Offering at any time on or prior to the last day of the three-year
period following the Closing Date and the Redemption Date shall be no later than 45 days following
the date of the Redemption Notice, the management of the Company evaluates that the Company
will have no obligation to pay the Redemption Price by 31 December 2023. As such, the Preferred
Shares were classified as non-current liability.
APPENDIX I ACCOUNTANTS’ REPORT
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Key valuation assumptions used to determine the fair value of Preferred Shares as at the end
of 31 December 2020, 2021 and 2022 is as follows:
As at 31
December
As at 31
December
As at
31 December
2020 2021 2022
Risk-free interest rate .................. 0.17% 0.71% 4.73%
Discount for lack of marketability
(“DLOM”) ............................ 1 1.0% 5.0% 5.0%
V olatility ............................. 36.33% 39.87% 31.79%
The Group estimated the risk-free interest rate based on the yield of the United States Treasury
Strips denominated in USD with a maturity life equal to the expected terms for public offering event
as of the valuation date. The DLOM was estimated based on the option-pricing method. Under the
option-pricing method, the cost of a put option, which can hedge the price change before the
privately held shares can be sold, was considered as a basis to determine the lack of marketability
discount. V olatility was estimated based on daily stock prices of the comparable company for a
period with length commensurate to the expected terms of liquidity event.
31. SHARE CAPITAL
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Issued and fully paid: 77 86 86
A summary of movements in the Company’s share capital is as follows:
Number of
shares in issue Share capital
At 31 December 2020 and 1 January 2021 ..... 1 16,261,444,020 77
Issue of new shares (Note (c)) ............... 295,705,697 –
Shares issued upon exercise of share options
(Note (e)) ................................. 14,123,276,030 9
Share consolidation (Note (f)) ................ (130,027,023,618) –
At 31 December 2021 and 1 January 2022 ..... 653,402,129 86
At 31 December 2022 ....................... 653,402,129 86
Notes:
a. The Company was incorporated on 7 March 2008 with authorised share capital of USD9,500 divided into
95,000,000 ordinary shares (“Ordinary Shares”) with a par value of USD0.0001 each.
b. On 14 December 2018, the Company split its shares at 1000:1 ratio, resulting in an increase of
114,800,107,977 shares of the Company with a par value USD0.0000001 each (“Share Split”).
c. In connection with acquiring the remaining interests of Hangzhou Huitu and Manson Grand as set out in the
paragraph headed “Reorganization” in the section headed “History, Reorganization and Corporate Structure”
in this Prospectus, the Company issued 873,354,175 (4,366,771 as adjusted after Share Consolidation) and
473,066,845 (2,365,334 as adjusted after Share Consolidation) new shares of the Company to Alltrees Holding
Ltd. and Boke Holding Ltd., respectively, at approximately USD0.0017 per share, as a total consideration of
USD2,322,000 (equivalent to RMB16,026,000) for acquiring 40% equity interest of Manson Grand.
APPENDIX I ACCOUNTANTS’ REPORT
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d. On 9 February 2021, the Company issued 295,705,697 (1,478,528 as adjusted after Share Consolidation) new
shares of the company to Liye Asset Management Co., Limited, a limited company in Hong Kong to acquire
13.125% equity interests of Shanghai Adicon from non-controlling shareholders. The fair value of the shares
of the Company transferred is amount to USD2,289,000 (equivalent to RMB14,840,000). Upon completion of
the above transaction, Shanghai Adicon became a wholly-owned subsidiary of Hangzhou Adicon.
e. From March to June 2021, the Company allotted and issued a total of 14,123,276,030 (70,616,380 as adjusted
after Share Consolidation) shares of the Company to certain special purpose vehicles in order to facilitate the
administration of the Share Incentive Plan as set out in note 33 to the Historical Financial Information.
f. On 3 June 2021, the board of directors of the Company passed a resolution to consolidate the share capital of
the Company from USD50,000 divided into 500,000,000,000 shares of USD0.0000001 each to USD50,000
divided into 2,500,000,000 shares of USD0.00002 each (“Share Consolidation”).
32. RESERVES
Group
The amounts of the Group’s reserves and the movements therein for the Relevant Periods are
presented in the consolidated statements of changes in equity of the Group.
(i) Capital reserve
On 27 September 2018, Pearl Group Limited together with other investors, entered into
a share purchase and subscription agreement with Corelink Group Limited (“Corelink”), Mega
Stream Limited (“Mega Stream”) and the Company, pursuant to which Pearl Group Limited
together with other investors acquired an aggregate of 70,098,164 (350,490,820 as adjusted
after Share Split and Share Consolidation) shares of the Company, including 50,183,141
(250,915,705 as adjusted after Share Split and Share Consolidation) current shares of the
Company at a total consideration of USD191,440,000 (equivalent to RMB1,321,460,000)
from Corelink and Mega Stream.
Pursuant to the share purchase and subscription agreement, an adjustment shall be made
to the consideration paid to the Company under certain terms and conditions (the “Adjustment
Payment Amount”). In June 2019, Corelink and Mega Stream entered into a supplemental
agreement with these investors to confirm the Adjustment Payment Amount paid by the
Founders to the Company shall be USD2,357,000 (equivalent to RMB16,226,000), which was
subsequently received by the Company in July 2019.
In the meantime, Pearl Group Limited and Huge King Limited (“Huge King”) also
agreed to subscribe 14,169,272 and 5,745,751 new shares of the Company for a total
consideration of USD53,741,000 (equivalent to RMB370,960,000) and USD21,790,000
(equivalent to RMB150,424,000) respectively, which was intended to acquire the equity
interests of Hangzhou Adicon from domestic affiliates controlled by the Founders (as defined
in note 37 to the Historical Financial Information). Pursuant to the SPA, the Group was
obligated to repay the Founders within 3 months using reasonable commercial efforts when
the capital injection by Pearl Group Limited or Huge King was fully completed.
In October 2018, the Company received the full consideration of USD53,741,000
(equivalent to RMB370,960,000) from Pearl Group Limited and Hangzhou Adicon accrued
corresponding payables to the affiliates controlled by the Founders, as well as debited to other
reserve in equity in the consolidated financial statements of the Company as at 31 December
2018. Hangzhou Adicon then settled the USD53,741,000 (equivalent to RMB369,973,000)
payables subsequently in January 2019.
APPENDIX I ACCOUNTANTS’ REPORT
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Pending for the approval for the Outbound Direct Investment, the Company had received
the full consideration of USD21,790,000 from Huge King until January 2021, USD11,760,000
(equivalent to RMB76,770,000) of which was received in December 2020 and
USD10,030,000 (equivalent to RMB64,802,000) in January 2021. Hangzhou Adicon then
repaid USD21,790,000 (equivalent to RMB138,841,000) to an affiliate of the Founders in
May 2021 which was presented as debit to other reserve in equity in the consolidated financial
statements of the Company.
(ii) Other reserve
The other capital reserve of the Group represents the difference between the aggregate
of the net assets of the non-controlling interests acquired and the consideration paid by the
Group for the acquisition of non-controlling interests, as well as the put option over
non-controlling interests.
(iii) Share option/RSU reserve
The share option/RSU reverse of the Group represents the fair value of equity-settled
share-based payments granted in 2020, 2021 and 2022.
(iv) Exchange fluctuation reserve
The exchange fluctuation reserve represents exchange differences arising from the
translation of the financial statement of group companies whose functional currencies are
different from the Group’s presentation currency.
Company
The amounts of the Company’s reserve and the movements therein for the Relevant Periods
are presented as follows:
Share
capital
Capital
reserve
Share
option
reserve
Exchange
fluctuation
reserve
Accumulated
losses Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2020. . . . . 76 48,535 2,735 252 (49,677) 1,921
Issue of shares. . . . . . . . – 76,770 – – – 76,770
Acquisition of non-
controlling interests . . 1 16,025 – – – 16,026
Loss for the year ...... – – – – (7,590) (7,590)
Recognition of share-
based payments . . . . . – – 63,598 – – 63,598
Exchange differences
related to foreign
operations ......... – – – ( 7 1 1 ) – ( 7 1 1 )
At 31 December 2020 . . 77 141,330 66,333 (459) (57,267) 150,014
APPENDIX I ACCOUNTANTS’ REPORT
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Share
capital
Capital
reserve
Share
option
reserve
Exchange
fluctuation
reserve
Accumulated
losses Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Issue of shares . . . . . . . 9 68,894 – – – 68,903
Acquisition of non-
controlling interests . . – 14,840 – – – 14,840
Loss for the year ...... – – – – (70,127) (70,127)
Dividend declared . . . . . – – – – (452,585) (452,585)
Recognition of share-
based payments . . . . . – – 37,325 – – 37,325
Exchange differences
related to foreign
operations ......... – – – 4 0 6 – 4 0 6
At 31 December 2021 . . 86 225,064 103,658 (53) (579,979) (251,224)
Profit for the year . . . . . – – – – 82,541 82,541
Dividend declared . . . . – – – – (865,017) (865,017)
Recognition of share-
based payments . . . . . – – 15,049 – – 15,049
Exchange differences
related to foreign
operations ......... – – – (54,254) – (54,254)
At 31 December 2022 . . 86 225,064 118,707 (54,307) (1,362,455) (1,072,905)
33. SHARE INCENTIVE PLAN
Share incentive plan for senior executive and senior management
In July 2019, the board of directors of the Company passed a resolution to adopt share
incentive plan for senior executive and senior management (the “Employee Incentive Plans”) and
subsequently amended and restated on 7 November 2020, 15 April 2021 and 1 October 2021 to
promote the success of the Company and to incentivize directors and employees of the Group.
Under the Employee Incentive Plans, the board of directors of the Company may at its discretion
approve up to 10% of prevailing ordinary share capital of the Company on a fully diluted basis as
at the date of such grant to any eligible senior executive and senior management of the Company.
APPENDIX I ACCOUNTANTS’ REPORT
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During year ended 31 December 2019, 2020 and 2021, the Company granted share options and
restricted share units (“RSUs”) to eligible senior executive and senior management of the Group to
subscribe up to 89,542,920 underlying shares of the Company. Set out below is details of specific
grant of share-based awards as adjusted after Share Consolidation:
Grantee Date of Grant Type
Number of
underlying
shares
granted
Exercise/
Subscription
price Vesting period
’000
USD
per share
Employees ........ 1 0 July 2019 ~
15 March
2022
Share
options
18,326 0.38 ~1.50 30 June 2020
~ 31 March
2024
Executive directors
and a senior
management ....
25 February
2020
~ 28 January
2021
Share
options
58,644 0.38 ~1.50 30 June 2020
~ 31 March
2024
Executive director
and senior
management ....
24 November
2021 ~
9 February
2022
RSUs 12,573 1.50 ~1.66 15 December
2021
~ 31 March
2026
The share options granted to employees shall vest and become 100% exercisable on the
anniversary of the vesting commencement date. The share options and RSUs granted to executive
directors and senior management shall vest and become exercisable as to 25% of the total number
of option or RSUs granted on the first anniversary of the vesting commencement date, and the
remaining 25%, 25% and 25% of the total number of options granted shall vest and become
exercisable on the second, third and fourth anniversary of the vesting commencement date. The
RSU recipients are obligated to pay the subscription price of the RSUs upon vesting.
In addition to employee time-based vesting condition, the number of share options/RSUs shall
vest also depends on the financial performance targets including total sales, sales by specified
categories and net profit target achieved by the Group during the vesting period. The vesting
conditions for a senior management also include market capitalization targets upon completion of
IPO and acquisition of business.
The following share options were outstanding under the Employee Incentive Plans during the
Relevant Periods. The number of options and exercise price presented below are adjusted after
Share Consolidation.
Y ear ended 2020 Y ear ended 2021 Y ear ended 2022
Weighted
average
exercise price
Number of
share
options
Weighted
average
exercise price
Number of
share
options
Weighted
average
exercise price
Number of
share
options
USD per share ’000 USD per share ’000 USD per share ’000
At 1 January ................. 0.3800 2,911 0.3800 26,277 0.7177 27,029
Granted during the year .......... 0.3800 49,224 1.5305 23,345 1.4949 1,490
Forfeited during the year ......... 0.3800 (15,295) 1.5305 (12,345) 1.4944 (52)
Exercised during the year ......... 0.3800 (10,563) 0.7242 (10,248) 0.8475 (9,668)
At 31 December ............... 0.3800 26,277 0.7177 27,029 0.7104 18,799
APPENDIX I ACCOUNTANTS’ REPORT
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For the fair value of equity-settled share options granted during the year, Black-Scholes option
pricing model was used and taken into account the terms and conditions upon which the options
were granted. The following table lists the inputs to the model used:
Y ear ended 31 December
Date of Grant 2020 2021 2022
Dividend yield (%) ........................... 0 % 0 % 0 %
Expected volatility (%) ........................ 27.56%-52.55% 32.16%-43.09% 39.47%
Risk-free interest rate (%) ...................... 0.08%-1.33% 0.04%-0.36% 0.87%
Expected life of options (year) ................... 0.00-3.09 0.00-3.19 0.04
Weighted average share option price (USD per share), as
adjusted after Share Consolidation .............. 0.40-0.90 0.04-0.26 0.08
The expected life of the share options is based on the historical data over the past three years
and is not necessarily indicative of the exercise patterns that may occur. The expected volatility
reflects the assumption that the historical volatility is indicative of future trends, which may also
not necessarily be the actual outcome.
The following RSUs were outstanding under the Employee Incentive Plans during the
Relevant Periods. The number of RSUs and subscription price presented below are adjusted after
Share Consolidation.
Y ear ended 2021 Y ear ended 2022
Number RSUs Number of RSUs
’000 ’000
At the beginning of the year ...................... – 12,300
Granted during the year .......................... 12,400 172
Vested during the year ........................... (100) (272)
At the end of the year ........................... 12,300 12,200
The fair value of RSUs granted during the year ended 31 December 2021 and 2022 were
estimated at RMB1.6984/unit and RMB1.5533/unit respectively as at the date of grant by reference
to recent financing valuation of the Group.
The fair value of the share options/RSUs granted during year ended 31 December 2020, 2021
and 2022 was USD21,402,000, USD4,126,000 and USD134,815, of which the Group recognized a
share-based payment expenses of RMB63,598,000, RMB37,325,000 and RMB15,049,000
respectively.
APPENDIX I ACCOUNTANTS’ REPORT
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34. BUSINESS COMBINATION
(1) Shangrao Adicon and Jiangxi Jince
In February 2021, Hangzhou Adicon entered into a share purchase agreement with the
shareholders of Shangrao Adicon to acquire 51% equity interests of Shangrao Adicon from certain
individual shareholders at a cash consideration of RMB20,710,000. And Aidiken WFOE entered
into a share purchase agreement with the shareholders of Jiangxi Jince to acquire 51% equity
interests of Jiangxi Jince from certain individual shareholders at a cash consideration of
RMB16,945,000. The Company obtained control of the operating and financial activities of
Shangrao Adicon and Jiangxi Jince.
The purchase consideration for the acquisition was in the form of cash at RMB37,655,000,
RMB26,359,000 of which has been paid by 2022 and the remaining RMB11,296,000 has not been
paid.
The fair values of the identifiable assets and liabilities of as at the date of acquisition were
as follows:
Notes
Shangrao
Adicon
Jiangxi
Jince Total
RMB’000 RMB’000 RMB’000
Property, plant and equipment ................ 16 395 1,585 1,980
Other intangible assets ...................... 19 10,000 8,007 18,007
Inventories ................................ 2 5 0 1,677 1,927
Trade receivables ........................... 3,997 2,305 6,302
Prepayments and other receivables ............ 3 1 9 1,147 1,466
Cash and bank balances ..................... 3,098 2,180 5,278
Trade payables ............................. (1,047) (1,778) (2,825)
Other payables and accruals ................. (1,587) (1,936) (3,523)
Profit tax payable .......................... (450) (203) (653)
Deferred tax liabilities ...................... 20 (2,500) (2,000) (4,500)
Total identifiable net assets at fair value ....... 12,475 10,984 23,459
Non-controlling interests .................... (6,113) (5,382) (11,495)
Goodwill on acquisition ..................... 18 14,348 11,343 25,691
Consideration satisfied by cash ............... 14,497 11,862 26,359
Contingent consideration .................... 27(c) 6,213 5,083 11,296
Total consideration ......................... 20,710 16,945 37,655
The fair values of the trade receivables and other receivables as at the date of acquisition
amounted to RMB6,302,000 and RMB1,466,000, respectively. The gross contractual amounts of
trade receivables and other receivables were RMB6,302,000 and RMB1,466,000, respectively.
None of the contractual cash flows are not expected to be collected at acquisition date.
Subsequent to the acquisition, the Group further acquired 10% equity interests in Shangrao
Adicon and Jiangxi Jince from minority shareholders, increasing the Group’s equity interests
percentage in Shangrao Adicon and Jiangxi Jince from 51% to 61%. The differences between
RMB1,747,000 decrease in the carrying amount of non-controlling interests and consideration of
RMB8,071,000 had been recognized as a debit to other reserve during 2021.
APPENDIX I ACCOUNTANTS’ REPORT
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An analysis of the cash flows in respect of the acquisition of a subsidiary is as follows:
RMB’000
Cash consideration ..................................................... 26,359
Cash and bank balances acquired ........................................ 5,278
Net outflow of cash and cash equivalents included in cash flows from
investing activities ................................................... 21,081
Transaction costs of the acquisition included in cash flows from operating
activities ........................................................... –
21,081
Since the acquisition, Shangrao Adicon and Jiangxi Jince contributed RMB66,680,000 to the
Group’s revenue and RMB11,270,000 to the consolidated profit for the year ended 31 December
2021.
Had the combination taken place at the beginning of the Relevant Periods, the revenue from
continuing operations of the Group for the year ended 31 December 2021 would have been
RMB3,386,003,000. The profit of the Group for the year would have been RMB324,254,000.
(2) Henan Adicon
In May 2022, Hangzhou Adicon entered into a share purchase agreement with the shareholders
of Henan Adicon to acquire 51% equity interests of Henan Adicon from certain shareholders at a
cash consideration of RMB88,916,000. The Company obtained control of the operating and
financial activities of Henan Adicon.
The purchase consideration for the acquisition was in the form of cash at RMB62,241,000 of
which has been paid by 31 December 2022.
The contingent consideration recognized as of the acquisition date was at RMB26,675,000
which was determined upon the satisfaction of the targeted revenue and net profits for the year
ending 31 December 2022 and 31 December 2023. The contingent consideration was initially
measured at fair value and was remeasured to fair value at subsequent reporting dates, if any, with
the corresponding gains or loss being recognized in profit or loss.
APPENDIX I ACCOUNTANTS’ REPORT
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The fair values of the identifiable assets and liabilities of as at the date of acquisition were
as follows:
Notes Henan Adicon
RMB’000
Property, plant and equipment ............................ 16 15,958
Right-of-use assets ..................................... 17 5,071
Other intangible assets .................................. 19 59,000
Deferred tax assets ..................................... 1,160
Inventories ............................................ 6,230
Trade receivables ....................................... 105,066
Prepayments and other receivables ........................ 5,548
Cash and bank balances ................................. 1,755
Trade payables ......................................... (64,675)
Other payables and accruals ............................. (33,490)
Profit tax payable ...................................... (13,486)
Lease liabilities ........................................ 17 (5,142)
Deferred tax liabilities .................................. 20 (14,750)
Total identifiable net assets at fair value ................... 68,245
Non-controlling interests ................................ (33,440)
Goodwill on acquisition ................................. 18 34,805
Consideration satisfied by cash ........................... 62,241
Contingent consideration ................................ 27(c) 26,675
Total consideration ..................................... 88,916
The fair values of the trade receivables and other receivables as at the date of acquisition
amounted to RMB6,230,000 and RMB5,548,000, respectively. The gross contractual amounts of
trade receivables and other receivables were RMB6,230,000 and RMB5,548,000, respectively.
None of the contractual cash flows are not expected to be collected at acquisition date.
An analysis of the cash flows in respect of the acquisition of a subsidiary is as follows:
RMB’000
Cash consideration ...................................... 62,241
Advanced payment ..................................... 23(c) 11,800
Cash and bank balances acquired ......................... 1,755
Net outflow of cash and cash equivalents included in cash
flows from investing activities ......................... 48,686
Transaction costs of the acquisition included in cash flows
from operating activities ............................... –
48,686
APPENDIX I ACCOUNTANTS’ REPORT
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Since the acquisition, Henan Adicon contributed RMB57,713,000 to the Group’s revenue and
RMB11,620,000 to the consolidated profit for the year ended 31 December 2022.
Had the combination taken place at the beginning of the year, the revenue from continuing
operations of the Group for the year ended 31 December 2022 would have been RMB4,991,459,000.
The profit of the Group for the year would have been RMB725,598,000.
The directors of the Company consider that none of these subsidiaries acquired was significant
to the Group and thus the individual financial information of these subsidiaries on the acquisition
date was not disclosed.
35. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS
(a) Major non-cash transactions
During the Relevant Periods, the Group had non-cash additions to right-of-use assets of
RMB36,111,000, RMB71,604,000 and RMB99,744,000 and lease liabilities of RMB36,111,000,
RMB71,604,000 and RMB99,744,000 respectively, in respect of lease arrangements for properties
and equipment.
During the Relevant Periods, the Group had non-cash revision of a lease term from a change
in the non-cancellable period of a lease to right-of-use assets of RMB26,844,000, RMB2,524,000,
and RMB180,000 and lease liabilities of RMB26,532,000, RMB2,943,000 and RMB186,000,
respectively, in respect of lease arrangements for properties and equipment.
During the years ended 31 December 2020, 2021 and 2022, the Group had non-cash additions
to share-based payment reserves of RMB63,598,000, RMB37,325,000 and RMB15,049,000,
respectively, in respect of share-based payment arrangements.
During the year ended 31 December 2020, 2021 and 2022, the Group had non-cash addition
of RMB3,984,000, RMB7,968,000 and RMB730,000 in other payables due to accrual of listing
expenses.
During the year ended 31 December 2020, the Group issued 1,346,421,020 (6,732,106 as
adjusted after Share Consolidation) new shares of the Company (corresponding to a total value of
RMB16,026,000) to acquire 40% of equity interests of Manson Grand.
During the year ended 31 December 2021, the Group issued 295,705,697 (1,478,529 as
adjusted after Share Consolidation) new shares of the Company (corresponding to a total value of
RMB14,840,000) to acquire 13.125% of equity interests of Shanghai Adicon.
APPENDIX I ACCOUNTANTS’ REPORT
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(b) Changes in liabilities arising from financing activities
The table below details changes in the Group’s liabilities arising from financing activities,
including both cash and non-cash changes. Liabilities arising from financing activities are those for
which cash flows were, or future cash flows will be, classified in the Group’s consolidated
statements of cash flows as cash flows from financing activities.
Bank loans
Interest
payable
Lease
liabilities
Amounts due
to related
parties
Accrued listing
expenses in
other payables
Convertible
redeemable
preferred shares
Advance
payments from
non-controlling
shareholders
Advance
payments
received for
subscription of
share
options/RSUs
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2020 ........ 8 0 , 0 0 0 1 1 9 198,360 91,860 – – 2,910 –
Interest Expense ......... – 8,811 10,833 – – – – –
Additions ............ 230,454 – 36,111 – – 443,931 – 27,918
Disposal ............. – – (26,532) – – – – –
Payment
– Changes from financial
cash flows .......... (90,000) – (58,207) (90,992) (677) – (2,460) –
– Changes from operating
cash flows .......... – – – – (2,703) – – –
Interest Paid ........... – (8,726) – – – – – –
COVID-19 related rent
concessions from lessors .... – – (2,439) – – – – –
Increase in deferred listing
expenses ............ – – – – 3 , 9 8 4 – – –
Listing expenses ......... – – – – 16,179 – – –
Exchange adjustment ....... – – – (868) – – – –
At 31 December 2020 and
1 January 2021 ........ 220,454 204 158,126 – 16,783 443,931 450 27,918
APPENDIX I ACCOUNTANTS’ REPORT
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Bank
loans
Interest
payable
Lease
liabilities
Amounts due
to related
parties
Accrued
listing
expenses in
other payables
Convertible
redeemable
preferred shares
Advance
payments from
non-controlling
shareholders
Advance
payments
received for
subscription of
share
options/RSUs
Dividends
payable
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 31 December 2020
and 1 January 2021 . . 220,454 204 158,126 – 16,783 443,931 450 27,918 –
Interest Expense ..... – 5,702 10,624 – – – – – –
Additions ........ 4 2 , 0 0 0 – 71,604 – – 129,156 – 46,747 –
Disposal ......... – – (2,943) – – – – – –
Payment
– Changes from
financial
cash flows ...... (120,080) (5,906) (59,461) – (4,065) – (450) – (452,585)
– Changes from
operating
cash flows ...... – – – – (20,606) – – – –
Increase in deferred
listing expenses .... – – – – 7,968 – – – –
Listing expenses ..... – – – – 3 5 , 2 9 0 – – – –
Fair value losses on
convertible redeemable
preferred shares .... – – – – – 61,531 – – –
Issue of share ...... – – – – – – – ( 4 , 094) –
Exchange adjustment . . . (2,443) – – – – (12,748) – (61) –
Dividends declared .... – – – – – – – – 452,585
At 31 December 2021 . . 139,931 – 177,950 – 35,370 621,870 – 70,510 –
Bank
loans
Interest
payable
Lease
liabilities
Amounts due
to related
parties
Accrued
listing
expenses in
other payables
Convertible
redeemable
preferred shares
Advance
payments from
non-controlling
shareholders
Advance
payments
received for
subscription of
share
options/RSUs
Dividends
payable
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 31 December 2021
and 1 January 2022 . . 139,931 – 177,950 – 35,370 621,870 – 70,510 –
Interest Expense ..... 2 9 , 2 5 3 – 13,705 – – – – –
Additions ........ 1 , 098,395 – 104,886 – – – – 26,526 –
Disposal ......... – – (186) – – – – – –
Payment
– Changes from
financial
cash flows ...... (155,313) – (62,500) – (2,576) – – – (865,017)
– Changes from
operating
cash flows ...... – – – – (32,177) – – – –
Interest paid ....... (17,301) – – – – – – – –
Increase in deferred
listing expenses .... – – – – 7 3 0 – – – –
Listing expenses ..... – – – – 9,664 – – – –
Fair value gain on
convertible redeemable
preferred shares .... – – – – – ( 87,044) – – –
Exchange adjustment . . . 41,156 – – – – 54,353 – – –
Dividends declared .... – – – – – – – – 865,017
31 March 2022 ..... 1 , 136,121 – 233,855 – 11,011 589,179 – 97,036 –
APPENDIX I ACCOUNTANTS’ REPORT
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36. COMMITMENTS
The Group had the following capital commitments at the end of the reporting period:
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Contracted, but not provided for acquisition of
property and equipment ...................... 13,449 37,549 15,418
37. RELATED PARTY TRANSACTIONS
(a) Name and relationship of related parties
Name Notes Relationship
Corelink ...................................... (i) Shareholder
Mega Stream .................................. (ii) Shareholder
Leadway Limited (“Leadway”) ................... (iii) Controlled by shareholders
Ҧஔ(ψ)ʮ̡
ACON Biotech (Hangzhou) Company Limited
(“ACON”) ..................................
(i) Controlled by shareholder
ʮ̡
Hangzhou Aijituan Huajiashan Medical Clinic
Co., Ltd (“Aijituan Huajiashan”) ...............
(iv) Controlled by shareholder
ʮ̡
Hangzhou Aijituan Medical Clinic Co., Ltd
(“Hangzhou Aijituan”) ........................
(v) Controlled by shareholder
Ў਄ᔼᐕኜ૛(ψ)ʮ̡
AJON Medical Device (Hangzhou) Co. Ltd.
(“AJON”) ...................................
(i) Controlled by shareholder
ʮ̡
CareLYFE Co., Ltd. (“CareLYFE”) .............
(vi) Controlled by Director
Notes:
(i) An entity controlled by Mr. LIN Jixun, one of the founders and a non-executive Director of the Company. Mr.
LIN Jixun is the brother of Mr. LIN Feng.
(ii) An entity controlled by Mr. LIN Feng, one of the founders of the Company. Mr. LIN Feng is the brother of
Mr. LIN Jixun.
(iii) An entity jointly controlled by Mr. LIN Feng and Mr. LIN Jixun (collectively referred to as the “Founders”).
(iv) The entity was previously named as Aidikon Huajiashan Medical Clinic Department (Hangzhou) Co., Ltd. (؄
ʮ̡) before 19 March 2019. The entity was controlled by Mr. LIN Jixun and
was sold to third party since July 2020.
(v) The entity was previously named as Aidikon Medical Clinic Department (Hangzhou) Co., Ltd. (ੰᔼ
ʮ̡) before 14 March 2019. The entity was controlled by Mr. LIN Jixun and dissolved in August
2020.
(vi) The entity is controlled by Mr. SHI Chenyang, an executive director of the Company. Since Mr. SHI Chenyang
was removed from the list of the directors of the Company on 12 May 2020, CareLYFE was no longer a related
party of the Group.
APPENDIX I ACCOUNTANTS’ REPORT
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(b) Transactions with related parties
The following transactions were carried out with related parties:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Sales to
ACON ................................. 4 4 1 7 9 2 1 1 7
Aijituan Huajiashan ...................... 3 1 5 – –
756 792 117
Purchase from
ACON ................................. 107,899 101,979 78,915
CareLYFE .............................. 5,934 – –
113,833 101,979 78,915
Rent from
AJON .................................. 7,475 7,665 4,239
Repayment of loans from
Corelink ................................ (i) 45,496 – –
Mega .................................. (i) 45,496 – –
Stream Leadway ......................... (ii) –– –
90,992 – –
The directors of the Company are of the opinion that the above sales to related parties and
purchase from related parties were conducted in the ordinary course of business and on arms-length
commercial terms.
(c) Outstanding balances with related parties
Group
As disclosed in the statements of financial position, the Group had below outstanding
balances with related parties at 31 December 2020, 2021 and 2022.
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Due from related parties
Trade receivables (trade in nature)
ACON .................................... 8 2 6 5 1 2
Other receivables (non-trade in nature)
Hangzhou Aijituan .......................... 1 3 7 – –
Other receivables and prepayments
(trade in nature)
ACON .................................... – – 1 9 1
AJON ..................................... 1,832 2,021 2,147
1,832 2,021 2,338
Total amounts due from related parties ........ 2,051 2,086 2,350
APPENDIX I ACCOUNTANTS’ REPORT
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As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Analyzed as:
Current ................................... 1 9 9 2 7 0 2 2 7
Non-Current ............................... 1,852 1,816 2,123
2,051 2,086 2,350
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Due to related parties
Trade payables (trade in nature)
ACON ............................ 51,722 35,044 59,836
CareLYFE ......................... 2,299 – –
Other payables (trade
in nature)
AJON ............................. 1,050 1,059 1,163
ACON ............................ 1 0 0 6 4 7 2
Total amounts due to related parties. . . 55,171 36,167 61,071
The Company
As disclosed in the statements of financial position, the Company had below outstanding
balances with related parties at 31 December 2020, 2021 and 2022.
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Other receivables (non-trade in nature)
Adicon HK ................................ 86,202 3,933 9,928
86,202 3,933 9,928
Less: Impairment ........................... – – –
Total amounts due from related parties ........ 86,202 3,933 9,928
Analyzed as:
Current ................................. 86,202 3,933 9,928
Non-Current ............................. – – –
86,202 3,933 9,928
APPENDIX I ACCOUNTANTS’ REPORT
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--- page 438 ---
The Group and the Company’s balances due from related parties are unsecured,
interest-free and repayable on demand.
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Other payables (non-trade
in nature)
Adicon HK ........................ 88,202 – 838,891
Notes:
(i) From 2008 to 2010, Corelink and Mega Stream each provided up to USD9,090,000 loans to the Group.
These loans were interest-free and repayable on demand. In 2019, The Group repaid USD2,500,000
each to Corelink and Mega Stream. In December 2019, Corelink and Mega Stream entered into a
supplemental loan agreement with the Group, pursuant to which the Group shall pay a simple interest
rate of 5% per annum on the remaining principal of the loans commencing from 1 January 2020. During
the years ended 2018, 2019 and 2020, interest expenses amounting to RMB5,510,000, RMB4,677,000
and RMB2,198,000 were recognized in the respective consolidated statements of profit or loss and other
comprehensive income. The principal and interest of the loans were fully repaid by the Group in June
2020.
(ii) Leadway provided up to USD1,200,000 (equivalent to RMB8,256,000) loans to the Group. These loans
were interest-free, which were fully repaid by the Group in 2019.
(d) Compensation of key management personnel of the Group:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Salaries and bonuses .............................. 3,207 5,207 5,051
Social welfare and other benefits .................... 1,470 4,926 2,673
Share-based compensation expenses ................. 39,041 21,511 6,669
Total compensation paid to key management
personnel ...................................... 43,718 31,644 14,393
Further details of directors’ and chief executives’ emoluments are included in note 10 to the
Historical Financial Information.
APPENDIX I ACCOUNTANTS’ REPORT
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38. FINANCIAL INSTRUMENTS BY CATEGORY
The carrying amounts of each of the categories of financial instruments of the group as at the
end of each of the Relevant Periods were as follows:
Financial assets
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Financial assets at FVTPL:
Derivatives – interest rate cap contracts ........ – – 8,104
Financial assets at amortized cost:
Trade and bills receivables ................... 942,041 1,213,512 1,856,847
Due from related parties ..................... 2,051 2,086 2,350
Financial assets included in prepayments,
other receivables and other assets ........... 18,229 24,510 30,860
Cash and bank balances ....................... 1,228,620 1,109,211 1,680,625
2,190,941 2,349,319 3,570,682
Financial liabilities
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Financial liabilities at FVTPL:
Convertible redeemable preferred shares ......... 443,931 621,870 589,179
Financial liabilities included in other payables .... – 13,718 27,055
443,931 635,588 616,234
Financial liabilities at
amortized cost:
Trade payables ............................... 383,775 510,691 1,062,452
Amount due to related parties .................. 55,430 36,167 61,071
Financial liabilities included in
other payables .............................. 240,010 492,847 677,840
Interest-bearing bank borrowings ................ 220,454 139,931 1,136,121
Lease liabilities ............................... 158,126 177,950 233,855
1,057,795 1,357,586 3,171,339
APPENDIX I ACCOUNTANTS’ REPORT
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39. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group’s principal financial instruments comprise interest-bearing bank borrowings, other
interest-bearing loans, and cash and short-term deposits. The main purpose of these financial
instruments is to raise finance for the Group’s operations. The Group has various other financial
assets and liabilities such as trade receivables and trade payables, which arise directly from its
operations.
The main risks arising from the Group’s financial instruments are foreign currency risk, credit
risk and liquidity risk. The board of directors of the Company review and agree policies for
managing each of these risks and they are summarized below.
Foreign currency risk
The Group has transactional currency exposures. Such exposures arise from sales or purchases
by operating units in currencies other than the units’ functional currencies.
In addition, the Group has currency exposures from its interest-bearing bank borrowings.
The following table demonstrates the sensitivity at the end of each of the Relevant Periods to
a reasonably possible change in the RMB and USD foreign exchange, with all other variables held
constant, of the Group’s profit before tax.
(a) Foreign currency risk
Group
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
RMB/USD
Strengthened 5% .............................. 27,067 9,416 5,685
Weakened 5% ................................ (27,067) (9,416) (5,685)
RMB/HKD
Strengthened 5% .............................. – 4 6 6
Weakened 5% ................................ – ( 4 ) (66)
RMB/EUR
Strengthened 5% .............................. 1 5 9 – –
Weakened 5% ................................ (159) – –
APPENDIX I ACCOUNTANTS’ REPORT
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--- page 441 ---
Company
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
RMB/USD
Strengthened 5% .............................. 25,717 15,415 (39,466)
Weakened 5% ................................ (25,717) (15,415) 39,466
RMB/HKD
Strengthened 5% .............................. – 2 1 2 0
Weakened 5% ................................ – (21) (20)
RMB/EUR
Strengthened 5% .............................. 1 5 9 – –
Weakened 5% ................................ (159) – –
(b) Credit risk
An impairment analysis was performed at 31 December 2020, 2021 and 2022 using a
provision matrix to measure expected credit losses. The provision rates are based on aging for
groupings of various customer segments with similar loss patterns. The calculation reflects the
probability-weighted outcome, the time value of money and reasonable and supportable information
that is available at the reporting date about past events, current conditions and forecasts of future
economic conditions.
The table below shows the credit quality and the maximum exposure to credit risk based on
the Group’s credit policy, which is mainly based on aging information unless other information is
available without undue cost or effort, and year-end staging classification as at 31 December 2020,
2021 and 2022. The amounts presented are gross carrying amounts for financial assets.
Group
At 31 December 2020
12-month
ECLs Lifetime ECLs
Stage 1 Stage 2 Stage 3
Simplified
approach Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Trade receivables* .... – – – 988,040 988,040
Financial assets
included in
prepayments,
deposits and other
receivables
– Normal** ...... 18,22 9––– 18,229
– Doubtful** .... –––– –
Amounts due from
related parties ...... 2,051––– 2,051
Cash and bank
balances ........... 1,228,62 0––– 1,228,620
1,248,900 – – 988,040 2,236,940
APPENDIX I ACCOUNTANTS’ REPORT
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--- page 442 ---
At 31 December 2021
12-month
ECLs Lifetime ECLs
Stage 1 Stage 2 Stage 3
Simplified
approach Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Trade receivables* .... – – – 1,285,447 1,285,447
Bill receivables ...... 3,140––– 3,140
Financial assets
included in
prepayments,
deposits and other
receivables
– Normal** ...... 24,51 0––– 24,510
– Doubtful** .... –––– –
Amounts due from
related parties ...... 2,086––– 2,086
Cash and bank
balances ........... 1,109,21 1––– 1,109,211
1,138,947 – – 1,285,447 2,424,394
At 31 December 2022
12-month
ECLs Lifetime ECLs
Stage 1 Stage 2 Stage 3
Simplified
approach Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Trade receivables* .... – – – 2,043,901 2,043,901
Bill receivables ...... 3,253––– 3,253
Financial assets
included in
prepayments,
deposits and other
receivables ........
– Normal** ...... 30,86 0––– 30,860
– Doubtful** .... –––– –
Amounts due from
related parties ...... 2,350––– 2,350
Cash and bank
balances ........... 1,680,62 5––– 1,680,625
1,717,088 – – 2,043,901 3,760,989
APPENDIX I ACCOUNTANTS’ REPORT
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--- page 443 ---
Company
At 31 December 2020
12-month
ECLs Lifetime ECLs
Stage 1 Stage 2 Stage 3
Simplified
approach Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Amounts due from
related parties ...... 86,20 2––– 86,202
Cash and bank
balances ........... 535,07 3––– 535,073
621,27 5––– 621,275
At 31 December 2021
12-month
ECLs Lifetime ECLs
Stage 1 Stage 2 Stage 3
Simplified
approach Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Amounts due from
related parties ..... 3,933––– 3,933
Cash and bank
balances ........... 144,10 0––– 144,100
148,03 3––– 148,033
At 31 December 2022
12-month
ECLs Lifetime ECLs
Stage 1 Stage 2 Stage 3
Simplified
approach Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Amounts due from
related parties ...... 9,928––– 9,928
Cash and bank
balances ........... 125,64 2––– 125,642
135,57 0––– 135,570
* For trade receivables to which the Group applies the simplified approach for impairment, information based
on the provision matrix is disclosed in note 22 to the Historical Financial Information.
** The credit quality of the financial assets included in prepayments, deposits, other receivables and trade bills
is considered to be “normal” when they are not past due and there is no information indicating that the financial
assets had a significant increase in credit risk since initial recognition. Otherwise, the credit quality of the
financial assets is considered to be “doubtful”.
APPENDIX I ACCOUNTANTS’ REPORT
– I-91 –


--- page 444 ---
A financial asset is credit-impaired when one or more events that have a detrimental impact
on the estimated future cash flows of that financial asset have occurred. Evidence that a financial
asset is credit-impaired includes observable data about the following events:
 significant financial difficulty of the debtor;
 a breach of contract such as a default or past due event;
 it is probable that the debtor will enter bankruptcy or other financial reorganization;
The Group has established a policy to perform an assessment, of whether a financial
instrument’s credit risk has increased significantly since initial recognition, by considering the
change in the risk of default occurring over the remaining life of the financial instrument.
Management makes periodic collective assessments for financial assets included in
prepayments, deposits, other receivables and trade bills as well as individual assessment on the
recoverability of other receivables based on historical settlement records and past experience. The
Group recognized allowance for financial assets other than trade receivables based on 12-month
ECLs and adjusts for forward-looking macroeconomic data. For trade receivables to which the
Group applies the simplified approach for impairment based on lifetime ECLs.
(c) Liquidity risk
Group
The Group’s objective is to maintain a balance between continuity of funding and
flexibility through the use of internally generated cash flows from operations and bank
borrowings. The Group regularly reviews its major funding positions to ensure that it has
adequate financial resources in meeting its financial obligations.
The maturity profile of the Group’s financial liabilities as at the end of each of the
Relevant Periods, based on the contractual undiscounted payments, was as follows:
As at 31 December 2020
on demand
Less than
1 year
1 year to
3 years Over 3 years Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Trade payables ........... – 383,775 – – 383,775
Financial liabilities
included in other
payables and accruals . . . 240,01 0––– 240,010
Interest-bearing bank
borrowings ............. – 120,178 23,149 87,376 230,703
Amounts due to related
parties ................. 55,43 0––– 55,430
Lease liabilities ........... – 28,416 72,452 77,178 178,046
Convertible redeemable
preferred shares ........ – – 559,225 – 559,225
295,440 532,369 654,826 164,554 1,647,189
APPENDIX I ACCOUNTANTS’ REPORT
– I-92 –


--- page 445 ---
As at 31 December 2021
on demand
Less than
1 year
1 year to
3 years Over 3 years Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Trade payables ........... – 510,691 – – 510,691
Financial liabilities
included in other
payables and accruals . . . 492,84 7––– 492,847
Interest-bearing bank
borrowings ............. – 49,141 34,368 62,079 145,588
Lease liabilities ........... – 31,653 86,053 84,436 202,142
Convertible redeemable
preferred shares ........ – – 630,654 – 630,654
492,847 591,485 751,075 146,515 1,981,922
As at 31 December 2022
on demand
Less than
1 year
1 year to
3 years Over 3 years Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Trade payables ........... – 1,062,452 – – 1,062,452
Financial liabilities
included in other
payables and accruals . . . 677,840 – – – 677,840
Interest-bearing bank
borrowings ............ – 1 12,792 196,278 991,047 1,300,117
Lease liabilities .......... – 51,400 111,595 96,985 259,980
Convertible redeemable
preferred shares ........ – – 514,138 – 514,138
677,840 1,226,644 822,011 1,088,032 3,814,527
Company
The maturity profile of the Company’s financial liabilities as at the end of each of the
Relevant Periods, based on the contractual undiscounted payments, was as follows:
As at 31 December 2020
on demand
Less than
1 year
1 year to
3 years Over 3 years Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Financial liabilities
included in other
payables and accruals . . . 19,766 – – – 19,766
Amounts due to related
parties ................. 88,202 – – – 88,202
Convertible redeemable
preferred shares ........ – – 559,225 – 559,225
107,968 – 559,225 – 667,193
APPENDIX I ACCOUNTANTS’ REPORT
– I-93 –


--- page 446 ---
As at 31 December 2021
on demand
Less than
1 year
1 year to
3 years Over 3 years Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Financial liabilities
included in other
payables and accruals . . . 51,180 – – – 51,180
Convertible redeemable
preferred shares ........ – – 630,654 – 630,654
51,180 – 630,654 – 681,834
As at 31 December 2022
on demand
Less than
1 year
1 year to
3 years Over 3 years Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Financial liabilities
included in other
payables and accruals . . . 80,653 – – – 80,653
Convertible redeemable
preferred shares ........ – – 514,138 – 514,138
80,653 – 514,138 – 594,791
(d) Capital management
The primary objectives of the Group’s capital management are to safeguard the Group’s ability
to continue as a going concern and to maintain healthy capital ratios in order to support its business
and maximize shareholders’ value.
The Group manages its capital structure and makes adjustments to it in light of changes in
economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the
capital structure, the Group may adjust the dividend payment to shareholders, return capital to
shareholders or issue new shares. The Group is not subject to any externally imposed capital
requirements. No changes were made in the objectives, policies or processes for managing capital
during the Relevant Periods.
The asset-liability ratios as at the end of each of the Relevant Periods are as follows:
Group
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Total assets .................................. 2,723,541 3,109,838 4,854,233
Total liabilities ............................... 1,684,423 2,256,991 4,241,897
Asset-liability ratio (Note) ..................... 62% 73% 87%
APPENDIX I ACCOUNTANTS’ REPORT
– I-94 –


--- page 447 ---
Company
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Total assets .................................. 704,033 428,450 444,301
Total liabilities ............................... 554,019 679,674 1,517,206
Asset-liability ratio (Note) ..................... 79% 159% 341%
Note: Asset-liability ratio is calculated by dividing total liabilities by total assets and multiplying the product by
100%.
40. FAIR V ALUE AND FAIR V ALUE HIERARCHY OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Group’s financial instruments, other than those
with carrying amounts that reasonably approximate to fair values, are as follows:
As at
31 December 2020
As at
31 December 2021
As at
31 December 2022
Carrying
amount Fair value
Carrying
amount Fair value
Carrying
amount Fair value
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Financial Assets
Derivatives – interest rate
cap contracts .......... –––– 8,104 8,104
Financial Liabilities
Contingent consideration . . – – 13,718 13,718 27,055 27,055
Convertible redeemable
preferred shares ........ 443,931 443,931 621,870 621,870 589,179 589,179
443,931 443,931 635,588 635,588 616,234 616,234
Management has assessed that the fair values of Cash and bank balances, trade and bills
receivables, trade payables, financial assets included in prepayments, deposits and other
receivables, financial liabilities included in other payables and accruals, amounts due from/to
related parties, and interest-bearing bank borrowings approximate to their carrying amounts largely
due to the short term maturities of these instruments.
The Group’s finance department headed by the financial controller is responsible for
determining the policies and procedures for the fair value measurement of financial instruments. At
the end of each of the Relevant Periods, the finance department analyzes the movements in the
values of financial instruments and determines the major inputs applied in the valuation. The
directors review the results of the fair value measurement of financial instruments periodically for
financial reporting.
APPENDIX I ACCOUNTANTS’ REPORT
– I-95 –


--- page 448 ---
The fair values of the financial assets and liabilities are included at the amount at which the
instrument could be exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale. The following methods and assumptions were used to estimate the fair
values:
The fair values of the non-current portion of interest-bearing bank borrowings have been
calculated by discounting the expected future cash flows using rates currently available for
instruments with similar terms, credit risk and remaining maturities. The changes in fair value as
a result of the Group’s own non-performance risk for interest-bearing bank borrowings as at 31
December 2020, 2021 and 2022 were assessed to be insignificant.
The fair value of the convertible redeemable preferred shares measured at FVTPL are
determined using the Black-Scholes option pricing model. Further details are set out in note 30 to
the Historical Financial Information.
Fair value hierarchy
The following tables illustrate the fair value measurement hierarchy of the Group’s financial
instruments:
As at 31 December 2020
Fair value measurement using
Quoted
prices in
active
markets
(Level 1)
Significant
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Financial Liabilities
Convertible redeemable preferred
Shares ......................... – – 443,931 443,931
As at 31 December 2021
Fair value measurement using
Quoted
prices in
active
markets
(Level 1)
Significant
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Financial Liabilities
Contingent consideration ........... – – 13,718 13,718
Convertible redeemable preferred
Shares ......................... – – 621,870 621,870
– – 635,588 635,588
APPENDIX I ACCOUNTANTS’ REPORT
– I-96 –


--- page 449 ---
As at 31 December 2022
Fair value measurement using
Quoted
prices in
active
markets
(Level 1)
Significant
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Financial Assets
Derivatives – interest rate cap
contracts ....................... – 8,104 – 8,104
Financial Liabilities
Contingent consideration ........... – – 27,055 27,055
Convertible redeemable preferred
Shares ........................ – – 589,179 589,179
– – 616,234 616,234
During the Relevant Periods, there was no transfers of fair value measurements between Level
1 and Level 2 and no transfers into or out of Level 3 for both financial assets and financial
liabilities.
Below is a summary of significant unobservable inputs to the valuation of financial
instruments together with a quantitative sensitivity analysis as at 31 December 2020, 2021 and
2022.
Valuation technique
Significant
unobservable inputs Rate
Sensitivity of
fair value to
the input
Convertible redeemable
preferred shares .........
Black-Scholes option
pricing model
Risk-free interest
rate
0.17%-
4.73%
Note i
DLOM 5%-
11%
Note ii
V olatility 31.79%-
39.87%
Note iii
Derivatives - interest rate
cap contracts ............
DCF model and
Black-Scholes option
pricing model
Risk-free interest
rate
2.49%-
4.954%
Note iv
V olatility 93.4%-
177.46%
Note v
Contingent consideration. . DCF model Discount rate 3.8% Note vi
Notes:
i. 1% increase in risk-free interest rate while with all other variables constant would decrease the fair value of
convertible redeemable preferred shares by RMB5,555,000, RMB1,795,100 and RMB418,300 as at 31
December 2020, 2021 and 2022. 1% decrease in risk-free interest rate while with all other variables constant
would increase the fair value of convertible redeemable preferred shares by RMB429,000 as at 31 December
2022. The risk-free interest rate was less than 1% as at 31 December 2020 and 2021. As such the fair value
makes a tiny change in case of 1% decrease in risk-free interest rate.
ii. 1% increase/decrease in DLOM while holding all other variables constant would decrease/increase the
fair value of convertible redeemable preferred shares by RMB2,213,000/RMB2,219,000,
RMB4,693,200/RMB4,700,000 and RMB4,446,300/RMB4,451,200 as at 31 December 2020, 2021 and 2022.
iii. 1% increase/decrease in V olatility while holding all other variables constant would increase/decrease the fair
value of convertible redeemable preferred shares by RMB830,000/RMB823,000, RMB634,600/RMB635,100
and RMB217,700/RMB217,200 as at 31 December 2020, 2021 and 2022.
APPENDIX I ACCOUNTANTS’ REPORT
– I-97 –


--- page 450 ---
iv 1% increase/decrease in risk-free interest rate while holding all other variables constant would
increase/decrease the fair value of interest rate cap contracts by RMB275,000/RMB263,000 as at 31 December
2022.
v. 1% increase/decrease in V olatility while holding all other variables constant would increase/decrease the fair
value of interest rate cap contracts by RMB146,000/RMB141,000 as at 31 December 2022.
vi. 1% increase/decrease in discount rate while holding all other variables constant would decrease/increase the
fair value of contingent consideration by RMB184,000/RMB180,000 as at 31 December 2022.
41. EVENT AFTER THE RELEV ANT PERIODS
There were no significant events subsequent to 31 December 2022.
42. SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by the Company, the Group or any of the
companies now comprising the Group in respect of any period subsequent to 31 December 2022.
APPENDIX I ACCOUNTANTS’ REPORT
– I-98 –


--- page 451 ---
The following information does not form part of the Accountants’ Report from Ernst & Young, Certified Public
Accountants, Hong Kong, the Company’ s reporting accountants, as set out in Appendix I to this Prospectus, and is
included for information purposes only. The unaudited pro forma financial information should be read in conjunction
with the section headed “Financial Information” in this Prospectus and the Accountants’ Report set out in Appendix
I to this Prospectus.
A. UNAUDITED PRO FORMA STATEMENT OF ADJUSTED CONSOLIDATED NET
TANGIBLE ASSETS
The following unaudited pro forma statement of adjusted consolidated net tangible assets of
the Group prepared in accordance with paragraph 4.29 of the Rules Governing the Listing of
Securities on the Stock Exchange of Hong Kong Limited and with reference to Accounting
Guideline 7 Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars
issued by the Hong Kong Institute of Certified Public Accountants is to illustrate the effect of (1)
the Global Offering and (2) conversion of Preferred Shares into ordinary shares on the consolidated
net tangible assets of the Group attributable to owners of the parent as at 31 December 2022 as if
the Global Offering had taken place on that date.
The unaudited pro forma statement of adjusted consolidated net tangible assets of the Group
has been prepared for illustrative purposes only and, because of its hypothetical nature, it may not
provide a true picture of the consolidated net tangible assets attributable to owners of the parent had
the Global Offering been completed as at 31 December 2022 or at any future date.
It is prepared based on the consolidated net tangible assets of the Group attributable to the
owners of the parent as at 31 December 2022 as set out in the Accountants’ Report in Appendix I
to this Prospectus, and adjusted as described below. The unaudited pro forma adjusted consolidated
net tangible assets does not form part of the Accountants’ Report as set out in Appendix I to this
Prospectus.
Consolidated net
tangible assets
attributable to
owners of the
parent as at
31 December 2022
Estimated impact to
the consolidated net
tangible assets upon
conversion of
Preferred Shares
Estimated net
proceeds from
the Global
Offering
Unaudited Pro forma
adjusted consolidated
net tangible assets
attributable to
owners of the
parent as at
31 December 2022
Unaudited pro forma adjusted
consolidated net tangible assets
attributable to owners of the
parent per Share as at
31 December 2022
RMB’000 RMB’000 RMB’000 RMB’000 RMB HK$
(Note 1) (Note 2) (Note 3) (Note 4) (Note 5)
Based on an Offer Price
of HK$12.32 per Offer
Share ......... 287,313 589,179 137,116 1,013,116 1.40 1.54
Notes:
(1) The consolidated net tangible assets of the Group attributable to owners of the parent as at 31 December 2022
was equal to the audited net assets attributable to owners of the parent as at 31 December 2022 of
RMB510,824,000 after deducting of other intangible assets of RMB143,709,000 and goodwill of
RMB79,802,000 as at 31 December 2022 set out in the Accountants’ Report in Appendix I to this Prospectus.
(2) The Preferred Shares would have been converted into ordinary shares upon completion of Global Offering. The
conversion of Preferred Shares would have reclassified such preferred shares amounting to RMB589,179,000
from liabilities to equity and accordingly increased the unaudited pro forma adjusted consolidated net tangible
assets of the Group as at 31 December 2022 by RMB589,179,000.
APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION
– II-1 –


--- page 452 ---
(3) The estimated net proceeds from the Global Offering are based on an estimated Offer Price of HK$12.32 per
share, after deduction of the underwriting fees and other related expenses payable by the Company and do not
take into account any Shares which may be issued upon the exercise of the Over-Allotment Option.
(4) The unaudited pro forma adjusted consolidated net tangible assets attributable to owners of the parent per
Share is arrived at after adjustments referred in note 2 above and on the basis of 723,452,291 Shares are in
issue, assuming that the Global Offering has been completed on 31 December 2022 but does not take into
account any Shares (i) which may be sold pursuant to the exercise of the Over-allotment Option or (ii) which
may be issued under Employee Incentive Plans subsequent to 31 December 2022.
(5) For the purpose of this unaudited pro forma statement of adjusted net tangible assets attributable to owners of
the parent, the balances stated in RMB are converted into HK$ at the rate of RMB1.00 to HK$1.1028.
(6) No adjustment has been made to the unaudited pro forma adjusted consolidated net tangible assets to reflect
any trading results or other transactions of the Group entered into subsequent to 31 December 2022.
APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION
– II-2 –


--- page 453 ---
B. INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE
COMPILATION OF PRO FORMA FINANCIAL INFORMATION
To the Directors of ADICON Holdings Limited
We have completed our assurance engagement to report on the compilation of pro forma
financial information of ADICON Holdings Limited (the “Company”) and its subsidiaries
(hereinafter collectively referred to as the “Group”) by the directors of the Company (the
“Directors”) for illustrative purposes only. The pro forma financial information consists of the pro
forma consolidated net tangible assets as at 31 December 2022, and related notes as set out on pages
II-1 to II-2 of the Prospectus dated 19 June 2023 issued by the Company (the “Pro Forma Financial
Information”). The applicable criteria on the basis of which the Directors have compiled the Pro
Forma Financial Information are described in Section A of Appendix II to this Prospectus.
The Pro Forma Financial Information has been compiled by the Directors to illustrate the
impact of the (1) the Global Offering and (2) conversion of Preferred Shares into ordinary shares
on the Group’s financial position as at 31 December 2022 as if the transaction had taken place at
31 December 2022. As part of this process, information about the Group’s financial position, has
been extracted by the Directors from the Group’s financial statements for the year ended 31
December 2022, on which an accountants’ report has been published.
Directors’ Responsibilities for the Pro Forma Financial Information
The Directors are responsible for compiling the Pro Forma Financial Information in
accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline
7 Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars (the “AG
7”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).
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 fundamental principles
of integrity, objectivity, professional competence and due care, confidentiality and professional
behavior.
Our firm applies Hong Kong Standard on Quality Control 1 Quality Control for Firms that
Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services
Engagements , 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 Accountants’ Responsibilities
Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing
Rules, on the Pro Forma Financial Information and to report our opinion to you. We do not accept
any responsibility for any reports previously given by us on any financial information used in the
compilation of the Pro Forma Financial Information beyond that owed to those to whom those
reports were addressed by us at the dates of their issue.
We conducted our engagement in accordance with Hong Kong Standard on Assurance
Engagements 3420 Assurance Engagements to Report on the Compilation of Pro Forma Financial
Information Included in a Prospectus issued by the HKICPA. This standard requires that the
reporting accountants plan and perform procedures to obtain reasonable assurance about whether
the Directors have compiled the Pro Forma Financial Information in accordance with paragraph
4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.
APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION
– II-3 –


--- page 454 ---
For purposes of this engagement, we are not responsible for updating or reissuing any reports
or opinions on any historical financial information used in compiling the Pro Forma Financial
Information, nor have we, in the course of this engagement, performed an audit or review of the
financial information used in compiling the Pro Forma Financial Information.
The purpose of the Pro Forma Financial Information included in the Prospectus is solely to
illustrate the impact of the Global Offering on unadjusted financial information of the Group as if
the transaction had been undertaken at an earlier date selected for purposes of the illustration.
Accordingly, we do not provide any assurance that the actual outcome of the event or transaction
would have been as presented.
A reasonable assurance engagement to report on whether the Pro Forma Financial Information
has been properly compiled on the basis of the applicable criteria involves performing procedures
to assess whether the applicable criteria used by the Directors in the compilation of the Pro Forma
Financial Information provide a reasonable basis for presenting the significant effects directly
attributable to the transaction, and to obtain sufficient appropriate evidence about whether:
 the related pro forma adjustments give appropriate effect to those criteria; and
 the Pro Forma Financial Information reflects the proper application of those adjustments
to the unadjusted financial information.
The procedures selected depend on the reporting accountants’ judgment, having regard to the
reporting accountants’ understanding of the nature of the Group, the transaction in respect of which
the Pro Forma Financial Information has been compiled, and other relevant engagement
circumstances.
The engagement also involves evaluating the overall presentation of the Pro Forma 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:
(a) the Pro Forma Financial Information has been properly compiled 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 Pro Forma Financial Information
as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.
Certified Public Accountants
Hong Kong
19 June 2023
APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION
– II-4 –


--- page 455 ---
Set out below is a summary of certain provisions of the Memorandum and Articles of
Association of the Company and of certain aspects of the Companies Act.
The Company was incorporated in the Cayman Islands as an exempted company with limited
liability on March 20, 2008 under the Companies Act. The Company’s constitutional documents
consist of its Memorandum and Articles.
1 MEMORANDUM OF ASSOCIATION
1.1 The Memorandum provides, inter alia, that the liability of members of the Company is limited
and that the objects for which the Company is established are unrestricted (and therefore
include acting as an investment company), and that the Company shall have and be capable
of exercising any and all of the powers at any time or from time to time exercisable by a
natural person or body corporate whether as principal, agent, contractor or otherwise and,
since the Company is an exempted company, that the Company will not trade in the Cayman
Islands with any person, firm or corporation except in furtherance of the business of the
Company carried on outside the Cayman Islands.
1.2 By special resolution the Company may alter the Memorandum with respect to any objects,
powers or other matters specified in it.
2 ARTICLES OF ASSOCIATION
The Articles were conditionally approved and adopted on April 27, 2023 with effect from the
Listing Date. A summary of certain provisions of the Articles is set out below.
2.1 Shares
(a) Classes of shares
The share capital of the Company consists of ordinary shares.
(b) V ariation of rights of existing shares or classes of shares
Subject to the Companies Act, if at any time the share capital of the Company is divided into
different classes of shares, all or any of the special rights attached to any class of shares may (unless
otherwise provided for by the terms of issue of the shares of that class) be varied, modified or
abrogated either with the consent in writing of not less than three-fourths of the voting rights of the
holders of that class or with the sanction of a special resolution passed at a separate general meeting
of the holders of the shares of that class. The provisions of the Articles relating to general meetings
shall mutatis mutandis apply to every such separate general meeting, but so that the necessary
quorum shall be not less than persons together holding (or, in the case of a shareholder being a
corporation, by its duly authorized representative) or representing by proxy holding less than
one-third of the issued shares of that class. Every holder of shares of the class shall be entitled on
a poll to one vote for every such share held by him, and any holder of shares of the class present
in person or by proxy may demand a poll.
Any special rights conferred upon the holders of any shares or class of shares shall not, unless
otherwise expressly provided in the rights attaching to the terms of issue of such shares, be deemed
to be varied by the creation or issue of further shares ranking pari passu therewith.
APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND
CAYMAN ISLANDS COMPANY LA W AND TAXATION
– III-1 –


--- page 456 ---
(c) Alteration of capital
The Company may, by an ordinary resolution of its members:
(i) increase its share capital by the creation of new shares of such amount as it thinks
expedient;
(ii) consolidate or divide all or any of its share capital into shares of larger or smaller amount
than its existing shares;
(iii) divide its unissued shares into several classes and attach to such shares any preferential,
deferred, qualified or special rights, privileges or conditions;
(iv) subdivide its shares or any of them into shares of an amount smaller than that fixed by
the Memorandum;
(v) cancel any shares which, at the date of the resolution, have not been taken or agreed to
be taken by any person and diminish the amount of its share capital by the amount of
the shares so cancelled;
(vi) make provision for the allotment and issue of shares which do not carry any voting
rights;
(vii) change the currency of denomination of its share capital; and
(viii) reduce its share premium account in any manner authorised and subject to any conditions
prescribed by law.
(d) Transfer of shares
Subject to the Companies Act and the requirements of the Stock Exchange, all transfers of
shares shall be effected by an instrument of transfer in the usual or common form or in such other
form as the Board may approve and may be under hand or, if the transferor or transferee is a
Clearing House as defined in the Memorandum and Articles or its nominee(s), under hand or by
machine imprinted signature, or by such other manner of execution as the Board may approve from
time to time.
Execution of the instrument of transfer shall be by or on behalf of the transferor and the
transferee, provided that the Board may dispense with the execution of the instrument of transfer
by the transferor or transferee or accept mechanically executed transfers. The transferor shall be
deemed to remain the holder of a share until the name of the transferee is entered in the register of
members of the Company in respect of that share.
The Board may, in its absolute discretion, at any time and from time to time remove any share
on the principal register to any branch register or any share on any branch register to the principal
register or any other branch register.
Unless the Board otherwise agrees, no shares on the principal register shall be removed to any
branch register nor shall shares on any branch register be removed to the principal register or any
other branch register. All removals and other documents of title shall be lodged for registration and
registered, in the case of shares on any branch register, at the relevant registration office and, in the
case of shares on the principal register, at the place at which the principal register is located.
The Board may, in its absolute discretion, decline to register a transfer of any share (not being
a fully paid up share) to a person of whom it does not approve or on which the Company has a lien.
It may also decline to register a transfer of any share issued under any share option scheme upon
which a restriction on transfer subsists or a transfer of any share to more than four joint holders.
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The Board may decline to recognise any instrument of transfer unless a certain fee, up to such
maximum sum as the Stock Exchange may determine to be payable, is paid to the Company, the
instrument of transfer is properly stamped (if applicable), is in respect of only one class of share
and is lodged at the relevant registration office or the place at which the principal register is located
accompanied by the relevant share certificate(s) and such other evidence as the Board may
reasonably require is provided to show the right of the transferor to make the transfer (and if the
instrument of transfer is executed by some other person on his behalf, the authority of that person
so to do).
The register of members may, subject to the Listing Rules, be closed on terms equivalent to
section 632 of the Companies Ordinance (as amended) as at the date if the adoption of the Articles
(or its equivalent provisions from time to time) at such time or for such period not exceeding in the
whole 30 days in each year as the Board may determine.
Fully paid shares shall be free from any restriction on transfer (except when permitted by the
Stock Exchange) and shall also be free from all liens.
(e) Power of the Company to purchase its own shares
The Company may purchase its own shares subject to certain restrictions and the Board may
only exercise this power on behalf of the Company subject to any applicable requirement imposed
from time to time by the Articles or any code, rules or regulations issued from time to time by the
Stock Exchange and/or the SFC.
Where the Company purchases for redemption a redeemable Share, purchases not made
through the market or by tender shall be limited to a maximum price and, if purchases are by tender,
tenders shall be available to all members alike.
(f) Power of any subsidiary of the Company to own shares in the Company
There are no provisions in the Articles relating to the ownership of shares in the Company by
a subsidiary.
(g) Calls on shares and forfeiture of shares
The Board may, from time to time, make such calls as it thinks fit upon the members in respect
of any monies unpaid on the shares held by them respectively (whether on account of the nominal
value of the shares or by way of premium) and not by the conditions of allotment of such shares
made payable at fixed times. A call may be made payable either in one sum or by instalments. If
the sum payable in respect of any call or instalment is not paid on or before the day appointed for
payment thereof, the person or persons from whom the sum is due shall pay interest on the same
at such rate not exceeding 20% per annum as the Board shall fix from the day appointed for payment
to the time of actual payment, but the Board may waive payment of such interest wholly or in part.
The Board may, if it thinks fit, receive from any member willing to advance the same, either in
money or money’s worth, all or any part of the money uncalled and unpaid or instalments payable
upon any shares held by him, and in respect of all or any of the monies so advanced the Company
may pay interest at such rate (if any) not exceeding 20% per annum as the Board may decide.
If a member fails to pay any call or instalment of a call on the day appointed for payment, the
Board may, for so long as any part of the call or instalment remains unpaid, serve not less than 14
days’ notice on the member requiring payment of so much of the call or instalment as is unpaid,
together with any interest which may have accrued and which may still accrue up to the date of
actual payment. The notice shall name a further day (not earlier than the expiration of 14 days from
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the date of the notice) on or before which the payment required by the notice is to be made, and
shall also name the place where payment is to be made. The notice shall also state that, in the event
of non-payment at or before the appointed time, the shares in respect of which the call was made
will be liable to be forfeited.
If the requirements of any such notice are not complied with, any share in respect of which
the notice has been given may at any time thereafter, before the payment required by the notice has
been made, be forfeited by a resolution of the Board to that effect. Such forfeiture will include all
dividends and bonuses declared in respect of the forfeited share and not actually paid before the
forfeiture.
A person whose shares have been forfeited shall cease to be a member in respect of the
forfeited shares but shall, nevertheless, remain liable to pay to the Company all monies which, at
the date of forfeiture, were payable by him to the Company in respect of the shares together with
(if the Board shall in its discretion so require) interest thereon from the date of forfeiture until
payment at such rate not exceeding 20% per annum as the Board may prescribe.
2.2 Directors
(a) Appointment, retirement and removal
At any time or from time to time, the Board shall have the power to appoint any person as a
Director either to fill a casual vacancy on the Board or as an additional Director to the existing
Board subject to any maximum number of Directors, if any, as may be determined by the members
in general meeting. Any Director so appointed to fill a casual vacancy shall hold office only until
the first annual general meeting of the Company after his appointment and be subject to re-election
at such meeting. Any Director so appointed as an addition to the existing Board shall hold office
only until the first annual general meeting of the Company after his appointment and be eligible for
re-election at such meeting. Any Director so appointed by the Board shall not be taken into account
in determining the Directors or the number of Directors who are to retire by rotation at an annual
general meeting.
At each annual general meeting, one third of the Directors for the time being shall retire from
office by rotation. However, if the number of Directors is not a multiple of three, then the number
nearest to but not less than one third shall be the number of retiring Directors. The Directors to
retire in each year shall be those who have been in office longest since their last re-election or
appointment but, as between persons who became or were last re-elected Directors on the same day,
those to retire shall (unless they otherwise agree among themselves) be determined by lot.
No person, other than a retiring Director, shall, unless recommended by the Board for election,
be eligible for election to the office of Director at any general meeting, unless notice in writing of
the intention to propose that person for election as a Director and notice in writing by that person
of his willingness to be elected has been lodged at the head office or at the registration office of
the Company. The period for lodgement of such notices shall commence no earlier than the day after
despatch of the notice of the relevant meeting and end no later than seven days before the date of
such meeting and the minimum length of the period during which such notices may be lodged must
be at least seven days.
A Director is not required to hold any shares in the Company by way of qualification nor is
there any specified upper or lower age limit for Directors either for accession to or retirement from
the Board.
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A Director may be removed by an ordinary resolution of the Company before the expiration
of his term of office (but without prejudice to any claim which such Director may have for damages
for any breach of any contract between him and the Company) and the Company may by ordinary
resolution appoint another in his place. Any Director so appointed shall be subject to the “retirement
by rotation” provisions. The number of Directors shall not be less than two.
The office of a Director shall be vacated if he:
(i) resigns;
(ii) dies;
(iii) is declared to be of unsound mind and the Board resolves that his office be vacated;
(iv) becomes bankrupt or has a receiving order made against him or suspends payment or
compounds with his creditors generally;
(v) is prohibited from being or ceases to be a director by operation of law;
(vi) without special leave, is absent from meetings of the Board for six consecutive months,
and the Board resolves that his office is vacated;
(vii) has been required by the stock exchange of the Relevant Territory (as defined in the
Articles) to cease to be a Director; or
(viii) is removed from office by the requisite majority of the Directors or otherwise pursuant
to the Articles.
From time to time the Board may appoint one or more of its body to be managing
director, joint managing director or deputy managing director or to hold any other employment
or executive office with the Company for such period and upon such terms as the Board may
determine, and the Board may revoke or terminate any of such appointments. The Board may
also delegate any of its powers to committees consisting of such Director(s) or other person(s)
as the Board thinks fit, and from time to time it may also revoke such delegation or revoke
the appointment of and discharge any such committees either wholly or in part, and either as
to persons or purposes, but every committee so formed shall, in the exercise of the powers so
delegated, conform to any regulations that may from time to time be imposed upon it by the
Board.
(b) Power to allot and issue shares and warrants
Subject to the provisions of the Companies Act, the Memorandum and Articles and without
prejudice to any special rights conferred on the holders of any shares or class of shares, any share
may be issued with or have attached to it such rights, or such restrictions, whether with regard to
dividend, voting, return of capital or otherwise, as the Company may by ordinary resolution
determine (or, in the absence of any such determination or so far as the same may not make specific
provision, as the Board may determine). Any share may be issued on terms that, upon the happening
of a specified event or upon a given date and either at the option of the Company or the holder of
the share, it is liable to be redeemed.
The Board may issue warrants to subscribe for any class of shares or other securities of the
Company on such terms as it may from time to time determine.
Where warrants are issued to bearer, no certificate in respect of such warrants shall be issued
to replace one that has been lost unless the Board is satisfied beyond reasonable doubt that the
original certificate has been destroyed and the Company has received an indemnity in such form as
the Board thinks fit with regard to the issue of any such replacement certificate.
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Subject to the provisions of the Companies Act, the Articles and, where applicable, the rules
of any stock exchange of the Relevant Territory (as defined in the Articles) and without prejudice
to any special rights or restrictions for the time being attached to any shares or any class of shares,
all unissued shares in the Company shall be at the disposal of the Board, which may offer, allot,
grant options over or otherwise dispose of them to such persons, at such times, for such
consideration and on such terms and conditions as it in its absolute discretion thinks fit, but so that
no shares shall be issued at a discount.
Neither the Company nor the Board shall be obliged, when making or granting any allotment
of, offer of, option over or disposal of shares, to make, or make available, any such allotment, offer,
option or shares to members or others whose registered addresses are in any particular territory or
territories where, in the absence of a registration statement or other special formalities, this is or
may, in the opinion of the Board, be unlawful or impracticable. However, no member affected as
a result of the foregoing shall be, or be deemed to be, a separate class of members for any purpose
whatsoever.
(c) Power to dispose of the assets of the Company or any of its subsidiaries
While there are no specific provisions in the Articles relating to the disposal of the assets of
the Company or any of its subsidiaries, the Board may exercise all powers and do all acts and things
which may be exercised or done or approved by the Company and which are not required by the
Articles or the Companies Act to be exercised or done by the Company in general meeting, but if
such power or act is regulated by the Company in general meeting, such regulation shall not
invalidate any prior act of the Board which would have been valid if such regulation had not been
made.
(d) Borrowing powers
The Board may exercise all the powers of the Company to raise or borrow money, to mortgage
or charge all or any part of the undertaking, property and uncalled capital of the Company and,
subject to the Companies Act, to issue debentures, debenture stock, bonds and other securities of
the Company, whether outright or as collateral security for any debt, liability or obligation of the
Company or of any third party.
(e) Remuneration
The Directors shall be entitled to receive, as ordinary remuneration for their services, such
sums as shall from time to time be determined by the Board or the Company in general meeting,
as the case may be, such sum (unless otherwise directed by the resolution by which it is determined)
to be divided among the Directors in such proportions and in such manner as they may agree or,
failing agreement, either equally or, in the case of any Director holding office for only a portion of
the period in respect of which the remuneration is payable, pro rata. The Directors shall also be
entitled to be repaid all expenses reasonably incurred by them in attending any Board meetings,
committee meetings or general meetings or otherwise in connection with the discharge of their
duties as Directors. Such remuneration shall be in addition to any other remuneration to which a
Director who holds any salaried employment or office in the Company may be entitled by reason
of such employment or office.
Any Director who, at the request of the Company, performs services which in the opinion of
the Board go beyond the ordinary duties of a Director may be paid such special or extra
remuneration as the Board may determine, in addition to or in substitution for any ordinary
remuneration as a Director. An executive Director appointed to be a managing director, joint
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managing director, deputy managing director or other executive officer shall receive such
remuneration and such other benefits and allowances as the Board may from time to time decide.
Such remuneration shall be in addition to his ordinary remuneration as a Director.
The Board may establish, either on its own or jointly in concurrence or agreement with
subsidiaries of the Company or companies with which the Company is associated in business, or
may make contributions out of the Company’s monies to, any schemes or funds for providing
pensions, sickness or compassionate allowances, life assurance or other benefits for employees
(which expression as used in this and the following paragraph shall include any Director or former
Director who may hold or have held any executive office or any office of profit with the Company
or any of its subsidiaries) and former employees of the Company and their dependents or any class
or classes of such persons.
The Board may also pay, enter into agreements to pay or make grants of revocable or
irrevocable, whether or not subject to any terms or conditions, pensions or other benefits to
employees and former employees and their dependents, or to any of such persons, including
pensions or benefits additional to those, if any, to which such employees or former employees or
their dependents are or may become entitled under any such scheme or fund as mentioned above.
Such pension or benefit may, if deemed desirable by the Board, be granted to an employee either
before and in anticipation of, or upon or at any time after, his actual retirement.
(f) Compensation or payments for loss of office
Payments to any present Director or past Director of any sum by way of compensation for loss
of office or as consideration for or in connection with his retirement from office (not being a
payment to which the Director is contractually or statutorily entitled) must be approved by the
Company in general meeting.
(g) Loans and provision of security for loans to Directors
The Company shall not directly or indirectly make a loan to a Director or a director of any
holding company of the Company or any of their respective close associates, enter into any
guarantee or provide any security in connection with a loan made by any person to a Director or
a director of any holding company of the Company or any of their respective close associates, or,
if any one or more of the Directors hold(s) (jointly or severally or directly or indirectly) a
controlling interest in another company, make a loan to that other company or enter into any
guarantee or provide any security in connection with a loan made by any person to that other
company.
(h) Disclosure of interest in contracts with the Company or any of its subsidiaries
With the exception of the office of auditor of the Company, a Director may hold any other
office or place of profit with the Company in conjunction with his office of Director for such period
and upon such terms as the Board may determine, and may be paid such extra remuneration for that
other office or place of profit, in whatever form, in addition to any remuneration provided for by
or pursuant to any other Articles. A Director may be or become a director, officer or member of any
other company in which the Company may be interested, and shall not be liable to account to the
Company or the members for any remuneration or other benefits received by him as a director,
officer or member of such other company. The Board may also cause the voting power conferred
by the shares in any other company held or owned by the Company to be exercised in such manner
in all respects as it thinks fit, including the exercise in favour of any resolution appointing the
Directors or any of them to be directors or officers of such other company.
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No Director or intended Director shall be disqualified by his office from contracting with the
Company, nor shall any such contract or any other contract or arrangement in which any Director
is in any way interested be liable to be avoided, nor shall any Director so contracting or being so
interested be liable to account to the Company for any profit realised by any such contract or
arrangement by reason only of such Director holding that office or the fiduciary relationship
established by it. A Director who is, in any way, materially interested in a contract or arrangement
or proposed contract or arrangement with the Company shall declare the nature of his interest at the
earliest meeting of the Board at which he may practically do so.
There is no power to freeze or otherwise impair any of the rights attaching to any share by
reason that the person or persons who are interested directly or indirectly in that share have failed
to disclose their interests to the Company.
A Director shall not vote or be counted in the quorum on any resolution of the Board in respect
of any contract or arrangement or proposal in which he or any of his close associate(s) has/have a
material interest, and if he shall do so his vote shall not be counted nor shall he be counted in the
quorum for that resolution, but this prohibition shall not apply to any of the following matters:
(i) the giving of any security or indemnity to the Director or his close associate(s) in respect
of money lent or obligations incurred or undertaken by him or any of them at the request
of or for the benefit of the Company or any of its subsidiaries;
(ii) the giving of any security or indemnity to a third party in respect of a debt or obligation
of the Company or any of its subsidiaries for which the Director or his close associate(s)
has/have himself/themselves assumed responsibility in whole or in part whether alone or
jointly under a guarantee or indemnity or by the giving of security;
(iii) any proposal concerning an offer of shares, debentures or other securities of or by the
Company or any other company which the Company may promote or be interested in for
subscription or purchase, where the Director or his close associate(s) is/are or is/are to
be interested as a participant in the underwriting or sub-underwriting of the offer;
(iv) any proposal or arrangement concerning the benefit of employees of the Company or any
of its subsidiaries, including the adoption, modification or operation of either:
(A) any employees’ share scheme or any share incentive or share option scheme under
which the Director or his close associate(s) may benefit; or
(B) any of a pension fund or retirement, death or disability benefits scheme which
relates to Directors, their close associates and employees of the Company or any
of its subsidiaries and does not provide in respect of any Director or his close
associate(s) any privilege or advantage not generally accorded to the class of
persons to which such scheme or fund relates; and
(v) any contract or arrangement in which the Director or his close associate(s) is/are
interested in the same manner as other holders of shares, debentures or other securities
of the Company by virtue only of his/their interest in those shares, debentures or other
securities.
2.3 Proceedings of the Board
The Board may meet anywhere in the world for the despatch of business and may adjourn and
otherwise regulate its meetings as it thinks fit. Questions arising at any meeting shall be determined
by a majority of votes. In the case of an equality of votes, the chairman of the meeting shall have
a second or casting vote.
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2.4 Alterations to the constitutional documents and the Company’s name
To the extent that the same is permissible under the Companies Act and subject to the Articles,
the Memorandum and Articles of the Company may only be altered or amended, and the name of
the Company may only be changed, with the sanction of a special resolution of the Company.
2.5 Meetings of Member
(a) Special and ordinary resolutions
A special resolution of the Company must be passed by a majority of not less than
three-fourths of the votes cast by such members as, being entitled so to do, vote in person or by
proxy or, in the case of members which are corporations, by their duly authorised representatives
or, where proxies are allowed, by proxy at a general meeting of which notice specifying the
intention to propose the resolution as a special resolution has been duly given.
Under the Companies Act, a copy of any special resolution must be forwarded to the Registrar
of Companies in the Cayman Islands (the “ Registrar of Companies ”) within 15 days of being
passed.
An “ordinary resolution”, by contrast, is a resolution passed by a simple majority of the votes
of such members of the Company as, being entitled to do so, vote in person or, in the case of
members which are corporations, by their duly authorised representatives or, where proxies are
allowed, by proxy at a general meeting of which notice has been duly given.
A resolution in writing signed by or on behalf of all members shall be treated as an ordinary
resolution duly passed at a general meeting of the Company duly convened and held, and where
relevant as a special resolution so passed.
(b) V oting rights and right to demand a poll
Subject to any special rights, restrictions or privileges as to voting for the time being attached
to any class or classes of shares at any general meeting:
(i) on a poll every member present in person or by proxy or, in the case of a member being
a corporation, by its duly authorised representative shall have one vote for every share
which is fully paid or credited as fully paid registered in his name in the register of
members of the Company but so that no amount paid up or credited as paid up on a share
in advance of calls or instalments is treated for this purpose as paid up on the share; and
(ii) on a show of hands every member who is present in person (or, in the case of a member
being a corporation, by its duly authorised representative) or by proxy shall have one
vote. Where more than one proxy is appointed by a member which is a Clearing House
(as defined in the Articles) or its nominee(s), each such proxy shall have one vote on a
show of hands.
Members shall have the right to:
(i) speak at general meetings of the Company; and
(ii) vote at a general meeting except where a member is required, by the Listing Rules, to
abstain from voting to approve the matter under consideration.
On a poll, a member entitled to more than one vote need not use all his votes or cast all the
votes he does use in the same way.
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At any general meeting a resolution put to the vote of the meeting is to be decided by poll save
that the chairman of the meeting may, pursuant to the Listing Rules, allow a resolution to be voted
on by a show of hands. Where a show of hands is allowed, before or on the declaration of the result
of the show of hands, a poll may be demanded by (in each case by members present in person or
by proxy or by a duly authorised corporate representative):
(i) at least two members;
(ii) any member or members representing not less than one-tenth of the total voting rights
of all the members having the right to vote at the meeting; or
(iii) a member or members holding shares in the Company conferring a right to vote at the
meeting on which an aggregate sum has been paid equal to not less than one-tenth of the
total sum paid up on all the shares conferring that right.
Should a Clearing House or its nominee(s) be a member of the Company, such person or
persons may be authorised as it thinks fit to act as its representative(s) at any meeting of the
Company or at any meeting of any class of members of the Company provided that, if more than
one person is so authorised, the authorisation shall specify the number and class of shares in respect
of which each such person is so authorised. A person authorised in accordance with this provision
shall be deemed to have been duly authorised without further evidence of the facts and be entitled
to exercise the same rights and powers on behalf of the Clearing House or its nominee(s) as if such
person were an individual member including the right to speak and vote.
Where the Company has knowledge that any member is, under the Listing Rules, required to
abstain from voting on any particular resolution or restricted to voting only for or only against any
particular resolution, any votes cast by or on behalf of such member in contravention of such
requirement or restriction shall not be counted.
(c) Annual general meetings
The Company must hold an annual general meeting each year other than the year of the
Company’s adoption of the Articles. Such meeting must be held within six months after the end of
the Company’s financial year, at such time and place as may be determined by the Board.
(d) Notices of meetings and business to be conducted
An annual general meeting of the Company shall be called by at least 21 days’ notice in
writing, and any other general meeting of the Company shall be called by at least 14 days’ notice
in writing. The notice shall be exclusive of the day on which it is served or deemed to be served
and of the day for which it is given, and must specify the time, place and agenda of the meeting
and particulars of the resolution(s) to be considered at that meeting and, in the case of special
business, the general nature of that business.
Except where otherwise expressly stated, any notice or document (including a share
certificate) to be given or issued under the Articles shall be in writing, and may be served by the
Company on any member personally, by post to such member’s registered address or (in the case
of a notice) by advertisement in the newspapers. Any member whose registered address is outside
Hong Kong may notify the Company in writing of an address in Hong Kong which shall be deemed
to be his registered address for this purpose. Subject to the Companies Act and the Listing Rules,
a notice or document may also be served or delivered by the Company to any member by electronic
means.
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Although a meeting of the Company may be called by shorter notice than as specified above,
such meeting may be deemed to have been duly called if it can be demonstrated to the Stock
Exchange that reasonable written notice can be given in less time, and it is so agreed:
(i) in the case of an annual general meeting, by all members of the Company entitled to
attend and vote thereat; and
(ii) in the case of any other meeting, by a majority in number of the members having a right
to attend and vote at the meeting holding not less than 95% of the total voting rights in
the Company.
All business transacted at an extraordinary general meeting shall be deemed special business.
All business shall also be deemed special business where it is transacted at an annual general
meeting, with the exception of certain routine matters which shall be deemed ordinary business.
Extraordinary general meetings shall also be convened on the requisition of one or more
members holding at the date of deposit of the requisition, not less than one tenth of the paid up
capital of the Company having the right of voting at general meetings, on a one vote per Share basis
in the share capital of the Company. The requisitionist(s) may add resolutions to the agenda of a
general meeting so requisitioned.
(e) Quorum for meetings and separate class meetings
No business shall be transacted at any general meeting unless a quorum is present when the
meeting proceeds to business, and continues to be present until the conclusion of the meeting.
The quorum for a general meeting shall be two members present in person (or in the case of
a member being a corporation, by its duly authorised representative) or by proxy and entitled to
vote. In respect of a separate class meeting (other than an adjourned meeting) convened to sanction
the modification of class rights the necessary quorum shall be two persons holding or representing
by proxy not less than one-third in nominal value of the issued shares of that class.
(f) Proxies
Any member of the Company entitled to attend and vote at a meeting of the Company is
entitled to appoint another person as his proxy to attend and vote instead of him. A member who
is the holder of two or more shares may appoint more than one proxy to represent him and vote on
his behalf at a general meeting of the Company or at a class meeting. A proxy need not be a member
of the Company and shall be entitled to exercise the same powers on behalf of a member who is
an individual and for whom he acts as proxy as such member could exercise. In addition, a proxy
shall be entitled to exercise the same powers on behalf of a member which is a corporation and for
which he acts as proxy as such member could exercise if it were an individual member. On a poll
or on a show of hands, votes may be given either personally (or, in the case of a member being a
corporation, by its duly authorized representative) or by proxy.
The instrument appointing a proxy shall be in writing under the hand of the appointor or of
his attorney duly authorised in writing, or if the appointor is a corporation, either under seal or
under the hand of a duly authorised officer or attorney. Every instrument of proxy, whether for a
specified meeting or otherwise, shall be in such form as the Board may from time to time approve,
provided that it shall not preclude the use of the two-way form. Any form issued to a member for
appointing a proxy to attend and vote at an extraordinary general meeting or at an annual general
meeting at which any business is to be transacted shall be such as to enable the member, according
to his intentions, to instruct the proxy to vote in favour of or against (or, in default of instructions,
to exercise his discretion in respect of) each resolution dealing with any such business.
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2.6 Accounts and audit
The Board shall cause proper books of account to be kept of the sums of money received and
expended by the Company, and of the assets and liabilities of the Company and of all other matters
required by the Companies Act (which include all sales and purchases of goods by the company)
necessary to give a true and fair view of the state of the Company’s affairs and to show and explain
its transactions.
The books of accounts of the Company shall be kept at the head office of the Company or at
such other place or places as the Board decides and shall always be open to inspection by any
Director. No member (other than a Director) shall have any right to inspect any account, book or
document of the Company except as conferred by the Companies Act or ordered by a court of
competent jurisdiction or authorised by the Board or the Company in general meeting.
The Board shall from time to time cause to be prepared and laid before the Company at its
annual general meeting balance sheets and profit and loss accounts (including every document
required by law to be annexed thereto), together with a copy of the Directors’ report and a copy of
the auditors’ report, not less than 21 days before the date of the annual general meeting. Copies of
these documents shall be sent to every person entitled to receive notices of general meetings of the
Company under the provisions of the Articles together with the notice of annual general meeting,
not less than 21 days before the date of the meeting.
Subject to the rules of the stock exchange of the Relevant Territory (as defined in the Articles),
the Company may send summarized financial statements to shareholders who have, in accordance
with the rules of the stock exchange of the Relevant Territory, consented and elected to receive
summarised financial statements instead of the full financial statements. The summarized financial
statements must be accompanied by any other documents as may be required under the rules of the
stock exchange of the Relevant Territory, and must be sent to those shareholders that have consented
and elected to receive the summarised financial statements not less than 21 days before the general
meeting.
The Company shall appoint auditor(s) to hold office until the conclusion of the next annual
general meeting on such terms and with such duties as may be agreed with the Board. The auditors’
remuneration shall be fixed by the Company in general meeting or by another body independent of
the Board.
The members may, at any general meeting convened and held in accordance with the Articles,
remove the auditors by special resolution at any time before the expiration of the term of office and
shall, by ordinary resolution, at that meeting appoint new auditors in its place for the remainder of
the term. A body that is independent of the board may also remove the auditors by a simple majority
vote before the expiration of the term of office and shall by a simple majority vote appoint new
auditors in its place for the remainder of the term.
The auditors shall audit the financial statements of the Company in accordance with generally
accepted accounting principles of Hong Kong, the International Accounting Standards or such other
standards as may be permitted by the Stock Exchange.
2.7 Dividends and other methods of distribution
The Company in general meeting may declare dividends in any currency to be paid to the
members but no dividend shall be declared in excess of the amount recommended by the Board.
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Except in so far as the rights attaching to, or the terms of issue of, any share may otherwise
provide:
(a) all dividends shall be declared and paid according to the amounts paid up on the shares
in respect of which the dividend is paid, although no amount paid up on a share in
advance of calls shall for this purpose be treated as paid up on the share;
(b) all dividends shall be apportioned and paid pro rata in accordance with the amount paid
up on the shares during any portion(s) of the period in respect of which the dividend is
paid; and
(c) the Board may deduct from any dividend or other monies payable to any member all
sums of money (if any) presently payable by him to the Company on account of calls,
instalments or otherwise.
Where the Board or the Company in general meeting has resolved that a dividend should be
paid or declared, the Board may resolve:
(i) that such dividend be satisfied wholly or in part in the form of an allotment of shares
credited as fully paid up, provided that the members entitled to such dividend will be
entitled to elect to receive such dividend (or part thereof) in cash in lieu of such
allotment; or
(ii) that the members entitled to such dividend will be entitled to elect to receive an
allotment of shares credited as fully paid up in lieu of the whole or such part of the
dividend as the Board may think fit.
Upon the recommendation of the Board, the Company may by ordinary resolution in respect
of any one particular dividend of the Company determine that it may be satisfied wholly in the form
of an allotment of shares credited as fully paid up without offering any right to members to elect
to receive such dividend in cash in lieu of such allotment.
Any dividend, bonus or other sum payable in cash to the holder of shares may be paid by
cheque or warrant sent through the post. Every such cheque or warrant shall be made payable to the
order of the person to whom it is sent and shall be sent at the holder’s or joint holders’ risk and
payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge
to the Company. Any one of two or more joint holders may give effectual receipts for any dividends
or other monies payable or property distributable in respect of the shares held by such joint holders.
Whenever the Board or the Company in general meeting has resolved that a dividend be paid
or declared, the Board may further resolve that such dividend be satisfied wholly or in part by the
distribution of specific assets of any kind.
The Board may, if it thinks fit, receive from any member willing to advance the same, and
either in money or money’s worth, all or any part of the money uncalled and unpaid or instalments
payable upon any shares held by him, and in respect of all or any of the monies so advanced may
pay interest at such rate (if any) not exceeding 20% per annum, as the Board may decide, but a
payment in advance of a call shall not entitle the member to receive any dividend or to exercise any
other rights or privileges as a member in respect of the share or the due portion of the shares upon
which payment has been advanced by such member before it is called up.
All dividends, bonuses or other distributions unclaimed for one year after having been
declared may be invested or otherwise used by the Board for the benefit of the Company until
claimed and the Company shall not be constituted a trustee in respect thereof. All dividends,
bonuses or other distributions unclaimed for six years after having been declared may be forfeited
by the Board and, upon such forfeiture, shall revert to the Company.
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No dividend or other monies payable by the Company on or in respect of any share shall bear
interest against the Company.
The Company may exercise the power to cease sending cheques for dividend entitlements or
dividend warrants by post if such cheques or warrants remain uncashed on two consecutive
occasions or after the first occasion on which such a cheque or warrant is returned undelivered.
2.8 Inspection of corporate records
For so long as any part of the share capital of the Company is listed on the Stock Exchange,
any member may inspect any register of members of the Company maintained in Hong Kong
(except when the register of members is closed) without charge and require the provision to him of
copies or extracts of such register in all respects as if the Company were incorporated under and
were subject to the Hong Kong Companies Ordinance.
2.9 Rights of minorities in relation to fraud or oppression
There are no provisions in the Articles concerning the rights of minority members in relation
to fraud or oppression. However, certain remedies may be available to members of the Company
under Cayman Islands law, as summarized in paragraph 3(f) of this Appendix.
2.10 Procedures on liquidation
A resolution that the Company be wound up by the court or be wound up voluntarily shall be
a special resolution. The board shall have no authority to present a winding up petition on behalf
of the Company without the sanction of a resolution passed by the Company in general meeting.
Subject to any special rights, privileges or restrictions as to the distribution of available
surplus assets on liquidation for the time being attached to any class or classes of shares:
(a) if the Company is wound up and the assets available for distribution among the members
of the Company are more than sufficient to repay the whole of the capital paid up at the
commencement of the winding up, then the excess shall be distributed pari passu among
such members in proportion to the amount paid up on the shares held by them
respectively; and
(b) if the Company is wound up and the assets available for distribution among the members
as such are insufficient to repay the whole of the paid-up capital, such assets shall be
distributed so that, as nearly as may be, the losses shall be borne by the members in
proportion to the capital paid up on the shares held by them, respectively.
If the Company is wound up (whether the liquidation is voluntary or compelled by the court),
the liquidator may, with the sanction of a special resolution and any other sanction required by the
Companies Act, divide among the members in specie or kind the whole or any part of the assets of
the Company, whether the assets consist of property of one kind or different kinds, and the
liquidator may, for such purpose, set such value as he deems fair upon any one or more class or
classes of property to be so divided and may determine how such division shall be carried out as
between the members or different classes of members and the members within each class. The
liquidator may, with the like sanction, vest any part of the assets in trustees upon such trusts for the
benefit of members as the liquidator thinks fit, but so that no member shall be compelled to accept
any shares or other property upon which there is a liability.
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2.11 Subscription rights reserve
Provided that it is not prohibited by and is otherwise in compliance with the Companies Act,
if warrants to subscribe for shares have been issued by the Company and the Company does any act
or engages in any transaction which would result in the subscription price of such warrants being
reduced below the par value of the shares to be issued on the exercise of such warrants, a
subscription rights reserve shall be established and applied in paying up the difference between the
subscription price and the par value of such shares.
3 CAYMAN ISLANDS COMPANY LA W
The Company was incorporated in the Cayman Islands as an exempted company on 20 March
2008 subject to the Companies Act. Certain provisions of Cayman Islands company law are set out
below but this section does not purport to contain all applicable qualifications and exceptions or to
be a complete review of all aspects of the Cayman Islands law and taxation, which may differ from
equivalent provisions in jurisdictions with which interested parties may be more familiar.
3.1 Company operations
An exempted company such as the Company must conduct its operations mainly outside the
Cayman Islands. An exempted company is also required to file an annual return each year with the
Registrar of Companies and pay a fee which is based on the amount of its authorised share capital.
3.2 Share capital
Under the Companies Act, a Cayman Islands company may issue ordinary, preference or
redeemable shares or any combination thereof. Where a company issues shares at a premium,
whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on
those shares shall be transferred to an account, to be called the “share premium account”. At the
option of a company, these provisions may not apply to premiums on shares of that company
allotted pursuant to any arrangements in consideration of the acquisition or cancellation of shares
in any other company and issued at a premium. The share premium account may be applied by the
company subject to the provisions, if any, of its memorandum and articles of association, in such
manner as the company may from time to time determine including, but without limitation, the
following:
(a) paying distributions or dividends to members;
(b) paying up unissued shares of the company to be issued to members as fully paid bonus
shares;
(c) any manner provided in Section 37 of the Companies Act;
(d) writing-off the preliminary expenses of the company; and
(e) writing-off the expenses of, or the commission paid or discount allowed on, any issue
of shares or debentures of the company.
Notwithstanding the foregoing, no distribution or dividend may be paid to members out of the
share premium account unless, immediately following the date on which the distribution or dividend
is proposed to be paid, the company will be able to pay its debts as they fall due in the ordinary
course of business.
Subject to confirmation by the court, a company limited by shares or a company limited by
guarantee and having a share capital may, if authorised to do so by its articles of association, by
special resolution reduce its share capital in any way.
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3.3 Financial assistance to purchase shares of a company or its holding company
There are no statutory prohibitions in the Cayman Islands on the granting of financial
assistance by a company to another person for the purchase of, or subscription for, its own, its
holding company’s or a subsidiary’s shares. Therefore, a company may provide financial assistance
provided the directors of the company, when proposing to grant such financial assistance, discharge
their duties of care and act in good faith, for a proper purpose and in the interests of the company.
Such assistance should be on an arm’s-length basis.
3.4 Purchase of shares and warrants by a company and its subsidiaries
A company limited by shares or a company limited by guarantee and having a share capital
may, if so authorised by its articles of association, issue shares which are to be redeemed or are
liable to be redeemed at the option of the company or a member and, for the avoidance of doubt,
it shall be lawful for the rights attaching to any shares to be varied, subject to the provisions of the
company’s articles of association, so as to provide that such shares are to be or are liable to be so
redeemed. In addition, such a company may, if authorised to do so by its articles of association,
purchase its own shares, including any redeemable shares; an ordinary resolution of the company
approving the manner and terms of the purchase will be required if the articles of association do not
authorise the manner and terms of such purchase. A company may not redeem or purchase its shares
unless they are fully paid. Furthermore, a company may not redeem or purchase any of its shares
if, as a result of the redemption or purchase, there would no longer be any issued shares of the
company other than shares held as treasury shares. In addition, a payment out of capital by a
company for the redemption or purchase of its own shares is not lawful unless, immediately
following the date on which the payment is proposed to be made, the company shall be able to pay
its debts as they fall due in the ordinary course of business.
Shares that have been purchased or redeemed by a company or surrendered to the company
shall not be treated as cancelled but shall be classified as treasury shares if held in compliance with
the requirements of Section 37A(1) of the Companies Act. Any such shares shall continue to be
classified as treasury shares until such shares are either cancelled or transferred pursuant to the
Companies Act.
A Cayman Islands company may be able to purchase its own warrants subject to and in
accordance with the terms and conditions of the relevant warrant instrument or certificate. Thus
there is no requirement under Cayman Islands law that a company’s memorandum or articles of
association contain a specific provision enabling such purchases. The directors of a company may
under the general power contained in its memorandum of association be able to buy, sell and deal
in personal property of all kinds.
A subsidiary may hold shares in its holding company and, in certain circumstances, may
acquire such shares.
3.5 Dividends and distributions
Subject to a solvency test, as prescribed in the Companies Act, and the provisions, if any, of
the company’s memorandum and articles of association, company may pay dividends and
distributions out of its share premium account. In addition, based upon English case law which is
likely to be persuasive in the Cayman Islands, dividends may be paid out of profits.
For so long as a company holds treasury shares, no dividend may be declared or paid, and no
other distribution (whether in cash or otherwise) of the company’s assets (including any distribution
of assets to members on a winding up) may be made, in respect of a treasury share.
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3.6 Protection of minorities and shareholders’ suits
It can be expected that the Cayman Islands courts will ordinarily follow English case law
precedents (particularly the rule in the case of Foss v. Harbottle and the exceptions to that rule)
which permit a minority member to commence a representative action against or derivative actions
in the name of the company to challenge acts which are ultra vires, illegal, fraudulent (and
performed by those in control of the company) against the minority, or represent an irregularity in
the passing of a resolution which requires a qualified (or special) majority which has not been
obtained.
Where a company (not being a bank) is one which has a share capital divided into shares, the
court may, on the application of members holding not less than one-fifth of the shares of the
company in issue, appoint an inspector to examine the affairs of the company and, at the direction
of the court, to report on such affairs. In addition, any member of a company may petition the court,
which may make a winding up order if the court is of the opinion that it is just and equitable that
the company should be wound up.
In general, claims against a company by its members must be based on the general laws of
contract or tort applicable in the Cayman Islands or be based on potential violation of their
individual rights as members as established by a company’s memorandum and articles of
association.
3.7 Disposal of assets
There are no specific restrictions on the power of directors to dispose of assets of a company,
however, the directors are expected to exercise certain duties of care, diligence and skill to the
standard that a reasonably prudent person would exercise in comparable circumstances, in addition
to fiduciary duties to act in good faith, for proper purpose and in the best interests of the company
under English common law (which the Cayman Islands’ courts will ordinarily follow).
3.8 Accounting and auditing requirements
A company must cause proper records of accounts to be kept with respect to:
(a) all sums of money received and expended by it;
(b) all sales and purchases of goods by it; and
(c) its assets and liabilities.
Proper books of account shall not be deemed to be kept if there are not kept such books as
are necessary to give a true and fair view of the state of the company’s affairs and to explain its
transactions.
If a company keeps its books of account at any place other than at its registered office or any
other place within the Cayman Islands, it shall, upon service of an order or notice by the Tax
Information Authority pursuant to the Tax Information Authority Act (as amended) of the Cayman
Islands (the “ TIA Act ”), make available, in electronic form or any other medium, at its registered
office copies of its books of account, or any part or parts thereof, as are specified in such order or
notice.
3.9 Exchange control
There are no exchange control regulations or currency restrictions in effect in the Cayman
Islands.
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3.10 Taxation
Pursuant to Section 6 of the Tax Concessions Act (as amended) of the Cayman Islands (the
“Tax Concessions Act ”), the Company has obtained an undertaking from the Governor-in-Cabinet
that:
(a) no law which is enacted in the Cayman Islands imposing any tax to be levied on profits
or income or gains or appreciation shall apply to the Company or its operations; and
(b) no tax be levied on profits, income, gains or appreciations or which is in the nature of
estate duty or inheritance tax shall be payable by the Company:
(i) on or in respect of the shares, debentures or other obligations of the Company; or
(ii) by way of withholding in whole or in part of any relevant payment as defined in
Section 6(3) of the Tax Concessions Act.
The undertaking for the Company is for a period of 20 years from May 5, 2021.
The Cayman Islands currently levy no taxes on individuals or corporations based upon profits,
income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty.
There are no other taxes likely to be material to the Company levied by the Government of the
Cayman Islands save for certain stamp duties which may be applicable, from time to time, on
certain instruments.
3.11 Stamp duty on transfers
No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands
companies save for those which hold interests in land in the Cayman Islands.
3.12 Loans to directors
There is no express provision prohibiting the making of loans by a company to any of its
directors. However, the company’s articles of association may provide for the prohibition of such
loans under specific circumstances.
3.13 Inspection of corporate records
The members of a company have no general right to inspect or obtain copies of the register
of members or corporate records of the company. They will, however, have such rights as may be
set out in the company’s articles of association.
3.14 Register of members
A Cayman Islands exempted company may maintain its principal register of members and any
branch registers in any country or territory, whether within or outside the Cayman Islands, as the
company may determine from time to time. There is no requirement for an exempted company to
make any returns of members to the Registrar of Companies. The names and addresses of the
members are, accordingly, not a matter of public record and are not available for public inspection.
However, an exempted company shall make available at its registered office, in electronic form or
any other medium, such register of members, including any branch register of member, as may be
required of it upon service of an order or notice by the Tax Information Authority pursuant to the
TIA Act.
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3.15 Register of Directors and officers
Pursuant to the Companies Act, the Company is required to maintain at its registered office
a register of directors, alternate directors and officers which is not available for inspection by the
public. A copy of such register must be filed with the Registrar of Companies and any change must
be notified to the Registrar of Companies within 30 days of any change in such directors or officers,
including a change of the name of such directors or officers.
3.16 Winding up
A Cayman Islands company may be wound up by:
(a) an order of the court;
(b) voluntarily by its members; or
(c) under the supervision of the court.
The court has authority to order winding up in a number of specified circumstances including
where, in the opinion of the court, it is just and equitable that such company be so wound up.
A voluntary winding up of a company (other than a limited duration company, for which
specific rules apply) occurs where the company resolves by special resolution that it be wound up
voluntarily or where the company in general meeting resolves that it be wound up voluntarily
because it is unable to pay its debt as they fall due. In the case of a voluntary winding up, the
company is obliged to cease to carry on its business from the commencement of its winding up
except so far as it may be beneficial for its winding up. Upon appointment of a voluntary liquidator,
all the powers of the directors cease, except so far as the company in general meeting or the
liquidator sanctions their continuance.
In the case of a members’ voluntary winding up of a company, one or more liquidators are
appointed for the purpose of winding up the affairs of the company and distributing its assets.
As soon as the affairs of a company are fully wound up, the liquidator must make a report and
an account of the winding up, showing how the winding up has been conducted and the property
of the company disposed of, and call a general meeting of the company for the purposes of laying
before it the account and giving an explanation of that account.
When a resolution has been passed by a company to wind up voluntarily, the liquidator or any
contributory or creditor may apply to the court for an order for the continuation of the winding up
under the supervision of the court, on the grounds that:
(a) the company is or is likely to become insolvent; or
(b) the supervision of the court will facilitate a more effective, economic or expeditious
liquidation of the company in the interests of the contributories and creditors.
A supervision order takes effect for all purposes as if it was an order that the company be
wound up by the court except that a commenced voluntary winding up and the prior actions of the
voluntary liquidator shall be valid and binding upon the company and its official liquidator.
For the purpose of conducting the proceedings in winding up a company and assisting the
court, one or more persons may be appointed to be called an official liquidator(s).The court may
appoint to such office such person or persons, either provisionally or otherwise, as it thinks fit, and
if more than one person is appointed to such office, the court shall declare whether any act required
or authorized to be done by the official liquidator is to be done by all or any one or more of such
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persons. The court may also determine whether any and what security is to be given by an official
liquidator on his appointment; if no official liquidator is appointed, or during any vacancy in such
office, all the property of the company shall be in the custody of the court.
3.17 Reconstructions
Reconstructions and amalgamations may be approved by a majority in number representing
75% in value of the members or creditors, depending on the circumstances, as are present at a
meeting called for such purpose and thereafter sanctioned by the courts. Whilst a dissenting member
has the right to express to the court his view that the transaction for which approval is being sought
would not provide the members with a fair value for their shares, the courts are unlikely to
disapprove the transaction on that ground alone in the absence of evidence of fraud or bad faith on
behalf of management, and if the transaction were approved and consummated the dissenting
member would have no rights comparable to the appraisal rights (ie the right to receive payment in
cash for the judicially determined value of their shares) ordinarily available, for example, to
dissenting members of a United States corporation.
3.18 Take-overs
Where an offer is made by a company for the shares of another company and, within four
months of the offer, the holders of not less than 90% of the shares which are the subject of the offer
accept, the offeror may, at any time within two months after the expiration of that four-month
period, by notice require the dissenting members to transfer their shares on the terms of the offer.
A dissenting member may apply to the Cayman Islands’ courts within one month of the notice
objecting to the transfer. The burden is on the dissenting member to show that the court should
exercise its discretion, which it will be unlikely to do unless there is evidence of fraud or bad faith
or collusion as between the offeror and the holders of the shares who have accepted the offer as a
means of unfairly forcing out minority members.
3.19 Indemnification
Cayman Islands law does not limit the extent to which a company’s articles of association may
provide for indemnification of officers and directors, save to the extent any such provision may be
held by the court to be contrary to public policy, for example, where a provision purports to provide
indemnification against the consequences of committing a crime.
3.20 Scheme of arrangement
Following amendments to the Cayman Companies Act that became effective on 31 August
2022, the majority-in-number “headcount test” in relation to the approval of members’ schemes of
arrangement has been abolished. Section 86(2A) of the Cayman Companies Act provides that, if
seventy-five per cent in value of the members (or class of members) of a Cayman Islands company
agree to any compromise or arrangement, such compromise or arrangement shall, if sanctioned by
the court, be binding on all members (or class of members) of such company and on the company
itself. Where a Cayman Islands company is in the course of being wound up, such compromise or
arrangement would be binding on the liquidator and contributories of the company. In contrast,
section 86(2) of the Cayman Companies Act continues to require (i) approval by a majority in
number representing seventy-five per cent in value and (ii) the sanction of the court, in relation to
any compromise or arrangement between a company and its creditors (or any class of them).
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3.21 General
Walkers (Hong Kong), the Company’s legal advisers on Cayman Islands law, have sent to the
Company a letter of advice summarising aspects of Cayman Islands company law. This letter,
together with a copy of the Companies Act, is available for inspection as referred to in “Documents
Delivered to the Registrar of Companies and on Display” in Appendix V . Any person wishing to
have a detailed summary of Cayman Islands company law or advice on the differences between it
and the laws of any jurisdiction with which he/she is more familiar is recommended to seek
independent legal advice.
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A. FURTHER INFORMATION ABOUT OUR COMPANY AND OUR SUBSIDIARIES
1. Incorporation
Our Company is an exempted company incorporated in the Cayman Islands with limited
liability under the Cayman Companies Law on March 20, 2008. Our registered office address is at
Third Floor, Century Yard, Cricket Square, P.O. Box 902 Grand Cayman, KY1-1103, Cayman
Islands. Accordingly, our Company’s corporate structure and Memorandum and Articles are subject
to the relevant laws of the Cayman Islands. A summary of our Memorandum and Articles is set out
in Appendix III.
Our registered place of business in Hong Kong is at Suite 1303, 13/F, Golden Centre, 188 Des
V oeux Road Central, Sheung Wan, Hong Kong. We registered as a non-Hong Kong company under
Part 16 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance on December 31,
2020 with the Registrar of Companies in Hong Kong. Ms. YANG Ling (ࡗand Mr. WANG
Lawrence Allen ( ˮʘጫ) have been appointed as the authorized representative of our Company for
the acceptance of service of process in Hong Kong.
Our Company’s head office is located at No. 208, Zhenzhong Road, West Lake District,
Hangzhou, the PRC.
2. Changes in share capital of our Company
Upon incorporation on March 20, 2008, the authorized share capital of our Company was
US$50,000 divided into 500,000,000 shares of US$0.0001 each.
The changes in the share capital of our Company during the two years immediately preceding
to the Latest Practicable Date are set forth below:
(i) on June 16, 2021, upon the exercise of the options granted under the Employee Incentive
Plans, our Company allotted and issued 136,500 fully-paid up Shares to a previous
senior employee of our Group.
Immediately following completion of the Global Offering but without taking into account any
Shares which may be issued upon the exercise of the Over-allotment Option, the issued share capital
of our Company will be US$14,469.05 divided into 723,452,291 Shares of US$0.00002 each, all
fully paid or credited as fully paid, and 1,776,547,709 Shares of US$0.00002 each will remain
unissued.
Save as disclosed above and in the paragraph headed “A. Further Information about our
Company and our Subsidiaries – 4. Written Resolutions of our Shareholders dated June 3, 2023” in
this appendix, there was no alteration in the share capital of our Company within the two years
immediately preceding the date of this Prospectus.
3. Changes in share capital of our subsidiaries
A summary of the corporate information and the particulars of our subsidiaries are set out in
note 1 to the Accountants’ Report as set out in Appendix I to this Prospectus.
The following sets out the changes in the share or registered capital of members of our Group
within the two years immediately preceding the date of this Prospectus:
(i) on June 16, 2021, Mr. LI Shiyu, an independent third party, transferred its RMB1.5
million registered capital in Shenzhen Adicon to Mr. LONG Fengping at a consideration
of RMB1.5 million and Shenzhen Adicon increased its registered capital by RMB3.3
APPENDIX IV STATUTORY AND GENERAL INFORMATION
– IV-1 –


--- page 477 ---
million from RMB10 million to RMB13.3 million, which was also subscribed by Mr.
LONG Fengping, an independent third party. Upon which, Shenzhen Adicon was owned
as to 60% by Hangzhou Adicon and 40% by independent third parties;
(ii) on July 16, 2021, Guizhou Adicon was established with a registered capital of RMB15
million, which was owned as to 51% by Hangzhou Adicon, 44% by an independent third
party and 5% by Mr. SHEN Zhuhao, the manager of Guizhou Adicon;
(iii) on August 3, 2021, Suzhou Adicon was established with a registered capital of RMB30
million, which was owned as to 51% by Hangzhou Adicon and 49% by an independent
third party;
(iv) on August 25, 2021, Tianjin Adicon increased its registered capital by RMB5 million
from RMB25 million to RMB30 million, out of which RMB3 million and RMB2 million
was contributed by Hangzhou Adicon and Guangzhou Adicon, respectively. Upon
completion of the increase in registered capital, Tianjin Adicon remained owned as to
60% by Hangzhou Adicon and 40% by Guangzhou Adicon;
(v) on October 9, 2021, Mr. XU Qikai, an independent third party, transferred his fully
paid-up RMB1.5 million registered capital in Qingdao Adicon to an entity controlled by
himself at a consideration of RMB1.5 million. On December 24, 2021, Qingdao Adicon
increased its registered capital by RMB1,666,600 from RMB10 million to RMB11.7
million, which was subscribed by independent third parties at a total consideration of
RMB3 million. Upon completion of the increase of registered capital, Qingdao Adicon
became owned as to 60% by Hangzhou Adicon and 40% by independent third parties;
(vi) on November 10, 2021, Linyi Adicon was established with a registered capital of
RMB20 million, which was owned as to 70% by Hangzhou Adicon and 30% by an
independent third party
(vii) on November 29, 2021, Wenzhou Adicon was established with a registered capital of
RMB20 million, which was owned as to 65% by Hangzhou Adicon and 35% by an
independent third party;
(viii) on December 9, 2021, Heilongjiang Adicon increased its registered capital by RMB10
million from RMB10 million to RMB20 million, out of which RMB5 million was
contributed by Hangzhou Adicon and the remaining RMB5 million was was contributed
by independent third parties. Upon completion of the increase in registered capital,
Heilongjiang Adicon became owned as to 75% by Hangzhou Adicon and 25% by
independent third parties;
(ix) on May 13, 2022, Xinyang Adicon was established with a registered capital of RMB15
million, which was owned as to 65% by Hangzhou Adicon and 35% by an independent
third party;
(x) on June 1, 2022, Hangzhou Adicon acquired 51% of Henan Adicon from an independent
third party at a consideration of RMB88.9 million;
(xi) on June 21, 2022, Shijiazhuang Adicon was established by Hangzhou Adicon with a
registered capital of RMB20 million;
(xii) on March 6, 2023, Shaoxing Adicon was established with a registered capital of RMB8
million, which was owned as to 65% by Hangzhou Adicon and 35% by an independent
third party; and
(xiii) on May 16, 2023, Wenzhou (Ouhai) Adicon was established with a registered capital of
RMB10 million.
Save as disclosed above, there was no alteration in the share capital of any members of our
Group within the two years immediately preceding the date of this Prospectus.
APPENDIX IV STATUTORY AND GENERAL INFORMATION
– IV-2 –


--- page 478 ---
4. Written Resolutions of our Shareholders dated June 3, 2023
Written resolutions of our Shareholders were passed on June 3, 2023, pursuant to which,
among others, conditional upon the conditions of the Global Offering (as set out in this Prospectus)
being fulfilled:
(a) the Memorandum and the Articles were approved and adopted conditional on and
immediately prior to the Listing on the Listing Date;
(b) the Global Offering, the Listing and the Over-allotment Option were approved, and our
Directors were authorized to negotiate and agree the Offer Price and to allot and issue
the Offer Shares (including pursuant to the Over-allotment Option);
(c) all Preferred Shares in issue are converted into Shares, which shall rank pari passu with
other Shares;
(d) a general mandate (the “ Sale Mandate ”) was granted to our Directors to allot, issue and
deal with any Shares or securities convertible into Shares and to make or grant offers,
agreements or options which would or might require Shares to be allotted, issued or dealt
with, provided that the number of Shares so allotted, issued or dealt with or agreed to
be allotted, issued or dealt with by our Directors, shall not exceed 20% of the total
number of Shares in issue immediately following the completion of Global Offering;
(e) a general mandate (the “ Repurchase Mandate ”) was granted to our Directors to
repurchase our own Shares on the Stock Exchange or on any other stock exchange on
which the securities of our Company may be listed and which is recognized by the SFC
and the Stock Exchange for this purpose, such number of Shares as will represent up to
10% of the total number of Shares in issue immediately following completion of the
Global Offering;
(f) the Sale Mandate was extended by the addition to the total number of Shares which may
be allotted and issued or agreed to be allotted and issued by our Directors pursuant to
such general mandate of an amount representing the total number of the Shares
purchased by our Company pursuant to the Repurchase Mandate, provided that such
extended amount shall not exceed 10% of the total number of the Shares in issue
immediately following completion of the Global Offering; and
(g) the Employment Incentive Plans, and the granting and vesting of any options or RSUs
under the Employment Incentive Plans, were approved, confirmed and ratified in all
material respects.
Each of the general mandates referred to above will remain in effect until the earliest of:
(a) the conclusion of the next annual general meeting of our Company unless, by ordinary
resolution passed at that meeting, the authority is renewed, either unconditionally or
subject to condition;
(b) the expiration of the period within which the next annual general meeting of our
Company is required to be held under any applicable laws of the Cayman Islands or the
Memorandum and Articles of our Company; and
(c) the passing of an ordinary resolution by our Shareholders in a general meeting revoking
or varying the authority.
5. Explanatory Statement on Repurchase of our Own Securities
The following summarizes restrictions imposed by the Listing Rules on share repurchases by
a company listed on the Stock Exchange and provides further information about the repurchase of
our own securities.
APPENDIX IV STATUTORY AND GENERAL INFORMATION
– IV-3 –


--- page 479 ---
Shareholders’ approval
A listed company whose primary listing is on the Stock Exchange may only purchase its shares
on the Stock Exchange, either directly or indirectly, if: (i) the shares proposed to be purchased are
fully-paid up, and (ii) its shareholders have given a specific approval or general mandate by way
of an ordinary resolution of shareholders.
Size of mandate
The exercise in full of the Repurchase Mandate, on the basis of 723,452,291 Shares in issue
immediately following completion of the Global Offering (assuming the Over-allotment Option is
not exercised), could accordingly result in up to approximately 72,345,229 Shares being
repurchased by our Company.
The total number of shares which a listed company may repurchase on the Stock Exchange
may not exceed 10% of the number of issued shares as at the date of the shareholder approval.
Reasons for repurchases
Our Directors believe that it is in the best interests of our Company and Shareholders for our
Directors to have general authority from the Shareholders to enable our Company to repurchase
Shares in the market. Such repurchases may, depending on market conditions and funding
arrangements at the time, lead to an enhancement of the net asset value per Share and/or earnings
per Share and will only be made where our Directors believe that such repurchases will benefit our
Company and Shareholders.
Source of funds
Purchases must be funded out of funds legally available for the purpose in accordance with
the Memorandum and Articles and the applicable laws and regulations of the Cayman Islands.
Our Company shall not purchase its own Shares on the Stock Exchange for a consideration
other than cash or for settlement otherwise than in accordance with the trading rules of the Stock
Exchange from time to time.
Any purchases by our Company may be made out of profits or out of an issue of new shares
made for the purpose of the purchase or, if authorized by its Memorandum and Articles and subject
to the Companies Ordinance, out of capital, and, in the case of any premium payable on the
purchase out of profits or from sums standing to the credit of our share premium account or, if
authorized by its Memorandum and Articles and subject to the Companies Ordinance, out of capital.
Suspension of repurchase
A listed company shall not repurchase its shares on the Stock Exchange at any time after
inside information has come to its knowledge until the information is made publicly available. In
particular, during the period of one month immediately preceding the earlier of: (a) the date of the
board meeting (as such date is first notified to the Stock Exchange in accordance with the Listing
Rules) for the approval of the company’s results for any year, half-year, quarterly or any other
interim period (whether or not required under the Listing Rules); and (b) the deadline for the issuer
to announce its results for any year or half-year under the Listing Rules, or quarterly or any other
interim period (whether or not required under the Listing Rules), until the date of the results
announcement, the company may not repurchase its shares on the Stock Exchange unless there are
exceptional circumstances.
APPENDIX IV STATUTORY AND GENERAL INFORMATION
– IV-4 –


--- page 480 ---
Trading restrictions
A listed company is prohibited from repurchasing its shares on the Stock Exchange if the
purchase price is 5% or more than the average closing market price for the five preceding trading
days on which its shares were traded on the Stock Exchange.
A listed company may not repurchase its shares if that repurchase would result in the number
of listed securities which are in the hands of the public falling below the relevant prescribed
minimum percentage as required by the Stock Exchange.
Status of repurchased Shares
The listing of all repurchased shares (whether through the Stock Exchange or otherwise) shall
be automatically canceled and the relevant documents of title must be canceled and destroyed as
soon as reasonably practicable.
Close associates and core connected persons
None of our Directors or, to the best of their knowledge having made all reasonable enquiries,
any of their close associates have a present intention, in the event the Repurchase Mandate is
approved, to sell any Shares to our Company.
No core connected person of our Company has notified our Company that they have a present
intention to sell Shares to our Company, or have undertaken to do so, if the Repurchase Mandate
is approved.
A listed company shall not knowingly purchase its shares on the Stock Exchange from a core
connected person (namely a director, chief executive or substantial shareholder of the company or
any of its subsidiaries, or a close associate of any of them), and a core connected person shall not
knowingly sell their interest in shares of the company to it.
Takeover implications
If, as a result of any repurchase of Shares, a Shareholder’s proportionate interest in the voting
rights of our Company increases, such increase will be treated as an acquisition for the purposes of
the Takeovers Code. Accordingly, a Shareholder or a group of Shareholders acting in concert could
obtain or consolidate control of our Company and become obliged to make a mandatory offer in
accordance with Rule 26 of the Takeovers Code. Save as aforesaid, our Directors are not aware of
any consequences which would arise under the Takeovers Code as a consequence of any repurchases
pursuant to the Repurchase Mandate.
General
If the Repurchase Mandate were to be carried out in full at any time, there may be a material
adverse impact on our working capital or gearing position (as compared with the position disclosed
in our most recent published audited accounts). However, our Directors do not propose to exercise
the Repurchase Mandate to such an extent as would have a material adverse effect on our working
capital or gearing position.
Our Directors have undertaken to the Stock Exchange that they will exercise the Repurchase
Mandate in accordance with the Listing Rules and the applicable laws in the Cayman Islands.
We have not made any repurchases of our Shares in the previous six months.
APPENDIX IV STATUTORY AND GENERAL INFORMATION
– IV-5 –


--- page 481 ---
6. Corporate Reorganization
For details of the Reorganization, please refer to the section headed “History, Reorganization
and Corporate Structure – Reorganization” of this Prospectus.
B. FURTHER INFORMATION ABOUT OUR BUSINESS
1. Summary of material contracts
(a) the cornerstone investment agreement dated April 28, 2023 entered into among the
Company, MR Global (HK) Limited, Morgan Stanley Asia Limited and Jefferies Hong
Kong Limited, details of which are included in the section headed “Cornerstone
Investors” in this Prospectus;
(b) the cornerstone investment agreement dated April 27, 2023 entered into among the
Company, Snibe Diagnostic (Hong Kong) Company Limited, Morgan Stanley Asia
Limited and Jefferies Hong Kong Limited, details of which are included in the section
headed “Cornerstone Investors” in this Prospectus;
(c) the cornerstone investment agreement dated June 15, 2023 entered into among the
Company, Fosun Diagnostics (Shanghai) Co., Ltd., Morgan Stanley Asia Limited and
Jefferies Hong Kong Limited, details of which are included in the section headed
“Cornerstone Investors” in this Prospectus;
(d) the cornerstone investment agreement dated June 15, 2023 entered into among the
Company, Timestar Elite Limited, Morgan Stanley Asia Limited and Jefferies Hong
Kong Limited, details of which are included in the section headed “Cornerstone
Investors” in this Prospectus;
(e) the cornerstone investment agreement dated June 15, 2023 entered into among the
Company, Corelink Group Limited, Morgan Stanley Asia Limited and Jefferies Hong
Kong Limited, details of which are included in the section headed “Cornerstone
Investors” in this Prospectus; and
(f) the Hong Kong Underwriting Agreement.
2. Intellectual property rights
Save as disclosed below, as of the Latest Practicable Date, there were no other trademarks,
service marks, patents, intellectual property rights, or industrial property rights which are or may
be material in relation to our business.
APPENDIX IV STATUTORY AND GENERAL INFORMATION
– IV-6 –


--- page 482 ---
Trademarks
As of the Latest Practicable Date, we have registered the following trademarks which we
believe are material to our business:
No. Trademark Registered Owner Class
Place of
Registration
1.
 Hangzhou Adicon 1, 5, 9, 10, 16, 20,
21, 24, 29, 35, 36,
37, 38, 39, 40, 41,
42, 43, 44, 45
PRC
2.
Hangzhou Adicon 1, 16, 20, 21, 24, 29,
35, 36, 37, 39, 40,
42, 43, 44, 45
PRC
3.
Hangzhou Adicon 42, 44 PRC
4.
 Hangzhou Adicon 5, 10, 42, 44 PRC
5.
 Hangzhou Adicon 42, 44 PRC
6.
 Hangzhou Adicon 9, 35, 38, 42, 44 PRC
7.
 Hangzhou Adicon 9, 35, 38, 42, 44 PRC
8.
 Hangzhou Adicon 44 PRC
9.
 Hangzhou Adicon 44 PRC
10.
 Hangzhou Adicon 44 PRC
11.
 Hangzhou Adicon 44 PRC
12.
 Hangzhou Adicon 35, 44 PRC
13.
 Hangzhou Adicon 35, 44 PRC
14.
 Hangzhou Adicon 38, 41 PRC
15.
 Hangzhou Adicon 41, 44 PRC
16.
 Hangzhou Adicon 38, 41, 42, 44 PRC
17.
 Hangzhou Adicon 42, 44 PRC
18.
 Hangzhou Adicon 42 PRC
19.
 Hangzhou Adicon 42 PRC
20.
 Hangzhou Adicon 42 PRC
APPENDIX IV STATUTORY AND GENERAL INFORMATION
– IV-7 –


--- page 483 ---
No. Trademark Registered Owner Class
Place of
Registration
21.
 Hangzhou Adicon 42, 44 PRC
22.
 Hangzhou Adicon 42, 44 PRC
23.
 Hangzhou Adicon 44 PRC
24.
 Hangzhou Adicon 44 PRC
25.
 Hangzhou Adicon 44 PRC
26.
 Hangzhou Adicon 44 PRC
27.
 Hangzhou Adicon 44 PRC
28.
 Hangzhou Adicon 44 PRC
29.
 Hangzhou Adicon 44 PRC
30.
 Hangzhou Adicon 44 PRC
31.
 Hangzhou Adicon 5, 9, 10, 35, 38, 42,
44
PRC
32.
 Hangzhou Huitu 5, 9, 10, 35, 37, 39,
41, 42, 44
PRC
33. ADICON Adicon HK 5, 9, 10, 35, 37, 38,
41, 42, 44
Hong Kong
34.
 Adicon HK 5, 9, 10, 35, 37, 38,
41, 42, 44
Hong Kong
35.
 Adicon HK 5, 9, 10, 35, 37, 38,
41, 42, 44
Hong Kong
36.
 Adicon HK 5, 9, 10, 35, 37, 38,
41, 42, 44
Hong Kong
Trademark applications
As of the Latest Practicable Date, we have applied for the registration of the following
trademark which we believe are material to our business:
No. Trademark Applicant Class
Place of
registration
1.
 Hangzhou Adicon 9 PRC
APPENDIX IV STATUTORY AND GENERAL INFORMATION
– IV-8 –


--- page 484 ---
Patents
Patents of Invention
As of the Latest Practicable Date, we have registered the following patents of invention which
we believe are material to our business, including common infectious disease such as HPV , HBV
and avian influenza, diagnosis, prognosis and recurrence monitoring of hematological tumor:
No. Product/Technology
Date of
Application
(yyyy/mm/dd) Patentee
1. Primer for RT-PCR of human leukemia BCR-ABL fusion
genes and its method of application
(ɛͣАषፄΥਿΪBCR-ABLٙRT-PCRج)
2011/09/07 Hangzhou
Adicon
2. Nucleic acid detection kit for detecting BRCA1mRNA
(Ꮸ಻BRCA1mRNAაᏨ಻༊ኒଷ)
2012/04/27 Hangzhou
Adicon
3. Nucleic acid detection kit for detecting BRCA1mRNA
(Ꮸ಻BRCA1mRNAაᏨ಻༊ኒଷ)
2012/04/27 Hangzhou
Adicon
4. A kit for detecting avian influenza H7N9 viruses by using
real-time fluorescence-based quantitative PCR ( ɓ၇л͜ྼ
ඎPCRᏨ಻H7N9༊ኒଷ)
2013/04/12 Hangzhou
Adicon
5. Method, primer and kit for detecting hot mutation sites of
human XPD genes ( Ꮸ಻ɛXPDe
ձ༊ኒଷ)
2013/09/30 Hangzhou
Adicon
6. Method and oligonucleotide for detecting FGFR3 G380R site
mutation ( Ꮸ಻FGFR3 G380R㹷ა)
2014/01/04 Hangzhou
Adicon
7. Method and oligonucleotide for detecting CYP2C19*2
mutation sites ( Ꮸ಻CYP2C19*2㹷ა)
2014/07/29 Hangzhou
Adicon
8. Method, oligonucleotide and kit for detecting WAS gene
polymorphic mutation sites ( Ꮸ಻WAS˙
㹷აձ༊ኒଷ)
2016/04/08 Hangzhou
Adicon
9. Kit for detecting relative expression quantity of AML1-ETO
fusion genes (Ꮸ಻AML1-ETO༊
ኒଷ)
2012/05/30 Beijing
Adicon
10. Primer for pyrophosphate detection of P vuII and X baI
polymorphisms of intron 1 of the estrogen receptor alpha
gene (შዧ९ա᜗/H9251ਿΪʫўɿ1 P vuII ձX baIೊ
ي)
2012/05/30 Beijing
Adicon
11. Primer and method for detecting relative expression quantity
of AML1-ETO fusion genes ( Ꮸ಻AML1-ETO࿁
ج)
2012/05/30 Beijing
Adicon
12. A kit for detecting C829T single nucleotide polymorphism in
the DHFR gene ( ɓ၇DHFRٙC829TᏨ಻༊
ኒଷ)
2012/09/10 Beijing
Adicon
13. Primers, probes and methods for screening leukemia MLL-
SEPT6 fusion gene by real-time fluorescent-based PCR
technology (ဦΈPCRͣАषMLL-SEPT6 ፄΥ
ج)
2017/09/15 Beijing
Adicon
14. A method of HPV detection and typing ( ɓ၇HPVᏨ಻ʿʱ
ج)
2009/12/24 Fuzhou
Adicon
15. Kit and method for detecting upstream TA repeated sequence
of estrogen receptor alpha genes
(Ꮸ಻შዧ९ա᜗/H9251ਿΪɪದTAج)
2012/06/12 Fuzhou
Adicon
APPENDIX IV STATUTORY AND GENERAL INFORMATION
– IV-9 –


--- page 485 ---
No. Product/Technology
Date of
Application
(yyyy/mm/dd) Patentee
16. Method, primer and probe for detecting relative expression
quantity of the 11q23/MLL fusion gene ( Ꮸ಻11q23/MLL ፄ
ձઞ০)
2013/11/18 Fuzhou
Adicon
17. Bone marrow chromosome extraction kit (Ѝ᜗౤՟༊
ኒଷ)
2013/11/22 Fuzhou
Adicon
18. Method and primer for detecting the HLA-B*51 allele ( Ꮸ಻
HLA-B*51ي)
2015/09/29 Fuzhou
Adicon
19. Method and primer for detecting expression level of
leukemia CDX2 genes ( Ꮸ಻ͣАषCDX2ˏ
ج)
2017/03/24 Fuzhou
Adicon
20. Method and oligonucleotide for detecting /H9004F508 site
mutation in the CFTR gene ( Ꮸ಻CFTR ਿΪ/H9004F508ᜊ
㹷ა)
2014/01/04 Guangzhou
Adicon
21. Reagent used for HPLC detection of catecholamine
concentration in samples (׵HPLCʕՅ঩ₒᶶዢ
༊ኒ)
2014/05/09 Guangzhou
Adicon
22. Reagent for detecting EGFR gene copy number and ploidy
of chromosome 7 (Ꮸ಻EGFRԎᅰձ7࠴
༊ኒ)
2010/05/11 Hefei Adicon
23. Primer, method and kit for detecting mutation in exon 12 of
the MLH1 gene ( Ꮸ಻MLH1 ਿΪୋ12e˙
ձ༊ኒଷ)
2013/09/27 Hefei Adicon
24. Primer and method for detecting G2677T/A single nucleotide
polymorphism in the MDR1 gene ( Ꮸ಻MDR1ٙG2677T/A ఊ
ج)
2012/08/15 Jilin Adicon
25. A kit for detecting G2677T/A single nucleotide
polymorphism in the MDR1 gene ( ɓ၇MDR1ٙG2677T/A ఊ
Ꮸ಻༊ኒଷ)
2012/08/15 Jilin Adicon
26. Method, kit, primer and probe for detecting relative
expression quantity of RRM1 mRNA ( Ꮸ಻RRM1 mRNA޴
ձઞ০)
2013/09/27 Jilin Adicon
27. Method and primer for detecting polymorphic sites in exon 7
of the WT1 gene ( Ꮸ಻WT1ਿΪୋ7ج
ي)
2013/12/06 Jilin Adicon
28. Gene chip and kit for detecting human papillomavirus ( Ꮸ಻
˪ʿ༊ኒଷ)
2010/04/20 Jinan Adicon
29. Primer and method for detecting C829T single nucleotide
polymorphism in the DHFR gene ( Ꮸ಻DHFRٙC829Tࣨ
ج)
2012/09/10 Jinan Adicon
30. Method and primer for detecting all exons 31-34 of the NF1
gene ( Ꮸ಻NF1ਿΪୋ31-34ي)
2015/03/24 Jinan Adicon
31. Method, primer, probe and kit for screening and identifying
unusual fusion types of BCR-ABL (֛BCR-ABLڢ
eઞ০ձ༊ኒଷ)
2013/09/27 Nanchang
Adicon
32. Bone marrow cell culture media
(੃ቮਿ)
2013/11/22 Nanchang
Adicon
33. Primer and method for detecting CSF3R point mutation ( Ꮸ
಻CSF3Rج)
2015/02/26 Nanchang
Adicon
APPENDIX IV STATUTORY AND GENERAL INFORMATION
– IV-10 –


--- page 486 ---
No. Product/Technology
Date of
Application
(yyyy/mm/dd) Patentee
34. Kit for detecting relative expression quantity of leukemia
BCR/ABL (m-bcr) fusion genes (Ꮸ಻ͣАषBCR/ABL
(m-bcr)༊ኒଷ)
2012/04/27 Nanjing
Adicon
35. Primer and method for detecting relative expression of
leukemia BCR/ABL m-bcr fusion genes
(Ꮸ಻ͣАषBCR/ABL m-bcrձ˙
ج)
2012/04/27 Nanjing
Adicon
36. G-banding method for marrow chromosome karyotyping
analysis (৶᜖Gج)
2013/11/22 Nanjing
Adicon
37. Method of building a breast cancer susceptibility gene
mutation library (ج)
2016/12/20 Nanjing
Adicon
38. A composition and its application
(ʿՉᏐ͜)
2010/11/18 Shanghai
Adicon
39. Primer, method and kit for detecting drug-resistant mutation
sites in ABL kinase domain of BCR/ABL fusion genes ( Ꮸ಻
BCR/ABL ፄΥਿΪABLձ
༊ኒଷ)
2013/09/27 Shanghai
Adicon
40. Primer and method for detecting HTLV-I and HTLV-II
provirus in the same tube ( ɓ၇Ν၍Ꮸ಻HTLV-IձHTLV-II
ج)
2014/03/10 Shanghai
Adicon
41. Method and primer for detecting mutation site of exon 5 of
the RUNX1 gene ( Ꮸ಻RUNX1 ਿΪୋ5˙
ي)
2013/12/06 Shenyang
Adicon
42. Method and primer for detecting mutation sites of exon 3 of
the RUNX1 gene ( Ꮸ಻RUNX1 ਿΪୋ3˙
ي)
2013/12/06 Shenyang
Adicon
43. Kit for detecting relative expression quantity of leukemia
BCR/ABL (b3a2, b2a2) fusion genes (Ꮸ಻ͣАष
BCR/ABL (b3a2,b2a2)༊ኒଷ)
2012/04/25 Wuhan
Adicon
44. Primer and method for detecting relative expression quantity
of leukemia BCR/ABL b3a2 and b2a2 fusion genes ( Ꮸ಻ͣ
АषBCR/ABL b3a2, b2a2ձ˙
ج)
2012/04/25 Wuhan
Adicon
45. Kit for detecting relative expression quantity of AML-EVI1
fusion genes (
Ꮸ಻AML-EVI1༊
ኒଷ)
2012/07/06 Wuhan
Adicon
46. Method, primer and kit for detecting DNMT3A mutation
sites ( Ꮸ಻DNMT3Aձ༊ኒଷ)
2013/09/30 Wuhan
Adicon
47. Bone marrow cell culture stop solution and its application
(੃ቮ୞˟૰ʿᏐ͜)
2013/11/22 Wuhan
Adicon
48. Primer, probe, composition and method for screening and
identifying fusion genes related to MLL rearrangement by
using the multiple fluorescent-based PCR technology (ࠠ
ဦΈPCR֛MLLʿઞ
ج)
2016/05/20 Wuhan
Adicon
49. Primer, method and kit for detecting CA repeated sequence
in intron 5 of estrogen receptor beta genes ( Ꮸ಻შዧ९ա᜗
/H9252ਿΪୋ5ʫўɿCAձ༊ኒଷ)
2013/09/27 Changsha
Adicon
APPENDIX IV STATUTORY AND GENERAL INFORMATION
– IV-11 –


--- page 487 ---
No. Product/Technology
Date of
Application
(yyyy/mm/dd) Patentee
50. Primer, method and kit for detecting HBV telbivudine
resistance mutation ( ɓ၇Ꮸ಻HBVˏ
ձ༊ኒଷ)
2013/09/30 Changsha
Adicon
51. A G-banding method for analyzing bone marrow
chromosomes (Ѝ᜗Gج)
2013/11/22 Changsha
Adicon
52. Method, kit and oligonucleotide for detecting PKLR gene
mutation and their application ( Ꮸ಻PKLRe
㹷აʿՉᏐ͜)
2017/04/05 Changsha
Adicon
53. Primer, method and kit for detecting methylation of CpG
islands in the SFRP2 gene (Ꮸ಻SFRP2 ਿΪCpG͠ਿ
ձ༊ኒଷ)
2014/02/21 Zhengzhou
Adicon
54. Primer, reagent and method for detecting TET2 mutation
(Ꮸ಻TET2ج)
2014/05/06 Zhengzhou
Adicon
55. Method, kit and oligonucleotide for detecting PCM1-JAK2
relative expression amount ( Ꮸ಻PCM1-JAK2ٙ
㹷ა)
2017/11/03 Hefei Adicon
56. Oligonucleotide for detecting expression condition of fusion
gene MLL/CBP and fusion type and application thereof
(Ꮸ಻ፄΥਿΪMLL/CBP㹷აʿ
Ꮠ͜)
2017/11/10 Jinan Adicon
57. Oligonucleotide for detect NUP98 series fusion gene of
leukemia, detection method and kit ( Ꮸ಻ͣАषNUP98 ӻΐ
ձ༊ኒଷ)
2017/12/04 Nanchang
Adicon
58. A set of probes and library building kit for detecting
CYP3A5 polymorphisms in pharmacogenomics-related genes
using hybridization capture method (ࣉ
ᗫਿΪCYP3A5༊ኒ
ଷ)
2022/01/12 Wuhan
Adicon
Utility Model Patents
As of the Latest Practicable Date, we have registered 159 utility model patents. These utility
model patents were mainly related to our business features, including temperature control and
monitoring of specimen during transportation, stability of detection substance during specimen
storage, simplicity and precaution of mistake during operation of detection, and quality control
during whole process. Among which, we believe the following patents are material to our business:
No. Product/Technology
Date of
Application
(yyyy/mm/dd) Patentee
1. Liquid injection specimen transport cooler box
(૰όᅺ͉༶፩ᇌ)
2017/12/25 Hangzhou
Adicon
2. A DNA sample storage device ( ɓ၇DNAπᎷༀໄ) 2018/12/12 Jinan Adicon
3. A portable pipette gun and pipette gun head integrated box
(ᙳό୅૰࿻ʿ୅૰࿻᎘ɓ᜗ଷ)
2018/10/17 Fuzhou
Adicon
4. A pathological tissue embedding mold that is easy to
identify the direction (षଣଡ଼ᔌ
ጋՈ)
2020/07/03 Changsha
Adicon
APPENDIX IV STATUTORY AND GENERAL INFORMATION
– IV-12 –


--- page 488 ---
No. Product/Technology
Date of
Application
(yyyy/mm/dd) Patentee
5. A medical laboratory water purification and monitoring
system (˥ሯॱʷձ္಻ӻ୕)
2020/06/05 Shanghai
Adicon
6. A mixing device for chemiluminescent reagent in medical
examination (૿ʴༀໄ)
2020/06/03 Wuhan
Adicon
7. A collect pipe for detecting the centralized discharge of
waste liquid by the full-automatic biochemical analyzer
(ිණ၍)
2020/06/05 Shanghai
Adicon
8. A microinjection cup support drug concentration detection in
one (ݖ)
2020/07/21 Shanghai
Adicon
9. An airflow pressure difference decoration for control gene
amplification laboratory (ࢨ
ༀໄ)
2020/07/21 Beijing
Adicon
10. A reaction plate of time quantitative PCR instrument
(ඎPCRؐ)
2020/08/12 Wuhan
Adicon
Patent application
As of the Latest Practicable Date, we have applied for the registration of 120 patents mainly
focusing on infectious disease and hematological tumor as well as new technology and new
application field, among which, we believe the following patents are material to our business:
No. Product/Technology Type
Date of
Application
(yyyy/mm/dd) Applicant
1. Primer, method and kit for detecting A VPR2 gene
mutation related to congenital nephrogenic diabetes
insipidus (҇੥सA VPR2ٙ
ձ༊ኒଷ)
Invention 2019/09/19 Jinan Adicon
2. Primer, kit and method for detecting type B
adenovirus ( Ꮸ಻Bج)
Invention 2019/12/24 Wuhan
Adicon
3. Primer, probe, composition and method for
screening and identifying Ph-like ALL-related fusion
genes by using the fluorescent-based PCR
technology ( Դ͜ဦΈPCR֛PhᅵALL
ج)
Invention 2020/10/19 Hangzhou
Adicon
4. A method for detecting tumor-related multi-gene
mutations by using high-throughput sequencing
technology (ᗫεਿ
ج)
Invention 2020/12/22 Wuhan
Adicon
5. A preserving reagent for cell-free DNA and its
production method ( ɓ၇༷ᕎDNAπ༊ኒʿႡ௪˙
ج)
Invention 2021/01/05 Nanchang
Adicon
APPENDIX IV STATUTORY AND GENERAL INFORMATION
– IV-13 –


--- page 489 ---
Copyrights
As of the Latest Practicable Date, we have registered 324 copyrights, among which, we
believe the following copyrights are material to our business:
No. Copyright Version
Registration
Number
Registration Date
(yyyy/mm/dd)
1. Adicon Independent Laboratory Information
Management System (၍ଣ
ӻ୕)
V1.0 2009SR019842 2009/05/31
2. Adicon Quality Control Information Management
System (၍ଣӻ୕)
V1.0 2009SR019849 2009/05/31
3. Adicon Examination Information Management
System Software for Hospital (Ꮸ᜕
၍ଣӻ୕ழ΁)
V1.0 2013SR056209 2013/06/07
4. Adicon Document & Training Information
Management Software (၍
ଣழ΁)
V3.0 2015SR235524 2015/11/27
5. Aiyijian Single-tube Software for Field
Information Acquisition System (ࢹڦ
ழ΁)
V1.3 2020SR1555031 2020/11/09
Domain names
As of the Latest Practicable Date, we have the following domain names which we believe are
material to our business:
No. Domain name Registration owner
1. adicon.com.cn Hangzhou Adicon
2. adicon.cc Hangzhou Adicon
3. adiconcro.com Hangzhou Adicon
4. adiconcentralab.com Hangzhou Adicon
5. adiconcentralab.com.cn Hangzhou Adicon
6. adiconcentrallab.com Hangzhou Adicon
7.ੰ.com Hangzhou Adicon
8.ੰ.cn Hangzhou Adicon
9.ੰ.net Hangzhou Adicon
10. aijcon.com Hangzhou Adicon
11. ajcon.cn Hangzhou Adicon
12. ajiank.com Hangzhou Adicon
13. aijiank.com Hangzhou Adicon
14. aiwon120.com Hangzhou Adicon
15. aiwen120.com Hangzhou Adicon
16. iwon120.com Hangzhou Adicon
17. aijianyan.com Hangzhou Adicon
18. aijianyan.cc Hangzhou Adicon
19. ijianyan.com Hangzhou Adicon
20. ijianyan.cc Hangzhou Adicon
21. alabmed.com Hangzhou Adicon
22. alabmed.cn Hangzhou Adicon
23. lanboman.com Hangzhou Adicon
24. lanboman.cn Hangzhou Adicon
25. huitubio.com Hangzhou Adicon
26. huitubio.com.cn Hangzhou Adicon
APPENDIX IV STATUTORY AND GENERAL INFORMATION
– IV-14 –


--- page 490 ---
No. Domain name Registration owner
27. sh324.cn Hangzhou Adicon
28. adicon-corp.icu Hangzhou Adicon
29. adicon-corp.net Hangzhou Adicon
30. adicon-corp.com Hangzhou Adicon
31. adicon.icu Hangzhou Adicon
32. adicon.net Hangzhou Adicon
C. FURTHER INFORMATION ABOUT OUR DIRECTORS
1. Particulars of Directors’ service contracts and appointment letters
Executive Director
Mr. GAO Song entered into a service contract with our Company for his appointment as our
executive Director and chief executive officer. His term of appointment was until (i) three years
after the Listing Date, or (ii) the third annual general meeting of the Company since the Listing
Date, whichever is earlier (subject to retirement as and when required under the Articles). Either
party may terminate the appointment by giving not less than six month’s written notice.
Non-executive Directors
Each of our non-executive Directors entered into an appointment letter with our Company.
Their terms of appointment as non-executive Directors under the appointment letter shall be for an
initial term of three years from the Listing Date or until the third annual general meeting of our
Company after the Listing Date, whichever is sooner (subject to retirement as and when required
under the Articles of Association). Either party may terminate the appointment by giving not less
than three months’ written notice.
Independent non-executive Directors
Our independent non-executive Directors, namely Mr. MI Brian Zihou, Mr. YEH Richard and
Mr. ZHANG Wei entered into an appointment letter with our Company. Their terms of appointment
shall be for an initial term of three years from the date indicated in their respective appointment
letter, respectively, or until the third annual general meeting of our Company after the Listing Date,
whichever is sooner (subject to retirement as and when required under the Articles of Association).
Either party may terminate the appointment by giving not less than three months’ written notice.
2. Remuneration of Directors
Our Directors and senior management receive remuneration, including salaries, allowances
and benefits in kind, equity-settled share-based payment expense and pension scheme contributions.
The aggregate amount of remuneration for the five highest paid individuals of our Group, excluding
our Directors, for the years ended December 31, 2020, 2021 and 2022 was RMB14.2 million,
RMB25.5 million and RMB16.1 million, respectively.
The aggregate amount of remuneration for our Directors for the years ended December 31,
2020, 2021 and 2022 was RMB36.0 million, RMB14.6 million and RMB6.1 million, respectively.
Save as disclosed above, no other payments have been paid or are payable, in respect of the
years ended December 31, 2020, 2021 and 2022 by our Company to our Directors or senior
management.
APPENDIX IV STATUTORY AND GENERAL INFORMATION
– IV-15 –


--- page 491 ---
Under the arrangements currently in force as of the date of this Prospectus, it is estimated that
the aggregate amount of remuneration to our Directors for the year ending December 31, 2023 is
estimated to be no more than approximately US$1,100,000.
No remuneration was paid to our Directors or the five highest paid individuals as an
inducement to join, or upon joining, our Group. No compensation was paid to, or receivable by, our
Directors or past directors for the Track Record Period for the loss of office as director or any
member of our Group or of any other office in connection with the management of the affairs of
any member of our Group. None of our Directors waived any emoluments during the Track Record
Period.
Save as disclosed in this Prospectus, none of our Directors has or is proposed to have a service
contract with any member of our Group other than contracts expiring or determinable by the
employer within one year without the payment of compensation (other than statutory
compensation).
3. Disclosure of interests
Interests and short positions of our Directors in the share capital of our Company or our
associated corporations following completion of the Global Offering
Immediately following completion of the Global Offering (assuming the Over-allotment
Option is not exercised), the interests or short positions of our Directors and chief executives in the
shares, underlying shares and debentures of our Company or our associated corporations (within the
meaning of Part XV of the SFO), which will have to be notified to our Company and the Stock
Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short
positions which he/she is taken or deemed to have under such provisions of the SFO), or which will
be required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or
which will be required, pursuant to the Model Code for Securities Transactions by Directors of
Listed Issuers contained in the Listing Rules, to be notified to our Company and the Stock Exchange
are set out below:
Name of Director Nature of interest
Number of
Shares
Approximate
percentage of
interest in our
Company
immediately
after the Global
Offering
Mr. GAO Song (1) ......... Interests in a controlled
corporation
303,750 0.04%
Beneficial interest 13,349,646 1.85%
Note:
(1) Mr. GAO Song is deemed to be interested in 303,750 Shares directly held by his wholly-owned investment
holding company, Nice Sure Holding Co., Limited. In addition, he has been granted RSUs and options under
the Employee Incentive Plans entitling him to receive up to an aggregate of 13,349,646 Shares.
Interests and short positions disclosable under Divisions 2 and 3 of Part XV of the SFO
For information, so far as is known to our Directors or chief executive, of each person, other
than our Director or chief executive, who immediately following completion of the Global Offering
(assuming the Over-allotment Option is not exercised) will have an interest or short position in the
Shares or underlying shares of our Company which would fall to be disclosed to our Company under
the provisions of Divisions 2 and 3 of Part XV of the SFO, or, is, directly or indirectly, interested
in 10% or more of the issued voting shares of any other member of our Group, please refer to the
section headed “Substantial Shareholders” of this Prospectus.
APPENDIX IV STATUTORY AND GENERAL INFORMATION
– IV-16 –


--- page 492 ---
4. Directors’ Competing Interests
None of our Directors are interested in any business apart from the Group’s business which
competes or is likely to compete, directly or indirectly, with the business of the Group.
5. Disclaimers
Save as disclosed in this Prospectus:
(a) none of the Directors or chief executive of our Company has any interests or short
positions in the shares, underlying shares and debentures of our Company or our
associated corporations (within the meaning of Part XV of the SFO) which will be
required to be notified to our Company and the Stock Exchange pursuant to Divisions
7 and 8 of Part XV of the SFO (including interests or short positions which he is taken
or deemed to have taken under such provisions of the SFO) or which will be required,
pursuant to Section 352 of the SFO, to be entered in the register referred to in that
section, or which will be required, pursuant to the Model Code for Securities
Transactions by Directors of Listed Issuers, to be notified to our Company and the Stock
Exchange, once the Shares are listed on the Stock Exchange;
(b) so far as is known to any Director or chief executive of our Company, no person has an
interest or short position in the Shares and underlying Shares which would fall to be
disclosed to our Company and the Stock Exchange under the provisions of Divisions 2
and 3 of Part XV of the SFO, or is, directly or indirectly, interested in 10% or more of
the nominal value of any class of share capital carrying rights to vote in all
circumstances at general meetings of any other member of the Group;
(c) none of the Directors nor any of the persons listed in “– E. Other Information – 4.
Consent of experts” below is interested in the promotion of, or in any assets which have
been, within the two years immediately preceding the issue of this Prospectus, acquired
or disposed of by or leased to any member of the Group, or are proposed to be acquired
or disposed of by or leased to any member of the Group;
(d) none of the Directors nor any of the persons listed in “– E. Other Information – 4.
Consent of experts” below is materially interested in any contract or arrangement with
the Group subsisting at the date of this Prospectus which is unusual in its nature or
conditions or which is significant in relation to the business of the Group as a whole;
(e) save in connection with Underwriting Agreements, none of the persons listed in “– E.
Other Information – 4. Consent of experts” below has any shareholding in any member
of the Group or the right (whether legally enforceable or not) to subscribe for or to
nominate persons to subscribe for securities in any member of the Group;
(f) none of the Directors has entered or has proposed to enter into any service agreements
with our Company or any member of the Group (other than contracts expiring or
determinable by the employer within one year without payment of compensation other
than statutory compensation); and
(g) none of our Directors, their respective close associates (as defined under the Listing
Rules), or Shareholders who are interested in more than 5% of the issued share capital
of our Company has any interest in our Company’s five largest customers and five
largest suppliers in each year during the Track Record Period.
D. EMPLOYEE INCENTIVE PLANS
The following is a summary of the principal terms of the senior executive incentive plan (the
“Senior Executive Incentive Plan ”) and the senior management incentive plan (the “ Senior
Management Incentive Plan ”, together with the Senior Executive Incentive Plan, the “ Employee
Incentive Plans ”). The Employee Incentive Plans were both adopted and approved on July 9, 2019,
and were subsequently amended and restated on November 7, 2020, April 14, 2021 and October 1,
APPENDIX IV STATUTORY AND GENERAL INFORMATION
– IV-17 –


--- page 493 ---
2021. The Senior Executive Incentive Plan is for retaining and motivating the senior executive of
our Group, and the Senior Management Incentive Plan is for retaining and motivating the other
senior management members of our Group. The terms of the two Employee Incentive Plans are
substantially similar.
The Employee Incentive Plans are not subject to Chapter 17 of the Listing Rules and no
further options or awards may be granted under the Employee Incentive Plans after the Listing. The
underlying Shares of the options (the “ Options ”) and/or restricted share units (the “ RSUs”) under
the Employee Incentive Plans had already been fully issued as of the Latest Practicable Date, and
are held by Ingenuity Capital Holdings Limited and Proteus Capital Holdings Limited, respectively,
which are the special purpose vehicles wholly owned by the Perseverance Capital Trust and the
Callisto Capital Trust, respectively, both managed by Trident Trust Company (HK) Limited for the
purpose of holding Shares under the Employee Incentive Plans. The Company will grant Options
and/or RSUs with respect to all the remaining Shares held by Ingenuity Capital Holdings Limited
and Proteus Capital Holdings Limited before the Listing to eligible employees who are not the core
connected persons of the Company, as the relevant voting rights are not controlled by any of the
core connected persons of the Company, and are exercised by a plan administrator or his/her
representative in accordance with the majority votes of the Shareholders in general meetings.
Summary of Key Terms
(a) Purpose. The purpose of the Employee Incentive Plans is to give Eligible Employees (as
defined below) an opportunity to have a personal stake in our Company so as to motivate
them to optimize their performance and efficiency to our Group and/or to reward them
for their past contributions, to attract and retain or otherwise maintain on-going
relationships with such Eligible Employees who are significant to and/or whose
contributions are or will be beneficial to the performance, growth and success of our
Group;
(b) Administration. The Employee Incentive Plans are subject to the administration of a
plan administrator (the “ Plan Administrator ”), who is a Director designated by the
Board. The Plan Administrator is authorized to undertake all actions as necessary and
appropriate with respect to the granting and vesting of Options and/or RSUs to Eligible
Employees upon the exercise of the Options and/or the RSUs under the Employee
Incentive Plans. The Plan Administrator, or a representative as designated by the Plan
Administrator from time to time, is also in charge of giving instructions to Perseverance
Capital Trust and Callisto Capital Trust regarding the exercise of the relevant voting
rights with respect to the Shares held by Ingenuity Capital Holdings Limited and Proteus
Capital Holdings Limited. Pursuant to the Employee Incentive Plans, the Plan
Administrator shall exercise the relevant voting rights in accordance with the majority
votes of the Shareholders in our Company’s general meetings. For example, if a majority
of the shareholders in a general meeting votes against a resolution, the plan
administrator or his/her representative shall vote against such resolution, and vice versa.
In the case of an equality of votes, the plan administrator or his/her representative will
abstain from voting, and any votes cast by or on behalf of the plan administrator shall
not be counted;
(c) Eligible Employees. Any employees of our Group as determined by the Plan
Administrator in its absolute discretion (the “ Eligible Employees ”);
(d) Duration. The Employee Incentive Plans shall be valid and effective for a period of 10
years commencing on the adoption date, but the provisions thereof shall in all other
respects remain in full force and effect and shall not affect the ability of the Plan
Administrator to exercise the powers granted to it under the Employee Incentive Plans
with respect to the Options and/or RSUs granted under the Employee Incentive Plans
prior to the date of such termination;
(e) Grant of Awards. The Employee Incentive Plans provide for awards of Options and
RSUs:
APPENDIX IV STATUTORY AND GENERAL INFORMATION
– IV-18 –


--- page 494 ---
(i) Options. An Option gives an Eligible Employee a conditional right to acquire
Shares under the Employee Incentive Plans at a pre-determined price. Each Option
represents one underlying Share. The grantees are required to pay an exercise price
as determined by the Plan Administrator, when the Option is eligible to be
exercised; and
(ii) RSUs. A RSU gives an Eligible Employee a conditional right to obtain either
Shares or an equivalent value in cash with reference to the market value of the
Shares on or about the date of exercise of the RSUs, less any tax, stamp duty and
other charges applicable, as determined by the Plan Administrator in his/her
absolute discretion. Each RSU represents one underlying Share.
The Board may at its discretion approve the grant of Options and/or RSUs to any
Eligible Employee under the Employee Incentive Plans. The grant letter will specify the
key terms of the grant, including the number of Shares underlying the Options and/or the
RSUs, the exercise price and vesting conditions applicable to the Options and/or the
RSUs. An Option and RSUs shall vest upon the satisfaction of the vesting conditions as
determined by the Plan Administrator in his/her absolute discretion. Options and/or
RSUs may not be granted at any time when that grant would be prohibited by, or in
breach of Listing Rules, any applicable law or regulation as determined by the Plan
Administrator;
(f) Shares . The underlying Shares of the Options and/or the RSUs under the Employee
Incentive Plans had already been fully issued as of the Latest Practicable Date. As of the
Latest Practicable Date:
(i) an aggregate of 52,743,281 Shares (representing approximately 7.29% of the total
issued share capital of our Company following completion of the Global Offering,
assuming the Over-allotment Option is not exercised) have been issued to
Ingenuity Capital Holdings Limited, which held the Shares on trust for the purpose
of the Senior Executive Incentive Plan; and
(ii) an aggregate of 13,462,235 Shares (representing approximately 1.86% of the total
issued share capital of the Company following completion of the Global Offering,
assuming the Over-allotment Option is not exercised) have been issued to Proteus
Capital Holdings Limited, which held the Shares on trust for the purpose of the
Senior Management Incentive Plan;
(g) Lapse of Awards. An Option and RSU shall lapse immediately on the occurrence of,
among others, the following: (i) termination of the employment with our Group before
the exercise or cancellation of the Options and/or RSUs; (ii) any applicable vesting
condition has not been met; (iii) breach of confidentiality obligations imposed on the
grantees in respect of our Group before the exercise or cancellation of the Options and/or
the RSUs; or (iv) liquidation of our Company; and
(h) Transferability. Any Option and/or RSUs granted to Eligible Employees shall not be
capable of being transferred by him/her, save that (i) in the event of his/her death, his/her
personal representatives shall receive the benefit of his/her Options and/or RSUs; and
(ii) he/she shall be able to transfer his/her Option and/or RSUs if approved by the Plan
Administrator in his/her sole discretion. Under the Senior Executive Incentive Plan, the
relevant Eligible Employees may transfer his/her Option for estate planning purposes.
General
Application has been made to the Listing Committee for the Listing of and permission to deal
in the Shares issued to Ingenuity Capital Holdings Limited and Proteus Capital Holdings Limited
under the Employee Incentive Plans.
APPENDIX IV STATUTORY AND GENERAL INFORMATION
– IV-19 –


--- page 495 ---
Issued shares underlying the Employee Incentive Plans
Save as disclosed below, no Directors, senior management, connected persons of our Group
and other management and employees were granted RSUs or Options under the Employee Incentive
Plans prior to the Listing. The grant of the Options under the Employee Incentive Plans to the
grantees as set out below has been approved by the Board and the subscription prices have been paid
by the relevant grantees. For details, please refer to notes 27(b) and 33 in Appendix I to this
Prospectus.
Name of Grantees
Number
of Shares
underlying
the Options
granted and
vested (1)
Approximate
percentage of
issued Shares
immediately
after
completion of
the Global
Offering (2)
Mr. GAO Song (3) ...................................... 303,750 0.04%
Other existing and previous employees of our Group ....... 4,107,115 0.57%
4,410,865 0.61%
Notes:
(1) This number of Shares took into account the share consolidation on June 3, 2021.
(2) These percentages are calculated on the basis of 723,452,291 Shares in issue immediately following
completion of the Global Offering, assuming the Over-allotment Option is not exercised.
(3) Mr. GAO Song is deemed to be interested in 303,750 Shares directly held by his wholly-owned investment
holding company, Nice Sure Holding Co., Limited. In addition, he has been granted Options under the
Employee Incentive Plans entitling him to receive up to an aggregate of 13,349,646 Shares.
Shares held by Ingenuity Capital Holdings Limited
The following table summarizes the number of Shares held by Ingenuity Capital Holdings
Limited as of the Latest Practicable Date:
Number
of Shares
held by
Ingenuity
Capital
Holdings
Limited (1)
Approximate
percentage of
issued Shares
immediately
after
completion of
the Global
Offering (2)
Shares held on trust with respect to the Options granted to
Mr. GAO Song under the Employee Incentive Plans (3)(4) . . . 13,349,646 1.85%
Shares held on trust for senior executive (except Mr. GAO
Song) with respect to the Options vested to such senior
executive under the Employee Incentive Plans (4) .......... 39,393,635 5.44%
Total number of Shares held as of the Latest Practicable
Date ................................................ 52,743,281 7.29%
Notes:
(1) This number of Shares took into account the share consolidation on June 3, 2021.
(2) These percentages are calculated on the basis of 723,452,291 Shares in issue immediately following
completion of the Global Offering, assuming the Over-allotment Option is not exercised.
(3) Save for Mr. GAO Song, our Company did not grant any Options to the core connected persons of our
Company.
(4) The vested Shares will be transferred to the relevant employees subsequent to the Listing, after the necessary
SAFE Circular 7 registrations with respect to the Employee Incentive Plans have been completed. The timing
of completing such registrations is also expected to be after the Listing.
APPENDIX IV STATUTORY AND GENERAL INFORMATION
– IV-20 –


--- page 496 ---
Shares held by Proteus Capital Holdings Limited
The following table summarizes the number of Shares held by Proteus Capital Holdings
Limited as of the Latest Practicable Date:
Number
of Shares
held by
Proteus
Capital
Holdings
Limited (1)
Approximate
percentage of
issued Shares
immediately
after
completion of
the Global
Offering (2)
Shares held on trust for the eligible senior employees with
respect to the Options vested to such other employees (3) . . . 13,462,235 1.86%
Total number of Shares held as of the Latest Practicable
Date ................................................ 13,462,235 1.86%
Notes:
(1) This number of Shares took into account the share consolidation on June 3, 2021.
(2) These percentages are calculated on the basis of 723,452,291 Shares in issue immediately following
completion of the Global Offering, assuming the Over-allotment Option is not exercised.
(3) The vested Shares will be transferred to the relevant employees subsequent to the Listing, after the necessary
SAFE Circular 7 registrations with respect to the Employee Incentive Plans have been completed. The timing
of completing such registrations is also expected to be after the Listing. Our Company did not grant any
Options to the core connected persons of the Company.
E. OTHER INFORMATION
1. Estate duty
Our Directors have been advised that no material liability for estate duty is likely to fall upon
any member of our Group.
2. Litigation
Save as disclosed in this Prospectus, no member of our Group is engaged in any litigation,
arbitration or claim of material importance, and no litigation, arbitration or claim of material
importance is known to our Directors to be pending or threatened by or against our Company that
would have a material adverse effect on our Company’s results of operations or financial condition.
3. Joint Sponsors
The Joint Sponsors satisfy the independence criteria applicable to sponsors set out in Rule
3A.07 of the Listing Rules. The Joint Sponsors will receive an aggregate of US$1 million for acting
as the joint sponsors for the Listing.
APPENDIX IV STATUTORY AND GENERAL INFORMATION
– IV-21 –


--- page 497 ---
4. Consent of experts
This Prospectus contains statements made by the following experts:
Name Qualification
Morgan Stanley Asia Limited ....... A licensed corporation to conduct Type 1 (dealing in
securities), Type 4 (advising on securities), Type 5
(advising on future contracts), Type 6 (advising on
corporate finance) and Type 9 (asset management)
regulated activities under the SFO
Jefferies Hong Kong Limited ....... A licensed corporation to conduct Type 1 (dealing in
securities), Type 4 (advising on securities) and Type
6 (advising on corporate finance) regulated activities
under the SFO
Ernst & Young ................... Certified Public Accountants under the Professional
Accountant Ordinance (Chapter 50 of the Laws of
Hong Kong) and Registered Public Interest Entity
Auditor under the Accounting and Financial
Reporting Council Ordinance (Chapter 588 of the
Laws of Hong Kong)
Walkers (Hong Kong) ............. Legal advisor to the Company as to Cayman Islands
laws
Han Yi Law Offices ............... Legal advisor to the Company as to PRC laws
Frost & Sullivan (Beijing) Inc.
Shanghai Branch Co ............
Industry consultant
As at the Latest Practicable Date, none of the experts named above has any shareholding in
any member of our Group or the right (whether legally enforceable or not) to subscribe for or to
nominate persons to subscribe for securities in any member of our Group.
Each of the experts named above have given and have not withdrawn their respective written
consent to the issue of this Prospectus with copies of their reports, letters, opinions or summaries
of opinions (as the case may be) and the references to their names included herein in the form and
context in which they are respectively included.
5. Binding effect
This Prospectus shall have the effect, if an application is made in pursuance hereof, of
rendering all persons concerned bound by all the provisions (other than the penal provisions) of
sections 44A and 44B of the Companies (Winding Up and Miscellaneous Provisions) Ordinance so
far as applicable.
APPENDIX IV STATUTORY AND GENERAL INFORMATION
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6. Particulars of the Selling Shareholder
The name, description and address of Mega Stream, being the Selling Shareholder offering the
Sale Shares for sale under the International Offering, are as follows:
Name Description Registered address
Nature of
business
Beneficial
owner
Number of
Sale Shares
to be sold
Mega Stream
Limited .......
A limited
liability
company
incorporated in
the BVI on
January 2,
2008
Palm Grove
House, P.O.
Box 438,
Road Town,
Tortola,
British Virgin
Islands
Investment
holding
Mr. LIN
Feng
15,904,000
7. Bilingual document
The English language and Chinese language versions of this Prospectus are being published
separately in reliance upon the exemption provided by section 4 of the Companies (Exemption of
Companies and Prospectuses from Compliance with Provisions) Notice (Chapter 32L of the Laws
of Hong Kong).
8. Preliminary expenses
We have not incurred any material preliminary expenses in relation to the incorporation of our
Company.
9. Promoter
Our Company has no promoter. Within the two years immediately preceding the date of this
Prospectus, no cash, securities or other benefit has been paid, allotted or given, nor are any
proposed to be paid, allotted or given to any promoters in connection with the Global Offering and
the related transactions described in this Prospectus.
10. Disclaimers
(a) Within the two years immediately preceding the date of this Prospectus:
(i) save as disclosed in “History, Reorganization and Corporate Structure” in this
Prospectus, no share or loan capital of our Company or any of our subsidiaries has
been issued or agreed to be issued or is proposed to be fully or partly paid either
for cash or a consideration other than cash;
(ii) save as disclosed in “Underwriting” in this Prospectus, there are no commissions
(but not including commission to sub-underwriters) for subscribing or agreeing to
subscribe, or procuring or agreeing to procure subscriptions, for any shares in or
debentures of our Company; and
(iii) save as disclosed in “Underwriting” in this Prospectus, there are no commissions,
discounts, brokerages or other special terms granted in connection with the issue
or sale of any capital of any member of our Group, and no Directors, promoters or
experts named in the part headed “– E. Other information – 4. Consent of experts”
received any such payment or benefit.
(b) there are no founders, management or deferred shares in our Company or any member
of our Group;
APPENDIX IV STATUTORY AND GENERAL INFORMATION
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(c) none of the Directors or the experts named in the part headed “– E. Other information
– 4. Consent of experts” above has any interest, direct or indirect, in the promotion of,
or in any assets which have been, within the two years immediately preceding the date
of this Prospectus, acquired or disposed of by or leased to, any member of our Group,
or are proposed to be acquired or disposed of by or leased to any member of our Group;
(d) save as disclosed in the section headed “Financial Information” in this Prospectus, there
are no bank overdrafts or other similar indebtedness by our Company or any member of
our Group;
(e) there are no hire purchase commitments, guarantees or other material contingent
liabilities of our Company or any member of our Group;
(f) there are no outstanding debentures of our Company or any member of our Group;
(g) there is no other stock exchange on which any part of the equity or debt securities of our
Company is listed or dealt in or on which listing or permission to deal is being or is
proposed to be sought;
(h) no capital of any member of our Group is under option, or is agreed conditionally or
unconditionally to be put under option; and
(i) there are no contracts or arrangements subsisting as at the date of this Prospectus in
which a Director is materially interested or which is significant in relation to the
business of our Group.
APPENDIX IV STATUTORY AND GENERAL INFORMATION
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DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES
The documents attached to the copy of this Prospectus delivered to the Registrar of Companies
in Hong Kong for registration were, among other documents:
(a) a copy of the GREEN Application Form;
(b) the written consents referred to in the section headed “Statutory and General Information
– E. Other Information – 4. Consents of experts” in Appendix IV to this Prospectus;
(c) copies of the material contracts referred to in the section headed “Statutory and General
Information – B. Further Information About our Business – 1. Summary of material
contracts” in Appendix IV to this Prospectus; and
(d) a statement of the particulars of the Selling Shareholder referred to in “– E. Other
Information – 6. Particulars of the Selling Shareholder” in Appendix IV to this
Prospectus.
DOCUMENTS ON DISPLAY
Copies of the following documents will be published on the Stock Exchange’s website at
www.hkexnews.hk and our Company’s website www.adicon.com.cn :
(a) the Memorandum and Articles of the Company;
(b) the material contracts referred to in the section headed “Statutory and General
Information – B. Further Information About our Business – 1. Summary of material
contracts” in Appendix IV to this Prospectus;
(c) the service contracts and letters of appointments with our Directors referred to in the
section headed “Statutory and General Information – C. Further Information about our
Directors – 1. Particulars of Directors’ service contracts and appointment letters” in
Appendix IV to this Prospectus;
(d) the report issued by Frost & Sullivan, a summary of which is set forth in the section
headed “Industry Overview” in this Prospectus;
(e) the PRC legal opinions issued by Han Yi Law Offices, our legal advisor as to PRC laws,
in respect of certain aspects of our Group;
(f) the Accountants’ Report prepared by Ernst & Young, the texts of which are set out in
Appendix I to this Prospectus;
(g) the report from Ernst & Young on unaudited pro forma financial information of our
Group, the texts of which are set out in Appendix II to this Prospectus;
(h) the audited consolidated financial statements of our Company for the Track Record
Period;
(i) the letter of advice prepared by Walkers (Hong Kong), our legal advisor on Cayman
Islands laws, summarizing certain aspects of the Cayman Islands company law referred
to in Appendix III to this Prospectus;
(j) the Cayman Companies Act;
(k) the written consents referred to in the section headed “Statutory and General Information
– E. Other Information – 4. Consents of experts” in Appendix IV to this Prospectus; and
(l) a statement of the particulars of the Selling Shareholder referred to in “– E. Other
Information – 6. Particulars of the Selling Shareholder” in Appendix IV to this
Prospectus.
APPENDIX V DOCUMENTS DELIVERED TO THE REGISTRAR OF
COMPANIES AND ON DISPLAY
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艾迪康控股有限公司
ADICON HOLDINGS LIMITED
