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Stock Code : 2481
(A joint stock limited liability company incorporated in the People’s Republic of China)
慧居科技股份有限公司
Wise Living T echnology Co., Ltd
GLOBAL
OFFERING
Sole Sponsor, Overall Coordinator, Sole Global Coordinator, Joint Bookrunner and Joint Lead Manager
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 seek independent professional advice.
Wise Living Technology Co., Ltd
ʮ̡
(A joint stock limited liability company incorporated in the People’ s Republic of China)
GLOBAL OFFERING
Number of Offer Shares under the
Global Offering
: 75,600,000 H Shares (subject to the
Over-allotment Option)
Number of Hong Kong Offer Shares : 7,560,000 H Shares (subject to
re-allocation)
Number of International Offer Shares : 68,040,000 H Shares (subject to the
Over-allotment Option and re-allocation)
Maximum Offer Price : HK$4.20 per H Share, plus brokerage of
1%, SFC transaction levy of 0.0027%,
AFRC transaction levy of 0.00015% and
Stock Exchange trading fee of 0.00565%
(payable in full on application in Hong
Kong dollars and subject to refund on
final pricing)
Nominal value : RMB1.00 per H Share
Stock code : 2481
Sole Sponsor, Overall Coordinator, Sole Global Coordinator, Joint Bookrunner
and Joint Lead Manager
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 an y loss howsoever
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 “Appendix VIII – Documents Delivered to the Registrar of Companies and A vailable
on Display”, has been registered by the Registrar of Companies in Hong Kong as required by section 342C of the Companies (Winding Up and Miscellaneous
Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong). The Securities and Futures Commission of Hong Kong and the Registrar of Companies in Hong K ong
take no responsibility as to the contents of this prospectus or any other documents referred to above.
We are incorporated, and all of our businesses are located, in the PRC. Potential investors should be aware of the differences in the legal, economic an d financial
systems between the PRC and Hong Kong, and the fact that there are different risks relating to investment in PRC incorporated companies. Potential inv estors should
also be aware that the regulatory framework in the PRC is different from the regulatory framework in Hong Kong, and should take into consideration the d ifferent
market nature of the H Shares. Such differences and risk factors are set out in “Risk Factors”, “Appendix III – Taxation and Foreign Exchange”, “Append i xV–
Summary of Principal PRC and Hong Kong Legal and Regulatory Provisions” and “Appendix VI – Summary of Articles of Association” in this prospectus.
The Offer Price is expected to be fixed by agreement between the Overall Coordinator and the Sole Global Coordinator (for themselves and on behalf of th e
Underwriters and the Capital Market Intermediaries) and our Company on the Price Determination Date. The Price Determination Date is expected to be o n or around
Monday, 3 July 2023 (Hong Kong time) and, in any event, not later than Friday, 7 July 2023 (Hong Kong time). The Offer Price will be not more than HK$4.20 an d
is currently expected to be not less than HK$3.00. If, for any reason, the Offer Price is not agreed by Friday, 7 July 2023 (Hong Kong time) among the Overa ll
Coordinator and the Sole Global Coordinator (for themselves and on behalf of the Underwriters and the Capital Market Intermediaries) and our Company , the Global
Offering will not proceed and will lapse.
The Overall Coordinator and the Sole Global Coordinator (for themselves and on behalf of the Underwriters and the Capital Market Intermediaries) may ,
with our consent, reduce the number of Offer Shares being offered under the Global Offering and/or the indicative Offer Price range below that stated i n
this prospectus 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, an
announcement will be published on the Stock Exchange’s website at www.hkexnews.hk
and our Company’s website at www.hjkj.cn not later than the morning
of the day which is the last day for lodging applications under the Hong Kong Public Offering.
The obligations of the Hong Kong Underwriters and the Capital Market Intermediaries under the Hong Kong Underwriting Agreement are subject to termin ation by
the Overall Coordinator and the Sole Global Coordinator (for themselves and on behalf of the Underwriters and the Capital Market Intermediaries) if c ertain grounds
arise prior to 8:00 a.m. on the Listing Date. See “Underwriting – Underwriting Arrangements and Expenses – Hong Kong Public Offering – Grounds for Term ination”
in this prospectus. Prior to making an investment decision, potential investors should consider carefully all of the information set out in this pros pectus, including
the risk factors set out in “Risk Factors” 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 (as defined in Regulation S) except in transactions exempt from,
or not subject to, the registration requirements of the U.S. Securities Act. The Offer Shares are being offered and sold only outside the United States in offshore
transactions in accordance with 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 to the p ublic
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.hjkj.cn ). If you require a printed copy of this prospectus, you may download and print from the website addresses above.
IMPORTANT
28 June 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 Stock Exchange at
www.hkexnews.hk under the “ HKEXnews> New Listings> New Listing Information ”
section, and our website at www.hjkj.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 White Form eIPO service through the designated
website at www.eipo.com.hk or
(2) apply through CCASS EIPO service to 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
+852 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 at 1/F, One &
Two Exchange Square, 8 Connaught Place, Central, Hong Kong 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.
See “How to Apply for Hong Kong Offer Shares” in this prospectus for further
details on the procedures through which you can apply for the Hong Kong Offer Shares
electronically.
Your application through the White Form eIPO service or by giving electronic
application instructions to HKSCC must be for a minimum of 1,000 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.
IMPORTANT


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Your application through the White Form eIPO service or the CCASS EIPO service
must be for a minimum of 1,000 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.
Wise Living Technology Co., Ltd (ʮ̡)
(HK$4.20 per Hong Kong Offer Share)
NUMBER OF HONG KONG OFFER SHARES THAT MAY BE APPLIED FOR AND PAYMENTS
No. of Hong
Kong Offer
Shares
applied for
Amount
payable on
application
No. of Hong
Kong Offer
Shares
applied for
Amount
payable on
application
No. of Hong
Kong Offer
Shares
applied for
Amount
payable on
application
No. of Hong
Kong Offer
Shares
applied for
Amount
payable on
application
HK$ HK$ HK$ HK$
1,000 4,242.36 20,000 84,847.15 100,000 424,235.70 800,000 3,393,885.60
2,000 8,484.71 25,000 106,058.93 150,000 636,353.56 900,000 3,818,121.30
3,000 12,727.07 30,000 127,270.71 200,000 848,471.40 1,000,000 4,242,357.00
4,000 16,969.43 35,000 148,482.50 250,000 1,060,589.26 1,500,000 6,363,535.50
5,000 21,211.79 40,000 169,694.28 300,000 1,272,707.10 2,000,000 8,484,714.00
6,000 25,454.14 45,000 190,906.06 350,000 1,484,824.96 2,500,000 10,605,892.50
7,000 29,696.49 50,000 212,117.86 400,000 1,696,942.80 3,000,000 12,727,071.00
8,000 33,938.86 60,000 254,541.42 450,000 1,909,060.66 3,780,000
(1) 16,036,109.45
9,000 38,181.22 70,000 296,964.99 500,000 2,121,178.50
10,000 42,423.56 80,000 339,388.55 600,000 2,545,414.20
15,000 63,635.35 90,000 381,812.14 700,000 2,969,649.90
(1) Maximum number of Hong Kong Offer Shares you may apply for.
No application for any other number of the Hong Kong Offer Shares will be considered
and any such application is liable to be rejected.
IMPORTANT


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We will issue an announcement in Hong Kong to be published on our website
(www.hjkj.cn ) and the Stock Exchange’s website ( www.hkexnews.hk ) if there is any change in
the following expected timetable of the Hong Kong Public Offering: (1)
Hong Kong Public Offering commences .................... .9:00 a.m. on Wednesday,
28 June 2023
Latest time for completing electronic applications under
the White Form eIPO service through the designated
website www.eipo.com.hk (2) ............................ 1 1:30 a.m. on Monday,
3 July 2023
Application lists open (3) .................................. 1 1:45 a.m. on Monday,
3 July 2023
Latest time to: (1) complete payment of
White Form eIPO applications by
effecting internet banking transfer(s) or
PPS payment transfer(s); and (2) give
electronic application instructions to HKSCC
(4) ............ 12:00 noon on Monday,
3 July 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 close
(3) ................................ .12:00 noon on Monday,
3 July 2023
Expected Price Determination Date (5) ......................... .Monday, 3 July 2023
Announcement of the final Offer Price, the level of
indication of interest in the International Offering,
the level of applications in the Hong Kong
Public Offering and the basis of allocation of the
Hong Kong Offer Shares to be published on
our website ( www.hjkj.cn ) and the Stock Exchange’s
website ( www.hkexnews.hk ) on or before .................... .Friday, 7 July 2023
EXPECTED TIMETABLE
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Results of allocations under the Hong Kong Public Offering (with successful applicants’
identification document numbers, where appropriate) to be available through a variety of
channels including:
(1) in the announcement to be posted on our website
at www.hjkj.cn and the website of the Stock Exchange at
www.hkexnews.hk , respectively from ........................... Friday,
7 July 2023
(2) Results of allocation for the Hong Kong Public Offering
will be available at www.iporesults.com.hk (alternatively:
English https://www.eipo.com.hk/en/Allotment ;
Chinese https://www.eipo.com.hk/zh-hk/Allotment )
with a “search by ID” function from .................. .8:00 a.m. on Friday,
7 July 2023
to 12:00 midnight
on Thursday,
13 July 2023
(3) from the allocation results telephone enquiry by calling
+852 2862 8555 between 9:00 a.m. and 6:00 p.m. on ................ Friday,
7 July 2023,
Monday, 10 July 2023,
Tuesday,
11 July 2023 and
Wednesday, 12 July 2023
Despatch/Collection of White Form e-Refund
payment instructions/refund cheques in
respect of (i) wholly or partially successful applications
if the final Offer Price is less than the price payable
on application (if applicable) and (ii) wholly or
partially unsuccessful applications pursuant to the
Hong Kong Public Offering on or before
(7), (8) . ........................... Friday,
7 July 2023
Despatch/Collection of H Share certificates or deposit of
H Share certificates into CCASS in respect of wholly or
partially successful applications pursuant to the
Hong Kong Public Offering on or before
(6), (8) ........................... Friday,
7 July 2023
Dealings in the H Shares on the Stock Exchange
expected to commence at ............................... .9:00 a.m. on Monday,
10 July 2023
EXPECTED TIMETABLE
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Notes:
1. All times and dates refer to Hong Kong local times and dates.
2. You will not be permitted to submit your application under the White Form eIPO service through the
designated website at www.eipo.com.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 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 a “black” rainstorm warning, Extreme Conditions and/or a tropical cyclone warning signal number
8 or above in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon on Monday, 3 July 2023, the
application lists will not open on that day. See “How to Apply for Hong Kong Offer Shares – 10. Effect of Bad
Weather and/or Extreme Conditions on the Opening of the Application Lists” in this prospectus for details.
4. Applicants who apply for Hong Kong Offer Shares by giving electronic application instructions to HKSCC
should see “How to Apply for Hong Kong Offer Shares – 6. Applying through CCASS EIPO Service” in this
prospectus for further details.
5. The Price Determination Date is expected to be on or around Monday, 3 July 2023. If, for any reason, the Offer
Price is not agreed by Friday, 7 July 2023 between our Company, the Overall Coordinator and the Sole Global
Coordinator (for themselves and on behalf of the Underwriters and the Capital Market Intermediaries), the
Global Offering will not proceed and will lapse accordingly.
6. H Share certificates for the Offer Shares are expected to be issued on or before Friday, 7 July 2023 but will
only become valid evidence of title at 8:00 a.m. on Monday, 10 July 2023 provided that: (a) the Global
Offering has become unconditional in all respects; and (b) none of the Underwriting Agreements has been
terminated in accordance with its terms.
7. e-Refund payment instructions/refund cheques will be issued in respect of wholly or partially unsuccessful
applications and also in respect of successful applications in the event that the Offer Price is less than the initial
price per Hong Kong Offer Share payable on application. Part of your Hong Kong identity card
number/passport number, or, if you are joint applicants, part of the Hong Kong identity card number/passport
number of the first-named applicant, provided by you may be printed on your refund cheque, if any. Such data
would also be transferred to a third party to facilitate your refund. Your banker may require verification of your
Hong Kong identity card number/passport number before encashment of your refund cheque. Inaccurate
completion of your Hong Kong identity card number/passport number may lead to delay in encashment of your
refund cheque or may invalidate your refund cheque. See “How to Apply for Hong Kong Offer Shares” in this
prospectus for further information.
8. Applicants who have applied on White Form eIPO for 1,000,000 or more Hong Kong Offer Shares may
collect any refund cheques (where applicable) and/or H Share certificates in person from our H Share
Registrar, Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17th Floor, Hopewell
Centre, 183 Queen’s Road East, Wan Chai, Hong Kong from 9:00 a.m. to 1:00 p.m. on Friday, 7 July 2023 or
such other date as notified by us as the date of dispatch/collection of H Share certificates/e-Refund payment
instructions/refund cheques. Applicants being individuals who are eligible for personal collection may not
authorise any other person to collect on their behalf. Individuals must produce evidence of identity acceptable
to our H Share Registrar at the time of collection.
Applicants who have applied for Hong Kong Offer Shares through CCASS EIPO service should refer to “How
to Apply for Hong Kong Offer Shares – Dispatch/collection of share certificates and refund monies – Personal
Collection – If you apply through the CCASS EIPO service” in this prospectus for details.
Applicants who have applied through the White Form eIPO service and paid their applications monies
through single bank accounts may have refund monies (if any) dispatched to the bank account in the form of
e-Refund payment instructions. Applicants who have applied through the White Form eIPO service and paid
their application monies through multiple bank accounts may have refund monies (if any) dispatched to the
address as specified in their application instructions in the form of refund cheques by ordinary post at their
own risk.
H Share certificates and/or refund checks for applicants who have applied for less than 1,000,000 Hong Kong
Offer Shares and any uncollected H Share certificates and/or refund cheques will be dispatched by ordinary
post, at the applicants’ risk, to the addresses specified in the relevant applications.
EXPECTED TIMETABLE
– iii –


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IMPORTANT NOTICE TO INVESTORS
This prospectus is issued by our Company solely in connection with the Hong Kong
Public Offering and the Hong Kong Offer Shares 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 invitation in any
other jurisdiction or in any other circumstances. No action has been taken to permit a
public offering of the Offer Shares in any jurisdiction other than Hong Kong and no
action has been taken to permit the distribution of this prospectus in any jurisdiction
other than Hong Kong. The distribution of this prospectus 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.
You should rely only on the information contained in this prospectus and the
GREEN Application Form to make your investment decision. We have not authorised
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 authorised by us, the Sole Sponsor , the Sponsor-OC, the
Overall Coordinator , the Sole Global Coordinator , the Joint Bookrunners, the Joint Lead
Managers, the Co-Managers, any of the Underwriters and the Capital Market
Intermediaries, any of our or their respective directors or advisers, or any other person
or party involved in the Global Offering. Information contained in our website, located
at www.hjkj.cn , does not form part of this prospectus.
Page
EXPECTED TIMETABLE ........................................... i
TABLE OF CONTENTS ............................................. i v
SUMMARY ....................................................... 1
DEFINITIONS ..................................................... 3 1
GLOSSARY AND TECHNICAL TERMS ................................ 5 8
FORW ARD-LOOKING STATEMENTS ................................. 6 2
RISK FACTORS ................................................... 6 4
W AIVERS FROM STRICT COMPLIANCE WITH
THE LISTING RULES ............................................ 1 0 6
TABLE OF CONTENTS
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INFORMATION ABOUT THIS PROSPECTUS AND
THE GLOBAL OFFERING ........................................ 1 1 2
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN
THE GLOBAL OFFERING ........................................ 1 1 7
CORPORATE INFORMATION ....................................... 1 2 3
INDUSTRY OVERVIEW ............................................ 1 2 6
REGULATORY OVERVIEW ......................................... 1 4 9
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE ............ 1 7 7
BUSINESS ........................................................ 2 0 5
CONNECTED TRANSACTIONS ...................................... 3 8 8
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS .......... 4 0 3
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT ............. 4 1 4
SUBSTANTIAL SHAREHOLDERS .................................... 4 5 0
SHARE CAPITAL .................................................. 4 5 2
FINANCIAL INFORMATION ........................................ 4 5 5
FUTURE PLANS AND USE OF PROCEEDS ............................ 5 6 6
CORNERSTONE INVESTOR ......................................... 5 7 1
UNDERWRITING ................................................. 5 7 8
STRUCTURE OF THE GLOBAL OFFERING ........................... 5 9 3
HOW TO APPLY FOR HONG KONG OFFER SHARES ................... 6 0 4
APPENDIX I – ACCOUNTANT’S REPORT ..................... I - 1
APPENDIX II – UNAUDITED PRO FORMA FINANCIAL
INFORMATION ............................ II-1
APPENDIX III – TAXATION AND FOREIGN EXCHANGE ......... III-1
TABLE OF CONTENTS
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APPENDIX IV – PROPERTY V ALUATION REPORT ............... I V - 1
APPENDIX V – SUMMARY OF PRINCIPAL PRC AND
HONG KONG LEGAL AND REGULATORY
PROVISIONS .............................. V - 1
APPENDIX VI – SUMMARY OF ARTICLES OF ASSOCIATION ..... VI-1
APPENDIX VII – STATUTORY AND GENERAL INFORMATION ..... VII-1
APPENDIX VIII – DOCUMENTS DELIVERED TO THE REGISTRAR
OF COMPANIES AND A V AILABLE ON
DISPLAY .................................. VIII-1
TABLE OF 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. You 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. You
should read that section carefully before you decide to invest in the Offer Shares.
BUSINESS OVERVIEW
We are a cross-provincial heat service provider mainly operating in the “Three North
Region”. According to the Frost & Sullivan Report, we were ranked amongst the top 50
companies in terms of aggregate heat service area in the “Three North Region” in 2022 with
a market share of approximately 0.5% in terms of aggregate actual heat service area and were
ranked No. 9 in terms of the aggregate actual heat service area in Shanxi Province, Gansu
Province and Inner Mongolia Autonomous Region in 2022 with a market share of
approximately 2.4% in terms of aggregate actual heat service area. We are principally engaged
in the provision of heat services to residential and non-residential heat service customers under
concession rights. As at the Latest Practicable Date, our total actual heat service area
(measured in terms of GFA) was approximately 41.9 million sq.m., representing approximately
10.0% of our total Concession Area of approximately 419.9 million sq.m. under our
Concession Agreements. In addition to our provision of heat services, which is considered as
a public utility business, we also provide heat-related (i) engineering construction services; and
(ii) EMC services. We have had over a decade of operational experience since we started our
operation in 2010.
BUSINESS MODEL
As at the Latest Practicable Date, we held five concessions in operation and one
concession under construction, amongst which three were operating in Shanxi Province, one
was operating in Gansu Province, one was operating in Inner Mongolia Autonomous Region
and one was a project under construction in Henan Province. Under our concession rights, we
operate our heat services business in our Concession Boundary Area. Being a concession
grantee, we make long-term investments for the purpose of our heat service operation given
that we have the exclusive right to operate and benefit from such investments for a fixed term.
For details in relation to our six Concession Agreements, see “Business – Heat services – Our
Concession Agreements” in this prospectus.
SUMMARY
–1–


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During the Track Record Period, the majority of the revenue from our provision of heat
services and engineering construction services was derived from our projects under the
Concession Agreements, all of which are structured in the form of a BOT model. For the years
ended 31 December 2020, 2021 and 2022, revenue derived from our provision of heat services
amounted to approximately RMB973.3 million, RMB1,035.2 million and RMB1,098.9 million,
representing approximately 70.7%, 80.2% and 76.1% of our total revenue, respectively.
Heat services
The “Three North Region” experiences very cold weather during the winter especially the
areas north of the Qinling Mountain-Huaihe River ( ॢᏊ-˸̏ήਜ). Our provision of heat
services is therefore affected by seasonality. According to the Frost & Sullivan Report, the total
heat service area (measured in terms of GFA) in the PRC increased from 8.8 billion sq.m. in
2018 to 11.2 billion sq.m. in 2022. This growth is mainly driven by an increase in demand for
heat services resulting from urbanisation and an increase in the PRC’s population, as well as
an increase in demand for heat services in the areas south of Qinling Mountain-Huaihe River
(ήਜ).
As at the Latest Practicable Date, we had an aggregate Concession Area of approximately
419.9 million sq.m., of which 291.0 million sq.m. was in Shanxi Province, 68.3 million sq.m.
was in Gansu Province, 28.0 million sq.m. was in Inner Mongolia Autonomous Region and
32.6 million sq.m. was in Henan Province. As at the same date, within our Concession Areas,
we had an aggregate actual heat service area of approximately 41.9 million sq.m., of which
25.2 million sq.m. was in Shanxi Province, 8.5 million sq.m. was in Gansu Province and 8.2
million sq.m. was in Inner Mongolia Autonomous Region. During the Track Record Period, we
maintained a broad customer base in relation to our heat services under our concessions. As at
31 December 2020, 2021 and 2022, we had approximately 265,800, 282,400 and 303,900 heat
service customers respectively. Pricing of our heat services is subject to regulatory control. For
details on the pricing of our heat services, see “Regulatory overview – Pricing” and “Business
– Heat distribution – Pricing” in this prospectus.
SUMMARY
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The map below illustrates the location of the cities in which we had heat service projects
under concessions and our respective Concession Area in such cities as at the Latest Practicable
Date.
Shuozhou Project
41,000,000 sq.m.
 South China Sea
Lanzhou
Taiyuan
Shuozhou
Hulunbuir
Taiyuan Project
50,000,000 sq.m.
Shanxi Demonstration
Zone Project
200,000,000 sq.m.
Lanzhou New Area Project
68,330,000 sq.m.
Hulunbuir Project
27,951,500 sq.m.
Xinmi Project
32,610,000 sq.m.
Xinmi
Shanxi Province Gansu Province Inner Mongolia Autonomous Region Henan Province
During the Track Record Period and up to the Latest Practicable Date, we relied on four
types of heat sources for all of our heat service projects under concession rights comprising (i)
heat procured from cogeneration plants; (ii) heat produced by our coal-fired boilers; (iii)
residual heat collected at cogeneration plants; and (iv) geothermal heat. For details of our heat
source portfolio, see “Business – Heat sources” in this prospectus. For the years ended 31
December 2020, 2021 and 2022, the amount of heat procured by us from cogeneration plants
amounted to approximately 18.6 million GJ, 18.2 million GJ and 19.2 million GJ, accounting
for approximately 76.3%, 78.3% and 79.2% of the total amount of heat sourced by our Group,
respectively. The amount of heat sourced by us from our coal-fired boilers amounted to
approximately 2.3 million GJ, 2.1 million GJ and 2.1 million GJ, accounting for approximately
9.4%, 8.8% and 8.7% of the total amount of heat sourced by our Group for the years ended 31
December 2020, 2021 and 2022, respectively. The amount of residual heat collected by us at
cogeneration plants amounted to approximately 3.4 million GJ, 2.8 million GJ, and 2.8 million
GJ, accounting for approximately 13.8%, 12.0% and 11.3% of the total amount of heat sourced
by our Group for the same years, respectively; and the amount of geothermal heat extracted by
us from underground water amounted to approximately 0.1 million GJ, 0.2 million GJ and 0.2
million GJ, accounting for approximately 0.5%, 0.9% and 0.8% of the total amount of heat
sourced by our Group for the same years, respectively.
SUMMARY
–3–


--- page 14 ---
Engineering construction services
Pursuant to our Concession Agreements, we are required to provide engineering
construction services for construction of the heat service facilities required for our provision
of heat services. Pursuant to the relevant Concession Agreements, we were contracted and were
granted the exclusive rights by the grantors of our heat service concessions to invest in, build
or arrange for the development of the heat service-related assets. Upon the expiration of our
Concession Agreements, all heat service-related assets invested (and, in some cases, under
construction at the time) by us and the right to use in relation to heat service-related assets
which were not invested by us shall be transferred to the relevant concession grantor (or, in
some cases, parties by the designated grantor). For details of the ownership and transfer of our
operational assets, see “Business – Heat services – Our Concession Agreements” in this
prospectus.
EMC services
During the Track Record Period, we provided energy-conservation services to an energy
consuming enterprise to achieve certain energy saving goals under an EMC. Under the EMC,
we were responsible for installing certain equipment and machinery for the purpose of energy
saving and operating and managing the residual heat collection facilities. In return, we were
entitled to a share of profit accrued from energy conserved as a result of our energy-
conservation services provided. For details of our EMC services, see “Business – Provision of
EMC services” in this prospectus.
MAJOR SUPPLIERS AND MAJOR CUSTOMERS
During the Track Record Period, our top five suppliers included suppliers of (i) heat; (ii)
coal for our production of heat; and (iii) heat-service related equipment and machinery.
Purchases from our largest supplier in the years ended 31 December 2020, 2021 and 2022
amounted to approximately RMB100.6 million, RMB88.8 million and RMB89.3 million,
representing approximately 10.1%, 10.2% and 8.8% of our total purchases, respectively.
Purchases from our top five suppliers in the years ended 31 December 2020, 2021 and 2022
in aggregate amounted to approximately RMB402.1 million, RMB337.2 million and
RMB385.6 million, representing approximately 40.5%, 38.7% and 38.0% of our total
purchases, respectively. Our Directors confirm that save for Shuangliang Eco-Energy mainly
supplying us with materials and equipment for the construction of the infrastructure for our
heat service, none of our Directors, their respective associates or any shareholder (who to the
knowledge of our Directors owned 5% or more of our Shares) held any interest in any of our
top five suppliers during the Track Record Period.
SUMMARY
–4–


--- page 15 ---
During the Track Record Period, our top five customers principally included the
customers of our engineering construction services and provision of heat services under our
Concession Agreements. Revenue generated from our largest customer in the years ended 31
December 2020, 2021 and 2022 amounted to approximately RMB399.9 million, RMB201.1
million and RMB206.5 million, representing approximately 29.1%, 15.6% and 14.3% of our
total revenue, respectively. Revenue generated from our top five customers in the years ended
31 December 2020, 2021 and 2022 in aggregate amounted to approximately RMB520.4
million, RMB406.1 million and RMB428.0 million, representing approximately 37.8%, 31.4%
and 29.6% of our total revenue, respectively. Our Directors confirm that none of our Directors,
their respective associates or any shareholder (who to the knowledge of our Directors owned
5% or more of our Shares) held any interest in any of our top five customers during the Track
Record Period.
OUR COMPETITIVE STRENGTHS
We believe that we possess the following competitive strengths: (i) we operate under
multiple concession rights and were ranked No. 9 in terms of the aggregate actual heat service
area in Shanxi Province, Gansu Province and Inner Mongolia Autonomous Region in 2022,
according to the Frost & Sullivan Report; (ii) we are a cross-provincial heat service provider
capable of managing multiple heat service projects in different provinces of the PRC; (iii) we
are able to utilise diversified heat sources, providing clean and quality heat services; (iv) we
possess in-house research and development capabilities, which allow us to improve the
efficiency of our heat service operation with a view to maintaining and improving our market
position; (v) we have a digitalised heat services management software tool and a customer
service system which control our cross-provincial operation and enhance our operational
efficiency; and (vi) we have an experienced and committed management team. For details, see
“Business – Our competitive strengths” in this prospectus.
OUR BUSINESS STRATEGIES
We intend to (i) bolster our business presence in the “Three North Region” and enlarge
our customer base; (ii) expand our national footprint and increase our market share; and (iii)
continue to retain and recruit talented professionals for our business and management teams.
For details, see “Business – Our strategies” in this prospectus.
OUR BUSINESS HISTORY AND DEVELOPMENT
The history of our business can be traced back to 2010 when our Company was founded
by Shuangliang Eco-Energy (stock code: 600481.SH), a joint stock limited company and the
shares of which have been listed on Shanghai Stock Exchange since 22 April 2003. The
principal business of Shuangliang Eco-Energy is the manufacturing and sales of products of (i)
energy-saving and water-saving systems; and (ii) new energy systems ( อঐ๕ӻ୕). On 25
October 2010, Shanxi Shuangliang Renewable Energy became an indirect non wholly-owned
subsidiary of Shuangliang Eco-Energy and a major operating subsidiary of our Company, and
mainly focuses on the business of provision and distribution of heat, particularly utilising heat
SUMMARY
–5–


--- page 16 ---
from local cogeneration plant. Leveraging on the experiences and industry insight of our
management team, we have gradually developed our expertise and know-how to operate our
heat services business. In January 2012, Shanxi Shuangliang Renewable Energy obtained the
first concession right to provide heat services in Shuocheng District, Shuozhou City through
entering into the Shuozhou Concession Agreement. On 22 October 2015, for the purpose of
streamlining the operation of Shuangliang Eco-Energy Group, Shuangliang Eco-Energy
transferred the entire equity interest in our Company to Shuangliang Technology, one of the
shareholders of Shuangliang Eco-Energy. The transfer led to a clear separation of operations
and management between Shuangliang Eco-Energy Group and our Group. Upon completion of
the said transfer, Shuangliang Eco-Energy Group remained as one of our suppliers to supply
materials and equipment for the construction of the infrastructure for our heat services
business. For details of our business history and development, see “History, development and
corporate structure – Our business history and development” in this prospectus. For details of
the transactions between our Group and Shuangliang Eco-Energy Group, see “Connected
transactions” in this prospectus.
In August 2016, our Company became listed on the NEEQ. Subsequently, in March 2018,
our Company decided to delist from the NEEQ taking into consideration, amongst others, our
Company’s long term development strategy and the preparation for the Listing. For details of
our Company’s listing on NEEQ, see “History, development and corporate structure –
Corporate history of our Company” in this prospectus.
OUR CONTROLLING SHAREHOLDERS
Shuangliang Eco-Energy was our sole Shareholder since the establishment of our
Company on 3 September 2010 and prior to completion of the transfer of its then entire equity
interest in our Company to one of its shareholders, namely Shuangliang Technology on 22
October 2015. For details, see “History, development and corporate structure” in this
prospectus. Immediately after completion of the Global Offering (assuming the Over-allotment
Option is not exercised), Shuangliang Technology and Jiangsu Lichuang will hold
approximately 49.75% and 16.91% of the registered capital of our Company, respectively. As
at the Latest Practicable Date, Mr. Miao Shuangda ( ᐷᕐɽ΋͛), Mr. Miao Wenbin ( ᐷ˖੸΋
͛), Mr. Miao Zhiqiang ( ᐷқ੶΋͛), Ms. Miao Shuya ( ᐷബૹɾɻ), Mr. Miao Heida ( ᐷල
ɽ΋͛), Mr. Jiang Rongfang ( Ϫ࿲˙΋͛), Mr. Ma Peilin (΋͛) and Mr. Ma Fulin ( ৵
΋͛) (together the “ Individual Shareholders ”) were the legal and beneficial owners of
the entire issued share capital of both Shuangliang Technology and Jiangsu Lichuang. Since the
Individual Shareholders have decided to restrict their ability to exercise direct control over our
Company by holding their equity interests through Shuangliang Technology and Jiangsu
Lichuang, all of Shuangliang Technology, Jiangsu Lichuang and the Individual Shareholders
will be regarded as a group of our Controlling Shareholders under the Listing Rules. For
details, see “Relationship with our Controlling Shareholders” in this prospectus.
SUMMARY
–6–


--- page 17 ---
CONTINUING CONNECTED TRANSACTIONS
We have entered into, and expect to continue after the Listing, certain transactions which
will constitute partially exempt continuing connected transactions under the Listing Rules upon
the Listing. We have applied for, and the Stock Exchange has granted us, a waiver from strict
compliance with the announcement requirement under Chapter 14A of the Listing Rules in
respect of these partially exempt continuing connected transactions. For details, see
“Connected transactions” and “Waivers from strict compliance with the Listing Rules” in this
prospectus.
COMPETITION
According to the Frost & Sullivan Report, the heat services industry in the PRC is
fragmented with a large number of market players. Currently, most market players in the heat
services industry in the PRC fall into three categories: specialised heat services providers,
subsidiaries of power generation groups and property developers. The major players in the heat
services industry in the PRC are specialised heat services providers and most of these players
are State-owned enterprises. In 2022, the total actual heat services area in the PRC was
11,239.4 million sq.m. The majority of the top 10 players in the PRC were State-owned
enterprises and all of these top 10 players were non-listed companies. The aggregate heat
services area of the top 10 players accounted for more than 16.0% of the total actual heat
services area in the PRC in 2022, with the tenth largest heat services provider having an actual
heat services area of more than 100.0 million sq.m., which is larger than our Group’s actual
heat service area of 41.9 million sq.m.. During the Track Record Period, our Group mainly
operated in the “Three North Region” and derived revenue from our provision of heat services
in Shanxi Province, Gansu Province and Inner Mongolia Autonomous Region. We were ranked
No. 9 in terms of aggregate actual heat service area in Shanxi Province, Gansu Province and
Inner Mongolia Autonomous Region in 2022, according to the Frost & Sullivan Report. The top
10 players in Shanxi Province, Gansu Province and Inner Mongolia Autonomous Region took
up approximately 46.0%, while our Group, as the No. 9 player in these areas, took up
approximately 2.4% of the aggregate actual heat service area of these three areas in 2022. The
majority of the top 10 players in Shanxi Province, Gansu Province and Inner Mongolia
Autonomous Region were State-owned enterprises which mainly focused on providing heat
services in their own provinces or cities.
While the heat services industry in the PRC has traditionally been dominated by
State-owned enterprises, according to the Frost & Sullivan Report, favourable government
policies have encouraged more non-State-owned enterprises to enter the heat services market
in recent years. Since 2003, the State has introduced various guiding opinions for a reform of
the heat services industry with a view to encouraging the marketisation of the public utilities
industry. Such reform introduces a market competition mechanism into the heat services
industry, promotes the commercialisation of heat services and establishes a new urban heating
system that is economical, safe, clean and efficient. As a non-State-owned heat services
provider, our business operations are generally more flexible and efficient as compared with
our State-owned peers, primarily due to the fact that being a non-State-owned heat services
provider enables us to promptly react to the needs of our customers and therefore provide
higher quality heat services.
SUMMARY
–7–


--- page 18 ---
During the Track Record Period, we were able to demonstrate a proven track record of
operating in multiple regions, namely Shanxi Province, Gansu Province and Inner Mongolia
Autonomous Region, while the majority of the top 10 players in the PRC operated in only one
province in the PRC. When compared to our peers, the cross-provincial nature of our business
provides us with a competitive advantage for future business expansion to other regions by
utilising our existing experience and know-how in the provision of heat services business. For
example, we successfully obtained a concession right to provide heat services in Xinmi of
Henan Province in December 2021. With over a decade of operational experience, we believe
that we have developed strong capabilities in managing and operating our heat services
business as to cater to the different demand and requirement of our customers located in
different regions of the PRC. We believe that our cross-provincial market presence enables us
to achieve cost efficiency in all key stages of our operations, as demonstrated by our ability to
effectively manage our operations in multiple locations. We also believe that we are capable
of successfully entering the heat services market in other regions of the PRC.
The provision of heat services, which is a public utility, is a regulated industry in the
PRC. According to the Frost & Sullivan Report, operators must have adequate heating
resources, experienced staff and heat service facilities of a substantial scale in order to obtain
the relevant business qualifications and/or concession rights to operate in the heat services
industry. According to Frost & Sullivan, among the top 10 players in Shanxi Province, Gansu
Province and Inner Mongolia Autonomous Region in 2022, only two players held concession
rights for the exclusive provision of heat services. Our concession rights relating to Taiyuan
and Shuozhou of Shanxi Province, Lanzhou of Gansu Province, Hulunbuir of Inner Mongolia
Autonomous Region and Xinmi of Henan Province allowed us to compete against other market
players in the heat services industry by providing heat services exclusively in our Concession
Areas within the concession period (which normally has an initial term of 30 years). In line
with the steady expansion of our customer base and actual heat service area as a result of
urbanisation and municipal planning, our business had grown steadily over the Track Record
Period as supported by our concession rights.
Our ability to offer a variety of heating solutions to our heat service customers as
supported by a range of heat sources further sets us apart from our competitors which use one
or two types of heat sources. During the Track Record Period and up to the Latest Practicable
Date, we relied on four types of heat sources for all of our heat service projects under
concession rights comprising (i) heat procured from cogeneration plants; (ii) heat produced by
our coal-fired boilers; (iii) residual heat collected at cogeneration plants; and (iv) geothermal
heat, for all of our heat service projects under concession rights. As accredited by the Lanzhou
New Area Ecology and Environment Bureau* ( ᚆψอਜ͛࿒ᐑྤ҅), our coal-fired boilers
which we currently use in our Lanzhou New Area Project comply with the relevant pollutant
emission standard. Further, we apply absorption heat pump technologies in the collection of
residual heat for two of our projects, namely the Shuozhou Project and the Lanzhou New Area
Project. Our residual heat collection and utilisation system, which mainly comprises lithium
bromide absorption heat pumps (ݿis used to collect residual heat which is
released by steam turbines during the power generation process at the cogeneration plants or
the coal-fired power plants. In addition, we have built an origin station (१) with a set of
residual heat collection and utilisation system and collection devices and equipment ( ं˥౬
ᆠ१) which comprises, among other things, our absorption heat pump technologies with steam
and condensation water supply in the cogeneration plants. This approach demonstrates our
ability to achieve energy efficiency and reduce regional emissions.
SUMMARY
–8–


--- page 19 ---
Our technological know-how and investment into research and development further set us
apart from our competitors. As at the Latest Practicable Date, we had 72 patents registered with
CNIPA, of which five were inventions relating to heat service systems during the cogeneration
process. We believe that such systems are considered to be leading technologies in the industry.
For the details of our intellectual property rights, see “Business – Intellectual property” and
“Statutory and general information – Further information about our business – Intellectual
property rights” in Appendix VII to this prospectus.
As a result of our competitive strengths and favourable government policies as described
above, we also believe that we will be able to continue growing our heat services business in
the future. See “Industry overview – Competitive analysis of the heat services industry in the
PRC” in this prospectus for further details on the markets in which we operate and for a
discussion of our competition.
SERVICE CONCESSION ARRANGEMENTS
During the Track Record Period, most of our heat service projects in operation were
undertaken under service concession arrangements in the form of a BOT model. A service
concession arrangement is an arrangement whereby a government or other public sector body,
being the grantor, enters into a contract with a private operator to develop (or upgrade), operate
and maintain the grantor’s infrastructure assets (such as roads, bridges, tunnels, airports,
energy distribution networks and supply plants). The grantor and the private operator typically
enter into a service concession agreement which regulates the price and scope of services that
the operator provides by utilising the infrastructure assets. The grantor also controls any
significant residual interest in the infrastructure assets at the end of the arrangement.
During the Track Record Period, majority of the revenue from our provision of heat
services and engineering construction services was derived from concession arrangements
under the Concession Agreements. These Concession Agreements were structured in the form
of a BOT model. Pursuant to the BOT model, we were contracted and were granted the
exclusive rights by our concession grantors to invest in, build, and arrange for the development
and operation of the infrastructure assets (i.e. heat service facilities) required for our provision
of heat services. During the concession period, we are entitled to operate and generate revenue
from such infrastructure assets through the operation of our heat services business. Upon
expiry of the concession period, in the event that the concession rights are not renewed, all heat
service-related assets invested (and, in some cases, under construction at the time) by us and
the right to use in relation to heat service-related assets which were not invested by us will be
transferred to the relevant concession grantor or party(ies) designated by the concession
grantor. The compensation payable (if any) by the concession grantor to us for such transfer
of assets shall be based on the assessed value of the transferred assets (which, in some cases,
is determined by a third party asset valuation agency jointly appointed by us and the concession
grantor).
During the Track Record Period, under IFRIC 12 Service Concession Arrangements, we
recognised intangible assets to the extent of the right to charge our heat service customers
during the construction phase of heat service facilities. As such, the intangible assets
represented a significant portion of the total assets of our Group. The intangible assets were
excluded in the calculation of our Group’s unaudited pro forma adjusted consolidated tangible
financial information, resulting in the unaudited pro forma adjusted consolidated net tangible
liabilities of our Group attributable to owners of our Company per Share.
SUMMARY
–9–


--- page 20 ---
Accounting treatment for service concession arrangements
The accounting treatment for service concession arrangements involves judgement and
affects the presentation of our results of operations. Under IFRIC 12 Service Concession
Arrangements, we recognise revenue for the construction of heat service facilities for our heat
service projects. During the initial construction and the upgrading and expansion of the heat
service facilities, our Group recognises revenue from “engineering construction services” in
the accountant’s report as set out in Appendix I to this prospectus. However, our Group does
not receive any actual payment in cash from the relevant government authorities. We only
receive cash payment when we start providing heat services, which is when we are able to
charge our heat service customers. There is a mismatch between the cash outflow for our
construction cost during the construction phase and the cash inflow from our heat service
customers during the operation phase. The amount equivalent to the revenue from “engineering
construction services” is recorded as intangible assets in our consolidated statement of
financial position, and is calculated as the estimated total construction costs plus a reasonable
profit margin determined by an independent valuer, based on the prevailing market rate
applicable to similar construction services. During the operation phase of our heat service
projects, the entire sum of heat service fee is recorded as operating revenue.
Our Group applies an intangible asset model under IFRIC 12 Service Concession
Arrangements. An intangible asset (operating concessions) is recognised to the extent that the
accumulating right to charge our heat service customers is dependent upon the usage or amount
of our heat services rendered, which is not an unconditional right to receive cash. The
intangible asset is amortised on a straight-line basis over the operation period when it becomes
available for use, that is, at the point in time when we exercise our concession rights to charge
public users.
The following table sets out the movements in the balances of our Group’s intangible
assets (operating concessions) during the Track Record Period.
Intangible
assets
(operating
concessions)
RMB’000
As at 1 January 2020 2,852,216
Additions 458,969
Amortisation (164,396)
As at 31 December 2020 3,146,789
Additions 208,132
Disposal (4,348)
Amortisation (183,008)
SUMMARY
–1 0–


--- page 21 ---
Intangible
assets
(operating
concessions)
RMB’000
As at 31 December 2021 3,167,565
Additions 359,084
Disposal (4,640)
Amortisation (193,770)
Impairment (9,398)
As at 31 December 2022 3,318,841
Operating concessions are tested for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
During the operating period when heat services are provided, revenue is recognised on a
straight line basis over the scheduled period (i.e. usually from October of each year to April
of the following year) because the customer simultaneously receives and consumes the benefits
provided by our Group.
The following table sets out our revenue generated from our engineering construction
services by whether they were accounted for under IFRIC 12 Service Concession Arrangements
for the years indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 % RMB’000 % RMB’000 %
Engineering construction
services for our
concession operations
(IFRIC 12 Service
Concession
Arrangements) 349,356 96.5 208,133 90.8 271,010 89.9
Engineering construction
services provided to
customers
(Non-IFRIC 12 Service
Concession
Arrangements)
(Note) 12,694 3.5 21,014 9.2 30,557 10.1
Total 362,050 100.0 229,147 100.0 301,567 100.0
Note: Engineering construction services provided to customers (non-IFRIC 12 Service Concession Agreements) were
mostly one-off in nature. Majority of our revenue from these one-off engineering construction services was
derived from a reformation project in Shuozhou City. For details of the reformation project, see “Financial
information – Revenue – Engineering construction services” in this prospectus.
SUMMARY
–1 1–


--- page 22 ---
For details, see “Financial information – Critical accounting policies and estimates –
IFRIC 12 Service Concession Arrangements” in this prospectus.
SUMMARY OF OUR RESULTS OF OPERATIONS
The following tables set out a summary of the major components of our results of
operations during the Track Record Period. For details, see “Financial information” in this
prospectus, and the accountant’s report as set out in Appendix I to this prospectus.
For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Revenue 1,376,321 1,290,635 1,443,732
Cost of sales (1,084,931) (976,969) (1,146,851)
Gross profit 291,390 313,666 296,881
Profit before income tax 143,927 206,731 186,336
Profit and total comprehensive income
for the year 98,316 171,060 140,375
Attributable to:
– Owners of our Company 66,830 110,696 96,431
– Non-controlling interests 31,486 60,364 43,944
Our net profit increased by approximately RMB72.7 million or 74.0% from
approximately RMB98.3 million for the year ended 31 December 2020 to approximately
RMB171.1 million for the year ended 31 December 2021, primarily attributable to an increase
in gross profit of our heat services due to the expansion of our actual heat service area. Such
increase was mainly attributable to a combined effect of (i) an increase in gross profit and other
income by an aggregate amount of approximately RMB47.5 million in the year ended 31
December 2021; (ii) a provision of impairment losses on financial assets and contract assets of
approximately RMB13.5 million being recorded in the year ended 31 December 2020 while a
reversal of impairment losses on financial assets and contract assets of approximately RMB1.0
million was recorded in the year ended 31 December 2021; and (iii) a decrease in net finance
costs by approximately RMB14.3 million during the year ended 31 December 2021.
SUMMARY
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Our net profit decreased by approximately RMB30.7 million or 17.9% from
approximately RMB171.1 million for the year ended 31 December 2021 to approximately
RMB140.4 million for the year ended 31 December 2022. Such decrease was mainly due to (i)
a decrease in gross profit which was primarily attributable to the decrease in price subsidies
for our Shuozhou Project, and other income by an aggregate amount of approximately
RMB36.6 million; and (ii) an increase in net finance costs by approximately RMB5.6 million,
which were partially offset by an increase in the amount of reversal of impairment losses made
on financial assets and contract assets by approximately RMB22.1 million for the year ended
31 December 2022.
Revenue
The following table sets out our revenue by type of service/product for the years
indicated.
For the year ended 31 December
2020 2021 2022
(RMB’000) % (RMB’000) % (RMB’000) %
Heat services
– Fees from customers
for provision and
distribution of heat 739,940 53.8 778,442 60.3 853,542 59.1
– Price subsidies from
local government 167,908 12.1 182,500 14.2 161,676 11.2
– Pipeline connection fee 65,429 4.8 74,211 5.7 83,725 5.8
Sub-total 973,277 70.7 1,035,153 80.2 1,098,943 76.1
Engineering construction
services 362,050 26.3 229,147 17.8 301,567 20.9
EMC services 4,157 0.3 3,972 0.3 3,002 0.2
Heat transmission services 16,961 1.2 14,533 1.1 5,521 0.4
Sale of goods 16,344 1.2 5,756 0.4 23,581 1.6
Designing services 1,658 0.1 518 0.1 6,585 0.5
Others
(Note) 1,874 0.2 1,556 0.1 4,533 0.3
Total 1,376,321 100.0 1,290,635 100.0 1,443,732 100.0
Note: Others mainly represent revenue generated from (i) technical service; (ii) rental fees; and (iii) other service
fees.
SUMMARY
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--- page 24 ---
During the Track Record Period, our revenue was mainly generated from (i) our heat
services; and (ii) our engineering construction services, the majority of which was generated
in Shanxi Province, Gansu Province and Inner Mongolia Autonomous Region. For the three
years ended 31 December 2022, our revenue generated from heat services amounted to
approximately RMB973.3 million, RMB1,035.2 million and RMB1,098.9 million, representing
approximately 70.7%, 80.2% and 76.1% of our total revenue, respectively; and our revenue
generated from engineering construction services amounted to approximately RMB362.1
million, RMB229.1 million and RMB301.6 million, representing approximately 26.3%, 17.8%
and 20.9% of our total revenue, respectively.
Our revenue generated from heat services comprised (i) fees from customers for provision
and distribution of heat; (ii) price subsidies from local government; and (iii) pipeline
connection fee. For the three years ended 31 December 2022, our aggregate revenue from (a)
fees from customers for provision and distribution of heat; and (b) price subsidies from local
government accounted for approximately 93.3%, 92.8% and 92.4% of our revenue generated
from heat services, respectively. Our revenue generated from engineering construction services
was mainly related to our concession operation. For the three years ended 31 December 2022,
our revenue generated from provision of construction work services relating to our concession
operation accounted for approximately 96.5%, 90.8% and 89.9% of our revenue from
engineering construction services, respectively.
Our revenue decreased by approximately RMB85.7 million from approximately
RMB1,376.3 million for the year ended 31 December 2020 to approximately RMB1,290.6
million for the year ended 31 December 2021, primarily due to the decrease in our revenue
generated from engineering construction services from approximately RMB362.1 million to
approximately RMB229.1 million which was mainly attributable to a one-off construction of
primary distribution pipelines for our Shuozhou Project in order to extend and connect our heat
distribution network to a cogeneration plant as a new heat source to enhance our heat
transmission efficiency in 2020, partially offset by the increase in our revenue generated from
heat services from approximately RMB973.3 million to approximately RMB1,035.2 million,
which was mainly attributable to the increase in the actual heat service area of our Shuozhou
Project and Hulunbuir Project. Our revenue increased by approximately RMB153.1 million
from approximately RMB1,290.6 million for the year ended 31 December 2021 to
approximately RMB1,443.7 million for the year ended 31 December 2022, primarily due to an
increase in our revenue generated from both of the engineering construction services and heat
services which was primarily attributable to (i) a general increase of constructions activities for
our concession projects; and (ii) an increase in the actual heat service area brought by the
expansion of our concession projects in general during the year.
SUMMARY
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--- page 25 ---
The following table sets out our revenue generated from (i) fees from customers for the
provision and distribution of heat by heat service project under concession; (ii) price subsidies
from the local government in Shuozhou; and (iii) engineering construction services by heat
service project under concession for the years indicated:
For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Taiyuan Project
Fees from customers for the provision
and distribution of heat 106,178 122,545 135,768
Engineering construction services for
construction of heat service facilities 16,474 22,976 28,726
Sub-total 122,652 145,521 164,494
Shanxi Demonstration Zone Project
Fees from customers for the provision
and distribution of heat 7,371 9,917 17,263
Engineering construction services for
construction of heat service facilities 19,502 67,695 39,338
Sub-total 26,873 77,612 56,601
Shuozhou Project
Fees from customers for the provision
and distribution of heat 267,605 283,724 292,320
Engineering construction services for
construction of heat service facilities 231,956 18,599 44,815
Price subsidies 167,908 182,500 161,676
Sub-total 667,469 484,823 498,811
Lanzhou New Area Project
Fees from customers for the provision
and distribution of heat 166,929 151,411 185,108
Engineering construction services for
construction of heat service facilities 56,230 94,649 139,085
Sub-total 223,159 246,060 324,193
SUMMARY
–1 5–


--- page 26 ---
For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Hulunbuir Project
Fees from customers for the provision
and distribution of heat 187,376 203,100 217,803
Engineering construction services for
construction of heat service facilities 25,194 4,214 10,520
Sub-total 212,570 207,314 228,323
Xinmi Project
Fees from customers for the provision
and distribution of heat – – –
Engineering construction services for
construction of heat service
facilities
(Note) – – 8,526
Sub-total – – 8,526
Total 1,252,723 1,161,330 1,280,948
Note: It mainly represented (i) procurement of pipelines, devices and equipment; and (ii) construction of heat
service facilities for heat transmission for the preparation of the Xinmi Project in two of the areas according
to the local urban developments.
For further details relating to our revenue, please see “Financial information –
Description of major components of our results of operations – Revenue” in this prospectus.
Cost of sales
During the Track Record Period, our cost of sales mainly included (i) costs of purchase
of heat; (ii) construction costs; (iii) amortisation of intangible assets; and (iv) materials
consumed. Our cost of sales decreased from approximately RMB1,084.9 million for the year
ended 31 December 2020 to approximately RMB977.0 million for the year ended 31 December
2021, which was primarily attributable to the decrease in costs for the construction of primary
distribution pipelines for our Shuozhou Project. Our cost of sales increased from approximately
RMB977.0 million for the year ended 31 December 2021 to approximately RMB1,146.9
million for the year ended 31 December 2022, which was in line with the increase in our
revenue from the provision of our heat services and engineering construction services during
the year. For further details, please see “Financial information – Description of major
components of our results of operations – Cost of sales” in this prospectus.
SUMMARY
–1 6–


--- page 27 ---
Gross profit and gross profit margin
The following table sets out our gross profit and gross profit margin by type of
service/product for the years indicated.
For the year ended 31 December
2020 2021 2022
Gross
profit
Gross
profit
margin
Gross
profit
Gross
profit
margin
Gross
profit
Gross
profit
margin
RMB’000 % RMB’000 % RMB’000 %
Heat services 232,090 23.8 270,453 26.1 239,446 21.8
Engineering construction
services 46,569 12.9 30,239 13.2 39,800 13.2
EMC services 3,281 78.9 2,298 57.9 (307) (10.2)
Heat transmission services 5,998 35.4 6,253 43.0 3,438 62.3
Sale of goods 3,050 18.7 3,812 66.2 11,026 46.8
Designing services (282) (17.0) 233 45.0 2,964 45.0
Others 684 36.5 378 24.3 514 11.4
Total 291,390 21.2 313,666 24.3 296,881 20.6
Heat services
Gross profit from our heat services increased from approximately RMB232.1 million for
the year ended 31 December 2020 to approximately RMB270.5 million for the year ended 31
December 2021. Such increase was mainly attributable to an improvement of profitability of
the Hulunbuir Project mainly as a result of an increase in our actual heat service area and a
decrease in our cost of sales for the Hulunbuir Project since there was a downward adjustment
on unit cost of heat procurement in the region during the year, and an increase in our revenue
from pipeline connection fee. Gross profit from our heat services decreased from
approximately RMB270.5 million for the year ended 31 December 2021 to approximately
RMB239.4 million for the year ended 31 December 2022, primarily due to the decrease in price
subsidies for the Shuozhou Project and the increase in procurement prices of coal for our
Lanzhou New Area Project during the same year due to the substantial increase in coal price.
The gross profit margin of our heat services increased from approximately 23.8% for the
year ended 31 December 2020 to approximately 26.1% for the year ended 31 December 2021,
which was primarily attributable to an improvement in the profitability of the Hulunbuir
Project as explained above. The gross profit margin of our heat services decreased from
approximately 26.1% for the year ended 31 December 2021 to approximately 21.8% for the
year ended 31 December 2022, primarily due to the reasons for the decrease in our gross profit
as explained above for the same year.
SUMMARY
–1 7–


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Engineering construction services
Gross profit from our engineering construction services decreased from approximately
RMB46.6 million for the year ended 31 December 2020 to approximately RMB30.2 million for
the year ended 31 December 2021 primarily because there was no large-scale construction for
primary distribution pipelines in 2021. Gross profit from our engineering construction services
increased from approximately RMB30.2 million for the year ended 31 December 2021 to
approximately RMB39.8 million for the year ended 31 December 2022 due to the increase in
construction activities for our concession projects.
The gross profit margin for our engineering construction services remained stable at
approximately 12.9%, 13.2% and 13.2% for the years ended 31 December 2020, 2021 and
2022, respectively.
For further details, please see “Financial information – Description of major components
of our results of operations – Gross profit and gross profit margin” in this prospectus.
Price subsidies from local government
During the Track Record Period, we recognised revenue from the price subsidies for our
Shuozhou Project in the amount of approximately RMB167.9 million, RMB182.5 million and
RMB161.7 million, respectively.
The provision of price subsidies was contemplated under the Interim Measures and we
were contractually entitled to the price subsidies under the Shuozhou Concession Agreement.
Price subsidies from local government were recognised as revenue over a scheduled heat
service period according to IFRS 15 on the basis that there was a reasonable assurance on a
recurring basis provided by a fixed formula that such subsidies could be received. For price
subsidies from local government to be recognised as revenue generated in our Group’s ordinary
and usual course of business in accordance with IFRS 15, since (i) we are a cross-provincial
heat service provider providing heat services in concessions which we held pursuant to the
Concession Agreements; (ii) the Shuozhou Concession Agreement is regarded as a contract
between us and our customer. Shuozhou government, being a contracting party to the Shuozhou
Concession Agreement, is considered as a customer in the whole concession arrangement
according to Appendix A to IFRS 15; (iii) the amount of the price subsidies was determined by
the specific formula stipulated under the No. 45 of 2016 Minutes, which was effectively
determined on the basis of the shortfall of the heat rate charged by our Group below the
relevant heat service cost, marked up by a certain percentage and providing the operator a
reasonable return; and (iv) there was a reasonable assurance on a recurring basis provided by
a fixed formula that the price subsidies could be received. Further, as confirmed by Frost &
Sullivan, it is not uncommon that heat service companies may receive subsidies from local
governments (including price subsidies), and it is not uncommon that such price subsidies are
assessed based on pre-determined formulae with reference to heat rates charged and relevant
heat service costs. Based on the above, our Directors are of the view that price subsidies from
the local government are considered as revenue generated from the ordinary activities of our
SUMMARY
–1 8–


--- page 29 ---
Group and meets the definition of “revenue” under IFRS 15 – Contracts with Customer. The
reporting accountant of our Company concurs with the aforementioned view of our Directors.
After considering the view of the reporting accountant of our Company, the Sole Sponsor
concurs with the view of our Directors set out above. For detailed discussion regarding the
revenue recognition of price subsidies from local government, see “Financial information –
Description of major components of our results of operations – Revenue – Heat services – (ii)
Price subsidies from local government” in this prospectus.
SUMMARY OF CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
The following table sets out selected information from our consolidated financial
statements as at the dates indicated, which have been extracted from the accountant’s report as
set out in Appendix I to this prospectus.
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Total non-current assets 4,174,547 4,162,205 4,085,748
Total current assets 859,903 821,426 1,158,481
Total non-current liabilities 2,078,198 2,412,919 2,611,364
Total current liabilities 2,343,567 1,788,316 1,710,303
Net current liabilities 1,483,664 966,890 551,822
Net assets 612,685 782,396 922,562
Non-controlling interests 92,179 151,597 195,445
As at 31 December 2020, 2021 and 2022, our net current liabilities were approximately
RMB1,483.7 million, RMB966.9 million and RMB551.8 million, respectively. Such net
current liabilities primarily consisted of our (i) trade and other payables; (ii) borrowings; and
(iii) contract liabilities. During the Track Record Period, we had substantial planned capital
expenditures for the purchase of property, plant and equipment and our construction of heat
service facilities, resulting in a significant amount of other payables for the acquisition of
intangible assets. During this period, we also had a substantial amount of borrowings which
was mainly used to support our capital expenditures, and which contributed to our net current
liability position. As at 31 December 2020 and 2021, some of our borrowings (in the amounts
of approximately RMB193.0 million and RMB179.0 million, respectively), were classified as
current liabilities due to our failure to comply with certain covenants and financial
undertakings in respect of two long-term bank borrowings, leading to a higher level of current
liabilities for those years. As at 31 December 2022, Hulunbuir Shuangliang had re-complied
with such financial covenants, and accordingly, we reclassified the loan amounting to
RMB158.0 million as at 31 December 2022 as non-current liabilities according to the original
payment schedules as set out in the relevant loan contract. As at 31 December 2022, Lanzhou
Shuangliang had not re-complied with such financial covenants. In March 2020, we obtained
from the lending bank a letter of waiver from strict compliance with certain financial
covenants, which continued to take effect as at the Latest Practicable Date as confirmed by a
SUMMARY
–1 9–


--- page 30 ---
supplemental interview with the lending bank on 24 February 2023. Accordingly, we
reclassified Lanzhou Shuangliang’s loan amounting to approximately RMB286.1 million,
RMB271.9 million and RMB203.1 million as at 31 December 2020, 2021 and 2022,
respectively, as non-current liabilities according to the original payment schedules as set out
in the relevant loan contract. As such, our Directors are of the view that there would not be any
financial consequences for the failure to comply with the financial covenants. Our net current
liabilities during the Track Record Period were also attributable to a significant amount of
contract liabilities (which represented the advance receipts from customers in relation to our
heat services and pipeline connection fee) at the end of each year. Such contract liabilities will
be recognised as revenue in the following years when the relevant services are provided. See
“Risk factors – Risks relating to our business and industry – We had net current liabilities as
at 31 December 2020, 2021 and 2022” in this prospectus for the risk relating to our net current
liabilities.”
Our senior management closely monitors our Group’s financial performance so as to
improve our liquidity position. Our Group generated cash inflow from operating activities for
the years ended 31 December 2020, 2021 and 2022, which amounted to approximately
RMB442.5 million, RMB500.0 million and RMB617.8 million, respectively.
Our net assets increased from approximately RMB612.7 million as at 31 December 2020
to approximately RMB782.4 million as at 31 December 2021, primarily due to our net profit
of approximately RMB171.1 million for the year ended 31 December 2021, the effect of which
was partially offset by the transactions with non-controlling interests of approximately
RMB1.5 million. Our net assets further increased from approximately RMB782.4 million as at
31 December 2021 to approximately RMB922.6 million as at 31 December 2022, primarily due
to our net profit of approximately RMB140.4 million for the year ended 31 December 2022.
SUMMARY OF CONSOLIDATED STATEMENTS OF CASH FLOWS
The following table sets out our cash flows for the years indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Net cash generated from
operating activities 442,542 500,027 617,839
Net cash used in investing activities (340,136) (98,725) (117,858)
Net cash used in financing activities (66,755) (356,943) (258,098)
Net increase in cash and cash
equivalents 35,651 44,359 241,883
Cash and cash equivalents at beginning
of the year 56,175 91,826 136,185
Cash and cash equivalents at end of the
year 91,826 136,185 378,068
SUMMARY
–2 0–


--- page 31 ---
For detailed discussions regarding our Group’s cash flows during the Track Record
Period, see “Financial information – Liquidity and capital resources – Cash flows” in this
prospectus.
KEY FINANCIAL RATIOS
The following table sets out our key financial ratios as at the dates and for the years
indicated.
As at/for the year ended 31 December
2020 2021 2022
Current ratio (1) 0.4 0.5 0.7
Quick ratio (2) 0.4 0.4 0.6
Return on total assets (3) 2.0% 3.4% 2.7%
Return on equity (4) 17.4% 24.5% 16.5%
Gearing ratio (5) 2.1 1.4 1.0
Net debt to equity ratio (6) 2.0 1.2 0.5
Interest coverage (7) 2.5 times 3.5 times 3.2 times
Net profit margin (8) 7.1% 13.3% 9.7%
Notes:
(1) Current ratio is calculated by dividing total current assets by total current liabilities as at the end of the
year.
(2) Quick ratio is calculated by dividing total current assets less inventories by total current liabilities as
at the end of the year.
(3) Return on total assets is calculated by dividing net profit by the average balances of the total assets for
the year.
(4) Return on equity is calculated by dividing net profit by the average balances of equity for the year.
(5) Gearing ratio is calculated by dividing total borrowings by total equity as at the end of the year.
(6) Net debt to equity ratio is calculated by dividing net debt by total equity as at the end of the year. Net
debt is calculated as total borrowings less cash and cash equivalents as at the end of the year.
(7) Interest coverage is calculated based on the profit before interest and income tax for the year divided
by respective finance costs for the year.
(8) Net profit margin is equal to net profit divided by total revenue for the year.
For details of the above ratios, see “Financial information – Key financial ratios” in this
prospectus.
SUMMARY
–2 1–


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DIVIDEND AND DIVIDEND POLICY
No dividend had been paid or declared by our Company during the Track Record Period
and up to the Latest Practicable Date. We currently aim to pay a total dividend in respect of
each financial year of not less than 30% of our annual distributable profit. The declaration and
payment of future dividends will be subject to various factors, including our future earnings
and cash inflows, future plan for use of funds, long-term development of our business, statutory
reserves, discretionary common reserve funds, legal and regulatory restrictions, and other
factors which our Directors consider relevant. We may declare and pay dividends by way of
cash or by other means that we consider appropriate in the future. Distribution of dividends
will be decided by our Board at their discretion and will be subject to Shareholders’ approval.
In addition, our dividend policy will also be subject to our Articles of Association, the PRC
Company Law, any other applicable PRC laws and regulations. In any event, we will pay
dividends out of our profit after tax only after we have made the following allocations:
(1) recovery of accumulated losses, if any;
(2) allocation to the statutory common reserve fund an amount of no less than 10% of
our profit after tax, as determined under PRC GAAP; and
(3) allocation, if any, to a discretionary common reserve fund an amount approved by
the shareholders in a shareholders’ meeting.
We are a joint stock limited company established in the PRC, hence, payment of dividends
is subject to restrictions under PRC laws. For relevant PRC restrictions on payment of
dividends in the PRC, see “Risk factors – Risks relating to conducting business in the PRC –
Payment of dividends is subject to restrictions under PRC laws” and “Financial Information –
Dividend and dividend policy” in this prospectus.
CAPITAL EXPENDITURES
Our historical capital expenditures during the Track Record Period primarily included
expenditures for our purchases of property, plant and equipment and construction of heat
service facilities. We funded our capital expenditures requirements and long-term investments
during the Track Record Period mainly from cash flow generated from our operations and bank
facilities. Our capital expenditures amounted to approximately RMB270.6 million, RMB305.1
million and RMB288.9 million for the years ended 31 December 2020, 2021 and 2022,
respectively.
Our capital expenditures for the year ending 31 December 2023 are expected to amount
to approximately RMB324.8 million, which will be primarily used for procuring raw
materials/contracting for constructing heat service facilities for expansion of our heat
services. We plan to fund our future capital expenditures using the net proceeds from the
Global Offering and internal resources, including but not limited to our cash and cash
equivalents and banking facilities. We may reallocate the funds to be utilised for our capital
expenditures and future development based on our ongoing business plans.
SUMMARY
–2 2–


--- page 33 ---
CAPITAL COMMITMENTS
During the Track Record Period, we had capital expenditures contracted for but not yet
incurred. Our capital commitments were mainly related to intangible assets that we purchased
for the construction of heat service facilities in order to expand our existing heat service project
and preparing for a new heat service project. Such intangible assets were related to our
operating concessions and software, and amounted to approximately RMB69.0 million,
RMB111.3 million and RMB58.0 million as at 31 December 2020, 2021 and 2022, respectively.
The significant increase in such intangible assets from approximately RMB69.0 million as at
31 December 2020 to approximately RMB111.3 million as at 31 December 2021 was primarily
due to our acquisition of an operating concession in Xinmi of Henan Province in early 2021.
LISTING EXPENSES
The estimated total Listing expenses, including underwriting commissions (based on the
mid-point of the Offer Price range and assuming that the Over-allotment Option is not
exercised) for the Global Offering, are approximately RMB81.5 million (HK$89.5 million),
representing approximately 32.9% of the gross proceeds from the Global Offering. Such
estimated total Listing expenses include (i) underwriting related expenses, including
underwriting commission of approximately RMB11.2 million (HK$12.3 million); (ii) fees and
expenses of our legal advisers and reporting accountant of approximately RMB46.8 million
(HK$51.4 million); and (iii) other fees and expenses of approximately RMB23.5 million
(HK$25.9 million). Up to 31 December 2022, Listing expenses of approximately RMB4.2
million (HK$4.6 million) were expensed through the statement of profit or loss, while as at 31
December 2022, approximately RMB37.6 million (HK$41.3 million) was recognised as
prepaid Listing expenses, and such amount is expected to be recognised directly as a deduction
from equity upon the Listing. For the year ending 31 December 2023, an estimated amount of
approximately RMB4.0 million (HK$4.4 million) is expected to be expensed through the
statement of profit or loss and an additional amount of approximately RMB35.7 million
(HK$39.2 million) is expected to be recognised directly as a deduction from equity upon the
Listing.
RECENT DEVELOPMENTS AND NO MATERIAL ADVERSE CHANGE
Since the end of the Track Record Period and up to the date of this prospectus, our
Directors have confirmed that our heat services business has remained stable in all material
aspects. The number of our concessions remained at six since the end of the Track Record
Period and up to the date of this prospectus. Our total number of heat service customers did
not change materially since the end of the Track Record Period and up to the date of this
prospectus. For the 2022/2023 heat service period, the monthly heat rates applicable to the
Lanzhou New Area Project (inclusive of V AT) increased from RMB5.0 per sq.m. for the
2021/2022 heat service period to RMB5.8 per sq.m. for residential users, and from the range
of RMB7.0 per sq.m. to RMB9.2 per sq.m. for the 2021/2022 heat service period to the range
of RMB8.0 per sq.m. to RMB10.2 per sq.m. for non-residential users, while the monthly rates
charged by us to residential and non-residential users for our other heat service projects
remained the same. Our revenue from the provision and distribution of heat increased by
approximately 9.6% for the year ended 31 December 2022 as compared to the previous year
SUMMARY
–2 3–


--- page 34 ---
as a result of the organic growth of our heat services business. Our Directors confirm that there
was no material adverse change to the provision and distribution of heat services for the
2022/2023 heat service period.
Since the resurgence of COVID-19 in 2022, the relevant local governments have taken
certain measures to prevent further spread of COVID-19, including but not limited to sudden
partial or complete lockdowns, restrictions on domestic and interregional travel and
restrictions on public activities. The lockdowns and restrictions on public activities in some
cities have interrupted certain public services, for example, the granting of construction
planning permits by government bureaux, the construction materials supply chain and
construction work carried out by our subcontractors. Therefore, certain engineering
construction services have been temporarily affected. Despite the aforementioned measures,
our revenue from the provision of engineering construction services increased by
approximately 31.6% for the year ended 31 December 2022 as compared to the previous year.
Our Directors are of the view that there was no material adverse impact on our provision and
distribution of heat services for the 2022/2023 heat service period as a whole. As at the date
of this prospectus, the aforementioned government measures had been lifted, leading to the
gradual resumption of normal commercial and industrial business operations.
Our Directors have confirmed that, since 31 December 2022 (being the date to which our
Company’s latest consolidated financial results were prepared) and up to the date of this
prospectus, there has been no material adverse change in our financial or trading position or
prospects and no event has occurred that would materially and adversely affect the information
shown in our consolidated financial statements in the accountant’s report as set out in Appendix
I to this prospectus.
The actual impact caused by the COVID-19 outbreak will depend on its subsequent
development. Our Directors will continue to assess the impacts of COVID-19 on the business
and financial performance of our Group and will closely monitor the risks and uncertainties
arising thereof.
EFFECTS OF THE COVID-19 OUTBREAK ON OUR BUSINESS OPERATIONS
An outbreak of respiratory illness caused by a novel coronavirus (COVID-19) was first
reported in late 2019 and continues to spread across the PRC and globally. In March 2020, the
World Health Organisation characterised the outbreak of COVID-19 as a global pandemic. As
at the Latest Practicable Date, measures responding to COVID-19 relating to temporary travel
restrictions and shutdown of certain business operations had been lifted, leading to the gradual
resumption of normal commercial and industrial business operations.
During the year ended 31 December 2020, we received a government subsidy of
RMB4,335.7 for purchasing supplies such as masks for the prevention of COVID-19. During
the Track Record Period, we did not receive any other government subsidy and/or financial
assistance in relation to the outbreak of COVID-19.
SUMMARY
–2 4–


--- page 35 ---
In respect of our heat services
Our provision of heat services has not been interrupted since the COVID-19 outbreak as
the provision of heat services is a basic necessity in northern China. For example, northern
China experienced the shutdown of certain industrial and commercial business operations from
February to April of 2020. However, due to the fact that heat service fees were calculated based
on heat service area (instead of actual consumption of heat) and were prepaid by our customers
prior to the commencement of the heat service period, and also our customers were able to
resume normal business operation as soon as the local governments lifted restrictions once the
spread of COVID-19 was under control, our Directors consider that the demand for heat service
from our heat service customers did not materially fluctuate due to the COVID-19 measures.
Since the COVID-19 outbreak, we have not experienced any material dispute with our heat
suppliers and coal suppliers for the provision of our heat services, nor have we encountered any
difficulty in securing sufficient heat sources to ensure the stability of our heat services.
We encountered delays in the settlement of trade receivables by some of our customers,
being mainly property development companies and property management companies, since the
outbreak of COVID-19 as their business activities have been interrupted. The balance of our
trade receivables (excluding notes receivables and lease receivables) aged over one year
amounted to approximately RMB78.3 million, RMB93.5 million and RMB91.6 million,
representing approximately 19.7%, 24.5% and 17.4% of our trade receivables (excluding notes
receivables and lease receivables) as at 31 December 2020, 2021 and 2022, respectively. For
the years ended 31 December 2020, 2021 and 2022, our trade receivables (excluding notes
receivables and lease receivables) aged over one year from property development companies
and property management companies amounted to approximately RMB47.2 million, RMB52.1
million and RMB55.3 million, representing approximately 60.2%, 55.7% and 60.4% of our
trade receivables (excluding notes receivables and lease receivables) aged over one year,
respectively. These customers faced temporary interruption of business activities and financial
difficulties in their business operations which led to longer settlement periods or their
inabilities in settling the amount due to us. However, taking into account the necessity of heat
for such customers, we did not suspend our heat services to them and instead entered into
negotiations with them in good faith to make settlement for our heat services at a later time.
In light of this, our Group has adopted various measures to manage credit risk. We consider that
the delays in the settlement of trade receivables will not have a material adverse impact on our
business and operation in the long term. For details of the measures adopted by our Group to
manage credit risk and the subsequent settlement of our Group’s trade receivables, see
“Financial information – Discussion of certain items of consolidated statements of financial
position – Current assets and current liabilities – Trade receivables” in this prospectus.
SUMMARY
–2 5–


--- page 36 ---
In respect of our engineering construction services
Our provision of engineering construction services was not materially affected by the
outbreak of COVID-19 during the Track Record Period. Our Directors have confirmed that we
closely monitored the construction progress of our contractors for the provision of our
engineering construction services, and we managed to complete all required engineering
construction services during the Track Record Period. For details of the impact of COVID-19
on our engineering construction services following the Track Record Period, see “− Recent
developments and no material adverse change” in this section.
For the elaboration of effects of the COVID-19 outbreak on our business operations, see
“Business – Effects of the COVID-19 outbreak” in this prospectus. Our Directors are of the
view that the outbreak of COVID-19 did not have and will not have any material adverse
impact on the operations and financial performance of our Group.
STATISTICS OF THE GLOBAL OFFERING
(1)
Based on
the minimum
Offer Price of
HK$3.00 per
Offer Share (1)
Based on
the maximum
Offer Price of
HK$4.20 per
Offer Share (1)
Market capitalisation of our Company (2)
HK$ 904.8
million
HK$1,266.7
million
Market capitalisation of the H Shares
HK$ 226.8
million
HK$ 317.5
million
Unaudited pro forma adjusted consolidated net tangible
liabilities of our Group attributable to owners of our
Company per Share
(3) HK$ (5.17) HK$ (4.89)
Notes:
(1) All statistics in this table are based on the assumption that the Over-allotment Option is not exercised.
(2) The market capitalisation is calculated based on 301,600,000 Shares, comprising 75,600,000 H Shares
and 226,000,000 Domestic Shares, expected to be in issue immediately following completion of the
Global Offering (assuming that the Over-allotment Option is not exercised).
(3) The unaudited pro forma adjusted consolidated net tangible liabilities of our Group attributable to
owners of our Company per Share is calculated based on the audited consolidated net tangible liabilities
of our Group attributable to owners of our Company as at 31 December 2022 of approximately
RMB1,552.9 million, after making the adjustments referred to in the unaudited pro forma financial
information as set out in Appendix II to this prospectus and on the basis of a total of 301,600,000 Shares
in issue immediately following completion of the Global Offering (assuming that the Over-allotment
Option is not exercised).
SUMMARY
–2 6–


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USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately HK$187.5 million
(equivalent to approximately RMB170.6 million) from the Global Offering, after deducting the
underwriting commissions and other estimated expenses payable by us in connection with the
Global Offering, assuming an Offer Price of HK$3.60 per H Share (being the mid-point of the
indicative Offer Price range) and that the Over-allotment Option is not exercised.
Our Directors intend to apply the net proceeds from the Global Offering for the following
purposes:
 approximately HK$93.7 million (equivalent to approximately RMB85.3 million),
representing approximately 50.0% of the net proceeds from the Global Offering,
will be used for construction of new peak-shaving boiler (which will be a coal-fired
boiler) in our heat source peak-shaving station for our Lanzhou New Area Project.
We expect that construction for the project will be completed prior to the 2023/2024
heat service period;
 approximately HK$75.0 million (equivalent to approximately RMB68.2 million),
representing approximately 40.0% of the net proceeds from the Global Offering,
will be used for the construction of primary distribution pipelines and heat service
facilities, procurement of relevant equipment and devices for our heat service
operation and future expansion of our Xinmi Project. We expect that our heat service
operation in Xinmi will commence from the 2023/2024 heat service period in or
around November 2023; and
 approximately HK$18.8 million (equivalent to approximately RMB17.1 million),
representing approximately 10.0% of the net proceeds from the Global Offering,
will be used as working capital and other general corporate purposes.
For details, see “Future plans and use of proceeds” in this prospectus.
SUMMARY
–2 7–


--- page 38 ---
RISK FACTORS
We believe that the following are some of the major risks that could have a material
adverse effect on our business: (i) our business operation is concentrated in the “Three North
Region”, and we are susceptible to any adverse development in economic conditions,
government policies or business environment in this region; (ii) our concession rights for our
heat services business will expire or may be terminated before expiration; (iii) we may not be
entitled to any form of government grants or subsidies, including price subsidies for our
Shuozhou Project in the future, under the applicable PRC laws and regulations that are
evolving from time to time; (iv) we may encounter difficulties in expanding our heat services
business if we fail to obtain new concession rights or grow our actual heat service area under
the current concession rights; (v) our actual heat service area may be adjusted due to
unanticipated events; (vi) we may not be able to successfully manage all of the risks associated
with our cross-provincial operation which spans a number of different geographical locations
in the PRC; (vii) there are title defects associated with the heat exchange stations currently
used by us and certain properties we lease and any dispute, order or requirement which may
affect our right to use these properties may materially and adversely affect our business
operation; (viii) any shortage of, disruption or suspension to our heat sources could materially
and adversely affect our heat service business; (ix) our heat rates may not be adjusted
proportionally and/or we may not receive sufficient subsidy for our heat service operations to
sufficiently cover the potential reduction in pipeline connection fee due to any change in its
mechanism; and (x) the amount of intangible assets on our consolidated statements of financial
position increased correspondingly as we recorded revenue from engineering construction
services under IFRIC 12 and such amount represented a significant portion of the assets on our
consolidated statements of financial position and if our intangible assets are impaired, our
results of operations and financial position may be adversely affected.
See “Risk factors” in this prospectus carefully before making any investment decision in
the Offer Shares.
PROPERTY V ALUATION
According to the property valuation report prepared by Vincorn Consulting and Appraisal
Limited, an independent valuer we engaged, as set out in Appendix IV to this prospectus, the
market value of the property interests held by us for property activities in the PRC as at 31
March 2023 was approximately RMB264.8 million. See “Business – Properties” and Appendix
IV in this prospectus for further details on our properties.
NON-COMPLIANCE INCIDENTS
During the Track Record Period, our Group had rectified certain incidents which did not
fully comply with the PRC laws and regulations. See “Business – Regulatory compliance –
Non-compliance incidents” in this prospectus.
SUMMARY
–2 8–


--- page 39 ---
Title defects associated with heat exchange stations in use
As at the Latest Practicable Date, there were 465 heat exchange stations in use for our
provision of heat services to heat service customers. Of these 465 heat exchange stations, 464
heat exchange stations (comprising 451 third-party owned heat exchange stations and 13
self-owned heat exchange stations) are located on third-party owned land, while one
self-owned heat exchange station is located on our land. There were title defects associated
with the 465 heat exchange stations for our heat service operations, mainly because the parties
which requested us to provide heat services lacked complete and valid authority to grant us the
lawful right to use the heat exchange stations and/or the land. In respect of the 464 heat
exchange stations located on third-party owned land, we either obtained written permissions
from or entered into agreements with lessors for the use of the stations and/or land, but such
lessors did not provide all of the requisite title certificates to us. As advised by our PRC Legal
Advisers, we should obtain written permissions or enter into the abovementioned agreements
with the owners who possess the relevant title certificates in order to obtain proper
authorisation for the continuous use of the heat exchange stations and/or the land. Nonetheless,
we have obtained land use right certificates in respect of 274 heat exchange stations, and
obtained confirmations from competent government authorities confirming that the lessors
have the right to grant us the use of 132 heat exchange stations and/or the land. In respect of
one self-owned heat exchange station which we constructed on our land, we have entered into
a State-owned construction land use right transfer agreement with the Shanxi Demonstration
Zone Land Administration, and have fully paid the consideration under the aforementioned
construction land use right transfer agreement. As at the Latest Practicable Date, we were in
the process of obtaining the construction planning permit (ண஝ྌ஢̙) and construction
commencement permit (ʈ஢̙) for such heat exchange station, after which we expect
to conduct the construction acceptance check ( ംʈ᜕ϗ) and will obtain the real estate
certificate (ࣣin due course.
Despite there are title defects associated with the heat exchange stations and the land on
which the heat exchange stations are located, our PRC Legal Advisers are of the view that the
imperfect titles associated with these heat exchange stations and the land are unlikely to have
any material adverse effect on our daily operations, and would not affect the validity of our
Concession Agreements and the legality of our heat service operations in any material respect.
Our Directors, after considering the advice from our PRC Legal Advisers, are of the view that
(a) the risk of us being evicted from the heat exchange stations currently used by us, or being
requested to remove or relocate our equipment and machinery installed therein leading to the
disruption of our operation, is remote, mainly because (i) we have never been evicted from any
heat exchange stations used by us since we began the operation of our first concession in 2012;
and (ii) pursuant to the Measures of City Yellow Line Management ()
promulgated by the Ministry of Construction of the PRC (now known as MOHURD) and the
Standard for Urban Residential Area Planning and Design (ᅺ๟)
promulgated by the MOHURD, heat exchange stations cannot (by law) be demolished or
relocated without proper authorisation from relevant government authorities, and we have an
obligation to ensure stable heat services to our heat service customers despite the existence of
the title defects; and (b) the risks arising from the title defects, whether individually or
SUMMARY
–2 9–


--- page 40 ---
collectively, did not have and are unlikely to have a material adverse impact on our provision
of heat services, financial position and results of our operations, mainly because (i) to the best
knowledge of our Directors, we have never been penalised, nor threatened to be penalised by
the relevant competent government authorities for the abovementioned title defects; (ii) even
if we are requested to demolish the heat exchange station or relocate the equipment and
machinery and connecting pipelines installed to a new heat exchange station, we believe we
would receive advanced notices and the relevant government authorities will assist us in
finding alternative premises for the new heat exchange station in a timely manner; and (iii) the
cost of relocation is modest, and Shuangliang Technology (one of our Controlling
Shareholders) has undertaken that it will help us find alternative locations and indemnify us
against all costs resulting from such relocation, as well as all penalties or compensation that
we may be required to pay as a result of the title defects. After considering the advice from our
PRC Legal Advisers and based on its own independence due diligence conducted, the Sole
Sponsor concurs with the view of our Directors set out above. For details, see “Business –
Properties – Heat exchange stations for our heat service operation” in this prospectus.
SUMMARY
–3 0–


--- page 41 ---
In this prospectus, unless the context otherwise requires, the following expressions shall
have the following meanings.
“affiliate” any other person, directly or indirectly, controlling or
controlled by or under direct or indirect common control
with such specified person
“AFRC” Accounting and Financial Reporting Council of Hong Kong
“Articles” or “Articles of
Association”
the articles of association of our Company, conditionally
adopted on 12 June 2023 to take effect on the Listing
Date, as amended or supplemented from time to time
“associate(s)” has the meaning ascribed to it under the Listing Rules
“Beijing Zhongchuang” Beijing Zhongchuang Financial Leasing Company
Limited* (ʮ̡), a company with
limited liability established in the PRC on 19 October
2012, the registered capital of which is held as to 10% by
Shuangliang Technology and 90% by Earnstar Holding
Limited. Earnstar Holding Limited is an associate of Mr.
Ma Fulin (΋͛) (our non-executive Director and
one of our Controlling Shareholders) and Mr. Ma Peilin
(΋͛) (our supervisor and one of our Controlling
Shareholders). Hence, Beijing Zhongchuang is a
connected person of our Company
“Board” or “Board of Directors” the board of directors of our Company
“business day” or
“Business Day”
a day on which banks in Hong Kong are generally open
for normal banking business to the public and which is
not a Saturday, Sunday or public holiday in Hong Kong
“Capital Market Intermediaries”
or “capital market
intermediary(ies)” or
“CMI(s)”
the capital market intermediaries participating in the
Global Offering and has the meaning ascribed thereto
under the Listing Rules, which for the purpose of this
prospectus only, means Guotai Junan Securities (Hong
Kong) Limited, Orient Securities (Hong Kong) Limited,
CEB International Capital Corporation Limited, ABCI
Capital Limited, ABCI Securities Company Limited,
China Galaxy International Securities (Hong Kong) Co.,
Limited, Kingsway Financial Services Group Limited,
Livermore Holdings Limited, Fortune (HK) Securities
Limited and Selina & Co. Limited
DEFINITIONS
–3 1–


--- page 42 ---
“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 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 Center by
completing an input request
“CCASS Investor Participant” a person admitted to participate in CCASS as an investor
participant who may be an individual, joint individuals or
a corporation
“CCASS Operational Procedures” The operational procedures of HKSCC in relation to
CCASS, containing the practices, procedures and
administrative requirements relating to the operation and
functions of CCASS, as from time to time in force
“CCASS Participant” a CCASS Clearing Participant, CCASS Custodian
Participant or CCASS Investor Participant
“China” or “PRC” the People’s Republic of China, excluding, for the
purpose of this prospectus, Hong Kong, Macau Special
Administrative Region and Taiwan
DEFINITIONS
–3 2–


--- page 43 ---
“close associate(s)” has the meaning ascribed thereto under the Listing Rules
“CNIPA” China National Intellectual Property Administration ( ʕ
ᗆପᛆ҅), which is the relevant
national authority responsible for organising and
coordinating intellectual property protection works and
dealing with patent laws and administration
“Co-Managers” Fortune (HK) Securities Limited and Selina & Co.
Limited
“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” or “our Company”
or “the Company” or “Wise
Living Technology”
Wise Living Technology Co., Ltd (ʮ
̡), formerly known as Jiangsu Shuangliang Contract
Energy Management Company Limited* ( ϪᘽᕐԄΥΝ
ʮ̡), Shuangliang Eco-Energy Systems
(Jiangsu) Company Limited* ( ᕐԄືঐӻ୕(Ϫᘽ)ࠢ
ʮ̡) and Wise Living Technology Limited* (ҦϞ
ʮ̡), a company with limited liability established in
the PRC on 3 September 2010 and converted into a joint
stock company with limited liability on 29 December
2015
“Concession Agreement(s)” the Shuozhou Concession Agreement, the Taiyuan
Concession Agreement, the Hulunbuir Concession
Agreement, the Lanzhou New Area Concession
Agreement, the Shanxi Demonstration Zone Concession
Agreement and the Xinmi Concession Agreement, or any
one of the above
“connected person(s)” has the meaning ascribed thereto under the Listing Rules
DEFINITIONS
–3 3–


--- page 44 ---
“Controlling Shareholder(s)” has the meaning ascribed thereto under the Listing Rules.
Unless the context requires otherwise, each of
Shuangliang Technology, Jiangsu Lichuang, Mr. Miao
Shuangda ( ᐷᕐɽ΋͛), Mr. Miao Wenbin ( ᐷ˖੸΋͛),
Mr. Miao Zhiqiang ( ᐷқ੶΋͛), Ms. Miao Shuya ( ᐷബ
ૹɾɻ), Mr. Miao Heida ( ᐷලɽ΋͛), Mr. Jiang
Rongfang ( Ϫ࿲˙΋͛), Mr. Ma Peilin (΋͛) and
Mr. Ma Fulin (΋͛) is a Controlling Shareholder.
They are considered as a group of our Controlling
Shareholders as the individual Shareholders above have
decided to restrict their ability to exercise direct control
over our Company by holding their equity interests
through Shuangliang Technology and Jiangsu Lichuang
“Corporate Governance Code” the Corporate Governance Code as set out in Appendix 14
to the Listing Rules, as amended, supplemented or
otherwise modified from time to time
“CSRC” China Securities Regulatory Commission ( ʕ਷ᗇՎ္ຖ
ึ), a regulatory body responsible for the
supervision and regulation of the PRC national securities
markets
“Cybersecurity Review Measures
(2021)”
Measures for Cybersecurity Review (፬
), which was issued on 28 December 2021, and was
implemented on 15 February 2022
“Datong Renewable Energy” Datong City Renewable Energy Heating Company
Limited* (ʮ̡), a company
with limited liability established in the PRC on 25
September 2009, an indirect non wholly-owned
subsidiary of our Company, the registered capital of
which is held as to 70% by Taiyuan Renewable Energy,
15% by Mr. Zhang Quan ( ੵᛆ΋͛) (a director of Datong
Renewable Energy), 10% by Mr. Li Wen ( ҽ˖΋͛)( a
supervisor of Datong Renewable Energy), and 5% by Ms.
Zhao Lihong (ɾɻ) (a director of Datong
Renewable Energy). Mr. Zhang Quan, Mr. Li Wen and
Ms. Zhao Lihong are connected persons of our Company
at the subsidiary level
“Deed of Indemnity” a deed of indemnity dated 29 May 2023 entered into by
our Controlling Shareholders in favour of our Company
(for itself and as trustee for each of its subsidiaries as
stated therein)
DEFINITIONS
–3 4–


--- page 45 ---
“Director(s)” or “our Director(s)” the director(s) of our Company
“Domestic Share(s)” share(s) issued by our Company in the PRC, which are
subscribed for in RMB
“Draft Measures” the Draft Measures for the Price and Fee Control and the
Draft Measures for the Supervision and Review of the
Pricing Cost
“Draft Measures for the Price
and Fee Control”
Administrative Measures for the Price and Fee Control
of Urban Centralised Heat Services (Draft for
Comments) (ج(ᅄӋจ
Ԉᇃ)), as published by the NDRC on 10 April 2020
which were open for public consultation between 10
April 2020 and 9 May 2020. As at the Latest Practicable
Date, there had been no further announcements from the
NDRC as to whether the Draft Measures for the Price and
Fee Control will be amended, supplemented, revised,
adopted or promulgated.
“Draft Measures for the
Supervision and Review
of the Pricing Cost”
Measures for the Supervision and Review of the Pricing
Cost of Urban Centralised Heat Services (Draft for
Comments) (ج(ᅄӋจԈ
ᇃ)), as published by the NDRC on 10 April 2020
which were open for public consultation between 10
April 2020 and 9 May 2020. As at the Latest Practicable
Date, the implementation and enactment of the Draft
Measures were pending, and there had been no further
announcements from the NDRC as to whether and when
the Draft Measures for the Supervision and Review of the
Pricing Cost will be amended, supplemented, revised,
adopted or promulgated.
“Draft Regulations On Network
Data Security Management”
Administrative Regulations on Network Data Security
(Draft for Comments) ( ၣഖᅰኽτΌ၍ଣૢԷ(ᅄӋจ
Ԉᇃ)) which was promulgated by Cyberspace
Administration of China (፬
܃on 14 November 2021
DEFINITIONS
–3 5–


--- page 46 ---
“Draft Rules” Rules on Centralised Heat Supply for Shuozhou City
(Draft) (Draft for Comments) (ψ̹ණʕԶᆠૢԷ(ণ
ࣩ)(ᅄӋจԈᇃ)), as published by the Shuozhou City
Bureau of Municipal Affairs Administration (̹
၍ଣ҅) on 20 April 2022 which were open for first
public consultation between 20 April 2022 and 20 May
2022, and then a revised version was issued on
6 September 2022 and open for second public
consultation between 6 September 2022 and 16
September 2022. As at the Latest Practicable Date, the
implementation and enactment of the Draft Rules were
pending, and there had been no further announcement
from the Shuozhou City Bureau of Municipal Affairs
Administration (̹၍ଣ҅) as to whether and
when the Draft Rules will be amended, supplemented,
revised, adopted or promulgated
“EIT” enterprise income tax
“EIT Rules” the Regulation on the Implementation of the PRC EIT
Law (ૢԷ) which
was promulgated on 28 November 2007 and became
effective on 1 January 2008, and was subsequently
amended and became effective on 23 April 2019
“Extreme Conditions” extreme conditions caused by super typhoons, including
but not limited to serious disruption of public transport
services, extensive flooding, major landslides or large-
scale power outage after super typhoons, as announced
by the Hong Kong government
“Frost & Sullivan” Frost & Sullivan (Beijing) Inc., Shanghai Branch Co., an
independent global market research and consulting
company
“Frost & Sullivan Report” an industry report prepared by Frost & Sullivan, which
was commissioned by us
DEFINITIONS
–3 6–


--- page 47 ---
“Gansu Shuangliang” Gansu Shuangliang Energy System Investment Company
Limited* (ʮ̡), a company
with limited liability established in the PRC on 27
February 2013, an indirect non wholly-owned subsidiary
of our Company, the registered capital of which is held as
to 80% by Wise Living Energy and 20% by Lanzhou
Hanhai Trading Company Limited* (ࠢ
ʮ̡) which is a connected person of our Company at the
subsidiary level
“Gansu Smart Energy” Gansu Shuangliang Smart Energy Management Company
Limited* (ʮ̡), a company
with limited liability established in the PRC on 6 July
2016, an indirect non wholly-owned subsidiary of our
Company, which is wholly owned by Gansu Shuangliang
“Global Offering” the Hong Kong Public Offering and the International
Offering
“GREEN Application Form(s)” the application form(s) to be completed by the White
Form eIPO Service Provider designated by our
Company, Computershare Hong Kong Investor Services
Limited
“Group”, “our Group”,
“the Group”, “we”, “us”,
or “our”
our Company and its subsidiaries, or where the context so
requires, in respect of the period before our Company
became the holding company of its present subsidiaries,
such subsidiaries as if they were subsidiaries of our
Company at the relevant time
“H Share(s)” ordinary share(s) in the share capital of our Company
with nominal value of RMB1.00 each, which is/are to be
subscribed for and traded in HK dollars and is/are to be
listed on the Stock Exchange
“H Share Registrar” Computershare Hong Kong Investor Services Limited
“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
DEFINITIONS
–3 7–


--- page 48 ---
“Hohhot Wise Living” Hohhot Wise Living Clean Energy Company Limited*
(ʮ̡), a company with
limited liability established in the PRC on 17 May 2019,
which was wholly owned by Wise Living Energy prior to
its deregistration on 1 November 2021
“Hong Kong” or “HK” the Hong Kong Special Administrative Region of the
People’s Republic of China
“Hong Kong dollars” or
“HK dollars” or “HK$” or
“HKD”
Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong Offer Shares” 7,560,000 new H Shares being initially offered by our
Company for subscription at the Offer Price pursuant to
the Hong Kong Public Offering (subject to reallocation as
described in “Structure of the Global Offering” in this
prospectus)
“Hong Kong Public Offering” the offering of the Hong Kong Offer Shares for
subscription by the public in Hong Kong for cash (subject
to reallocation as described in “Structure of the Global
Offering” in this prospectus) at the Offer Price (plus
brokerage, SFC transaction levy, AFRC transaction levy
and Stock Exchange trading fee), subject to and in
accordance with the terms and conditions described in
this prospectus and the GREEN Application Form as
further described in “Structure of the Global Offering –
Hong Kong Public Offering” in this prospectus
“Hong Kong Underwriters” the underwriters of the Hong Kong Public Offering listed
in “Underwriting – Hong Kong Underwriters” in this
prospectus
“Hong Kong Underwriting
Agreement”
the underwriting agreement dated 27 June 2023 relating
to the Hong Kong Public Offering and entered into by our
Company, our Controlling Shareholders, our executive
Directors, the Sole Sponsor, the Sponsor-OC, the Overall
Coordinator, the Sole Global Coordinator, the Joint
Bookrunners, the Joint Lead Managers, the Co-Managers,
the Hong Kong Underwriters, and the Capital Market
Intermediaries, as further described in “Underwriting –
Underwriting arrangements and expenses – Hong Kong
Public Offering – Hong Kong Underwriting Agreement”
in this prospectus
DEFINITIONS
–3 8–


--- page 49 ---
“Hulunbuir Concession
Agreement”
the concession agreement dated 20 September 2013
entered into between Hulunbuir City of Inner Mongolia
Autonomous Region Housing Urban-Rural Construction
Committee* (ண։
ึ) (currently known as Hulunbuir City of Inner
Mongolia Autonomous Region Housing and Urban-Rural
Development Bureau* (ձ
ண҅)) and Hulunbuir Shuangliang, and renewed
on 18 February 2019, pursuant to which we provide heat
services and engineering construction services in Hailar
district of Hulunbuir city under our Hulunbuir Project
“Hulunbuir Project” Hulunbuir Inner City Area Municipal Heat Services
Project (ᕄԶᆠධͦ), a project
established pursuant to the Hulunbuir Concession
Agreement
“Hulunbuir Shuangliang” Hulunbuir Shuangliang Energy System Company
Limited* (ʮ̡), a company
with limited liability established in the PRC on 11 March
2013, an indirect non wholly-owned subsidiary of our
Company, the registered capital of which is held as to
85% by Wise Living Energy and 15% by Hulunbuir
Dongsheng Energy Investment Company limited* (ࡐ
ʮ̡) which is a connected
person of our Company at the subsidiary level
“IFRIC” International Financial Reporting Interpretations
Committee
“IFRIC 12” or “IFRIC 12 Service
Concession Arrangements”
Hong Kong (IFRIC) Interpretation 12 Service
Concession Arrangements (HK(IFRIC)-Int 12), which
sets out general principles on recognising and measuring
the obligations and related rights in service concession
arrangements
“IFRS” International Financial Reporting Standards
“Independent Third Party(ies)” individual(s) or companies who or which is/are not a
connected person(s) of our Company and is/are
independent of our Company
DEFINITIONS
–3 9–


--- page 50 ---
“Inner Mongolia Wise Living” Inner Mongolia Wise Living Tianlang Clean Energy
Company Limited* (ʮ̡),
a company with limited liability established in the PRC
on 28 June 2018, an indirect non wholly-owned
subsidiary of our Company, the registered capital of
which is held as to 77.89% by Wise Living Energy and
22.11% by Inner Mongolia Environmental Governance
Construction Company Limited* (ଣʈ೻
ʮ̡) which is a connected person of our Company
at the subsidiary level
“International Offer Shares” the 68,040,000 new H Shares being initially offered
under the International Offering together, where relevant,
with any additional H Shares to be issued pursuant to the
exercise of the Over-allotment Option, subject to
reallocation as described in “Structure of the Global
Offering” in this prospectus
“International Offering” the offer of the International Offer Shares at the Offer
Price, 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, including to professional investors in Hong Kong, as
further described in “Structure of the Global Offering” in
this prospectus
“International Underwriters” the underwriters of the International Offering that are
expected to enter into the International Underwriting
Agreement
“International Underwriting
Agreement”
the underwriting agreement relating to the International
Offering to be entered into by our Company, our
Controlling Shareholders, our executive Directors, the
Sole Sponsor, the Sponsor-OC, the Overall Coordinator,
the Sole Global Coordinator, the Joint Bookrunners, the
Joint Lead Managers, the Co-Managers, the International
Underwriters and the Capital Market Intermediaries on or
about the Price Determination Date, as further described
in “Underwriting – International Offering” in this
prospectus
“Interim Measures” Interim Measures for the Price Control of Urban
Heat Services ()a s
jointly issued by the NDRC and the then Ministry of
Construction of the PRC (ண௅),
promulgated on 3 June 2007 and implemented on 1
October 2007
DEFINITIONS
–4 0–


--- page 51 ---
“Jiangsu Lichuang” Jiangsu Lichuang New Energy Company Limited* ( Ϫᘽ
ʮ̡), a company with limited liability
established in the PRC on 24 December 1997, the
registered capital of which is held as to 20% by Mr. Miao
Shuangda ( ᐷᕐɽ΋͛) (one of our Controlling
Shareholders), 15% by Mr. Miao Wenbin ( ᐷ˖੸΋͛)
(our non-executive Director and one of our Controlling
Shareholders), 10% by Mr. Miao Zhiqiang ( ᐷқ੶΋͛)
(one of our Controlling Shareholders), 10% by Ms. Miao
Shuya ( ᐷബૹɾɻ) (one of our Controlling
Shareholders), 10% by Mr. Miao Heida ( ᐷලɽ΋͛)
(one of our Controlling Shareholders), 15% by Mr. Jiang
Rongfang ( Ϫ࿲˙΋͛) (one of our Controlling
Shareholders), 10% by Mr. Ma Fulin (΋͛) (our
non-executive Director and one of our Controlling
Shareholders) and 10% by Mr. Ma Peilin (΋͛)
(our supervisor and one of our Controlling Shareholders).
Hence, Jiangsu Lichuang is considered to be one of our
Controlling Shareholders
“Jiangyin Hotel” Jiangyin International Grand Hotel Company Limited*
(ʮ̡), a company with limited
liability established in the PRC on 26 March 1996, the
registered capital of which is held as to 75% by
Shuangliang Group Co. and 25% by SL International
Investments Co. Ltd. which is a company incorporated in
the British Virgin Islands with limited liability and a
connected person of our Company. Shuangliang Group
Co. is an associate of Mr. Miao Shuangda ( ᐷᕐɽ΋͛)
(one of our Controlling Shareholders). Hence, Jiangyin
Hotel is a connected person of our Company
“Joint Bookrunners” Guotai Junan Securities (Hong Kong) Limited, Orient
Securities (Hong Kong) Limited, CEB International
Capital Corporation Limited, ABCI Capital Limited and
China Galaxy International Securities (Hong Kong) Co.,
Limited
“Joint Lead Managers” Guotai Junan Securities (Hong Kong) Limited, Orient
Securities (Hong Kong) Limited, CEB International
Capital Corporation Limited, ABCI Securities Company
Limited, China Galaxy International Securities (Hong
Kong) Co., Limited, Kingsway Financial Services Group
Limited and Livermore Holdings Limited
DEFINITIONS
–4 1–


--- page 52 ---
“Lanzhou Bureau” Lanzhou New Area Urban and Rural Construction and
Transportation Bureau* (ணձʹஷ၍ଣ
҅), which is the relevant competent authority in charge
of all matters in respect of our concession right for the
Lanzhou New Area Project
“Lanzhou New Area Concession
Agreement”
the concession agreement entered into between Lanzhou
New Area Management Committee* (ࡰ
ึ) and Lanzhou Shuangliang in January 2014, and
renewed in June 2019, pursuant to which we provide heat
services and engineering construction services in
Lanzhou New Area of Lanzhou city under our Lanzhou
New Area Project
“Lanzhou New Area Project” Lanzhou New Area Project (௅ਜਹණʕԶᆠ
ධͦ), a project established pursuant to the Lanzhou New
Area Concession Agreement
“Lanzhou Shuangliang” Lanzhou New Area Shuangliang Thermal Power
Company Limited* (ʮ̡), a
company with limited liability established in the PRC on
31 July 2013, an indirect non wholly-owned subsidiary of
our Company, which is wholly owned by Gansu
Shuangliang
“Lanzhou Wise Living” Lanzhou Wise Living Thermal Engineering Company
Limited* (ʮ̡), a company with
limited liability established in the PRC on 27 August
2018, an indirect non wholly-owned subsidiary of our
Company, which was wholly owned by Gansu
Shuangliang prior to its deregistration on 10 March 2023
“Latest Practicable Date” 18 June 2023, being the latest practicable date for the
purpose of ascertaining certain information contained in
this prospectus
“Listing” the listing of our H Shares on the Main Board of the
Stock Exchange
“Listing Committee” the listing sub-committee of the board of directors of the
Stock Exchange
DEFINITIONS
–4 2–


--- page 53 ---
“Listing Date” the date, expected to be on or around 10 July 2023, on
which our H Shares are listed on the Stock Exchange and
from which dealings in our H Shares are permitted to take
place on the Stock Exchange
“Listing Rules” or “Hong Kong
Listing Rules”
the Rules Governing the Listing of Securities on the
Stock Exchange, as amended, supplemented or otherwise
modified from time to time
“Lvliang Renewable Energy” Lvliang City Renewable Energy Heat Supply Company
Limited* (ʮ̡), a company
with limited liability established in the PRC on 30
November 2009, an indirect non wholly-owned
subsidiary of our Company, the registered capital of
which is held as to 90% by Taiyuan Renewable Energy
and 10% by Mr. Xue Ming ( ᑡთ΋͛) who is a connected
person of our Company at the subsidiary level
“Main Board” the stock exchange (excluding the option market)
operated by the Stock Exchange which is independent
from and operated in parallel to the GEM operated by the
Stock Exchange
“Mandatory Clauses” the “Mandatory Clauses for Articles of Association of
Companies to be Listed Overseas” ( Ցྤ̮ɪ̹ʮ̡௝೻
̀௪ૢಛ), as amended, supplemented or otherwise
modified from time to time, for inclusion in the articles of
association of companies incorporated in the PRC to be
listed overseas (including Hong Kong), which were
promulgated by the former Securities Commission of the
State Council (ึ) and the former State
Commission for Restructuring the Economic Systems ( ਷
ึ) on 27 August 1994
“MOF” the Ministry of Finance of the PRC (݁
௅)
“MOHURD” the Ministry of Housing and Urban-Rural Development
of the PRC (ண௅)
“NDRC” the National Development and Reform Commission of
the PRC (ึ)
DEFINITIONS
–4 3–


--- page 54 ---
“NEEQ” the National Equities Exchange and Quotations ( Ό਷ʕ
΅ᔷᜫӻ୕)
“NPC” the National People’s Congress (ɽึ)o f
the PRC
“Offer Price” the final Hong Kong dollar price per Offer Share
(exclusive of brokerage, SFC transaction levy, AFRC
transaction levy and Stock Exchange trading fee) of not
more than HK$4.20 and expected to be not less than
HK$3.00, such price to be agreed upon by our Company,
the Overall Coordinator and the Sole Global Coordinator
(for themselves and on behalf of the Underwriters and the
Capital Market Intermediaries) on the Price
Determination Date
“Offer Shares” the Hong Kong Offer Shares and the International Offer
Shares
“Original EMC” an EMC contract entered into between our Group and an
energy management service company principally
engaged in the business of power generation based in
Gansu Province, the PRC in March 2017, pursuant to
which we agreed to provide EMC services in an energy
conservation project in relation to the collection of
residual heat from recycling water
“Over-allotment Option” the option granted by us to the Overall Coordinator and
the Sole Global Coordinator, pursuant to which we may
be required to allot and issue up to 11,340,000 additional
H Shares (representing up to 15% of the H Shares
initially being offered under the Global Offering) at the
Offer Price to cover over-allocations in the International
Offering, details of which are described in “Structure of
the Global Offering” in this prospectus
“People’s Congress” the legislative apparatus of the PRC, including the NPC
and all the local people’s congresses (including
provincial, municipal and other regional or local people’s
congresses) as the context may require, or any of them
(ɽึ)
DEFINITIONS
–4 4–


--- page 55 ---
“PRC Company Law” or
“Company Law”
the Company Law of the PRC ( ʕശɛ͏΍ձ਷ʮ̡
) which was promulgated on 29 December 1993 and
became effective on 1 July 1994, as amended,
supplemented or otherwise modified from time to time
“PRC EIT Law” the Enterprise Income Tax Law of the PRC ( ʕശɛ͏
) which was promulgated on 16
March 2007 and became effective on 1 January 2008, and
was subsequently amended and became effective on 29
December 2018
“PRC GAAP” the China Accounting Standards (ۆa s
promulgated and amended from time to time and their
interpretations, guidelines and implementation rules,
which collectively are accepted as generally accepted
accounting principles in the PRC
“PRC Government” or “State” the government of the PRC including all political
subdivisions (including provincial, municipal and other
regional or local government entities) and their
instrumentalities thereof or, where the context requires,
any of them
“PRC Legal Advisers” Llinks Law Offices, our legal advisers as to PRC law
“PRC Pricing Law” the Pricing Law of the PRC (ࣸ
) which was promulgated on 29 December 1997 and
became effective on 1 May 1998
“Price Determination Agreement” the agreement to be entered into by the Overall
Coordinator and the Sole Global Coordinator (for
themselves and on behalf of the Underwriters and the
Capital Market Intermediaries) and our Company on the
Price Determination Date to record and fix the Offer
Price
“Price Determination Date” the date, expected to be on or around 3 July 2023, but no
later than 7 July 2023, on which the Offer Price is fixed
for the purpose of the Global Offering
“R&D” research and development
“Regulation S” Regulation S under the U.S. Securities Act
DEFINITIONS
–4 5–


--- page 56 ---
“RMB” or “Renminbi” Renminbi, the lawful currency of the PRC
“SAFE” the State Administration of Foreign Exchange of the PRC
(̮ි၍ଣ҅)
“SAT” or “State Taxation
Administration”
the State Taxation Administration of the PRC ( ʕശɛ͏
೼ਕᐼ҅)
“SFC” the Securities and Futures Commission of Hong Kong
“SFO” or “Securities and
Futures Ordinance”
the Securities and Futures Ordinance (Chapter 571 of the
Laws of Hong Kong) as amended, supplemented or
otherwise modified from time to time
“Shaanxi Gas Group New Energy
Development”
Shaanxi Gas Group New Energy Development
Company Limited* (ࠢ
ʮ̡), formerly known as Shaanxi Gas Group New
Energy Development Limited* ( ৯Гዷंණྠอঐ๕೯
ʮ̡), a joint stock company with limited liability
established in the PRC on 21 March 2013. Shaanxi Gas
Group New Energy Development is held as to 10% by
Wise Living Energy and 90% in aggregate by four other
shareholders which are Independent Third Parties
“Shanghai Tongsheng LP” Shanghai Tongsheng Yongying Enterprise Management
Centre (Limited Partnership)* (Άุ၍ଣʕ
ː(Υྫ), formerly known as Jiangyin Tongsheng
Enterprise Management Centre (Limited Partnership)*
(Ϫ௕ΝସΆุ၍ଣʕː(Υྫ), a limited partnership
established in the PRC on 22 January 2016, which is held
as to 68.5% in aggregate by Mr. Miao Shuangda ( ᐷᕐɽ
΋͛) (one of our Controlling Shareholders) and his
associates and 31.5% in aggregate by three other
shareholders. Shanghai Tongsheng LP is an associate of
Mr. Miao Shuangda. Hence, Shanghai Tongsheng LP is a
connected person of our Company
“Shanxi Carbon Trading” Shanxi Shuangliang Carbon Trading Management
Company Limited* (ʮ̡), a
company with limited liability established in the PRC on
6 May 2016, an indirect non wholly-owned subsidiary of
our Company, which is wholly owned by Shanxi
Shuangliang Renewable Energy
DEFINITIONS
–4 6–


--- page 57 ---
“Shanxi Datang” Shanxi Datang International Shentou Power Generation
Co., Ltd.* (ப΂ʮ̡), which
is owned as to 60% by Datang International Power
Generation Co., Ltd., a company listed on the Stock
Exchange (stock code: 991), and an Independent Third
Party
“Shanxi Demonstration Zone
Concession Agreement”
the concession agreement dated 18 September 2018
entered into between Management Committee of Shanxi
Transformation and Comprehensive Reform
Demonstration Zone* (ͪᇍਜ၍ଣ։
ึ) and Shanxi Demonstration Zone Heat Supply,
pursuant to which we provide heat services and
engineering construction services in Shanxi
Transformation and Comprehensive Reform
Demonstration Zone of Shanxi province under our Shanxi
Demonstration Zone Project
“Shanxi Demonstration Zone
Heat Supply”
Shanxi Transformation and Comprehensive Reform
Demonstration Zone Heat Supply Company Limited* ( ʆ
ʮ̡), a company with
limited liability established in the PRC on 19 September
2018, an indirect non wholly-owned subsidiary of our
Company, which is wholly owned by Taiyuan Renewable
Energy
“Shanxi Demonstration Zone
Project”
Shanxi Transformation and Comprehensive Reform
Demonstration Zone Xiaohe Industrial Park and Science
and Technology Innovation City Heat Services Project
(Զ
ਕධͦ), a project established pursuant to the Shanxi
Demonstration Zone Concession Agreement
“Shanxi New Energy Equipment” Shanxi Shuangliang New Energy Equipment
Manufacturing Company Limited* ( ʆГᕐԄอঐ๕ༀ௪
ʮ̡), a company with limited liability
established in the PRC on 8 January 2018, which was
wholly owned by Taiyuan Renewable Energy prior to its
deregistration on 26 May 2020
DEFINITIONS
–4 7–


--- page 58 ---
“Shanxi Shentou” State Energy Group Shanxi Shentou No. 2 Power Plant
Co., Ltd.* (ʮ̡),
which is wholly owned by State Energy Group Shanxi
Electric Power Company Limited* (ঐ๕ණྠʆГཥ
ʮ̡), and an Independent Third Party
“Shanxi Shuangliang New
Energy”
Shanxi Shuangliang New Energy Thermoelectric
Engineering Design Company Limited* ( ʆГᕐԄอঐ๕
ʮ̡), a company with limited liability
established in the PRC on 6 June 2016, an indirect non
wholly-owned subsidiary of our Company, which is
wholly owned by Shanxi Shuangliang Renewable Energy
“Shanxi Shuangliang Renewable
Energy”
Shanxi Shuangliang Renewable Energy Industry Group
Company Limited* (ʮ
̡), formerly known as Shanxi Shuangliang Renewable
Energy Development and Utilisation Company Limited*
(ʮ̡), Shanxi Kelai
Renewable Energy Development and Utilisation
Company Limited* (ʮ
̡) and Shanxi Kelai Technology Company Limited* ( ʆ
ʮ̡), a company with limited liability
established in the PRC on 15 February 2006, an indirect
non wholly-owned subsidiary of our Company, the
registered capital of which is held as to 51% by Wise
Living Energy and 49% in aggregate by five other
shareholders
“Shanxi Smart Life” Shanxi Smart Life Property Service Company Limited*
(ʮ̡), a company with limited
liability established in the PRC on 9 November 2016, an
indirect non wholly-owned subsidiary of our Company,
which is wholly owned by Taiyuan Renewable Energy
“Share(s)” ordinary share(s) in the capital of our Company with
nominal value of RMB1.00, comprising our Domestic
Share(s) and our H Share(s)
“Shareholder(s)” holder(s) of the Shares
DEFINITIONS
–4 8–


--- page 59 ---
“Shentou Second Power Station” Shanxi Shentou Second Power Station* ( ʆГग़᎘ɚཥ
ᅀ), a notable regional power plant station located in
Shuozhou of Shanxi Province, which comprises a number
of cogeneration plants, including but not limited to the
Shuozhou Project Cogeneration Plant #2 (ψධͦᆠཥ
ᅀ#2) owned by Shanxi Shentou and Shuozhou Project
Cogeneration Plant #4 (ψධͦᆠཥᅀ#4) owned by
Shanxi Datang
“Shuangliang Boiler” Jiangsu Shuangliang Boiler Company Limited* ( Ϫᘽᕐ
ʮ̡), a company with limited liability
established in the PRC on 30 March 2000, the registered
capital of which is held as to 66.7% by Shuangliang
Technology (one of our Controlling Shareholders) and
33.3% by SL International Investments Co. Ltd. which is
a company incorporated in the British Virgin Islands with
limited liability and a connected person of our Company.
Shuangliang Boiler is an associate of Shuangliang
Technology. Hence, Shuangliang Boiler is a connected
person of our Company
“Shuangliang Eco-Energy” Shuangliang Eco-Energy Systems Co., Ltd.* ( ᕐԄືঐ
ʮ̡), formerly known as Jiangsu
Shuangliang Air-conditioning Limited* (ሜண
ʮ̡) and Jiangsu Shuangliang Trane Lithium
Bromide Refrigerator Company Limited* ( ϪᘽᕐԄतᜳ
ʮ̡), a joint stock company with
limited liability established in the PRC on 5 October
1995 and listed on Shanghai Stock Exchange (stock code:
600481.SH), the then sole shareholder of our Company
since the establishment of our Company and up to
22 October 2015. Shuangliang Eco-Energy is controlled
by Mr. Miao Shuangda ( ᐷᕐɽ΋͛) (one of
our Controlling Shareholders). Hence, Shuangliang Eco-
Energy is a connected person of our Company
“Shuangliang Eco-Energy Group” Shuangliang Eco-Energy and its subsidiaries from time to
time
DEFINITIONS
–4 9–


--- page 60 ---
“Shuangliang Eco Engineering” Jiangsu Shuangliang Energy-Saving Eco Engineering
Technique Company Limited* (ʈ೻Ҧ
ʮ̡), formerly known as Jiangsu Shuangliang
Air-conditioning Installation Company Limited* ( Ϫᘽᕐ
ʮ̡), a company established in the PRC
on 3 July 2003, the registered capital of which is held as
to 90% by Shuangliang Eco-Energy and 10% by Jiangsu
Lichuang. Shuangliang Eco-Energy is an associate of Mr.
Miao Shuangda ( ᐷᕐɽ΋͛) (one of our Controlling
Shareholders). Hence, Shuangliang Eco Engineering is a
connected person of our Company
“Shuangliang Group Co.” Shuangliang Group Company Limited* (ʮ
̡), formerly known as Jiangsu Shuangliang Group
Limited* (ʮ̡), Jiangsu Shuangliang
Group Company* ( ϪᘽᕐԄණྠʮ̡) and Jiangyin
Lithium Bromide Refrigerator Factory* ( Ϫ௕̹๥ʷ቞Ⴁ
иዚᅀ), a company with limited liability established in
the PRC on 25 December 1987, the registered capital of
which is held as to 68% in aggregate by Mr. Miao
Shuangda ( ᐷᕐɽ΋͛) (one of our Controlling
Shareholders) and his associates, 15% by Mr. Jiang
Rongfang ( Ϫ࿲˙΋͛) (one of our Controlling
Shareholders), 9% by Mr. Gao Ming (΋͛) (an
Independent Third Party), 4% by Mr. Ma Peilin (؍
΋͛) (our supervisor and one of our Controlling
Shareholders) and 4% by Mr. Ma Fulin (΋͛) (our
non-executive Director and one of our Controlling
Shareholders). Shuangliang Group Co. is an associate of
Mr. Miao Shuangda ( ᐷᕐɽ΋͛) (one of our Controlling
Shareholders). Hence, Shuangliang Group Co. is a
connected person of our Company
“Shuangliang New Energy
Equipment”
Jiangsu Shuangliang New Energy Equipment Company
Limited* (ʮ̡), formerly
known as Zhongye Jiaonai (Jiangyin) Equipment
Manufacturing Company Limited* (Ϫ௕
ண௪
ʮ̡), a company with limited liability
established in the PRC on 1 November 2007, the
registered capital of which is held as to 85% by
Shuangliang Eco-Energy and 15% by Jiangsu Lichuang.
Shuangliang New Energy Equipment is an associate of
Shuangliang Eco-Energy. Hence, Shuangliang New
Energy Equipment is a connected person of our Company
DEFINITIONS
–5 0–


--- page 61 ---
“Shuangliang Spandex” Jiangsu Shuangliang Spandex Co., Ltd.* ( ϪᘽᕐԄऄၩ
ʮ̡), formerly known as Jiangsu Shuangliang
Special Fibre Company Limited* ( ϪᘽᕐԄत၇ᜄၪϞ
ʮ̡), a company with limited liability established in
the PRC on 31 May 2002, the registered capital of which
is held as to 6.4% by Shuangliang Technology, 65.7% by
Jiangyin Youli Investment Management Company
Limited* (ʮ̡) which is a
wholly-owned subsidiary of Shuangliang Technology,
and 27.9% by Kinsale Technology Limited which is a
company incorporated in the British Virgin Islands with
limited liability and a connected person of our company.
Shuangliang Spandex is an associate of Shuangliang
Technology. Hence, Shuangliang Spandex is a connected
person of our Company
“Shuangliang Technology” Jiangsu Shuangliang Technology Company Limited* ( Ϫ
ʮ̡), formerly known as Jiangsu
Shuangliang Boiler Company Limited* ( ϪᘽᕐԄᒢᘟϞ
ʮ̡), a company with limited liability established in
the PRC on 18 December 1997, one of our Controlling
Shareholders. The registered capital of Shuangliang
Technology is held as to 20% by Mr. Miao Shuangda ( ᐷ
ᕐɽ΋͛) (one of our Controlling Shareholders), 15% by
Mr. Miao Wenbin ( ᐷ˖੸΋͛) (our non-executive
Director and one of our Controlling Shareholders), 10%
by Mr. Miao Zhiqiang ( ᐷқ੶΋͛) (one of our
Controlling Shareholders), 10% by Ms. Miao Shuya ( ᐷ
ബૹɾɻ) (one of our Controlling Shareholders), 10% by
Mr. Miao Heida ( ᐷලɽ΋͛) (one of our Controlling
Shareholders), 15% by Mr. Jiang Rongfang ( Ϫ࿲˙΋͛)
(one of our Controlling Shareholders), 10% by Mr. Ma
Fulin (΋͛) (our non-executive Director and one
of our Controlling Shareholders) and 10% by Mr. Ma
Peilin (΋͛) (our supervisor and one of our
Controlling Shareholders)
“Shuozhou Concession
Agreement”
the concession agreement dated 18 January 2012 entered
into between Shuozhou City Housing Urban-Rural
Construction Administration Bureau* (ღ
ண၍ଣ҅) and Shanxi Shuangliang Renewable
Energy, pursuant to which we provide heat services and
engineering construction services in Shuocheng district
of Shuozhou city under our Shuozhou Project
DEFINITIONS
–5 1–


--- page 62 ---
“Shuozhou DRC” Shuozhou Municipal Development and Reform
Commission* (ึ)
“Shuozhou Electricity Sales” Shuozhou Shuangliang Electricity Sales Company
Limited* (ʮ̡), a company with
limited liability established in the PRC on 20 July 2017,
and our then wholly owned subsidiary prior to our
disposal of it on 23 June 2020
“Shuozhou Project” Shuozhou Municipal Cogeneration Centralised Heat
Services Project (ψ̹ᆠཥᑌପණʕԶᆠධͦ), a
project established pursuant to the Shuozhou Concession
Agreement
“Shuozhou Renewable Energy” Shuozhou City Renewable Energy Thermal Company
Limited* (ʮ̡), a company
with limited liability established in the PRC on 23 May
2011, an indirect non wholly-owned subsidiary of our
Company, the registered capital of which is held as to
90% by Shanxi Shuangliang Renewable Energy and 10%
by Taiyuan Renewable Energy
“Sinopec New Star” Sinopec New Star Shuangliang Geothermal Thermal
Power Company Limited* (ᕐԄήᆠঐᆠཥ
ʮ̡), a company with limited liability established
in the PRC on 17 September 2014, the registered capital
of which is held as to 51% by Sinopec Green Energy
Geothermal Development Co., Limited* ( ʕͩʷၠ๕ή
ʮ̡), 40% by Taiyuan Renewable Energy
and 9% by Shanxi Taiyangneng Solar Thermal Power
Generation Co., Limited* (ʮ
̡). Hence, the registered capital of Sinopec New Star is
indirectly held as to 40% by our Company
“SOE(s)” State-owned enterprise(s)
“Sole Sponsor” Guotai Junan Capital Limited, a corporation licensed to
carry out type 6 (advising on corporate finance) regulated
activity under the SFO
DEFINITIONS
–5 2–


--- page 63 ---
“Southern Taiyuan Heat Supply” Southern Taiyuan Heat Supply Co., Ltd* (௅Զ
ʮ̡), a company with limited liability established
in the PRC on 28 April 2013, which was wholly owned by
Shanxi Shuangliang Renewable Energy prior to its
deregistration on 9 March 2020
“Special Regulations” Special Regulations of the State Council on the Overseas
Offering and Listing of Shares by Joint Stock Limited
Companies (΅ʿɪ
֛which was promulgated by the State
Council on 4 August 1994
“Sponsor-OC”, “Overall
Coordinator”, and “Sole Global
Coordinator”
Guotai Junan Securities (Hong Kong) Limited, a
corporation licensed to carry out type 1 (dealing in
securities), type 2 (dealing in futures contracts) and type
4 (advising on securities) regulated activities under the
SFO
“Stabilising Manager” Guotai Junan Securities (Hong Kong) Limited
“State Council” the State Council of the PRC ( ʕശɛ͏΍ձ਷਷ਕ৫)
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“subsidiary(ies)” has the meaning ascribed thereto in section 15 of the
Companies Ordinance
“substantial shareholder(s)” has the meaning ascribed thereto under the Listing Rules
“Supplemental EMC” an agreement entered into between our Group and an
energy management service company on 15 December
2021 which is supplemental to the Original EMC
“Taixin Renewable Energy” Taixin Renewable Energy Heating (Shanxi) Co., Ltd.*
(˄ᢊΎ͛ঐ๕Զᆠ(ʆГ)ʮ̡), a company with
limited liability established in the PRC on 23 March
2022, an indirect non wholly-owned subsidiary of our
Company, which is wholly owned by Shanxi Shuangliang
Renewable Energy
DEFINITIONS
–5 3–


--- page 64 ---
“Taiyuan Concession Agreement” the concession agreement dated 21 November 2012
entered into between Taiyuan Urban Administration
Committee* (ึ) and Taiyuan
Renewable Energy, pursuant to which we provide heat
services and engineering construction services in areas of
Taiyuan city namely south of South Central Street (ʕ
یeast of West Ring Expressway ( Гᐑ৷஺ʮ༩
؇west of Binhe West Road (Г༩˸Г), and
north of Gucheng Main Street (ɽ൑˸̏) under our
Taiyuan Project
“Taiyuan Project” Taiyuan Municipal Centralised Heat Services
(Condensation Heat) Project (̹ණʕԶᆠ(иኑᆠ)ධ
ͦ), a project established pursuant to the Taiyuan
Concession Agreement
“Taiyuan Renewable Energy” Taiyuan City Renewable Energy Heat Supply Company
Limited* (ʮ̡), a company
with limited liability established in the PRC on 22 May
2009, an indirect non wholly-owned subsidiary of our
Company, which is wholly owned by Shanxi Shuangliang
Renewable Energy
“Tech-Thermal (Zhengzhou)” Wise Living Tech-Thermal Power (Zhengzhou) Company
Limited* (Ҧᆠɢ(ቍψ)ʮ̡), a company
with limited liability established in the PRC on 10
December 2020, an indirect non wholly-owned
subsidiary of our Company, the registered capital of
which is held as to 80% by Wise Living Energy and 20%
by Zhengzhou Qindu Thermal Power Company Limited*
(ப΂ʮ̡) which is a connected
person of our Company at the subsidiary level
“Track Record Period” the three financial years ended 31 December 2022
“Underwriters” the Hong Kong Underwriters and the International
Underwriters
“Underwriting Agreements” the Hong Kong Underwriting Agreement and the
International Underwriting Agreement
“USD” United States dollars, the lawful currency of the United
States
DEFINITIONS
–5 4–


--- page 65 ---
“U.S.” or “United States” the United States of America, its territories, its
possessions and all areas subject to its jurisdiction
“U.S. Securities Act” the United States Securities Act of 1933, as amended, and
the rules and regulations promulgated under it
“V AT” value added tax
“White Form eIPO ” the application for Hong Kong Offer Shares to be issued
in the applicant’s own name by submitting applications
online through the designated website of White Form
eIPO at www.eipo.com.hk
“White Form eIPO Service
Provider”
Computershare Hong Kong Investor Services Limited
“Wise Living Energy” Wise Living Energy Technology Company Limited* ( ᅆ
ʮ̡), formerly known as Wise Living
Technology Jiangsu Energy System Investment Company
Limited* (ʮ̡), a
company with limited liability established in the PRC on
29 November 2016, a direct wholly-owned subsidiary of
our Company
“Wise Living Energy (Baotou)” Wise Living Energy (Baotou) Company Limited* (֢
ঐ๕(̍᎘)ʮ̡), a company with limited liability
established in the PRC on 26 November 2020, an indirect
wholly-owned subsidiary of our Company, which is
wholly owned by Wise Living Energy
“Wise Living Energy (Gansu)” Wise Living Energy Technology (Gansu) Company
Limited* (Ҧ(͚ഠ)ʮ̡), a company
with limited liability established in the PRC on 31
December 2020, an indirect wholly-owned subsidiary of
our Company, which is wholly owned by Wise Living
Energy prior to its deregistration on 10 March 2023
DEFINITIONS
–5 5–


--- page 66 ---
“Wise Living Environmental
Energy”
Wise Living Environmental Energy Technology (Beijing)
Company Limited* (Ҧ(̏ԯ)ʮ̡), a
company with limited liability established in the PRC on
11 April 2019, the registered capital of which was held as
to 80% by Wise Living Energy and 20% by Hou Chao
(Shanghai) Industrial Centre (Limited Partnership)* (ێ
ಃ(ɪऎ)ྼุʕː(Υྫ)) prior to its deregistration
on 24 March 2020
“Wuxi Hundun” Wuxi Hundun Energy Technology Co., Ltd.* ( ೌ፼૿ӗ
ʮ̡), a company with limited liability
established in the PRC on 8 November 2018, the
registered capital of which is held as to 83.8% by
Shanghai Tongsheng LP, 5.8% by Jiangyin Yongyou
Smart Technology Equity Investment Fund (Limited
Partnership)* (ږ(Υ
ྫ)), 4.5% by Shuangliang Technology, 3.5% by Jiangyin
State-owned Capital Holding Group Financial Investment
Company Limited* (ፄҳ༟Ϟ
ʮ̡) and 2.4% by Wuxi Liande Investment
Partnership (Limited Partnership)* ( ೌ፼ᑌᅃҳ༟ΥྫΆ
ุ(Υྫ)). Shanghai Tongsheng LP is an associate of
Mr. Miao Shuangda ( ᐷᕐɽ΋͛) (one of our Controlling
Shareholders) and Shuangliang Technology is our
Controlling Shareholder. Hence, Wuxi Hundun is a
connected person of our Company
“Xinmi Concession Agreement” the concession agreement dated 7 December 2021 entered
into between Xinmi People’s Government* (݁
ִand Tech-Thermal (Zhengzhou), pursuant to which
we shall provide heat services and engineering
construction services in Baizhai town ( ͣ྽ᕄ), Yuecun
town (Ӏᕄ), Quliang town ( Ϝ૑ᕄ), Liuzhai town ( ᄎ
྽ᕄ), Dakui town ( ɽ◷ᕄ) and Goutang town (ੀᕄ)
of Xinmi city under our Xinmi Project
“Xinmi Project” Xinmi City Centralised Heat Services Project ( อ੗̹ණ
ʕԶᆠධͦ), a project established pursuant to the Xinmi
Concession Agreement
DEFINITIONS
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“Zhengzhou Wise Living” Zhengzhou Wise Living Thermal Power Company
Limited* (ʮ̡), a company with
limited liability established in the PRC on 17 November
2018, an indirect wholly-owned subsidiary of our
Company, which is wholly owned by Wise Living Energy
“Zhengzhou Yuzhong Energy” Zhengzhou Yuzhong Energy Sources Co., Ltd.* ( ቍψ༃
ப΂ʮ̡), a company with limited liability
established in the PRC on 11 December 2003, and an
Independent Third Party
“%” Percent
In this prospectus, the terms “associate”, “connected person”, “connected transaction”,
“subsidiary” and “substantial shareholder” shall have the meanings given to such terms in the
Listing Rules, unless the context otherwise requires.
Certain amounts and percentage figures included in this prospectus have been subject to
rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an
arithmetic aggregation of the figures preceding them.
In this prospectus, if there is any inconsistency between the Chinese names of the entities
or enterprises established in the PRC and their English translations, the Chinese names shall
prevail.
* For identification purposes only.
DEFINITIONS
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This glossary contains explanations of certain technical terms used in this
prospectus in connection with our Company and its business. Such terminology and
meanings may not correspond to standard industry meanings or usages of those terms.
“actual heat service area” the actual area within our Concession Area in which we
are already providing heat services, which is measured in
terms of GFA. For each of our heat service projects, the
actual heat service area is confirmed by the relevant local
authority of the areas in which we operate
“BOT” build-operate-transfer, a form of project delivery method
which is usually for a large-scale infrastructure project,
wherein a private enterprise receives a concession from
the public sector. The terms are usually set out in a
concession agreement entered into by the private
enterprise and the government, whereby the government
grants the enterprise the rights to undertake, among
others, the financing, design, construction and operation
of certain facilities during the concession period agreed
therein. During the concession period, the enterprise can
charge service fees based on its services provided to
cover its costs of investment, operation and maintenance
and obtain reasonable returns. Upon the expiration of the
concession period, the relevant facilities will be
transferred back to the government
“CAGR” compound annual growth rate
“CCER project(s)” China Certified Emission Reduction projects in which
companies, including heat service providers, carry out a
series of emissions reduction activities on a voluntary
basis that are certified by the PRC Government. CCER
projects include renewable power generation and waste-
to-energy projects, as well as forestry projects
“cogeneration” or “CHP” also known as combined heat and power, is the
simultaneous production of multiple forms of energy
from a single fuel source, usually electricity and heat
“Concession Area” the planned floor area to which we are entitled to charge
for our provision of heat services under concession rights
derived from our Concession Agreements, which is
measured in terms of GFA
GLOSSARY AND TECHNICAL TERMS
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“Concession Boundary Area” the estimated geographical area within a demarcated
boundary in which we are granted the exclusive right to
provide heat services under our Concession Agreements
“CSR” corporate social responsibility, refers to practices and
policies undertaken by corporations intended to have a
positive influence on the world
“energy management contract” or
“EMC”
an energy-conservation service contract under which an
energy-saving service provider provides energy-
conservation services (such as energy conservation
through the collection and utilisation of residual heat
from recycling water) to an energy consuming enterprise
to achieve certain energy saving goals. In these contracts,
the energy saving service provider of the energy-
conservation services is sometimes entitled to a share of
the profit accrued from energy conservation as a result of
the energy-conservation services provided
“GDP” gross domestic product
“GFA” gross floor area
“GHG” greenhouse gases such as carbon dioxide are gases which
trap heat in the earth’s atmosphere and one of the main
pollutants generated from the combustion of fossil fuels
“GJ” gigajoule, a unit used to measure the amount of heat
energy
“heat rate” the rate of fees which we charge to our heat service users
for our provision of heat services by the size of indoor
area in terms of GFA
“heat services” the provision of heat to heat service customers, primarily
under concession rights, for their thermal comfort. Our
heat services are typically charged by the size of indoor
area in terms of GFA
“heat service period” the period during which the heat service providers
provide heat services, usually between October of each
year and April of the following year which can be longer
or shorter depending on the location of the Concession
Area and the temperature changes resulting from
seasonality of each year
GLOSSARY AND TECHNICAL TERMS
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“heat transmission services” the transmission of heat to our customers other than our
heat service customers who use our heat for thermal
comfort. Our heat transmission services are charged by
the amount of heat (in terms of GJ) consumed
“kg” kilogram
“kW” kilowatt of power
“kWh” kilowatt-hour, a unit of energy equal to one kilowatt of
power sustained for one hour
“km
3” cubic kilometre
“m3” cubic metre
“MW” megawatt. 1MW = 1,000kW. The installed capacity of a
electric furnaces and clean coal-fuelled boiler is
generally expressed in MW
“non-residential heat service
users”
users other than residential heat service users, such as
industrial heat service users and commercial heat service
users
“NOx” nitrogen oxide and nitrogen dioxide, together one of the
main group of pollutants generated from the combustion
of fossil fuels
“particular matter/PM” the term for a mixture of solid particles and liquid
droplets found in the air
“peak-shaving” a process in the heat service industry where demand for
heat during peak time periods, or for emergency
response, is supplemented by other heat source
“peak-shaving station” a station built to provide peak-shaving function
“primary distribution network” the two-way circulation network through primary
distribution pipelines between heat sources (cogeneration
plants or boilers) and heat exchange stations
“secondary distribution network” the two-way circulation network through secondary
distribution pipelines between heat exchange stations and
the heating equipment in the properties to which we
provide heat services
GLOSSARY AND TECHNICAL TERMS
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“SO2” sulphur dioxide, one of the main pollutants generated
from the combustion of fossil fuels
“SOx” sulphur oxides, one of the main group of pollutants
generated from the combustion of fossil fuels
“sq.m.” square metre
“tCO
2e” metric tonnes of carbon dioxide equivalent, illustrating
the amount of GHG emitted during a given period
“Three North Region” the geographical regions of north China (consisting of the
direct-administered municipalities of Beijing, Tianjin,
provinces of Hebei and Shanxi and the autonomous
region of Inner Mongolia), northeast China (consisting of
the provinces of Liaoning, Jilin and Heilongjiang) and
northwest China (consisting of the provinces of Shaanxi,
Gansu and Qinghai and the autonomous regions of
Xinjiang and Ningxia)
“viability gap subsidy(ies)” refers to support provided by government to project
operators when the fees from customers are insufficient
to cover relevant operating costs or reasonable return.
Such support from government can be provided by way
of fiscal subsidy, capital investment, loans or other
favourable policies applicable in the industry and in
accordance with circumstances of the locality
“water loss” the amount of water that is lost during heat distribution
process
“water loss rate” the percentage of water loss during heat distribution
process
“°C” Celsius degree
GLOSSARY AND TECHNICAL TERMS
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This prospectus contains forward-looking statements that are, by their nature, subject to
significant risks and uncertainties. These forward-looking statements include, without
limitation, statements relating to:
 our business and operating strategies and plans for the development of existing and
new businesses, ability to implement such strategies and plans and expected time;
 our newly signed contract value and backlog;
 our financial position;
 our dividend policy;
 our ability to cut costs;
 the regulatory environment of the heat services, construction and engineering
services and energy management contract industries in the PRC, overall industry
outlook and competitive environment;
 the development of the capital market;
 certain statements in the sections entitled “Risk factors”, “Industry overview”,
“Regulatory overview”, “Business”, “Financial information”, “Relationship with
our Controlling Shareholders” and “Future plans and use of proceeds” with respect
to interest rate trends, exchange rates, prices, volumes, operations, margins, risk
management and overall market trends;
 developments and competition in the PRC and global heat service and construction,
maintenance and design services industries; and
 general economic conditions.
The words “aim”, “anticipate”, “believe”, “intend”, “continue”, “could”, “estimate”,
“expect”, “going forward”, “propose”, “may”, “ought to”, “plan”, “potential”, “speculate”,
“forecast”, “arrange”, “seek”, “should”, “target”, “will”, “might” and the negatives of these
terms and other similar expressions, as they relate to us, identify a number of these
forward-looking statements. Such statements reflect the current views of our management with
respect to future events and are subject to certain risks, uncertainties and assumptions,
including risk factors as set out in this prospectus. Subject to the requirements of applicable
laws, rules and regulations, we do not have any obligation and do not intend to update or
otherwise revise the forward-looking statements in this prospectus, whether as a result of new
information, future events or otherwise. Should one or more of these risks or uncertainties
materialise, or should underlying assumptions prove to be incorrect, our financial position may
be adversely affected and may vary materially from those described herein as anticipated
believed, estimated or expected. Accordingly, such statements are not a guarantee of future
FORW ARD-LOOKING STATEMENTS
–6 2–


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performance and you should not place undue reliance on such forward-looking information.
Subject to the requirements of applicable laws, rules and regulations, we do not have any
obligation to publicly update or revise the forward-looking statements in this prospectus,
whether as a result of new information, future events or otherwise. All forward-looking
statements contained in this prospectus are qualified by reference to this cautionary statement.
In this prospectus, statements of or references to our intentions or that of any of our
Directors are made as at the date of this prospectus. Any such intentions may change in light
of future developments.
FORW ARD-LOOKING STATEMENTS
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You should carefully consider all of the information in this prospectus, including the
risks and uncertainties described below, before making an investment in our H Shares.
Our business, financial position and results of operations could be materially and
adversely affected by any of these risks. The trading price of our H Shares could
significantly decrease due to any of these risks, and you may lose all or part of your
investment. You should pay particular attention to the fact that we are a PRC company
and are governed by a legal and regulatory environment which may differ significantly
from those prevailing in other jurisdictions. For more information concerning the legal
and regulatory system of the PRC and certain material matters set out below, see
“Regulatory overview”, “Appendix III – Taxation and foreign exchange”, “Appendix V
– Summary of principal PRC and Hong Kong legal and regulatory provisions” and
“Appendix VI – Summary of Articles of Association” in this prospectus.
RISKS RELATING TO OUR BUSINESS AND INDUSTRY
Our business operation is concentrated in the “Three North Region”, and we are
susceptible to any adverse development in economic conditions, government policies or
business environment in this region.
Our business operation is predominantly concentrated in the “Three North Region”. As at
31 December 2020, 2021 and 2022, our actual heat service area of approximately 37.4 million
sq.m., 39.8 million sq.m. and 41.9 million sq.m., respectively was from the “Three North
Region”. During the Track Record Period, all of our revenue was generated from services
provided to properties in the “Three North Region”. Due to such concentration, and due to the
fact that the provision of heat services is a regulated industry in the PRC, any adverse
development in government policies or business environment in the “Three North Region” will
materially and adversely affect our business, financial position and results of operations.
Our operations rely heavily on the following development factors in the “Three North
Region”, most of which are beyond our control:
 changes in the economic condition, the level of economic activities and the pace of
urban development;
 the future regional development prospects; and
 changes in government regulations and policies regarding the heat services industry
and its related businesses.
RISK FACTORS
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Our concession rights for our heat services business will expire or may be terminated
before expiration.
We are principally engaged in the provision of heat services under concession rights in
Shanxi Province, Gansu Province, Henan Province and Inner Mongolia Autonomous Region.
As at the Latest Practicable Date, we had concession rights under six Concession Agreements
to provide heat services for a total Concession Area of approximately 419.9 million sq.m., of
which 291.0 million sq.m. was situated in Shanxi Province, 68.3 million sq.m. in Gansu
Province, 32.6 million sq.m. in Henan Province and 28.0 million sq.m. in Inner Mongolia
Autonomous Region, respectively.
The initial term under each of our Concession Agreements is 30 years, except for the
Taiyuan Concession Agreement which has a term of 25 years. Pursuant to some of our
Concession Agreements, the concession grantor has the right to select a new concession
grantee in accordance with the applicable laws and regulations upon the expiration of the
concession period. If we perform well during the concession period, we shall have priority in
re-obtaining the concession under the same conditions. The Concession Agreements may be
terminated prior to expiration under certain circumstances, which include but not limited to: (i)
mutual agreement of the parties; (ii) occurrence of force majeure events; (iii) occurrence of any
serious suspension of heat services caused by our default which seriously affected public
welfare and safety. For more information relating to the terms of our Concession Agreements,
see “Business – Heat services – Our Concession Agreements” in this prospectus.
We cannot assure you that the Concession Agreements will not be terminated prior to their
expiration or we will be successful in renewing their terms prior to or upon their expiration.
If any of our Concession Agreements is terminated for whatever reasons, or we are not able to
extend and/or renew them upon expiration, our business, financial position and results of
operations would be materially and adversely affected.
We may not be entitled to any form of government grants or subsidies, including price
subsidies for our Shuozhou Project in the future, under the applicable PRC laws and
regulations that are evolving from time to time.
Since the beginning of the 2015/2016 heat service period for our Shuozhou Project and
during the Track Record Period, we have been entitled to price subsidies for our Shuozhou
Project from the Shuozhou government as the heat rates charged by us were insufficient to
cover our relevant heat service costs, and our heat rates were not adjusted upwards in a timely
manner. The nature of price subsidies for our Shuozhou Project is different from that of other
government grants recognised by our Group as other income, mainly because (i) such price
subsidies represent compensation of the shortfall in our revenue resulting from the low heat
rates set by the local pricing authority in order to alleviate the burden of the residents of
Shuocheng District given the backdrop of favourable laws and governmental policies; (ii) the
amount of price subsidies is determined by a specific formula, where the price subsidies are
dependent on and directly proportional to the actual heat service area of the heat service users;
and (iii) the price subsidies are considered to be recurring in nature. For the years ended 31
RISK FACTORS
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December 2020, 2021 and 2022, we recognised such price subsidies for the Shuozhou Project
in the amounts of approximately RMB167.9 million, RMB182.5 million and RMB161.7
million, representing approximately 12.2%, 14.1% and 11.2% of our total revenue for the same
years, respectively.
On 10 April 2020, the NDRC published the Draft Measures for the Supervision and
Review of the Pricing Cost which were open for public consultation between 10 April 2020 and
9 May 2020. As at the Latest Practicable Date, there had been no further announcement from
the NDRC as to whether the Draft Measures for the Supervision and Review of the Pricing Cost
will be amended, supplemented, revised, adopted or promulgated. For more information, see
“Regulatory overview – Pricing” in this prospectus. If the Draft Measures for the Supervision
and Review of the Pricing Cost were promulgated in the current form, we cannot assure you
whether the assessment of the Shuozhou DRC on relevant heat service costs may subsequently
lead to a reduction in price subsidies received by us. We may not be able to accurately predict
the outcome of the Shuozhou DRC’s assessment on the relevant heat service costs under the
Draft Measures for the Supervision and Review of the Pricing Cost. Any deduction in the costs
to be included in the calculation of price subsidies after Shuozhou DRC’s assessment may lead
to a reduction in price subsidies received by us. Any significant reduction in, delay or failure
of payment of price subsidies may also affect the recognition of the subsidy receivable as our
revenue and may require us to make impairment provision for the receivables previously
recognised, and could have a material adverse effect on our business, financial condition and
operating results. For more information relating to price subsidies, see “Business – Heat
distribution – Pricing” in this prospectus.
The provision of heat services is considered to be a public utility business in northern
China. It is regulated and at the same time supported by the PRC Government and local
governments (which strive to maintain stability of heat services and livelihood) by way of
government grants which are made on an incidental basis. Government grants are not recurring
in nature nor are they determined by any formula that is related to heat rates and actual heat
services areas of the heat service. For the years ended 31 December 2020, 2021 and 2022, we
recognised government grants in the amounts of approximately RMB32.5 million, RMB58.7
million and RMB37.5 million, representing approximately 2.4%, 4.5% and 2.6% of our total
revenue for the same years, respectively. However, we may not be necessarily nor may we be
automatically eligible for all or any government grants nor can we assure you that the
government grants to which we are currently entitled or enjoy will not be reduced or withdrawn
by the relevant authority. Although our Concession Agreements stipulate that we may be able
to obtain government grants, some of these government grants were subject to the discretion
of local governments and we cannot predict, or guarantee the amount to be granted for any
specific project. There is no assurance that our Group will receive in full the government grants
to be provided to which we currently entitled for future financial years. If the amounts of these
government grants are reduced or withdrawn in the future, our financial position may be
adversely affected.
RISK FACTORS
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We may encounter difficulties in expanding our heat services business if we fail to obtain
new concession rights or grow our actual heat service area under the current concession
rights.
We seek to obtain new concession rights to expand our heat services business nationally,
including the “Three North Region” and other regions when opportunities arise. In order to be
eligible, we need to meet certain requirements such as capital sufficiency, technology support
and experience in the industry. Furthermore, designation of heat service areas is subject to
municipal planning by the relevant local governments. There is no assurance that we can fully
meet the requirements formulated by the relevant authorities in order to become eligible to
obtain new concession rights to expand our business presence.
In addition, we may not be able to expand our actual heat service area as planned within
the Concession Area covered by our existing concession rights. Even though we have the right
to operate heat service projects in the current total Concession Area conferred upon us pursuant
to the Concession Agreements, expansion of our actual heat service area is subject to various
factors (including but not limited to economic development, urbanisation process and growth
of property construction and population). As at 31 December 2022, our total actual heat service
area accounted for approximately 10.0% of our total Concession Area under our Concession
Agreements. We cannot assure you that our actual heat service area will increase in a scale or
at a rate as projected.
Our actual heat service area may be adjusted due to unanticipated events.
Our actual heat service area may increase or decrease, and such adjustments in the size
of our actual heat service area can be due to factors (such as the requests of government
authorities and changes in governments’ municipal plannings) beyond our control. If we are
requested by any relevant government authorities to reduce our actual heat service area, our
revenue from our provision of heat services may decrease and our business and results of
operations may be adversely affected. In the event of an increase in our actual heat service area,
we may not have sufficient capital expenditure to invest in, build or arrange for the
development of infrastructure assets (i.e. heat service facilities) as required. We may negotiate
with the concession grantors and/or relevant governmental authorities with respect to (i) the
extent and the timing of any such constructions if, upon cost analysis, these construction
activities will require capital expenditure more than what we are able to incur; and (ii) if a
transfer of the relevant heat service facilities is needed. We may also seek to reduce our actual
heat service area in order to focus on providing quality heat services to our existing actual heat
service area. However, there is no assurance that any such negotiation to change the extent and
the timing of the construction or reduce our actual heat service area will be successful. We
cannot assure you that there will not be any change in the governments’ municipal plannings,
nor can we assure you that our actual heat service area will remain unchanged.
RISK FACTORS
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To ensure the continuous provision of heat services to Lanzhou New Area V ocational
Education Park, in August 2017, Lanzhou Bureau requested us to provide our heat services to
Lanzhou New Area V ocational Education Park* ( ᚆψอਜᔖุ઺ԃ෤ਜ), which had a heat
service area of 580,000 sq.m. as at 22 June 2018. Subsequently, we were requested by Lanzhou
Bureau to cease our provision of heat services for such area in April 2020. For the year ended
31 December 2020, revenue generated from our heat services business in such area was
approximately RMB39.8 million.
In addition, in respect of our Taiyuan Project, based on the Proposal of City-wide Heat
Services Coverage in Taiyuan (2017) ( 2017) and the
Notice of Constructing Primary and Secondary Urban Underground Pipelines in 2017 (׵
ɨ༺2017), we needed to construct certain
additional heat service facilities within our Concession Area as required by the relevant local
authority, where unplanned capital expenditures would be required from us. To avoid such
unanticipated capital expenditures, we subsequently entered into negotiation and were
approved by the local authority to reduce the size of that Concession Area by 86.0 million sq.m.
(the “ Subject Area ”). For details, see “Business – Heat services – Heat service projects under
concession operation – Reduction of the size of the Concession Boundary Area for our Taiyuan
Project and the possible transfer of heat facilities in relation to the Subject Area which is
currently under negotiation” in this prospectus. As at the Latest Practicable Date, we were still
in negotiation with the grantor of our Taiyuan Project for the transfer of all our heat service
facilities in the Subject Area but no agreement had yet been reached between us and the grantor
or the new operator on the transfer and the amount of consideration (if any). There is no
certainty as to if and when the parties will reach such an agreement.
We cannot assure you that there will not be any other events which may lead to any
adjustments in the size of our actual heat service area in the future, as a result of which our
business operation and results of operations may be adversely affected.
We may not be able to successfully manage all of the risks associated with our
cross-provincial operation which spans a number of different geographical locations in
the PRC.
During the Track Record Period and up to the Latest Practicable Date, we had business
operations in Taiyuan and Shuozhou of Shanxi Province, Lanzhou of Gansu Province and
Hulunbuir of Inner Mongolia Autonomous Region. Therefore, we are exposed to a number of
risks due to the span of our geographical locations. These risks include (i) inability to rapidly
adapt to the local culture and operational practice; (ii) failure to comply with local laws and
regulations, for example, regulations relating to pricing and heat service qualifications; (iii)
failure to obtain appropriate heat sources; (iv) failure to properly handle local governments,
especially our relationships with our concession grantors; (v) insufficient financial,
operational, managerial and human resources to support cross-provincial operation and
business expansion; (vi) failure to improve our information technology systems in time to cater
for the demands of our cross-provincial operation, in particular, our heat production monitoring
software tool and heat transmission monitoring software tool which enables us to manage our
RISK FACTORS
–6 8–


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operations in different geographical locations; and (vii) failure to establish our corporate image
and promote our corporate culture successfully. If we are not able to effectively manage any
or all of these risks, or if we are not able to achieve the intended results of operations in each
of the local markets we enter, in a timely manner or at all, our business, financial position and
results of operations may be materially and adversely affected.
There are title defects associated with the heat exchange stations currently used by us and
certain properties we lease. Any dispute, order or requirement which may affect our right
to use these properties may materially and adversely affect our business operation.
As at the Latest Practicable Date, there were 465 heat exchange stations in use for our
provision of heat services to heat service customers. Of these 465 heat exchange stations, 464
heat exchange stations (comprising 451 third-party owned heat exchange stations and 13
self-owned heat exchange stations) are located on third-party owned land, while one
self-owned heat exchange station is located on our land.
There were title defects associated with the 465 heat exchange stations for our heat
service operations. In respect of the 464 heat exchange stations located on third-party owned
land, we either obtained written permissions from or entered into agreements with lessors for
the use of the stations and/or land. However, to the best of our Directors’ knowledge, such
lessors did not provide all of the requisite title certificates to us. As advised by our PRC Legal
Advisers, we should obtain written permissions or enter into the abovementioned agreements
with the owners who possess the relevant title certificates in order to obtain proper
authorisation for the continuous use of the heat exchange stations and/or the land. For around
40% of the 464 heat exchange stations located on third-party owned land that were in use as
at the Latest Practicable Date, we were unable to obtain written permissions or enter into such
agreements with the proper owners. As we are not the owner to the land and/or these heat
exchange stations, we do not have the authority or responsibility to apply for the relevant title
certificates. In respect of one self-owned heat exchange station which we constructed on our
land, as at the Latest Practicable Date, we were in the process of obtaining the construction
planning permit (ண஝ྌ஢̙) and construction commencement permit (ʈ஢̙) for
such heat exchange station, after which we expect to conduct the construction acceptance check
(ംʈ᜕ϗ) and will obtain the real estate certificate (ࣣin due course. For details,
see “Business – Properties – Heat exchange stations for our heat service operation” in this
prospectus. If we are unable to continue to use the heat exchange stations and operate the
equipment installed therein, or fail to remove and relocate the equipment to another heat
exchange station in a timely manner or on commercially reasonable terms, or at all, or are
subject to substantial claims or penalties, our ability to provide heat services will be materially
and adversely affected, and we may be liable to pay compensation to rightful owners of the
third-party owned land and/or heat exchange stations if they suffered damages resulting from
our use of the heat exchange stations and/or land without their consent, which may in turn
materially and adversely affect our business, financial position and results of operation.
Further, as at the Latest Practicable Date, no real estate certificates had been obtained for
three of our leased properties in which some of our offices are located. For details, see
“Business – Properties – Leased properties” in this prospectus. We may be required to relocate
our offices currently occupying those properties, which may adversely disrupt our business
operation.
RISK FACTORS
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Any shortage of, disruption or suspension to our heat sources could materially and
adversely affect our heat services business.
During the Track Record Period, we were engaged in heat production in Taiyuan City and
Shuozhou City of Shanxi Province and Lanzhou of Gansu Province. We procured heat from
cogeneration plants for our provision of heat services in Taiyuan City and Shuozhou City of
Shanxi Province and Hulunbuir of Inner Mongolia Autonomous Region, and utilised
geothermal heat as a heat source for our Shanxi Demonstration Zone Project. For the years
ended 31 December 2020, 2021 and 2022, in terms of amount of heat, approximately 23.7%,
21.7% and 21.2% of our heat was self-produced and approximately 76.3%, 78.3% and 78.8%
of our heat was procured from local cogeneration plants, respectively.
Our heat production is dependent on our production facilities which are subject to various
operating risks and disruptions, including but not limited to sufficiency of supply of coal or
other fuel, suspension of utilities, breakdown or failure of equipment, labour disputes, natural
disasters and industrial incidents. The occurrence of any of these may limit or disrupt our
ability to produce heat and interrupt our continuous provision of heat services, which may give
rise to significant losses, such as revenue losses due to disrupted production. Where our heat
services rely on heat procured from cogeneration plants, we cannot assure you that there will
not be any disruption to the operation of those cogeneration plants. Where our heat services
rely on geothermal heat produced from underground water, we cannot assure you that there will
be no interruption to our extraction of underground water due to the varying practice in respect
of issuing licences and permits in relation to geothermal heat in Shanxi Province. Furthermore,
while our concession rights to operate our heat services business are valid for a long-term
period, we did not enter into any long-term agreements with cogeneration plants to secure heat
sources. For more information in relation to our heat procurement, see “Business – Heat
sources” in this prospectus.
During the Track Record Period and up to the Latest Practicable Date, we have
implemented safety production procedures and emergency response plans to ensure our stable
provision of heat services in case of heat source shortage, disruption or suspension. However,
if such safety production procedures and emergency response plans are ineffective or fail to
perform, our provision of heat services to our heat service customers could be materially and
adversely affected.
Our heat rates may not be adjusted proportionally and/or we may not receive sufficient
subsidy for our heat service operations to sufficiently cover the potential reduction in
pipeline connection fee due to any change in its mechanism.
During the Track Record Period, we received pipeline connection fee from property
developers and property owners or occupants in Shanxi Province, Gansu Province and Inner
Mongolia Autonomous Region when they first connected their properties to our primary
distribution pipelines. For the years ended 31 December 2020, 2021 and 2022, our revenue
generated from pipeline connection fee was approximately RMB65.4 million, RMB74.2
million and RMB83.7 million, representing approximately 4.8%, 5.7% and 5.8% of our total
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revenue for the same years, respectively. We charged such pipeline connection fee according
to our Concession Agreements and heat service agreements. On 23 December 2020, the
Opinion on Sorting Out and Standardising the Charges for Urban Water, Electricity, Gas and
Heat Supply Industry to Promote the High-quality Development of the Industry (Guo Ban Han
[2020] No. 129) (จԈ
(਷፬Ռ[2020]129 ໮)) (“Guo Ban Han No. 129 ”) was issued by the General Office of the State
Council to local governments. It took effect from 1 March 2021 and provided that by 2025,
among other things, (i) the right to charge for interface fees, centralised network construction
fees, grid connection fees and other similar fees (including pipeline connection fees) by urban
centralised heat service enterprises in northern heating areas from their users shall be cancelled
if these fees were charged without legal and effective policy basis; (ii) such cancellation shall
be gradually implemented by local governments in conjunction with the introduction of
reasonable adjustments to the price of heat services and upon the establishment of a
governmental subsidy mechanism; and (iii) the timing for implementation of such cancellation
shall be determined by local governments.
In 2021, each of the relevant pricing authorities of Shanxi Province, Gansu Province,
Inner Mongolia Autonomous Region and Henan Province published corresponding guidance
plans with a view to introducing and implementing the changes necessitated by Guo Ban Han
No. 129. It is contemplated that the actual cancellation, along with the implementation of
reasonable price adjustments and subsidy mechanism, would as a guiding principle take place
no later than the end of 2025. As at the Latest Practicable Date, our PRC Legal Advisers
advised that they have not found through public enquiries that any of the local governments of
Shanxi Province, Gansu Province, Inner Mongolia Autonomous Region and Henan Province
have announced any detailed policies in relation to the complete cancellation of the right to
charge the above-mentioned fees, or details of the corresponding price adjustments and
governmental subsidy mechanisms that will be introduced.
In the event that we cease charging pipeline connection fee and if we cannot adjust our
heat rates proportionally and/or receive governmental subsidy for our heat service operations,
our financial position may be adversely affected. For the details, see “Business – Heat
distribution – Pricing – Pipeline connection fee” and “Regulatory overview – Pricing – Charges
for interface fees, centralised network construction fees, grid connection fees and other similar
fees” in this prospectus.
Fluctuation in heat procurement cost may materially and adversely affect our
profitability.
During the Track Record Period, we procured heat from cogeneration plant operators in
Shanxi Province and Inner Mongolia Autonomous Region for our operation of Taiyuan Project,
Shuozhou Project and Hulunbuir Project. For the years ended 31 December 2020, 2021 and
2022, the average heat procurement cost (without V AT) was approximately RMB22.9/GJ,
RMB23.7/GJ and RMB23.4/GJ, and our heat procurement cost was approximately RMB369.3
million, RMB368.2 million and RMB398.9 million, representing approximately 34.0%, 37.7%
and 34.8% of our total cost of sales for the same years, respectively. Heat procurement price
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we pay for heat procurement is subject to regulatory control. The price determined by the local
government and the pricing bureau is binding on us. Since we may not necessarily be able to
transfer all of the increased heat procurement cost to our heat service customers, our
profitability may be materially and adversely affected if heat procurement price increases
significantly. According to a sensitivity analysis conducted for illustrative purposes, an
increase of 5% in our average heat procurement cost would have decreased our profit before
tax by approximately RMB19.0 million, RMB18.8 million and RMB20.0 million for the years
ended 31 December 2020, 2021 and 2022, respectively. Similarly, an increase of 10% in our
average heat procurement cost would have decreased our profit before tax by approximately
RMB38.0 million, RMB37.6 million and RMB40.1 million for the same periods, respectively.
As we are unable to predict the fluctuation of heat procurement price, we may not be able to
adjust our business model in a timely manner or at all, thus affecting our business and results
of operations.
Fluctuation in coal procurement cost may materially and adversely affect our
profitability.
Coal is the primary raw material used for the heat production through our coal-fired
boilers in Lanzhou of Gansu Province. Accordingly, our heat services business in Lanzhou is,
to a certain extent, subject to fluctuations in coal price. For the years ended 31 December 2020,
2021 and 2022, our coal procurement cost was approximately RMB60.8 million, RMB74.4
million and RMB109.4 million, respectively, accounting for approximately 5.6%, 7.6% and
9.5% of our total cost of sales. For the year ended 31 December 2021, our total cost of
procurement of coal consumed increased by approximately RMB13.6 million, representing a
significant increase of approximately 22.4% as compared to the year ended 31 December 2020.
Such increase in total cost of procurement of coal consumed for our heat services was mainly
attributable to the increase in the unit procurement price of coal during 2021, which was in line
with the overall increase in the price of coal in the PRC. According to the Frost & Sullivan
Report, the price of coal in the PRC experienced a notable increase in 2021 and 2022, where
the coal price index increased from 153 to 220 in 2021, and further increased to 241 in 2022,
as affected by increased international coal price and insufficient domestic supply. Since we
may not necessarily be able to transfer the increased coal procurement cost to our heat service
customers, particularly because the heat rates which we charge to our heat service users are
required to follow the benchmark heat rate determined and approved by the local pricing
authorities, our profitability may be materially and adversely affected if coal prices increase
significantly. As we are unable to predict the fluctuation of coal price, we may not be able to
adjust our business model in a timely manner or at all, thus affecting our business and results
of operations.
As a result of the ongoing military conflict between Russia and Ukraine in 2022 and 2023,
the United States, European Union, United Kingdom, Switzerland and other countries have
imposed, and may further impose, economic sanctions and export controls targeting certain
Russian entities and/or individuals. Such imposition of broad economic sanctions and controls
has affected, and may continue to affect the global economy and the global prices of
commodities such as coal. Russia is one of the PRC’s main suppliers of coal. According to the
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Frost & Sullivan Report, the coal price index in the PRC is expected to increase to 257 for 2023
as a result of the Russia-Ukraine military conflict and insufficient domestic supply and
increased in domestic demand. If coal prices increase significantly, we may not necessarily be
able to pass on the increased costs of procuring coal to our heat service customers. In such case,
our profitability, results of operations and financial condition may be adversely affected.
What we can charge for our heat services is subject to guided prices prescribed from time
to time by the PRC Government at various levels and therefore our profitability may be
materially and adversely affected if these pricing policies are not favourable to us.
According to the PRC Pricing Law, the PRC Government may direct, guide or adjust the
pricing throughout the heat service value chain, including but not limited to heat procurement
price with cogeneration plants and heat rates chargeable to heat service users. On 10 April
2020, the NDRC published the Draft Measures for the Price and Fee Control which were open
for public consultation between 10 April 2020 and 9 May 2020. As at the Latest Practicable
Date, there had been no further announcement from the NDRC as to whether they will be
amended, supplemented or revised, or adopted and promulgated.
As advised by our PRC Legal Advisers, the local governments shall follow such draft
measures in the determination of and adjustments to the heat rates once they are promulgated.
The Draft Measures for the Price and Fee Control also laid out certain provisions stating that
determination of and adjustments to heat rates are to be formulated and implemented by local
competent pricing authorities, by taking into account “actual circumstances of the locality” or
“actual circumstance” and “regional differences”. As such, prevailing heat procurement price
and heat rates may vary at different provinces, autonomous regions, municipalities and cities
due to different economic conditions, living conditions and heat production costs. We may not
be able to predict whether, when and how the local pricing authorities would adjust the heat
rates in regions where our Group provides heat services after the Draft Measures for the Price
and Fee Control are promulgated. Any substantial downward adjustment on heat rates in the
regions where our Group provides heat services may lead to a decrease in our revenue
generated from the fees from customers for provisions and distribution of heat, and could have
a material adverse impact on our business and financial performance.
The PRC Government may adjust any such pricing as a result of different considerations
including but not limited to (i) fluctuations in the costs of raw materials; (ii) changes in heat
demand levels and (iii) overall economic development. We, however, do not have direct control
over the prices or their adjustments and we may not be able to transfer all or any of our
increased costs to our heat service customers. For example, when the price of coal exceeds a
certain degree, the PRC Government may increase the ex-factory price of the cogeneration
enterprises correspondingly. Such adjustment would result in an increase of our heat
procurement cost. According to a sensitivity analysis conducted for illustrative purposes, an
increase of 5% in our average heat procurement cost would have decreased our profit before
tax by approximately RMB19.0 million, RMB18.8 million and RMB20.0 million for the years
ended 31 December 2020, 2021 and 2022, respectively. Similarly, an increase of 10% in our
average heat procurement cost would have decreased our profit before tax by approximately
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RMB38.0 million, RMB37.6 million and RMB40.1 million for the same years, respectively. If
we cannot proportionally adjust our heat rates in a timely manner, we may record a lower profit
or even loss. For further information about the pricing of our heat services, see “Business –
Heat distribution – Pricing” in this prospectus. In the event of an increase in costs due to
circumstances beyond our control, such as increases in our heat procurement costs, changes in
laws, rules or government regulations or orders, or force majeure events, we may apply to the
relevant local pricing authority for an adjustment of our heat rates. Such application is made
based on circumstances which we believe constitute grounds for adjustment, taking into
account (i) our relevant heat service costs; (ii) our operating costs and expenses; and (iii)
reasonable profits. Based on this application, the local pricing authority may allow us to adjust
the heat rates which we charge to our heat service users. However, we cannot assure you that
(i) any such application will be approved; (ii) the corresponding adjustments will be made; or
(iii) the local pricing authority will not make downward adjustment on the heat rates. We also
cannot assure you that we will be able to operate under a cost structure which is in line with
the price adjustments. If we are not able to transfer all or any of our increased costs to our heat
service customers, or the local pricing authority decides to make downward adjustment on the
heat rates, we may not be able to maintain our profitability. As a result, our financial position
and results of operations may be materially and adversely affected.
The operation of our Shuozhou Project may be affected by the promulgation of the Draft
Rules.
On 20 April 2022, the Shuozhou City Bureau of Municipal Affairs Administration (ψ
̹၍ଣ҅) issued the Draft Rules open for public consultation between 20 April and 20
May 2022, and on 6 September 2022, it reissued the Draft Rules open for public consultation
between 6 September and 16 September 2022. As advised by our PRC Legal Advisers, the Draft
Rules apply to entities within the Shuozhou City administrative area which engage in the
business of centralised heat services planning, construction, operations and heat consumption
activities, as well as the relevant management affairs of centralised heat services. For details
of the Draft Rules and their implications on our Group’s operations and financial performance
if promulgated in their current forms, please refer to “Regulatory overview – Regulations
relating to government subsidies for supporting heat service – Relevant regulations in Taiyuan
and Shanxi Transformation and Comprehensive Reform Demonstration Zone and Shuozhou
City” and “Business – The implications of the Draft Measures and Draft Rules on our Group’s
operations and financial performance if they were to be promulgated and implemented in their
current forms – Implications of the Draft Rules on our Group’s operations and financial
performance if they were to be promulgated and implemented in their current forms” in this
prospectus. As at the Latest Practicable Date, the implementation and enactment of the Draft
Rules were pending, and there had been no further announcement from the Shuozhou City
Bureau of Municipal Affairs Administration as to whether and when the Draft Rules will be
amended, supplemented, revised adopted or promulgated. We may not be able to predict
whether, when and how the relevant local authorities of Shuozhou City will promulgate the
Draft Rules. There is no assurance that the approved version of the Draft Rules will be
consistent with the existing Draft Rules. If we are unable to comply with the approved version
of the Draft Rules, we may be subject to administrative fines and other penalties and our
business, results of operations and financial position may be materially and adversely affected.
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Our results of operation, and financial condition may be adversely affected by our
property valuation as it is based on certain assumptions which, by their nature, are
subjective and uncertain, and may materially differ from actual results and may not
accurately reflect our financial position. Any fair value change of our investment
properties may adversely affect our financial condition and results of operations.
We are required to reassess the fair value of our investment properties at the end of each
reporting period. Under IFRS, gains or losses arising from changes in fair value of our
investment properties are included in our consolidated statements of comprehensive income for
the period in which they arise. For the years ended 31 December 2020, 2021 and 2022, our
Group recorded fair value losses of investment properties of approximately RMB6.3 million,
RMB2.0 million and RMB5.3 million, respectively. The property valuation report with respect
to the appraised value of our properties set out in Appendix IV to this prospectus is based on
various assumptions which, by their nature, are subjective and uncertain, and may differ from
actual results. These assumptions include the followings: (i) the seller sells the property
interests in the market without the benefit of a deferred term contract, leaseback, joint venture,
management agreement or any similar arrangement, which could serve to affect the values of
the property interests; (ii) allowances have been made neither for any charges, mortgages or
amounts owing on the property interests, nor for any expenses or taxations which may be
incurred in effecting a sale; and (iii) the owner has free and uninterrupted rights to use the
property interests for the whole of the unexpired term of the land use rights. Unforeseeable
changes in general and local economic conditions or other factors beyond our control may also
affect the value of our properties. As a result, the valuation of our properties may differ
materially from the price we could receive in an actual sale of the properties in the market.
Therefore, they may not accurately reflect our financial condition and should not be taken as
their actual realisable value. Any substantial decrease in the fair value of our investment
properties will reduce our profits and could have a material adverse effect on our financial
condition and results of operations.
Our results of operation and financial condition may be adversely affected by our
financial assets at fair value through profit or loss due to the use of estimates that are
based on significant unobservable inputs in the valuation technique, which is inherently
subject to uncertainty.
During the Track Record Period, our level 3 financial assets at fair value through profit
or loss consisted of our investment in wealth management products issued by banks in the PRC
with expected investment return rates ranging from 2.10% to 3.88% per annum. As at 31
December 2020, 2021 and 2022, such financial assets at fair value through profit or loss
amounted to approximately RMB11.0 million, RMB17.1 million and nil, respectively. We
recognised gains on investments in wealth management products of approximately RMB1.2
million, RMB0.4 million and RMB0.1 million for the years ended 31 December 2020, 2021 and
2022, respectively. We cannot assure you that we will continue to generate such fair value gain
in the future. We are exposed to systematic risks associated with the financial markets in the
way that the PRC financial markets may directly and indirectly affected by the global and local
financial, economic and social environments. We are also exposed to credit risk in relation to
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our investments in wealth management products which may adversely affect the net changes
in their fair value. We cannot assure you that market conditions and regulatory environment
will create fair value gains on the wealth management products we invest in or we will not
incur any fair value losses on our investments in the wealth management products in the future.
If our investments in wealth management products incur a fair value loss, our results of
operations and financial condition may be adversely affected.
The wealth management products were measured at fair value with significant
unobservable inputs used in the valuation technique. Our management determines the fair value
of our level 3 financial assets using respective expected return rates of the wealth management
products. See note 3.3 to the accountant’s report as set out in Appendix I to this prospectus for
more information about the fair value measurement of our level 3 financial assets at fair value
through profit or loss. Any changes in the unobservable inputs will affect the estimated fair
value of our level 3 financial assets at fair value through profit or loss, which lead to
uncertainty in accounting estimation. Any substantial decrease in the fair value of our financial
assets at fair value through profit or loss may have an adverse effect on our financial condition
as well as our results of operations if we hold any financial assets at fair value through profit
or loss in the future.
There is no assurance that we will continue to receive the preferential tax treatment or
other incentives we currently enjoy.
During the Track Record Period, some of our subsidiaries were entitled to preferential tax
treatments as well as other incentives pursuant to the relevant laws and regulations:
 under the PRC EIT Law, in general, foreign-invested enterprises and domestic
companies are subject to a uniform tax rate of 25%. Enterprises qualified as High
and New Technology Enterprises ( ৷อҦஔΆุ) are entitled to an enterprise
income tax rate of 15% rather than the 25% uniform tax rate. The preferential tax
treatment continues as long as an enterprise can retain its High and New Technology
Enterprise status. Taiyuan Renewable Energy, Shanxi Shuangliang New Energy,
Shanxi Demonstration Zone Heat Supply, Lanzhou Shuangliang and Hulunbuir
Shuangliang have been accredited as a High and New Technology Enterprise and
thus enjoyed the preferential corporate income tax rate of 15% during preferential
tax period since November 2018, September 2019, December 2020, October 2022
and December 2022, respectively.
 pursuant to the Notice of Implementation of the State Taxation Administration on
Relevant Tax Policies on Western Development (ໝྼГ௅ɽක೯
), a company located in western part of the
PRC and principally engaged in the category of encouraged business activities that
generates a revenue accounting for over 70% of its total revenue is entitled to enjoy
a reduced rate of EIT at 15% since 1 October 2014 if it has filed with and approved
by the local tax bureau. During the Track Record Period, both Hulunbuir
Shuangliang and Lanzhou Shuangliang have been entitled to the 15% preferential
tax rate.
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 according to the Provisional Regulations on V AT of the PRC ( ʕശɛ͏΍ձ਷ᄣ
೼ᅲБૢԷ) promulgated by the State Council in 2017, the Notice relating to
Preferential Policies for V AT, Real Estate Tax and Urban Land Use Tax for Heat
Supply Enterprises (ٙ
) released by MOF and the State Taxation Administration in 2016 and the
Notice relating to Continuing Preferential Policies for V AT, Real Estate Tax and
Urban Land Use Tax for Heat Supply Enterprises (ג
) released by MOF and the State Taxation
Administration in 2019, heat service operators in the “Three North Region”
(including Shanxi Province, Gansu Province and Inner Mongolia Autonomous
Region) enjoy preferential policies in relation to V AT, real estate tax and urban land
use tax.
See “Taxation and foreign exchange” as set out in Appendix III to this prospectus
for more details. During the Track Record Period, our revenue generated from
provision of heat services to our residential heat service customers was exempted
from V AT and our land and buildings used for production and supply of heat were
exempted from real estate tax and urban land use tax.
 Gansu Smart Energy were exempted from corporate income tax for the first three
years since its first tax year, and is entitled to a 50% reduction of the applicable tax
rate for the subsequent three years ( ɧеɧಯ̒) pursuant to the Announcement on
Implementations of the Collection Management Issues Concerning Energy Saving
Service Enterprise’s Energy Management Contract Project EIT Preferential Policies
to Facilitate the Development of Energy Conservation Service Industry (ໝྼ
ʮѓ).
The PRC Government may review the preferential policies on an as-needed basis and may
amend these policies from time to time. There is no assurance that we will continue to receive
these preferential tax treatments in the future and our tax expenses may increase, which could
materially and adversely affect our financial position and results of operations.
We are subject to a broad range of environmental, safety and health laws and regulations
in the PRC, compliance with which may be difficult or expensive. Failure to comply with
these laws and regulations may render us subject to penalties, fines, governmental
sanctions, proceedings and/or suspension or revocation of our licences or permits required
for our business operation.
Our business operations are regulated by various environmental, safety and health laws
and regulations as set out in “Regulatory overview” in this prospectus. Failure to comply with
these regulations may result in penalties, fines, governmental sanctions, proceedings and/or
suspension or revocation of our licences or permits required for our business operation. Given
the breadth and complexity of these regulations, we have established efficient compliance and
monitoring systems to ensure our compliance with all relevant laws and regulations. However,
environmental, safety and health laws and regulations are constantly evolving in the PRC, and
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the PRC Government may impose additional or more stringent laws or regulations in the future.
In such case, we may need to improve our compliance monitoring system and incur substantial
costs to ensure full and timely compliance with such laws and regulations. There is no
assurance that we will be able to pass on such costs to our customers. We may also need to
invest significant time and resources to cater for changes in laws and regulations or
newly-promulgated laws and regulations. This may increase our operating costs or result in the
delay of our business expansion, thereby affecting our financial position and results of
operations.
We may face claims and/or early termination from our heat service customers should we
fail to perform our heat service agreements or fail to meet legal and regulatory
requirements.
We need to provide heat services to heat service customers according to our heat service
agreements and in compliance with all applicable laws and regulations. For example, under our
heat service agreements, our heat service period should follow the period prescribed by the
measures adopted by the relevant local authority for the administration of heat services and
use. Our provision of heat services shall also be on a continuous and stable basis, and subject
to the applicable laws, regulations and heating measures promulgated and amended by the
relevant authorities from time to time. Further, we are required to patrol and inspect heat
service facilities regularly to ensure heat service safety. According to our heat service
agreements, if we fail to comply with the terms of the agreements or the standards prescribed
by the relevant regulations, our heat service customers may lodge requests of refunding heating
fees, and may even terminate our heat services in whole or in part prior to the expiration of the
heat service agreements. In addition, our customers may take legal actions against us if they
consider that our services are inconsistent with our service standards that we have agreed to.
The claims against us and/or the termination of our heat services in whole or in part prior to
the expiration of the heat service agreements may adversely affect our business, financial
position, results of operations and prospects.
Our heat service operation is affected by seasonality.
Heat services are affected by seasonality. Pursuant to all relevant rules and regulations
applicable in our Concession Area, heat service period usually begins from October of each
year to April of the following year. Heat service operators shall strictly follow this prescribed
heat service period. Furthermore, revenue derived from the provision of heat services is
recognised over the period by reference to the progress towards full and complete discharge of
the obligations stipulated in the heat service agreements. As a result, our revenue is generally
higher in the first and fourth quarter during each financial year. For the years ended
31 December 2020, 2021 and 2022, in respect of our heat services segment, revenue generated
in the first and fourth quarter of the year in aggregate amounted to approximately 91.3%,
91.5% and 91.7% of our total revenue generated from the provision of heat services in that
year. Therefore, our quarterly or interim results may not be a meaningful indicator of our
overall performance.
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Heat services are affected by the overall weather condition during the heat service period.
Heat services are subject to the weather condition during the heat service period. Usually,
higher level of heat consumption is required for the purpose of maintaining a desired in-room
temperature in colder heat service period as the outdoor temperature is generally lower. Higher
heat consumption in turn increases the demand for heat procurement from cogeneration plants
and coal consumption, which then increases the overall costs in heat services, and vice versa.
According to a sensitivity analysis, for illustrative purposes, if the average outdoor temperature
in our actual heat service area had been 1°C colder for the years ended 31 December 2020,
2021 and 2022 and in order to maintain a desired in-room temperature as aforementioned, our
costs of purchase of heat would have increased by approximately 1.4%, 1.5% and 1.7%,
respectively. We may experience cold winters with severe weather condition which is out of
our control. As a result, our financial performance of heat services may vary depending on
weather condition during heat service period and you should not predict our results of
operation merely based on our financial performance of heat service business in a particular
year.
Our EMC services were launched with limited history.
We launched our first and only EMC project in 2017 and had recorded gross loss of
approximately RMB0.3 million from our EMC services business for the year ended 31
December 2022. We have limited experience in operating this line of business. We have
encountered and expect to continue to encounter risks and difficulties experienced in relation
to the management of our EMC project. These risks and difficulties may be heightened
depending on the development of that sector of the market. Managing these risks and
difficulties depends on, amongst other things, our ability to: (i) maintain effective control of
operating costs and expenses for our management of EMC project; (ii) generate revenue as
anticipated from our EMC project; (iii) develop and maintain internal personnel, systems and
procedures to comply with the regulatory requirements applicable to the EMC industry and
carbon emissions trading market; and (iv) respond to competitive market conditions in the
relevant industries. If we fail to manage our EMC business, our results of operations and
financial position may be adversely affected.
Changes in accounting standards applicable to service concession arrangements and
changes in our judgements and assumptions in applying these accounting standards may
have a material impact on our results of operation and financial position.
We apply IFRIC 12 Service Concession Arrangements and other relevant accounting
standards for the preparation of our consolidated financial statements in connection with,
among others, our service concession arrangements. These accounting standards may be
changed or amended from time to time. Any changes in these accounting standards may result
in changes in the recognition, measurement and/or classification of our revenue, expenses,
assets and liabilities, which could have material impacts on our results of operations and
financial position. Moreover, in applying these accounting standards, we are required to make
judgements, estimates and assumptions with respect to our revenue, expenses, assets and
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liabilities. These estimates and assumptions are not readily apparent from other sources and are
based on historical experience and other factors that we consider to be relevant. For more
information on the accounting treatment of our acquisition of the concession right and
operation of our heat service projects under our Concession Agreements, including
construction revenue recognised, see “Financial information – Key factors affecting our results
of operations – IFRIC 12 Service Concession Arrangements” in this prospectus. There is no
assurance that our estimates and assumptions can always be accurate, and we may have to make
necessary changes and adjustments in response to the relevant policies governing these
estimates and assumptions, in which case our results of operations and financial position could
be materially and adversely affected.
There is a mismatch between the cash outflow for our construction cost and the cash
inflow for our projects accounted for under IFRIC 12 Service Concession Arrangements.
Under IFRIC 12 Service Concession Arrangements, while we recognise construction
revenue for our heat service projects, we do not receive any actual cash payment for our
construction services from the local government. The actual cash inflow for our construction
cost for our heat service projects is received at a later stage in the form of cash payment during
the operation phase of our respective heat service projects over the stipulated concession
periods. Therefore, there is a mismatch between the cash outflow for our construction cost
during the construction phase and the cash inflow we can receive when we charge our heat
service customers during the operation phase. Usually, we receive payment from our customers
over a period of 25 to 30 years, which only begins upon commencement of the provision of heat
services. Therefore, during the construction phase of our heat service projects, we are required
to rely on our internal resources and external financing to supplement cash flows from
operations in order to meet our payment obligations in full and on time. If we fail to secure
sufficient external financing or generate sufficient cash from our operations to finance our
projects, or if our finance costs increase materially, our business, financial position, results of
operation and prospects may be materially and adversely affected.
We may not receive sufficient cash payments from projects for which construction costs
have been incurred, if the relevant project does not materialise or if the actual cash receipts in
the operation phase of the project are significantly smaller than expected. We may need to
recognise impairments in the subsequent periods for the related intangible assets. For the
accounting treatment of revenue generated from our construction services in connection with
our heat service projects, see “Financial information – Key factors affecting our results of
operations – IFRIC 12 Service Concession Arrangements” in this prospectus. Impairments or
write-offs may occur in the future, in which case our financial position and results of
operations may be materially and adversely affected.
Meanwhile, due to the varied profit margin of different stages of our BOT heat service
projects, our overall profit margin, which takes into account of our profit margins from
different stages, may be affected during the construction phase of the BOT projects. Should we
undertake more engineering construction services in the future, our overall profit margin may
be affected.
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The amount of intangible assets on our consolidated statements of financial position
increased correspondingly as we recorded revenue from engineering construction services
under IFRIC 12 and such amount represented a significant portion of the assets on our
consolidated statements of financial position. If our intangible assets are impaired, our
results of operations and financial position may be adversely affected.
Our Group’s intangible assets amounted to approximately RMB3,169.9 million,
RMB3,190.7 million and RMB3,341.0 million as at 31 December 2020, 2021 and 2022,
respectively, representing a significant portion of the assets on our consolidated statements of
financial position during the Track Record Period. We recorded our revenue from engineering
construction services under IFRIC 12 that correspondingly increased intangible assets on our
consolidated statements of financial position. Determining whether such intangible assets are
impaired requires an estimation of the recoverable amount of the individual cash generating
units to which the intangible assets have been allocated, which is the higher of the value in use
or fair value less costs of disposal. The value in use calculation requires our Group to estimate
the future cash flows expected to arise from the individual cash generating units and suitable
discount rates in order to calculate the present value. Where the actual future cash flows are
less than expected, or change in facts, circumstances and the existing government policies,
applicable to the relevant operation which results in downward revision of future cash flow, we
may need to recognise impairments or write-offs in the subsequent periods for the related
intangible assets. No impairment was required after our Directors’ impairment assessment
during the Track Record Period. However, we cannot assure you that impairments or write-offs
will not occur in the future, in which case our financial position and results of operations may
be materially and adversely affected.
Breach of financial covenants under our bank borrowings may result in repayment on
demand which may materially and adversely affect our liquidity and financial position.
As at 31 December 2020, 2021 and 2022, our bank borrowings were approximately
RMB1,308.6 million, RMB1,061.3 million and RMB881.2 million, respectively, some of
which are subject to the fulfilment of covenants relating to certain debt servicing financial
indicators.
As at 31 December 2020 and 2021, certain bank loan amounting to approximately
RMB193.0 million, and RMB179.0 million was classified as current liability in the
consolidated statements of financial position as our Group did not comply with certain
financial undertakings, respectively. For more details, see “Financial information – Discussion
of certain items of consolidated statements of financial position – Indebtedness – Borrowings”
in this prospectus. Our lending banks may impose additional operating and financial
restrictions on us and the terms of our existing facility agreements, which may adversely affect
our financial position. In addition, our lenders may conclude that we are at risk of not being
able to repay the indebtedness due to our failure to fulfil the financial covenants. As a result,
we may fail to renew or obtain bank borrowings. If any such possible situation materialises,
it is likely to materially and adversely affect our liquidity and financial position.
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We are subject to credit risk with respect to trade receivables and contract assets.
Our trade receivables mainly consisted of the amounts receivable from (i) the local
government providing the price subsidies; (ii) customers of our heat services, such as
governmental institutions and property management companies; and (iii) the customer of
our EMC services. As at 31 December 2020, 2021 and 2022, our total trade receivables
amounted to approximately RMB433.7 million, RMB419.6 million and RMB566.1 million,
respectively, and our average trade receivables turnover days were 135.2 days, 133.9 days and
145.0 days, respectively. Our contract assets mainly represented our rights to receive
consideration in respect of our engineering construction services provided to our customers. As
at 31 December 2020, 2021 and 2022, our contract assets amounted to approximately RMB44.1
million, RMB58.7 million and RMB14.6 million, respectively. During the Track Record
Period, we recorded provision of impairment losses on financial assets and contract assets of
approximately RMB13.5 million for the year ended 31 December 2020, and reversal of
impairment losses of approximately RMB1.0 million and RMB23.1 million for the years ended
31 December 2021 and 2022, respectively. For details about our trade receivables and contract
assets, see “Financial information – Discussion of certain items of consolidated statements of
financial position – Current assets and current liabilities – Trade receivables” and “Financial
information – Discussion of certain items of consolidated statements of financial position
– Non-current assets and liabilities – Contract assets” in this prospectus.
With regards to trade receivables, there can be no assurance that all such amounts due
from our customers would be settled on time, or that such amounts will not continue to increase
in the future. Accordingly, we may face credit risk in collecting trade receivables due from
customers. If significant amounts due to us are not settled on time or substantial impairment
is incurred, it could materially and adversely affect our business, results of operations and
financial position. With regards to contract assets, we cannot guarantee that all our contract
assets are recoverable in the future, and our business operations and cash flow are subject to
the risk of delay in payment from our customers. We also cannot assure you that we will be
able to fully recover the outstanding amounts due from our customers, if at all, or that our
customers will settle the amounts in a timely manner. If a customer delays its payment, or fails
to settle the payment to us, our cash flow and working capital may be materially and adversely
affected.
We are subject to credit risk in relation to the financial condition of the Shuozhou
Government.
During the Track Record Period, we recognised revenue in the form of price subsidies
from the Shuozhou government for our Shuozhou Project in the amount of approximately
RMB167.9 million, RMB182.5 million and RMB161.7 million for the years ended 31
December 2020, 2021 and 2022, respectively. Such price subsidies, which are recurring,
represent compensation of the shortfall in our revenue resulting from low heat rates set by the
local pricing authority in order to alleviate the burden of the residents of Shuocheng District
given the backdrop of favourable laws and policies. For details of such price subsidies, see
“Financial information – Description of major components of our results of operations –
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Revenue – Heat services – (ii) Price subsidies from local government” in this prospectus. We
cannot assure you that we will be able to continue receiving price subsidies from the Shuozhou
government on time in the future. In particular, if the Shuozhou government faces financial
difficulties, it may be unable to fully settle, or settle at all, the amount of price subsidies to
which we are entitled. Our financial position and results of operations may be materially and
adversely affected if we are unable to receive the price subsidies in full and in a timely manner.
We may be exposed to impairment losses on prepayments and other receivables.
As at 31 December 2020, 2021 and 2022, our prepayments and other receivables
amounted to approximately RMB304.2 million, RMB238.1 million and RMB41.9 million,
respectively. Our prepayments and other receivables primarily consisted of (i) amounts due
from a related party mainly attributable to the loan financing arrangement with Beijing
Zhongchuang; (ii) deposits required for utility services; (iii) consideration receivable from
disposal of right-of-use assets; and (iv) prepayments to our suppliers related to our engineering
construction services. For details, see “Financial information – Discussion of certain items of
consolidated statements of financial position – Current assets and current liabilities –
Prepayments and other receivables” in this prospectus. There can be no assurance that we will
not have bad debts in the future. In the event that the actual recoverability of prepayments and
other receivables is lower than the expected level, we may need to make provision for
impairment of prepayments and other receivables, which could adversely affect our cash flow
position and our ability to meet our working capital requirements, thereby materially and
adversely affecting our business, financial position and results of operations.
We engage contractors to carry out construction works of our heat service facilities
including primary distribution pipelines and heat exchange stations and we may not have
full control over them.
We engage some third party contractors to construct heat service facilities, including
primary distribution pipelines and heat exchange stations. When selecting contractors, we
consider factors such as construction capability, past experience, industry reputation, quality,
price, skill and requisite qualifications and licences. We require them to carry out their work
in accordance with relevant quality, safety and environmental standards. However, our control
over them is limited. We cannot assure you that they will comply with the standards at all
times, which could result in us being subject to a breach of the relevant laws and regulations.
Neither can we assure you that any such contractors will provide satisfactory services or
complete works within the agreed timeframe. Any removal or termination of unsatisfactory
third-party labour service providers would require us to seek new providers, which would
result in delays and adversely affect our operations accordingly. In the event of fraud or
misconduct by a labour service provider, we might be exposed to material liability and be held
responsible for damages, fines or penalties and our reputation may suffer.
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We hire dispatched staff in some supporting positions.
We hired dispatched staff through dispatch agencies at four of our operating subsidiaries
in the PRC. During the Track Record Period, four of our subsidiaries breached the prescribed
statutory maximum threshold of dispatched staff. These dispatched staff were mainly hired for
positions with supporting nature. Pursuant to the Interim Provisions on Labour Dispatch ( ௶
) (the “ Interim Provisions ”) which came into effect on 1 March 2014, an
employer shall strictly control the number of dispatched staff to make sure that it does not
exceed 10% of the total number of its workers. In order to reduce the percentage of dispatched
staff engaged by us to a level that complies with the Interim Provisions, we scaled down our
engagements with dispatched staff. As at the Latest Practicable Date, we completed the
rectification process and brought the dispatch staff level within the limit prescribed by the
Interim Provisions. See “Business – Employees – Dispatched staff” and “Business –
Regulatory compliance – Non-compliance incidents – (2) Dispatched staff” in this prospectus
for details. We cannot guarantee if we can always have sufficient workers to perform different
types of services in the future at our subsidiaries.
We incur contract liabilities primarily from payments received by us in advance in respect
of (i) our provision and distribution of heat; and (ii) pipeline connection fee, and may not
be able to settle such contract liabilities if we cannot fulfil our obligations.
Contract liabilities we incurred were primarily due to the advances received from
customers in relation to the provision and distribution of heat as we generally receive payment
from customers before the heat service period, pipeline connection service and construction
and maintenance services. Such contract liabilities will be recognised as revenue in the
following years when the relevant services are provided by us, and will not involve cash
outflow in the future.
As at 31 December 2020, 2021 and 2022, our contract liabilities amounted to
approximately RMB1,916.0 million, RMB2,091.5 million and RMB2,262.0 million,
respectively. If we cannot provide our services, our reputation and the relationship with the
customers will be affected, and we will not be able to settle our contract liabilities and
therefore cannot recognise revenue, which may in turn adversely affect our results of
operations and financial condition, including our cash and liquidity position.
We had net current liabilities as at 31 December 2020, 2021 and 2022.
We had net current liabilities of approximately RMB1,483.7 million, RMB966.9 million
and RMB551.8 million as at 31 December 2020, 2021 and 2022, respectively, mainly
comprised of contract liabilities in respect of (i) our provision and distribution of heat, and (ii)
pipeline connection fee; and borrowings for our daily operation. For details, see “Financial
information – Discussion of certain items of consolidated statements of financial position –
Current assets and current liabilities” in this prospectus. We may continue to record net current
liabilities in the future.
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We may not have sufficient capital in support of our business expansion.
Under the Concession Agreements, we are required to invest in, build, arrange for the
development and operation of the infrastructure assets (i.e. heat service facilities) required for
the provision of our heat services. These construction activities may increase with the
expansion of our actual heat service area, which requires significant capital expenditures. If we
fail to have sufficient capital when and where there is a need to carry out a number of
large-scale construction activities at the same time, these construction activities may be
delayed and our business, results of operation and prospects may be materially and adversely
affected.
Our results of operations and financial condition may be affected by the share of results
of our associates. We may face risks relating to our investments in associates and may not
be able to generate returns from our investments in our associates if they do not declare
dividends.
We have made investment in several associates, and such investments may involve
significant risks and uncertainties. As at 31 December 2020, 2021 and 2022, our investments
in associates which were accounted for using the equity method amounted to approximately
RMB72.7 million, RMB84.8 million and RMB95.0 million, respectively. If the performance of
our associates deteriorate, our share of results of associates may decrease, which may adversely
affect our results of operations and financial condition.
In addition, we may face liquidity risks as our interests in the associates are not as liquid
as other investment products and there is no cash inflow until dividends are received by our
Group even if profits are reported under equity accounting. We may not be able to generate
returns from our investments in our associates if they do not declare any dividends in the
future.
Our heat service business is subject to risks attributable to developments in the macro
environment including but not limited to unplanned additional capital expenditures
resulting from requests by local governments and climate change, which may adversely
impact our ability to capitalise on new business opportunities. If we are unable to
sufficiently mitigate these macro risks for our heat service projects, our business and
financial condition may be materially and adversely affected.
For our heat service projects, we may be subject to risks brought by developments in the
macro environment. For example, we were requested by the Taiyuan Administration in 2017 to
construct additional urban underground pipelines and back-up systems for our Taiyuan Project,
the additional capital expenditures of which were previously unplanned, and subsequently led
to the reduction of the Concession Boundary Area for our Taiyuan Project in order to avoid
such unanticipated capital expenditures. For details, see “Business – Heat services – Heat
service projects under concession operation – Reduction of the size of the Concession
Boundary Area for our Taiyuan Project and the possible transfer of heat facilities in relation to
the Subject Area which is currently under negotiation” in this prospectus. Further, requirement
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for heat services is subject to global climate change which causes temperature to rise during
winter time. The warmer weather may in turn reduce the demand for heat services in the “Three
North Region” thereby adversely impacting our provision of heat services, including the
opportunity to obtain new projects and the expansion of our actual heat service area.
The success of our business operation depends on our ability to sufficiently mitigate the
aforementioned macro risks which may be caused by factors beyond our control. We may not
be able to obtain new concession rights to operate new heat service projects, and may lose out
to competitors on new business opportunities due to reasons, including but not limited to,
insufficient resources, climate change, global warming and other macro risks which we may
not be able to sufficiently mitigate, which may have a material adverse impact on our business
and financial performance.
Risks relating to natural disasters, pandemics, epidemics, acts of terrorism or war in the
PRC and globally may materially and adversely affect our business. In particular, the
outbreak of COVID-19 could materially and adversely affect our results of operations and
financial position.
Natural disasters, pandemics, epidemics, acts of terrorism or war or other factors that are
beyond our control may materially and adversely affect the economy, infrastructure and
livelihood of people in the areas where we have or plan to have business operations. In
particular, due to their geographic regions, some of these areas are susceptible to the threat of
floods, earthquakes, sandstorms, snowstorms, fires or droughts, power shortages or failures, as
well as potential wars, terrorist attacks or epidemics such as Ebola, SARS, H1N1, H5N1,
H7N9.
Towards the end of 2019, a highly infectious novel coronavirus spread across the PRC.
The World Health Organisation, or the WHO, later named it COVID-19. WHO is closely
monitoring and evaluating the situation. On 30 January 2020, the WHO declared the outbreak
of COVID-19 a Public Health Emergency of International Concern, or the PHEIC. In March
2020, the WHO characterised the outbreak of COVID-19 a pandemic. Many countries have
imposed unprecedented measures to halt the spread of the COVID-19, including strict city
lockdowns and travel bans. In the PRC, although COVID-19 had been largely contained,
lockdown and other measures may still be introduced in certain cities if new cases emerge.
Such measures may disrupt business in major industries and adversely affect the overall
business sentiment and environment in the PRC, which in turn may lead to slower overall
economic recovery in the PRC.
The prolonged outbreak of COVID-19 may have serious implications for the global
economy due to a slowdown at manufacturing sites and industrial sites in the PRC as well as
reduced demand by PRC consumers or customers of other countries/territories being affected.
As we are principally engaged in the provision of heat services business, and the provision of
such heat services are a necessity in northern China in winter, our financial performance may
remain stable for the future financial years. Despite our public utility business nature, we
cannot assure you that our business operations will remain unaffected in the long run if the
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COVID-19 is still in existence. In addition, we may incur extra costs related to our
precautionary measures and disinfection works which may result in losses under our lump-sum
charge. From January 2020 and up to the Latest Practicable Date, we incurred an aggregate cost
of approximately RMB89,600 for purchasing protective masks and other medical and cleaning
supplies. Our engineering construction services and EMC services may be affected by the
outbreak given the uncertainty and volatility of COVID-19. We may also need to quarantine
some or all of our employees, or disinfect our operational premises and/or office buildings,
given the span of our cross-provincial operation, to prevent the spread of the COVID-19 if any
of our employees was suspected of contracting or contracted an epidemic disease.
Accidents in our business may expose us to liabilities and reputational risks.
Accidents may occur in the ordinary course of our business. We are therefore exposed to
risks in relation to work safety, for example, injuries by our employees and/or contractors,
which may also damage our reputation within the heat service industry in the PRC. During the
Track Record Period and up to the Latest Practicable Date, none of our employees and/or
contractors had been involved in any major accident during the course of their employment and
the relevant PRC authorities had not imposed any penalty on us for incidents of non-
compliance of any health and safety laws or regulations in the PRC. We may also experience
business disruptions and it becomes mandatory for us to implement additional safety measures
if accident occurs or where relevant competent authorities order us to modify our business. To
the extent that we incur additional costs, our business, financial position and results of
operations may be materially and adversely affected.
We are exposed to claims by our employees, contractors or other third parties that may
arise due to our employees’ or contractors’ negligence or recklessness when performing repair
and maintenance works. In such cases, we may be held liable for the injuries of employees,
contractors and our heat service customers. We may experience interruptions to our business
and may be required to change the manner in which we operate due to governmental
investigations or the implementation of safety measures upon occurrence of the above-
mentioned accidents. Any of the foregoing incidents could adversely affect our business,
financial position and results of operations.
There are uncertainties about the recoverability of our deferred income tax assets which
could affect our financial position and results of operations.
We recorded deferred income tax assets of RMB41.1 million, RMB49.1 million and
RMB53.7 million, respectively, as at 31 December 2020, 2021 and 2022. We periodically
assess the probability of the realisation of deferred tax assets, using significant judgements and
estimates with respect to historical operating results, expectations of future earnings and tax
planning strategies. In particular, deferred tax assets can only be recognised to the extent that
it is probable that future taxable profits will be available against which the unused tax credits
can be utilised. However, there is no assurance that our expectation of future earnings could
be accurate due to factors beyond our control, such as general economic conditions and
negative development of the regulatory environment, in which case, we may not be able to
recover our deferred tax assets which thereby could have an adverse effect on our results of
operations.
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Interruptions and security risks to our heat services management software tool may result
in disruption to our business operation.
Our heat services management software tool is crucial to our business operation. It helps
us to manage key operational functions such as processing operational data and facilitating
communications. Further, we rely on our heat services management software tool to manage
our cross-provincial business operation, hence, we need to continuously maintain and upgrade
this software tool to meet evolving requirements of our operations and customer needs and
preferences. However, we may fail to adequately upgrade our heat services management
software tool to meet the market demands and customers’ needs. In addition, we cannot assure
that damages or interruptions caused by power outages, computer viruses, hardware and
software failures, telecommunication failures, fires, natural disasters, security breaches and
other similar occurrences relating to our information systems will not occur going forward. In
an unlikely event that any of these accidents occur, we may need to incur significant costs in
restoring any damaged system to resume our business operation. Failures in or disruptions to
our heat services management software tool and loss or leakage of information, including but
not limited to confidential information, could cause transaction errors and processing
inefficiencies. We may thus experience adverse effects on our business and results of
operations. For more information relating to our heat services management software tool, see
“Business – Heat services management software tool” in this prospectus.
Based on a written confirmation that we received from the Office of the Jiangyin
Cybersecurity Affairs Commission* (܃being the
relevant competent authority to provide such confirmation, it was confirmed that we are not an
operator of key information facilities and/or online platform operator, hence, we are not subject
to the Cybersecurity Review Measures (2021). Based on the same confirmation, it was also
confirmed that if the Draft Regulations On Network Data Security Management are formally
issued in the future, such regulations will not apply to our business (provided that our business
remains unchanged) and we will therefore not be required to apply for the cybersecurity review
in order to be listed in Hong Kong. Based on the foregoing, our Directors and our PRC Legal
Advisers are of the view that the Draft Regulations On Network Data Security Management
will not affect our Group’s compliance with the relevant laws and regulations, and that the
business operations and financial position of our Group would not be affected in any material
aspect on the premise that no material change would occur to our Group. However, as advised
by our PRC Legal Advisers, the exact details of Cybersecurity Review Measures (2021) and the
Draft Regulations On Network Data Security Management and the current regulatory regime
remains unclear, and the PRC Government authorities may have wide discretion in the
interpretation and enforcement of these laws. As such, our Directors and PRC Legal Advisers
cannot preclude the possibility that new rules or regulations promulgated in the future will
impose additional compliance requirements on our Group in relation to cybersecurity review,
which may result in, among others, an increase in our cost of compliance and expected time
required in case we conduct further capital raising in future.
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These laws and regulations are relatively new and evolving, and their interpretation and
enforcement involve significant uncertainties. The evolving PRC regulations regarding (i) data
collection, usage and transfer; and (ii) cybersecurity may lead to future restrictions and the
establishment of new regulatory agencies, and we may bear more legal responsibilities and
compliance costs, which may have an adverse effect on our prospects. 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 brands
could be severely damaged and we could incur significant liability, and our business, financial
position and results of operations could be adversely affected.
We may be exposed to infringement or misappropriation claims by third parties, which,
if determined adversely to us, could subject us to significant liabilities and other costs.
Our success depends partially on our ability to use and develop new design, technology
and industrial know-how without infringing the intellectual property rights of third parties. As
at the Latest Practicable Date, we have registered eight domain names, eight trademarks and
27 copyrights. As at the same date, we also had 72 patents registered with CNIPA, of which
five were inventions relating to heat service systems during the cogeneration process. In
addition, we had two inventions and three utility models pending registration for patents. We
also rely on and expect to continue to rely on a combination of confidentiality and licence
agreements, as well as trademark and domain name protection laws, to protect our proprietary
rights. See “Business – Intellectual property” in this prospectus for more information. Central
to our continuous business operation is constant technology renovation, therefore, these
intellectual property are crucial to our heat services business. Third parties may assert
intellectual property claims against us during the course of our operation in the future. The
validity and scope of claims relating to the intellectual property rights of heat service
development and technology may involve complex scientific, legal and factual questions and
analysis, which results in uncertainty and ambiguity. In addition, enforceability, scope and
validity of laws governing intellectual property rights in the PRC are uncertain and still
evolving, and could involve substantial risks to us. If we were unable to detect unauthorised
use of, or take appropriate steps to enforce, our intellectual property rights, it could have a
material adverse effect on our business, financial position and results of operations. Any future
third parties assertion of copyright or patent infringement or violations of other intellectual
property rights against us may involve us in litigation or administrative proceedings, which can
be both costly and time consuming and may significantly divert the efforts and resources of our
technical and management personnel. A determination not in favour of us in any such litigation
or proceedings could subject us to significant liability to third parties. We may need to seek
licences from third parties, to pay ongoing royalties. We may also be subject to injunctions
prohibiting the development and operation of our heat services business. Moreover, we may
suffer damages to our reputation, which in turn could have a material adverse effect on our
business, financial position and results of operations.
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Our success depends on the continued services of our Directors, supervisors, senior
management and other qualified employees.
Our continued success is highly dependent upon the endeavours of our Directors,
supervisors, senior management and other qualified employees who are experienced in the
provision of heat services and other related industries. We believe their experience,
professional skills and status in this industry stand us apart from other heat service operators
in the PRC. If a material number of our qualified employees leave and we are unable to
promptly hire and integrate a suitable replacement, our business, financial position and results
of operations may be materially and adversely affected. In addition, the future growth of our
business will depend, partially, on our ability to attract and retain qualified personnel in all
aspects of our business, including heat service personnel with requisite skills and
qualifications. If we are unable to attract and retain these qualified personnel, our growth may
be limited and our business, financial position and results of operation could be materially and
adversely affected. See “Directors, supervisors and senior management” in this prospectus for
the managerial structure of our Group.
Our insurance coverage may not extensively cover the risks related to our business.
During the Track Record Period and up to the Latest Practicable Date, we maintained
insurance policies which cover potential losses or damages in respect of our business
operations. These insurance policies cover, among other things, our properties, equipment and
machinery, pipelines, vehicles, computers and other properties owned by us. During the Track
Record Period and up to the Latest Practicable Date, we did not experience any material
business interruptions or material insurance claims. For more details, see “Business –
Insurance” in this prospectus.
We cannot assure you that our existing insurance coverage will be extensive or available
to cover the damage, liabilities or losses which we may incur in the course of our business.
While expanding our business, we may face potential risk exposure due to the change of
regulatory schemes, and may be subject to certain losses and/or claims as a result. Moreover,
there are certain losses for which insurance is not available in the PRC on commercially
practicable terms, such as losses suffered due to business interruptions, earthquakes, typhoons,
flooding, war or civil disorder. In these cases, there could be a material adverse effect on our
business, financial position and results of operations.
We may be subject to penalties for our failure to contribute to social insurance fund and
housing provident fund on behalf of some of our employees.
During the Track Record Period, some of our PRC subsidiaries did not fully contribute
to certain social insurance funds and housing provident funds for their employees. Therefore,
we may be subject to late fees and fines for our insufficient contributions to the social
insurance funds and housing provident funds. As at the Latest Practicable Date, we had not
received any notice from the local government authorities regarding any claim for inadequate
contribution of our current and former employees.
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According to the relevant PRC laws and regulations, if we do not pay the full amount of
social insurance contributions as required, the relevant PRC authorities may demand that we
pay the outstanding social insurance contributions by the deadline stipulated by them and we
may be liable for a late payment fee equal to 0.05% of the outstanding amount for each day
of delay. As at the Latest Practicable Date, no administrative penalties had been imposed by
relevant regulatory authorities regarding the outstanding social insurance and housing
provident funds, and we had not been ordered to settle any shortfall. The late payment fees that
we may be liable for amounted to approximately RMB0.2 million, RMB0.3 million and
RMB40,000 for the years ended 31 December 2020, 2021 and 2022, respectively. We may be
liable to an additional fine of one to three times the amount of the outstanding contributions
if we fail to make such payments by the deadline stipulated by them. In respect of outstanding
housing provident fund contributions, we may be ordered to pay the outstanding housing
provident fund contributions within the time period stipulated by relevant authorities. If
payment is not made within such stipulated time period, relevant PRC authorities may apply
to PRC courts for compulsory enforcement. See “Business – Employees – Social insurance and
housing provident fund contributions” and “Business – Regulatory compliance – Non-
compliance incidents – (1) Social insurance and housing provident fund contributions” in this
prospectus for more information.
The relevant local government authorities may in the future require us to pay the
outstanding amount within a specific time limit or impose late or additional fees or fines on us,
which may adversely affect our financial position and results of operation.
We may be involved in legal and other disputes and claims from time to time arising out
of our operations.
We may be involved in legal and other disputes and claims from time to time arising out
of our operations. We may, from time to time, be involved in disputes with regard to damages
to property with and subject to claims by property owners and tenants to whom we provide heat
services and related services. Disputes may also arise if they are dissatisfied with our services.
In addition, they may take legal actions against us if they perceive that our services are
inconsistent with our service standards we agreed to. Furthermore, we may, from time to time,
be involved in disputes with, and subject to claims lodged by other parties involved in our
business, including our contractors, suppliers and employees, or other potential claimants who
sustain injuries or damages while visiting properties where our heat services reach. All of these
disputes and claims may lead to legal or other proceedings or cause negative publicity against
us, thereby resulting in damage to our reputation, substantial costs and diversion of resources
and management’s attention from our business activities. Any such dispute, claim or
proceeding may have a material adverse effect on our business, financial position and results
of operations.
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We are subject to civil actions lodged by our tenants against us.
During the Track Record Period and up to the Latest Practicable Date, we leased out a
number of premises of our investment properties. The tenants of these premises were unable
to register the tenancy agreements entered into between us and our tenants with the relevant
local housing administrative authorities, as we were not able to present the real estate
certificate (ࣣwhich is required by the prevalent local administrative procedures
for the purpose of registering tenancy agreements. According to the Real Estate Management
Law of the PRC () and the Measures of Commercial
Real Estate Leasing Activities (), relevant local governments may
require the relevant parties to rectify the non-registration within a certain period of time. If the
relevant parties fail to make rectifications within the specified time, they may face a fine
ranging from RMB1,000 to RMB10,000 for each unregistered lease agreement. Therefore, it is
possible that civil actions may be lodged by the tenants against us for our failure to produce
a real estate certificate to them to facilitate their registration of leases. Any such dispute, claim
or proceeding may have a material adverse effect on our business, financial position and results
of operations. See “Business – Properties – Other properties occupied by us – (a) Shantou
Complex” and “Business – Properties – Leased properties” in this prospectus for further
details.
We may not obtain compensation or obtain minimal compensation for the transfer of our
heat service-related assets upon the expiry of our Concession Agreements.
Our Concession Agreements are structured in the form of a BOT model, pursuant to which
we were contracted and were granted the exclusive rights by our concession grantors to invest
in, build, and arrange for the development and operation of the infrastructure assets (i.e. heat
service facilities) required for our provision of heat services. During the concession period, we
are entitled to operate and generate revenue from such infrastructure assets through the
operation of our heat services business. Upon expiry of the concession period, in the event that
the concession rights are not renewed, all heat service-related assets invested (and, in some
cases, under construction at the time) by us and the right to use in relation to heat
service-related assets which were not invested by us will be transferred to the relevant
concession grantor or party(ies) designated by the concession grantor. The compensation
payable (if any) by the concession grantor to us for such transfer of assets shall be based on
the assessed value of the transferred assets (which, in some cases, is determined by a third party
asset valuation agency jointly appointed by us and the concession grantor). However, there is
no assurance that our Group will be able to receive adequate compensation for any future
transfer of assets, if at all.
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RISKS RELATING TO OUR INDUSTRY
Any future changes in laws or regulations or enforcement policies in relation to the heat
service industry could materially and adversely affect our business, results of operations
and financial position.
Concession operation and the heat service industry are subject to a broad range of laws
and regulations in the PRC. Currently, all major aspects of heat service industry are regulated
and enforced by the relevant government authorities, including procurement price, retail price,
and pipeline network construction and emission standards. For details, see “Regulatory
overview” in this prospectus.
Any change in the existing laws and regulations which may impact the heat service
industry or their interpretation may affect our business operations or require us to incur
additional compliance costs or make costly and time-consuming changes to our operations,
either of which could materially and adversely affect our business, results of operations and
financial position. If we fail to comply with such new or revised laws and regulations, we may
be subject to administrative fines or other penalties, which could also materially and adversely
affect our business, results of operations and financial position.
We may be subject to penalties for our failure to obtain or renew certain permits, licences,
certificates or other relevant PRC governmental approvals/checks necessary for our
business operations.
Some of the licences, permits and certificates are subject to periodic review and renewal
by the government authorities and the standards of compliance required may change over time.
In addition, the eligibility criteria for such licences, permits and certificates may change from
time to time and we may be required to observe stricter compliance standards in respect of such
licences, permits and certificates. We may also be required to obtain additional licences,
permits and certificates for our operations. During the Track Record Period, we failed to obtain
mining permit for extracting geothermal heat as required under the relevant PRC laws and
regulations. For details, see “Business – Regulatory compliance – Non-compliance incidents –
(3) Failure to obtain mining permit for extracting geothermal heat” in this prospectus.
We are also required under relevant PRC laws and regulations to complete relevant
construction acceptance checks in relation to certain properties for our business operation.
During the Track Record Period, we failed to obtain certain construction permits and/or
complete relevant construction acceptance check for (a) 14 heat exchange stations constructed
by us for our Shanxi Demonstration Zone Project and Shuozhou Project, and (b) our peak
shaving station for our Lanzhou New Area Project. According to relevant PRC laws and
regulations, we may be subject to administrative fine and penalties. For details, see “Business
– Properties – Failure to obtain certain construction planning permits and/or complete relevant
construction acceptance check for the construction of certain properties” in this prospectus.
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In the event of the introduction of any new laws and regulations or changes in the
interpretation of any existing laws and regulations that increase compliance costs for us, or
prohibit or make it more expensive for us to continue with the operation of any part of our
business, our financial position and results of operations may be materially and adversely
affected. We may also become unable to obtain or renew required permits and/or licences that
are crucial to heat services due to some established or unvarying administrative practices in
some locations. As any established or unvarying administrative practice may evolve from time
to time, our inability to obtain these permits and/or licences may render us susceptible to
administrative penalties, and we cannot assure you that we can obtain required permits and/or
licences in a timely manner. See “Business – Regulatory compliance – Licences, permits and
certificates” in this prospectus for further details.
We also cannot assure you that the competent PRC government authorities will not
release new laws, regulations or policies to regulate the completion of construction acceptance
checks in the future. We may not be able to comply with such new laws, regulations or policies
in a timely manner and we may be subject to fines, which may adversely affect our financial
conditions and results of operation.
We may incur additional costs should the PRC Government adopt more stringent or
additional environmental laws or requirements.
We are subject to national and local environmental protection regulations in the PRC.
Such environmental laws and regulations levy fees for the discharge of waste substances above
prescribed levels and impose fines for serious violations. Environmental protection authorities
may at their own discretion close or suspend the operation of any facility that fails to comply
with orders requiring it to cease or remedy operations causing environmental damage. We
expect that our annual environmental compliance costs will maintain at similar level after
Listing. See “Business – Environmental, social and governance – Environmental protection” in
this prospectus for further details. If the relevant environment protection policies are
strengthened, we may be required to invest more with respect to environmental protection
which may materially and adversely affect our profitability.
The relevant environmental protection administration authorities may impose more
stringent standards in the future which would increase our operational costs to meet such
higher standards. Given the magnitude and complexity of these laws and regulations,
compliance with them or the establishment of effective monitoring systems may be onerous or
require a significant amount of financial and other resources. As these laws and regulations
continue to evolve, we cannot assure you that the PRC Government will not impose additional
laws or regulations, compliance with which may cause us to incur significantly increased costs,
which we may not be able to pass on to our customers. We may need to upgrade existing
technologies and facilities to meet the standards imposed by the relevant regulatory authorities,
which will require higher financial, human and other resources.
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Competition in the heat service industry may increase and if we fail to maintain our
competitiveness, our financial performance could be materially and adversely affected.
According to the Frost & Sullivan Report, the heat service industry in the PRC is highly
fragmented, with a large number of local service providers. As a cross-provincial heat service
provider, we currently compete primarily with local heat service providers in the PRC while
our future competitions may also involve those heat service providers with cross-provincial
operations. If we are unable to improve our services quality, maintain our operating efficiency
and control our costs, maintain a good cooperative relationship with the local government, we
may not be able to compete effectively against our existing or new competitors and our
sustainability and growth opportunities may be limited, which will materially and adversely
affect our revenue and profitability.
RISKS RELATING TO CONDUCTING BUSINESS IN THE PRC
We are vulnerable to adverse changes in economic, political and social conditions and
government policies in the PRC.
We manage all of our business operations from our headquarters in the PRC. Accordingly,
our financial position, results of operations and prospects are, to a large degree, subject to the
economic, political, social and legal conditions in the PRC. The PRC economy differs from that
of most developed countries in many respects, including the extent of government
involvement, level of economic development, investment control, resource allocation, growth
rate and control over foreign exchange. Before its adoption of reform and open-door policies
beginning in 1978, the PRC was primarily a planned economy. Since then, the PRC economy
has been transitioning to become a market economy with socialist characteristics.
For approximately four decades, the PRC Government has implemented economic reform
measures to utilise market forces in the PRC economy. Many of the reform measures are
unprecedented or experimental and are expected to be modified from time to time. Other
political, economic and social factors may lead to further readjustment or introduction of other
reform measures. This reform process and any changes in laws and regulations or the
interpretation or implementation thereof in the PRC may have a material impact on our
operations or may adversely affect our financial position and results of operations.
While the PRC economy has grown significantly in recent years, this growth has been
geographically uneven among various sectors of the economy and during different periods. We
cannot assure you that the PRC economy will continue to grow, or that if there is growth, such
growth will be steady and uniform. Any economic slowdown may materially and adversely
affect our business. In the past, the PRC Government has periodically implemented a number
of measures intended to slow down certain segments of the economy which the PRC
Government believed was overheating. We cannot assure you that the various macroeconomic
measures and monetary policies adopted by the PRC Government to guide economic growth
and allocate resources will be effective in improving the growth rate of the PRC economy. In
addition, such measures, even if they benefit the overall PRC economy in the long term, may
reduce demand for our services and therefore materially and adversely affect our business,
financial position and results of operations.
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Fluctuations in exchange rates and governmental control of currency conversion may
have a material adverse impact on your investment.
The exchange rate of the RMB fluctuates against the HKD, USD and other foreign
currencies and is affected by the policies of the PRC Government and changes in international
and domestic political and economic conditions. In light of the trend towards RMB
internationalisation, the PRC Government may announce further changes to the exchange rate
system, and we cannot assure you that the RMB will not appreciate or depreciate significantly
in value against the HKD, USD or other foreign currencies.
All of our revenue, liabilities and assets are denominated in RMB, while our proceeds
from the Global Offering will be denominated in HKD. Material fluctuations in the exchange
rate of the RMB against the HKD may negatively impact the value and amount of any
dividends payable on our Shares. For example, significant appreciation of the RMB against the
HKD could reduce the amount of RMB received from converting Global Offering proceeds or
proceeds from future financing efforts to fund our operations. Conversely, significant
depreciation of the RMB may increase the cost of converting our RMB-denominated cash flow
into HKD, thereby reducing the amount of cash available for paying dividends on our Shares
or carrying out other business operations.
The PRC Government imposes controls on the convertibility of RMB into foreign
currencies and, in certain cases, the remittance of currency out of the PRC. See “Taxation and
foreign exchange – Foreign exchange controls of the PRC” as set out in Appendix III to this
prospectus. We receive all our revenue in RMB. The foreign exchange control system may
prevent us from obtaining sufficient foreign currency to satisfy our currency demands.
Shortages in the availability of foreign currency may restrict our ability to remit sufficient
foreign currency to pay dividends or other payments to our Shareholders, or otherwise satisfy
our foreign currency denominated obligations, if any.
The PRC Government may also at its discretion restrict access in the future to foreign
currencies for current account transactions. Under existing PRC foreign exchange regulations,
payments of certain current account items can be made in foreign currencies without prior
approval from the local branch of SAFE by complying with certain procedural requirements.
However, approval from appropriate government authorities is required where RMB is to be
converted into foreign currency and remitted out of the PRC to pay capital expenses such as
the repayment of indebtedness denominated in foreign currencies. The restrictions on foreign
exchange transactions under capital accounts could also affect our ability to obtain foreign
exchange through debt or equity financing, including by means of loans or capital contribution
from us.
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Inflation in the PRC could negatively affect our profitability and growth.
Economic growth in the PRC has, in the past, been accompanied by periods of high
inflation. In response, the PRC Government has implemented policies from time to time to
control inflation, such as restricting the availability of credit by imposing tighter bank lending
policies or higher interest rates. The PRC Government may, from time to time, take similar
measures in response to future inflationary pressures. Rampant inflation without the PRC
Government’s mitigation policies would likely increase our costs, thereby materially reducing
our profitability. There is no assurance that we will be able to pass any additional costs to our
customers. On the other hand, such control measures may also lead to slower economic activity
and we may see reduced demand for our services.
Uncertainties with respect to the PRC legal system could limit the legal protection
available to you.
The legal system of the PRC entails inherent uncertainties that could limit the legal
protection available to our Shareholders. As we conduct all of our business operations in the
PRC, we are principally governed by PRC laws, rules and regulations. The PRC legal system
is based on the civil law system. Unlike the common law system, the civil law system is
established on the written statutes and their interpretation by the competent authorities, while
prior legal decisions and judgements have limited significance as precedents. The PRC
Government has been developing a commercial law system, and has made significant progress
in promulgating laws and regulations related to economic affairs and matters, such as corporate
organisation and governance, foreign investments, commerce, taxation and trade.
However, many of these laws and regulations are relatively new. There may be a limited
volume of published decisions regarding their interpretation and implementation, or the
relevant local administrative rules and guidance on implementation and interpretation have not
been put into place. Further, there may be laws and regulations in draft forms for public
consultation with no further explanations or detailed enforcement decisions announced by the
PRC Government. For example, on 10 April 2020, the NDRC published the Draft Measures
which were open for public consultation between 10 April 2020 and 9 May 2020. As at the
Latest Practicable Date, the implementation and enactment of the Draft Measures were
pending, and there had been no further announcements from the NDRC as to whether and when
the Draft Measures will be amended, supplemented or revised, or adopted and promulgated.
Thus, there are uncertainties involved in their enactment timetable, which may not be as
consistent and predictable as in other jurisdictions. In addition, the PRC legal system is based
in part on government policies and administrative rules that may have retroactive effect.
Consequently, we may not be aware of any violation of these policies and rules until sometime
after such violation has occurred. Furthermore, the legal protection available to you under
these laws, rules and regulations may be limited. Any legal proceeding or regulatory
enforcement action in the PRC may be protracted and result in substantial costs and diversion
of resources and management’s attention.
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Y ou may experience difficulties in effecting service of legal process and enforcing
judgements against us and our management based on Hong Kong or other foreign laws.
We are incorporated under the laws of the PRC with limited liability, and majority of our
assets are located in the PRC. In addition, a majority of our Directors and supervisors and all
of our senior management personnel reside within the PRC, and substantially all their assets
are located within the PRC. As a result, it may not be possible to effect service of process
within the United States or elsewhere outside the PRC upon us or most of our Directors,
supervisors and senior management.
On 14 July 2006, the Supreme People’s Court of the PRC and the Hong Kong government
entered into the Arrangement on Reciprocal Recognition and Enforcement of judgements in
Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special
Administrative Region Pursuant to Choice of Court Agreements between Parties Concerned
(τ
ર) (the “ Arrangement ”). Under the Arrangement, where any designated PRC court or any
designated Hong Kong court has made an enforceable final judgement requiring payment of
money in a civil or commercial case under a choice of court agreement in writing, any party
concerned may apply to the relevant PRC court or Hong Kong court for recognition and
enforcement of the judgement. A choice of court agreement in writing is defined as any
agreement in writing entered into between parties after the effective date of the Arrangement
in which a Hong Kong court or a PRC court is expressly selected as the court having sole
jurisdiction for the dispute. Therefore, it is not possible to enforce a judgement rendered by a
Hong Kong court in the PRC if the parties in dispute have not agreed to enter into a choice of
court agreement in writing. In addition, the Arrangement has expressly provided for
“enforceable final judgement,” “specific legal relationship” and “written form”. A final
judgement that does not comply with the Arrangement may not be recognised and enforced in
a PRC court.
On 18 January 2019, the Supreme People’s Court of the PRC and the Hong Kong
government entered into the Arrangement on Reciprocal Recognition and Enforcement of
Judgements in Civil and Commercial Matters by the Courts of the Mainland and of the Hong
Kong Special Administrative Region (ʝႩ̙ձੂБ͏ਠԫ
τર) (the “ 2019 Arrangement ”). Under the 2019 Arrangement, any party
concerned may apply to the relevant PRC court or Hong Kong court for recognition and
enforcement of the effective judgements in civil and commercial cases subject to the conditions
set out therein. Although the 2019 Arrangement has been signed, the outcome and effectiveness
of any action brought under the 2019 Arrangement may still be uncertain. We cannot assure you
that an effective judgement that complies with the 2019 Arrangement can be recognised and
enforced in a PRC court.
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Holders of our H Shares who are foreign individuals may be subject to PRC withholding
tax on dividends from us and PRC income tax on our H shares, and there are uncertainties
as to the PRC tax obligations of holders of our H Shares who are foreign enterprises.
Under applicable PRC tax laws, regulations and rules, non-PRC resident individuals and
enterprises who are holders of our H Shares are subject to different tax obligations. Under the
Individual Income Tax Law of the PRC (2018 Revision) (ج
2018ࠈࡌ)) and its implementation regulations, non-PRC resident individuals are required
to pay PRC individual income tax at a 20% rate for dividends received from us and the gains
realised upon the sale or other disposition of the H Shares held by them. We are required to
withhold such tax from dividend payments, unless applicable tax treaties between the PRC and
the jurisdictions in which the foreign individuals reside, reduce or provide an exemption for the
relevant tax obligations. Generally, a tax rate of 10% shall apply to the dividends paid by
domestic non-foreign-invested enterprises issuing shares in Hong Kong to overseas resident
individuals, pursuant to the Circular of the State Taxation Administration on Individual Income
Tax Collection Issues upon Abolishment of Document Guoshuifa [1993] No. 045 (೼ਕ
਷೼೯[1993]045). Where the 10%
tax rate is not applicable, the withholding company shall: (i) return the excessive tax amount
pursuant to the relevant procedures if the applicable tax rate is below 10%; (ii) withhold such
income tax payable by the foreign individual at the applicable tax rate if the applicable tax rate
is between 10% and 20%; and (iii) withhold such foreign individual income tax at a rate of 20%
if no double tax treaty is applicable.
For non-PRC resident enterprises that are set up in accordance with the laws of the
foreign country (region) whose actual administration institution is outside the PRC, but have
set up institutions or establishments in the PRC or, without institutions or establishments set
up in the PRC but have income originating from the PRC, under the PRC EIT Law, dividends
paid by us and the gains realised by such non-PRC resident enterprises from the sales or other
disposition of H Shares are subject to PRC enterprise income tax at a rate of 20%. In
accordance with the EIT Rules and the Notice on the Issues Concerning Withholding the
Enterprise Income Tax on the Dividends Paid by Chinese Resident Enterprise to Shareholders
Which are Overseas Non- resident Enterprises (͏ΆุΣྤ̮Hٰ
) issued by the SAT, such tax rate has been
reduced to 10%, which is subject to a further reduction under an applicable treaty or a special
arrangement between the PRC and the jurisdiction of the residence of the relevant non-PRC
resident enterprise. On 21 August 2006, the PRC Government and Hong Kong Government
entered into the Arrangements between the Mainland China and the Hong Kong Special
Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with respect to Taxes on Income (ᅄ೼
τર), pursuant to which any non-PRC-resident enterprise registered in
Hong Kong that holds directly at least 25% of the shares of our Company shall pay enterprise
income tax for the dividends declared and paid by us at a tax rate of 5% subject to the
satisfaction of certain conditions such as approval by the relevant PRC tax authority.
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There are significant uncertainties as to the interpretation and enforcement of the relevant
PRC tax laws, regulations and rules, including whether the reductions, exemptions and other
beneficial tax treatments mentioned above will be revoked in the future such that all non-PRC
resident individual holders of our H Shares will be subject to PRC individual income tax at a
flat rate of 20%. There are also significant uncertainties as to how the PRC tax authorities
interpret the relevant PRC tax laws, regulations and rules, such as the taxation of capital gains
by non-PRC resident enterprises, individual income tax on dividends paid to non-PRC resident
individual holders of our H Shares and on gains realised on sale or other disposition of our H
Shares. PRC’s tax laws, rules and regulations may also change. Any ambiguities relating to, or
any changes to, applicable PRC tax laws, regulations and rules as well as their interpretations
and enforcement could materially and adversely affect the value of your investment in our H
Shares.
Payment of dividends is subject to restrictions under PRC laws.
Under PRC laws, dividends may be paid only out of distributable profits. Distributable
profits are our net profit as determined under PRC GAAP or IFRSs, whichever is lower, less
any recovery of accumulated losses and appropriations to statutory and other reserves that we
are required to make. 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, because the calculation of distributable profits under PRC GAAP is different
from the calculation under IFRSs 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 IFRSs, 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 flow 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.
The approval of, or filing with, CSRC or other regulatory authorities may be required in
connection with the Listing and future offering activities, and we cannot predict whether
we will be able to obtain all necessary approval or complete such filing.
The PRC Government has recently indicated an intent to exert more oversight and control
over securities offerings and other capital markets activities that are conducted overseas and
foreign investment in PRC-based companies like us.
On 6 July 2021, the General Office of the Communist Party of China Central Committee
and the General Office of the State Council jointly promulgated the Opinions on Strictly
Cracking Down on Illegal Securities Activities in accordance with the Law (the “ Opinions on
Securities Activities ”). The Opinions on Securities Activities emphasised the need to
RISK FACTORS
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strengthen the administration over illegal securities activities and the supervision on overseas
listings by PRC-based companies and proposed to take effective measures, such as promoting
the construction of relevant regulatory systems to deal with the risks and incidents faced by
PRC-based overseas-listed companies.
On 17 February 2023, CSRC formally released the Trial Measures for the Administration
of Overseas Issuance and Listing of Securities by Domestic Companies (the “ Overseas
Issuance and Listing Measures ”,), which
are expected to take effect on 31 March 2023. According to the Notice on the Administration
Arrangement for the Overseas Issuance and Listing of Securities Record-filings (ྤʫ
), PRC companies that have received the approval
from CSRC on their overseas issuance and listing before the Overseas Issuance and Listing
Measures become effective can continue their overseas issuance and listing of securities within
the validity period of the approval, and are not subject to the record-filing procedures
stipulated in the Overseas Issuance and Listing Measures. We obtained the approval from
CSRC for the Global Offering and the Listing on 8 November 2022, and such approval is valid
until 7 November 2023. If the Listing is not completed within the validity period of the
approval of CSRC, we will be required to complete the necessary filing procedures for the
Global Offering and the Listing.
RISKS RELATING TO THE GLOBAL OFFERING
Purchasers of our H Shares in the Global Offering will experience immediate dilution and
may experience further dilution if we issue additional Shares in the future.
The Offer Price of our H Shares is higher than the consolidated net tangible book value
per Share immediately prior to the Global Offering. Therefore, purchasers of our H Shares in
the Global Offering may experience an immediate dilution. In addition, holders of our Shares
may experience further dilution of their interest if we issue additional Shares in the future to
raise additional capital.
There has been no prior public market for our H Shares and the liquidity and market
price of our H Shares may be volatile.
Prior to the Global Offering, there was no public market for our H Shares. The initial
Offer Price range for our H Shares was the result of negotiations among us, the Overall
Coordinator and the Sole Global Coordinator (for themselves and on behalf of the Underwriters
and the Capital Market Intermediaries), and such Offer Price may differ significantly from the
market price for our H Shares following the Global Offering. We have applied for the listing
of, and the permission to deal in, our H Shares on the Stock Exchange. However, there is no
assurance that the Global Offering will result in the development of an active and liquid public
trading market for our H Shares.
There is no assurance that the market for our H Shares will develop, or if it does develop,
will be sustained following the Global Offering or that the market price of our H Shares will
not decline following the Global Offering.
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The price and trading volume of our Shares may be highly volatile. Several factors, some
of which are beyond our control, such as variations in our results of operations, changes in our
pricing policy, the addition or departure of key personnel, changes in profit forecast or
recommendations by financial analysts, litigation or the removal of the restrictions on share
transactions, could cause large and sudden changes to the volume and price at which our Shares
will trade.
In addition, the Stock Exchange and other securities markets have, from time to time,
experienced significant price and volume volatility that is not related to the operating
performance of any particular company.
Holders of our Shares are subject to the risk that the price of our H Shares could fall
during the period before trading of our H Shares begins.
The Offer Price of our H Shares sold to the public under the Global Offering will be
determined on the Price Determination Date. However, trading of our H Shares on the Stock
Exchange will not commence until they are delivered, which is expected to be several business
days after the Price Determination Date. As a result, investors of our H shares may not be able
to sell or otherwise deal in our H Shares during that period. Accordingly, holders of our H
Shares may be subject to the risk that our H Share trading price could fall before trading begins
as a result of adverse market conditions or other unfavourable circumstances that may arise
during the period between the Price Determination Date and the date on which the dealing
begins.
The sales or potential sales of substantial amounts of our H Shares in the public market
(including any future offering) may affect the prevailing market price of our H Shares and
our ability to raise capital in the future, and future additional issuance of securities may
dilute your shareholdings.
The sales of substantial amounts of our H Shares or other securities related to our H
Shares in the public market, or the issuance of new H Shares or other securities, or the market
anticipation that such sales or issuance may occur, may cause fluctuations in the market price
of our H Shares, and may materially and adversely affect our ability to raise capital at a time
and at a price as we see fit in the future. Furthermore, if we issue additional securities in future
offerings, the shareholdings of the Shareholders may be diluted.
Subject to the approval of the CSRC, all of our Domestic Shares may be converted into
H Shares in the future, and such converted shares may be listed or traded on an overseas stock
exchange, provided that prior to the conversion and trading of such converted shares, any
requisite internal approval by our Shareholders in a general meeting is duly obtained and the
approvals from relevant PRC regulatory authorities are obtained. However, the PRC Company
Law provides that in relation to the public offering of a company, the shares of that company
which are issued prior to the public offering shall not be transferred within one year from the
date of listing of the public offering. Therefore, upon obtaining the requisite approval, our
Domestic Shares may be traded, after the conversion, in the form of H Shares on the Stock
Exchange one year after this Global Offering, which at that time could further increase the
number of our H Shares available in the market and negatively impact the market price of our
H Shares.
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We may need additional capital, and the sale or issue of additional Shares or other equity
securities could result in additional dilution to our Shareholders.
Notwithstanding our current cash and cash equivalents and the net proceeds from the
Global Offering, we may require additional cash resources to finance our continued growth or
other future developments. We cannot assure you that financing will be available in the
amounts or on terms acceptable to us, if at all. If we fail to raise additional funds, we may need
to sell additional equity securities, which could result in additional dilution to our
Shareholders.
There is no assurance if and when we will pay dividends in the future. Dividends declared
in the past may not be indicative of our dividend policy in the future.
Our ability to pay dividends will depend on whether we are able to generate sufficient
earnings. Distribution of dividends shall be formulated by our Board of Directors at their
discretion and will be subject to our Shareholders’ approval. A decision to declare or to pay any
dividends and the amount of any dividends will depend on various factors, including but not
limited to our results of operations, cash flows and financial position, operating and capital
expenditures requirements, distributable profits as determined under PRC GAAP or IFRSs
(whichever is lower), our Articles of Association, the PRC Company Law and any other
applicable PRC laws and regulations, market conditions, our strategic plans and prospects for
business development, contractual limits and obligations, payment of dividends to us by our
operating subsidiaries, taxation, regulatory restrictions and any other factors determined by our
Board of Directors to be relevant to the declaration or suspension of dividend payments. As a
result, there can be no assurance whether, when and in what form we will pay dividends in the
future. Subject to any of the above constraints, we may not be able to pay dividends in
accordance with our dividend policy. See “Financial information – Dividend and dividend
policy” in this prospectus for further details of our dividend policy. In addition, dividends paid
in prior periods may not be indicative of future dividend payments. We cannot guarantee when,
if and in what form dividends will be paid in the future.
There is no assurance of the accuracy or comparability of facts and statistics contained
in this prospectus with respect to the PRC, its economy or its heat service industry.
Facts and statistics in this prospectus relating to the PRC, its economy and its power
generation and distribution industries, including its market share information, are derived from
various official government sources which are generally believed by us to be reliable.
However, there can be no assurance as to the quality and reliability of such official government
sources. In addition, such information from official government sources has not been
independently verified by us, the Sole Sponsor, the Sponsor-OC, the Overall Coordinator, the
Sole Global Coordinator, the Joint Bookrunners, the Joint Lead Managers, the Co-Managers,
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. In all cases, investors should give consideration as to how much
weight or importance they should attach to or place on such official government sources, facts,
forecasts or statistics.
RISK FACTORS
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Our Controlling Shareholders have substantial control over our Company and their
interests may not be aligned with the interests of the other Shareholders.
Prior to and immediately following the completion of the Global Offering, our
Controlling Shareholders will remain having substantial control over their interests in the share
capital of our Company. Subject to the Articles of Association and the Companies Ordinance
and the Listing Rules, the Controlling Shareholders by virtue of their controlling beneficial
ownership of the share capital of our Company, will be able to exercise significant control and
exert significant influence over our business or otherwise on matters of significance to us and
other Shareholders by voting at the general meeting of the Shareholders and at Board meetings.
The interests of the Controlling Shareholders may differ from the interests of other
Shareholders and the Shareholders are free to exercise their votes according to their interests.
To the extent that the interests of the Controlling Shareholders conflict with the interests of
other Shareholders, the interests of other Shareholders can be disadvantaged and harmed.
Forward-looking information is subject to risks and uncertainties.
This prospectus contains forward-looking statements and information relating to us and
our operations and prospects that are based on our current beliefs and assumptions as well as
information currently available to us. When used in this prospectus, the words “anticipate,”
“believe,” “estimate,” “expect,” “plans,” “prospects,” “going forward,” “intend” and similar
expressions, as they relate to us or our business, are intended to identify forward-looking
statements. Such statements reflect our current views with respect to future events and are
subject to risks, uncertainties and various assumptions, including the risk factors described in
this prospectus. Should one or more of these risks or uncertainties materialise, or if any of the
underlying assumptions prove incorrect, actual results may diverge significantly from the
forward-looking statements in this prospectus. Whether actual results will conform with our
expectations and predictions is subject to a number of risks and uncertainties, many of which
are beyond our control, and reflect future business decisions that are subject to change. In light
of these and other uncertainties, the inclusion of forward-looking statements in this prospectus
should not be regarded as representations that our plans or objectives will be achieved, and
investors should not place undue reliance on such forward-looking statements. All forward-
looking statements contained in this prospectus are qualified by reference to the cautionary
statements set out in this section. We do not intend to update these forward-looking statements
in addition to our on-going disclosure obligations pursuant to the Listing Rules or other
requirements of the Stock Exchange.
Investors should read the entire prospectus carefully and we strongly caution you not to
place any reliance on any information contained in press articles and/or other media
regarding us, our business, our industry and the Global Offering.
There may have been, prior to the publication of this prospectus, and there may be,
subsequent to the date of this prospectus but prior to the completion of the Global Offering,
press and media coverage regarding us and the Global Offering. You should rely solely upon
the information contained in this prospectus, the GREEN Application Form and any formal
RISK FACTORS
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announcements made by us in Hong Kong in making your investment decision regarding the
Global Offering. 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
estimates, views or opinions expressed by the press or other media regarding the Global
Offering or us. We make no representation as to the appropriateness, accuracy, completeness
or reliability of any such information or publication.
Accordingly, prospective investors should not rely on any such information, reports or
publications in making their decisions whether to invest in the Global Offering. Prospective
investors in the Global Offering are reminded that, in making their decisions as to whether to
purchase our Shares, they should rely only on the financial, operational and other information
included in this prospectus and the GREEN Application Form. 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 prospectus and the GREEN Application Form.
RISK FACTORS
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In preparation of the Listing, we have sought the following waivers from strict
compliance with the relevant provisions of the Listing Rules:
MANAGEMENT PRESENCE IN HONG KONG
Pursuant to Rule 8.12 and Rule 19A.15 of the Listing Rules, we must have a sufficient
management presence in Hong Kong. This normally requires at least two of our executive
Directors to ordinarily reside in Hong Kong. Given that our business and operation are
primarily located, managed and conducted in the PRC, all of our executive Directors are and
will continue to be based in the PRC to attend to their respective duties in the PRC. As each
of our executive Directors has a vital role in our Group’s operation, it is crucial for them to
remain in close proximity to the location where our Group’s central management is located in
the PRC.
For the reasons set out above, our Directors consider that it would be practically difficult,
unduly burdensome and not commercially feasible for us to appoint two Hong Kong residents
as executive Directors or to relocate any of our executive Directors to Hong Kong merely for
the purpose of complying with the relevant provisions of the Listing Rules.
Accordingly, we have applied to the Stock Exchange for a waiver from strict compliance
with the requirements under Rule 8.12 and Rule 19A.15 of the Listing Rules, and the Stock
Exchange has granted us the waiver on 23 June 2023, subject to the following conditions:
(a) the two authorised representatives of our Company, namely Mr. Geng Ming ( অჼ΋
͛)( “ Mr. Geng ”) and Mr. Luo Wei ( ᖯਃ΋͛)( “ Mr. Luo ”) can both serve as our
principal channel of communication with the Stock Exchange. Mr. Geng and Mr.
Luo have respectively confirmed that they possess valid travel documents and are
able to renew such travel documents when they expire, in order to be available to
meet with the Stock Exchange in Hong Kong within a reasonable time if and when
required by the Stock Exchange. The authorised representatives are readily
contactable by home, office, mobile phone and other phone numbers, email and
communication address, facsimile numbers if available, and any other contact
details prescribed by the Stock Exchange from time to time. The authorised
representatives represent our Company in communicating with the Stock Exchange,
and are available to meet with the Stock Exchange in Hong Kong within a
reasonable time when required by the Stock Exchange to discuss any issues;
(b) we will promptly inform the Stock Exchange if there are any changes to our
authorised representatives;
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(c) the authorised representatives have means to contact all of our Directors (including
the independent non-executive Directors) and our senior management team
promptly at all times and as and when the Stock Exchange wishes to contact our
Directors on any matters. To enhance the communication between the Stock
Exchange, the authorised representatives and our Directors, we have implemented a
policy whereby:
(i) each of our executive Directors and non-executive Directors shall provide his
mobile phone numbers, residential phone numbers, office phone numbers,
facsimile numbers (if available) and email addresses (if available) to the
authorised representatives;
(ii) each of our executive Directors and non-executive Directors will provide valid
phone numbers or means of communication to the authorised representatives
when he is travelling or out of office;
(iii) all the executive Directors, non-executive Directors, independent non-
executive Directors and authorised representatives will provide their respective
mobile phone numbers, office phone numbers (if available), facsimile numbers
(if available) and email addresses (if available) to the Stock Exchange;
(d) all our Directors who are not ordinarily resident in Hong Kong have confirmed that
they possess valid travel documents or will be able to apply for valid travel
documents to visit Hong Kong and will be able to meet the Stock Exchange within
a reasonable period; and
(e) meetings between the Stock Exchange and our Directors can be arranged through the
authorised representatives or the compliance adviser of our Company, or directly
with our Directors within a reasonable time frame. Our Company will inform the
Stock Exchange promptly of any change in the authorised representatives or the
compliance adviser of our Company.
We have, in accordance with Rule 3A.19 of the Listing Rules, retained Guotai Junan
Capital Limited as our compliance adviser, who will, among other things, in addition to the two
authorised representatives, act as our additional channel of communication with the Stock
Exchange for a period commencing on the Listing Date at least until the date on which our
Company complies with Rule 13.46 of the Listing Rules in respect of our Company’s financial
results for the first full financial year after the Listing Date.
We shall ensure that our compliance adviser will have access at all times to our authorised
representatives and Directors pursuant to Rule 19A.05(2) of the Listing Rules. We shall also
procure that such persons will provide promptly such information and assistance as our
compliance adviser may need or may reasonably request in connection with the performance
of its duties as set forth in Chapter 3A and Chapter 19A of the Listing Rules. We shall ensure
that there are adequate and efficient means of communication between us, our authorised
representatives, Directors and our compliance adviser, and will keep our compliance adviser
informed of all communications and dealings between us and the Stock Exchange.
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In the circumstances, our Directors do not envisage that there should be any difficulty for
the Stock Exchange to contact (if required) any of the executive Directors. Our Directors are
of the view that the above-mentioned arrangements for maintaining regular communications
with the Stock Exchange are in line with the conditions set out in the Guidance Letter
HKEX-GL9-09. Our Directors will ensure that disclosure of information and communication
with the Stock Exchange will be made on a timely basis.
JOINT COMPANY SECRETARIES
According to Rule 8.17 of the Listing Rules, a company secretary who satisfies Rule 3.28
of the Listing Rules must be appointed. Pursuant to Rule 3.28 of the Listing Rules, the
secretary of our Company must be a person who, by virtue of his or her academic or
professional qualifications or relevant experience, is capable of discharging the functions of
company secretary in the opinion of the Stock Exchange. The following academic or
professional qualifications are considered as acceptable to the Stock Exchange:
(a) a member of The Hong Kong Chartered Governance Institute;
(b) a solicitor or barrister as defined in the Legal Practitioners Ordinance, Chapter 159
of the Laws of Hong Kong;
(c) a certified public accountant as defined in the Professional Accountants Ordinance,
Chapter 50 of the Laws of Hong Kong.
In assessing “relevant experience” of a candidate, the Stock Exchange will consider the
individual’s:
(a) length of employment with the issuer and other issuers and the roles he or she plays;
(b) familiarity of the Listing Rules and other relevant laws and regulations including the
Securities and Futures Ordinance, Companies Ordinance, Companies (Winding Up
and Miscellaneous Provisions) Ordinance and the Code on Takeovers and Mergers;
(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.
According to the Guidance Letter HKEX-GL108-20, the waiver under Rule 3.28 of the
Listing Rules will be granted for a fixed period of time, but in any case, will not exceed three
years from the Listing Date (the “ Waiver Period ”) and on the conditions that (i) the company
secretary in question must be assisted by a person who possesses the qualifications or
experience as required under Rule 3.28 and is appointed as a joint company secretary
throughout the Waiver Period; and (ii) the waiver can be revoked if there are material breaches
of the Listing Rules by the Company.
W AIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES
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We have appointed Mr. Ma Ke ( ৵д΋͛) and Mr. Tso Ping Cheong, Brian (΋͛)
(“Mr. Tso”) as the joint company secretaries of our Company effective from the Listing Date.
For the background of Mr. Ma Ke and Mr. Tso, please see “Directors, supervisors and senior
management – Joint company secretaries” in this prospectus. Our Directors believe that Mr. Ma
Ke has experience in board and corporate management matters and his physical presence in the
PRC enables him to deal with the day-to-day corporate secretarial matters concerning our
Group as our core businesses and operations are based and conducted in the PRC. However,
Mr. Ma Ke does not possess any of the qualifications under Rule 3.28 and Rule 8.17 of the
Listing Rules, and may not be able to solely fulfil the requirements thereunder. Our Company
has therefore applied for, which the Stock Exchange has granted us, a waiver from the strict
compliance with the requirements under Rule 3.28 and Rule 8.17 of the Listing Rules on the
condition that Mr. Tso who is a certified public accountant is engaged as a joint company
secretary and provides assistance to Mr. Ma Ke in discharging his duties as a company
secretary and in gaining the relevant experience under Rule 3.28 of the Listing Rules
throughout the Waiver Period.
Mr. Tso is a certified public accountant and meets the relevant requirements under Note
1 to Rule 3.28 and Rule 8.17 of the Listing Rules. The waiver granted by the Stock Exchange
is on the conditions that (i) Mr. Ma Ke is assisted by Mr. Tso who possesses the qualifications
or experience as required under Rule 3.28 and is appointed as a joint company secretary
throughout the Waiver Period; and (ii) such waiver can be revoked if there are material
breaches of the Listing Rules by our Company.
Mr. Tso will work closely with Mr. Ma Ke to jointly discharge their duties and
responsibilities as company secretaries and assist Mr. Ma Ke to acquire relevant experience as
required under Rule 3.28 and Rule 8.17 of the Listing Rules. We have also adopted internal
policies to facilitate Mr. Ma Ke in discharging his duties as a company secretary. In addition,
Guotai Junan Capital Limited, the compliance adviser of our Company, will provide assistance
to Mr. Ma Ke for the first full financial year from the Listing Date, in particular, in relation
to Hong Kong corporate governance systems and compliance issues. Assistance will also be
provided by the Hong Kong legal advisers of our Company on matters with respect to our
Company’s ongoing compliance with the Listing Rules and the applicable laws and regulations.
Further, Mr. Ma Ke will endeavour to attend relevant trainings and familiarise himself with the
Listing Rules and the duties which he is required to fulfil as a company secretary of a PRC
issuer listed on the Stock Exchange.
Before the expiration of the Waiver Period, the qualifications of Mr. Ma Ke will be
re-evaluated to determine whether the requirements as stipulated in Rule 3.28 and Rule 8.17
of the Listing Rules can be satisfied, or whether the need for ongoing assistance will continue.
We will have the Stock Exchange to assess whether Mr. Ma Ke has acquired the necessary
skills and experience to carry out the duties of a company secretary within the meaning of Note
2 to Rule 3.28 of the Listing Rules, so that a further waiver will not be required.
W AIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES
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CLASS MEETING REQUIREMENTS AND ADDITIONAL REQUIREMENTS
REGARDING ARTICLES OF ASSOCIATION APPLICABLE TO PRC ISSUERS
According to Rule 19A.25(1) of the Listing Rules, share repurchases of a PRC issuer shall
be approved by special resolutions of shareholders in general meetings and of holders of
domestic and foreign shares (and, if applicable, H shares) at separate meetings of such holders
conducted in accordance with the PRC issuer’s articles of association.
Rule 19A.38 of the Listing Rules provides that except in certain circumstances, the
directors of a PRC issuer shall obtain the approval by a special resolution of shareholders in
general meeting, and the approvals by special resolutions of holders of domestic shares and
overseas listed foreign shares (and, if applicable, H shares) (each being otherwise entitled to
vote at general meetings) at separate class meetings conducted in accordance with the PRC
issuer’s articles of association, prior to authorising, allotting, issuing or granting (i) shares; (ii)
securities convertible into shares; or (iii) options, warrants or similar rights to subscribe for any
shares or such convertible securities.
Paragraphs 56 and 65(a) of Rule 19A.42 of the Listing Rules provide that the content of
a listing document for the listing of equity securities of a PRC issuer no part of whose share
capital is already listed on the Stock Exchange shall include particulars of the quorum and
voting requirements for general meetings of shareholders and for separate meetings of holders
of domestic shares and foreign shares (and, if applicable, H shares).
Rule 19A.45 of the Listing Rules provides that a PRC issuer shall not at any time permit
or cause any amendment to be made to its articles of association which would cause the same
to cease to comply with the provisions of Appendix 3 or Section 1 of Part D of Appendix 13
to the Listing Rules.
Section 1 of Part D of Appendix 13 to the Listing Rules provides that the articles of
association of a PRC issuer whose primary listing is or is to be on the Stock Exchange must
include the Mandatory Clauses and other ancillary provisions.
On 14 February 2023, the State Council announced the implementation of the Decision
of the State Council to Repeal Certain Administrative Regulations and Documents ( ਷ਕ৫
) and on 17 February 2023, the CSRC announced the
Trial Measures for the Administration of Overseas Issuance and Listing by Domestic
Companies () (collectively, the “ New PRC
Regulations ”), which both took effect from 31 March 2023, and repealed the Special
Regulations and the Mandatory Clauses, respectively.
Under the New PRC Regulations, PRC issuers shall formulate their articles of association
with reference to the Guidelines for Articles of Association of Listed Companies ( ɪ̹ʮ̡
ˏ) (the “ Guidelines on Articles ”) issued by CSRC and the Mandatory Clauses will
cease to apply. As a result, holders of domestic shares and H shares (which are both ordinary
shares of the same class) are no longer deemed as different classes of shareholders.
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Accordingly, the requirements in relation to (i) class meetings for holders of domestic shares
and H shares under Rule 19A.25(1), Rule 19A.38 and paragraphs 56 and 65(a) of Rule 19A.42
of the Listing Rules; and (ii) inclusion of the Mandatory Clauses and relevant ancillary
provisions in the articles of association under Rule 19A.45 and Section 1 of Part D of Appendix
13 to the Listing Rules, are no longer necessary. The Stock Exchange has published a
consultation paper titled “Rule Amendments Following Mainland China Regulation Updates
and Other Proposed Rule Amendments Relating to PRC Issuers” (the “ Consultation Paper ”)
setting out the proposed amendments to the Listing Rules in light of the implementation of the
New PRC Regulations (the “ Proposed Amendments ”) in February 2023, which have the effect
of, among others, abolishing (i) the class meeting and related requirements applicable to
holders of domestic shares and H shares; and (ii) the requirement of including the Mandatory
Clauses and relevant ancillary provisions in the articles of association, insofar as PRC issuers
are concerned.
As a PRC issuer, we have formulated our Articles of Association with reference to the
Guidelines on Articles under the New PRC Regulations. Pursuant to our Articles of
Association, our Domestic Shares and H Shares are considered as one class of Shares, and there
are no requirements for separate meetings of holders of Domestic Shares and H Shares to be
conducted. Further, the Mandatory Clauses, having been repealed, have not been adopted in our
Articles of Association. As of the Latest Practicable Date, the Proposed Amendments had yet
to be effective. Accordingly, we have applied to the Stock Exchange for, and the Stock
Exchange has granted us, a waiver from strict compliance with Rule 19A.25(1), Rule 19A.38,
paragraphs 56 and 65(a) of Rule 19A.42, Rule 19A.45 and Section 1 of Part D of Appendix 13
to the Listing Rules, on the conditions that:
(a) our Articles of Association are not inconsistent with the Guidelines on Articles and
other applicable PRC laws and regulations; and
(b) our Articles of Association are not inconsistent with (i) the Proposed Amendments;
and (ii) the other provisions of the Listing Rules that are not subject to the Proposed
Amendments.
CONTINUING CONNECTED TRANSACTIONS
Our Company has entered into, and expects to continue after the Listing, certain
transactions which will constitute partially exempt continuing connected transactions under the
Listing Rules upon the Listing. Our Company has applied for, and the Stock Exchange has
granted us, a waiver from strict compliance with the announcement requirement under Chapter
14A of the Listing Rules in respect of these partially exempt continuing connected transactions.
For details, see “Connected transactions – Waiver application for partially exempt continuing
connected transactions” in this prospectus.
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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.
CSRC APPROV AL
The CSRC has issued an approval letter for the Global Offering and the making of the
application to list our H Shares on the Stock Exchange on 8 November 2022 and such approval
letter remains valid until 7 November 2023. In granting such approval, the CSRC accepts no
responsibility for the financial soundness of our Company, nor for the accuracy of any of the
statements made or opinions expressed in this prospectus or in the GREEN Application Form.
No other approvals from the CSRC are required to be obtained for listing our H Shares on the
Stock Exchange within the validity period of the above approval letter.
UNDERWRITING AND INFORMATION ON THE 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 and the GREEN Application Form contains the terms and conditions of the
Hong Kong Public Offering. For details of the procedures for applying for the Hong Kong
Offer Shares, see “How to apply for Hong Kong Offer Shares” in this prospectus.
The Hong Kong Offer Shares are offered solely on the basis of the information contained
and representations made in this prospectus and the GREEN Application Form and on the
terms and conditions set out herein and therein. No person has been authorised to give any
information in connection with the Global Offering or make any representations other than
those contained in this prospectus and, if given or made, such information or representations
must not be relied on as having been authorised by us, the Sole Sponsor, the Sponsor-OC, the
Overall Coordinator, the Sole Global Coordinator, the Joint Bookrunners, the Joint Lead
Managers, the Co-Managers, the Underwriters, the Capital Market Intermediaries, any of our
or their affiliates or any of their respective directors, officers, employees, advisers, agents or
representatives, or any other person or party involved in the Global Offering.
Neither the delivery of this prospectus nor any offering, sale or delivery, subscription or
acquisition made under it shall, under any circumstances, constitute a representation or create
any implication that there has been no change in our affairs since the date of this prospectus
or that the information in this prospectus is correct as of any subsequent time.
INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING
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See “Structure of the Global Offering” in this prospectus for further details of the
structure of the Global Offering, including its conditions and the arrangements relating to the
Over-allotment Option and stabilisation. See “How to apply for Hong Kong Offer Shares” in
this prospectus and the GREEN Application Form for the procedures for applying for the Hong
Kong Offer Shares.
The Listing is sponsored by the Sole Sponsor. The Hong Kong Public Offering is fully
underwritten by the Hong Kong Underwriters pursuant to the Hong Kong Underwriting
Agreement. The International Underwriting Agreement relating to the International Offering is
expected to be entered into on or around the Price Determination Date. The International
Offering is expected to be fully underwritten by the International Underwriters pursuant to the
terms of the International Underwriting Agreement to be entered into. The Global Offering is
subject to our Company, the Overall Coordinator and the Sole Global Coordinator (for
themselves and on behalf of the Underwriters and the Capital Market Intermediaries) agreeing
on the Offer Price. The Global Offering is managed by the Sponsor-OC, the Overall
Coordinator and the Sole Global Coordinator. If, for any reason, the Offer Price is not agreed,
the Global Offering will not proceed and will lapse. See “Underwriting” in this prospectus for
further details of the Underwriters and the underwriting arrangements.
RESTRICTIONS ON OFFER AND SALE OF THE OFFER SHARES
Each person acquiring the Hong Kong Offer Shares under the Hong Kong Public Offering
will be required to confirm, and is deemed by his acquisition of Hong Kong Offer Shares to
have confirmed, that he is aware of the restrictions on the offer and sale of the Hong Kong
Offer Shares described in this prospectus and the GREEN Application Form.
No action has been taken to permit a public offering of the Offer Shares outside Hong
Kong or the distribution of this prospectus in any jurisdiction other than Hong Kong.
Accordingly, without limitation to the following, 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 authorised or to any person to whom
it is unlawful to make such an offer or invitation for subscription. The distribution of this
prospectus and/or the GREEN Application Form 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 securities laws of such jurisdiction pursuant to registration with or an authorisation by the
relevant securities regulatory authorities or an exemption therefrom. In particular, the Offer
Shares have not been offered and sold, and will not be offered and sold, directly or indirectly,
in the PRC.
APPLICATION FOR LISTING ON THE STOCK EXCHANGE
Our Company has applied to the Listing Committee for the granting of the listing of and
permission to deal in the H Shares to be issued pursuant to the Global Offering (including any
additional H Shares which may be issued pursuant to the exercise of the Over-allotment
Option). Dealings in the H Shares on the Stock Exchange are expected to commence on
Monday, 10 July 2023.
INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING
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None of our Shares are listed on or dealt in on any other stock exchange and no such
listing or permission to list is being or proposed to be sought in the near future.
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 H 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 or
on behalf of the Stock Exchange.
H SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS
Subject to the Stock Exchange granting the listing of, and permission to deal in, our H
Shares on the Stock Exchange and us complying with the stock admission requirements of
HKSCC, our H Shares will be accepted as eligible securities by HKSCC for deposit, clearance
and settlement in CCASS with effect from the Listing Date or any other date as determined by
HKSCC.
Settlement of transactions between participants of the Stock Exchange is required to take
place in CCASS on the second settlement day after any trading day. All necessary arrangements
have been made for the H Shares to be admitted into CCASS. All activities under CCASS are
subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time
to time. Investors should seek the advice of their stockbroker or other professional adviser for
details of those settlement arrangements as such arrangements may affect their rights and
interests.
H SHARE REGISTER AND STAMP DUTY
All H Shares issued by us pursuant to applications made in the Hong Kong Public
Offering will be registered on our H Share register to be maintained by our H Share Registrar,
Computershare Hong Kong Investor Services Limited, in Hong Kong. Our principal register of
members will be maintained by us at our headquarters in the PRC.
Dealings in the H Shares registered on our H Share register will be subject to Hong Kong
stamp duty. See “Taxation and foreign exchange” as set out in Appendix III to this prospectus
for further details.
Unless otherwise determined by our Company, dividends payable in respect of our H
Shares will be paid to the Shareholders listed on our H Share register in Hong Kong and sent
by ordinary post, at the Shareholders’ risk, to the registered address of each Shareholder of our
Company.
INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING
–1 1 4–


--- page 125 ---
PROFESSIONAL TAX ADVICE RECOMMENDED
Potential investors in the Global Offering are recommended to consult their professional
advisers if they are in any doubt as to the taxation implications of subscribing for, purchasing,
holding, disposing of, dealing in, or exercising any rights in relation to, the H Shares. None of
us, the Sole Sponsor, the Sponsor-OC, the Overall Coordinator, the Sole Global Coordinator,
the Joint Bookrunners, the Joint Lead Managers, the Co-Managers, the Underwriters, the
Capital Market Intermediaries, any of our or their affiliates or any of their respective directors,
officers, employees, advisers, agents or representatives, or any other person or party involved
in the Global Offering accepts responsibility for any tax effects on, or liabilities of, any person
resulting from the subscription, purchase, holding, disposal of, dealing in, or exercising any
rights in relation to, the H Shares.
REGISTRATION OF SUBSCRIPTION, PURCHASE AND TRANSFER OF H SHARES
We have instructed Computershare Hong Kong Investor Services Limited, our H Share
Registrar, and it has agreed, not to register the subscription, purchase or transfer of any H
Shares in the name of any particular holder unless and until the holder delivers a signed form
to our H Share Registrar in respect of those H Shares bearing statements to the effect that the
holder:
(i) agrees with us and each of our Shareholders, and we agree with each Shareholder,
to observe and comply with the PRC Company Law, the Special Regulations, and
the Articles of Association;
(ii) agrees with us, each of our Shareholders, Directors, supervisors, managers and
officers, and we, acting for ourselves and for each of our Directors, supervisors,
managers and officers, agree with each of our Shareholders to refer all disputes and
claims concerning our affairs and arising from any rights or obligations conferred or
imposed by our Articles of Association, the PRC Company Law or other relevant
laws and administrative regulations to arbitration in accordance with the Articles of
Association, and any reference to arbitration shall be deemed to authorise the
arbitration tribunal to conduct hearings in open session and to publish its award,
which arbitration shall be final and conclusive;
(iii) agrees with us and each of our Shareholders that the H Shares are freely transferable
by the holders thereof; and
(iv) authorises us to enter into a contract on his behalf with each of our Directors,
supervisors and senior officers whereby such Directors, supervisors and senior
officers undertake to observe and comply with their obligations to our Shareholders
as stipulated in the Articles of Association. Persons applying for or purchasing H
Shares under the Global Offering are deemed, by their making an application or
purchase, to have represented that they are not close associated (as defined in the
Listing Rules) of any of our Directors, supervisors or an existing Shareholder of the
Company or a nominee of any of the foregoing.
INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING
–1 1 5–


--- page 126 ---
EXCHANGE RATE CONVERSION
Solely for your convenience, this prospectus contains translations of certain Renminbi
amounts into Hong Kong dollars at a specified rate. Unless we indicate otherwise, the
translations of Renminbi into Hong Kong dollars and vice versa have been made at the rate of
RMB1 = HK$1.0987. No representation is made that any amount in Renminbi or Hong Kong
dollars can be or could be, or have been, converted at the above rate or any other rate or at all.
LANGUAGE
If there is any inconsistency between this prospectus and its Chinese translation, this
prospectus shall prevail. 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.
ROUNDING
Certain amounts and percentage figures, such as financial data, share ownership and
operating data, included in this prospectus may have been subject to rounding adjustments.
Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of
the figures preceding them.
INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING
–1 1 6–


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DIRECTORS
Name Address Nationality
Executive Directors
Mr. Geng Ming ( অჼ΋͛) Room 501
No. 143 Yijiang Cheng
Wangjiang Garden
Jiangyin City
Jiangsu Province
The PRC
Chinese
Mr. Li Baoshan ( ҽᘒʆ΋͛) Room 2401, Building No. 4
Mo Tian Shi Community
No. 51 Bin He Xi Road
Wan Bo Lin District
Taiyuan City
Shanxi Province
The PRC
Chinese
Mr. Luo Wei ( ᖯਃ΋͛) Room 4-2201, Xinmeihua Mansion
No. 195 Changjiang Road
Jiangyin City
Jiangsu Province
The PRC
Chinese
Non-executive Directors
Mr. Miao Wenbin ( ᐷ˖੸΋
͛)
Room 1301, Unit 1
Huangshan Lake Apartment
No. 238 Junwu Road
Chengjiang Sub-district
Jiangyin City
Jiangsu Province
The PRC
Chinese
Mr. Ma Fulin (΋͛) Room 2501, Unit 4
Huangshan Lake Apartment
No. 238 Junwu Road
Chengjiang Sub-district
Jiangyin City
Jiangsu Province
The PRC
Chinese
Ms. Xu Lijie ( ஢ᘆᆎɾɻ) Room 2702, Unit 4
Huangshan Lake Apartment
No. 238 Junwu Road
Chengjiang Sub-district
Jiangyin City
Jiangsu Province
The PRC
Chinese
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
–1 1 7–


--- page 128 ---
Independent non-executive Directors
Dr. Tse Hiu Tung, Sheldon
(௹ɻ)
Flat F, 25/F, Block 8, The Belcher’s
89 Pok Fu Lam Road
Pok Fu Lam
Hong Kong
Chinese
Mr. Cheung Ho Kong
(΋͛)
Flat E, 25/F
Golden Maple Court
9-10 Kai Yuen Terrace
Hong Kong
Chinese
Dr. Zhu Qing (௹ɻ) Room 210, Building No. 3
Zijin Estate
No. 68 Wanquanhe Road
Haidian District
Beijing
The PRC
Chinese
SUPERVISORS
Name Address Nationality
Mr. Ma Peilin (΋͛) Room 2502, Unit 4
Huangshan Lake Apartment
No. 238 Junwu Road
Chengjiang Sub-district
Jiangyin City
Jiangsu Province
The PRC
Chinese
Mr. Chen Zhen (΋͛) Room 902, Unit 2
Huangshan Lake Apartment
No. 238 Junwu Road
Chengjiang Sub-district
Jiangyin City
Jiangsu Province
The PRC
Chinese
Mr. Liu Zhigang (΋͛) Room 1501, Unit 2, Building A10
Phase III of Lv Di Saishang Mansion
Qilechuan Street Saihan District
Hohhot City
Inner Mongolia
The PRC
Chinese
For details, see “Directors, supervisors and senior management” in this prospectus.
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
–1 1 8–


--- page 129 ---
PARTIES INVOLVED IN THE GLOBAL OFFERING
Sole Sponsor Guotai Junan Capital Limited
(a corporation licensed to carry out type 6
(advising on corporate finance) regulated
activity under the SFO)
26th Floor to 28th Floor, Low Block
Grand Millennium Plaza
181 Queen’s Road Central
Hong Kong
Sponsor-OC/Overall Coordinator/
Sole Global Coordinator
Guotai Junan Securities (Hong Kong)
Limited
(a corporation licensed to carry out type 1
(dealing in securities), type 2 (dealing in
futures contracts) and type 4 (advising on
securities) regulated activities under
the SFO)
26th Floor to 28th Floor, Low Block
Grand Millennium Plaza
181 Queen’s Road Central
Hong Kong
Joint Bookrunners Guotai Junan Securities (Hong Kong)
Limited
26th Floor to 28th Floor, Low Block
Grand Millennium Plaza
181 Queen’s Road Central
Hong Kong
Orient Securities (Hong Kong) Limited
28th and 29th Floor
100 Queen’s Road Central
Hong Kong
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
–1 1 9–


--- page 130 ---
CEB International Capital Corporation
Limited
22/F, AIA Central
1 Connaught Road Central
Hong Kong
ABCI Capital Limited
11/F, Agricultural Bank of China Tower
50 Connaught Road Central
Hong Kong
China Galaxy International Securities
(Hong Kong) Co., Limited
20/F Wing On Centre
111 Connaught Road Central
Hong Kong
Joint Lead Managers Guotai Junan Securities (Hong Kong)
Limited
26th Floor to 28th Floor, Low Block
Grand Millennium Plaza
181 Queen’s Road Central
Hong Kong
Orient Securities (Hong Kong) Limited
28th and 29th Floor
100 Queen’s Road Central
Hong Kong
CEB International Capital Corporation
Limited
22/F, AIA Central
1 Connaught Road Central
Hong Kong
ABCI Securities Company Limited
10/F, Agricultural Bank of China Tower
50 Connaught Road Central
Hong Kong
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
– 120 –


--- page 131 ---
China Galaxy International Securities
(Hong Kong) Co., Limited
20/F Wing On Centre
111 Connaught Road Central
Hong Kong
Kingsway Financial Services Group
Limited
7/F, Tower One, Lippo Centre
89 Queensway
Hong Kong
Livermore Holdings Limited
Unit 1214A, 12/F
Tower II Cheung Sha Wan Plaza
833 Cheung Sha Wan Road
Kowloon, Hong Kong
Co-Managers Fortune (HK) Securities Limited
4102-6, 41st Floor
Cosco Tower
Nos 183 Queen’s Road Central
Hong Kong
Selina & Co. Limited
Flat/Rm 2401, 24/F
Chinachem Exchange Square
1 Hoi Wan Street
Quarry Bay, Hong Kong
Legal advisers to our Company As to Hong Kong law
Llinks Law Offices LLP
Room 3201, 32/F, Alexandra House
18 Chater Road
Central
Hong Kong
As to PRC law
Llinks Law Offices
19F, One Lujiazui
68 Yin Cheng Road Middle
Shanghai
The PRC
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
– 121 –


--- page 132 ---
Legal advisers to the Sole Sponsor and
the Underwriters
As to Hong Kong law
Hogan Lovells
11th Floor, One Pacific Place
88 Queensway
Hong Kong
As to PRC law
Beijing Kangda (Shenzhen) Law Firm
19/F, Kerry Plaza Tower 1
No. 1 Zhongxin 4th Road
Futian District
Shenzhen
The PRC
Auditor and reporting accountant PricewaterhouseCoopers
Certified Public Accountants and
Registered Public Interest Entity Auditor
22/F, Prince’s Building
Central
Hong Kong
Industry consultant Frost & Sullivan (Beijing) Inc.,
Shanghai Branch Co.
Suite 2504
Wheelock Square
1717 Nanjing West Road
Shanghai
The PRC
Property valuer Vincorn Consulting and
Appraisal Limited
Units 1602-4, 16/F
FWD Financial Centre
No. 308 Des V oeux Road Central
Hong Kong
Receiving bank China CITIC Bank International Limited
61-65 Des V oeux Road Central
Hong Kong
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
– 122 –


--- page 133 ---
Registered office and headquarters in
the PRC
Room 202, 2/F
No. 15 Shuangliang Road
Ligang Street
Jiangyin City
Jiangsu Province
The PRC
Principal place of business in Hong Kong Unit B, 17/F, United Centre
95 Queensway
Admiralty
Hong Kong
Company’s website http://www.hjkj.cn
(information on the website does not form
part of this prospectus)
Joint company secretaries M r .M aK e( ৵д΋͛)
Room 2601, Unit 4
Huangshan Lake Apartment
No. 238 Junwu Road
Chengjiang Sub-district
Jiangyin City
Jiangsu Province
The PRC
and
Mr. Tso Ping Cheong, Brian (΋͛)
(Certified Public Accountant)
Unit B, 17/F, United Centre
95 Queensway
Admiralty
Hong Kong
Authorised representatives
(pursuant to the Listing Rules)
Mr. Geng Ming ( অჼ΋͛)
Room 501
No. 143 Yijiang Cheng
Wangjiang Garden
Jiangyin City
Jiangsu Province
The PRC
and
CORPORATE INFORMATION
– 123 –


--- page 134 ---
Mr. Luo Wei ( ᖯਃ΋͛)
Room 4-2201, Xinmeihua Mansion
No. 195 Changjiang Road
Jiangyin City
Jiangsu Province
The PRC
Nomination committee Mr. Geng Ming ( অჼ΋͛) (Chairman)
Dr. Zhu Qing (௹ɻ)
Dr. Tse Hiu Tung, Sheldon (௹ɻ)
Audit committee Mr. Cheung Ho Kong (΋͛)
(Chairman)
Dr. Zhu Qing (௹ɻ)
Mr. Miao Wenbin ( ᐷ˖੸΋͛)
Remuneration committee Dr. Zhu Qing (௹ɻ) (Chairman)
Dr. Tse Hiu Tung, Sheldon (௹ɻ)
Mr. Ma Fulin (΋͛)
Compliance adviser Guotai Junan Capital Limited
26th Floor to 28th Floor
Low Block
Grand Millennium Plaza
181 Queen’s Road Central
Hong Kong
H Share Registrar Computershare Hong Kong Investor
Services Limited
Shops 1712-1716, 17th Floor
Hopewell Centre
183 Queen’s Road East
Wan Chai
Hong Kong
CORPORATE INFORMATION
– 124 –


--- page 135 ---
Principal banks Jiangsu Jiangyin Rural Commercial Bank
Co., Ltd.
Ligang Sub-branch
No. 180, Lizhong Street, Ligang Town
Jiangyin City
Jiangsu Province
The PRC
China Construction Bank Corporation
Jianyin Lingang Xincheng Sub-branch
No. 151-161, Li’nan Street, Ligang Town
Jiangyin City
Jiangsu Province
The PRC
CORPORATE INFORMATION
– 125 –


--- page 136 ---
The information and statistics set out in this section and other sections of this
prospectus were extracted from the report prepared by Frost & Sullivan, which was
commissioned by us, and from various official government publications and other
publicly available publications. 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 Sole Sponsor , the Sponsor-OC, the Overall Coordinator , the Sole Global
Coordinator , the Joint Bookrunners, the Joint Lead Managers, the Co-Managers, 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.
SOURCE OF INFORMATION
We have commissioned Frost & Sullivan to analyse and report on the current status of,
and forecasts for, the PRC’s heat services industry in which we operate. We agreed to pay Frost
& Sullivan a fee of RMB2,040,000 for the preparation and use of the Frost & Sullivan Report,
which we believe to be consistent with market rates. Unless otherwise indicated, market
estimates or forecasts in this section represent Frost & Sullivan’s view on the future
development of the selected industry in the PRC.
Established in 1961, Frost & Sullivan has conducted industry research and provided
market and enterprise strategies, consultancy and training services for several industries,
including building and construction, automobile, transportation and logistics, chemical
engineering, energy and power systems, environmental protection technologies, electronics,
information and telecommunication technologies, and medical and healthcare. In preparing the
report, Frost & Sullivan has relied on the statistics and information obtained through primary
and secondary research. Primary research includes interviewing industry insiders and
recognised third-party industry associations, while secondary research includes reviewing
corporate annual reports, databases of relevant official authorities, independent research
reports and publications, as well as the exclusive database established by Frost & Sullivan over
the past decades.
The forecasts were made by Frost & Sullivan based on certain assumptions which include
the following:
 government policies on heat services industry in the PRC will remain unchanged
during the forecast period; and
 the heat services industry in the PRC will be continuously growing driven by the
continuous growth of urbanisation rate, replacement of traditional coal-fired boilers
by clean energy and advances in heating technology.
INDUSTRY OVERVIEW
– 126 –


--- page 137 ---
OVERVIEW OF THE HEAT SERVICES INDUSTRY IN THE PRC
Definition and classification of the heat services
The heat services industry is one of the public utility industries in which heat is generated
and distributed to heat service customers to meet their requirements for indoor heating in
winter. The heat is often obtained from a boiler or cogeneration plant burning traditional fossil
fuels such as coal but also increasingly from clean energy sources such as biomass, natural gas,
solid waste, geothermal energy and nuclear energy.
Currently, the PRC heat services industry is mainly located in its northern area, providing
indoor heating services for both residential buildings and non-residential buildings, such as
commercial buildings and industrial buildings.
Value chain of the heat services industry
The value chain of the heat services industry includes supply of power sources, heat
production, heat distribution and heat consumption. The heat producers use different power
sources to produce heat which can be stored in hot water or steam. Hot water or steam is
transported to the heat service customers via heat services networks. Our Group is involved in
the heat production and heat distribution processes in the value chain.
The following chart shows the value chain of the heat services industry in the PRC:
Power sourcesSegment
Product & function
Upstream Midstream Downstream
Heat production Heat distribution Heat
consumption
• Different power sources for
heat producing companies
• The most widely used power
source is coal. The usage of
clean power sources like
biomass, natural gas, solid
waste, geothermal and
nuclear energy, is increasing.
• Heat is produced by different
technologies and equipment
• The core equipment is a boiler,
where the chemical energy in
the power sources is transformed
into heat energy which can be
stored in hot water or steam
through combustion of power
sources.
• Heat is consumed for indoor
heating purpose in winter in
residential, industrial and
commercial buildings
• Prices of heat service are usually
regulated and unified by the
government.
• Heat is distributed to end users
through heat services networks.
The heat services networks
usually consist of heat services
pipelines, valves to control the
flow of steam or water,
connectors to connect pipes,
holders to place pipes.
It is a trend to establish a
comprehensive pipeline
network which makes all kinds
of heat sources cooperate with
each other during heat
distribution process.
Source: Frost & Sullivan
INDUSTRY OVERVIEW
– 127 –


--- page 138 ---
Overview of the economic environment in Shanxi Province, Gansu Province, Inner
Mongolia Autonomous Region and Henan Province
Nominal GDP in Shanxi Province, Gansu Province, Inner Mongolia Autonomous Region
and Henan Province
Shanxi Province
The nominal GDP of Shanxi Province increased from RMB1.6 trillion in 2018 to RMB2.6
trillion in 2022 due to the successful industrial transformation in the province. The CAGR
between 2018 and 2022 is 12.6%. The nominal GDP of Shanxi Province is expected to be
further benefited by the continuous industrial transformation in the foreseeable future and
increase to RMB3.9 trillion in 2027, representing a CAGR of 8.6% from 2022 to 2027.
Gansu Province
The nominal GDP of Gansu Province increased from RMB0.8 trillion in 2018 to RMB1.1
trillion in 2022 with a CAGR of 8.4%. Influenced by the development of the land-sea corridor
(௔ऎஷ༸) in western China, the economic growth of Gansu Province has speeded up and the
nominal GDP of Gansu Province is expected to increase to RMB1.5 trillion in 2027,
representing a CAGR of 6.2% from 2022 to 2027.
Inner Mongolia Autonomous Region
The nominal GDP of Inner Mongolia Autonomous Region increased from RMB1.6 trillion
in 2018 to RMB2.3 trillion in 2022. In 2020, the COVID-19 pandemic had severe impacts on
Inner Mongolia Autonomous Region and its nominal GDP increased only by 0.9%, from
RMB1.721 trillion in 2019 to RMB1.736 trillion in 2020. In 2021, the nominal GDP of Inner
Mongolia Autonomous Region increased to RMB2.1 trillion, which further increased to
RMB2.3 trillion in 2022, mainly driven by the economic recovery after pandemic and high coal
price since Inner Mongolia Autonomous Region is one of the major coal production provinces
in the PRC. The nominal GDP of Inner Mongolia Autonomous Region is expected to further
increase to RMB3.1 trillion in 2027, representing a CAGR of 6.2% from 2022 to 2027.
INDUSTRY OVERVIEW
– 128 –


--- page 139 ---
Henan Province
The nominal GDP of Henan Province increased from RMB5.0 trillion in 2018 to RMB6.1
trillion in 2022 with a CAGR of 5.3%. Driven by the industrial development, the economic
growth of Henan Province has continued and the nominal GDP of Henan Province is expected
to increase further to RMB7.7 trillion in 2027, representing a CAGR of 4.8% from 2022 to
2027.
2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E
1.6 1.7 1.8
2.3
2.6
2.8
3.0
3.3
3.6
3.9
Nominal GDP,
Shanxi Province, 2018-2027E
RMB Trillion
2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E
0.8
0.9 0.9
1.0
1.1
1.2
1.3 1.3
1.4
1.5
Nominal GDP,
Gansu Province, 2018-2027E
RMB Trillion
0.0
0.5
1.0
1.5
2.0
2.5
4.0
3.5
3.0
0.0
0.2
0.4
0.6
0.8
1.0
1.6
1.4
1.2
CAGR (18-22) CAGR (22-27E)
12.6% 8.6%
CAGR (18-22) CAGR (22-27E)
8.4% 6.2%
2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E
5.0
5.4 5.5
5.9 6.1
6.4
6.7
7.0
7.4
7.7
Nominal GDP,
Henan Province, 2018-2027E
RMB Trillion
2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E
1.6 1.7 1.7
2.1
2.3
2.5
2.6
2.8
2.9
3.1
Nominal GDP,
Inner Mongolia Autonomous Region, 2018-2027E
RMB Trillion
0.0
1.0
2.0
3.0
4.0
5.0
8.0
7.0
6.0
0.0
0.5
1.0
1.5
2.0
2.5
3.5
3.0
CAGR (18-22) CAGR (22-27E)
9.4% 6.2%
CAGR (18-22) CAGR (22-27E)
5.3% 4.8%
Sources: National Bureau of Statistics and Frost & Sullivan
INDUSTRY OVERVIEW
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--- page 140 ---
Population and urbanisation rate in Shanxi Province, Gansu Province, Inner Mongolia
Autonomous Region and Henan Province
Northern regions of the PRC, especially the “Three North Region” covering most of the
northern part of the PRC, have high demand for heat services. Our Company’s business mainly
operates in the “Three North Region”, which accounted for approximately 26% of the
population of the PRC in 2022.
Shanxi Province
Although the total population of Shanxi Province decreased from 35.0 million in 2018 to
34.7 million in 2022 and is expected to decrease further to 34.5 million in 2027, the
urbanisation rate of Shanxi Province reached 64.9% with total urban population of 22.5 million
in 2022. In 2027, the urbanisation rate is anticipated to reach approximately 71.4% with total
urban population of 24.6 million.
In order to optimise and upgrade the industrial structure and accelerate the transformation
of the resource-based economy in Shanxi, Shanxi Transformation and Comprehensive Reform
Demonstration Zone was established in November 2016. It has a total planning area of
approximately 589 km
2 in Taiyuan and Jinzhong cities and is divided into three areas
comprising (i) Xiaohe Industrial Park in the south; (ii) Integrated Industrial Area in the central
region; and (iii) Yanggu Industrial Park in the north:
(i) Xiaohe Industrial Park covers a total area of 343 km
2 and is the core part of the
Shanxi Transformation and Comprehensive Reform Demonstration Zone. The first
phase of Xiaohe Industrial Park with a total area of 100.7 km
2 is being developed
at present, which can be divided to Taiyuan region and Jinzhong region. Taiyuan
region covers an area of 57.3 km
2, and is expected to have a population of around
300,000 in 2030. Taiyuan region takes back-pressure CHP units as its basic heat
source, and develops various types of renewable energy and clean energy heat
supply methods including geothermal energy, air source heat pumps, and distributed
gas CCHP. Jinzhong region covers an area of 43.4 km
2, in which the planned
population will be 90,000 in 2030. The heat sources of Jinzhong region are mainly
thermal power plants, supplemented by renewable energy and clean energy,
including geothermal energy, ground source heat pump, air source heat pump and
sewage source heat pumps.
(ii) Integrated Industrial Area covers a total area of 142 km
2 which includes five
industrial parks, one comprehensive bonded zone and one science and technology
innovation town. The development of Integrated Industrial Area mainly focuses on
big data, internet of things, electronic information, cross-border e-commerce,
high-end manufacturing, bio-technology and technical research and development.
INDUSTRY OVERVIEW
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--- page 141 ---
(iii) Yanggu Industrial Park covers a total area of 104 km 2. The development of Yanggu
Industrial Park mainly focuses on new material, new energy, high-end
manufacturing, bio-technology, energy conservation and environmental protection.
The planned population will be 220,000 in 2025. The heat sources of Yanggu
Industrial Park are mainly from thermal power plants, supplemented by renewable
energy and clean energy.
The nominal GDP of Shanxi Transformation and Comprehensive Reform Demonstration
Zone increased from RMB41.7 billion in 2017 to around RMB86.2 billion in 2021,
representing a CAGR of 14.4%.
Gansu Province
Although the total population of Gansu Province decreased from 25.2 million in 2018 to
25.0 million in 2022 and is expected to decrease further to 24.7 million in 2027, the
urbanisation rate of Gansu Province reached 54.4% with total urban population of 13.6 million
in 2022. According to the 14th five-year plan outline of Gansu Province, the urbanisation rate
is expected to increase by around 8% between 2021 and 2025. In 2027, the urbanisation rate
will increase to approximately 58.3% with total urban population of 14.4 million. In order to
promote the economic development of western regions in the PRC and support the Great
Western Development Strategy ( Г௅ɽක೯኷ଫ), Lanzhou New Area ( ᚆψอਜ) was
established in 2012 in the middle of Lanzhou, Xining and Yinchuan. It was the first national
level new area in the northwest part of the PRC. It is an important national industrial base and
an important strategic area for the overall development of western regions of the PRC. The
nominal GDP of Lanzhou New Area increased from RMB20.5 billion in 2018 to RMB35.6
billion in 2022, representing a CAGR of 14.8%. The nominal GDP of Lanzhou New Area is
expected to further increase to RMB69.9 billion in 2027, representing a CAGR of 14.4% from
2022 to 2027. The relatively high CAGR is caused by extensive industrial investment.
Inner Mongolia Autonomous Region
Although the total population of Inner Mongolia Autonomous Region decreased from
24.2 million in 2018 to 23.9 million in 2022 and is expected to decrease further to 23.8 million
in 2027, the urbanisation rate of Inner Mongolia Autonomous Region reached 69.0% with total
urban population of 16.5 million in 2022 and is expected to continue to grow in the foreseeable
future. In 2027, the urbanisation rate is expected to reach approximately 71.8% with total urban
population of 17.1 million.
INDUSTRY OVERVIEW
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--- page 142 ---
Henan Province
The total population of Henan Province increased from 98.7 million in 2018 to 98.8
million in 2022 and is expected to further decrease to 97.6 million in 2027. The urbanisation
rate of Henan Province reached 57.4% with total urban population of 56.7 million in 2022 and
is expected to continue to grow in the foreseeable future. In 2027, the urbanisation rate is
expected to reach approximately 61.2% with total urban population of 59.7 million.
10
20
30
40
10
20
30
40
30
40
50
60
70
80
90
2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E
35.0 35.0 34.9 34.8 34.7 34.6 34.6 34.5 34.5 34.5
62.0 63.5 62.5 63.4 64.9 66.3 67.6 68.9
70.2 71.4
Population and Urbanisation Rate,
Shanxi Province,  2018-2027E
Million %
Rural Population Urban PopulationUrbanisation Rate
21.7 22.2 21.8 22.1 22.5 22.9 23.4 23.8 24.2 24.6
13.3 12.8 13.1 12.7 12.2 11.7 11.2 10.7 10.3 9.9
0
10
20
30
0
10
20
30
30
40
50
60
70
2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E
25.2 25.1 25.1 24.9 25.0 24.9 24.8 24.7 24.6 24.7
50.0
51.2 52.2 53.3 54.4 55.3
56.2 57.0 57.7 58.3
Population and Urbanisation Rate,
Gansu Province,  2018-2027E
Million %
Rural Population Urban PopulationUrbanisation Rate
12.6 12.8 13.1 13.3 13.6 13.8 13.9 14.1 14.2 14.4
12.6 12.3 12.0 11.6 11.4 11.1 10.9 10.6 10.4 10.3
0
10
20
30
40
50
60
70
80
90
100
0 30
40
50
60
70
2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E
98.7 99.0 99.4 98.8 98.8 98.5 98.4 98.1 97.9 97.6
50.4
51.8
55.4
56.5
57.4
58.3 59.1 59.8 60.5 61.2
Population and Urbanisation Rate,
Henan Province,  2018-2027E
Million %
Rural Population Urban PopulationUrbanisation Rate
49.7 51.3 55.1 55.8 56.7 57.4 58.1 58.7 59.3 59.7
49.0 47.7 44.3 43.0 42.1 41.1 40.3 39.4 38.6 37.9
0
10
20
30
0
10
20
30
30
40
60
70
90
80
50
2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E
24.2 24.2 24.0 24.0 23.9 23.9 23.9 23.8 23.8 23.8
65.6 66.6 67.4 68.2 69.0 69.6
70.3 70.8 71.4 71.8
Population and Urbanisation Rate,
Inner Mongolia Autonomous Region,  2018-2027E
Million %
Rural Population Urban PopulationUrbanisation Rate
15.9 16.1 16.2 16.4 16.5 16.7 16.8 16.9 17.0 17.1
8.3 8.1 7.8 7.6 7.4 7.2 7.1 6.9 6.8 6.7
10
20
30
40
50
60
70
80
90
100
Sources: National Bureau of Statistics and Frost & Sullivan
INDUSTRY OVERVIEW
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--- page 143 ---
ANALYSIS OF THE HEAT SERVICES INDUSTRY IN THE PRC
Heat services industry in the PRC
To meet the increasing demand for the heat services, which mainly results from the rapid
growth in urbanisation rate and the increasing penetration of the heat services in the PRC, total
area and pipeline length of the heat services in the PRC rose significantly during the last few
years. Total heat services area in the PRC increased from 8.8 billion sq.m. in 2018 to 11.2
billion sq.m. in 2022, with a CAGR of 6.4%. Total heat services area in the PRC is expected
to increase to 14.5 billion sq.m. in 2027, with a CAGR of 5.2% from 2022 to 2027.
Correspondingly, pipeline length of the heat services in the PRC, which includes both primary
and secondary pipelines, increased from 371,100 km in 2018 to 502,500 km in 2022, with a
CAGR of 7.9%. It is expected to increase to 711,700 km in 2027, with a CAGR of 7.2% from
2022 to 2027.
0
5
10
15
8.8
9.3
9.9
10.6
11.2
11.9
12.5
13.2
13.9
14.5
Billion sq.m.
Total Heat Service Area*,
the PRC, 2018-2027E
Thousand km
Pipeline Length of the Heat Services,
the PRC, 2018-2027E
0
100
200
300
400
500
600
800
700
371.1 392.9
426.0
461.5
502.5
543.9
585.4
627.3
669.3
711.7
2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E 2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E
CAGR (18-22) CAGR (22-27E)
6.4% 5.2%
CAGR (18-22) CAGR (22-27E)
7.9% 7.2%
Note: Some historical data have been updated according to the latest published official data in this section, other
related indicators will be adjusted synchronously, if applicable.
Sources: National Bureau of Statistics and Frost & Sullivan
Heat rates in the heat services industry in the PRC are typically government-regulated and
relevant subsidies are provided by local governments so as to support the business operation
of the heat service providers. The mechanism of the regulated heat rates, together with the
provision of government subsidies, is expected to maintain in the heat services industry in the
PRC in the foreseeable future. This is mainly because the cancellation of such subsidies may
cause heat service providers to suffer losses brought by factors such as rising fuel cost,
extension of heat service period in extreme weathers and the decision by the governments in
restricting the heat rates at low levels due to their concern of the livelihood of the PRC
residents, and therefore it may adversely affect the overall business operation of heat service
providers and hence their quality and continuous supply of heat.
INDUSTRY OVERVIEW
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--- page 144 ---
Heat services industry in Shanxi Province
The total heat service area in Shanxi Province increased from 627.1 million sq.m. in 2018
to 817.6 million sq.m. in 2022, with a CAGR of 6.9%. The total heat services area in Shanxi
Province accounted for 7.3% of the total heat services area in the PRC in 2022.
Correspondingly, pipeline length of the heat services in Shanxi Province increased from 18,200
km in 2018 to 24,900 km in 2022, with a CAGR of 8.2%.
The Shanxi government supports the development of clean heating by encouraging the
use of the diversified heating sources such as CHP, natural gas, electricity and solar power. The
total heat services area in Shanxi Province is expected to increase to 1,022.6 million sq.m. in
2027, with a CAGR of 4.6% from 2022 to 2027. Pipeline length of the heat services in Shanxi
Province is expected to increase to 33,900 km in 2027, with a CAGR of 6.4% from 2022 to
2027.
0
200
400
800
600
1,000
1,200
627.1
701.3
748.9 778.4 817.6
856.8
896.1
935.3
978.9
1,022.6
Million sq.m.
Total Heat Services Area,
Shanxi Province, 2018-2027E
Thousand km
Pipeline Length of the Heat Services,
Shanxi Province, 2018-2027E
18.2
21.3 22.4 23.3
24.9
26.6
28.3
30.0
32.0
33.9
2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E 2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E
0
5
10
15
20
25
30
35
40
CAGR (18-22) CAGR (22-27E)
6.9% 4.6%
CAGR (18-22) CAGR (22-27E)
8.2% 6.4%
Sources: National Bureau of Statistics and Frost & Sullivan
Heat services industry in Gansu Province
The total heat services area in Gansu Province increased from 234.6 million sq.m. in 2018
to 302.4 million sq.m. in 2022, with a CAGR of 6.6%. The total heat services area in Gansu
Province accounted for 2.7% of the total heat services area in the PRC in 2022.
Correspondingly, pipeline length of the heat services in Gansu Province increased from 5,900
km in 2018 to 13,400 km in 2022, with a CAGR of 22.6%.
INDUSTRY OVERVIEW
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--- page 145 ---
With the support of government policy, Gansu Province has encouraged more private
capital to enter into the heat services industry. Driven by resources, technology, private capital
and provincial policy, the heat services industry will continue to develop in a sustainable way.
The total heat services area in Gansu Province is expected to increase to 410.9 million sq.m.
in 2027, with a CAGR of 6.3% from 2022 to 2027. Pipeline length of the heat services in Gansu
Province is expected to increase to 16,100 km in 2027, with a CAGR of 3.8% from 2022 to
2027.
234.6
261.2 278.7 283.7
302.4
321.2
340.0
358.7
384.8
410.9
Million sq.m.
Total Heat Services Area,
Gansu Province, 2018-2027E
Thousand km
Pipeline Length of the Heat Services,
Gansu Province, 2018-2027E
5.9 6.1 6.3
12.8
13.4 13.9
14.5
15.1 15.6 16.1
2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E 2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E
0
2
4
6
8
10
12
14
16
18
0
50
100
150
200
250
300
350
400
450
500
CAGR (18-22) CAGR (22-27E)
6.6% 6.3%
CAGR (18-22) CAGR (22-27E)
22.6% 3.8%
Source: National Bureau of Statistics and Frost & Sullivan
Heat services industry in Inner Mongolia Autonomous Region
The total heat services area in Inner Mongolia Autonomous Region accounted for 5.9%
of the total heat services area in the PRC in 2022. The total heat services area in Inner
Mongolia Autonomous Region increased from 582.9 million sq.m. in 2018 to 664.3 million
sq.m. in 2022, with a CAGR of 3.3%. Correspondingly, pipeline length of the heat services in
Inner Mongolia Autonomous Region increased from 14,400 km in 2018 to 25,700 km in 2022,
with a CAGR of 15.5%.
Under the guidance of the policies in Inner Mongolia Autonomous Region, local
governments have increased financial investment in the heat services facilities in small and
medium-sized cities and counties and encouraged the promotion of new technologies in heat
services such as new CHP and energy-saving technologies, which will support the steady
growth in the heat services industry in Inner Mongolia Autonomous Region. The total heat
services area in Inner Mongolia Autonomous Region is expected to increase to 723.9 million
sq.m. in 2027, with a CAGR of 1.7% from 2022 to 2027. Pipeline length of the heat services
in Inner Mongolia Autonomous Region is expected to increase to 29,900 km in 2027, with a
CAGR of 3.1% from 2022 to 2027.
INDUSTRY OVERVIEW
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--- page 146 ---
0
200
400
800
500
900
1,000
600 582.9 613.7 633.1 649.2 664.3 678.5 691.6 703.6 714.4 723.9
Million sq.m.
Total Heat Services Area,
Inner Mongolia Autonomous Region, 2018-2027E
Thousand km
Pipeline Length of the Heat Services,
Inner Mongolia Autonomous Region, 2018-2027E
0
5
10
15
20
25
30
40
14.4
18.3
23.5
24.8 25.7 26.6 27.5 28.3 29.1 29.9
2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E
100
300
700
35
CAGR (18-22) CAGR (22-27E)
3.3% 1.7%
CAGR (18-22) CAGR (22-27E)
15.5% 3.1%
2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E
Sources: National Bureau of Statistics and Frost & Sullivan
Heat services industry in Henan Province
The total heat services area in Henan Province accounted for 6.4% of the total heat
services area in the PRC in 2022. The total heat services area in Henan Province increased from
434.2 million sq.m. in 2018 to 713.8 million sq.m. in 2022, with a CAGR of 13.2%.
Correspondingly, pipeline length of the heat services in Henan Province increased from 11,100
km in 2018 to 16,400 km in 2022, with a CAGR of 10.2%. The total heat services area in Henan
Province has been increased rapidly in the past five years, stimulated by multiple policies, and
the growth rate is expected to remain moderate in foreseeable future. The total heat services
area in Henan Province is expected to increase to 1,082.5 million sq.m. in 2027, with a CAGR
of 8.7% from 2022 to 2027. Pipeline length of the heat services in Hanan Province is expected
to increase to 22,100 km in 2027, with a CAGR of 6.2% from 2022 to 2027.
0
200
400
800
600
1,000
1,200
434.2
516.0
560.0
640.0
713.8
787.5
861.2
935.0
1,008.7
1,082.5
Million sq.m.
Total Heat Services Area,
Henan Province, 2018-2027E
Thousand km
Pipeline Length of the Heat Services,
Henan Province, 2018-2027E
0
5
10
15
20
25
11.1
12.5 12.9
15.4
16.4
17.7
18.9
20.0
21.1
22.1
2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E
CAGR (18-22) CAGR (22-27E)
13.2% 8.7%
CAGR (18-22) CAGR (22-27E)
10.2% 6.2%
2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E
Sources: National Bureau of Statistics and Frost & Sullivan
INDUSTRY OVERVIEW
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--- page 147 ---
Coal price and heat services price
Coal price in the PRC
Coal price in the PRC was on a decreasing trend from 2018 to 2020. In 2022, coal price
index reached 241 which was mainly affected by increased international coal price, insufficient
domestic supply and increased in domestic demand. In 2023, coal price index is expected to
increase to 257 mainly due to the same reasons. In 2024, coal price is expected to increase to
273.
According to Guiding Opinions on Building a Coal & Heating Price Pass Through
Mechanism (ኬจԈ) issued by NDRC and the then
Ministry of Construction, when the price of coal changes over certain level, the ex-factory
price of heat shall be adjusted accordingly. Generally speaking, the fluctuation in coal price
would be less sensitive to heat generation of cogeneration plants as compared to heat
generation of coal-fired boilers for PRC’s heat service provides, as most cogeneration plants
utilise and transfer heat to end customers during heat service period only, while they supply
electricity to local areas for the whole year. Cogeneration plants in the PRC are mostly SOEs
and the ex-factory price of cogeneration enterprises are generally supervised or regulated by
local government authorities. Even though the cogeneration plants may not be able to transfer
the burden brought by the increase in coal price to their customers directly, it is observed that
the local government authorities may subsidise the cogeneration enterprises accordingly.
163 159 153
220
241 257 273
2018 2019 2020 2021 2022 2023E 2024E
Coal Price Index, the PRC, 2018-2024E
0
50
100
150
200
250
300
Sources: China National Coal Association and Frost & Sullivan
Note: Coal price index is presented on the basis that the initial value as at 1 January 2006 was 100.
INDUSTRY OVERVIEW
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--- page 148 ---
Heat services price
The revenue for heat services providers usually includes provision and distribution of
heat and the pipeline connection fee.
Generally, heat services price in the PRC is regulated by the local governments and their
price bureaux. Heat services prices for residential use and non-residential use may vary from
one city to another. The price of residential use is usually lower than that of other uses.
Generally, heat services price adjustment shall go through the following procedures: (i) the
Local Development and Reform Commission holds the hearing on the heat services price
adjustment; (ii) after the hearing, it will submit the final hearing report to the local government;
and (iii) according to the general opinion of the hearing, government will make the final plan
on the heat services price adjustment and announce the decision publicly.
In order to ensure the stability in the provision of heat services, it is not uncommon that
local governments in PRC cities, provinces or regions provide subsidies to heat services
providers in their respective areas in accordance with the Interim Measures. It is not
uncommon that such price subsidies are assessed based on pre-determined formulae with
reference to heat rates charged and relevant heat service costs. Heat services companies may
also receive subsidies from the local governments in various ways, including but not limited
to in the form of operation subsidy (including subsidies related to construction and upgrading
of heat services facilities), tax subsidy and subsidy for the losses.
Heat services prices were adjusted upwards in the Lanzhou New Area district of Lanzhou,
in which the Group was operating, in 2022. The monthly heat services price for residential use
in Lanzhou New Area increased from RMB5.0 per sq.m. to RMB5.8 per sq.m.. Similarly, the
monthly heat services price for non-residential use in Lanzhou New Area increased from
RMB7.0-9.2 per sq.m. to RMB8.0-10.2 per sq.m.. From 2018 to 2022, heat services prices of
the majority of the cities in Shanxi Province, Inner Mongolia Autonomous Region and Henan
Province, in which the Group was operating, remained unchanged.
The table below sets out monthly heat rates charged by us on different types of heat
service users by project during the Track Record Period:
Hulunbuir
Project
Shuozhou
Project
Taiyuan
Project
Lanzhou New
Area Project
3.6 2.52 3.55.0/5.8
7.5
Shanxi
Demonstration
Zone Project
3.6
7.5 4.8 4.87.0-9.2/8.0-10.2
RMB per sq.m. per month
Residential
Non-
residential
Shanxi Province Inner Mongolia
Autonomous RegionGansu Province
Sources: Bureau of Commodity Prices and Frost & Sullivan
INDUSTRY OVERVIEW
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--- page 149 ---
Heat services industry growth drivers
The key growth drivers for heat services industry in the PRC include the following:
Continuous growth in urbanisation rate. The urbanisation rates in Shanxi Province,
Gansu Province, Inner Mongolia Autonomous Region and Henan Province kept increasing
during the last few years. Heat services industry is a kind of public utility for northern China
covering Shanxi Province, Gansu Province, Inner Mongolia Autonomous Region and Henan
Province owing to their cold weathers in winter. According to the 14th Five-Year Plan
(2021-2025) for National Economic and Social Development and the Long-term Objectives
Through the Year 2035 (ʞϋ஝ྌձ2035)
issued by the Central Committee and the State Council, it is expected that the urbanisation rate
to increase about 5% between 2021 and 2025. Such continuous growth in urbanisation rate in
the PRC is expected to be the primary driver for the demand for heat services, as the provision
of central heating market in the PRC predominately focuses in the urban areas. As urbanisation
continue to grow in urban areas, and the urban population increases, thereby increasing the
need to provide heat services, which in turn increases total heat service areas and pipeline
length for heat services, signifying an increasing market size in the PRC. According to the data
available on the National Bureau of Statistics as at the Latest Practicable Date, urban
population of the PRC increased from approximately 61.5% in 2018 to approximately 64.7%
in 2021 among total population, and urban population density increased from approximately
2,546 persons/sq.km. as of 2018 to 2,868 persons/sq.km. as of 2021. Such growths in urban
population and urban population density were primarily attributable to the increase in fixed
asset investments in urban service facilities. It is expected that fixed asset investment in urban
service facilities in the PRC from 2022 to 2027 would amount to approximately RMB16.6
trillion in aggregate. Therefore, the increasing population in urban areas creates incremental
demand for heat services.
The growth in demand for high-quality life. Given the growth in demand for high-quality
life for Chinese people, demand for stable and reliable high-quality heat services for residents
has increased. There are increasing number of heat services companies adopting new
technologies to improve their heat services. Depending on the temperature change, the local
government may bring forward the commencement of the heat service period or extend the
period to meet the heat service demand from residents.
In recent years, extreme low temperature, frosting and other extreme weather conditions
have occurred in southern China. Demand for heat services in southern China is growing in line
with the pursuit of high-quality life. At present, Hefei, Nanjing, Hangzhou, Shanghai and other
cities along the Yangtze River have taken the lead in providing heat services in some residential
areas.
INDUSTRY OVERVIEW
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--- page 150 ---
Replacement of traditional coal-fired boilers by clean energy. Replacement of
traditional coal-fired boilers by accelerating the usage of clean energy from supply side of the
industry can strengthen industry standardisation by following the national policy orientation
and therefore drives the development of the industry. According to the Plan for Winter Clean
Heating in Northern Region (2017-2021) (૶ᆎ՟า஝ྌ(2017-2021) ), the
proportion of clean heat services should be accelerated by using clean energy including gas and
electricity as much as possible. Plan for Comprehensive Control of Air Pollution in Autumn
and Winter in 2021 to 2022 ( 2021-2022) published
by the Ministry of Ecology and Environment and other government departments as well as
local governments in October 2021 requires specific northern cities, including Taiyuan and
Shuozhou, in both of which our Group operates, to basically complete the replacement of
traditional coal-fired boilers by the end of 2021. In addition, Plan for Modern Energy System
in the Fourteenth Five-Year Plan ( “ɤ̬ʞ”ତ˾ঐ๕᜗ӻ஝ྌ) published by NDRC and
National Energy Administration has set out the target for basic elimination of the coal-fired
boilers under 35T/h in key regions of the air pollution control by 2025.
In Shanxi Province, the provincial government aims to abandon all coal-fired boilers in
key urban areas with heating capacity no more than 35 T/h by October 2020, articulated in its
2019 to 2022 action plan on improvement for urban living environment. It has proposed such
task after eliminating small-scale coal-fired boilers with heating capacity lower than 10 T/h.
In Gansu Province, the removal of more than 13,000 coal-fired boilers with accumulative
57,000 T/h has been proposed between 2018 and 2021 during the “Three-year Action Plan to
Win the Blue Sky Defense War” (ྌ).
Advances in heating technology. Benefiting from advancement in heating technology, the
level of efficiency and environmental friendliness of the heat services industry in the PRC have
improved in recent years. Shanxi Province, Inner Mongolia Autonomous Region and Gansu
Province have been promoting the diversification of heat sources, such as biomass, solar
thermal energy and geothermal heat, and upgrading heat services networks by utilising
intelligent control on the heat services.
According to the National Coal-fired Power Plant Upgrading Implementation Plan ( Ό
), heat services companies are encouraged to develop long-
distance heating delivery technology for the purpose of heat services area expansion. In
addition, it encourages the condensing power plants (which uses coal to generate power) to be
upgraded to combined heat and power (CHP) in order to achieve cleaner and more efficient
power plants. Current CHPs in operation are also encouraged to improve the level of efficiency
through technological transformation. More than 50 million kW of power plant capacity should
be upgraded by the end of 2025. The advancement in heating technology creates momentum
for development of the heat services industry.
INDUSTRY OVERVIEW
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--- page 151 ---
Heat services industry restraints
Increasingly stringent environmental requirements on heat services sector. PRC
Government is raising up the environmental standards on the heat services sector. Coal-fired
heating generation is still heavily relied upon by heat service providers, and a large amount of
small coal-fired boilers are regarded as the main sources of air pollutants and are forced to shut
down. According to Management Regulations on Combined Heat and Power ( ᆠཥᑌପ၍ଣ
) published by NDRC, certain coal-fired cogeneration plants are required to be equipped
with high efficient dust-remover, deNOx and desulfurisation equipment to meet strict emission
standards. Such actions will increase capital and operating expenses for the heat services
companies.
Limitation on pricing regime of heat services. Heat services prices are usually regulated
by the local municipal governments and their price bureaux. Under current pricing regime, the
change of price is complex and time-consuming. Change in raw material prices may generate
pressure on operating costs for companies in heat services industry.
Difficulty in renovating and serving the old residential communities. Renovating and
serving the old residential communities which lack high-quality heat services have gradually
become an important task for the heat services industry. Issues such as difficulty in site
selection for heat exchange stations and slow progress in construction may significantly slow
down the pace of development of the industry.
Heat services industry development trends
Promotion of CHP . Plan for Winter Clean Heating in Northern Region (2017-2021) ( ̏
૶ᆎ՟า஝ྌ(2017-2021) ) imposed by NDRC emphasises and promotes the
usage of CHP in northern China for heating purpose. CHP shall be implemented to replace
those existing coal-fired boilers for heat services.
Industry consolidation. Small-scale heat services companies with low operation
efficiency may be squeezed out of the market or be acquired by other companies, including
large non-State-owned enterprises with solid industry experience, high operation efficiency,
strong technical and financial capabilities. Additionally, to optimise the urban structure, many
local governments are promoting the regional concentration of residential and industrial areas
by re-zoning residential areas and developing industrial parks. In the circumstances, the heat
services industry in the PRC has been gradually consolidated.
Clean heating. According to National Bureau of Statistics, clean energy industry mainly
contains wind power, solar power, hydro power, nuclear power, efficient utilisation of
traditional energy, etc. Currently, a large proportion of energy used in heat services industry
comes from coal-fired heat generations in the PRC. The PRC has attached great importance to
carbon emission control in recent years and several policies for carbon reduction and
environmental protection purposes have been released. For example, according to the Guiding
Opinions on Promoting the Industrialisation of Bio-Natural Gas (˂್ंପุ
INDUSTRY OVERVIEW
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--- page 152 ---
ኬจԈ) issued by NDRC in 2019, bio-natural gas was encouraged to replace coal
for direct heat services usage in order to make contribution to air pollution treatment. In 2020,
the PRC Government announced its plan of achieving carbon peaking by 2030 and achieving
carbon neutrality by 2060. In line with the implementation of carbon peaking and carbon
neutrality objectives, the PRC Government encourages municipal governments to develop
different ways of clean heating according to local conditions and accelerates the replacement
of small-scale coal-fired boilers which have higher carbon emission for large-scale coal-fired
boilers generating heat using cleaner energy. This promotes the transition from high-carbon
emission heat coal-fired generations to low-carbon emission heat generations, and to develop
renewable energy sources such as geothermal, industrial waste heat and solar thermal energy,
etc. For example, the Guiding Opinions on Accelerating the Development of Green and
Low-carbon Circular Economic Development System (ͭ਄ΌၠЍЭ၁ృᐑ೯
ኬจԈ) issued by the State Council in 2021 encourage counties in Northern
regions to develop clean heating through adopting CHP. The Synergistic Implementation Plan
on Pollution and Carbon Reduction () issued by multiple
departments in 2022 encourages to develop renewable energy sources for heating purpose with
reduced carbon emissions in Northern regions. Given the steadfast determination on achieving
carbon peaking and carbon neutrality objectives, it is expected that the promotion of clean
heating will continue.
Opening up of the heat services industry. The heat services industry in the PRC tends to
be more opened-up as a number of supportive policies have been issued by local governments.
For instance, Implementation Plan for Optimisation of Heating System and Improvement
of Building Energy Efficiency of Urban Clean Heating in Winter in Gansu Province
(2017-2021)ࣩ2017-2021
ϋ)was issued by Department of Housing and Urban-Rural Development of Gansu Province
(ணᝂ) in 2018 to promote the heat services industry through encouraging
capital investment in Gansu Province. Therefore, non-State-owned enterprises will have more
opportunities for entering the market. Facing numerous market opportunities, different heat
services providers enter the heat services industry by leveraging their own characteristics and
advantages. Non-Stated-owned companies often have advantages including flexible
mechanism in corporate management, high business operation efficiency, with emphasis on
research and development of new heating technologies, and have strong ability and motivation
to conduct cross-provincial operation of heat services business. Moreover, non-State-owned
heat services enterprises tend to focus on service quality.
COMPETITIVE ANALYSIS OF THE HEAT SERVICES INDUSTRY IN THE PRC
The heat services industry in the PRC is fragmented with a large number of market
players. Currently, most market players in the heat services industry in the PRC fall into three
categories: specialised heat services providers, subsidiaries of power generation groups and
property developers. The specialised heat services providers can be further divided into
State-owned and non-State-owned companies, and non-State-owned specialised heat services
companies are growing due to the flexible operation, advantage in cost control and favourable
government policies.
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Competitive landscape of the heat services industry segment operated by non-State-
owned companies in the PRC
The heat services industry in the PRC is highly fragmented. The major players in the heat
services industry in the PRC are specialised heat services providers and most of the players are
State-owned companies. Total actual heat services area in the PRC was 11,239.4 million sq.m.
in 2022. The majority of the top 10 players were State-owned companies. The aggregate heat
services area of the top 10 companies accounted for more than 16.0% of the total actual heat
services area in the PRC in 2022, with the tenth largest heat services provider having an actual
heat services area of more than 100.0 million sq.m..
In this industry, cross-provincial market players are not commonly seen, as high
technology advantages and abundant cross-provincial operation experience are required. Total
actual heat services area in the PRC operated by non-State-owned companies was 2,371.2
million sq.m. in 2022, accounting for 21.0% of the total actual heat services area in 2022. Our
Company ranked fourth with a market share of 1.8% in this market segment in 2022.
Meanwhile, our Company was the second largest non-State-owned cross-provincial heat
service provider in the PRC in terms of actual heat services area in 2022.
Rank Company Name
Actual Heat
Services Area
(million sq.m.)
Market
Share
1Company A
4.2%
3.1%
1.8%
1.5%
83.7%
5.7%
Company D
Company B
Company C
Our Group
Others
Major Provincial
Coverage
Company A 135.0 5.7% Henan, Gansu, Hebei,
Shandong, Anhui
2
3
5
Others
Total
Company B 100.5 4.2% Tianjin
Company C 72.4 3.1% Liaoning
Our Group 41.9 1.8% Shanxi, Gansu,
Inner Mongolia
Company D 36.0 1.5% Beijing, Hebei
1,985.4 83.7% –
2,371.2 100.0% –
4
Market share of top non-State-owned companies in the heat services industry
(by actual heat services area), the PRC, 2022
Region
Cross-provincial
Non
cross-provincial
Non
cross-provincial
Cross-provincial
Cross-provincial
–
–
Total = 2,371.2 million sq.m.
Sources: Company reports and Frost & Sullivan
Note: Our Group has a heat service project, namely Xinmi Project, in Henan Province which has reached the final
stages of preparation to provide heat services. The provision of heat services in Henan Province is expected
to commence from the 2023/2024 heat service period in or around November 2023. As such, the actual heat
service area of our Company in 2022 does not take into account our Xinmi Project.
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Competitive landscape of the heat services industry segment in Shanxi Province, Gansu
Province and Inner Mongolia Autonomous Region
In 2021, the aggregate actual heat services area of Shanxi Province, Gansu Province and
Inner Mongolia Autonomous Region accounted for around 21% and 16% of the total actual
heat services area in the “Three North Region” and the PRC, respectively. The heat services
industry in Shanxi Province, Gansu Province and Inner Mongolia Autonomous Region is
demonstrating a moderate competition, with the top 10 heat services providers in terms of the
aggregate actual heat services area of these three areas in 2022 taking up around 46.0% of the
market. Most of the players are mainly focusing on providing heat services in their own
provinces or cities. For example, our Group operates in one of the six jurisdictions in Shuozhou
city of Shanxi Province, and there are heat service providers in the other jurisdictions of
Shuozhou city. Our Group was ranked No. 9 in terms of the aggregate actual heat services area
of the three areas in 2022 and was the second largest cross-provincial heat services provider
in these three areas.
Rank Company Name Area
(million sq.m.) Market Share
1 Company E 172.0 9.6%
2
3
5
Others
Total
Company F 165.0 9.2%
Company G 93.5 5.2%
Company H 85.5 4.8%
Company A 61.0 3.4%
959.7 54.0%
1,784.3 100.0%
4
Market share of top players in the heat services industry (by actual heat services area),
Shanxi Province, Gansu Province and Inner Mongolia Autonomous Region, 2022
Region
Non cross-provincial
Non cross-provincial
Non cross-provincial
Non cross-provincial
Cross-provincial
6
7
9
Company I 59.7 3.3%
Company J 54.0 3.0%
Company K 53.9 3.0%
Our Group 41.9 2.4%
8
Non cross-provincial
Non cross-provincial
Company L 38.1 2.1%10 Non cross-provincial
Cross-provincial
Top 10 players 824.6 46.0%
Non cross-provincial
9.6%
9.2%
5.2%
4.8%
3.4%
Company A
Company F
Company E
Company K
Company I
Company G
Company H
Company J
Our Group
Company L
Others
3.3%
3.0%
3.0%
54.0%
2.4%
2.1%
Total = 1,784.3 million sq.m.
Source: Company reports, Frost & Sullivan
Note: Company A is a private non-state own company headquartered in Beijing, and provides heating services using
clean energy in provinces such as Hebei, Henan, Gansu.
Company B is a private non-state own company headquartered in Tianjin, and provides heating services in
Tianjin.
Company C is a public non-state own company headquartered in Liaoning Province, and provides heating
services in Liaoning and power service.
Company D is a public non-state own company headquartered in Beijing, and provides heating services in
Beijing and Hebei.
Company E is a private state-own company headquartered in Shanxi Province and provides heating services
in Taiyuan Shanxi.
Company F is a private state-own company headquartered in Inner Mongolia and provides heating service in
Inner Mongolia and power service.
Company G is a private state-own company headquartered in Shanxi province and provides heating service in
Dadong Shanxi.
Company H is a private state-own company headquartered in Inner Mongolia and provides heating service in
Hohhot Inner Mongolia.
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Company I is a private state-own Company headquartered in Shanxi and provides heating service in Changzhi
Shanxi.
Company J is a private state-own company headquartered in Inner Mongolia and provides heating service in
Hulunbuir Inner Mongolia.
Company K is a private state-own company headquartered in Gansu and provides heating service in Lanzhou
Gansu.
Company L is a private state-own company headquartered in Inner Mongolia and provides heating service in
Chifeng Inner Mongolia.
Entry barriers of the heat services industry in the PRC
Qualification barrier. Heat services is an essential public utility to ensure the living
quality of the residents in the PRC. Governments issued strict regulations on the qualification
of heat services companies. The qualification of heat services companies is authorised by
related departments of provincial or municipal governments. Most of the municipal heating
regulations adopted in the cities where our Group operates (e.g. Administrative Measures for
Urban Heat Services and Use in Lanzhou New Area (),
Hulunbuir Urban Heat Services Administration Measures (Trial) (ᕄԶᆠ၍ଣ
ج(༊Б))) have specified that, heat services entities must have stable and reliable heating
resources, professional staff with specialties in heating, sufficient fund and heating facilities
that correspond to their heat services scale, and sizeable rescue team, in order to obtain heat
services business qualifications and/or concession rights issued by local authorities before
being engaged in any heat services business.
Technology barrier. According to the Code for Urban Heating Supply Planning (̹
Զᆠ஝ྌ஝ᇍGB51074-2015 ), and Design Code for City Heating Network (ᕄԶᆠ၍ၣ
஝ᇍCJJ34-2010 ) and Code for Urban and Rural Heating Supply Project (ඊԶᆠʈ
೻ධͦ஝ᇍ) issued by MOHURD, there are technical standards specified for heating load
distribution, water pressure and temperature, etc., which shall be met by heat services
companies when running heat services business. Such technical standards are aimed to ensure
safety during design, construction and operation stage. Moreover, heat services companies are
also required to apply advanced technologies in automated monitoring and management of the
heating networks, so as to increase standards on environmental friendliness and efficiency for
heating networks. It takes time and endeavours for new entrants to meet those technological
requirements and be able to compete with the established players.
Experience barrier. The heat services companies shall have abundant experiences and
capabilities in running heat services business safely and reliably. Heat services companies
typically need multiple years’ of heating operation to accumulate such experiences and build
up their own capabilities, which is hard for new entrants with little or no experience to catch
up during short period of time.
Capital barrier. The development of heat services projects requires substantial amount of
funds to invest in the construction of pipeline networks. The typical initial capital investment
required for a heat services project with 1 million sq.m. is between RMB100 million to
RMB200 million, making sufficient funds to be a barrier for new entrants in the industry.
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OVERVIEW OF THE ENGINEERING CONSTRUCTION SERVICES INDUSTRY
SPECIALISING IN HEAT FACILITIES IN THE PRC
Overview and competitive landscape of the engineering construction services industry
specialising in heat facilities in the PRC
The engineering construction services industry specialising in heat facilities in the PRC
is highly fragmented. Generally speaking, most market players in the engineering construction
services industry specialising in heat facilities in the PRC fall into two categories: heat services
providers and construction companies. Heat services providers construct the heat facilities and
then provide heat services to their customers. Construction companies, on the other hand, only
construct the heat facilities used for heat services and do not participate in the provision of heat
services.
Construction companies usually have more readily available professional labour and the
necessary equipment for the construction process and they usually undertake the construction
process using their own resources. On the other hand, many heat services providers do not
always have sufficient professional labour and the necessary equipment for the construction
process. It is not uncommon that heat services providers undertake the construction process
though outsourcing.
Market size of the engineering construction services industry specialising in heat facilities
in the PRC
The market size of the engineering construction services industry specialising in heat
facilities has experienced rapid growth in 2018 in line with the development of the length of
the pipeline for the heat services. The COVID-19 pandemic only affected the industry in the
PRC in a limited way and the market size has reached RMB57.8 billion in 2022, representing
a CAGR of 4.9% from 2018 to 2022.
In anticipation of the continuous development of heat services market in the PRC, it is
expected that the market size of the engineering construction services industry specialising in
heat facilities will increase to RMB70.8 billion in 2027, representing a CAGR of 4.1% from
2022 to 2027.
Billion RMB
2018
47.7 49.6 52.0 55.1 57.8 60.5 63.1 65.7 68.2 70.8
2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E
Market Size of the Engineering Construction Services Industry Specialising
in Heat Facilities, the PRC, 2018-2027E
CAGR (18-22) CAGR (22-27E)
4.9% 4.1%
0
10
20
30
40
50
60
70
80
Source: Frost & Sullivan
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Drivers and development trends of the engineering construction services industry
specialising in heat facilities in the PRC
Continuous development of the heat services industry
The engineering construction services industry in the PRC specialising in heat facilities
is closely related to the heat services industry in the PRC. The growth of the heat services
industry driven by factors such as urbanisation rate and environmental protection provides the
related construction services industry with a large amount of construction demands and
therefore has become a driver of that industry. It is expected that the engineering construction
services industry specialising in heat facilities will continue to grow in line with the large
demands related to existing facility upgrades and new energy-efficient facility construction in
order to better achieve the carbon peaking and carbon neutrality goals.
Policy supports
In pursuit of providing the public with the high-quality living standard, improving the
quantity and quality of heating pipelines has become one of the focuses of the government. The
Guiding Opinions on Enhancing the Construction of the Urban Underground Municipal
Infrastructures (ኬจԈ) released by the
MOHURD in December 2020 emphasises the renovation and digitalisation of the heating
pipeline networks in urban areas in order to eliminate any hidden safety hazards. In addition,
the Implementation Plan for Upgrading Aging Urban Gas Pipelines (2022 – 2025) (̹ዷ
ࣩ2022-2025 ϋ)) released by the State Council in June 2022
specified the conditions and requirements of upgrading heating pipelines in urban areas. It is
expected that the engineering construction services industry specialising in heat facilities will
keep growing in light of the continuous support from the government.
Development of the digital technologies
Digital technologies (such as Building Information Modeling, or BIM) have been
introduced in the construction industry in the PRC for decades with a view to improving
efficiency and quality. They have been widely accepted and used in the industry and
successfully drove the development of the industry. In line with the continuous development
of other digital technologies, such as Geographic Information Systems (or GIS) and UA V
Oblique Photography Technologies, the quality and efficiency of engineering construction
services has been improved. More and more construction companies, including engineering
construction services companies specialising in heat facilities, have accepted and implemented
digitalisation transitions in order to enhance their competitive capabilities. The continuous
development of the digital technologies has become a significant driver of the industry.
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OVERVIEW OF THE EMC INDUSTRY IN THE PRC
Energy management contract, or EMC, is an energy-conservation service contract under
which an energy saving service provider provides energy-conservation service to an energy-
consuming enterprise to achieve certain energy saving goals. Under the EMC business model,
the energy saving service provider is sometimes entitled to a share of the profit accrued from
energy conserved as a result of the energy conservation services provided.
In the PRC, the EMC industry has developed rapidly since the beginning of the “12th
Five-Year Plan” (). In line
with the development of the electricity and heat services industries in northern China, an
increasing number of energy-related enterprises in this region are opting for EMC services as
a way to fulfil their environmental protection objectives. Additionally, with a view to
promoting the EMC business, the PRC Government has promulgated a series of regulations and
policies which offer preferential tax treatments, interest subsidies and financial rewards for
companies meeting energy conservation thresholds. The PRC Government has released the
Guidance on Energy Management Contract () in 2010 for industry
regulation purpose. The guidance was revised in 2020 to keep pace with the development of
the industry.
EMC projects require initial investments by energy saving service companies regarding
energy conservation equipment and machinery installed in the premises of energy-consuming
companies. For the purpose of accelerating the development of EMC industry and improving
the efficiency of energy utilisation, several policies in financial field have been released and
more financial tools are accessible for the industry. In addition, more companies in the industry
tend to adopt cutting-edge technologies and provide integrated comprehensive solutions for
better energy consumption control and heating costs reduction. Also, in line with the
development of electricity and heat services industry, more energy related enterprises in
northern regions have chosen to procure EMC services to fulfil their objectives of energy
saving and financial results.
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OVERVIEW
As our operations are located in the PRC, our businesses need to comply with all of the
relevant PRC laws, regulations and policies, which cover a wide range of areas including
project approval, heat services, price, environmental protection and safety. In addition to
industry-specific regulations, there are also other more generic laws, regulations and policies
that we are required to comply with, such as those in relation to energy conservation,
production safety and labour protection. This section provides a summary of the major PRC
laws and regulations relating to the operations of our Group in the PRC.
HISTORICAL CHANGE IN HEAT SERVICES SYSTEM
Historically, heat services were provided in the PRC under a welfare system which was
implemented with the housing welfare system in the PRC at the time. In the late 1990s,
municipal housing reform started to take place in the PRC. As a result, more residences in the
PRC’s urban cities and towns became privately owned, and the heat services welfare system
in the PRC became gradually replaced.
In July 2003, eight ministries and commissions (including the NDRC) jointly issued the
Guiding Opinions on the Trial Reforms of Urban Heat Services System (ᕄԶᆠ᜗Փ
ኬจԈ), which highlighted the ultimate goal and general direction of a
reform of heat services system in the PRC. Such reform terminated the welfare system of heat
services and instead led to the commercialisation and monetisation of heat services, resulting
in a market-oriented municipal heat services mechanism. In October 2005, the NDRC and the
then Ministry of Construction issued the “Guiding Opinions on Building a Coal And Heating
Price Pass-through Mechanism (ኬจԈ) to set out the
guiding principles on the gradual commercialisation and monetisation of heat services,
marking the official launch of market reform for the heat services system in the PRC. On 6
December 2005, eight ministries and commissions (including the NDRC) jointly issued the
Opinions on Further Promoting the Reform of Urban Heat Services System (ආɓӉપ
จԈ), which proposed that in the process of promoting the reform of
the heat services system, all regions should make full use of the market mechanism to gradually
achieve diversified investment, enterprise-oriented operation and socialisation of heat services,
improving the efficiency of heat services investment, operation and product quality, and
improving the heating services to satisfy the needs of heat services users. Enterprises of
different economic sectors such as non-public capital are allowed to participate in the
investment, construction, transformation and operation of heat source plants and heating
pipeline networks. Under the Interim Measures, the State allows non-public capital to
participate in the investment, construction and operation of heat service facilities so as to
gradually promote the commercialisation and monetisation of heat services.
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The State generally encourages private capital to enter into the heat services industry. At
the end of 2002, the then Ministry of Construction issued the Opinions on Accelerating
the Marketisation Process of the Municipal Utilities Industry (ʮ͜Бุ̹ఙʷ
จԈ) which encouraged social capitals to participate in the construction of
operational municipal public facilities through sole proprietorship, joint venture and
cooperation, among others, and provided that reasonable returns through the legal operation of
such municipal public facilities should be guaranteed. In 2012, the MOHURD issued the
Implementation Opinions on Further Encouraging and Guiding Private Capitals to Enter the
Municipal Utilities Sector (จ
Ԉ), which emphasised the necessity of breaking the market monopoly, introducing a market
competition mechanism, and opening up the market for investment in, and the construction and
operation of municipal public utilities. The opinions also encouraged private capitals to
directly invest in the construction and operation of municipal heat services and other municipal
infrastructure projects, such as through sole proprietorship, joint ventures, cooperation and
asset acquisitions. In November 2014, the State Council issued the Guiding Opinions on
Innovating the Investment and Financing Mechanisms in Key Areas and Encouraging Social
Investment (ኬจԈ), which encouraged
social capitals to participate in the construction and operation of municipal infrastructure, and
also encouraged social capitals to invest in municipal infrastructure projects such as municipal
heat services through concession, investment subsidies and government procurement services.
In December 2014, the Guiding Opinions on Carrying out Public-Private-Partnership (׵
ኬจԈ) issued by the NDRC further encouraged cooperation
between governments and social capitals in the implementation of public services and
infrastructure projects.
The State encourages the development and use of geothermal energy for the provision of
heat services. In January 2021, the National Energy Administration issued the Measures of
National Energy Administration for Adopting Renewable Energy According to Local
Conditions for Heat Services (),
which stipulated that renewable energy shall be adopted for heat services as an important part
of energy planning in the region. The measures aimed to align the development goals for heat
services with the development goals for renewable energy and to promote renewable energy
heating technology based on local resources and demand for heat energy, achieving a rational
distribution of renewable energy projects for heat services. Proactive measures shall be taken
to develop shallow geothermal energy with a focus on promoting medium and deep geothermal
energy for heat services, with an aim to replace scattered coal in a cost-effective way. The use
of oilfield produced water is encouraged in the supply of geothermal heat, as is the use of
groundwater resources and the mineral resources contained therein.
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ENTERPRISE QUALIFICATION AND LICENCE
Qualifications of heat service providers
Relevant regulations at national level
According to the Measures for the Administration on the Concession of Municipal Public
Utilities (), which was implemented on 1 May 2004 and
amended on 4 May 2015, municipal public utility concession refers to a system by which the
government selects investors or operators of municipal utilities through market competition
methods in accordance with the relevant laws and regulations. It was clarified that the investors
or operators will operate the relevant municipal utility product or provide the relevant service
within a certain period and geographical scope. This concession system, which stipulates the
bidding conditions and procedures for the municipal public utility concession, concession
contract terms and concession corporate responsibility, among others, is applicable to the urban
heat services industry in accordance with the applicable laws. Upon the expiration of the
concession term, the competent authority should organise bidding and select new concession
operators in accordance with the procedures stipulated in the aforementioned measures.
According to the Measures for the Administration of Concession for Infrastructure and
Public Utilities () promulgated on 25 April 2015
and implemented on 1 June 2015, all aspects of infrastructure and public utility concessions
must adhere to the principles of openness, fairness and justice, and protect the interests of all
parties. The relevant industry authorities, being the local people’s governments or government-
authorised departments at or above the county level, may propose implementation plans for
concession projects based on demands for economic and social development and proposals for
concession projects by the relevant legal persons and other organisations. Local people’s
governments at or above the county level should authorise the relevant departments or units to
be the executive agency responsible for the implementation of the concession projects, and
shall specify the scope of specific authorisation of such department or unit.
According to the approved implementation plan of the concession project, the executive
agency should select the concession operator through market competition methods such as
bidding and competitive negotiation. If the construction standards of the concession project
and regulatory requirements are clear, and there is sufficient market competition in the relevant
area, the method of bidding should be applied to select the concession operator. The executive
agency should sign a concession contract with the selected concession operator in accordance
with the relevant laws for a maximum operating period of 30 years.
The concession contract should provide for “the transfer method, procedures and
requirements of the concession project and assets upon the expiration of the concession term”.
If the concession term expires or is terminated in advance, the executive agency should
re-select the concession operator in accordance with the provisions of these measures. In the
re-selection of a concession operator due to the expiration of the concession term, the original
concession operator should have priority in obtaining the concession under the same
conditions.
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Infrastructure and public utilities concession may be conducted in the following methods:
(1) within a certain period, the government grants the concession operator the right to invest
in new construction or reconstruction or expansion, operation of infrastructure and public
utilities, which will be handed over to the government upon expiration of the period; (2) within
a certain period, the government grants the concession operator the right to invest in new
construction or reconstruction or expansion, ownership and operation of infrastructure and
public utilities, which will be handed over to the government upon expiration of the period; (3)
upon the concession operator invested in new construction or reconstruction or expansion of
infrastructure and public utilities and handed over to the government, the government grants
the concession operator the right to operate during a certain period; (4) other methods provided
by the state.
Where a concession project involves the new construction or reconstruction or expansion
of relevant infrastructure and public utilities, it shall comply with the construction conditions
and construction standards stipulated by the relevant laws and administrative regulations such
as urban and rural planning, land management, environmental protection, quality management,
and production safety. If the concession term expires or is terminated in advance, the parties
to the contract should, in accordance with the provisions of the concession contract and the
relevant laws, administrative regulations and other regulations, complete the procedures for
performance testing, evaluating, transferring, taking-over and accepting the relevant facilities,
data and archives.
Relevant regulations in Gansu Province
According to the requirements of the Measures for the Administration on the Concession
of Municipal Public Utilities of Gansu Province ()
promulgated and implemented on 14 September 2004, municipal public utility concession
refers to a system by which the government selects investors or operators of municipal public
utilities through market competition methods in accordance with the relevant laws and
regulations. It was clarified that the investors or operators will operate the relevant municipal
utility product or provide the relevant service within a certain period and geographical scope
and obtain reasonable returns. The implementation of this system should follow the principles
of openness, fairness, justice and public interest. Domestic and foreign enterprises that have
engaged in or are capable of engaging in the operation of urban municipal public utilities can
compete for concession rights to invest in, construct and operate municipal public utilities in
the province. The competent authorities should select investors or operators and grant
concession rights in accordance with the prescribed procedures such as bidding.
According to the Notice of the General Office of the People’s Government of Gansu
Province on Transferring the Opinions of the Provincial Construction Department and Other
Nine Departments on Furthering the Reform of the Urban Heat Services System (ɛ
ணᝂഃ9), which
was promulgated and implemented on 15 July 2006, towns and cities across the province shall
implement the urban heat service concession system. In the context of a unified and
standardised market, enterprises of different economic sectors such as non-public capital may
sign contracts with city governments, through public bidding, to participate in the investment,
construction, transformation and operation of heat service facilities.
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According to the Interim Measures for the Administration of Urban Heat Services and Use
in Lanzhou New Area () promulgated and
implemented on 1 August 2018, which was effective for one year, heat service units shall not
engage in the provision of heat services without obtaining a heat service operation licence
issued by the competent administrative department for heat services and use in Lanzhou New
Area.
According to the Administrative Measures for Urban Heat Services and Use in Lanzhou
New Area () formulated on 7 December 2021 and
implemented on 1 January 2022, heat service enterprises can conduct heat service operations
with either a heat service operation licence or under a concession right.
Relevant regulations in Henan Province
According to the requirements of the Implementation Measures for the Administration on
the Concession of Municipal Public Utilities of Henan Province (ʮ͜Бุत஢
) promulgated and implemented on 11 November 2004, municipal public
utility concession refers to a system by which the government selects investors or operators of
municipal public utilities through market competition methods in accordance with the relevant
laws and regulations. It was clarified that the investors or operators will operate the relevant
municipal utility product or provide the relevant service within a certain period and
geographical scope. The provincial construction and administrative authorities are responsible
for supervising and guiding the implementation of the municipal public utility concession
activities in the province, and formulating assessment standards and methods for the quality of
municipal public utility products and services. The municipal, county (city) municipal public
utility industry competent authorities shall be responsible for the specific implementation of
the municipal public utility concessions within their jurisdiction.
According to the Trial Regulatory Measures for Centralised Heating in Henan Province
() promulgated on 13 February 2018 and implemented on 1
April 2018, the municipal and county-level people’s governments and their respective
competent authorities for heat services shall select heat operation enterprises through market
competition methods such as bidding and competitive negotiation in accordance with the
relevant provisions.
Relevant regulations in Shanxi Province
According to the requirements of the Regulations for the Administration on the
Concession of Municipal Public Utilities of Shanxi Province (ʮ͜ԫุत஢຾ᐄ
၍ଣૢԷ) promulgated on 20 December 2007 and implemented on 1 March 2008, and
abolished on 26 November 2021, the implementation of municipal public utility concession
shall follow the principles of public interest and public safety, openness, fairness and justice.
The concession operator shall provide general services that are continuous, safe, high-quality,
efficient and reasonably priced. Through its legal operations, the concession operator is
entitled to reasonable returns but at the same time bears the investment and operating risks.
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Municipal public utilities projects, including heat services, may be operated under concession
in accordance with the law if the relevant conditions are met. The implementation time for the
concession shall be decided by the people’s government of the city and reported to the next
level of the people’s government. According to the authorisation of the municipal people’s
government, the competent authorities of municipal public utilities may select concession
operators by way of bidding, transfer with consideration and entrustment, and sign concession
contracts with the concession operators. For a new municipal public utility project, the
concession operator should be selected through bidding according to the law. If the concession
operator cannot be determined through bidding, the competent authorities of municipal public
utilities may select the concession operator by direct entrustment.
According to the Notice of the General Office of the People’s Government of Shanxi
Province Forwarding the Opinions of the Provincial Construction Department on Accelerating
the Reform of the Urban Heat Services System (̋
) issued and implemented on 24 September 2004, urban
heat services fall within the scope of municipal public utilities. Therefore, in accordance with
the State’s opinion on accelerating the reform of urban public utilities, the concession
mechanism should be applied to the construction and operation of urban heat services.
According to the Taiyuan Urban Heat Services Administration Regulations (۬
̹Զᆠ၍ଣૢԷ) promulgated on 26 March 2009 and implemented on 1 May 2009, the
concession mechanism should be applied to the urban heat services system. Heat service units
shall not be shut down without the approval of the relevant competent administrative
department responsible for heat services.
Relevant regulations in Inner Mongolia Autonomous Region
According to the requirements stipulated in the Measures for the Administration on
Infrastructure and Public Utilities Concession of Inner Mongolia Autonomous Region ( ʫႆ
) promulgated on 24 May 2016 and
implemented on 1 July 2016, infrastructure and public utility concessions shall adhere to the
principles of openness, fairness, justice and good faith, protect the legitimate interests of all
parties, and strike a balance between business and public welfare. The government encourages
cooperation between government and social capitals in the infrastructure and utilities sector by
way of concession. Infrastructures and utilities projects that meet the following conditions
shall be implemented by way of concessions: (i) the social capitals have specialised
technologies which can significantly reduce the life cycle cost of the project or improve the
quality and efficiency of public products and services; (ii) the risk sharing mechanism and
performance supervision requirements are clear; and (iii) there are reasonable and stable
income expectations in respect of the project. The competent authorities of the relevant
industry or the authorised department of the government above the county level may propose
a concession project implementation plan based on the demand for economic and social
development, as well as suggestions for a concession project put forward by relevant citizens,
legal persons or other organisations. The government above the county level shall authorise the
relevant departments or units to be the government executive agencies responsible for the
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implementation of concession projects, and specify the scope of their authorisation. Through
competitive methods such as bidding and competitive negotiation, the government executive
agency should select the best enterprise or other organisation with management experience,
professional ability, financing strength and good credit status to cooperate with in the
implementation of infrastructure and public utilities concession projects.
According to the Inner Mongolia Autonomous Region Urban Heat Services Regulations
(ᕄԶᆠૢԷ) promulgated on 26 May 2011 and implemented on 1 July
2011, and amended on 23 September 2020 and 28 September 2022, heat service units engaged
in heat service operations shall obtain a heat service operation licence in accordance with the
law.
According to the Hulunbuir Urban Heat Services Administration Measures (Trial) ( խ
ج(༊Б)) promulgated and implemented on 28 October 2013, units
engaged in heat service operation activities must obtain a heat service operation licence in
accordance with the law.
EMC business
According to the Notice of the General Office of the State Council on Forwarding the
Opinions of Development and Reform Commission on Accelerating the Implementation of
Energy Management Contracting to Promote the Development of Energy Saving Service
Industry (ਕପ
) promulgated and implemented on 2 April 2010, all departments in all
regions should recognise the importance of implementing EMC and the development of the
energy saving service industry, and take practical and effective measures to create an
environment with favourable policies as to accelerate the development of the energy saving
service industry.
According to the Notice of the Ministry of Finance and the State Taxation Administration
on Issues Concerning the Value-added Tax, Business Tax and Enterprise Income Tax Policies
for Promoting the Development of the Energy Saving Service Industry
(ஷ
) promulgated on 30 December 2010 and implemented on 1 January 2011, qualified energy
saving enterprises may enjoy preferential tax treatments in terms of business tax, value-added
tax and enterprise income tax when implementing EMC projects.
QUALIFICATIONS FOR OTHER INDUSTRIES
Qualifications for enterprises in the construction industry
According to the Provisions on the Administration of Qualifications of Enterprises in the
Construction Industry () issued on 22 January 2015 and
implemented on 1 March 2015, and then revised on 13 September 2016 and 22 December 2018
by the MOHURD, enterprises in the construction industry shall apply for construction
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qualifications in accordance with, among others, its assets, key personnel, completed project
performance and technical equipment. Construction activities within the scope of the
qualification permit are only allowed after the relevant exam has been passed and the
qualification certificate for enterprises in the construction industry has been obtained. Among
these qualification certificates, the third-level qualification in the construction general
contracting qualification sequence is subject to the approval of the competent department of the
MOHURD in the place where the industrial and commercial register is located. The
qualification certificate is valid for 5 years.
Engineering design qualification
According to the Administrative Regulations on Management of the Survey and Design
Qualifications of Construction Engineering ()
promulgated on 30 December 2006 and implemented on 1 September 2007, and subsequently
revised on 4 May 2015, 13 September 2016 and 22 December 2018, enterprises engaged in
construction engineering survey and engineering design activities in the PRC shall obtain a
qualification certificate for construction engineering survey and engineering design, and may
engage in construction engineering survey and design activities within the scope permitted by
the qualification.
Engineering design qualifications are classified into (i) engineering design integrated
qualification; (ii) engineering design industry qualification; (iii) engineering design
professional qualification; and (iv) engineering design special qualification. Enterprises that
have obtained the engineering design integrated qualification can undertake construction
engineering design businesses for all industries and at all levels. Enterprises that have obtained
the engineering design industry qualification can undertake engineering design businesses at
the corresponding level, and professional and special (except for those that require the
qualification of design and construction integration) engineering design businesses at the same
level within the scope of its own industry. Enterprises that have obtained engineering design
professional qualification can undertake professional engineering design business at the
corresponding level in its own profession and corresponding special engineering design
business at the same level (except for those which require design and construction integration).
Enterprises that have obtained engineering design special qualification can undertake special
engineering design business at the corresponding level.
Work safety licence
According to the Regulation on Work Safety Licences ( τΌ͛ପ஢̙ᗇૢԷ)
promulgated and implemented on 13 January 2004 and subsequently revised on 18 July 2013
and 29 July 2014 by the State Council, a work safety licensing system applies in the PRC to
construction enterprises. Before commencing production, a construction enterprise should
apply for a work safety licence from the department in charge of the issuance and
administration of work safety licences. Construction enterprises shall not engage in production
activities without obtaining the required work safety licence.
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Pollutant discharge permit
According to the Water Pollution Prevention and Control Law of the PRC ( ʕശɛ͏΍
), which was promulgated and implemented on 11 May 1984, and revised
on 27 June 2017, any enterprises, institutions and other production operators which directly or
indirectly discharge industrial wastewater and medical wastewater, and any other wastewater
or sewage that can only be discharged into bodies of water with a pollutant discharge permit
in accordance with the relevant requirements, should obtain a pollutant discharge permit. The
operating unit of the urban sewage centralised treatment facility should also obtain a pollutant
discharge permit. It is forbidden for enterprises, institutions and other production operators to
discharge wastewater and sewage into bodies of water without a pollutant discharge permit or
in violation of the provisions of the pollutant discharge permit.
According to the Atmospheric Pollution Prevention and Control Law of the PRC ( ʕശ
), which was promulgated and implemented on 5 September
1987, and revised on 26 October 2018, enterprises, institutions and coal-fired heat source
production and operation units of central heating facilities, as well as other units that are
subject to the pollutant discharge permit management in accordance with applicable laws and
which emit industrial waste gas or toxic and harmful air pollutants as stipulated in Article 78
of the Atmospheric Pollution Prevention and Control Law of the PRC ( ʕശɛ͏΍ձ਷ɽं
), should obtain pollutant discharge permit. The specific methods and
implementation steps of pollutant discharge permits shall be prescribed by the State Council.
According to the Measures for Pollutant Discharge Permitting Administration (For Trial
Implementation) (ج(༊Б)), which was promulgated and implemented on
10 January 2018, and partially revised on 22 August 2019, the Ministry of Environmental
Protection of the PRC formulated and published the classified administration list of pollution
permits for fixed pollution sources. This list includes the scope of pollution permit
administration and the time limit for application. Enterprises, institutions and other production
operators (hereinafter referred to as pollutant discharge units) that are included in the classified
administration list for fixed pollution sources should apply for and obtain a pollutant discharge
permit within the prescribed time limit, while pollutant discharge units that are not included in
the classified administration list for fixed pollution sources do not need to apply for a pollutant
discharge permit temporarily. The pollutant discharge unit shall hold the pollutant discharge
permit in accordance with the law and discharge pollutants in accordance with the provisions
of the pollutant discharge permit. No pollutants shall be discharged if a required pollutant
discharge permit has not been obtained.
PRICING
The key PRC laws and regulations applicable to the pricing of heat services include the
Pricing Law of the PRC () and the Interim Measures. According to
the PRC Pricing Law, the PRC Government may directly guide or determine the prices of
public utilities in certain circumstances. According to “The Notice of NDRC and Ministry of
Construction on issuing the Interim Measures for the Price Control of Urban Heat Services”
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(), the Interim
Measures were jointly issued by the NDRC and the then Ministry of Construction ( ʕശɛ͏
ண௅) to each of Development and Reform Commission, Price Bureau and
Construction Department (Construction Commission and Municipal Administration
Commission) of all provinces, autonomous regions and municipalities directly under the
Central Government which were requested to enforce such measures by taking into account the
“actual circumstances of the locality”. According to the Interim Measures, heat rates shall be
set by a pricing authority, being the relevant provincial people’s government or authorised
municipal or county people’s government, with reference to heat procurement costs, related tax
and the profit expected to be made by the service providers. Heat rates of urban heat supply
consist of heat procurement costs, taxes and profits.
1. Heat procurement costs include the production costs of heat and period expenses.
“Production costs” of heat refer to fuel costs, electric costs, water fees, depreciation
of fixed assets, reparation charges, wages and other direct charges that are incurred
during the heat supply process and shall be counted into relevant heat service costs;
and period expenses refer to the business expenses, overhead expenses and financial
expenses incurred from organising and managing the production and operation of
heat.
2. Tax refers to the taxes that shall be paid by heating enterprises (entities) for
producing and supplying heating power.
3. Profits refer to the reasonable proceeds that shall be gained by heating enterprises
(entities). Profits shall be checked and ratified on the basis of return on cost at
present, which shall be gradually replaced by return on net assets.
When the pricing authority calculating profits on the basis of return on cost, this ratio
shall not be higher than 3%; while when calculating profits on the basis of return on net assets,
this ratio shall be 2 to 3 percentage points higher than the interest rate of long-term (five years
or more) treasury bonds.
When the pricing authority determines and adjusts the heat rates, the principles of making
reasonable compensations for cost, promoting the conservation of heat and upholding the
principle of fair burden shall be followed.
Heating enterprises (entities) that satisfy the below requirements can submit price
adjustment application to the pricing authorities in writing, and the application would be sent
to competent city heating authorities at the same time: (1) heat rates are insufficient to cover
for the cost of heating, resulting in operating losses according to national laws and regulations;
(2) fuel price changed by more than 10%.
Consumers can propose suggestions on determining or adjusting heat rates to the pricing
authority according to the law.
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The competent pricing department shall consult its respective competent department of
heating administration to conduct an overall study on the price adjustment proposals and
formulate a price adjustment plan. When the fuel price falls and the profits of heat production
enterprises are significantly higher than the specified profit level, the competent pricing
department can directly propose a price reduction plan and submit it to the local people’s
government for approval. The pricing authority shall, after accepting the suggestion on price
determination or adjustment proposed by any heating enterprises (entities), conduct cost
examination and supervision according to the law. A heating enterprises (entities) shall
truthfully provide its production, operation and cost situation to the administrative department
of price on a regular basis, and at the same time, provide the relevant accounting books,
documents and materials. The specific work of prescribing heat rates falls under the
responsibility of the competent pricing authority, which is assisted by the administrative
department of heat services in the administration of heat rates.
The provincial or municipal people’s government may temporarily subsidise the heating
enterprises (entities) in the areas where heat rates are not sufficient to compensate the normal
relevant heat service costs and cannot be adjusted in a timely manner.
On 30 October 2017, the Measures for the Supervision and Review of the Government’s
Pricing Costs () were promulgated by the NDRC and became
effective on 1 January 2018. Such measures were formulated in accordance with the PRC
Pricing Law and other relevant laws and regulations, in order to strengthen the cost supervision
and administration over the government’s pricing of goods and services, regulate the conduct
of supervision and review of the government’s pricing costs, and improve the scientificity of
the government’s pricing decisions.
On 10 April 2020, the NDRC published the Draft Measures which were open for public
consultation between 10 April 2020 and 9 May 2020. As at the Latest Practicable Date, the
implementation and enactment of the Draft Measures were pending, there had been no further
announcements from the NDRC as to whether and when the Draft Measures will be amended,
supplemented or revised, or adopted and promulgated.
In the event that the Draft Measures for the Price and Fee Control were promulgated and
adopted in the current form, the Interim Measures shall be abolished simultaneously. The Draft
Measures for the Price and Fee Control stipulates that the formulation and adjustment of heat
rates should follow the principles of incentive and restraint, promotion of thrifty, fair burden
and easy to operate. According to the Draft Measures for the Price and Fee Control, in
principle, the heat rates shall be set or guided by the government, and shall be set by the
competent pricing department of the provincial (autonomous region or municipal) people’s
government or by the authorised city or county people’s government (“ heat rate pricing
authority ”). The heat rate pricing authority shall set the corresponding heat rate according to
circumstances of the locality.
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The Draft Measures for the Price and Fee Control propose that, in principle, the
ex-factory price of heat and pipeline transportation price of heat should be determined based
on the method of “allowable cost plus reasonable earnings”, which indicate that: (a) the
allowable cost shall be determined by the heat rate pricing authority in accordance with
relevant regulations such as Measures for the Supervision and Examination of the
Government’s Pricing Costs (“”); (b) the allowable earnings
(reasonable earnings) shall be calculated by the heat rate pricing authority according to certain
formulae and parameters, and the application of relevant formulae and parameters shall be
determined by the heat rate pricing authority (in conjunction with relevant departments, if
necessary) by referring to relevant financial market data and cost supervision and review
procedures.
The Draft Measures for the Price and Fee Control propose that the heat rates should be
reviewed regularly, with a review period of no more than three years in principle. In the process
formulation and adjustment of heat rate, if the estimated heat rate is too high or there is a large
adjustment, the heat rate pricing authority may take into account factors such as the level of
local economic development and the affordability of users, properly control the heat rates or
reduce the extent of adjustment of the heat rate, to avoid heat rate is too high or large
fluctuations on heat rate. In addition, it provides that “the local people’s governments may
subsidise the heat enterprises in the areas where heat rates are not sufficient to compensate for
the normal relevant heat service costs, and cannot be adjusted in a timely manner”.
The Draft Measures for the Price and Fee Control propose that the heat service enterprises
shall, in accordance with the requirements of the pricing authority, truthfully provide the
information in relation to production, operation and cost on a regular basis, and provide
relevant accounting books, documents and materials. It is mentioned in the Draft Measures for
the Price and Fee Control that when the heat rate pricing authority formulates and adjusts the
heat rate or the heat rate formation mechanism which involving residents, a public hearing shall
be held to listen to the opinion of all parties and consider the impact of heat rate adjustment
on the lives of low-income residents.
The Draft Measures for the Supervision and Review of the Pricing Cost are proposed
regulations specifically drafted for the cost supervision and review of heat rates within the
framework of the Measures for the Supervision and Review of the Government’s Pricing (݁
), aiming to improve the standardisation and reasonableness of
pricing of heat, to strengthen cost supervision and review of heat supply, and to regulate the
conduct of the cost supervision and review of pricing of heat.
The Draft Measures for the Supervision and Review of the Pricing Cost, if implemented,
would be applicable to the provincial pricing authority and authorised municipal and county
people’s governments (“ pricing authority ”) in their process of formulating or adjusting heat
rates in accordance with the law, and its implementation of cost supervision and review on the
heating operators.
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It provides specific and detailed provisions for the heat service industry, such as defining
the specific meanings of “heating operators”, “heat supply”, and “heat pricing costs”, and
proposing that costs can be determined separately for segments of “production”,
“transportation”, and “sales” if needed.
It stipulates that the cost of purchased heat shall be verified based on the facts in principle
except for pricing authority has already established a ex-factory price for heat, the settlement
price shall not exceed the price set by the pricing authority. Each region can formulate
implementation rules based on circumstances of the locality.
The Regulations on Energy Conservation in Civil Buildings (ጘືঐૢԷ)
issued by the State Council on 1 August 2008 provide that the State is actively promoting a
reform of the heat services system, improving the heating price formation mechanism,
encouraging the development of centralised heating and gradually implementing a charge-by-
usage heating pricing mechanism.
The Opinions on Further Promoting the Reform of Heat Services Measurement (׵
จԈ) issued by four departments including the MOHURD
on 2 February 2010 stipulate that the reform of municipal heating system shall be further
deepened and the reform of heat services metered charging shall be promoted, with an aim to
facilitate the energy conservation of buildings.
On 19 September 2017, the NDRC issued the Opinions on Clean Heating Pricing Policy
in the Northern Region (จԈ), which proposed that the
heating price mechanism should be improved according to local conditions. In areas where
centralised heating is suitable and supplied by heat sources such as cogeneration, large
coal-fired boilers, gas-fired boilers, biomass boilers and geothermal heating, environmental
protection must be carried out in accordance with ultra-low emission requirements and heat
must only be supplied after meeting the required emission (refill) standards. The local price
authority shall formulate reasonable prices for residential heating, taking into account the cost
of operational transformation, and the spending power of residents. In the case of back-
pressure CHP units for heating, the price of heat shall be determined scientifically and
reasonably on the basis of a careful verification of costs. Environmental protection in respect
of large-scale coal-fired boilers and coal-to-gas fired boilers which result in a large increase in
the cost of thermal production can be achieved through an appropriate adjustment of heating
prices, and the shortfall will be compensated by local finance. A market-oriented principle will
be applied to determine the price of regional clean heating. For regional centralised clean
heating, the government will in principle determine the heating price scientifically and
reasonably based on the actual cost of heating and consider a reasonable profit. In areas where
conditions allow, a market-oriented principle will be applied to determine the price of regional
clean heating, and heating enterprises should allocate the heating price within the range of
residents’ spending power in accordance with the principle of reasonable cost plus profit.
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On 23 December 2020, the Opinion on Sorting Out and Standardising the Charges for
Urban Water, Electricity, Gas and Heat Supply Industry to Promote the High-quality
Development of the Industry (Guo Ban Han [2020] No. 129) (ᕄԶ˥ԶཥԶ
จԈ(਷፬Ռ[2020]129 ໮)) (hereinafter referred to as
“Guo Ban Han No. 129 ”) promulgated by the General Office of the State Council to local
government which was effective from 1 March 2021, provides that the government shall set a
reasonable price for the sales of heat and make dynamic adjustments thereto, so as to promote
the steady progress of reforms on metered charging.
Charges for interface fees, centralised network construction fees, grid connection fees and
other similar fees
Guo Ban Han No. 129 further provides cancellation of the charges for interface fees,
centralised network construction fees, grid connection fees and other similar fees by urban
centralised heat service enterprises in northern heating areas from their users. Within the scope
of urban planned construction land, the investment areas of water, electricity, gas and heat
supply enterprises shall be extended to the red line of the user buildings. Unless otherwise
provided by laws, regulations and relevant policies, the users shall not bear any costs incurred
beyond the red line of such buildings. For the network access construction from the red line
of user buildings to the public network, the part undertaken by the water, electricity, gas and
heat supply enterprises shall be included in the operating cost of enterprises, while the part
undertaken by the government as stipulated shall be entrusted to the water, electricity, gas and
heat supply enterprises through a timely allocation of funds or shall be conducted through
direct investment by the government. The compensation income for special construction costs,
charged in the name of network access fees, centralised network construction fees, grid
connection fee and other similar fees by the water, electricity, gas and heat supply enterprises
under the authorisation of local governments through concession contracts and other means,
shall be gradually cancelled by making reasonable adjustments to the prices of water,
electricity, gas and heat supply, in order to build the subsidy mechanism, while the timing of
building such mechanism shall be determined locally. The main goal is to sort out and
standardise the charges for water, electricity, gas and heat supply industry and achieve
significant results with a scientific, standardised and transparent price formation mechanism to
be basically established by 2025, while, at the same time, the government’s investment
mechanism has been further improved, demonstrated by fully covered relevant industry pricing
measures, cost supervision and review measures, price behaviour and service specifications,
and significantly improved quality and efficiency of water, electricity, gas and heat supply and
other products and services. In addition, the Guo Ban Han No. 129 provides that unreasonable
charges in various forms shall be cancelled, and the reasonable costs arising from the provision
of products and services shall be compensated mainly through adjustment in the prices. The
government shall set a reasonable price for the sales of heat and make dynamic adjustments
thereto, so as to promote the steady progress of reforms on metered charging.
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Relevant regulations in Inner Mongolia Autonomous Region
On 24 February 2021, the Notice of the Inner Mongolia Development and Reform
Commission on the Sorting Out and Cancellation of Unreasonable Charges in the Water,
Electricity, Gas and Heat Supply Industry (૶ଣ՟ऊԶ
) promulgated by Inner Mongolia Development and
Reform Commission, provides cancellation of unreasonable charges in the water, electricity,
gas and heat supply industry, determination of the scope of grid connection fees and strict
implementation of other charging policies. For the network access construction from the red
line of a users’ building area to the public network, the part undertaken by the water, electricity,
gas and heat supply enterprises shall be included in the operating cost of enterprises, while the
part undertaken by the government as stipulated shall be entrusted to the water, electricity, gas
and heat supply enterprises through a timely allocation of funds or shall be conducted through
direct investment by the government.
On 4 September 2021, the Notice of the General Office of the People’s Government of
Inner Mongolia Autonomous Region on the Implementation and Division of the Opinions on
Cancellation and Standardising the Charges in Urban Water, Electricity, Gas and Heat Supply
Industry to Promote the High-quality Development of the Industry (ִ݁
፬ʮᝂΙ೯஫࿏ໝྼ <ٙ࢝
จԈ>) issued by the General Office of the People’s Government of Inner
Mongolia Autonomous Region, provides that the unreasonable charges for water, electricity,
gas and heat supply as specified in Guo Ban Han No. 129 shall be cancelled from 1 March
2021. The compensation income for special construction costs, charged in the name of network
access fees, centralised network construction fees and grid connection fees, by the water,
electricity, gas and heat supply enterprises under the authorisation of the administrative offices
of the union and the municipal people’s government through concession agreements and other
means, shall be gradually cancelled by making reasonable adjustments to the prices of water,
electricity, gas and heat supply, in order to build the subsidy mechanism by the end of 2025,
while the time for such cancellation shall be determined by each union and city. The
government may implement government prescribed price or guidance price for municipal
centralised heat services according to the price catalogue of the autonomous region, and shall
set a reasonable price for the sales of heat and make dynamic adjustments thereto, so as to
promote the steady progress of reforms on metered charging. Construction expenses on
municipal supporting infrastructure directly related to reserved lands may be included in the
land development expenses according to the relevant requirements, and shall not be borne by
the enterprises engaged in the supply of water, electricity, gas or heat.
Relevant regulations in Shanxi Province
On 30 July 2021, the Implementation Plan of Shanxi Province on cancellation and
Standardising the Charges in Urban Water, Electricity, Gas and Heat Supply Industry to
Promote the High-quality Development of the Industry (ᕄԶ˥ԶཥԶं
) jointly issued by Shanxi Province
Development and Reform Commission and other departments, provides the cancellation of the
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charges for the interface fees, centralised network construction fees, grid connection fees and
other similar fees charged by urban centralised heat service enterprises and their affiliated or
entrusted installation engineering companies from their users, and the cancellation of network
connection fees, which refers to network connection construction from the red line of a user’s
building area to the public network. For the construction projects within the urban planned
construction area with State-owned land use rights, the construction areas by the water,
electricity, gas and heat supply enterprises shall be extended to the red line of a user’s building
area. Unless otherwise provided by laws, regulations and relevant policies, the users shall not
bear any costs incurred beyond the red line of such buildings.
In terms of the compensation income for special construction costs charged in the name
of network access fees, centralised network construction fees and grid connection fees by the
water, electricity, gas and heat supply enterprises under the authorisation of municipal and
county governments through concession agreements and other means, it is necessary to
reasonably designate relevant charging standards, clarify the payment between the government
and the user, properly handle the relationship between price compensation and government
subsidies to ensure the normal operation of the project. Such fees shall be cancelled by the end
of 2025 by making reasonable adjustments to the prices of water, electricity, gas and heat
supply, and establishing the subsidy mechanism. The timing of such cancellation shall be
determined by each county and city. A payment mechanism through which pipeline connection
fees could be borne together by government and industry should be established, and any
additional amount of such fees incurred later shall be borne by the water, gas and heat supply
enterprises, accounted as their operating costs and recovered through the charges of water, gas
and heat.
The construction costs of municipal supporting infrastructure directly related to the
reserve land shall be included in the land development expenditures in accordance with the
regulations, and shall not be borne by the water, electricity, gas and heat supply enterprises.
The price of urban centralised heat service shall be fixed by the government. A dynamic
adjustment mechanism shall be established to reasonably set and dynamically adjust the sales
price of heat in accordance with the principles of reasonable compensation for costs, promotion
of heat saving and adherence to a fair share of burden.
Relevant regulations in Gansu Province
On 14 August 2021, the Implementation Plan on Further Cancellation and Standardising
the Charges in Urban Water, Electricity, Gas and Heat Supply Industry to Promote the
High-quality Development of the Industry (ᕄԶ˥ԶཥԶंԶาБุ
) forwarded and noticed by the General Office of the
People’s Government of Gansu Province, provides the strict implementation of various
unreasonable charges for heat service as charges for network connection fee as set out in Guo
Ban Han No. 129. Unless otherwise provided by laws, regulations and relevant policies, the
users shall not bear any costs incurred beyond the red line of the users’ building area. The
compensation income for special construction costs, charged in the name of network
connection fees, centralised network construction fees and grid connection fees by the water,
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electricity, gas and heat supply enterprises under the authorisation of local governments
through concession agreements and other means, shall be gradually cancelled by making
reasonable adjustments to the prices of water, electricity, gas and heat supply, and establishing
the subsidy mechanism, while the time for such cancellation shall be determined by each
county and city and take place by the end of 2025 in principle. For the network connection
construction from the red line of users’ buildings to the public network, the part undertaken by
the water, electricity, gas, and heat supply enterprises shall be included in the operating cost
of those enterprises, and the price shall be adjusted reasonably and be diverted after cost
examination. We will reasonably set and dynamically adjust the sales price of heat, and steadily
promote the reform of metered charging. The construction costs of municipal infrastructure
directly related to the reserve land can be included in the land development expenses as
required and shall not be undertaken by the water, electricity, gas, and heat supply enterprises.
Relevant regulations in Henan Province
On 6 November 2021, the Implementation Plan of Henan Province on Cancellation and
Standardising the Charges in Urban Water, Electricity, Gas and Heat Supply Industry to
Promote the High-quality Development of the Industry (ᕄԶ˥ԶཥԶं
) forwarded and noticed by the General Office
of the People’s Government of Henan Province, provides the compensation income for special
construction costs, charged in the name of network connection fees, centralised network
construction fees and grid connection fees by the water, electricity, gas and heat supply
enterprises under the authorisation of municipal and county-level governments through
concession agreements and other means, shall be all cancelled by making reasonable
adjustments to the prices of water, electricity, gas and heat supply, establishing the subsidy
mechanism, and determining the specific time for such fee cancellation, implementation steps
and supporting policies and measures by the end of 2025. Before cancellation, the relevant
charging standards shall be reasonably formulated. Within the scope of urban planned
construction land, for the network connection construction from the red line of users’ buildings
to the public network after 1 March 2021, the charges shall be reasonably borne by the water,
electricity, gas, and heat supply enterprises and local government. The network connection
construction cost for the water, electricity, gas, and heat supply incurred beyond the red line
of the users’ building area undertaken by local government and the construction costs of
municipal infrastructure such as water, electricity, gas, and heat supply directly related to the
reserve land can be included in the land development expenses as required and shall not be
undertaken by the water, electricity, gas, and heat supply enterprises. For the commercial
housing and affordable housing under construction or newly built after 1 March 2021, the
construction and installation costs of water, electricity, gas and heating pipelines and ancillary
equipment and facilities (including metering devices) within the red line of the users’ building
area shall be included in the housing development and construction costs, and shall not be
charged separately from the purchaser. The government shall formulate and improve the
pricing measures and cost supervision and review measures for urban water, electricity, gas,
and heat supply, the cost undertaken by the government as stipulated and included in the
operating cost of enterprises shall be gradually diverted through the price on the basis of strict
cost supervision and examination.
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REGULATIONS RELATING TO GOVERNMENT SUBSIDIES FOR SUPPORTING
HEAT SERVICE
Relevant regulations at national level
The Measures for the Administration on the Concession of Municipal Public Utilities
(), implemented on 1 May 2004 and amended on 4 May
2015 by the MOHURD, provides that the government shall compensate the economic losses
incurred by an enterprise with concession rights for undertaking duty assigned by the
government for achieving public welfare objective.
On 25 April 2015, the NDRC and other departments jointly promulgated the Measures for
the Administration of Concession for Infrastructure and Public Utilities (ձʮ͜ԫ
), which provides that a concession agreement may prescribe that the
concession operators could gain earnings by charging users. When the charges are insufficient
to cover the construction and operating costs of concession projects and the reasonable
earnings, the governments may provide viability gap subsidies, including other relevant
development and operation rights and interests granted by the governments for concession
projects. Government may give undertakings in concession agreements in respect of necessary
and reasonable financial subsidies. When the interests of concession operators are expected to
be impaired by the amendments of laws and administrative regulations or development of
policies, or when concession operators are required to provide products or services not
included in agreements out of the needs of public interest, compensation shall be provided to
concession operators.
On 27 December 2002, the Ministry of Construction of the PRC (abolished) promulgated
The Notice on Issuing the Opinions on Accelerating the Marketisation Process of the Municipal
Utilities Industry (Ι೯<จԈ>), which
proposes that the prices of products or services of municipal public utilities are approved and
regulated by government, and the respective standards of price (charge) of municipal public
products or services are determined in compliance with the rules of market economy and in
accordance with the average cost and reasonable profit to enterprises in the relevant industry,
subject to the full consideration of a reasonable allocation of resources and the protection of
public interest. Reasonable return of enterprises engaging in municipal public utilities through
legal operation should be guaranteed. Where the price of a product or service provided by an
enterprise is lower than the cost for the purpose of satisfying needs from the general public,
the government shall subsidise the enterprise accordingly.
On 8 June 2012, the MOHURD promulgated The Notice on Issuing the Implementation
Opinions on Further Encouraging and Guiding Private Capital to Enter the Field of Municipal
Public Utilities (ٙ
), which proposes that efforts shall be made to improve pricing and financial subsidy
mechanisms, sort out price formation mechanism for products or services of municipal public
utilities in phases and set reasonable prices, enabling operators to compensate costs and earn
profits in a reasonable manner. The people’s government of cities shall establish corresponding
incentive and subsidy mechanism to encourage private capital to serve our society.
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On 5 December 2017, the NDRC promulgated The Notice on Issuing the Plan for Winter
Clean Heating in the Northern Region (2017-2021) (Ι೯<૶ᆎ՟า஝ྌ
(2017-2021 ϋ)>), which proposes that heat rate mechanism shall be improved
according to local conditions. The rate of clean heating services shall be set at a reasonable
price that is affordable by residents and has considered the costs for transforming into clean
heating and operating to lower price of clean heating, and the shortfall shall be compensated
by local finance.
Relevant regulations in Taiyuan and Shanxi Transformation and Comprehensive Reform
Demonstration Zone and Shuozhou City
According to the requirements of the Regulations for the Administration on the
Concession of Municipal Public Utilities of Shanxi Province (ʮ͜ԫุत஢຾ᐄ
၍ଣૢԷ) promulgated on 20 December 2007, implemented on 1 March 2008 and abolished
on 26 November 2021 by the Standing Committee of the National People’s Congress of Shanxi
Province, the government shall compensate the economic losses incurred by a concession
operator for undertaking duty assigned by the government. A concession agreement shall
specify, among other things, profit-making pattern and margin of concession operators as well
as providing methods and specific amounts of government subsidies or compensation. Where
the concession operators incur losses due to the prices or charging standards determined by
governments or incur increasing expenditures for undertaking duty assigned by the
government, the people’s governments of cities shall grant subsidies or compensation to such
concession operators by laws.
On 1 April 2009, the Standing Committee of the National People’s Congress of Taiyuan
city promulgated the Taiyuan Urban Heat Services Administration Regulations (Amended)
(̹Զᆠ၍ଣૢԷ(ࠈࡌ)), which provides that heating entities can submit price
adjustment proposal to the pricing authorities or competent heating authorities in writing. The
government may temporarily subsidise the heating entities after accounting for costs where
heat rates cannot be adjusted in a timely manner and lead to losses of such heating entities.
On 20 April 2022, the Shuozhou City Bureau of Municipal Affairs Administration (ψ
̹၍ଣ҅) published the Draft Rules and issued a revised version on 6 September 2022,
which provides that public-private partnership (PPP) heating projects shall choose reasonable
operating models and ensure standardised operation. The projects shall have rights and
obligations of parties clearly defined, build a coordinated mechanism in terms of investments,
subsidies and heat rate, and strengthen the performance management throughout the entire life
cycle of project. As at the Latest Practicable Date, the Draft Rules were in the process of being
approved. There is uncertainty that the approved version published by the relevant competent
authority later may have inconsistencies with the Draft Rules.
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Relevant regulations in Lanzhou New Area
On 14 September 2022, the Construction Department of Gansu Province (ணᝂ)
promulgated the Measures for the Administration on the Concession of Municipal Public
Utilities of Gansu Province (), which provides that
concession operators may earn their returns through various methods, including charging for
the products or services of municipal utilities provided by them or receiving grants from
governments. Where an enterprise with concession rights suffers economic losses for
undertaking duty assigned by the government for achieving public welfare objective, the
government shall subsidise the enterprise accordingly.
The Rules on Heat Supply and Usage of Lanzhou City (2021 Revision) ( ᚆψ̹Զᆠ͜
ᆠૢԷ(2021͍)), promulgated on 28 November 2014 and amended on 14 April 2021 by
the Standing Committee of the National People’s Congress of Lanzhou City, provides that
where heat rates are not sufficient to compensate the normal relevant heat service costs and
cannot be adjusted in a timely manner, the municipal or county (district) people’s government
may temporarily subsidise the heating entities for its losses arising therefrom of after
accounting for costs
Relevant regulations in Hulunbuir City
On 24 May 2016, the Measures for the Administration on Infrastructure and Public
Utilities Concession of Inner Mongolia Autonomous Region (ձʮ͜
) jointly issued by Inner Mongolia Development and Reform
Commission and other departments, provides governments may make undertakings in the
concession agreements regarding the prevention of unnecessary construction of competing
projects of the same kind, necessary and reasonable financial subsidies, and the provision of
relevant supporting public services and infrastructure. The governments above the county level
may establish infrastructure and public utility concessions guiding fund with financial
institutions, and support the construction of relevant concession projects through investment
subsidies, financial subsidies and loan with discounted interest.
Relevant regulations in Xinmi City
The Administrative Measures for Urban Heat Services and Use in Zhengzhou City (2020
Amendment) (ج2020͍)), promulgated on 1 September
2015 and amended on 17 January 2020 by the People’s Governance of Zhengzhou City,
provides that the People’s Governance of city, county (city), Shangjie District may, upon
verification, provide temporary government subsidies to the heating enterprises in the areas
where heat rates are obviously not sufficient to compensate the normal heat service costs; the
increase in heat service costs due to the adjustment of the heating period shall be subsidised
by the same level of financial department.
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FOREIGN INVESTMENTS
The Company Law of the PRC (), which was promulgated
and effective on 29 December 1993, and revised on 25 December 1999, 28 August 2004,
27 October 2005, 28 December 2013, and 26 October 2018, respectively, stipulates that the
establishment, operation and management of corporate entities in the PRC are regulated by the
Company Law of the PRC, including foreign-funded limited liability companies or foreign-
funded joint stock companies.
The Foreign Investment Law of the PRC (), which was
promulgated on 15 March 2019 and implemented on 1 January 2020, establishes a basic
framework for the access and promotion, protection and management of foreign investments in
order to protect investment and fair competition. The Law of the PRC on Sino-foreign Equity
Joint Ventures (), the Law of the PRC on Foreign-
invested Enterprises () and the Law of the PRC on Sino-
Foreign Cooperative Joint Ventures () were
simultaneously repealed.
According to the Special Management Measures for Foreign Investment Access (Negative
List) (2019 Edition) (݄(૶ఊ)(2019و)), which was
issued on 30 June 2019 and effective on 30 July 2019, the heat service industry does not fall
into the negative list of foreign investment access, and this 2019 negative list removed the
restriction from the 2018 negative list that the construction and operation of urban gas and heat
in cities with a population of 500,000 or more shall be controlled by the Chinese side. The
Special Management Measures for Foreign Investment Access (Negative List) (2021 Edition)
(݄(૶ఊ)(2021و)), which was promulgated on 27
December 2021 and effective on 1 January 2022, being the latest negative list, maintain the
aforementioned provisions in respect of access to the heat service industry.
ENERGY CONSERV ATION AND ENVIRONMENTAL PROTECTION
Principal environmental laws and regulations applicable to the construction and operation
of the heat service industry include the Environmental Protection Law of the PRC ( ʕശɛ
), the Law on the Prevention and Control of Atmospheric Pollution of
the PRC (), the Law on Water Pollution Control of the
PRC (), the Law on Promotion of Cleaner Production of the
PRC (), the Regulations on Environmental Protection
Management of Construction Projects (ᚐ၍ଣૢԷ) and the Law on
Environmental Impact Assessment of the PRC ().
According to the Environmental Protection Law of the PRC (ᚐ
), which was promulgated and effective on 26 December 1989 and amended on 24 April
2014, the competent environmental protection department under the State Council is
responsible for the unified supervision and management of the national environmental
protection work and the formulation of national environmental quality and pollutant emission
standards. Local environmental protection departments are responsible for environmental
protection work in their respective administrative areas.
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According to the Law on Environmental Impact Assessment of the PRC ( ʕശɛ͏΍
), which came into effect on 1 September 2003 and subsequently
amended on 2 July 2016 and 29 December 2018, if the environmental impact assessment
document of a construction project has not been submitted for review in accordance with the
law or approved upon review by the approval authority, the approving department of the project
shall not approve the construction, and the construction entity shall not commence construction
of the project. The construction entity shall prepare an environmental impact report, an
environmental impact statement or fill in an environmental impact registration form according
to the severity of the environmental impact of the relevant construction project.
According to the Regulations on the Administration of Construction Project
Environmental Protection (ᚐ၍ଣૢԷ), which came into effect on 29
November 1998 and was revised on 16 July 2017, the supporting environmental protection
facilities shall be designed, constructed and put into use in the main project at the same time.
Upon completion of the construction projects in the prepared environmental impact report and
environmental impact report form, the construction unit shall inspect and accept the supporting
environmental protection facilities and prepare an acceptance report in accordance with the
standards and procedures stipulated by the competent department of environmental protection
administration under the State Council. For the construction projects in the prepared
environmental impact report and environmental impact report form, the supporting
environmental protection facilities shall pass acceptance before the project can be put into
production or use. Those supporting environmental protection facilities that have not
undergone acceptance or have failed acceptance shall not be put into production or use.
Furthermore, the Notice Relating to the Release of Two National Pollutant
Emission Standards (i.e. the Emission Standards for Industrial Enterprise Noise at
Boundary and the Emission Standards for Environment Noise in Social Life) (೯б<ʈ
ᅺ๟ >e<ᅺ๟ >ٙ
ʮѓ) implemented by the then Ministry of Environmental Protection on 1 October 2008
clearly stipulates the emission standards for industrial enterprises noise at boundary to protect
and improve the living environment.
The Decision of the State Council on Enhancement of Energy Conservation Work ( ਷
), which was promulgated and implemented on 6 August 2006,
proposes to promote the reform of municipal heating system and change the heat subsidy from
“implicit subsidy” to “explicit subsidy”, strengthen the metered charging of heat services,
promote the charging system by metered charging according to heat quantity, improve the price
formation mechanism of heat services, study and formulate the charge policy based on heat
quantity in the provision of heat services to buildings, and cultivate a heat service market that
is conducive to energy conservation. The Energy Conservation Law of the PRC ( ʕശɛ͏
), promulgated on 1 November 1997, implemented on 1 January 1998 and
subsequently revised on 28 October 2007, 2 July 2016, and 26 October 2018, made further
stipulation on energy conservation management, that is, the State shall take measures to
implement, step by step, the system of household-based heating metering and usage-based
heating fees to buildings with central heating. In the construction of new buildings or the
energy conservation retrofits of existing buildings, heating metering devices, indoor
temperature controls and heat service control devices shall be installed as required.
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Since then, the use of charge by heat measurement and energy conservation of buildings
have become important contents of energy conservation for the heat service industry. In this
regard, the Implementation Opinion on Promoting the Heat Services Measurement and
Energy-conservation Renovation of Existing Residential Buildings in Northern Heating Areas
(จԈ) promulgated
in May 2008 and the Technical Guidelines for Heat Services Measurement and Energy
Conservation Renovation of Existing Residences in Northern Heating Areas ( ̏˙મาήਜ
 (༊Б)) issued by the MOHURD in July 2008
also proposes the heat service measurement and the energy conservation alteration of existing
residential buildings in the northern heat service areas, and provides specific technical
guidance for this purpose. In addition, the Regulation on Energy Conservation in Civil
Buildings (ጘືঐૢԷ) promulgated by the State Council in August 2008 and the
Notice on Further Deepening the Work of Heat Services Measurement and Energy-
conservation Alteration of Existing Residential Buildings in Northern Heat Service Areas ( ᗫ
) issued by
the MOF and the MOHURD in January 2011, the 12th Five-Year Plan for Energy Conservation
of Buildings ( “ɤɚʞ”ጘືঐਖ਼ධ஝ྌ) by the MOHURD in May 2012, the Air
Pollution Prevention and Control Action Plan (ྌ) by the State
Council in September 2013, and the 2014-2015 Action Plan for Energy Conservation and
Emission Reduction and Low Carbon Development ( 2014-2015Бਗ˙
) by the Office of the State Council have made provisions for improving the energy
utilisation efficiency of civil buildings, promoting the application of new building materials,
increasing the supply of clean energy, and accelerating the construction of energy conservation
and emission reduction projects.
Meanwhile, energy-conservation alteration shall also be carried out for boilers used by
heat service companies. The Ministry of Environmental Protection, the NDRC and the MOF
jointly issued the Twelfth Five-Year Plan for Prevention and Control of Air Pollution in Key
Areas (ط“ɤɚʞ”஝ྌ) in October 2012, which emphasises on the
increase of heat and power cogeneration, the elimination of scattered small coal-fired boilers,
and the development of centralised heat service and propulsion of heat service measurement
reforms to promote energy conservation and emission reduction. In September 2013, the State
Council issued the Action Plan for Prevention and Control of Air Pollution (ط
ྌ), which proposes comprehensive rectification of small coal-fired boilers and
accelerates the construction of centralised heat service projects. The Action Plan for Coal-fired
Power Energy Conservation and Emission Reduction of Upgrade and Reconstruction
(2014-2020) (ྌ(2014-2020 ϋ)) jointly issued by the
NDRC, the Ministry of Environmental Protection and the National Energy Administration in
September 2014, and the Implementation Plan of Comprehensive Enhancement Project for
Energy-conservation and Environmental Protection of Coal-fired Boilers ( ዷ๩ᒢᘟືঐᐑ
) issued by the NDRC and the Ministry of Environmental
Protection in October 2014, proposed the energy-conservation alteration of heat service units,
the replacement and elimination of the dispersed small coal-fired boilers, and the promotion of
municipal centralised heat services. The Action Plan for Efficient Use of Coal (2015-2020)
(ྌ(2015-2020 ϋ)) issued by the National Energy
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Administration in April 2015 proposes the implementation of a coal-fired boiler upgrading
project to promote the application of high-efficiency, energy-conservation and environment-
friendly boilers. In December 2021, the State Council issued the Comprehensive Work Plan for
Energy Conservation and Emission Reduction for the “14th Five-Year Plan” Period ( “ɤ̬
ʞ”), which clearly promotes the transformation of cogeneration of
large coal-fired power plants, fully taps the heating potential, promotes the elimination of
coal-fired boilers and scattered coal within the coverage of the heating network, increases the
elimination of outdated coal-fired boilers and small coal-fired thermal power plants, and
promotes the replacement of coal heating (steam) with industrial waste heat, power plant waste
heat, and clean energy. On 22 March 2016, the Measures for the Administration of
Cogeneration was jointly issued by the NDRC, the Ministry of Environmental Protection of the
PRC and other authorities, which provides that the development of cogeneration shall abide by
the principles of “unified planning, power determination by heat and focus on available
capacity, structure optimisation, energy efficiency improvement, environmental protection
priority”. Targets have been set to achieve 60% heat energy supplied by CHP energy source
among middle to large cities in northern China and a CHP energy supply coverage among all
cities with population of above 200,000 in northern China, forming a healthy development
pattern for cogeneration industry with scientific planning, reasonable layout, efficient
utilisation and safe heating. It is clearly provided that coal-fired heat and power cogeneration
units in services should install efficient desulfurisation, denitrification and ash removal
facilities, and those which do not satisfy the discharging standards should speed up to upgrade
environment facilities so that the facilities with minimum technical output which operate in full
load and full time can meet the standard. The transformation into ultra-low emission shall be
implemented pursuant to the requirements of energy conservation and emission reduction. The
planning of heat and power cogeneration units and heating boiler shall be coordinated to
achieve joint operation, and heating capacity of peak-shaving boilers shall be designed as
25%-40% of the maximum heat load of heating area.
SAFETY PRODUCTION
The Work Safety Law of the PRC (), which came into
effect on 1 November 2002, subsequently revised in August 2009, August 2014 and June 2021,
is the principal law for the work safety supervision and management and labour protection of
heat service enterprises.
For boilers used by heat service enterprises, they are special equipment with relatively
high risks for personal and property safety according to the Special Equipment Safety Law of
the PRC () which came into effect in 2014 and the
Catalogue of Special Equipment ( त၇ண௪ͦ፽) issued by the General Administration of
Quality Supervision, Inspection and Quarantine of the PRC (ᐼ҅)i n
October 2014 before its reorganisation. Entities that use boilers shall abide by the above-
mentioned laws and the “Regulations on Safety Supervision of Special Equipment ( त၇ண
௪τΌ္࿀ૢԷ) promulgated by the State Council in March 2003 and revised in January
2009, and the “Opinions of the Special Equipment Bureau under the General Administration of
Quality Supervision, Inspection and Quarantine Relating to Issues About Pressure-bearing
Equipment in the Newly Revised Catalogue of Special Equipment ( ሯᏨᐼ҅त၇ண௪҅ᗫ
ٙࠈࡌ<त၇ண௪ͦ፽>จԈ) issued in July 2015.
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EMPLOYMENT AND SOCIAL SECURITY
Major PRC labour laws and regulations applicable to our heat service industry include the
Labour Law of the PRC (), the Labour Contract Law of the PRC
(), the Implementation Regulations on the Labour Contract
Law of the PRC (ૢԷ), the Social Insurance Law of the
PRC () and the Administrative Regulations on Housing
Provident Fund (၍ଣૢԷ).
According to the Labour Law of the PRC () promulgated on
5 July 1994 and became effective on 1 January 1995, then amended on 27 August 2009 and 29
December 2018, respectively, employers shall provide employees with the necessary protection
equipment that complies with safety and health conditions stipulated under national
regulations, as well as provide regular health checks for employees that are engaged in
operations with occupational hazards. The parties to the labour contract (i.e. the employer and
the employee) and specific terms of the labour contract shall be regulated by the Labour
Contract Law of the PRC (), which was promulgated on 29
June 2007, became effective on 1 January 2008 and was amended on 28 December 2012, and
the Regulation on the Implementation of the Employment Contract Law of the PRC ( ʕശ
ૢԷ) (Order No. 535 of the State Council), which was
promulgated and became effective on 18 September 2008.
According to the provisions of the Social Insurance Law of the PRC ( ʕശɛ͏΍ձ਷
) promulgated on 28 October 2010, became effective on 1 July 2011, and
subsequently amended on 29 December 2018, the Regulation on Work-related Injury Insurance
(ᎈૢԷ) promulgated on 27 April 2003, became effective on 1 January 2004, and
subsequently amended on 20 December 2010, the Trial Measures on Employee Maternity
Insurance of Enterprises () promulgated on 14 December 1994
and became effective on 1 January 1995, the Interim Regulation on the Collection and Payment
of Social Insurance Premiums (ᎈ൬ᅄᖮᅲБૢԷ) promulgated and became
effective on 22 January 1999, and subsequently amended on 24 March 2019, and the
Regulation on the Administration of Housing Accumulation Funds (၍ଣૢԷ)
promulgated and became effective on 3 April 1999, and subsequently amended on 24 March
2002 and 24 March 2019, respectively, enterprises in the PRC shall provide benefit plans for
their employees, which include pension insurance, unemployment insurance, maternity
insurance, work injury insurance and medical insurance, housing provident funds and other
benefit plans.
Labour Dispatch
The Ministry of Human Resources and Social Security promulgated the Interim
Provisions on Labour Dispatch () on 24 January 2014 (the “ Interim
Provisions ”) which became effective on 1 March 2014. It states that labour dispatch should
only be applicable to temporary, auxiliary or substitute positions. For purposes of these
provisions, temporary positions mean positions subsisting for no more than six months,
auxiliary positions mean positions of non-major business that serve the major businesses, and
substitute positions mean positions that can be held by substitute employees for a certain period
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of time during which the employees who originally hold such positions are unable to work as
a result of full-time study, being on leave or other reasons. The Interim Provisions further
provide that the number of the dispatched workers of an employer shall not exceeds 10% of its
total workers, and the total workforce of an employer shall refer to the sum of the number of
the workers who have executed labour contracts with the employer and the number of workers
who are dispatched to the employer.
LAND AND PROPERTY
Pursuant to the provisions of the Construction Law of the PRC (ጘ
), which was promulgated on 1 November 1997 and became effective on 1 March 1998,
and was last amended and became effective on 23 April 2019, the completed construction
projects which are delivered for acceptance inspection shall meet the quality standards, and
obtain the complete engineering, technical and economic information and the signed project
warranty as well as other completion conditions as required by the State. Construction projects
which are completed shall not be delivered for use until they are accepted as a qualified
construction projects. Without required acceptance or if the acceptance is unqualified,
construction projects shall not be delivered for use.
Pursuant to the Regulation on the Quality Management of Construction Projects (ண
ʈ೻ሯඎ၍ଣૢԷ) promulgated and implemented on 30 January 2000 and amended and
became effective on 23 April 2019, after receiving the construction project completion report,
the property developer shall organise the units of design, construction, project supervision and
other relevant units to complete the acceptance. The construction projects shall pass the
acceptance before delivered for use. Where a property developer delivers the construction
project for use without conducting the construction project completion acceptance inspection,
it shall be ordered to take remedial actions and also pay a fine of not less than 2% but not
exceeding 4% of the construction contract sum and shall be obliged to pay compensation
according to law if any losses have been caused.
Pursuant to the Measures for the Administration of Urban Yellow Line (̹රᇞ၍ଣ
) promulgated by the Ministry of Construction of the PRC (now known as MOHURD)
on 20 December 2005, being effective on 1 March 2006, and amended and being effective on
26 January 2011, urban infrastructure include urban heat sources and regional heating stations,
heating corridors, and other municipal heat service facilities. The following activities are
prohibited within the range of the urban yellow line: modifying, moving, or demolishing urban
infrastructure without authorisation.
Pursuant to the Standard for Urban Residential Area Planning and Design (Иਜ
ᅺ๟) promulgated by the MOHURD on 10 July 2018 and being effective on 1
December 2018, formulated to ensure urban residential areas have a livable and moderate
living environment, utilising land and space in a scientific, reasonable and economical manner,
to ensure the quality of urban residential planning and design, and to standardise the planning,
construction, and management of urban residential areas. It is applicable to the preparation of
urban planning and the planning and design of urban residential areas. In particular, it provides
standards for the installation of supporting facilities in residential areas, and specifies that
heating stations or heat exchange stations are municipal public facilities.
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According to the Taiyuan Urban Heat Services Administration Regulations (۬
̹Զᆠ၍ଣૢԷ) promulgated on 26 March 2009 and effective on 1 May 2009, heat service
customers shall not damage, modify, demolish or move the heating pipelines, labels, manholes,
valves, meters and other heat service facilities without authorisation.
According to the Hulunbuir Urban Heat Services Administration Measures (Trial) ( խ
ج(༊Б)) promulgated on 28 October 2013 and implemented after
30 days from the date of its promulgation, without the consent of entities of heat sources or
heat services, no entities or individuals may modify, move, cover, demolish or otherwise
damage the heating pipelines, manholes, valves, meters, safety warning signs and labels and
other facilities.
According to the Administrative Measures for Urban Heat Services and Use in Lanzhou
New Area () formulated on 7 December 2021 and
implemented on 1 January 2022, no entities or individuals may engage in the following
activities within the safety protection distance of 1.5 metres for the heat service facilities:
burying the heating pipelines or manholes, or damaging, moving or demolishing the heating
pipelines, valves, heating metering devices and other heat service facilities.
PERSONAL INFORMATION PROTECTION AND DATA SECURITY
According to the Personal Information Protection Law of the PRC (ࡈ
) promulgated on 20 August 2021 and came into effect on 1 November 2021,
the processing of personal information (including collection, storage, use, processing,
transmission, provision, disclosure and deletion of personal information) shall follow the
principles of legality, legitimacy, necessity and faith, shall not be processed by misleading,
fraudulent and coercive. The processing of personal information should have a clear and
reasonable purpose which should be directly related to the processing purpose, in a method that
has the least impact on personal rights and interests. The collection of personal information
should be limited to the minimum scope necessary to achieve the processing purpose to avoid
the excessive collection of personal information. The processing of personal information
should follow the principles of openness and transparency, disclose the rules for handling
personal information, and express the purpose, method and scope of processing. Processors of
personal information shall bear responsibilities for their personal information handling
activities, and adopt necessary measures to safeguard the security of the personal information
they handle.
According to the Data Security Law of the PRC ()
promulgated on 10 June 2021 and came into effect on 1 September 2021, carrying out data
processing activities (including data collection, storage, use, processing, transmission,
provision and disclosure) shall be in accordance with the requirements of laws and regulations,
establish and complete a data security management system for the entire workflow, organise
and conduct data security education and training, and adopt corresponding technical measures
and other necessary measures to ensure data security. The processors of important data shall
define the responsible person and management authority of data security and fulfil the
responsibility of data security protection.
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REGULATIONS RELATING TO OVERSEAS LISTING
On 17 February 2023, CSRC formally released the Trial Measures for the Administration
of Overseas Issuance and Listing of Securities by Domestic Companies (the “Overseas
Issuance and Listing Measures”,), which are
expected to take effect on 31 March 2023. The Overseas Issuance and Listing Measures
prohibit the overseas issuance and listing of securities for (i) companies that are explicitly
prohibited from listing by PRC laws and regulations; (ii) companies whose overseas issuance
and listing may endanger national security, as determined by relevant departments of the State
Council; (iii) companies that have committed, or companies whose controlling shareholders or
actual controllers have committed, crimes of corruption, bribery, encroachment and
embezzlement upon property, or disruption of the order of market economy in the past three
years; (iv) companies that are under ongoing investigations for suspected crimes or material
violations of PRC laws; and (v) companies whose controlling shareholders, or the shareholders
whose actions are controlled by the controlling shareholders or actual controllers, are involved
in major disputes over their equity ownership of the company. Furthermore, upon the
effectiveness of the Overseas Issuance and Listing Measures, PRC companies that directly or
indirectly offer or list their securities in overseas markets, which include (i) any limited
liability companies registered in the PRC, and (ii) any offshore companies that conduct their
business operations primarily in the PRC and contemplate to offer or list their securities in
overseas markets based on their onshore equities, assets or similar interests, will be required
to making files with the CSRC within three business days after submitting their listing
application documents to the relevant regulator in the place of intended listing. Failure to
complete the record-filing procedures may subject a PRC company to a warning or a fine of
RMB1 million to RMB10 million.
According to the Notice on the Administration Arrangement for the Overseas Issuance
and Listing of Securities Record-filings (ஷ
), PRC companies that have received the approval from CSRC on their overseas issuance
and listing before the Overseas Issuance and Listing Measures become effective can continue
their overseas issuance and listing of securities within the validity period of the approval, and
are not subject to the record-filing procedures stipulated in the Overseas Issuance and Listing
Measures. We obtained the approval from CSRC for the Global Offering and the Listing on
8 November 2022, and such approval is valid until 7 November 2023. Based on the above and
our expected timetable that our Global Offering and the Listing are expected to be completed
within the validity period of the approval of CSRC, our PRC Legal Advisers are of the opinion
that we do not need to perform the record-filing procedures for the Global Offering and the
Listing, and the Global Offering and the Listing are not expected to be materially affected by
the Overseas Issuance and Listing Measures.
REGULATORY OVERVIEW
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OUR BUSINESS HISTORY AND DEVELOPMENT
We were ranked No. 9 in terms of the aggregate actual heat service area in Shanxi
Province, Gansu Province and Inner Mongolia Autonomous Region in 2022, according to the
Frost & Sullivan Report. The history of our business can be traced back to 2010 when the State
Council promulgated Several Opinions of the State Council on Encouraging and Guiding the
Healthy Development of Private Investment (߰ٙ࢝
ʍจԈ) to encourage and guide private capital to participate in the construction of municipal
utilities, such as urban water supply, gas supply, heat supply, sewage and garbage disposal,
public transport, urban landscaping and other urban areas. Eyeing the substantial room for the
development of heat services, Shuangliang Eco-Energy found our Company. Established in the
PRC on 5 October 1995, Shuangliang Eco-Energy (stock code: 600481.SH) is a joint stock
limited company, the shares of which have been listed on Shanghai Stock Exchange since 22
April 2003. The principal business of Shuangliang Eco-Energy is the manufacturing and sales
of products of (i) energy-saving and water-saving systems; and (ii) new energy systems ( อঐ
๕ӻ୕).
Motivated by the favourable policies encouraging private capital to participate in the heat
service industry, our Company actively sought for potential acquisition target to explore our
markets in the “Three North Region”. On 10 October 2010, our Company and Shanxi
Shuangliang Renewable Energy entered into a capital increase agreement, pursuant to which
our Company became a new shareholder of Shanxi Shuangliang Renewable Energy and agreed
to inject approximately RMB25.5 million into Shanxi Shuangliang Renewable Energy. Such
capital increase was completed and settled on 25 October 2010. Shanxi Shuangliang
Renewable Energy therefore became an indirect non wholly-owned subsidiary of Shuangliang
Eco-Energy since 25 October 2010 and up to 22 October 2015 when Shuangliang Eco-Energy
transferred its entire interest in our Company to Shuangliang Technology, one of the
shareholders of Shuangliang Eco-Energy. Following the completion of the capital increase,
Shanxi Shuangliang Renewable Energy became one of our major subsidiaries, mainly focusing
on the business of provision and distribution of heat, particularly utilising heat from local
cogeneration plant. Leveraging on the experiences and industry insight of our management
team, we have gradually developed our expertise and know-how to operate our heat services
business. In January 2012, Shanxi Shuangliang Renewable Energy obtained the first
concession right to provide heat services in Shuocheng District, Shuozhou City through
entering into the Shuozhou Concession Agreement. Between 2012 and 2014, implementing
opinions and guiding opinions were issued by various government authorities in the PRC to
encourage private capital to invest in the construction and operation of municipal heat services
and other municipal infrastructure projects, such as municipal heat services through
concession. Under such favourable environment, we applied for and was granted the
concession rights for a number of projects and further expanded our heat services business in
various areas in Shanxi Province, including Taiyuan and Shanxi Transformation and
Comprehensive Reform Demonstration Zone. We also expanded our heat service to other cities
in the PRC, such as Hulunbuir of Inner Mongolia, Lanzhou of Gansu Province and Xinmi of
Henan Province.
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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For the purpose of streamlining the operation of Shuangliang Eco-Energy Group, in
September 2015, Shuangliang Eco-Energy decided to transfer the entire equity interest in our
Company to Shuangliang Technology, one of the shareholders of Shuangliang Eco-Energy.
Such transfer was completed and settled on 22 October 2015. The transfer led to a clear
separation of operations and management between Shuangliang Eco-Energy Group and our
Group. Upon completion of the said transfer, Shuangliang Eco-Energy Group remained as one
of our suppliers to supply materials and equipment for the construction of the infrastructure for
our heat services business. For details of the transactions between our Group and Shuangliang
Eco-Energy Group, see “Connected transactions” in this prospectus.
In light of the growing opportunities and for the purpose of business expansion, upon the
registration by our shareholders with Wuxi Administration for Industry and Commerce ( ೌ፼
၍ଣ҅), our Company was converted into a joint stock limited company on 29
December 2015. In July 2016, we obtained approval from the NEEQ for the listing of our
Company on the NEEQ (stock code: 839023) on 17 August 2016. We voluntarily delisted from
the NEEQ in April 2018. See “Corporate history of our Company” in this section for further
details.
Development of heat service area
Since the establishment of our Company, we have been principally focusing on the
business of heat services. We have been expanding our heat services business to numerous
geographical areas. As at the Latest Practicable Date, our total Concession Area and our total
actual heat service area were approximately 419.9 million sq.m. and 41.9 million sq.m.,
respectively.
The following table sets out the key development of our heat service projects under
concession rights.
Project name
Commencement of
concession period
Actual
heat service
area as at
31 December
2014
Actual
heat service
area as at
31 December
2015
Actual
heat service
area as at
31 December
2016
Actual
heat service
area as at
31 December
2017
Actual
heat service
area as at
31 December
2018
Actual
heat service
area as at
31 December
2019
Actual
heat service
area as at
31 December
2020
Actual
heat service
area as at
31 December
2021
Actual
heat service
area as at
31 December
2022
(sq.m.) (sq.m.) (sq.m.) (sq.m.) (sq.m.) (sq.m.) (sq.m.) (sq.m.) (sq.m.)
Shuozhou Project 18 January 2012 13,000,000 20,000,000 15,500,000 15,208,000 16,309,100 17,452,000 17,852,100 18,115,000 18,117,400
Taiyuan Project 21 November 2012 2,300,000 3,200,000 3,032,400 2,910,000 3,310,000 4,500,000 5,430,000 5,688,000 6,700,000
Lanzhou New Area
Project
29 June 2013 106,000 688,000 2,217,000 4,650,000 5,510,000 6,500,000 5,920,000 7,030,000 8,490,000
Hulunbuir Project 20 September 2013 465,000 2,165,000 3,250,600 5,250,000 6,340,000 7,150,000 7,970,000 8,540,000 8,210,000
Shanxi Demonstration
Zone Project
18 September 2018 –
(Note 1) –(Note 1) –(Note 1) –(Note 1) –(Note 1) 165,800 205,000 391,500 352,400
Xinmi Project 7 December 2021 – (Note 2) –(Note 2) –(Note 2) –(Note 2) –(Note 2) –(Note 2) –(Note 2) –(Note 2) –(Note 2)
Total actual heat service area: 15,871,000 26,053,000 24,000,000 28,018,000 31,469,100 35,767,800 37,377,100 39,764,500 41,869,800
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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Notes:
(1) Shanxi Demonstration Zone Project commenced actual heat service operation in 2019, with an initial actual
heat service area of approximately 165,800 sq.m..
(2) Xinmi Project had yet to commence actual heat service operation as at the Latest Practicable Date.
DEVELOPMENT MILESTONES
Y ear Events
September 2010 The establishment of our Company
October 2010 Investing in Shanxi Shuangliang Renewable Energy Development and
Utilisation Company Limited* (ʮ̡)
(subsequently known as Shanxi Shuangliang Renewable Energy) by way
of a capital injection of approximately RMB25.5 million, and the
commencement of heat service business in Shanxi Province, the PRC
January 2012 Concession right was granted to Shanxi Shuangliang Renewable Energy
for heat services within the Concession Area of Shuozhou, Shanxi
Province, the PRC for 30 years pursuant to the Shuozhou Concession
Agreement
November 2012 Concession right was granted to Taiyuan Renewable Energy for heat
services within the Concession Area of Taiyuan, Shanxi Province, the
PRC for 25 years pursuant to the Taiyuan Concession Agreement
June 2013 Concession right was granted to Lanzhou Shuangliang for heat services
within the Concession Area of Lanzhou New Area, Gansu Province, the
PRC for 30 years pursuant to the Lanzhou New Area Concession
Agreement
September 2013 Concession right was granted to Hulunbuir Shuangliang for heat
services within the Concession Area of Hulunbuir, Inner Mongolia, the
PRC for 30 years pursuant to the Hulunbuir Concession Agreement
October 2013 Shentou Second Power Station, in which we have built an origin station
(१) with a set of residual heat collection and utilisation system and
collection devices and equipment ( ं˥౬ᆠ१) that comprises, among
other things, our absorption heat pump technologies with steam and
condensation water supply in the cogeneration plants, was accredited as
‘Power Top Plant’ by Power Magazine for its achievement on improving
energy conservation and reducing emission
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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Y ear Events
August 2016 Our Company became listed on NEEQ (Note)
September 2018 Concession right was granted to Shanxi Demonstration Zone Heat
Supply for heat services within the Concession Area in Shanxi
Transformation and Comprehensive Reform Demonstration Zone
Xiaohe Industrial Park and Science and Technology Innovation City* ( ʆ
۬Shanxi Province,
the PRC for 30 years pursuant to the Shanxi Demonstration Zone
Concession Agreement
December 2021 Concession right was granted to Tech-Thermal (Zhengzhou) for heat
services within the Concession Area of Xinmi, Henan Province, the PRC
for 30 years pursuant to the Xinmi Concession Agreement
Note: Delisted from NEEQ in April 2018.
CORPORATE HISTORY OF OUR COMPANY
On 3 September 2010, our Company was established by Shuangliang Eco-Energy and
initially named as Jiangsu Shuangliang Contract Energy Management Company Limited* ( Ϫ
ʮ̡), with an initial registered capital of RMB50 million. On 25
August 2014, the then sole shareholder resolved, among other things, that the name of our
Company shall be changed to Shuangliang Energy Saving System (Jiangsu) Company Limited*
(ᕐԄືঐӻ୕(Ϫᘽ)ʮ̡), which became effective on 1 September 2014.
On 16 September 2015, Shuangliang Eco-Energy and Shuangliang Technology entered
into an equity transfer agreement, pursuant to which the entire registered capital of our
Company would be transferred to Shuangliang Technology at the consideration of
approximately RMB50.96 million. The consideration of such transfer was determined after
arm’s length negotiations between the parties with reference to the valuation of the net asset
value of our Company as at the date of the transfer. Such transfer was completed and settled
on 22 October 2015.
On 17 November 2015, Shuangliang Technology resolved that the registered capital of
our Company be increased from RMB50 million to RMB226 million, which was legally
completed on 3 December 2015. While Shuangliang Technology contributed an amount of
RMB100 million, the remaining RMB76 million was subscribed by Jiangsu Lichuang (which
was owned by our Controlling Shareholders) and ten individual shareholders who were, prior
to the subscription of the share capital of our Company, the then employees of Shuangliang
Eco-Energy Group including our Directors and employees. The aforementioned shareholders
of Jiangsu Lichuang had fully paid up the registered in accordance with their respective
shareholdings.
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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In anticipation to the conversion of our Company into a joint-stock company, our
Company changed its name to Wise Living Technology Co., Ltd* (ʮ̡),
being the current name of our Company. The change of our Company’s name was legally
completed on 18 December 2015.
On 18 December 2015, the shareholders resolved that our Company be converted from a
company with limited liability into a joint stock company with limited liability in preparation
for the listing on the NEEQ. The registered capital of our Company was RMB226 million with
issued shares of 226,000,000 Shares in total. The conversion was legally completed on 29
December 2015, and the shareholders’ respective shareholding in our Company remained
unchanged. Following such conversion, our Company applied for the listing on the NEEQ.
Approval was granted on 29 July 2016, and subsequently the shares of our Company were open
for transfer on the NEEQ on 17 August 2016.
On 22 March 2018, the shareholders resolved to voluntarily delist from the NEEQ. Our
Company decided to delist from the NEEQ taking into consideration, amongst others, our
Company’s long term development strategy and the preparation for the Listing. The listing of
our Company on the NEEQ ceased on 4 April 2018. There was no change in our registered
capital, no trading of our Shares, and no transfer of Shares by our Shareholders during the
period when our Company was listed on the NEEQ. There was no repurchase of Shares from
our Shareholders at the time when we delisted on the NEEQ.
As advised by our PRC Legal Advisers, during the period that our Company was listed
on the NEEQ, it had complied in all material respects with all applicable laws, including the
Business Rules of the National Equities Exchanges and Quotations System (for Trial
Implementation), and it had not been subject to any administrative penalty by any relevant law
enforcement or regulator. Our Directors believe that there is no other matter in relation to the
prior listing on the NEEQ of our Company that requires to be brought to the attention of the
Stock Exchange.
The table below sets out the shareholding structure of our Company immediately upon
completion of the aforementioned delisting.
Shareholders Shares
Equity
interest
(%)
(1) Shuangliang Technology 150,000,000 66.38
(2) Jiangsu Lichuang 51,000,000 22.58
(3) Mr. Li Baoshan ( ҽᘒʆ΋͛) 6,000,000 2.66
(4) Mr. Gu Dongsheng (ʺ΋͛) 2,500,000 1.11
(5) Mr. Liu Jiansheng (͛΋͛) 2,500,000 1.11
(6) Mr. Liu Jing ( ᄎ௞΋͛) 2,000,000 0.88
(7) Mr. Shan Yulin (΋͛) 2,000,000 0.88
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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Shareholders Shares
Equity
interest
(%)
(8) Mr. Li Fenglin (΋͛) 2,000,000 0.88
(9) Mr. Liu Guoyin ( ᄎ਷ვ΋͛) 2,000,000 0.88
(10) Mr. Wang Xiaosong (΋͛) 2,000,000 0.88
(11) Mr. Geng Ming ( অჼ΋͛) 2,000,000 0.88
(12) Mr. Jiang Shaojun (΋͛) 2,000,000 0.88
Total 226,000,000 100.00
OUR MAJOR SUBSIDIARIES
We have nine major subsidiaries, six out of which have been granted with concession
rights to provide heat services under our Concession Agreements. For details, see “Business –
Heat services – Heat service projects under concession operation” in this prospectus. Details
of these subsidiaries are set out below:
(1) Wise Living Energy
Wise Living Energy (formerly known as Wise Living Technology Jiangsu Energy System
Investment Company Limited* (ʮ̡)) was established by our
Company under the laws of the PRC as a limited liability company on 29 November 2016.
Since the establishment of Wise Living Energy, it has been wholly owned by our Company.
Wise Living Energy is principally engaged in investment holding.
(2) Shanxi Shuangliang Renewable Energy
Shanxi Shuangliang Renewable Energy (formerly known as Shanxi Shuangliang
Renewable Energy Development and Utilisation Company Limited* ( ʆГᕐԄΎ͛ঐ๕ක೯
ʮ̡), Shanxi Kelai Renewable Energy Development and Utilisation Company
Limited* (ʮ̡) and Shanxi Kelai Technology Company
Limited* (ʮ̡)) was established by Mr. Wang Hongli (л΋͛) and Mr.
Yuan Zhili (ଣ΋͛), who are Independent Third Parties, under the laws of the PRC as a
limited liability company on 15 February 2006, with an initial registered capital of
RMB1 million. Upon the establishment of Shanxi Shuangliang Renewable Energy, Mr. Wang
Hongli and Mr. Yuan Zhili held 80% and 20% of its registered capital respectively. After Mr.
Yuan Zhili’s passing away in December 2007, his 20% equity interest in Shanxi Shuangliang
Renewable Energy was transferred to his son Mr. Yuan Xiang (ജ΋͛).
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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Mr. Li Baoshan ( ҽᘒʆ΋͛), one of our Directors, became acquainted with Mr. Wang
Hongli in around 2008 through an industry meeting and then planned to invest in Shanxi
Shuangliang Renewable Energy. On 15 April 2009, the then shareholders of Shanxi
Shuangliang Renewable Energy, namely Mr. Wang Hongli and Mr. Yuan Xiang, resolved that
the registered capital of Shanxi Shuangliang Renewable Energy was increased from RMB1
million to RMB10 million by way of cash contribution. The increase in registered capital was
contributed by one of the then shareholders, namely Mr. Wang Hongli, in the amount of
approximately RMB2.7 million and by six new investors, namely Mr. Li Baoshan ( ҽᘒʆ΋
͛), (one of our Directors), Mr. Chen Xibao ( ௓ఃజ΋͛) (a director of Zhengzhou Wise
Living since November 2018 and a supervisor of Tech-Thermal (Zhengzhou) since December
2020), Mr. Liu Peng ( ᄎᘄ΋͛) (an Independent Third Party), Mr. Wang Yuzhe (΋͛)
(an Independent Third Party), Mr. Wang Yuan ( ˮ๕΋͛) (a supervisor of Taiyuan Renewable
Energy since May 2009) and Mr. Hou Zhenfu (బ΋͛) (an employee of Shanxi Renewable
Energy since April 2019) in the amount of approximately RMB3.0 million, RMB1.7 million,
RMB0.1 million, RMB0.5 million, RMB0.5 million and RMB0.5 million, respectively. The
capital increase was completed and settled on 19 April 2009. Upon completion of the capital
increase, Shanxi Shuangliang Renewable Energy was held as to 35% by Mr. Wang Hongli, 30%
by Mr. Li Baoshan, 17% by Mr. Chen Xibao, 5% by Mr. Wang Yuzhe, 5% by Mr. Wang Yuan,
5% by Mr. Hou Zhenfu, 2% by Mr. Yuan Xiang and 1% by Mr. Liu Peng.
The table below sets out the shareholding structure of Shanxi Shuangliang Renewable
Energy immediately upon completion of the aforementioned capital increase.
Shareholders
Registered
capital
Shareholding
percentage
(RMB) (%)
(1) Mr. Wang Hongli (л΋͛) 3,500,000 35.00
(2) Mr. Li Baoshan ( ҽᘒʆ΋͛) 3,000,000 30.00
(3) Mr. Chen Xibao ( ௓ఃజ΋͛) 1,700,000 17.00
(4) Mr. Wang Yuzhe (΋͛) 500,000 5.00
(5) Mr. Wang Yuan ( ˮ๕΋͛) 500,000 5.00
(6) Mr. Hou Zhenfu (బ΋͛) 500,000 5.00
(7) Mr. Yuan Xiang (ജ΋͛) 200,000 2.00
(8) Mr. Liu Peng ( ᄎᘄ΋͛) 100,000 1.00
Total 10,000,000 100.00
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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--- page 194 ---
In early 2010, we became acquainted with Mr. Li Baoshan when he approached us for
procurement of boilers from us. We considered that the prospect of the heat services industry
where Shanxi Shuangliang Renewable Energy operated was promising. Therefore, we decided
to invest in Shanxi Shuangliang Renewable Energy. On 10 October 2010, our Company and
Shanxi Shuangliang Renewable Energy entered into a capital increase agreement, pursuant to
which our Company agreed to inject approximately RMB25.5 million into Shanxi Shuangliang
Renewable Energy, of which approximately RMB10.41 million was included as registered
capital of Shanxi Shuangliang Renewable Energy with the remaining RMB15.09 million being
included as capital reserves of Shanxi Shuangliang Renewable Energy. The investment amount
was determined at arm’s length negotiations between the parties having considered the net
asset value of Shanxi Shuangliang Renewable Energy as at the date of the capital increase.
Following the completion of the capital increase, our Company became a shareholder of Shanxi
Shuangliang Renewable Energy and held 51% equity interest in Shanxi Shuangliang
Renewable Energy, and its registered capital was increased from RMB10.0 million to
RMB20.41 million. The capital increase was completed and settled on 25 October 2010.
On 14 October 2010, various share transfer agreements were entered into in relation to the
transfer of equity interests in Shanxi Shuangliang Renewable Energy. Pursuant to the share
transfer agreements, (i) Mr. Wang Hongli agreed to transfer 16.33%, 13.47% and 5.20% equity
interest in Shanxi Shuangliang Renewable Energy to Mr. Duan Guochen (਷Ѕ΋͛) (an
Independent Third Party), Mr. Li Baoshan and Mr. Hou Futang (బੀ΋͛) (a former director
of Shanxi Shuangliang Renewable Energy between October 2010 and March 2020) at the
consideration of approximately RMB1.63 million, RMB1.35 million, and RMB0.52 million,
respectively; (ii) Mr. Yuan Xiang agreed to transfer 2% equity interest in Shanxi Shuangliang
Renewable Energy to Mr. Li Baoshan at the consideration of approximately RMB0.2 million;
(iii) Mr. Wang Yuzhe agreed to transfer 5% equity interest in Shanxi Shuangliang Renewable
Energy to Mr. Li Baoshan at the consideration of approximately RMB0.5 million; (iv) Mr. Liu
Peng agreed to transfer 1% equity interest in Shanxi Shuangliang Renewable Energy to Mr. Li
Baoshan at the consideration of RMB0.1 million; and (v) Mr. Hou Zhenfu agreed to transfer
5% equity interest in Shanxi Shuangliang Renewable Energy to Mr. Hou Futang at the
consideration of approximately RMB0.5 million. The considerations were determined after
arm’s length negotiations between the parties with reference to the amount of registered capital
of Shanxi Shuangliang Renewable Energy as at the date of the share transfer agreements. The
transfers were completed and settled on 25 October 2010.
Upon completion of the capital increase and share transfers on 25 October 2010, Shanxi
Shuangliang Renewable Energy was held as to 51% by our Company, 25.22% by Mr. Li
Baoshan, 8.33% by Mr. Chen Xibao, 8% by Mr. Duan Guochen, 5% by Mr. Hou Futang and
2.45% by Mr. Wang Yuan.
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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--- page 195 ---
The table below sets out the shareholding structure of Shanxi Shuangliang Renewable
Energy immediately upon completion of the aforementioned capital increase and share
transfers.
Shareholders
Registered
capital
Shareholding
percentage
(RMB) (%)
(1) Our Company 10,410,000 51.00
(2) Mr. Li Baoshan ( ҽᘒʆ΋͛) 5,146,700 25.22
(3) Mr. Chen Xibao ( ௓ఃజ΋͛) 1,700,000 8.33
(4) Mr. Duan Guochen (਷Ѕ΋͛) 1,632,800 8.00
(5) Mr. Hou Futang (బੀ΋͛) 1,020,500 5.00
(6) Mr. Wang Yuan ( ˮ๕΋͛) 500,000 2.45
Total 20,410,000 100.00
On 14 February 2012, the then shareholders of Shanxi Shuangliang Renewable Energy,
namely Mr. Li Baoshan, Mr. Chen Xibao, Mr. Duan Guochen, Mr. Hou Futang, Mr. Wang Yuan
and our Company, resolved that the registered capital of Shanxi Shuangliang Renewable
Energy be increased from RMB20.41 million to RMB30 million by way of conversion of
capital reserve. The increased registered capital was contributed by the then shareholders in
proportion to their respective shareholdings in Shanxi Shuangliang Renewable Energy. Our
Company, Mr. Li Baoshan, Mr. Chen Xibao, Mr. Duan Guochen, Mr. Hou Futang and Mr. Wang
Yuan contributed to the increase in registered capital in the amount of approximately RMB4.89
million, RMB2.42 million, RMB0.80 million, RMB0.77 million, RMB0.48 million and
RMB0.23 million respectively.
The table below sets out the shareholding structure of Shanxi Shuangliang Renewable
Energy immediately upon completion of the aforementioned capital increase.
Shareholders
Registered
capital
Shareholding
percentage
(RMB) (%)
(1) Our Company 15,300,900 51.00
(2) Mr. Li Baoshan ( ҽᘒʆ΋͛) 7,565,300 25.22
(3) Mr. Chen Xibao ( ௓ఃజ΋͛) 2,498,900 8.33
(4) Mr. Duan Guochen (਷Ѕ΋͛) 2,400,000 8.00
(5) Mr. Hou Futang (బੀ΋͛) 1,500,000 5.00
(6) Mr. Wang Yuan ( ˮ๕΋͛) 734,900 2.45
Total 30,000,000 100.00
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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On 25 October 2014, various share transfer agreements were entered into in relation to the
transfer of equity interests in Shanxi Shuangliang Renewable Energy between the then
shareholders of Shanxi Shuangliang Renewable Energy and certain new investors. Pursuant to
the share transfer agreements, (i) Mr. Li Baoshan agreed to transfer 25.22% equity interest in
Shanxi Shuangliang Renewable Energy to Shanxi Taiyangneng Solar Thermal Power
Generation Co., Limited* (ʮ̡) (a company wholly-owned by Mr.
Li Ze ( ҽዣ΋͛), who is the son of Mr. Li Baoshan) at the consideration of approximately
RMB7.57 million; (ii) Mr. Chen Xibao agreed to transfer 8.33% equity interest in Shanxi
Shuangliang Renewable Energy to Shanxi Jinzhengda Energy Saving and Environmental
Protection Technology Development Company Limited* (ࠢ
ʮ̡) at the consideration of approximately RMB2.5 million; (iii) Mr. Duan Guochen agreed
to transfer 8% equity interest in Shanxi Shuangliang Renewable Energy to Taiyuan Creative
Source Technology Trading Company Limited* (ʮ̡)a tt h e
consideration of approximately RMB2.4 million; and (iv) Mr. Hou Futang agreed to transfer
5% equity interest in Shanxi Shuangliang Renewable Energy to Shanxi Jirui New Energy
Technology Company Limited* (ʮ̡) (a company wholly-owned by
Ms. Zhao Sufang (ɾɻ) who is an Independent Third Party) at the consideration of
approximately RMB1.5 million. See “– 2. Our corporate structure before the Global Offering
– Note 12” in this section for details of the shareholding structure of Shanxi Jinzhengda Energy
Saving and Environmental Protection Technology Development Company Limited* (ቍ
ʮ̡) and Taiyuan Creative Source Technology Trading Company
Limited* (ʮ̡). The considerations were determined after arm’s length
negotiations between the parties with reference to the amount of registered capital of Shanxi
Shuangliang Renewable Energy at the time of the transfers. The transfers were completed and
settled on 5 November 2014. Upon completion of the share transfers, Shanxi Shuangliang
Renewable Energy was held as to 51.00% by our Company, 25.22% by Shanxi Taiyangneng
Solar Thermal Power Generation Co., Limited* (ʮ̡), 8.33% by
Shanxi Jinzhengda Energy Saving and Environmental Protection Technology Development
Company Limited* (ʮ̡), 8% by Taiyuan Creative Source
Technology Trading Company Limited* (ʮ̡), 5% by Shanxi Jirui New
Energy Technology Company Limited* (ʮ̡) and 2.45% by Mr.
Wang Yuan.
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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The table below sets out the shareholding structure of Shanxi Shuangliang Renewable
Energy immediately upon completion of the aforementioned share transfers.
Shareholders
Registered
capital
Shareholding
percentage
(RMB) (%)
(1) Our Company 15,300,900 51.00
(2) Shanxi Taiyangneng Solar Thermal Power
Generation Co., Limited*
(ʮ̡)
7,565,300 25.22
(3) Shanxi Jinzhengda Energy Saving and
Environmental Protection Technology
Development Company Limited*
(ʮ̡)
2,498,900 8.33
(4) Taiyuan Creative Source Technology
Trading Company Limited*
(ʮ̡)
2,400,000 8.00
(5) Shanxi Jirui New Energy Technology
Company Limited*
(ʮ̡)
1,500,000 5.00
(6) Mr. Wang Yuan ( ˮ๕΋͛) 734,900 2.45
Total 30,000,000 100.00
On 29 November 2016, our Company entered into a share transfer agreement pursuant to
which 51% equity interest in Shanxi Shuangliang Renewable Energy was transferred by our
Company to Wise Living Energy, being our direct wholly-owned subsidiary, at the
consideration of approximately RMB15.30 million. On the same day, Shanxi Taiyangneng
Solar Thermal Power Generation Co., Limited entered into a share transfer agreement to
transfer 25.22% equity interest in Shanxi Shuangliang Renewable Energy to Shanxi Zhenye
New Energy Company Limited* (ʮ̡) at the consideration of
approximately RMB7.57 million. See “– 2. Our corporate structure before the Global Offering
– Note 12” in this section for details of the shareholding structure of Shanxi Zhenye New
Energy Company Limited* (ʮ̡). The considerations were determined
after arm’s length negotiations between the parties with reference to the amount of registered
capital of Shanxi Shuangliang Renewable Energy at the time of the transfers. The transfers
were completed and settled on 14 December 2016.
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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--- page 198 ---
Shareholders
Registered
capital
Shareholding
percentage
(RMB) (%)
(1) Wise Living Energy 15,300,900 51.00
(2) Shanxi Zhenye New Energy Company
Limited* (ʮ̡)
7,565,300 25.22
(3) Shanxi Jinzhengda Energy Saving and
Environmental Protection Technology
Development Company Limited* (ږ
ʮ̡)
2,498,900 8.33
(4) Taiyuan Creative Source Technology
Trading Company Limited* (௴จ๕
ʮ̡)
2,400,000 8.00
(5) Shanxi Jirui New Energy Technology
Company Limited* (Ҧ
ʮ̡)
1,500,000 5.00
(6) Mr. Wang Yuan ( ˮ๕΋͛) 734,900 2.45
Total 30,000,000 100.00
On 16 March 2020, Shanxi Jirui New Energy Technology Company Limited entered into
a share transfer agreement to transfer 5% equity interest in Shanxi Shuangliang Renewable
Energy to Shanxi Chenghe Business Information Service Limited* (؂
ʮ̡) at the consideration of approximately RMB1.5 million. See “– 2. Our corporate
structure before the Global Offering – Note 12” in this section for details of the shareholding
structure of Shanxi Chenghe Business Information Service Limited* (ፔ༔
ʮ̡). The consideration was determined after arm’s length negotiations between the
parties with reference to the amount of registered capital of Shanxi Shuangliang Renewable
Energy at the time of transfer. The transfer was completed and settled on 14 April 2020.
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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--- page 199 ---
The table below sets out the shareholding structure of Shanxi Shuangliang Renewable
Energy immediately upon completion of the aforementioned share transfer.
Shareholders
Registered
capital
Shareholding
percentage
(RMB) (%)
(1) Wise Living Energy 15,300,900 51.00
(2) Shanxi Zhenye New Energy Company
Limited* (ʮ̡)
7,565,300 25.22
(3) Shanxi Jinzhengda Energy Saving and
Environmental Protection Technology
Development Company Limited* (ږ
ʮ̡)
2,498,900 8.33
(4) Taiyuan Creative Source Technology
Trading Company Limited* (௴จ๕
ʮ̡)
2,400,000 8.00
(5) Shanxi Chenghe Business Information
Service Limited* (ፔ༔
ʮ̡)
1,500,000 5.00
(6) Mr. Wang Yuan ( ˮ๕΋͛) 734,900 2.45
Total 30,000,000 100.00
Shanxi Shuangliang Renewable Energy is principally engaged in the business of
provision of heat services. Pursuant to the Shuozhou Concession Agreement, Shanxi
Shuangliang Renewable Energy obtained the concession right for the heat services within the
Concession Area of Shuozhou, Shanxi Province, and the actual construction, management and
operation of such heat service was designated to Shuozhou Renewable Energy.
With the exception of Shuozhou Concession Agreement, all of the Concession
Agreements are operated by our subsidiaries being the party to the respective Concession
Agreements.
(3) Hulunbuir Shuangliang
Hulunbuir Shuangliang was established by our Company and Mr. Gu Dongsheng (ʺ
΋͛), a director of Hulunbuir Shuangliang and a minority shareholder holding 1.11% equity
interest in our Company, under the laws of the PRC as a limited liability company on 11 March
2013, with an initial registered capital of RMB10 million.
Upon the establishment of Hulunbuir Shuangliang, our Company and Mr. Gu Dongsheng
held 85% and 15% of its registered capital respectively. Since the establishment, Mr. Gu
Dongsheng has been a director of Hulunbuir Shuangliang responsible for the management and
supervision over the operation of Hulunbuir Shuangliang.
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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--- page 200 ---
On 11 September 2014, Mr. Gu Dongsheng transferred 15% of the equity interest in
Hulunbuir Shuangliang to Hulunbuir Dongsheng Energy Investment Company Limited* (ࡐ
ʮ̡), 70% of the registered capital of which is held by Mr. Gu
Dongsheng. The transfer was completed and settled on 10 September 2014. Upon completion
of the share transfer, Hulunbuir Shuangliang was held as to 85% by our Company and 15% by
Hulunbuir Dongsheng Energy Investment Company Limited* (ࠢ
ʮ̡).
On 29 November 2016, our Company entered into a share transfer agreement to transfer
85% of the equity interest in Hulunbuir Shuangliang to Wise Living Energy, being our direct
wholly-owned subsidiary, at the consideration of RMB8.5 million. The consideration was
determined after arm’s length negotiations between the parties with reference to the amount of
registered capital of Hulunbuir Shuangliang at the time of transfer. The transfer was completed
and settled on 30 November 2016. Upon completion of the share transfer, Hulunbuir
Shuangliang was held as to 85% by Wise Living Energy and 15% by Hulunbuir Dongsheng
Energy Investment Company Limited* (ʮ̡).
Hulunbuir Shuangliang is principally engaged in the business of provision of heat
services. Hulunbuir Shuangliang is the holder of the concession right for the heat services
within the Concession Area of Hulunbuir, Inner Mongolia, pursuant to the Hulunbuir
Concession Agreement.
(4) Gansu Shuangliang
Gansu Shuangliang was established by our Company and Mr. Yang Koulin (΋͛),
a director of Gansu Shuangliang and Lanzhou Shuangliang, under the laws of the PRC as a
limited liability company on 27 February 2013. Since the establishment of Gansu Shuangliang
and up to 26 December 2016, its registered capital had been held as to 80% and 20% by our
Company and Mr. Yang Koulin respectively.
On 27 December 2016, our Company, Mr. Yang Koulin, Wise Living Energy (our direct
wholly-owned subsidiary) and Lanzhou Hanhai Trading Company Limited* ( ᚆψᖍऎਠ൱Ϟ
ʮ̡)( “Lanzhou Hanhai ”) (a company which was held as to 60% by Mr. Yang Koulin and
40% by his family members and relatives) entered into share transfer agreements, pursuant to
which 80% and 20% equity interest in Gansu Shuangliang were transferred to Wise Living
Energy and Lanzhou Hanhai at the consideration of RMB8 million and RMB2 million,
respectively. The considerations were determined after arm’s length negotiations between the
parties with reference to the amount of registered capital of Gansu Shuangliang at the time of
the transfers. The transfers were completed and settled on 27 December 2016. Upon
completion of the transfers, Gansu Shuangliang was held as to 80% and 20% by Wise Living
Energy and Lanzhou Hanhai, respectively. Gansu Shuangliang is principally engaged in
investment holding.
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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--- page 201 ---
(5) Lanzhou Shuangliang
Lanzhou Shuangliang was established by Gansu Shuangliang and Lanzhou New District
Thermal Power Co., Ltd.* (ப΂ʮ̡) (a company wholly owned by
Lanzhou Housing and Urban-Rural Development Bureau* (ண҅)) under
the laws of the PRC as a limited liability company on 31 July 2013, with an initial registered
capital of RMB20 million. On 19 February 2014, Lanzhou New District Thermal Power Co.,
Ltd* (ʮ̡) entered into a share transfer agreement to transfer 30% of the
registered capital in Lanzhou Shuangliang to Gansu Shuangliang at the consideration of
approximately RMB6 million. The consideration was determined after arm’s length
negotiations between the parties with reference to the amount of registered capital of Lanzhou
Shuangliang at the time of transfer. Upon completion of the share transfer, Lanzhou
Shuangliang became a wholly owned subsidiary of Gansu Shuangliang. Lanzhou Shuangliang
is principally engaged in the business of provision of heat services. Lanzhou Shuangliang is the
holder of the concession rights for the heat services within the Concession Area of Lanzhou
New Area, Gansu Province, the PRC pursuant to the Lanzhou New Area Concession
Agreement.
(6) Shuozhou Renewable Energy
Shuozhou Renewable Energy was established by Shanxi Shuangliang Renewable Energy
and Taiyuan Renewable Energy under the laws of the PRC as a limited liability company on
23 May 2011, with an initial registered capital of RMB50 million. Shuozhou Renewable
Energy is principally engaged in the business of provision of heat services. Pursuant to the
Shuozhou Concession Agreement, Shanxi Shuangliang Renewable Energy obtained the
concession right for the heat services within the Concession Area of Shuozhou, Shanxi
Province, the PRC, and the actual construction, management and operation of such heat service
was designated to Shuozhou Renewable Energy.
(7) Taiyuan Renewable Energy
Taiyuan Renewable Energy was established by Shanxi Shuangliang Renewable Energy
(our indirectly non wholly-owned subsidiary), under the laws of the PRC as a limited liability
company on 22 May 2009, with an initial registered capital of RMB5 million. Taiyuan
Renewable Energy is principally engaged in the business of provision of heat services, and is
the holder of the concession rights for the heat services within the Concession Area of Taiyuan,
Shanxi Province, the PRC pursuant to the Taiyuan Concession Agreement.
(8) Shanxi Demonstration Zone Heat Supply
Shanxi Demonstration Zone Heat Supply was incorporated on 19 September 2018 by
Taiyuan Renewable Energy as a limited liability company under the laws of the PRC with an
initial registered capital of RMB100 million. Shanxi Demonstration Zone Heat Supply is
principally engaged in the provision of heat services. Pursuant to the Shanxi Demonstration
Zone Concession Agreement, Shanxi Demonstration Zone Heat Supply is the holder for the
concession rights for heat services within the Concession Area of Taiyuan, Shanxi Province,
the PRC.
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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--- page 202 ---
(9) Tech-Thermal (Zhengzhou)
Tech-Thermal (Zhengzhou) was established by Wise Living Energy and Zhengzhou
Qindu Thermal Power Limited* (ப΂ʮ̡) under the laws of the PRC as a
limited liability company on 10 December 2020. See “– 2. Our corporate structure before the
Global Offering – Note 16” in this section for details of the shareholding structure of
Zhengzhou Qindu Thermal Power Limited* (ப΂ʮ̡). Since the
establishment of Tech-Thermal (Zhengzhou), its registered capital was held as to 80% by Wise
Living Energy and 20% by Zhengzhou Qindu Thermal Power Limited* (ப
΂ʮ̡). Tech-Thermal (Zhengzhou) is principally engaged in the business of provision of heat
services. Tech-Thermal (Zhengzhou) is the holder of the concession rights for the heat services
within the Concession Area of Xinmi, Henan Province, the PRC, pursuant to the Xinmi
Concession Agreement.
DEREGISTRATION AND DISPOSAL DURING THE TRACK RECORD PERIOD
To streamline our Group’s organisational structure, during the Track Record Period, seven
subsidiaries of our Company had been deregistered. Details of such deregistrations are set out
below:
Name of subsidiaries
Interest
held directly or
indirectly by
our Company
before
deregistration Principal business
Reason of
deregistration
Date of
deregistration
Wise Living Environmental
Energy* (Ҧ
(̏ԯ)ʮ̡)
80% Engagement of various
projects in relation to
heat service (generated
by natural gas) and the
development and
promotion of energy
saving technologies
No commencement
of operation since
its establishment
on 11 April 2019
24 March
2020
Shanxi New Energy
Equipment* ( ʆГᕐԄอ
ʮ̡)
100% Production of
mechanical equipment,
electronic devices,
air-conditioning
equipment, valves and
water pumps
Only maintain
minimal operation
since its
establishment on
8 January 2018
26 May 2020
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
– 192 –


--- page 203 ---
Name of subsidiaries
Interest
held directly or
indirectly by
our Company
before
deregistration Principal business
Reason of
deregistration
Date of
deregistration
Southern Taiyuan Heat
Supply* (௅Զᆠ
ʮ̡)
100% Construction, operation
and management of
transformation projects
relating to renewable
energy resources,
clean energy resources
and energy saving
technologies
No commencement
of operation since
its establishment
on 28 April 2013
9 March 2020
Hohhot Wise Living* ( խձ
ʮ
̡)
100% Heat services and
development of clean
resources
No commencement
of operation since
its establishment
on 17 May 2019
1 November
2021
Shuozhou Shiji New Energy
Thermal Power Co., Ltd*
(อঐ๕ᆠɢϞ
ʮ̡)
100% Heat services No commencement
of operation since
its establishment
on 1 September
2021
31 December
2021
Shuozhou Dongyu New
Energy Heating Co.,
Ltd.* (ρอঐ๕
ʮ̡)
100% Heat services No commencement
of operation since
its establishment
on 3 September
2021
31 December
2021
Shuozhou Jincheng New
Energy Thermal Power
Co., Ltd.*
(༐อঐ๕ᆠɢϞ
ʮ̡)
100% Heat services No commencement
of operation since
its establishment
on 2 September
2021
31 December
2021
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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--- page 204 ---
Our Directors confirm that (i) none of the aforementioned deregistered companies was
involved in any material claims, litigations or non-compliance incidents during the Track
Record Period and up to its respective date of deregistration; and that (ii) the deregistration of
the aforementioned companies had no material adverse impact on our Group’s financial
performance, financial position and cash flows during the Track Record Period because all
these companies carried out minimal operation or no operation since their respective
establishments.
Further, we also disposed of Shuozhou Electricity Sales during the Track Record Period,
details are set out below:
Name of subsidiary
Interest
held directly or
indirectly by
our Company
before disposal Principal business Transferee Reason of disposal
Date of
disposal
Shuozhou Electricity
Sales
100% Sale of electricity Shanxi Ouke
Material
Technology Co.
Limited* ( ʆГᆄ
ʮ
̡), an
Independent Third
Party
Shuozhou
Electricity Sales
only had minimal
operation since its
establishment on
20 July 2017, and
its business
differs from our
business
23 June 2020
Our Directors confirm that (i) Shuozhou Electricity Sales was not involved in any
material claims, litigations or non-compliance incidents during the Track Record Period and up
to its date of disposal, (ii) the disposal of Shuozhou Electricity Sales had no material adverse
impact on our Group’s financial performance, financial position and cash flows because
Shuozhou Electricity Sales carried out minimal operation since its establishment on 20 July
2017; and (iii) Shuozhou Electricity Sales was disposed of by our Group at nil consideration
because we had not made payment for its registered capital since its establishment. The
disposal of Shuozhou Electricity Sales was completed on 23 June 2020.
Our PRC Legal advisers confirmed that the above-mentioned deregistrations or disposal
of our subsidiaries were lawful, valid and in compliance with the relevant PRC legal
requirements.
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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--- page 205 ---
2 Our corporate structure before the Global Offering
The following chart sets out the shareholding and simplified corporate structure of our
Group as at the Latest Practicable Date:
Shuangliang
Technology
Mr. Miao
Shuangda
(Note 1)
Mr. Miao
Wenbin
(Note 1)
Mr. Jiang
Rongfang
(Note 3)
Mr. Ma
Peilin
(Note 4)
Mr. Ma
Fulin
(Note 4)
Mr. Miao
Zhiqiang
(Note 2)
Ms. Miao
Shuya
(Notes 2
and 5)
Mr. Miao
Heida
(Notes 1
and 6)
20% 15% 10%15% 10%10% 10% 10%
Jiangsu Lichuang
Mr. Li
Baoshan
(Note 7)
Mr. Gu
Dongsheng
(Note 7)
Mr. Liu
Jiansheng
(Note 7)
Mr. Liu
Jing
(Note 7)66.38% 22.58%
2.66% 1.11% 1.11% 0.88% 0.88%
Mr. Li
Fenglin
(Note 9)
0.88%
Mr. Wang
Xiaosong
(Note 8)
0.88% 0.88%0.88%0.88%
Our Company
Wise Living Energy
Hulunbuir
Shuangliang
(Note 11)
Inner
Mongolia
Wise
Living
(Note 13)
100%
85% 51% 77.89%80%
100%100%
100%
Lanzhou
Shuangliang
Gansu
Smart
Energy
Gansu
Shuangliang
(Note 10)
Shanxi
Shuangliang
Renewable
Energy
(Note 12)
Shanxi
Demonstration
Zone
Heat Supply
100% 100% 100%
Taiyuan
Renewable
Energy
90%
10% Shuozhou
Renewable
Energy
Shanxi
Carbon
Trading
Shanxi
Shuangliang
New
Energy
70%
Datong
Renewable
Energy
(Note 14)
90% 100%
Lvliang
Renewable
Energy
(Note 15)
Shanxi
Smart
Life
Tech-Thermal
(Zhengzhou)
(Note 16)
Wise
Living
Energy
(Baotou)
80% 100%
Zhengzhou
Wise
Living
100%
Mr. Geng
Ming
(Note 7)
Mr. Liu
Guoyin
(Note 8)
Mr. Shan
Yulin
(Note 8)
Mr. Jiang
Shaojun
(Note 8)
Notes:
1. Mr. Miao Shuangda ( ᐷᕐɽ΋͛) and Mr. Miao Heida ( ᐷලɽ΋͛) are siblings. Mr. Miao Shuangda ( ᐷᕐ
ɽ΋͛) is the father of Mr. Miao Wenbin ( ᐷ˖੸΋͛).
2. Mr. Miao Zhiqiang ( ᐷқ੶΋͛) and Ms. Miao Shuya ( ᐷബૹɾɻ) are cousins of Mr. Miao Wenbin ( ᐷ˖੸
΋͛).
3. Mr. Jiang Rongfang ( Ϫ࿲˙΋͛) has extensive experience in lithium bromide cooling technology and is an
expert entitled to government special allowance by the State Council. Mr. Jiang Rongfang is one of the
founders of Shuangliang Group Co. and a shareholder of Shuangliang Eco-Energy. He acted as a director of
Shuangliang Eco-Energy between 27 March 2004 and 22 September 2021. Save for his shareholdings in
Shuangliang Technology and Jiangsu Lichuang, Mr. Jiang Rongfang ( Ϫ࿲˙΋͛) has no other relationship
with our Company and the other Controlling Shareholders.
4. Mr. Ma Peilin (΋͛) and Mr. Ma Fulin (΋͛) are siblings. Mr. Ma Fulin (΋͛)i sa
cousin-in-law of Mr. Miao Wenbin ( ᐷ˖੸΋͛).
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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--- page 206 ---
5. As part of a family succession plan on 11 December 2019, Ms. Miao Shuya ( ᐷബૹɾɻ) received the
respective 10% of registered capital in Shuangliang Technology and Jiangsu Lichuang from her father Mr.
Miao Minda ( ᐷઽ༺΋͛), who is a sibling of Mr. Miao Shuangda and Mr. Miao Heida, at nil consideration.
6. As Mr. Miao Heida ( ᐷලɽ΋͛) was at the age of 76 in 2021 and concerned about his health, on 9 August
2021, Mr. Miao Heida ( ᐷලɽ΋͛) transferred his investment in Shuangliang Technology and Jiangsu
Lichuang, which held 66.38% and 22.58% equity interests in our Company respectively as at the Latest
Practicable Date to his sons, Mr. Miao Shuyan (΋͛) and Mr. Miao Shuyang ( ᐷബ౮΋͛) equally at
nil consideration. Mr. Miao Shuyan (΋͛), Mr. Miao Shuyang ( ᐷബ౮΋͛) and Mr. Miao Heida ( ᐷ
ලɽ΋͛) entered into a nominee arrangement, whereby Mr. Miao Shuyan (΋͛) and Mr. Miao
Shuyang ( ᐷബ౮΋͛) agreed to act as nominees for and on behalf of Mr. Miao Heida ( ᐷලɽ΋͛)i n
accordance with the instructions of Mr. Miao Heida ( ᐷලɽ΋͛) in managing, handling and dealing with the
matters (including but not limited to the exercise of relevant voting rights in general meetings) in relation to
his investment in Shuangliang Technology and Jiangsu Lichuang. On 1 March 2022, the nominee arrangement
was terminated as Mr. Miao Heida’s ( ᐷලɽ΋͛) health had been improved, and the registered capital in each
of Shuangliang Technology and Jiangsu Lichuang was transferred back to Mr. Miao Heida ( ᐷලɽ΋͛)a tn i l
consideration on the same day.
7. Mr. Li Baoshan ( ҽᘒʆ΋͛) is one of our executive Directors. Mr. Geng Ming ( অჼ΋͛) is one of our
executive Directors. Mr. Gu Dongsheng (ʺ΋͛)( “Mr. Gu ”) is the chairman of the board of directors of
Hulunbuir Shuangliang, one of our subsidiaries. Mr. Liu Jiansheng (͛΋͛) is the director of Gansu Smart
Energy which is our subsidiary. Mr. Liu Jing ( ᄎ௞΋͛) is the vice chairman of the board of directors in
Tech-Thermal (Zhengzhou), one of our subsidiaries.
8. Mr. Shan Yulin (΋͛) is one of the vice presidents of Shuangliang Group Co.. Mr. Liu Guoyin ( ᄎ਷
ვ΋͛) is a member of the management team of a subsidiary of Shuangliang Group Co.. Mr. Jiang Shaojun
(΋͛) is one of the vice presidents of Shuangliang Group Co., and Mr. Wang Xiaosong (΋͛)
is the investment director of Shuangliang Group Co..
9. Mr. Li Fenglin (΋͛) is a director of a subsidiary of Shuangliang Technology.
10. The remaining 20% of the registered capital of Gansu Shuangliang is held by Lanzhou Hanhai, the registered
capital of which is held as to 60% by Mr. Yang Koulin (΋͛)( “ Mr. Y ang”), a director of Gansu
Shuangliang and Lanzhou Shuangliang, 30% by Ms. Ding Yue’e (ɾɻ), the spouse of Mr. Yang and
10% by Ms. Zhu Huijuan (ɾɻ), the daughter in law of Mr. Yang. Lanzhou Hanhai is considered a
connected person of our Company at the subsidiary level upon the Listing (by virtue of it being a substantial
shareholder of Gansu Shuangliang which is an indirect subsidiary of our Company). The principal business of
Lanzhou Hanhai is (among others) wholesale and retail of water heating materials and maintenance of related
equipment. Gansu Shuangliang benefited from the business resources provided by Lanzhou Hanhai when
exploring its heat services market in Gansu Province. Mr. Yang, being a controlling shareholder of Lanzhou
Hanhai, is appointed as a director of Gansu Shuangliang and participates in the management and operation of
Gansu Shuangliang. He is also appointed as a director of Lanzhou Shuangliang (a direct wholly-owned
subsidiary of Gansu Shuangliang) and participates in the management and operation of Lanzhou Shuangliang.
Wise Living Energy (a direct wholly-owned subsidiary of our Company), by virtue of holding 80% equity
interest in Gansu Shuangliang and enjoying 80% voting rights in the shareholders’ meetings of Gansu
Shuangliang, has the power over Gansu Shuangliang as it has the ability to direct the activities that
significantly affect Gansu Shuangliang’s returns. As such, our Group has the rights to variable returns and is
able to affect shareholders’ returns from its involvement with Gansu Shuangliang. Therefore, our Group was
able to consolidate the results of Gansu Shuangliang under IFRS 10.
Save for his equity interest in Lanzhou Hanhai, Mr. Yang holds 80% equity interest in Jiayuguan Sanjin
Commerce and Trade Development Company Limited* (ʮ̡)( “ Jiayuguan
Sanjin CTDC ”) which is a connected person of our Company at the subsidiary level upon the Listing (by
virtue of it being an associate of Mr. Yang, who is a substantial shareholder of Gansu Shuangliang (an indirect
subsidiary of our Company)). Mr. Yang has also served as a director of Jiayuguan Sanjin CTDC, the principal
business of which is wholesale and retail of metal materials, chemical materials, hardware and electrical
equipment, agricultural and side products, articles of daily use and tea, retail of gold, silver and copper
products.
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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--- page 207 ---
11. The remaining 15% of the registered capital of Hulunbuir Shuangliang is held by Hulunbuir Dongsheng Energy
Investment Company Limited* (ʮ̡)( “ Hulunbuir Dongsheng Energy ”), the
registered capital of which is held as to 70% by Mr. Gu, the chairman of the board of directors of Hulunbuir
Shuangliang, and 30% by Ms. Jin Shuhua (ૺശɾɻ), the spouse of Mr. Gu. Hulunbuir Dongsheng Energy
is considered a connected person of our Company at the subsidiary level upon the Listing (by virtue of it being
a substantial shareholder of Hulunbuir Shuangliang which is an indirect subsidiary of the Company). The
principal business of Hulunbuir Dongsheng Energy is investment in energy industry and provision of
consulting services. Hulunbuir Shuangliang benefited from the business resources provided by Hulunbuir
Dongsheng Energy when exploring its heat services market in Hulunbuir City. Mr. Gu, being a controlling
shareholder of Hulunbuir Dongsheng Energy, is appointed as the chairman of the board of directors of
Hulunbuir Shuangliang and is primarily responsible for the management and supervision over the operation of
Hulunbuir Shuangliang. Mr. Gu has approximately 10 years of experience in the heat services and new energy
industries. In respect of public office, Mr. Gu was appointed as a representative of the fifth National People’s
Congress of Hulunbuir City* (ڌin 2022. Save for his equity interests in
Hulunbuir Dongsheng Energy and our Company, Mr. Gu does not hold any equity interest in any entities in
the PRC.
Wise Living Energy (a direct wholly-owned subsidiary of our Company), by virtue of holding 85% equity
interest in Hulunbuir Shuangliang and enjoying 85% voting rights in the shareholders’ meetings of Hulunbuir
Shuangliang, has the power over Hulunbuir Shuangliang as it has the ability to direct the activities that
significantly affect Hulunbuir Shuangliang’s returns. As such, our Group has the rights to variable returns and
is able to affect shareholder’s returns from its involvement with Hulunbuir Shuangliang. Therefore, our Group
was able to consolidate the results of Hulunbuir Shuangliang under IFRS 10.
12. The remaining 49% of the registered capital of Shanxi Shuangliang Renewable Energy is held as to (i) 25.22%
by Shanxi Zhenye New Energy Company Limited* (ʮ̡)( “ Shanxi Zhenye ”) which is
wholly owned by Mr. Du Fu ( Ӂ၅΋͛) who is the brother-in-law of Mr. Yan Dong (΋͛) (a former
director of Shuozhou Electricity Sales between 20 July 2017 and 28 May 2021); (ii) 8.33% by Shanxi
Jinzhengda Energy Saving and Environmental Protection Technology Development Company Limited* ( ʆГ
ʮ̡)( “Shanxi Jinzhengda ”) which is held as to 60% by Ms. Wang Aiwen ( ˮ
ฌ˖ɾɻ) who is the spouse of Mr. Chen Xibao ( ௓ఃజ΋͛) (a director of Zhengzhou Wise Living and a
supervisor of Tech-Thermal (Zhengzhou)); (iii) 8% by Taiyuan Creative Source Technology Trading Company
Limited* (ʮ̡)( “ Taiyuan Creative ”), which is wholly owned by Ms. Li Cuilan ( ҽၯ
ᚆɾɻ), an Independent Third Party; (iv) 5% by Shanxi Chenghe Business Information Service Limited* ( ʆ
ʮ̡)( “Shanxi Chenghe ”) which is wholly owned by Ms. Hou Jiaying (Գ຃
ɾɻ)( “ Ms. Hou ”) (a director of Shanxi Shuangliang Renewable Energy); and (v) 2.45% by Mr. Wang Yuan
(ˮ๕΋͛)( “Mr. Wang”) (a supervisor of Taiyuan Renewable Energy). Other than Taiyuan Creative, the other
minority shareholders are connected persons of our Company at the subsidiary level. Shanxi Zhenye is
considered a connected person of our Company at the subsidiary level upon the Listing (by virtue of it being
a substantial shareholder of Shanxi Shuangliang Renewable Energy which is an indirect subsidiary of the
Company). The principal business of Shanxi Zhenye is (among others) technology development, consultation
and transfer in energy-saving technology, new energy technology promotion and consultation. Shanxi Zhenye
is committed to develop new energy projects in Shanxi Province, which helped Shanxi Shuangliang Renewable
Energy with its heat services planning in Shanxi Province. Shanxi Jinzhengda is considered a connected person
of our Company at the subsidiary level upon the Listing (by virtue of it being an associate of a director of
Zhengzhou Wise Living and a supervisor of Tech-Thermal (Zhengzhou), both of which are indirect subsidiaries
of our Company). The principal business of Shanxi Jinzhengda is (among others) the development, application
and sales of new technologies, new products and new processes for the energy-saving and environmental
protection industry, sales, installation and system integration of energy-saving and environmental protection
equipment, technology consulting services for energy-saving and environmental protection. Shanxi
Shuangliang Renewable Energy benefited from the new technologies developed by Shanxi Jinzhengda when
upgrading its heating technologies. Shanxi Chenghe is considered a connected person of our Company at the
subsidiary level upon the Listing (by virtue of it being an associate of a director of Shanxi Shuangliang
Renewable Energy which is an indirect subsidiary of our Company). The principal business of Shanxi Chenghe
is (among others) enterprise management services, conference and exhibition services and taxation services.
Shanxi Shuangliang Renewable Energy benefited from the business resources provided by Shanxi Chenghe
when exploring its heat services market in Shanxi Province. Mr. Wang is considered a connected person of our
Company at the subsidiary level upon the Listing (by virtue of him being a supervisor of Taiyuan Renewable
Energy which is an indirect subsidiary of our Company). Mr. Wang is familiar with the heat services market
in Shanxi Province and has confidence in the business performance and operations of Shanxi Shuangliang
Renewable Energy. Shanxi Shuanliang Renewable Energy benefited from his business resources when
exploring the heat services market in Shanxi Province.
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Save for Ms. Hou, the sole shareholder of Shanxi Chenghe who is appointed as a director of Shanxi
Shuangliang Renewable Energy and participates in the management and operation of Shanxi Shuangliang
Renewable Energy, all other minority shareholders of Shanxi Shuangliang Renewable Energy are passive
investors who do not participate in the management and operation of Shanxi Shuangliang Renewable Energy.
Wise Living Energy (a direct wholly-owned subsidiary of our Company), by virtue of holding 51% equity
interest in Shanxi Shuangliang Renewable Energy and enjoying 51% voting rights in the shareholders’
meetings of Shanxi Shuangliang Renewable Energy, has the power over Shanxi Shuangliang Renewable
Energy as it has the ability to direct the activities that significantly affect Shanxi Shuangliang Renewable
Energy’s returns. As such, our Group has the rights to variable returns and is able to affect shareholders’
returns from its involvement with Shanxi Shuangliang Renewable Energy. Therefore, our Group was able to
consolidate the results of Shanxi Shuangliang Renewable Energy under IFRS 10.
13. The remaining 22.11% of the registered capital of Inner Mongolia Wise Living is held by Inner Mongolia
Environmental Governance Construction Company Limited* (ʮ̡)( “ Inner
Mongolia Environmental Construction ”), the registered capital of which is wholly owned by Inner Mongolia
Environmental Protection Investment Group Co., Ltd* (ʮ̡), a State-owned
enterprise. Inner Mongolia Environmental Construction is considered a connected person of our Company at
the subsidiary level upon the Listing (by virtue of it being a substantial shareholder of Inner Mongolia Wise
Living which is an indirect subsidiary of our Company). The principal business of Inner Mongolia
Environmental Construction is the provision of comprehensive environmental management services (including
construction, operation, maintenance, management and consultation) in water, atmosphere, soil, industrial
solid waste, domestic waste, hazardous waste and new energy industry, research and development, production
and sales of new environmental protection products and equipment, import and export of environmental
protection products. Inner Mongolia Wise Living benefited from the business resources, experience and social
network of Inner Mongolia Environmental Construction when exploring its heat services market in Inner
Mongolia Autonomous Region. Mr. Zhang Liping ( ੵл̻) who is the chairman of the board of directors of
Inner Mongolia Environmental Construction and Mr. Li Yaoting (ࢬwho was nominated by Inner
Mongolia Environmental Construction, are appointed as the directors of Inner Mongolia Wise Living and
participate in the management and operation of Inner Mongolia Wise Living.
Wise Living Energy (a direct wholly-owned subsidiary of our Company), by virtue of holding 77.89% equity
interest in Inner Mongolia Wise Living and enjoying 77.89% voting rights in the shareholders’ meetings of
Inner Mongolia Wise Living, has the power over Inner Mongolia Wise Living as it has the ability to direct the
activities that significantly affect Mongolia Wise Living’s returns. As such, our Group has the rights to variable
returns and is able to affect shareholders’ returns from its involvement with Inner Mongolia Wise Living.
Therefore, our Group was able to consolidate the results of Inner Mongolia Wise Living under IFRS 10.
14. The remaining 30% of the registered capital of Datong Renewable Energy is held as to (i) 15% by Mr. Zhang
Quan ( ੵᛆ΋͛)( “ Mr. Zhang ”) (a director of Datong Renewable Energy and a brother-in-law of Mr. Li
Baoshan); (ii) 10% by Mr. Li Wen ( ҽ˖΋͛)( “ Mr. Li ”) (a supervisor of Datong Renewable Energy and a
nephew of Mr. Li Baoshan); and (iii) 5% by Ms. Zhao Lihong (ɾɻ)( “ Ms. Zhao ”) (a director of
Datong Renewable Energy). Mr. Zhang, Mr. Li and Ms. Zhao are considered connected persons of our
Company at the subsidiary level upon the Listing (by virtue of them being a director, supervisor and director
of Datong Renewable Energy, respectively, which is an indirect subsidiary of our Company) and they all
participate in the management and operation of Datong Renewable Energy. Mr. Zhang, Mr. Li and Ms. Zhao
are familiar with the heat services industry and the heat services market of Datong City, and have confidence
in the business performance and operations of Datong Renewable Energy. Datong Renewable Energy benefited
from their business resources, knowledge and social network when exploring its heat services market in
Datong City.
Taiyuan Renewable Energy (an indirect non wholly-owned subsidiary of our Company), by virtue of holding
70% equity interest in Datong Renewable Energy and enjoying 70% voting rights in the shareholders’ meetings
of Datong Renewable Energy, has the power over Datong Renewable Energy as it has the ability to direct the
activities that significantly affect Datong Renewable Energy’s returns. As such, our Group has the rights to
variable returns and is able to affect shareholders’ returns from its involvement with Datong Renewable
Energy. Therefore, our Group was able to consolidate the results of Datong Renewable Energy under IFRS 10.
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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15. The remaining 10% of the registered capital of Lvliang Renewable Energy is held by Mr. Xue Ming ( ᑡთ΋
͛)( “ Mr. Xue ”) who is a former director of Lvliang Renewable Energy between 30 November 2009 and 3
February 2021. Mr. Xue is considered a connected person of our Company at the subsidiary level upon the
Listing (by virtue of him being a substantial shareholder of Lvliang Renewable Energy which is an indirect
subsidiary of our Company). Mr. Xue is familiar with the heat services market in Lvliang City and has
confidence in the business performance and operations of Lvliang Renewable Energy. Lvliang Renewable
Energy benefited from his business resources when exploring its heat services market in Lvliang City. Mr. Xue
is a passive investor who no longer participates in the management and operation of Lvliang Renewable
Energy since 29 January 2021.
Taiyuan Renewable Energy (an indirect non wholly-owned subsidiary of our Company), by virtue of holding
90% equity interest in Lvliang Renewable Energy and enjoying 90% voting rights in the shareholders’
meetings of Lvliang Renewable Energy, has the power over Lvliang Renewable Energy as it has the ability to
direct the activities that significantly affect Lvliang Renewable Energy’s returns. As such, our Group has the
rights to variable returns and is able to affect shareholders’ returns from its involvement with Lvliang
Renewable Energy. Therefore, our Group was able to consolidate the results of Lvliang Renewable Energy
under IFRS 10.
16. The remaining 20% of the registered capital of Tech-Thermal (Zhengzhou) was held by Zhengzhou Qindu
Thermal Power Limited* (ப΂ʮ̡)( “Zhengzhou Qindu ”), the registered capital of which
is held as to 25% by Mr. Cai Donghong (҃΋͛)( “Mr. Cai ”), a supervisor of Tech-Thermal (Zhengzhou)
and 75% by seven other Independent Third Parties. Zhengzhou Qindu is considered a connected person of our
Company at the subsidiary level upon the Listing (by virtue of it being a substantial shareholder of
Tech-Thermal (Zhengzhou) which is an indirect subsidiary of our Company). The principal business of
Zhengzhou Qindu is development, operation, and maintenance of gas, water and heat supply projects and
construction and maintenance of pipeline works. Tech-Thermal (Zhengzhou) benefited from the business
resources and experience of Zhengzhou Qindu when exploring its heat services market in Xinmi City.
Tech-Thermal (Zhengzhou) is mainly responsible for the coordination work of the Xinmi Project. Mr. Cai,
being a substantial shareholder of Zhengzhou Qindu, is appointed as a supervisor of Tech-Thermal
(Zhengzhou) and participates in the operation of Tech-Thermal (Zhengzhou).
Wise Living Energy (a direct wholly-owned subsidiary of our Company), by virtue of holding 80% equity
interest in Tech-Thermal (Zhengzhou) and enjoying 80% voting rights in the shareholders’ meetings of
Tech-Thermal (Zhengzhou), has the power over Tech-Thermal (Zhengzhou) as it has the ability to direct the
activities that significantly affect Tech-Thermal (Zhengzhou)’s returns. As such, our Group has the rights to
variable returns and is able to affect shareholders’ returns from its involvement with Tech-Thermal
(Zhengzhou). Therefore, our Group was able to consolidate the results of Tech-Thermal (Zhengzhou) under
IFRS 10.
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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3. Our corporate structure following the Global Offering
The following chart sets out the shareholding and simplified corporate structure of our
Group immediately following the completion of the Global Offering, assuming that the
Over-allotment Option is not exercised:
49.75% 16.91%
25.07%
Public
1.99% 0.83% 0.83% 0.66% 0.66% 0.66% 0.66% 0.66% 0.66%0.66%
Shuangliang
Technology
Mr. Miao
Shuangda
(Note 1)
Mr. Miao
Wenbin
(Note 1)
Mr. Jiang
Rongfang
(Note 3)
Mr. Ma
Peilin
(Note 4)
Mr. Ma
Fulin
(Note 4)
Mr. Miao
Zhiqiang
(Note 2)
Ms. Miao
Shuya
(Notes 2
and 5)
Mr. Miao
Heida
(Notes 1
and 6)
20% 15% 10%15% 10%10% 10% 10%
Jiangsu Lichuang
Mr. Li
Baoshan
(Note 7)
Mr. Gu
Dongsheng
(Note 7)
Mr. Liu
Jiansheng
(Note 7)
Mr. Liu
Jing
(Note 7)
Mr. Li
Fenglin
(Note 9)
Mr. Wang
Xiaosong
(Note 8)
Mr. Jiang
Shaojun
(Note 8)
Mr. Geng
Ming
(Note 7)
Mr. Liu
Guoyin
(Note 8)
Mr. Shan
Yulin
(Note 8)
Our Company
Wise Living Energy
Hulunbuir
Shuangliang
(Note 11)
Inner
Mongolia
Wise
Living
(Note 13)
100%
85% 51% 77.89%80%
100%
100%
Lanzhou
Shuangliang
Gansu
Shuangliang
(Note 10)
Shanxi
Shuangliang
Renewable
Energy
(Note 12)
Shanxi
Demonstration
Zone
Heat Supply
100%
Taiyuan
Renewable
Energy
90%
10% Shuozhou
Renewable
Energy
70%
Datong
Renewable
Energy
(Note 14)
90%
Lvliang
Renewable
Energy
(Note 15)
Tech-Thermal
(Zhengzhou)
(Note 16)
80%
Zhengzhou
Wise
Living
100%
Wise
Living
Energy
(Baotou)
100%
100%
Gansu
Smart
Energy
100% 100%
Shanxi
Carbon
Trading
Shanxi
Shuangliang
New
Energy
100%
Shanxi
Smart
Life
Notes:
1. Mr. Miao Shuangda ( ᐷᕐɽ΋͛) and Mr. Miao Heida ( ᐷලɽ΋͛) are siblings. Mr. Miao Shuangda ( ᐷᕐ
ɽ΋͛) is the father of Mr. Miao Wenbin ( ᐷ˖੸΋͛).
2. Mr. Miao Zhiqiang ( ᐷқ੶΋͛) and Ms. Miao Shuya ( ᐷബૹɾɻ) are cousins of Mr. Miao Wenbin ( ᐷ˖੸
΋͛).
3. Mr. Jiang Rongfang ( Ϫ࿲˙΋͛) has extensive experience in lithium bromide cooling technology and is an
expert entitled to government special allowance by the State Council. Mr. Jiang Rongfang is one of the
founders of Shuangliang Group Co. and a shareholder of Shuangliang Eco-Energy. He acted as a director of
Shuangliang Eco-Energy between 27 March 2004 and 22 September 2021. Save for his shareholdings in
Shuangliang Technology and Jiangsu Lichuang, Mr. Jiang Rongfang ( Ϫ࿲˙΋͛) has no other relationship
with our Company and the other Controlling Shareholders.
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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4. Mr. Ma Peilin (΋͛) and Mr. Ma Fulin (΋͛) are siblings. Mr. Ma Fulin (΋͛)i sa
cousin-in-law of Mr. Miao Wenbin ( ᐷ˖੸΋͛).
5. As part of a family succession plan on 11 December 2019, Ms. Miao Shuya ( ᐷബૹɾɻ) received the
respective 10% of registered capital in Shuangliang Technology and Jiangsu Lichuang from her father Mr.
Miao Minda ( ᐷઽ༺΋͛), who is a sibling of Mr. Miao Shuangda and Mr. Miao Heida, at nil consideration.
6. As Mr. Miao Heida ( ᐷලɽ΋͛) was at the age of 76 in 2021 and concerned about his health, on 9 August
2021, Mr. Miao Heida ( ᐷලɽ΋͛) transferred his investment in Shuangliang Technology and Jiangsu
Lichuang, which held 66.38% and 22.58% equity interests in our Company respectively as at the Latest
Practicable Date to his sons, Mr. Miao Shuyan (΋͛) and Mr. Miao Shuyang ( ᐷബ౮΋͛) equally at
nil consideration. Mr. Miao Shuyan (΋͛), Mr. Miao Shuyang ( ᐷബ౮΋͛) and Mr. Miao Heida ( ᐷ
ලɽ΋͛) entered into a nominee arrangement, whereby Mr. Miao Shuyan (΋͛) and Mr. Miao
Shuyang ( ᐷബ౮΋͛) agreed to act as nominees for and on behalf of Mr. Miao Heida ( ᐷලɽ΋͛)i n
accordance with the instructions of Mr. Miao Heida ( ᐷලɽ΋͛) in managing, handling and dealing with the
matters (including but not limited to the exercise of relevant voting rights in general meetings) in relation to
his investment in Shuangliang Technology and Jiangsu Lichuang. On 1 March 2022, the nominee arrangement
was terminated as Mr. Miao Heida’s ( ᐷලɽ΋͛) health had been improved, and the registered capital in each
of Shuangliang Technology and Jiangsu Lichuang was transferred back to Mr. Miao Heida ( ᐷලɽ΋͛)a tn i l
consideration on the same day.
7. Mr. Li Baoshan ( ҽᘒʆ΋͛) is one of our executive Directors. Mr. Geng Ming ( অჼ΋͛) is one of our
executive Directors. Mr. Gu Dongsheng (ʺ΋͛)( “Mr. Gu ”) is the chairman of the board of directors of
Hulunbuir Shuangliang, one of our subsidiaries. Mr. Liu Jiansheng (͛΋͛) is the director of Gansu Smart
Energy which is our subsidiary. Mr. Liu Jing ( ᄎ௞΋͛) is the vice chairman of the board of directors in
Tech-Thermal (Zhengzhou), one of our subsidiaries.
8. Mr. Shan Yulin (΋͛) is one of the vice presidents of Shuangliang Group Co.. Mr. Liu Guoyin ( ᄎ਷
ვ΋͛) is a member of the management team of a subsidiary of Shuangliang Group Co.. Mr. Jiang Shaojun
(΋͛) is one of the vice presidents of Shuangliang Group Co., and Mr. Wang Xiaosong (΋͛)
is the investment director of Shuangliang Group Co..
9. Mr. Li Fenglin (΋͛) is a director of a subsidiary of Shuangliang Technology.
10. The remaining 20% of the registered capital of Gansu Shuangliang is held by Lanzhou Hanhai, the registered
capital of which is held as to 60% by Mr. Yang Koulin (΋͛)( “ Mr. Y ang”), a director of Gansu
Shuangliang and Lanzhou Shuangliang, 30% by Ms. Ding Yue’e (ɾɻ), the spouse of Mr. Yang and
10% by Ms. Zhu Huijuan (ɾɻ), the daughter in law of Mr. Yang. Lanzhou Hanhai is considered a
connected person of our Company at the subsidiary level upon the Listing (by virtue of it being a substantial
shareholder of Gansu Shuangliang which is an indirect subsidiary of our Company). The principal business of
Lanzhou Hanhai is (among others) wholesale and retail of water heating materials and maintenance of related
equipment. Gansu Shuangliang benefited from the business resources provided by Lanzhou Hanhai when
exploring its heat services market in Gansu Province. Mr. Yang, being a controlling shareholder of Lanzhou
Hanhai, is appointed as a director of Gansu Shuangliang and participates in the management and operation of
Gansu Shuangliang. He is also appointed as a director of Lanzhou Shuangliang (a direct wholly-owned
subsidiary of Gansu Shuangliang) and participates in the management and operation of Lanzhou Shuangliang.
Wise Living Energy (a direct wholly-owned subsidiary of our Company), by virtue of holding 80% equity
interest in Gansu Shuangliang and enjoying 80% voting rights in the shareholders’ meetings of Gansu
Shuangliang, has the power over Gansu Shuangliang as it has the ability to direct the activities that
significantly affect Gansu Shuangliang’s returns. As such, our Group has the rights to variable returns and is
able to affect shareholders’ returns from its involvement with Gansu Shuangliang. Therefore, our Group was
able to consolidate the results of Gansu Shuangliang under IFRS 10.
Save for his equity interest in Lanzhou Hanhai, Mr. Yang holds 80% equity interest in Jiayuguan
Sanjin Commerce and Trade Development Company Limited* (ʮ̡)( “Jiayuguan
Sanjin CTDC ”) which is a connected person of our Company at the subsidiary level upon the Listing (by
virtue of it being an associate of Mr. Yang, who is a substantial shareholder of Gansu Shuangliang (an indirect
subsidiary of our Company)). Mr. Yang has also served as a director of Jiayuguan Sanjin CTDC, the principal
business of which is wholesale and retail of metal materials, chemical materials, hardware and electrical
equipment, agricultural and side products, articles of daily use and tea, retail of gold, silver and copper
products.
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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11. The remaining 15% of the registered capital of Hulunbuir Shuangliang is held by Hulunbuir Dongsheng Energy
Investment Company Limited* (ʮ̡)( “ Hulunbuir Dongsheng Energy ”), the
registered capital of which is held as to 70% by Mr. Gu, the chairman of the board of directors of Hulunbuir
Shuangliang, and 30% by Ms. Jin Shuhua (ૺശɾɻ), the spouse of Mr. Gu. Hulunbuir Dongsheng Energy
is considered a connected person of our Company at the subsidiary level upon the Listing (by virtue of it being
a substantial shareholder of Hulunbuir Shuangliang which is an indirect subsidiary of the Company). The
principal business of Hulunbuir Dongsheng Energy is investment in energy industry and provision of
consulting services. Hulunbuir Shuangliang benefited from the business resources provided by Hulunbuir
Dongsheng Energy when exploring its heat services market in Hulunbuir City. Mr. Gu, being a controlling
shareholder of Hulunbuir Dongsheng Energy, is appointed as the chairman of the board of directors of
Hulunbuir Shuangliang and is primarily responsible for the management and supervision over the operation of
Hulunbuir Shuangliang. Mr. Gu has approximately 10 years of experience in the heat services and new energy
industries. In respect of public office, Mr. Gu was appointed as a representative of the fifth National People’s
Congress of Hulunbuir City* (ڌin 2022. Save for his equity interests in
Hulunbuir Dongsheng Energy and our Company, Mr. Gu does not hold any equity interest in any entities in
the PRC.
Wise Living Energy (a direct wholly-owned subsidiary of our Company), by virtue of holding 85% equity
interest in Hulunbuir Shuangliang and enjoying 85% voting rights in the shareholders’ meetings of Hulunbuir
Shuangliang, has the power over Hulunbuir Shuangliang as it has the ability to direct the activities that
significantly affect Hulunbuir Shuangliang’s returns. As such, our Group has the rights to variable returns and
is able to affect shareholder’s returns from its involvement with Hulunbuir Shuangliang. Therefore, our Group
was able to consolidate the results of Hulunbuir Shuangliang under IFRS 10.
12. The remaining 49% of the registered capital of Shanxi Shuangliang Renewable Energy is held as to (i) 25.22%
by Shanxi Zhenye New Energy Company Limited* (ʮ̡)( “ Shanxi Zhenye ”) which is
wholly owned by Mr. Du Fu ( Ӂ၅΋͛) who is the brother-in-law of Mr. Yan Dong (΋͛) (a former
director of Shuozhou Electricity Sales between 20 July 2017 and 28 May 2021); (ii) 8.33% by Shanxi
Jinzhengda Energy Saving and Environmental Protection Technology Development Company Limited* ( ʆГ
ʮ̡)( “ Shanxi Jinzhengda ”) which is held as to 60% by Ms. Wang Aiwen
(ˮฌ˖ɾɻ) who is the spouse of Mr. Chen Xibao ( ௓ఃజ΋͛) (a director of Zhengzhou Wise Living and
a supervisor of Tech-Thermal (Zhengzhou)); (iii) 8% by Taiyuan Creative Source Technology Trading
Company Limited* (ʮ̡)( “ Taiyuan Creative ”), which is wholly owned by Ms. Li
Cuilan ( ҽၯᚆɾɻ), an Independent Third Party; (iv) 5% by Shanxi Chenghe Business Information Service
Limited* (ʮ̡)( “ Shanxi Chenghe ”) which is wholly owned by Ms. Hou
Jiaying (Գ຃ɾɻ)( “ Ms. Hou ”) (a director of Shanxi Shuangliang Renewable Energy); and (v) 2.45% by
Mr. Wang Yuan ( ˮ๕΋͛)( “ Mr. Wang ”) (a supervisor of Taiyuan Renewable Energy). Other than Taiyuan
Creative, the other minority shareholders are connected persons of our Company at the subsidiary level. Shanxi
Zhenye is considered a connected person of our Company at the subsidiary level upon the Listing (by virtue
of it being a substantial shareholder of Shanxi Shuangliang Renewable Energy which is an indirect subsidiary
of the Company). The principal business of Shanxi Zhenye is (among others) technology development,
consultation and transfer in energy-saving technology, new energy technology promotion and consultation.
Shanxi Zhenye is committed to develop new energy projects in Shanxi Province, which helped Shanxi
Shuangliang Renewable Energy with its heat services planning in Shanxi Province. Shanxi Jinzhengda is
considered a connected person of our Company at the subsidiary level upon the Listing (by virtue of it being
an associate of a director of Zhengzhou Wise Living and a supervisor of Tech-Thermal (Zhengzhou), both of
which are indirect subsidiaries of our Company). The principal business of Shanxi Jinzhengda is (among
others) the development, application and sales of new technologies, new products and new processes for the
energy-saving and environmental protection industry, sales, installation and system integration of energy-
saving and environmental protection equipment, technology consulting services for energy-saving and
environmental protection. Shanxi Shuangliang Renewable Energy benefited from the new technologies
developed by Shanxi Jinzhengda when upgrading its heating technologies. Shanxi Chenghe is considered a
connected person of our Company at the subsidiary level upon the Listing (by virtue of it being an associate
of a director of Shanxi Shuangliang Renewable Energy which is an indirect subsidiary of our Company). The
principal business of Shanxi Chenghe is (among others) enterprise management services, conference and
exhibition services and taxation services. Shanxi Shuangliang Renewable Energy benefited from the business
resources provided by Shanxi Chenghe when exploring its heat services market in Shanxi Province. Mr. Wang
is considered a connected person of our Company at the subsidiary level upon the Listing (by virtue of him
being a supervisor of Taiyuan Renewable Energy which is an indirect subsidiary of our Company). Mr. Wang
is familiar with the heat services market in Shanxi Province and has confidence in the business performance
and operations of Shanxi Shuangliang Renewable Energy. Shanxi Shuanliang Renewable Energy benefited
from his business resources when exploring the heat services market in Shanxi Province.
HISTORY, DEVELOPMENT AND CORPORATE STRUCTURE
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Save for Ms. Hou, the sole shareholder of Shanxi Chenghe who is appointed as a director of Shanxi
Shuangliang Renewable Energy and participates in the management and operation of Shanxi Shuangliang
Renewable Energy, all other minority shareholders of Shanxi Shuangliang Renewable Energy are passive
investors who do not participate in the management and operation of Shanxi Shuangliang Renewable Energy.
Wise Living Energy (a direct wholly-owned subsidiary of our Company), by virtue of holding 51% equity
interest in Shanxi Shuangliang Renewable Energy and enjoying 51% voting rights in the shareholders’
meetings of Shanxi Shuangliang Renewable Energy, has the power over Shanxi Shuangliang Renewable
Energy as it has the ability to direct the activities that significantly affect Shanxi Shuangliang Renewable
Energy’s returns. As such, our Group has the rights to variable returns and is able to affect shareholders’ returns
from its involvement with Shanxi Shuangliang Renewable Energy. Therefore, our Group was able to
consolidate the results of Shanxi Shuangliang Renewable Energy under IFRS 10.
13. The remaining 22.11% of the registered capital of Inner Mongolia Wise Living is held by Inner Mongolia
Environmental Governance Construction Company Limited* (ʮ̡)( “ Inner
Mongolia Environmental Construction ”), the registered capital of which is wholly owned by Inner Mongolia
Environmental Protection Investment Group Co., Ltd* (ʮ̡), a State-owned
enterprise. Inner Mongolia Environmental Construction is considered a connected person of our Company at
the subsidiary level upon the Listing (by virtue of it being a substantial shareholder of Inner Mongolia Wise
Living which is an indirect subsidiary of our Company). The principal business of Inner Mongolia
Environmental Construction is the provision of comprehensive environmental management services (including
construction, operation, maintenance, management, and consultation) in water, atmosphere, soil, industrial
solid waste, domestic waste, hazardous waste and new energy industry, research and development, production
and sales of new environmental protection products and equipment, import and export of environmental
protection products. Inner Mongolia Wise Living benefited from the business resources, experience and social
network of Inner Mongolia Environmental Construction when exploring its heat services market in Inner
Mongolia Autonomous Region. Mr. Zhang Liping ( ੵл̻) who is the chairman of the board of directors of
Inner Mongolia Environmental Construction and Mr. Li Yaoting (ࢬwho was nominated by Inner
Mongolia Environmental Construction, are appointed as the directors of Inner Mongolia Wise Living and
participate in the management and operation of Inner Mongolia Wise Living.
Wise Living Energy (a direct wholly-owned subsidiary of our Company), by virtue of holding 77.89% equity
interest in Inner Mongolia Wise Living and enjoying 77.89% voting rights in the shareholders’ meetings of
Inner Mongolia Wise Living, has the power over Inner Mongolia Wise Living as it has the ability to direct the
activities that significantly affect Mongolia Wise Living’s returns. As such, our Group has the rights to variable
returns and is able to affect shareholders’ returns from its involvement with Inner Mongolia Wise Living.
Therefore, our Group was able to consolidate the results of Inner Mongolia Wise Living under IFRS 10.
14. The remaining 30% of the registered capital of Datong Renewable Energy is held as to (i) 15% by Mr. Zhang
Quan ( ੵᛆ΋͛)( “ Mr. Zhang ”) (a director of Datong Renewable Energy and a brother-in-law of Mr. Li
Baoshan); (ii) 10% by Mr. Li Wen ( ҽ˖΋͛)( “ Mr. Li ”) (a supervisor of Datong Renewable Energy and a
nephew of Mr. Li Baoshan); and (iii) 5% by Ms. Zhao Lihong (ɾɻ)( “ Ms. Zhao ”) (a director of
Datong Renewable Energy). Mr. Zhang, Mr. Li and Ms. Zhao are considered connected persons of our
Company at the subsidiary level upon the Listing (by virtue of them being a director, supervisor and director
of Datong Renewable Energy, respectively, which is an indirect subsidiary of our Company) and they all
participate in the management and operation of Datong Renewable Energy. Mr. Zhang, Mr. Li and Ms. Zhao
are familiar with the heat services industry and the heat services market of Datong City, and have confidence
in the business performance and operations of Datong Renewable Energy. Datong Renewable Energy benefited
from their business resources, knowledge and social network when exploring its heat services market in
Datong City.
Taiyuan Renewable Energy (an indirect non wholly-owned subsidiary of our Company), by virtue of holding
70% equity interest in Datong Renewable Energy and enjoying 70% voting rights in the shareholders’ meetings
of Datong Renewable Energy, has the power over Datong Renewable Energy as it has the ability to direct the
activities that significantly affect Datong Renewable Energy’s returns. As such, our Group has the rights to
variable returns and is able to affect shareholders’ returns from its involvement with Datong Renewable
Energy. Therefore, our Group was able to consolidate the results of Datong Renewable Energy under IFRS 10.
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15. The remaining 10% of the registered capital of Lvliang Renewable Energy is held by Mr. Xue Ming ( ᑡთ΋
͛)( “ Mr. Xue ”) who is a former director of Lvliang Renewable Energy between 30 November 2009 and 3
February 2021. Mr. Xue is considered a connected person of our Company at the subsidiary level upon the
Listing (by virtue of him being a substantial shareholder of Lvliang Renewable Energy which is an indirect
subsidiary of our Company). Mr. Xue is familiar with the heat services market in Lvliang City and has
confidence in the business performance and operations of Lvliang Renewable Energy. Lvliang Renewable
Energy benefited from his business resources when exploring its heat services market in Lvliang City. Mr. Xue
is a passive investor who no longer participates in the management and operation of Lvliang Renewable
Energy since 29 January 2021.
Taiyuan Renewable Energy (an indirect non wholly-owned subsidiary of our Company), by virtue of holding
90% equity interest in Lvliang Renewable Energy and enjoying 90% voting rights in the shareholders’
meetings of Lvliang Renewable Energy, has the power over Lvliang Renewable Energy as it has the ability to
direct the activities that significantly affect Lvliang Renewable Energy’s returns. As such, our Group has the
rights to variable returns and is able to affect shareholders’ returns from its involvement with Lvliang
Renewable Energy. Therefore, our Group was able to consolidate the results of Lvliang Renewable Energy
under IFRS 10.
16. The remaining 20% of the registered capital of Tech-Thermal (Zhengzhou) was held by Zhengzhou Qindu
Thermal Power Limited* (ப΂ʮ̡)( “Zhengzhou Qindu ”), the registered capital of which
is held as to 25% by Mr. Cai Donghong (҃΋͛)( “Mr. Cai ”), a supervisor of Tech-Thermal (Zhengzhou)
and 75% by seven other Independent Third Parties. Zhengzhou Qindu is considered a connected person of our
Company at the subsidiary level upon the Listing (by virtue of it being a substantial shareholder of
Tech-Thermal (Zhengzhou) which is an indirect subsidiary of our Company). The principal business of
Zhengzhou Qindu is development, operation, and maintenance of gas, water and heat supply projects and
construction and maintenance of pipeline works. Tech-Thermal (Zhengzhou) benefited from the business
resources and experience of Zhengzhou Qindu when exploring its heat services market in Xinmi City.
Tech-Thermal (Zhengzhou) is mainly responsible for the coordination work of the Xinmi Project. Mr. Cai,
being a substantial shareholder of Zhengzhou Qindu, is appointed as a supervisor of Tech-Thermal
(Zhengzhou) and participates in the operation of Tech-Thermal (Zhengzhou).
Wise Living Energy (a direct wholly-owned subsidiary of our Company), by virtue of holding 80% equity
interest in Tech-Thermal (Zhengzhou) and enjoying 80% voting rights in the shareholders’ meetings of
Tech-Thermal (Zhengzhou), has the power over Tech-Thermal (Zhengzhou) as it has the ability to direct the
activities that significantly affect Tech-Thermal (Zhengzhou)’s returns. As such, our Group has the rights to
variable returns and is able to affect shareholders’ returns from its involvement with Tech-Thermal
(Zhengzhou). Therefore, our Group was able to consolidate the results of Tech-Thermal (Zhengzhou) under
IFRS 10.
Public float
The 226,000,000 Shares held by Shuangliang Technology, Jiangsu Lichuang, Mr. Li
Baoshan ( ҽᘒʆ΋͛), Mr. Gu Dongsheng (ʺ΋͛), Mr. Liu Jiansheng (͛΋͛), Mr.
Liu Jing ( ᄎ௞΋͛), Mr. Shan Yulin (΋͛), Mr. Li Fenglin (΋͛), Mr. Liu
Guoyin ( ᄎ਷ვ΋͛), Mr. Wang Xiaosong (΋͛), Mr. Geng Ming ( অჼ΋͛) and Mr.
Jiang Shaojun (΋͛) represent all of our issued Shares as at the Latest Practicable Date,
or approximately 74.93% of our total issued Shares upon the Listing (assuming the
Over-allotment Option is not exercised), or approximately 72.22% of our total issued Shares
upon exercise of the Over-allotment Option in full, which will not be considered as part of the
public float as the Shares they hold are Domestic Shares which will not be converted into H
Shares and listed upon the completion of the Global Offering. Pursuant to the applicable PRC
laws, within the 12 months following the Listing Date, all current Shareholders could not
dispose of any of the Shares held by them.
Based on the above, it is expected that immediately following completion of the Global
Offering and assuming the Over-allotment Option is not exercised, the total number of listed
H Shares held by the public represents approximately 25.07% of the total number of issued
Shares of our Company.
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OVERVIEW
We are a cross-provincial heat service provider mainly operating in the “Three North
Region”. We were ranked No. 9 in terms of the aggregate actual heat service area in Shanxi
Province, Gansu Province and Inner Mongolia Autonomous Region in 2022 with a market
share of approximately 2.4% in terms of aggregate actual heat service area, according to the
Frost & Sullivan Report. We are principally engaged in the provision of heat services to
residential and non-residential heat service customers under concession rights. In addition to
our provision of heat services, which is considered as a public utility business, we also provide
heat-related (i) engineering construction services; and (ii) EMC services. We have had over a
decade of operational experience since we started our operation in 2010.
As at the Latest Practicable Date, we held six concessions, of which five were in
operation and one was under construction. During the Track Record Period, the majority of our
revenue was derived from our provision of heat services relating to the five concessions in
operation. In accordance with IFRIC 12 Service Concession Arrangements, during the Track
Record Period, we recognised revenue for our provision of (i) heat services; and (ii)
engineering construction services for our heat service projects under our concessions. For the
years ended 31 December 2020, 2021 and 2022, revenue derived from our provision of heat
services amounted to approximately RMB973.3 million, RMB1,035.2 million and RMB1,098.9
million, representing approximately 70.7%, 80.2% and 76.1% of our total revenue,
respectively.
The “Three North Region” generally experiences very cold weather during the winter
especially the areas north of the Qinling Mountain-Huaihe River ( ॢᏊ-˸̏ήਜ).
According to the Frost & Sullivan Report, the total heat service area (measured in terms of
GFA) in the PRC increased from 8.8 billion sq.m. in 2018 to 11.2 billion sq.m. in 2022. Such
area is expected to increase to 14.5 billion sq.m. in 2027, representing a CAGR of 5.2%
between 2022 and 2027. Such growth is mainly driven by an increase in demand for heat
services resulting from urbanisation and an increase in the PRC’s population, as well as an
increase in demand for heat services in the areas south of Qinling Mountain-Huaihe River ( ॢ
Ꮚ-ήਜ).
Since our inception in 2010, we have established a leading position in the heat service
industry in the “Three North Region”. As at the Latest Practicable Date, we had operational
presence in (i) Shanxi Province; (ii) Gansu Province; and (iii) Inner Mongolia Autonomous
Region. As at 31 December 2020, 2021 and 2022, our total Concession Area (measured in
terms of GFA) was approximately 362.3 million sq.m., 419.9 million sq.m. and 419.9 million
sq.m.. As at the same dates, our total actual heat service area (measured in terms of GFA) was
approximately 37.4 million sq.m., 39.8 million sq.m. and 41.9 million sq.m., respectively. As
at the Latest Practicable Date, our total actual heat service area (measured in terms of GFA)
was approximately 41.9 million sq.m., representing approximately 10.0% of our total
Concession Area of approximately 419.9 million sq.m..
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In recent years, the PRC Government has encouraged the use of more diversified and
clean heat sources in the heat service business and a series of government policies relating
thereto has come into effect. For instance, the Plan for Winter Clean Heating in the Northern
Region (2017-2021) (૶ᆎ՟า஝ྌ(2017-2021) ) provides that coal-fired
boilers with SO
2 emission exceeding the prescribed environment-friendly benchmark should be
gradually replaced, and more environmentally friendly and energy efficient coal-fired boilers
should be rolled out as replacement. The Measures of National Energy Administration for
Adopting Renewable Energy According to Local Conditions for Heat Services (ঐ๕҅
) encourage heat service providers to
utilise clean, low-carbon and renewable energy to produce heat for the provision of heat
services. The 14
th Five-Year Plan for Energy Conservation and Emission Reduction
Comprehensive Work Plan (Ι೯“ɤ̬ʞ”) issued by
the State Council in 2022 prescribes an “extremely low emission standard” (ᅺ๟) and
specifies the mission of the PRC Government to strengthen the environmental protection
measures in the PRC. We are committed to proactively upgrade our heat source portfolio to
support the aforementioned government initiatives. For details of our heat source portfolio, see
“– Heat sources” in this section. During the Track Record Period and up to the Latest
Practicable Date, we relied on four types of heat sources for all of our heat service projects
under concession rights. As accredited by the Lanzhou New Area Ecology and Environment
Bureau* ( ᚆψอਜ͛࿒ᐑྤ҅), our coal-fired boilers which we currently use in our Lanzhou
New Area Project comply with the relevant pollutant emission standard.
We only provide heat services to our heat service customers during the heat service period
prescribed by the relevant provincial and local laws and regulations. Such heat service period
varies depending on different climate in different locations of the Concession Areas. For
information relating to heat service periods, se e “ – Heat services – Seasonality” in this section.
Our heat service customers include residential and non-residential heat service customers. Our
residential customers are residents of household units while our non-residential customers
include property management companies, commercial operators, government institutions,
educational institutions, airports, train stations and hospitals. During the Track Record Period,
we maintained a broad customer base in relation to our heat services under our concessions.
As at 31 December 2020, 2021 and 2022, we had approximately 265,800, 282,400 and 303,900
heat service customers, respectively.
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The following table sets out our revenue by type of service/product for the years
indicated.
For the year ended 31 December
2020 2021 2022
(RMB’000) % (RMB’000) % (RMB’000) %
Heat services
– Fees from customers for
provision and distribution
of heat 739,940 53.8 778,442 60.3 853,542 59.1
– Price subsidies from local
government 167,908 12.1 182,500 14.2 161,676 11.2
– Pipeline connection fee 65,429 4.8 74,211 5.7 83,725 5.8
Sub-total 973,277 70.7 1,035,153 80.2 1,098,943 76.1
Engineering construction services 362,050 26.3 229,147 17.8 301,567 20.9
EMC services 4,157 0.3 3,972 0.3 3,002 0.2
Others
(Note) 36,837 2.7 22,363 1.7 40,220 2.8
Total 1,376,321 100.0 1,290,635 100.0 1,443,732 100.0
Note: “Others” mainly include heat transmission services, the sale of heat services-related goods, and designing
services.
Our revenue decreased from approximately RMB1,376.3 million for the year ended
31 December 2020 to approximately RMB1,290.6 million for the year ended 31 December
2021, and increased to approximately RMB1,443.7 million for the year ended 31 December
2022. Our net profit increased from approximately RMB98.3 million for the year ended
31 December 2020 to approximately RMB171.1 million for the year ended 31 December 2021.
Our net profit decreased from approximately RMB171.1 million for the year ended
31 December 2021 to approximately RMB140.4 million for the year ended 31 December 2022.
For detailed discussions regarding our revenue and net profit, see “Financial information –
Description of major components of our results of operations” in this prospectus.
OUR COMPETITIVE STRENGTHS
We believe that our competitive strengths as set out below set us apart from other heat
service providers across the provinces where we operate.
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We operate under multiple concession rights and were ranked No. 9 in terms of the
aggregate actual heat service area in Shanxi Province, Gansu Province and Inner
Mongolia Autonomous Region in 2022, according to the Frost & Sullivan Report
We specialise in providing heat services under concession rights. According to the Frost
& Sullivan Report, heat service businesses in the PRC are regulated by the relevant local
governments and housing and urban-rural development bureaux. Generally, heat service
providers are required to obtain concession rights to operate their heat service projects. The
ability to obtain concession rights and to manage large-scale heat service projects gives heat
service providers an edge over other market players. Heat service providers with concession
rights are generally entitled to operate their heat service projects in the heat service areas
granted to them on an exclusive basis. A successful candidate for a concession right, generally
speaking, needs to have sufficient heat service experience and capital to fund the requisite
upfront capital expenditures. Given our track record, we can demonstrate to our concession
grantors that we were capable of offering heat services to heat service customers and had
sufficient capital for the operation of heat service projects. We also can demonstrate that we
(i) have stable and reliable heating resources; (ii) possess experience in the provision of heat
services; (iii) have professional staff with heat service qualifications; and (iv) possess adequate
technological capabilities.
Our concession rights give us the exclusive right to provide heat services in our
Concession Area under concession rights in Taiyuan and Shuozhou of Shanxi Province,
Lanzhou of Gansu Province, Hulunbuir of Inner Mongolia Autonomous Region and Xinmi of
Henan Province. We believe that this enables us to benefit from the efforts of these provincial
governments to increase urbanisation rates, improve quality of life, replace less environment-
friendly boilers and upgrade heating technologies. As at 31 December 2022, we held
concession rights to provide heat services in a total Concession Area of approximately 419.9
million sq.m., of which 291.0 million sq.m. was in Shanxi Province, 68.3 million sq.m. was in
Gansu Province, 32.6 million sq.m. was in Henan Province and 28.0 million sq.m. was in Inner
Mongolia Autonomous Region.
Pursuant to the relevant PRC laws and regulations, the Concession Agreements under
which we have an exclusive right to operate our heat services business are generally subject
to an effective term of 30 years. One of them, however, has an effective term of only 25 years
according to the relevant local by-laws. We believe that our exclusive concession rights enable
us to reach a large base of potential customers within our Concession Area on an exclusive
basis in the short to medium term. As at 31 December 2022, our total actual heat service area
covered only approximately 10.0% of our total Concession Area under our concession rights.
According to the 14
th Five-Year Plan (2021-2025) for National Economic and Social
Development and the Long-Range Objectives Through the Year 2035 (࢝
ʞϋ஝ྌձ2035) jointly issued by the Central Committee of the
Communist Party of China* (ึ) and the State Council, the urbanisation
rate in the PRC is expected to increase by approximately 5.0% between 2021 and 2025. An
increase in urban population is expected to result in an increased demand for heat services. We
expect that our unutilised Concession Area presents great potential for our business expansion
in the foreseeable future.
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Our Concession Area is mostly located within key development zones and newly
developed urban zones, both of which are expected to see future economic growth. In line with
the relevant provincial government’s focus on vitalising the economy in these zones, our
business operation is likely to benefit from all development in such areas. For example, Shanxi
Transformation and Comprehensive Reform Demonstration Zone* (ͪᇍਜ)
occupies an area of approximately 600.0 million sq.m. and covers eight industry-university-
research zones located in Taiyuan. Shanxi Transformation and Comprehensive Reform
Demonstration Zone* (ͪᇍਜ) is the first transformation and
comprehensive reform demonstration area in the PRC. We expect that our actual heat service
area in Shanxi Transformation and Comprehensive Reform Demonstration Zone* (ၝ
ͪᇍਜ) will increase to approximately 49.0 million sq.m. by 2030, in accordance with
the current development plan of Xiaohe Industrial Park proposed by the relevant local
government authority, which is a core part of the development zone. By keeping track of the
development of the Shanxi Transformation and Comprehensive Reform Demonstration Zone,
including the current proposed development of Xiaohe Industrial Park, we intend to maintain
our relationship with the local government to explore any potential growth opportunities.
Moreover, we will continue to monitor any further favourable government policies that
encourage the development of the Shanxi Transformation and Comprehensive Reform
Demonstration Zone, which will help the growth of our customers within the area.
We are a cross-provincial heat service provider capable of managing multiple heat service
projects in different provinces of the PRC
We commenced our provision of heat services operation in 2010 when we established our
presence in Shanxi Province. We subsequently expanded our business to Inner Mongolia
Autonomous Region and Gansu Province in 2013 and 2014, respectively. We successfully
obtained a concession right to provide heat services in Xinmi of Henan Province in December
2021. As at the Latest Practicable Date, we had reached the final stages of our preparation to
provide heat services in Xinmi. We expect that our provision of heat services in Xinmi of
Henan Province will commence in or around November 2023 during the 2023/2024 heat
service period. For the details of our heat service projects, see “– Heat services – Heat service
projects under concession operation” in this section. Further, as at the Latest Practicable Date,
we had won (through open bidding) the concession to provide our heat services in Baotou in
Inner Mongolia Autonomous Region, and were in the process of entering into a concession
agreement with the relevant concession grantor.
With over a decade of operational experience, we believe that we have developed strong
capabilities in terms of systematic regional expansion, management and operation to support
our overall operation. According to the Frost & Sullivan Report, the heat services market in the
PRC is fragmented with a large number of market players comprising both regional and
cross-provincial heat service providers, and we were ranked No. 9 in terms of the aggregate
actual heat service area in Shanxi Province, Gansu Province and Inner Mongolia Autonomous
Region in 2022 (of which we were the second largest cross-provincial heat services provider).
Our heat services management software tool, which includes a heat production monitoring
software tool and heat transmission monitoring software tool, enables us to control, streamline
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and manage our operations in multiple locations effectively. We believe that our cross-
provincial operation benefits from multiple government initiatives such as price subsidies will
enable us to achieve cost efficiency in all key stages throughout our operation. We also believe
that our cross-provincial market presence enables us to reduce the risk or impact to us in the
unlikely event of any of our concession rights being adversely affected.
Our existing concession rights predominantly cover the “Three North Region”. We are
however well-positioned to enter, and have demonstrated that we are indeed capable of
successfully entering the heat service market in other parts of northern China by virtue of our
existing cross-provincial operation. We believe that our current business success can be
replicated in and expanded to other regions in China.
We are able to utilise diversified heat sources, providing clean and quality heat services
Due to geographical and climatic factors, heat is a basic necessity for people living in
northern China. We believe that clean and high-quality heat services should be accessible to the
entire population in northern China. Our mission is to improve people’s living conditions and
change their lifestyles. Such mission echoes the PRC Government’s continuous
implementation of projects aimed at improving the living standard of the nationwide
population ( ͏͛ʈ೻).
We derive heat used in our heat services business from multiple sources. During the Track
Record Period and up to the Latest Practicable Date, our heat sources included (i) heat procured
from cogeneration plants; (ii) heat produced by coal-fired boilers; (iii) residual heat collected
at plants; and (iv) geothermal heat. Driven by the demand for sustainable development, the
PRC Government is committed to using clean and renewable energy to reduce environmental
pollution. We have developed technologies to collect and utilise clean and renewable heat
resources, such as residual heat collected at plants and geothermal heat. In respect of residual
heat collected at plants, we built an origin station with a set of residual heat collection and
utilisation system in Shentou Second Power Station for our Shuozhou Project and Shentou
Second Power Station was subsequently accredited as a Power Top Plant by Power Magazine
in October 2013, a reputable authority in the power generation industry, for its achievement on
improved energy conservation and reduced emission. We have applied the same absorption heat
pump technology of residual heat collection and utilisation system at Shentou Second Power
Station to our Lanzhou New Area Project to the extent that we can. Further, cogeneration, as
confirmed by Frost & Sullivan, is a more efficient use of fuel or heat compared to traditional
fossil fuel power generation because the otherwise-wasted heat from electricity generation is
put to some productive use. Having electricity as the main product of cogeneration plants, heat
generated from the cogeneration plants is a by-product or joint product of the electricity
generation, providing not only an alternative source of income, but also reducing energy
wastes. Our PRC Legal Advisers advised that as at the Latest Practicable Date, we were in
compliance with all the relevant national environmental protection requirements in all material
aspects. For more details of our heat sources, see “– Heat sources” in this section.
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Supported by our advanced heat service technologies and diversified heat sources, we
believe that we are capable of applying clean and suitable heat solutions for our heat service
projects. When selecting heat sources, we take a holistic approach and would consider,
amongst other things, local circumstances in different regions, the actual needs of our heat
service customers, availability of different heat sources, and economic and commercial
considerations.
We possess in-house research and development capabilities, which allow us to improve the
efficiency of our heat service operation with a view to maintaining and improving our
market position
We possess technologies relating to our provision of heat services. With our technological
capabilities, we believe that we are well positioned to gain entry into new markets. Our
intellectual property rights in relation to these technologies are crucial to our business
operation and success. As at the Latest Practicable Date, we had five patents registered with
the China National Intellectual Property Administration which relate to heat service systems
during the cogeneration process. We believe that such systems are considered to be leading
technologies in the industry. For the details of our intellectual property rights, see
“– Intellectual property” in this section and “Statutory and general information – Further
information about our business – Intellectual property rights” as set out in Appendix VII to this
prospectus.
We have continuously invested in research and development. Our corporate slogan is
“learning leads to advancement, innovation leads to eternity” ( ኪ୦ʑঐආ՟,ܩ.)
For the years ended 31 December 2020, 2021 and 2022, our research and development
expenses were approximately RMB4.7 million, RMB7.7 million and RMB8.2 million,
representing approximately 0.4%, 0.8% and 0.7% of our total costs of sales during the same
years, respectively. As at 31 December 2022, our research and development team comprised 20
employees, all of whom are degree holders with relevant experience in heat service-related
design and technology. We have established a research and development centre in Taiyuan of
Shanxi Province. Since 2018, this centre has been dedicated to enhancing our research and
development capabilities, strengthening our research and application of new energy heat
service technologies, and promoting innovation. In addition, we have participated in the
drafting of provincial technical codes which came into effect in the heat services industry, such
as the Technical Code for Shallow Ground-source Heat Pump System* (ӻ୕ʈ
೻Ҧஔ஝ᇍ) and the Technical Code for Middle and Deep Geothermal Heating Engineering*
(ʕଉᄴήᆠԶᆠʈ೻Ҧஔ஝ᇍ).
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We have a digitalised heat services management software tool and a customer service
system which control our cross-provincial operation and enhance our operational
efficiency
Our heat services management software tool is a digitalised software tool which allows
us to continuously access real-time information relating to our heat services operation, and
feeding the same in digital form for processing, thereby allowing us to efficiently and
optimally manage our heat services business and to provide our services to our heat service
customers. Such software tool mainly consists of (i) a heat production monitoring software tool
which monitors the heat production process and the operation of our heat service facilities; and
(ii) a heat transmission monitoring software tool which monitors the heat transmission process.
We also have a customer service system which allows us to respond to our customers’ requests
and concerns in a timely manner. Over the years, we have significantly invested in the research
and development of various heating technologies, as well as the optimisation of our heat
services management software tool and customer service system. We believe that our heat
services management software tool and customer service system enable us to achieve our
energy-saving targets and business efficiency, and enable our heat service customers to directly
control their needs. As at the Latest Practicable Date, we were operating our heat services
business through our heat services management software tool and customer service system in
most of our actual heat service area. For more information, see “– Heat services management
software tool” in this section.
We have an experienced and committed management team
Our management team has in-depth knowledge of the heat service industry and is
committed to ensuring that our business operation is running efficiently and effectively while
controlling quality. Mr. Geng Ming ( অჼ΋͛), the Chairman of our Board and an executive
Director, has been responsible for overseeing our daily heat service operation since our
establishment. Mr. Geng has extensive experience in corporate management in the energy
sector. Mr. Li Baoshan ( ҽᘒʆ΋͛), an executive Director and the general manager of our
Company, has been serving our Group for more than a decade and has over 19 years of
experiences in the energy resource sector. Mr. Miao Wenbin ( ᐷ˖੸΋͛), our non-executive
Director, has extensive experience in investment, sales and public relationship in various
companies. For more information relating to our management team, see “Directors, supervisors
and senior management” in this prospectus.
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OUR STRATEGIES
Our core business objective is to consolidate and improve our position in the PRC’s heat
service industry. In line with this objective, we intend to leverage our competitive strengths and
implement the following strategies.
Bolster our business presence in the “Three North Region” and enlarge our customer base
We intend to ride on our established presence, network and experience in the heat service
industry in the “Three North Region”, as well as our technological capabilities, to bolster our
business presence in the region.
As at 31 December 2020, 2021 and 2022, our total Concession Area under our Concession
Agreements was approximately 362.3 million sq.m., 419.9 million sq.m. and 419.9 million
sq.m.. As at the same dates, our total actual heat service area (measured in terms of GFA) was
approximately 37.4 million sq.m., 39.8 million sq.m. and 41.9 million sq.m., respectively. Our
total actual heat service area as at 31 December 2022 accounted for only approximately 10.0%
of our total Concession Area under our Concession Agreements as at the same date. There is
therefore a lot of scope for us to further expand our actual heat service area and reach a wider
base of customers. Within our Concession Area, we plan to keep pace with local urban
developments to grow the business which is in line with the needs of the customers in our
actual heat service area. The local government informs us of its local urban development plans
in advance to ensure that the provision of heat services, being a public utility service, can be
ensured in view of local conditions and other infrastructure constraints. As it typically takes
only between three to six months for our construction of heat service facilities for heat service
projects, we have historically been able to make timely construction of heat service
infrastructure for the provision of heat services in the rural or suburban areas within our
Concession Area (despite the fact that there may not be any preexisting heat services
infrastructure in such areas) in accordance with the local urban development plans of these
areas. While we usually engage qualified external contractors to carry out the construction of
heat service infrastructure, we will usually have a team of technical staff responsible for
supervising and overseeing the construction. According to the Frost & Sullivan Report, the
heat service industry in the PRC is expected to experience steady growth and continuous
development, the total heat service area (measured in terms of GFA) in PRC is expected to
increase from 11.2 billion sq.m. in 2022 to 14.5 billion sq.m. in 2027, representing an expected
CAGR of 5.2% between 2022 and 2027. In line with local urbanisation and economic
development in the areas which we operate and the anticipated expansion of our actual heat
service area within the next few years, we plan to enhance our heat service capacity so that we
can continue to provide stable heat services to our new and existing heat service customers.
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In particular, according to “14th Five-Year” Lanzhou Economic Circle Development Plan
(“ɤ̬ʞ”஝ྌ”) published by the People’s Government of Gansu
Province (ִ݁in October 2021, construction activities of public utility
infrastructure in Lanzhou New Area ( ᚆψอਜ) is expected to see a significant increase along
with the urbanisation and economic reform in the following five years. During the Track
Record Period, heat sources for Lanzhou New Area Project included (i) heat produced by
coal-fired boilers, and (ii) residual heat collected at plants. With the steady expansion of our
actual heat service area in Lanzhou of Gansu Province, we estimate that our existing heat
sources for Lanzhou will not be able to meet the increasing demand for our heat services. We
applied and were approved by Lanzhou New Area Economy Development Bureau* ( ᚆψอਜ
҅) in March 2020 to construct a new peak-shaving boiler with a capacity of 116 MW
and corresponding buildings in our heat source peak-shaving station for our Lanzhou New Area
Project to meet the increasing demands for our heat services in Lanzhou of Gansu Province.
According to the construction plan of the peak-shaving station, there will be six peak-shaving
boilers and corresponding buildings in total. During the Track Record Period and as at the
Latest Practicable Date, three peaking-shaving boilers and the corresponding buildings were in
operation in our peak-shaving station. The new peak-shaving boiler will be a coal-fired one and
will be operated to produce heat for our Lanzhou New Area Project. For more information
related to our coal-fired boilers, see “– Heat sources – Heat produced by our coal-fired boilers”
in this section. Construction of the peak-shaving station (which included the new peak-shaving
boiler and the building where it is located) has commenced in June 2022. It is expected that
the construction and construction acceptance check of the constructed building where the new
peak-shaving boiler is located will be completed prior to the commencement of 2023/2024 heat
service period. The new peak-shaving boiler will be put into use upon the completion of
construction acceptance check to meet the demand for heat services. It is expected that the new
peak-shaving station (with coal-fired boilers) will be able to comply with the relevant pollutant
emission standard accredited by the Lanzhou New Area Ecology and Environmental Bureau*
(ᚆψอਜ͛࿒ᐑྤ҅). The total expenditures are expected to be approximately RMB151.6
million. We plan to fund such construction with net proceeds from the Global Offering of
approximately RMB85.3 million and the remaining of approximately RMB66.3 million will be
funded by our internal resources. For details, see “Future plans and use of proceeds” in this
prospectus. According to the Frost & Sullivan Report, the “Three North Region” covered most
of northern China and accounted for approximately 26% of the population in the PRC in 2022.
We expect that steady population growth in the PRC, together with its corresponding urban
development, will drive the need for heat services in the “Three North Region” in the future.
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Expand our national footprint and increase our market share
We plan to expand our national footprint. The heat service market in the PRC has been
undergoing ongoing changes in various years and we are continuously seeing the entry of new
participants. Provincial and local heat service providers are expected to compete with market
players from other provinces and cities. The heat service business is not accessible to all and
has various entry barriers, including but not limited to the significant amount of initial
investment required for the construction of pipeline systems, technologies and qualifications,
according to the Frost & Sullivan Report. This presents significant opportunities to cross-
provincial heat service providers like us with an established track record of successful
cross-provincial operations and performance and expansion. We intend to proactively capture
market opportunities and expand our current geographical coverage.
During the Track Record Period, we succeeded in securing a Concession Agreement for
the provision of heat services in Xinmi of Henan Province, which is outside the “Three North
Region”. We expect that our provision of heat services in Xinmi will commence from the
2023/2024 heat service period in or around November 2023. We are required to invest in, build,
arrange for the development of the infrastructure assets (i.e. heat service facilities) required for
the provision of heat services in Xinmi of Henan Province. The Xinmi Project will have a
concession period of 30 years as stipulated in the Xinmi Concession Agreement. According to
the Overall Xinmi City Urban-rural Development (2018-2035) (ඊᐼ᜗஝ྌ
(2018-2035), the government has designated a target that 90% of the administrative area in
Xinmi shall have access to heat services by 2035. We expect we can utilise our Concession
Area in Xinmi of Henan Province and expand our heat service accordingly. The preparation
work of the Xinmi Project in two areas according to the local urban developments mainly
includes (i) procurement of pipelines, devices and equipment, and (ii) construction of heat
service facilities for heat transmission. The total expenditures for the preparation work up to
31 December 2027 are expected to be approximately RMB456.9 million. We plan to fund such
construction with net proceeds from the Global Offering of approximately RMB68.2 million
and the remaining of approximately RMB388.7 million will be funded by our internal
resources. For details, see “Future plans and use of proceeds” in this prospectus.
In addition, as at the Latest Practicable Date, we had won (through open bidding) the
concession to provide our heat services in Baotou in Inner Mongolia Autonomous Region, and
were in the process of entering into a concession agreement with the relevant concession
grantor. As at the Latest Practicable Date, we had not identified any targets for the acquisition
of further concession projects in accordance with our heat service expansion plans.
We will leverage our experience in acquiring such project to tap into other heat service
markets when opportunities arise. We have established a business development team which
closely monitors market dynamics, collects and analyses information relating to heat service
demand in different regions, designs and executes our market entry strategy and conducts
negotiation with prospective concession grantors. We believe that there will be high demand
for heat services in the future and we expect that demand for our heat services will increase
when we enter into new markets. We believe that we will be able to expand our national
footprint and substantially increase our market share in the heat services industry in the future.
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Continue to retain and recruit talented professionals for our business and management
teams
We believe that having high quality personnel is the key to our success and future
development. We believe that we already have a dedicated and experienced management team
and responsible and diligent employees to assist us in our business expansion. We plan to
continue to retain and recruit more talented professionals. We will also seek to provide more
opportunities to our supporting staff for their career development. We plan to achieve gender
diversity at workforce level by recruiting more female employees. Internally, we will nurture
our own female employees to management level. Safety and innovation are our priorities. We
will continue to provide our employees with professional training and professional
development programmes covering these areas and further align employees’ interests with
ours.
OUR BUSINESS MODEL
We were ranked No. 9 in terms of the aggregate actual heat service area in Shanxi
Province, Gansu Province and Inner Mongolia Autonomous Region in 2022 with a market
share of approximately 2.4% in terms of aggregate actual heat service area, according to the
Frost & Sullivan Report. We are principally engaged in the provision of heat services to
residential and non-residential heat service customers. Our non-residential heat service
customers include commercial operators, government institutions, educational institutions,
airports, train stations and hospitals. As at the Latest Practicable Date, our total Concession
Area and our total actual heat service area was approximately 419.9 million sq.m. and 41.9
million sq.m., respectively.
In addition to our provision of heat services, we also provide heat-related (i) engineering
construction services; and (ii) EMC services.
BOT model
During the Track Record Period, the majority of the revenue from our provision of heat
services and engineering construction services was derived from Concession Agreements, all
of which are structured in the form of a BOT model. Pursuant to the BOT model, we were
contracted and were granted the exclusive rights by our concession grantors to invest in, build,
and arrange for the development and operation of the infrastructure assets (i.e. heat service
facilities) required for our provision of heat services. During the concession period, we are
entitled to operate and generate revenue from such infrastructure assets through the operation
of our heat services business. Upon expiry of the concession period, in the event that the
concession rights are not renewed, all heat service-related assets invested (and, in some cases,
under construction at the time) by us and the right to use in relation to heat service-related
assets which were not invested by us will be transferred to the relevant concession grantor or
party(ies) designated by the concession grantor. The compensation payable (if any) by the
concession grantor to us for such transfer of assets shall be based on the assessed value of the
transferred assets (which may be determined by a third party asset valuation agency jointly
appointed by us and the concession grantor).
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EMC Services
We provided energy-conservation service to an energy consuming enterprise to achieve
certain energy saving goals. Under the EMC, we were responsible for installing certain
equipment and machinery for the purpose of energy saving, and operating and managing the
residual heat collection facilities. In return, we were entitled to a share of profit accrued from
energy conserved as a result of our energy-conservation services provided.
HEAT SERVICES
The “Three North Region” experiences very cold weather during the winter, especially
the areas north of the Qinling Mountain-Huaihe River ( ॢᏊ-˸̏ήਜ). Our heat service
operation in such region has enabled us to generate steady revenue and cash flow over the
years. During the Track Record Period and up to the Latest Practicable Date, we had six heat
service projects under concession rights within our Concession Area. Our heat service projects
in operation were located in Taiyuan and Shuozhou of Shanxi Province, Lanzhou of Gansu
Province and Hulunbuir of Inner Mongolia Autonomous Region. We also had a heat service
project under construction in Xinmi of Henan Province. For the years ended 31 December
2020, 2021 and 2022, revenue generated from our heat services was approximately RMB973.3
million, RMB1,035.2 million and RMB1,098.9 million, representing approximately 70.7%,
80.2% and 76.1% of our total revenue, respectively.
According to the Frost & Sullivan Report, the “Three North Region” in which we operate
covers most of northern China and the “Three North Region” accounted for approximately 26%
of the population of the PRC in 2022. In light of our business presence and the high demand
for heat services in the “Three North Region”, we plan to continue to strengthen our market
position and expand our market share in this area in the foreseeable future. See “– Our
strategies – Bolster our business presence in the “Three North Region” and enlarge our
customer base” in this section for details. In December 2021, we obtained a concession to
operate a heat service project in Xinmi of Henan Province which is outside of the “Three North
Region”. We expect that our heat service operation in Xinmi will commence in or around
November 2023 during the 2023/2024 heat service period. To facilitate our nationwide
expansion plans, our business development team actively pursues new opportunities in the heat
service industry in the areas south of Qinling Mountain-Huaihe River ( ॢᏊ-ήਜ),
particularly in southwest, central and eastern China.
Heat service projects under concession operation
During the Track Record Period and up to the Latest Practicable Date, we were a party
to six Concession Agreements and had six heat service projects at different stages under
concession rights within our Concession Area. As at the Latest Practicable Date, three of our
heat service projects were in Shanxi Province, one was in Gansu Province, one was in Inner
Mongolia Autonomous Region and one was a project under construction in Henan Province.
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As at 31 December 2022, we had an aggregate Concession Area of approximately 419.9
million sq.m., of which 291.0 million sq.m. was in Shanxi Province, 68.3 million sq.m. was in
Gansu Province, 28.0 million sq.m. was in Inner Mongolia Autonomous Region and 32.6
million sq.m. was in Henan Province. As at the same date, our total actual heat service area was
approximately 41.9 million sq.m., which comprised 25.2 million sq.m. in Shanxi Province, 8.5
million sq.m. in Gansu Province and 8.2 million sq.m. in Inner Mongolia Autonomous Region.
As at the Latest Practicable Date, we had reached the final stages of our preparation to provide
heat services in Xinmi. We expect that our provision of heat services in Xinmi of Henan
Province will commence from the 2023/2024 heat service period in or around November 2023.
Under our concession rights, we operate our heat services business in accordance with the
terms of the Concession Agreement in our Concession Area. Being a concession grantee, we
make long-term investments for the purpose of our heat service operation given that we have
the exclusive right to operate and benefit from such investments for a fixed term.
The heat service industry in the PRC is expected to experience steady growth and
continuous development. According to the Frost & Sullivan Report, total heat services area in
the PRC is expected to increase to 14.5 billion sq.m. in 2027, with a CAGR of 5.2% from 2022
to 2027, as a result of the increasing demand for the heat services mainly brought by the rapid
growth in urbanisation rate and the increasing penetration of the heat services in the PRC. The
total heat services area in Shanxi Province is expected to increase to 1,022.6 million sq.m. in
2027, with a CAGR of 4.6% from 2022 to 2027; the total heat services area in Gansu Province
is expected to increase to 410.9 million sq.m. in 2027, with a CAGR of 6.3% from 2022 to
2027; and the total heat services area in Inner Mongolia Autonomous Region increased to 723.9
million sq.m. in 2027, with a CAGR of 1.7% from 2022 to 2027. For further detailed analysis,
see “Industry overview – Overview of the heat services industry in the PRC” in this prospectus.
Our Concession Agreements give us the exclusive right to provide heat services in our
Concession Area within the concession period. In light of a positive outlook of the heat service
industry in the locations in the PRC where we have Concession Agreement, the anticipated
expansion of our actual heat service area within our existing Concession Area is expected to
be in line with the respective development of heat services industry in the locations we operate.
Given our track record that we have demonstrated our ability to provide stable and reliable heat
services, our Directors are of the view that we can expand our actual heat service area in
accordance with the anticipated local development in the locations where we operate in the
future.
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The following table summarises some of the details pertaining to our heat service projects under concession rights as at the Latest Practicable Date.
Location Project name Concession period
Concession
Area
(sq.m.)
Actual heat service area
Heat source
Peak-shaving
heat source Operating facilities StatusAs at 31 December
2020 (sq.m.) 2021 (sq.m.) 2022 (sq.m.)
Shanxi Province
Taiyuan Taiyuan Project 21 November 2012 –
20 November 2037
50,000,000
(adjusted)
5,430,000 5,688,000 6,700,000 Heat procured from
cogeneration plants
Gas-fuelled boiler
generated heat
Self-constructed In operation
Taiyuan Shanxi
Demonstration
Zone Project
18 September 2018 -
18 September 2048
200,000,000 205,000 391,500 352,400 Geothermal heat Gas-fuelled boiler
generated heat
Self-constructed In operation
Shuozhou Shuozhou Project 18 January 2012 –
18 January 2042
41,000,000 17,852,100 18,115,000 18,117,400 Heat procured from
cogeneration plants and
residual heat collected at
cogeneration plants
Gas-fuelled boiler
generated heat
Self-constructed and leased
from other heat service
providers in Shuozhou
of Shanxi Province
In operation
Gansu Province
Lanzhou Lanzhou New Area
Project
29 June 2013 –
30 June 2043
68,330,000 5,920,000 7,030,000 8,490,000 Heat produced by coal-fired
boilers, and residual heat
collected at plants
Gas-fuelled boiler
generated heat
Self-constructed In operation
Inner Mongolia
Autonomous Region
Hulunbuir Hulunbuir Project 20 September 2013 -
19 September 2043
27,951,500 7,970,000 8,540,000 8,210,000 Heat procured from
cogeneration plants
Oil-fuelled boiler
generated heat
Self-constructed In operation
Henan Province
Xinmi Xinmi Project
(Note) 7 December 2021 -
6 December 2051
32,610,000 – – – Heat procured from
cogeneration plants
– Self-constructed and
acquired
Under
construction
Note:
As at the Latest Practicable Date, we had reached the final stages of our preparation to provide heat services in Xinmi. We expect that our provision of h eat services in Xinmi will
commence from the 2023/2024 heat service period in or around November 2023.
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Reduction of the size of the Concession Boundary Area for our Taiyuan Project and the
possible transfer of the heat facilities in relation to the Subject Area which is currently under
negotiation
In 2017, Taiyuan City Bureau of Municipal Affairs Administration* (ඊ၍ଣ҅)
(formerly known asึ) (the “ Taiyuan Administration ”) issued the
Proposal of City-wide Heat Services Coverage in Taiyuan (2017) ( 2017̹૶ᆎԶᆠΌ
) and the Notice of Constructing Primary and Secondary Urban
Underground Pipelines in 2017 (ɨ༺2017ٙ
) (the “ Local Authorities’ Plans ”). According to the Local Authorities’ Plans, we, as the
concession grantee for the Taiyuan Project, were required to construct, amongst others, certain
additional urban underground pipelines and back-up systems in certain part of the Concession
Boundary Area for our Taiyuan Project.
In view of the previously unplanned capital expenditures which would be required for the
aforementioned construction works, and after negotiations with the Taiyuan Administration, we
proposed to the Taiyuan Administration in June 2017 to reduce the original Concession
Boundary Area for our Taiyuan Project (the “ Reduction ”) by way of a written application
which was approved by the People’s Government of Taiyuan City in August 2017, and the size
of the Concession Boundary Area for our Taiyuan Project was then reduced by 86.0 million
sq.m. (the “ Subject Area ”). According to our unaudited management accounts, revenue from
the provision of our heat services in the Subject Area for the years ended 31 December 2016
and 2017 was only approximately RMB10.3 million and approximately RMB15.2 million,
representing only 2.2% and 2.4% of the total revenue of our Group, and representing only
10.6% and 11.1% of our total revenue from the Taiyuan Project during the same period,
respectively. Subsequent to the end of the 2016-2017 heat service period, we ceased to provide
any heat services in the Subject Area and have not recorded any revenue in respect of the
Subject Area, and all our heat service facilities in the Subject Area have been operated by a new
operator since then. At the end of August 2017, the carrying value of the concession relating
to the Subject Area amounted to approximately RMB71.4 million (with original cost and
accumulated amortisation of RMB81.9 million and RMB10.5 million, respectively). Since our
Group can no longer generate any future economic benefits from the concession relating to the
Subject Area, in August 2017, our Group decided to accelerate the amortisation for the
concession relating to the Subject Area and the carrying value of which became zero after such
accelerated amortisation took place.
We are currently still under negotiation with the Taiyuan Administration in its capacity as
the grantor for the transfer of all our heat service facilities in the Subject Area and its
consideration thereto and no agreement had yet been reached between us and the grantor or the
new operator on the transfer and the amount of consideration (if any) as at the Latest
Practicable Date. There is no certainty as to whether and when the parties will reach such an
agreement. Further, there is no certainty as to the amount of the consideration to be determined
in any such agreement (if any) which may become payable to us. Currently, the legal rights and
obligations associated with the heat service facilities in the Subject Area still remain with us
since there is no legally binding agreement in place which governs the transfer of the related
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heat service facilities. In the event that no agreement can be reached between the relevant
parties, the possible transfer will not take place and we will not receive any consideration.
Regardless of whether a legally binding agreement in relation to the possible transfer can be
reached, we will not record any revenue from the Subject Area as the heat service facilities in
the Subject Area have been operated by the then new operator since the end of the 2016-2017
heat service period. As advised by our PRC Legal Advisers, in the event that the possible
transfer does not materialise, the legal rights and obligations associated with the heat service
facilities in the Subject Area will still remain with us; the enforceability and the validity of the
remaining scope of the Taiyuan Concession Agreement will not be affected; and the Taiyuan
Concession Agreement will not be terminated before its expiration due to such possible
transfer.
During the interviews with the Taiyuan Administration on 10 March 2022 and 25 April
2022, it was confirmed that (i) the Reduction did not occur as a result of any breach of the
relevant provisions as stipulated in, nor did it constitute any breach of, the Taiyuan Concession
Agreement; (ii) the Reduction was a one-off event and there will be no further reduction of our
Concession Area of the Taiyuan Project in the foreseeable future; (iii) our heat service
operation has remained stable in our current Concession Area of the Taiyuan Project; (iv) we
are a competent heat service provider in Taiyuan City, and the Reduction was not due to our
incompetency to carry out heat service operation; and (v) since we own the heat service
facilities in the Subject Area, we have been negotiating with the Taiyuan Administration in
respect of the transfer of these facilities, nonetheless, no agreement had yet been entered into
as at the Latest Practicable Date. Our PRC Legal Advisers have advised that the Reduction did
not affect the enforceability and the validity of the remaining scope of the Taiyuan Concession
Agreement, and that the Taiyuan Concession Agreement will not be terminated before its
expiration due to such Reduction. As further advised by our PRC Legal Advisers, the Taiyuan
Administration is the relevant competent authority which supervises all heat service operation
in Taiyuan City and the officer being interviewed had the appropriate authority to provide the
above confirmations.
Operation of Lanzhou New Area Project
During the one-year effective period of the Interim Measures for the Administration of
Urban Heat Services and Use in Lanzhou New Area (̹Զᆠ͜ᆠ၍ଣᅲБ፬
)( “ Lanzhou Interim Measures ”) implemented on 1 August 2018, we operated the
Lanzhou New Area Project without a heat service operation licence as the Lanzhou Bureau did
not have any established system granting heat service operation licences for the provision of
heat services. Nevertheless, since the implementation of the Administrative Measures for
Urban Heat Services and Use in Lanzhou New Area ()
(the “ Lanzhou Administrative Measures ”) on 1 January 2022, heat service enterprises can
conduct heat service operations with either a heat service operation licence or under a
concession right. Based on the interview conducted with the Lanzhou Bureau on 29 April 2022,
which is the competent authority to regulate the overall heat services industry in Lanzhou New
Area District, our PRC Legal Advisers are of the view that since we entered into a concession
agreement in relation to our operation of Lanzhou New Area Project, we were therefore no
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longer required to obtain a heat service operation licence, and were in compliance with the
Lanzhou Administrative Measures in all material aspects as at the Latest Practicable Date. Our
PRC Legal Advisers further advised that the Lanzhou New Area Concession Agreement
remains to be legally binding and will not be terminated before its expiration despite our
historical lack of heat service operation licence during the effective period of the Lanzhou
Interim Measures.
The grant of the concession rights for our Lanzhou New Area Project and the Hulunbuir
Project without market competition mechanisms
All of our concession operations are subject to the Measures for the Administration on the
Concession of Municipal Public Utilities (), which was
first promulgated on 19 March 2004 and implemented on 1 May 2004 (the “ 2004 Concession
Measures ”). The 2004 Concession Measures provide that the government concession grantors
would select investors or operators of local public utility projects through market competitive
mechanisms. For our Lanzhou New Area Project and Hulunbuir Project, the relevant
government concession grantors initially granted us concession rights in June 2013 and
September 2013, respectively, even though these grantors did not implement any market
competitive mechanisms. The government concession grantors in relation to our Lanzhou New
Area Project and Hulunbuir Project subsequently hosted the requisite public tendering with all
necessary procedures as stipulated in the 2004 Concession Measures to ensure that the
requirement under the 2004 Concession Measures is satisfied. The concession grantor of
Lanzhou New Area Project subsequently hosted the public tendering by publishing a tender
notice dated 29 September 2018 on the website of Gansu Provincial Public Resources Trading
Center, being the provincial governmental platform of Gansu Province. Our Group then made
tender documents in response to the tender notice. After the assessment of tendering evaluation
committee and legal publication procedure, the tender-winning notification dated 23 October
2018 was issued to our Group. Our Group then re-entered into a concession agreement with the
concession grantor of Lanzhou New Area Project. Similarly, the concession grantor of
Hulunbuir Project subsequently hosted the public tendering by publishing a tender notice dated
29 December 2018 on the website of Hulunbuir City Public Resources Trading Center, being
the municipal governmental platform of Hulunbuir City. The tender notice was also published
on the National Public Resources Trading Platform* (̨̻), which is a
national governmental platform, and the Inner Mongolia Public Resources Trading Platform*
(ၣ), which is a provincial governmental platform of Inner Mongolia
Autonomous Region. Our Group then made tender documents in response to the tender notice.
After the assessment of tendering evaluation committee and legal publication procedure, the
tender-winning notification dated 1 February 2019 was published on the website of Hulunbuir
City Public Resources Trading Center. Our Group then re-entered into a concession agreement
with the concession grantor of Hulunbuir Project. Our PRC Legal Advisers advised that (i) the
grant of the concession rights for our Lanzhou New Area Project and the Hulunbuir Project
without market competitive mechanisms did not affect the enforceability and the validity of the
relevant Concession Agreements as the public tenderings were subsequently held and the
enforceability and the validity of the relevant Concession Agreements had been confirmed by
the respective competent authority which regulates the local heat services industry; (ii) the
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Lanzhou New Area Concession Agreement and Hulunbuir Concession Agreement are legally
binding and will not be terminated before its expiration despite the absence of market
competitive mechanisms; and (iii) the 2004 Concession Measures provided no penalty clause
on the grantees for obtaining concessions from the relevant government concession grantors
without going through market competitive mechanisms.
Our heat service operation in the VE Park Area (as defined below)
In August 2017, to ensure the continuous provision of heat services to Lanzhou New Area
V ocational Education Park* ( ᚆψอਜᔖุ઺ԃ෤ਜ) (the “ VE Park Area ”), Lanzhou Bureau
(being the competent authority to regulate the heat services industry in general, and our heat
service operation in Lanzhou New Area District of Gansu Province) requested us to provide our
heat services to VE Park Area which did not fall within the scope of our concession rights in
respect of the Lanzhou New Area Project. The actual heat service area under this arrangement
was approximately 580,000 sq.m. as at 22 June 2018. In April 2020, the Lanzhou Bureau
requested us to cease our provision of heat services in the VE Park Area. For the years ended
31 December 2018, 2019 and 2020, revenue generated from our heat services business in the
VE Park Area was approximately RMB49.6 million, RMB61.5 million and RMB39.8 million,
respectively. Since the cessation of our heat services business in the VE Park Area, we have
not recorded any relevant revenue therefrom.
In an interview with Lanzhou Bureau on 29 April 2022, it was confirmed that (i) our heat
service operation in the VE Park Area was conducted upon their request in order to ensure the
continuous provision of heat services to the VE Park Area at that time; (ii) no concession right
was ever officially granted to any party in respect of the heat service operation in the VE Park
Area, and our heat service operation in the VE Park Area did not infringe any other concession
arrangements enforced during the relevant times; (iii) there was no objection to our heat service
operation in the VE Park Area; (iv) the cessation of our heat service operation in the VE Park
Area in April 2020 did not occur as a result of any breach of or non-compliance with the
relevant laws and regulations by us; and (v) such operation did not require any concession
right. As advised by our PRC Legal Advisers, Lanzhou Bureau is the relevant competent
authority which supervises the heat service operation in Lanzhou New Area and the officer
being interviewed was the competent person and had the appropriate authority to provide the
above confirmations.
Our geographical presence
We possess the concession rights to provide our heat service in five cities in three
provinces and one autonomous region in the PRC as at 31 December 2022 and up to the Latest
Practicable Date. As at the Latest Practicable Date, our total Concession Area according to our
Concession Agreements was approximately 419.9 million sq.m..
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The map below illustrates the location of the cities in which we had heat service projects
under concessions and our respective Concession Area in such cities as at the Latest Practicable
Date.
Shuozhou Project
41,000,000 sq.m.
 South China Sea
Lanzhou
Taiyuan
Shuozhou
Hulunbuir
Taiyuan Project
50,000,000 sq.m.
Shanxi Demonstration
Zone Project
200,000,000 sq.m.
Lanzhou New Area Project
68,330,000 sq.m.
Hulunbuir Project
27,951,500 sq.m.
Xinmi Project
32,610,000 sq.m.(Note)
Xinmi
Shanxi Province Gansu Province Inner Mongolia Autonomous Region Henan Province
Note: We expect our provision of heat services in Xinmi of Henan Province to commence from the 2023/2024 heat
service period in or around November 2023.
Our existing concession rights predominantly cover the “Three North Region”. As
evinced by our track record of successfully tapping into the heat service market in other parts
of northern China with our existing cross-provincial operation, we believe that we are
well-positioned and sufficiently equipped to secure new concession agreements.
To enhance opportunities in securing new concession agreements, we are committed to
keeping abreast of the latest developments of the heat service industry. We will also solidify
our business presence by continually participating in negotiation and tender processes initiated
by local governments should we consider such potential business opportunities feasible.
Meanwhile, we are devoted to enhancing our heat service capacity by virtue of analysis,
research and optimise our operational efficiency and customers’ recognition. As such, we are
able to collect and analyse industry information in order to enter into different regions to secure
potential new concession agreements and/or projects. Leveraging the extensive experience in
strategic advisory and planning of our Directors and senior management team, including their
long-term service in public offices in the PRC, we believe we possess the insight, vision and
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in-depth knowledge required to stay ahead with the latest local and national policies which can
help effectively execute our growth strategy. In particular, Mr. Miao Wenbin ( ᐷ˖੸΋͛), one
of our non-executive Directors, who is primarily responsible for participating in strategic
planning and advising on decision making of our Group, has served and is currently serving in
several public offices including as council member of the APEC China Business Council ( ԭ
˄຾Υଡ଼ᔌ(APEC) ʕ਷ʈਠଣԫึ), representative of Fifth Meeting of the 13th National
People’s Congress of Jiangsu Province* (ɽึୋʞϣึᙄ) as held in
January 2022 and co-chairman of Jiangsu Sushang Development Promotion Association* ( Ϫ
ආึ). For further details of our Directors’ qualifications and experience, see
“Directors, supervisors and senior management” in this prospectus.
Seasonality
Our provision of heat services is affected by seasonality. The following table sets out the
duration of heat service periods prescribed in the respective notices issued by the relevant local
authorities for our heat service projects under concession rights for the 2021/2022 heat service
period.
City (2)
Relevant heat
service project
Commencement
date of the heat
service period
(1)
End date (in the
following year) of
the heat service
period
(1)
Shanxi Province
Taiyuan Taiyuan Project
and Shanxi
Demonstration
Zone Project
1 November 2021 31 March 2022
Shuozhou Shuozhou Project 6 October 2021 20 April 2022
Gansu Province
Lanzhou Lanzhou New Area
Project
10 October 2021 10 April 2022
Inner Mongolia
Autonomous
Region
Hulunbuir Hulunbuir Project 20 September 2021 10 May 2022
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Notes:
(1) The heat service period for each project is subject to adjustments with respect to the measures issued
by the relevant local authorities responsible for the administration of heat services, taking into account
various factors such as average temperature and overall weather conditions. For details, see “Risk
factors – Risks relating to our business and industry – Our heat service operation is affected by
seasonality” in this prospectus.
(2) We entered into the Xinmi Concession Agreement with the People’s Government of Xinmi City ( อ੗
ִ݁in December 2021 and we expect that our provision of heat services in Xinmi will
commence from the 2023/2024 heat service period in or around November 2023.
Key stages of our heat service operation under concession
The chart below sets out the key stages of our heat service operation under concession.
These key stages include (i) preparation; (ii) feasibility study; (iii) grant of concession right;
(iv) design, procurement and construction; (v) operation and maintenance; and (vi) transfer.
The details of each key stage of our heat service operation under concession are elaborated
below.
Preparation Feasibility study Grant of
concession right
Design,
procurement and
construction
Operations and
maintenance Transfer
Preparation
We regularly conduct market surveys and regularly monitor and analyse relevant
government announcements to identify locations where we can set up a heat service business.
As securing heat sources is a prerequisite for any provision of heat services, we need to analyse
the availability of heat sources in a particular location during this preparation stage, which,
generally speaking, takes more than one month based on the experience of our Directors. We
conduct extensive research and market surveys to identify suitable heat sources so that we can
try to secure them as early as practicable.
Feasibility study
Heat service projects under concessions are capital intensive and require significant
upfront funding. Prior to committing to any potential heat service projects, we would conduct
feasibility studies which, generally speaking, takes more than three months. These feasibility
studies cover practical and commercial factors including, amongst others, (i) local heat service
planning, policy, regulation and practice; (ii) the size of projected heat service areas and
associated potential growth rate; (iii) types and extent of potential heat service customers; (iv)
availability of heat sources and their production capacity; (v) expected timeframe and costs of
construction; and (vi) expected investment payback period.
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Grant of the concession right
We generally need to go through the procedures prescribed by the relevant local
authorities and existing laws, regulations and local policies before we are granted the
concession right. Each of the concession rights that we obtained in the past was through either
competitive negotiation or competitive tender processes. We would sign the Concession
Agreement with the concession grantor, which is the relevant local authority, in cases where
we successfully obtained the concession rights. Generally speaking, it takes approximately one
to two months for the concession grantor and us to go through these procedures subject to
negotiation and communication between us and the grantor based on the experience of our
Directors.
Design, procurement and construction
We usually engage experienced and qualified external design consultants and/or institutes
for the design of our larger scale heat service projects to ensure that they are customised and
satisfy our requirements and specifications. We also have in-house design capabilities for small
and medium-sized heat service projects. Our design proposals usually include, amongst others,
the following components: (i) project blueprints; (ii) conceptual designs for the prescribed
technology and equipment; (iii) construction installation plans; and (iv) materials required for
construction.
Upon obtaining the construction planning permit from relevant authorities, we would
begin procuring equipment, instruments and all necessary parts needed for construction and
commence operation of the heat service facilities.
Construction usually takes between three to six months, subject to, amongst other things,
the actual scale of each construction. Unless otherwise agreed, we are usually responsible for
the overall management of such construction. We would engage qualified external contractors
for carrying out the construction. The qualified external contractors engaged by us would be
responsible for constructing the facilities as well as installing and testing the relevant
equipment, instruments and systems. We would only play a supervisory role, which we believe
that it would allow us to better manage our construction costs. Upon completion of
construction, we run pre-operation tests to ensure that the newly-constructed facilities meet
certain quality standards and specifications which satisfy all relevant PRC laws and
regulations.
Operation and maintenance
Upon satisfactory checking and acceptance of our heat service facilities by the relevant
authorities, we commence operation of our heat service projects in accordance with the terms
of the relevant Concession Agreements. The concession period is between 25 and 30 years
commencing on the effective date of each of our relevant Concession Agreements. We are also
responsible for the maintenance of the relevant heat service facilities. For more information,
see “– Machinery, maintenance and repair” in this section.
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Transfer
Generally speaking, all assets (including but not limited to primary distribution pipelines,
equipment, heat service facilities and machinery) in relation to the heat service projects
constructed by us are owned by us during the term of the concession. All heat service related
assets invested (and, in some cases, under construction at the time) by us and the right to use
in relation to heat service-related assets which were not invested by us will be transferred to
the concession grantors (or in some cases, party(ies) designated by the concession grantors)
upon the expiry of the relevant concession term, in the event that the concession rights are not
renewed. The compensation payable (if any) by the concession grantors or parties designated
by the concession grantors to us for such transfer of assets shall be based on the assessed value
of the transferred assets (which, in some cases, is determined by a third party asset valuation
agency jointly appointed by us and the concession grantor). The transfer of the assets is
coordinated and supervised by the relevant heat service authority.
Our Concession Agreements
As at the Latest Practicable Date, we had entered into six Concession Agreements in total.
The details of the relevant heat service projects, the contracting parties, concession period,
estimated Concession Boundary Area and Concession Area in respect of each of these
agreements are as follows:
No.
Concession
Agreement
Heat service
project Concession grantor
Concession
grantee
Concession
period
Concession
Boundary
Area (1)
Concession
Area (2)
(sq.m.) (sq.m.)
1 Taiyuan Concession
Agreement
Taiyuan Project Taiyuan City Bureau of
Municipal Affairs
Administration*
(ඊ၍ଣ҅)
(formerly known as
Taiyuan City Urban-
Rural Management
Committee*
(ࡰ
ึ)
Taiyuan
Renewable
Energy
21 November
2012 –
20 November
2037
27,000,000 50,000,000
2 Shanxi
Demonstration
Zone Concession
Agreement
Shanxi
Demonstration
Zone Project
Management Committee
of Shanxi
Transformation and
Comprehensive
Reform Demonstration
Zone*
(ͪ
ึ)
Shanxi
Demonstration
Zone Heat
Supply
18 September
2018 –
18 September
2048
213,040,000 200,000,000
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No.
Concession
Agreement
Heat service
project Concession grantor
Concession
grantee
Concession
period
Concession
Boundary
Area (1)
Concession
Area (2)
(sq.m.) (sq.m.)
3 Shuozhou
Concession
Agreement
Shuozhou
Project
Shuozhou City Housing
Urban-Rural
Construction
Administration
Bureau*
(۬
ண၍ଣ҅)
Shanxi
Shuangliang
Renewable
Energy
18 January 2012
– 18 January
2042
148,000,000 41,000,000
4 Lanzhou New Area
Concession
Agreement
Lanzhou New
Area Project
Management Committee
of Lanzhou New
District of Gansu
Province* (ᚆψ
ึ)
Lanzhou
Shuangliang
29 June 2013 –
30 June 2043
1,313,000,000 68,330,000
5 Hulunbuir
Concession
Agreement
Hulunbuir
Project
Hulunbuir City of Inner
Mongolia Autonomous
Region Housing
Urban-Rural
Construction Bureau*
(Ԏ
ண
҅)
Hulunbuir
Shuangliang
20 September
2013 –
19 September
2043
36,480,000 27,951,500
6 Xinmi Concession
Agreement
Xinmi Project The People’s
Governance of Xinmi
City*
(ִ݁.)
Tech-Thermal
(Zhengzhou)
7 December
2021 –
6 December
2051
472,414,000 32,610,000
Notes:
1. Concession Boundary Area refers to the estimated geographical area within a demarcated boundary in which
we are granted the exclusive right to provide heat services under our Concession Agreements.
2. Concession Area refers to the planned floor area to which we are entitled to charge for our provision of heat
services under concession rights derived from our Concession Agreements, which is measured in terms of
GFA.
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The key terms that are generally found in our Concession Agreements are summarised below.
Concession rights (1) We are entitled to exclusively invest, construct, operate,
manage and maintain heat service facilities, provide
heat services to customers and charge heat fees in the
Concession Area within the agreed concession period
and in the relevant Concession Area. Each of our
concession grantors has undertaken that its granted
concession right will not be unreasonably withdrawn or
restricted, nor will it grant a new concession right to any
third party to operate any heat services business within
the Concession Area within our concession period.
Concession period The concession period is between 25 and 30 years
commencing on the effective date of each of our
relevant Concession Agreements.
Management, repair and
maintenance
During the concession period, we are responsible for
managing, repairing and maintaining the heat service
facilities owned by us. Under some of our Concession
Agreements, we are entitled to charge reasonable fees
for the repair of heat service facilities in the properties
to which we provide heat services, provided that such
repair is due to the reasons of the user of the heat.
Heat service safety We are required to strictly comply with the relevant
PRC laws and regulations on heat service safety and
ensure that our heat service operation, services and
facilities meet all national, provincial, municipal, and
industrial safety standards. Our concession grantors
may supervise or inspect our operations to ensure heat
service safety. Furthermore, we may be required to
develop and maintain safety management policies and
establish a comprehensive emergency response
mechanism in case of accidents and emergencies. We
may also need to submit the assessment report in respect
of the situation of facilities’ operation to the
government authority for record.
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Suspension of heat services In the event that there is a suspension of heat services
for which we are responsible, the concession grantors
may require us to make timely rectification to resume
the provision of heat services. If we fails to make timely
rectification, we may be subject to a penalty or required
to compensate the concession grantors for all economic
losses caused by the suspension of heat services. During
the Track Record Period and as at the Latest Practicable
Date, we have not been subject to any such penalty or
compensation.
Ownership All assets invested by us within the Concession Area are
owned by us during the concession period. For more
information, see “– Heat distribution – Our heat service
facilities” in this section.
Transfer of assets All heat service-related assets in use or invested (and, in
some cases, under construction at the time) by us and
the right to use in relation to heat service-related assets
which were not invested by us shall be transferred to the
concession grantors (or, in some cases, party(ies)
designated by the concession grantors) upon expiry of
the term of the Concession Agreements, in the event that
the concession rights are not renewed. The
compensation payable to us for such transfer of assets
(if any) shall be based on the assessed value of the
transferred assets (which, in some cases, is determined
by a third party asset valuation agency jointly appointed
by us and the concession grantor). Under some of our
Concession Agreements, we shall restore these assets to
specified conditions before all heat service facilities are
handed over to the transferees at the end of the
concession periods.
Pricing The heat rates which we charge to our heat service users
shall follow the benchmark heat rate determined and
approved by the local pricing authorities. Under some of
our Concession Agreements, further adjustments to our
heat rates shall be subject to the review of the local
pricing authority.
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Entitlements to receive
compensation or subsidy
from concession grantors
The Concession Agreements generally provide us the
contractual rights to be entitled to compensation or
subsidy from the concession grantors, or to apply for
compensation or subsidy in forms deemed appropriate
upon fulfilling conditions stipulated in the Concession
Agreements
(2).
Termination (3) The Concession Agreements shall terminate upon the
expiration of the concession period. The Concession
Agreements may also be terminated prior to the
expiration of the concession period under certain
circumstances which include but are not limited to (i)
mutual agreement of the parties; (ii) the occurrence of
force majeure events; and (iii) the occurrence of any
serious suspension of heat services caused by our
default which seriously affects public welfare and
safety. Please also see “Risk factors – Our concession
rights for our heat services business will expire or may
be terminated before expiration.” in this prospectus.
Renewal Upon the expiry of the Concession Agreement, the
concession grantor has the right to select a new
concession grantee in accordance with the applicable
laws and regulations. If we perform well during the
concession period, we shall have priority in re-obtaining
the concession under the same conditions.
Notes:
1. Under the terms of the Shanxi Demonstration Zone Concession Agreement, we are allowed to utilise various
clean energy and renewable energy sources, including but not limited to geothermal heat. In addition to the fees
for supplying heat, we are also entitled to receive fees for off-site heat source construction, grants and
subsidies for contracted energy management projects and income from CCER projects.
2. Among the Concession Agreements, Shuozhou Concession Agreement, Hulunbuir Concession Agreement, and
Xinmi Concession Agreement Lanzhou New Area Concession Agreement specifically provide for
compensation or subsidy to be provided to us by the local governments, where the heat rates are insufficient
to compensate for the normal heat service costs, and when the relevant heat rates are not adjusted in a timely
manner.
3. Our Group’s right to seek termination of the Concession Agreements
As advised by our PRC Legal Advisers, in the event that the concession grantor, as a party to the relevant
Concession Agreements, committed a breach of the contractual obligations to provide any compensation or
subsidies under the terms of the Concession Agreement, and such breach is material to the extent that our
Group becomes unable to continue performing our contractual obligations under the Concession Agreements,
we would have the legal right to seek termination of the relevant Concession Agreement in accordance with
Article 38 of the Measures for the Administration of Concession for Infrastructure and Public Utilities ( ਿ
). Further, as advised by our PRC Legal Advisers, under the above
circumstances, we could also seek termination of the relevant Concession Agreement by way of legal recourse
or remedies by initiating an administrative proceeding against such concession grantor according to the
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Administrative Procedure Law of the PRC (). As advised by our PRC Legal advisers, by
initiating administrative proceeding, we can bring the case to court to claim for the concession grantor to
continue the performance of its obligations to provide compensation or subsidies, take remedial action,
compensate for losses, terminate the Concession Agreement or assume other obligations as deemed rightful by
the relevant court in its respective jurisdictions. Given that the Concession Agreement is legally valid, binding
and enforceable with the local government, our PRC Legal Advisers are of the view that the legal action to
seek termination of the Concession Agreement under the above circumstances is within the jurisdiction of PRC
courts under the Administrative Procedure Law of the PRC and the Provisions of the Supreme People’s Court
on Several Issues Concerning the Trial of Administrative Agreement Cases (՘
).
Given our track record, we can demonstrate to our concession grantors that we were
capable of offering stable and reliable heat services to heat service customers. We also can
demonstrate that we (i) have stable and reliable heating resources; (ii) possess experience in
the provision of heat services; (iii) have professional staff with heat service qualifications; and
(iv) possess adequate technological capabilities. We believe we would not need to renew the
Concession Agreements in the near future, as the concession periods of our Concession
Agreements provide certainty of the sustainability of our business operation. Among the six
Concession Agreements we had entered into as at the Latest Practicable Date, the earliest one
to expire is our Taiyuan Concession Agreement, which will expire in November 2037, and the
Concession Agreement with the latest expiration date of concession period is the Xinmi
Concession Agreement, which will expire in December 2051. Further, we generally have the
right of first refusal to be granted under our Concession Agreements, which enhance our
opportunities in renewing our existing concession rights. We believe that these capabilities
allow us to successfully extend and/or renew our existing concession agreements prior to the
expiry of the relevant concession terms.
HEAT SOURCES
We have access to different heat sources and can provide stable and reliable heat services
to our heat service customers. During the Track Record Period and up to the Latest Practicable
Date, our heat sources included (i) heat procured from cogeneration plants, (ii) heat produced
by our coal-fired boilers, (iii) residual heat collected at plants; and (iv) geothermal heat.
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The table below sets out the total amount of heat procured, produced, collected and extracted by our Group and the amount of the revenue and
gross profit margin from provision and distribution of heat, price subsidies from local government and heat transmission services from each of the
four heat sources during the Track Record Period.
For the year ended 31 December
2020 2021 2022
Amount
of heat Revenue
%o f
Revenue
Gross
profit/(loss)
margin
Amount
of heat Revenue
%o f
Revenue
Gross
profit/(loss)
margin
Amount
of heat Revenue
%o f
Revenue
Gross
profit/(loss)
margin
GJ’000 RMB’000 GJ’000 RMB’000 GJ’000 RMB’000
Heat source procured from third party
suppliers
Heat procured from third-party cogeneration
plants 18,641 650,825 70.3% 8.5% 18,239 719,520 73.8% 17.8% 19,155 730,864 71.6% 11.8%
Heat sources
self-produced by
our Group
Heat produced by
coal-fired boilers 2,288 167,081 18.1% 20.8% 2,058 151,606 15.5% (0.8)% 2,097 185,303 18.2% (0.04%)
Residual heat collected at cogeneration plants 3,377 95,204 10.3% 91.7% 2,794 89,754 9.2% 91.0% 2,746 82,226 8.1% 92.2%
Geothermal heat extracted from underground
water 134 11,699 1.3% (37.4)% 194 14,595 1.5% (43.2)% 178 22,347 2.1% (13.0%)
Total 24,440 924,809 100.0% 18.7% 23,285 975,475 100.0% 20.8% 24,176 1,020,740 100.0% 15.6%
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We use different heat sources for each of our heat service projects depending on a number
of different factors, including local conditions, the sustainability of the project itself and
financial considerations such as profitability of our Group. The selection and adoption of the
most appropriate heat source to each of our heat service project primarily depends on local
conditions of heat services in different locations. According to The Measures of National
Energy Administration for Adopting Renewable Energy According to Local Conditions for
Heat Services (), heat
service operators should take into consideration the local conditions when selecting heat
sources and providing heat services. These local conditions include, amongst others,
government initiatives and policies, availability and reserves of natural and power resources in
each province and city, and the proximity of heat service operators to heat sources. Our
considerations include our relationship with local cogeneration plants, our access to coal
suppliers, the feasibility of extracting geothermal heat and recycling residual heat with respect
to selecting the most suitable heat source for each of our heat service projects. Although we
take a holistic approach in the process of selecting and adopting the most appropriate heat
source to each of our heat service project, sustainability is our primary concern as we are
required to ensure stability of heat service according to our Concession Agreements. Therefore,
we only adopt a heat source for a heat service project when we are certain that we have stable
access to it and such heat source is the safest and most affordable one in the location in which
we operate our heat service project. Before entering into our Concession Agreements, our
feasibility studies generally allow us to ascertain that our operation of a heat service project
adopting a particular heat source is profitable.
Despite the PRC Government’s efforts to reduce pollutants from energy consumption
nationwide, haze pollution in northern China is still an ongoing environmental issue. The PRC
Government generally promotes the use of diversified and clean heat sources in the heat
services business. In 2020, the PRC Government announced its plan of achieving carbon
peaking by 2030 and achieving carbon neutrality by 2060. In line with the implementation of
carbon peaking and carbon neutrality objectives, the PRC Government encourages municipal
governments to develop different ways of clean heating according to local conditions and
accelerates the replacement of small-scale coal-fired boilers which have higher carbon
emission for large-scale coal-fired boilers generating heat using cleaner energy. This promotes
the transition from high carbon emission coal-fired heat generation to low-carbon emission
heat generation, and to develop renewable energy sources such as geothermal, industrial waste
heat and solar thermal energy. During the Track Record Period and up to the Latest Practicable
Date, we relied on four types of heat sources for all of our heat service projects under
concession rights. The coal-fired boilers which we currently use in our Lanzhou New Area
Project comply with the relevant pollutant emission standard accredited by the Lanzhou New
Area Ecology and Environment Bureau* ( ᚆψอਜ͛࿒ᐑྤ҅), which follows the national
emission standard in accordance with the Technical Specifications for Flue Gas Extremely-low
Emission Engineering of Coal-fired Power Plant (Standard: HJ 2053-2018) ( ዷ๩ཥᅀ൴Эર
ଣʈ೻Ҧஔ஝ᇍ(ᅺ๟໮:HJ2053-2018)) (the “ Technical Specifications ”).
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In accordance with the Technical Specifications, under the same condition that the
standard reference oxygen volume ( ਿ๟ःўඎ) is set as 6.0%, emission levels comply with
the relevant pollutant emission standard if the emission mass concentration of each of
particular matter, SO
2 and NOx is lower than 10 mg/m 3, 35 mg/m 3 and 50 mg/m 3, respectively
(the “ Emission Standard ”). The Lanzhou New Area Ecology and Environmental Bureau* ( ᚆ
ψอਜ͛࿒ᐑྤ҅) conducted a series of on-site environmental supervision inspection (ڭ
Ꮸ಻) on the operation of our coal-fired boilers and instructed independent technicians
to measure the emission in accordance with the Technical Specifications. A preliminary
opinion had been issued certifying that the actual emission mass concentration of each of
particular matter, SO
2 and NOx of our coal-fired boilers was within the Emission Standard.
Based on such opinion, we also obtained a qualified inspection opinion from the environmental
specialists of the Lanzhou New Area Ecology and Environmental Bureau* ( ᚆψอਜ͛࿒ᐑྤ
҅), which accredited the coal-fired boilers which we currently use in our Lanzhou New Are
Project as complying with the Emission Standard.
Heat procured from cogeneration plants
During the Track Record Period and up to the Latest Practicable Date, there were
cogeneration plants connected to our primary distribution pipelines at Taiyuan Project,
Shuozhou Project and Hulunbuir Project. The table below sets out the identities and their
respective owners, principal business activities and scale of operations of each of our
cogeneration plants from which we procured heat during the Track Record Period.
No.
Name of
cogeneration plant Identity of owner
Relationship
with us
Principal business
activities Scale of operation
1 Shuozhou Project
Cogeneration Plant
#1 (ψධͦᆠཥ
ᅀ#1)
Shuozhou Thermal
Power Branch of
Huadian
International Power
Co., Ltd.* ( ശཥ਷
ʮ
ψᆠཥʱʮ̡)
owned as to
46.81% by China
Huadian Group
Company Limited*
(ࠢ
ʮ̡) through
Huadian
International
Electric Joint Stock
Company*
(΅
ʮ̡)
Independent
Third Party
Electricity generation Headquartered in
Shanxi Province
with provincial
operation and
approximately
400 staff
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No.
Name of
cogeneration plant Identity of owner
Relationship
with us
Principal business
activities Scale of operation
2 Shuozhou Project
Cogeneration Plant
#2 (ψධͦᆠཥ
ᅀ#2)
Shanxi Shentou Independent
Third Party
Electricity generation Headquartered in
Shanxi Province
with provincial
operation and more
than 1,000 staff
3 Shuozhou Project
Cogeneration Plant
#3 (ψධͦᆠཥ
ᅀ#3)
Jinneng Holding
Power Group
Shuozhou Thermal
Power Group Co.,
Ltd.* (ཥ
ψᆠཥϞ
ʮ̡) which is
owned as to
approximately
64.05% by Jinneng
Holding Group
Company Limited*
(ࠢ
ʮ̡), a SOE
primarily engaged
in sales of coal and
mineral extraction
business
Independent
Third Party
Sales of coal and
electricity
generation
Headquartered in
Shanxi Province
with provincial
operation and more
than 400 staff
4 Shuozhou Project
Cogeneration Plant
#4 (ψධͦᆠཥ
ᅀ#4)
Shanxi Datang Independent
Third Party
Electric power
production
Headquartered in
Shanxi Province
with provincial
operation and more
than 200 staff
5 Taiyuan Project
Cogeneration
Plant* (ධͦᆠ
ཥᅀ)
N/A
(Note) N/A(Note) N/A(Note) N/A(Note)
6 Hulunbuir Project
Cogeneration
Plant/Guohua
Plant* (Ԏဧධ
ͦᆠཥᅀ/਷ശཥ
ᅀ)
Hulunbuir City
Construction
Investment (Group)
Co., Ltd.* (Ԏ
ணҳ༟(ණ
ྠ)ப΂ʮ̡)
owned as to 51%
by National Power
Investment Group
Company Limited*
(ঐ๕ҳ༟ණྠ
ப΂ʮ̡)
Independent
Third Party
Wind and
Electric Power
production
Based in Hulunbuir
of Inner Mongolia
Autonomous
Region and
operating under the
supervision of
government
administration
bureau
Note: During the Track Record Period, we procured heat from Taiyuan Project Cogeneration Plant via a heat supply
company in Taiyuan City, which is an Independent Third Party.
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As confirmed by Frost & Sullivan, heat and power cogeneration is the most commonly
used method of heat production in the heat service industry in the PRC. Further, cogeneration
is one of generation methods that generate both electricity and heat simultaneously to be
utilised and transferred to end customers, while coal-fired boilers are mainly used to produce
heat, as confirmed by Frost & Sullivan. Cogeneration is a more efficient use of fuel or heat
compared to traditional fossil fuel power generation because the otherwise-wasted heat from
electricity generation is put to some productive use. Having electricity as the main product of
cogeneration plants, heat generated from the cogeneration plants is a by-product or joint
product of the electricity generation, providing not only an alternative source of income, but
also reducing energy wastes. As advised by Frost & Sullivan, cogeneration plants in the PRC
are mostly SOEs and the ex-factory price of cogeneration enterprises are generally supervised
or regulated by local government authorities. Even though the cogeneration plants may not be
able to transfer the burden brought by the increase in coal price to their customers directly, it
is observed that the local government authorities may subsidise the cogeneration enterprises
accordingly.
We maintain a good relationship with the cogeneration plants which supply heat to us to
ensure that we can obtain a stable and continuous supply of heat from them. We typically enter
into heat procurement agreements with them for each heat supply period. These procurement
agreements generally contain the key terms set out below:
Purpose of heat usage The procured heat can be used for industrial,
residential and commercial heating purposes.
Heat supply period The heat supply period begins in September of each
year and ends in May of the following year. The
heat supply period for each project is subject to
adjustment with respect to the measures issued by
the relevant local authority for the administration of
heat supply and use.
Distribution coverage The heat procurement agreement specifies the
districts in which we provide heat services to our
heat service customers.
Ownership, right of use,
maintenance and
management of heating
facilities
The operators of the cogeneration plants are usually
responsible for the repair and management of the
heating facilities. The heat procurement agreement
usually specifies the boundary demarcating the
extent of the cogeneration plants. We own the
primary distribution pipelines extending from the
boundary point. We are responsible for their
maintenance and management.
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Heat supply specifications To ensure the quality and safety of our heat services,
the heat procurement agreement stipulates certain
specifications such as hot water flowing volume,
gateway pressure, hot water discharge and return
temperature and water loss rate.
Heat measurement The operators of the cogeneration plants are
responsible for the installation of measurement
equipment for the purpose of monitoring the heat
services’ specifications. The measurement records
mutually agreed upon form bases for clearing and
settlements of heat supply. Both the operators of the
cogeneration plants and us are required to keep heat
measurement records. Any disputes with respect to
the measurement records should be resolved by way
of mutual negotiation.
Pricing, billing and payment The heat procurement prices are subject to
regulatory control. These prices usually consist of
basic heat rates in term of GJ and fees charged for
water loss. We are usually required to make
prepayments either 10 days before the
commencement of heat supply or 10 working days
after the signing of the heat procurement
agreements. The fees accrued in the previous month
need to be fully settled in the following month. Both
parties are required to confirm the actual monthly
heat supply amount.
Obligation and rights of the
operators of the cogeneration
plants
The operators of the cogeneration plants are
required to notify us if: (i) they are unable to meet
our heat demands; (ii) there is any maintenance and
repair by the local authorities which would impact
supply; and (iii) there is any occurrence of events
which might result in heat supply suspension. Upon
the receipt of these notifications, we would try to
come up with a contingency plan as soon as
practicable including initiating our back-up heat
sources to avoid heat shortage.
Penalty The operators of the cogeneration plant may limit or
suspend heat supply if we are unable to settle
overdue payments. There are interest penalties on
overdue payments.
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Taiyuan Renewable Energy has conducted engineering construction works by
constructing our origin station for extraction and exchange of heat for two cogeneration plants
(the “ Two Cogeneration Plants ”) held by Shanxi Datang and Shanxi Shentou respectively in
Shentou Second Power Station.
Prior to the establishment of Shuozhou Renewable Energy in 2011, our Group planned to
commence heat service business in Shuocheng District, and entered into commercial
negotiation with the potential suppliers in Shuocheng District, namely the then owners of the
Two Cogeneration Plants.
Considering that (i) the construction of our origin station was essential and urgent for the
Two Cogeneration Plants; (ii) Taiyuan Renewable Energy, our subsidiary established in 2009
had construction qualification and capabilities, capital sufficiency and relevant know-how; and
(iii) Shuozhou Renewable Energy was yet to be established at the time of negotiation, the then
owners of the Two Cogeneration Plants decided that Taiyuan Renewable Energy was a suitable
entity for the investment and construction of the origin station. Having considered the potential
benefits for securing heat sources from the Two Cogeneration Plants, it was mutually agreed
by our Group and the then owners of cogeneration plants to assign Taiyuan Renewable Energy
to conduct such construction work.
In consideration for the investment and construction of the origin station, Taiyuan
Renewable Energy had been able to procure heat from the Two Cogeneration Plants at a
settlement price lower than the government regulated procurement price and then on sold to
Shuozhou Renewable Energy at the government regulated procurement price. Given the
existing business arrangements between the Two Cogeneration Plants and Taiyuan Renewable
Energy, and that Shuozhou Renewable Energy would have procured heat at the government
regulated procurement price which is the same price as the Independent Third Parties procuring
heat from the Two Cogeneration Plants if it were to procure heat directly from the Two
Cogeneration Plants instead of Taiyuan Renewable Energy, Shuozhou Renewable Energy
procured heat from Taiyuan Renewable Energy for the provision of heat services for the
Shuozhou Project. The salient terms of the arrangements between Taiyuan Renewable Energy
and each of Shanxi Datang and Shanxi Shentou are as follows:
Pricing, being the
government regulated
procurement price
RMB27.5/GJ (including tax) (from February 2012 to
September 2016), RMB24.5/GJ (including tax) since
September 2016
Settlement price RMB24.25/GJ (including tax) (from February 2012 to
September 2016), RMB21.6/GJ (including tax) since
September 2016
Duration A heat procurement agreement is entered into for each heat
service period annually. The duration of heat procurement
agreements generally aligns with the heat service period of
the Shuozhou Project, which shall follow the heat service
period prescribed by the measures adopted by the local
authority for the administration of heat services and use.
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Settlement Taiyuan Renewable Energy is required to make a RMB5
million prepayment of heat procurement fee 10 days prior to
the commencement of the heat service period for the third
party suppliers to prepare for coal stock and production of
heat before heat service period commences.
Taiyuan Renewable Energy is required to settle the
procurement amount of the previous month within 10 days
since the start of the current month. It also needs to make
prepayment for the current month based on 60% of the
procurement amount of the previous month.
Renewal There is no renewal clause in the heat procurement agreement
entered into between Taiyuan Renewable Energy and the
third party suppliers.
Termination In the event that Taiyuan Renewable Energy does not settle
the procurement cost within 10 days since the start of the
month, the third party heat supplier is entitled to serve a
cessation notice to Taiyuan Renewable Energy. After five
days of the cessation notice, the third party heat supplier can
cease the heat supply and terminate the agreement.
Taiyuan Renewable Energy shall not transfer any or part of its
contractual obligations to other third party. Shall such occurs,
the third party heat supplier remains the rights to terminate
the agreement and to seek damages for breach of contract.
According to the approval letters (the “ Approval Letters ”) issued by Shanxi Provincial
Development and Reform Commission (ึ) to Shanxi Datang and
Shanxi Shentou in April 2016 effective from the date of issuance, the price of heat of Shanxi
Datang and Shanxi Shentou shall be within RMB27.5/GJ, being the then government regulated
procurement price, which shall be mutually agreed between both parties after commercial
negotiation. During the Track Record Period, the settlement price of heat between Taiyuan
Renewable Energy and the Two Cogeneration Plants was mutually agreed at RMB21.6/GJ, and
such pricing arrangement complied with the Approval Letters. Based on confirmations from
Shanxi Datang and Shanxi Shentou, it was confirmed that they have respectively reported to
and obtained approval from competent pricing authorities with respect to the pricing
arrangement and both Shanxi Datang and Shanxi Shentou consistently complied with the
policy on government regulated procurement pricing, and have not been required or ordered to
rectify or penalised by relevant government authorities in respect of such pricing arrangement.
During an interview with the chief of Price Management Section and concurrently the head of
Government-fixed Costs Management (பɛ) of the Shuozhou
DRC on 20 April 2023, it was confirmed that (i) the settlement price of heat payable by Taiyuan
Renewable Energy to Shanxi Datang and Shanxi Shentou complied with the applicable PRC
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laws and regulations; and (ii) the adoption of government regulated procurement price in the
Pricing Cost Supervision Conclusion Assessments Reports* (ᄆϓ္͉ᄲഐሞజѓ) for
the purpose of assessing, determining and calculating the amount of price subsidies for our
Shuozhou Project was in full compliance with the applicable PRC laws and regulations. Based
on the above, as advised by our PRC Legal Advisers, (i) the pricing arrangement between
Taiyuan Renewable Energy and the two heat suppliers; and (ii) the adoption of government
regulated procurement price in the Pricing Cost Supervision Conclusion Assessments Reports*
(ᄆϓ္͉ᄲഐሞజѓ) for the purpose of assessing, determining and calculating the
amount of price subsidies for Shuozhou Project were in full compliance with the applicable
PRC laws and regulations. As advised by our PRC Legal Advisers, considering that (i) the
Shuozhou DRC is primarily responsible for formulating and implementing pricing policies, as
well as assessment on costs in relation to, among other things, costs of service projects; and
(ii) the Pricing Management Section, as an internal department of the Shuozhou DRC, is
primarily responsible for, among other things, formulating and adjusting government regulated
priced commodities managed on the municipal government level, overseeing pricing policies
of major public utilities and public welfare service pricing and other assessment on costs in
relation to service projects of commodities under the pricing management of the Shuozhou
DRC, Shuozhou DRC is the relevant competent authority and the officer being interviewed was
the competent person and had the appropriate authority to provide the above confirmation.
None of our current heat procurement agreements prescribe any procurement quota or
minimum heat procurement amount. We consider that all heat procured by us is fully utilised
and consumed once it has been distributed to the users’ units, properties and premises to which
we provide heat services through our distribution pipelines. For the total amount of heat
procured by our Group and the relevant financial information of our heat sources during the
Track Record Period, see “Heat sources” above.
Heat procurement price is subject to regulatory control. The price determined and
prescribed by the local government and pricing bureau is binding on us. For the years ended
31 December 2020, 2021 and 2022, the average heat procurement price (without V AT) was
approximately RMB22.9/GJ, RMB23.7/GJ and RMB23.4/GJ. For the same periods, our heat
procurement cost was approximately RMB369.3 million, RMB368.2 million and RMB398.9
million, representing approximately 34.0%, 37.7% and 34.8% of our total cost of sales for the
same years, respectively.
Each of the cogeneration plants from which we procure heat is equipped with multiple
power generators. Each of these generators can provide back up in case of any heat service
disruption or in the event of technical irregularities and/or emergencies of any other generators.
These cogeneration plants form an integrated heat service system which is crucial to our
continuous heat service. During the Track Record Period and up to the Latest Practicable Date,
we did not experience any major heat service suspension due to the disruption caused by
cogeneration plants.
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Heat produced by our coal-fired boilers
We currently possess three coal-fired boilers which we use to produce heat for our
Lanzhou New Area Project. The Ministry of Ecology and Environment of the PRC ( ʕശɛ͏
΍ձ਷͛࿒ᐑྤ௅) has prescribed certain mandatory standards, including dust, SO 2 and NOx
emission density, for the purpose of differentiating and accrediting coal-fired boilers from
sub-standard coal-fired boilers. Lanzhou New Area Ecology and Environment Bureau* ( ᚆψ
อਜ͛࿒ᐑྤ҅) has certified that we comply with all relevant pollutant emission limits.
Following the promulgation of the Plan for Winter Clean Heating in the Northern Region
(2017-2021) (૶ᆎ՟า஝ྌ(2017-2021) ), we do not use coal-fired boilers
which do not meet the requisite standards to produce heat for our Lanzhou New Area Project.
Coal is the primary raw material used for heat production through our coal-fired boilers.
For the years ended 31 December 2020, 2021 and 2022, the total amount of coal purchased by
us was approximately 0.1 million tons, 0.1 million tons and 0.1 million tons. For the same
years, total cost of procurement of coal consumed was approximately RMB60.8 million,
RMB74.4 million and RMB109.4 million, representing approximately 5.6%, 7.6% and 9.5% of
our total cost of sales, respectively. For the year ended 31 December 2021, our total cost of
procurement of coal consumed increased by approximately RMB13.6 million as compared to
the year ended 31 December 2020, representing an increase of approximately 22.4%. Such
increase in total cost of procurement of coal consumed for our heat services was mainly
attributable to the increase in the unit procurement price of coal during 2021, which was in line
with the overall increase in price of coal in the PRC. According to the Frost & Sullivan Report,
the price of coal in the PRC experienced a notable increase in 2021 and 2022, where the coal
price index increased from 153 to 220 in 2021, and further increased to 241 in 2022, as affected
by increased international coal price and insufficient domestic supply. During the Track Record
Period, we procured coal from Independent Third Party coal suppliers based in the PRC. For
the years ended 31 December 2020, 2021 and 2022, we entered into contracts with two, seven
and five coal suppliers, respectively. By maintaining a list of coal suppliers, we believe that we
are able to procure coal from alternative coal suppliers when necessary and without any
restriction. We did not enter into any long-term agreements or framework agreements with our
coal suppliers during the Track Record Period.
Our procurement price is affected by fluctuations in the price of coal. We are required to
follow the benchmark heat rate determined and approved by the local pricing authorities. In the
case that our coal procurement costs increase (which is beyond our control) and the heat rate
at which we charge our heat service users cannot be adequately adjusted (due to restrictive
laws), we will not be able to transfer the increased coal procurement costs to our heat service
customers in the Lanzhou New Area Project. For more information, see “Risk factors – Risks
relating to our business and industry – Fluctuation in coal procurement cost may materially and
adversely affect our profitability” in this prospectus.
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Residual heat collected at cogeneration plants and coal-fired power plants
During the Track Record Period and up to the Latest Practicable Date, we used residual
heat as a heat source for both of our Shuozhou Project and Lanzhou New Area Project. We
collected residual heat for our Shuozhou Project from our origin station (१) located in the
Shentou Second Power Station while residual heat was collected as a heat source from our
coal-fired power plant constructed for our Lanzhou New Area Project. Both of our origin
station (१) and our coal-fired power plant were equipped with, among other things, a
steam-water heat exchanger and a set of residual heat collection and utilisation system and
collection devices which we used for the collection of residual heat for both projects. Such
system mainly comprises lithium bromide absorption heat pumps (ݿand is
used to collect residual heat which is released by steam turbines during the power generation
process at the cogeneration plants or the coal-fired power plants. The collected heat is then
transferred to circulating water through a steam-water heat exchanger for secondary heating in
order to meet the prerequisite temperature requirement for the purpose of our heat services. The
technologies can optimise the use of residual heat generated from the cogeneration plants. This
approach demonstrated our ability to achieve energy efficiency and reduce regional emissions,
qualifying the Shentou Second Power Station as a Power Top Plant in October 2013.
The following table sets out the details of the residual heat collection process.
For the year ended 31 December
2020 2021 2022
Total number of lithium bromide absorption
heat pumps
666
– Type A 2 2 2
– Type B 2 2 2
– Type C 2 2 2
Respective capacity of lithium bromide
absorption heat pumps
– Type A (MW) 158 158 158
– Type B (MW) 75 75 75
– Type C (MW) 7.5 7.5 7.5
Maximum heat production amount (million
GJ)
(Note)
– Type A 4.7 4.7 4.7
– Type B 2.2 2.2 2.2
– Type C 0.2 0.2 0.2
Actual heat service area covered (million
sq.m.)
23.8 25.1 26.6
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Note: The maximum heat production amount is calculated based on the number of heat pumps for each year
multiplied by the respective capacity of each type of heat pumps multiplied by 24 x 60 x 60 working
seconds per day multiplied by 173 working days for the years ended 31 December 2020, 2021 and 2022,
respectively. The number of working days refers to the heat service period for each year for our
Shuozhou Project, which is the longest heat service period among our Shuozhou Project and Lanzhou
New Area Project where we used residual heat collected from a cogeneration plant and a coal-fired
power plant as a heat source during the Track Record Period.
Geothermal heat
The use of geothermal heat has been prevalent in the heat service industry in the PRC in
recent years. Geothermal heat is classified as a low-carbon (green) energy ( ၠЍЭ၁ঐ๕)b y
the National Energy Administration* (ঐ๕҅). In accordance with the Measures of
National Energy Administration for Adopting Renewable Energy According to Local
Conditions for Heat Services (ஷ
), the use of geothermal heat is encouraged as a heat source for the provision of heat
services in response to the PRC Government’s mission to reduce carbon emission, and with a
view to combating climate change.
During the Track Record Period and up to the Latest Practicable Date, we utilised
geothermal heat as a heat source at our Shanxi Demonstration Zone Project. The production of
geothermal heat requires the use of two medium-deep geothermal wells, namely a production
well ( ͛ପʜ) and a backfill well ( Ϋᙺʜ). We used our own drilling technology to drill these
wells. During the heat extraction process, submersible pumps (ݿlinked to the production
well ( ͛ପʜ) transfer geothermal water to the ground energy station. Inside the ground energy
station, the step utilisation system maximises the extraction of heat from the transferred
geothermal water. The geothermal water is then returned to the refilling well ( Ϋ෬ʜ). The
entire process is carried out within a closed-loop cycle system ( ௐᐑӻ୕), an automatic system
in which heat is transferred by way of circulation of geothermal water, and distributed to our
customers through our heat distribution network. To facilitate the drilling process, we have
developed and registered utility model patents titled “a novel well bore structure and well
completion method for geothermal well* ( ɓ၇ήᆠમᙺʜʜɹᏨ಻છՓༀໄ)” and “a
wellhead monitoring and control device for single-well circulation geothermal well* ( ఊʜృ
ᐑήᆠʜʜɹ္಻છՓༀໄ)”. The two medium-deep geothermal wells are connected to the
primary distribution network for the heat distribution to our heat service customers.
Our heat production department and research and development team will jointly explore
other ways to broaden our heat sources by applying other renewable energy to our heat services
projects.
For the years ended 31 December 2020, 2021 and 2022, fees from customers for our
provision and distribution of heat in respect of Shanxi Demonstration Zone Project amounted
to approximately RMB7.4 million, RMB9.9 million and RMB17.3 million, representing only
0.5%, 0.8% and 1.2% of our total revenue for the same years, respectively. For the years ended
31 December 2020, 2021 and 2022, the gross loss margin for the Shanxi Demonstration Zone
Project was approximately 60.3%, 55.7% and 13.4%, respectively. Our gross loss margins for
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this project for the years ended 31 December 2020, 2021 and 2022 were mainly due to a
relatively high level of depreciation compared to our revenue. For detailed discussions
regarding the gross loss margin for the Shanxi Demonstration Zone Project during the Track
Record Period, see “Financial information – Gross profit and gross profit margin – Description
of major components of our results of operations – Gross profit of heat services (including fees
from customers for provision and distribution of heat, price subsidies from local government
and pipeline connection fee)” in this prospectus.
During the Track Record Period and up to the Latest Practicable Date, we failed to obtain
the mining permit for extracting geothermal heat as required under the relevant laws and
regulations. For further details, please see “– Regulatory compliance – Non-compliance
incidents – (3) Failure to obtain mining permit for extracting geothermal heat” in this section.
Peak-shaving boilers
In order to ensure the reliability and continuation of our heat services during the heat
service period, we maintain peak-shaving boilers of a sufficient quality as back-up heat sources
in the event of heat supply shortage, unexpected incidents, sudden demand, suspension or
disruption. The production capacity of each peak-shaving boiler meets the minimum
requirement stipulated in the Measures for the Administration of Cogeneration ( ᆠཥᑌପ၍
). During the Track Record Period and up to the Latest Practicable Date, we did not
experience any operational incidents which required the deployment of the peak-shaving
boilers.
HEAT DISTRIBUTION
Our heat distribution network comprises two component networks, being the primary
distribution network and the secondary distribution network. The primary distribution network
facilitates heat transmission from our heat sources to the heat exchange stations ( ౬ᆠ१). We
own the proprietary rights to primary distribution network constructed by us. The secondary
distribution network is responsible for heat transmission from the heat exchange stations to the
premises to which we provide heat services. We do not own the proprietary rights to the
secondary distribution network, unless it is constructed by us. Nonetheless, we are required to
maintain and manage the secondary distribution pipelines owned by our heat service customers
according to the Concession Agreements and/or in response to the customers’ requests to
ensure the stability and quality of our heat services. Heat exchange stations connect our
primary distribution networks to the secondary distribution networks which are installed on the
premises of our heat service customers. Heated water of a high temperature flows through
primary distribution pipelines from our heat sources to the heat exchange stations. Powered by
heat exchangers ( ౬ᆠኜ) installed in the heat exchange stations, the high-temperature water in
the primary distribution pipelines cools off when heat is transmitted into the secondary
distribution network and eventually reaches the premises to which we provide heat services.
The water flowing in between the primary distribution network and secondary distribution
network is recycled for cooling purposes. The diagram below sets out a flow chart of our heat
distribution network:
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Return cooled down water
Heat
sources(1)
Circulation pump
for heat source
Primary
circulation pump
Secondary
circulation pump
Supply of heated water
Heat
exchange
station(2)
Our heat
service
end-users'
premises(3)
: Primary distribution networks (heated water flowing from heat sources through
primary distribution pipelines to heat exchange stations)
: Primary distribution networks (cooled down water flowing back to heat sources
through primary distribution pipelines from heat exchange stations)
: Secondary distribution networks (heated water flowing from heat exchange stations
through secondary distribution pipelines to the heating equipment of heat service
end-users)
: Secondary distribution networks (cooled down water flowing back to heat exchange
stations through secondary distribution pipelines from the heating equipment of heat
service end-users)
Notes:
(1) We are responsible for operation of the heat sources for some but not all projects. Depending on the
circumstances of the projects, we either procure heat from other parties or produce heat by ourselves. For
details, see “Heat procured from and residual heat collected at cogeneration plants and heat produced at
geothermal wells” and “Heat produced from and residual heat collected at coal-fired boiler plants” below and
“– Heat Sources” in this section.
(2) We are responsible for operation of the heat exchange equipment installed in heat exchange stations.
(3) We are not responsible for operation of the heat equipment installed within the premises of heat service
end-users.
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Heat procured from, residual heat collected at cogeneration plants and heat produced at
geothermal wells
Heat source
power plants/
geothermal wells
Heat exchange
stations
Usually located in premises of the heat service end-usersUsually located within the premises of the heat source power plant/
geothermal wells
Heat service
end-users
Secondary distribution
network
Primary distribution
network
Heat exchange
stations
Note: During the Track Record Period and up to the Latest Practicable Date, we used heat produced at our geothermal
wells at our Shanxi Demonstration Zone Project, heat procured from cogeneration plants at Taiyuan Project,
Shuozhou Project and Hulunbuir Project, and residual heat collected at the cogeneration plant for Shuozhou
Project. See “– Heat sources” above for details regarding the use of heat sources for our heat service projects.
Heat produced from and residual heat collected at coal-fired boiler plants
Coal-fired
boiler plant
Heat exchange
stations
Usually located in premises of the heat service end-users
Heat service
end-users
Secondary distribution
network
Primary distribution
network
Note: During the Track Record Period and up to the Latest Practicable Date, we used heat produced from and residual
heat collected at coal-fired boiler plants for the Lanzhou New Area Project. See “– Heat sources” above for
details regarding the use of heat sources for our heat service projects.
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Our heat service facilities
We provide our heat services through our heat service facilities. We own our heat service
facilities and are responsible for their maintenance. For our heat service operation, in the event
that any of our Concession Agreements are terminated prior to or not renewed upon the expiry
of their respective concession period, we are required to transfer our heat service facilities to
the concession grantor or parties designated by the concession grantor.
Primary distribution pipelines
As at the Latest Practicable Date, we operated and owned most of our primary distribution
pipelines with an aggregate length of approximately 546.9 km, and we leased certain heat
service facilities including certain primary distribution pipelines and heat exchange stations for
the operation of our Shuozhou Project. As safety is our priority, we regularly conduct safety
inspections of our primary distribution pipelines to ensure that heat is safely transmitted to the
heat exchange stations. Our primary distribution pipelines have an average useful life of
approximately 30 years.
Heat exchange stations
Heat exchange stations are constructed for heat transmission from primary distribution
networks to secondary distribution networks. These stations are equipped with heat
exchangers, circulation pumps, make-up water pumps, valves, instruments, meters, strainers,
water tanks, electric power distribution cabinets, control cabinets and water treatment
equipment.
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We have purchased insurance covering the heat exchange equipment and machinery at the
heat exchange stations to mitigate the risks and consequences of damages, destruction and loss
relating thereto. Under the Measures of City Yellow Line Management (̹රᇞ၍ଣ፬
) and the Standard for Urban Residential Area Planning and Design (Иਜ஝ྌண
ᅺ๟), heat exchange equipment including heat exchange stations cannot be demolished or
moved without proper authorisation. We believe that our equipment installed in the heat
exchange stations are secured.
As at the Latest Practicable Date, we were using 465 heat exchange stations in Taiyuan
and Shuozhou of Shanxi Province, Lanzhou of Gansu Province and Hulunbuir of Inner
Mongolia Autonomous Region. It may be possible that there may be title defects relating to
these heat exchange stations. For details, see “– Properties – Heat exchange stations for our
heat service operation” in this section.
Heat service customers
During the Track Record Period and up to the Latest Practicable Date, our heat service
customers included both residential and non-residential heat service customers. Our residential
heat service customers were the residents of household units. Non-residential customers
included property management companies, commercial operators, government institutions,
educational institutions, airports, train stations and hospitals. The aforementioned property
management companies paid heat service fees for our provision of heat services to the areas
managed by them, usually occupied by residents.
During the Track Record Period, our provision of heat services to residential heat service
customers accounted for the majority of our revenue from the provision and distribution of
heat. For the years ended 31 December 2020, 2021 and 2022, revenue from our provision and
distribution of heat was approximately RMB739.9 million, RMB778.4 million and RMB853.5
million, representing approximately 53.8%, 60.3% and 59.1% of our total revenue,
respectively. As at 31 December 2020, 2021 and 2022, we had approximately 265,800, 282,400
and 303,900 heat service customers, respectively.
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The following table sets out the number of our heat service customers and actual heat
service area by residential and non-residential heat service customers as at the dates indicated.
As at 31 December
2020 2021 2022
Number
of heat
service
customers
Actual heat
service area
(million
sq.m.) (1)
Number
of heat
service
customers
Actual heat
service area
(million
sq.m.) (1)
Number
of heat
service
customers
Actual heat
service area
(million
sq.m.) (1)
Shanxi Province
Residential 149,500 17.0 153,800 17.5 155,400 18.1
Non-residential 9,000 6.5 8,800 6.7 7,900 7.1
Sub-total 158,500 23.5 162,600 24.2 163,300 25.2
Gansu Province
Residential 40,500 4.1 50,300 5.2 61,400 6.5
Non-residential 1,900 1.8 2,000 1.9 5,900 2.0
Sub-total 42,400 5.9 52,300 7.1 67,300 8.5
Inner Mongolia
Autonomous
Region
Residential 60,700 4.9 63,100 5.2 68,400 5.6
Non-residential 4,200 3.1 4,400 3.3 4,900 2.6
Sub-total 64,900 8.0 67,500 8.5 73,300 8.2
Total 265,800 37.4 282,400 39.8 303,900 41.9
Note:
(1) Actual heat service area is calculated according to the aggregate GFA stipulated in the property ownership
certificates.
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The table below sets out our revenue generated from customers for our provision and
distribution of heat by customer type for the years indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 % RMB’000 % RMB’000 %
Residential 433,627 58.6 484,139 62.2 519,806 60.9
Non-residential 306,313 41.4 294,303 37.8 333,736 39.1
Total 739,940 100.0 778,442 100.0 853,542 100.0
The table below sets out our revenue generated from our fees from customers for our
provision and distribution of heat by location and price subsidies from local government in
Shuozhou for the years indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 % RMB’000 % RMB’000 %
Shanxi Province
Taiyuan 113,549 12.5 132,462 13.8 153,031 15.1
Shuozhou 435,513 48.0 466,224 48.5 453,996 44.7
Gansu Province
Lanzhou 166,929 18.4 151,411 15.8 185,108 18.2
Inner Mongolia
Autonomous Region
Hulunbuir 187,376 20.6 203,100 21.1 217,803 21.5
Others 4,481 0.5 7,745 0.8 5,280 0.5
Total 907,848 100.0 960,942 100.0 1,015,218 100.0
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The table below illustrates the effective actual heat service area, amount of heat procured, produced, collected and extracted by our Group and
number of residential and non-residential heat service customers by heat service project under concession and in operation for the heat service
periods indicated.
Heat service period
2019/2020 2020/2021 2021/2022
Effective
actual heat
service area
Amount
of heat
Number of heat service
customers Effective
actual heat
service area
Amount
of heat
Number of heat service
customers Effective
actual heat
service area
Amount
of heat
Number of heat service
customers
Residential
Non-
residential Residential
Non-
residential Residential
Non-
residential
(sq.m. ’000) (GJ’000) (’000) (’000) (sq.m. ’000) (GJ’000) (’000) (’000) (sq.m. ’000) (GJ’000) (’000) (’000)
Shanxi Province
Taiyuan Project 4,408 1,465 31.4 –* 5,408 1,710 33.2 –* 5,730 2,050 39.7 –*
Shanxi Demonstration Zone Project 165 10 0.3 –* 274 13 0.6 –* 484 18 0.7 –*
Shuozhou Project 16,648 6,599 117.8 9.0 17,333 6,029 120.0 8.8 17,646 5,250 115.0 7.9
Gansu Province
Lanzhou New Area Project 6,580 2,307 40.5 1.9 5,889 1,914 50.3 2.0 7,122 1,963 61.4 5.9
Inner Mongolia Autonomous
Region
Hulunbuir Project 6,548 4,833 60.7 4.2 7,042 4,799 63.1 4.4 7,643 4,501 68.4 4.9
34,349 15,214 250.7 15.1 35,946 14,465 267.2 15.2 38,625 13,782 285.2 18.7
* The number of heat service customers is less than 100.
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During the Track Record Period, our effective actual heat service area increased
continuously as a result of the expansion of our heat service projects, which also led to an
increase in the number of our residential and non-residential heat service customers, while the
total amount of heat procured, produced, collected and extracted by us for our heat service
projects under concession gradually decreased. Such decrease was mainly attributable to our
continuous implementation of cost-saving measures to improve energy efficiency, including
but not limited to the use of heat usage meters and indoor temperature monitoring appliances
to promptly monitor level of heat to mitigate heat energy wastage.
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The following table sets out our actual heat service area, monthly heat rates and revenue generated from our provision and distribution of heat
by heat service project under concession and in operation for the heat service periods indicated:
Heat service period
2019/2020 2020/2021 2021/2022
Effective
actual heat
service
area (2)
Number of
heat service
months
Monthly
heat rate
(inclusive
of V AT)
Revenue
for the
year ended
31 December
2019
(exclusive
of V AT)(1)(3)
Revenue
for the
year ended
31 December
2020
(exclusive
of V AT)(1)(3)
Effective
actual heat
service
area (2)
Number of
heat service
months
Monthly
heat rate
(inclusive
of V AT)
Revenue
for the
year ended
31 December
2020
(exclusive
of V AT)(1)(3)
Revenue
for the
year ended
31 December
2021
(exclusive
of V AT)(1)(3)
Effective
actual heat
service
area (2)
Number of
heat service
months
Monthly
heat rate
(inclusive
of V AT)
Revenue
for the
year ended
31 December
2021
(exclusive
of V AT)(1)(3)
Revenue
for the
year ended
31 December
2022
(exclusive
of V AT)(1)(3)
(sq.m. ’000)
(RMB per
sq.m.) (RMB’000) (RMB’000) (sq.m. ’000)
(RMB per
sq.m.) (RMB’000) (RMB’000) (sq.m. ’000)
(RMB per
sq.m.) (RMB’000) (RMB’000)
Taiyuan Project
Residential 3,753 5.0 3.6 22,780 44,781 4,733 5.0 3.6 35,097 56,559 5,017 5.0 3.6 42,243 59,533
Non-residential 655 5.0 7.5 11,345 16,925 675 5.0 7.5 9,375 13,832 713 5.0 7.5 9,911 14,623
Shanxi
Demonstration
Zone Project
Residential 55 5.0 3.6 393 587 57 5.0 3.6 413 609 67 5.0 3.6 460 747
Non-residential 110 5.0 7.5 2,269 3,386 217 5.0 7.5 2,986 4,405 417 5.0 7.5 4,442 9,989
Shuozhou Project
Residential 11,233 5.5 2.5 68,439 74,391 12,772 5.5 2.5 79,096 83,308 12,046 5.5 2.5 74,659 78,507
Non-residential 5,415 5.5 4.8 62,849 68,314 4,561 5.5 4.8 45,805 64,672 5,600 5.5 4.8 61,085 74,546
Lanzhou New
Area Project
Residential 3,356 5.7 5.0 28,950 41,075 4,162 5.7 5.0 37,519 53,557 5,420 5.7 5.0 44,123 62,788
Non-residential 3,224 5.7 7.0 – 9.2 45,196 65,039 1,727 5.7 7.0 – 9.2 23,296 32,395 1,702 5.7 7.0 – 9.2 21,336 32,051
Hulunbuir Project
Residential 4,568 7.3 3.5 49,104 66,341 4,771 7.3 3.5 54,328 69,054 5,102 7.3 3.5 58,353 73,573
Non-residential 1,980 7.3 4.8 27,482 35,296 2,271 7.3 4.8 31,412 40,035 2,541 7.3 4.8 35,658 45,274
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Notes:
(1) Revenue for each of the years during the Track Record Period is calculated using the below formula:
Revenue = effective actual heat service area x heat rate x proportion of the number of days of provision of heat
to the total number of days of the scheduled period as regulated by the local government – VAT
(2) Effective actual heat service area for each project is the weighted average of the actual heat service area for
that project over the heat service period. Actual heat service area may fluctuate over the heat service period,
for example, (i) some properties may be delivered during the heat service period; and (ii) during the heat
service period, we may terminate heat supply for properties that have been vacant for a certain period of time.
(3) Since each heat service period crosses across two financial year, revenue generated from each heat service
period is allocated on a straight-line basis to those two financial years based on the number of heat service days
in each financial year.
For new properties connecting to our heat distribution network, the heat rate charged by
us is based on the gross floor area stipulated on their blueprints, land use rights certificates or
our independent survey in the absence of other documentation evidences.
We do not enter into heat service agreements with each and every one of our heat service
customers. For the heat service customers with whom we do enter into heat service agreements,
the key terms that are generally found in our heat service agreements with them are set out
below:
Address and heat service area The heat service agreements specify the heat service
customer’s address and heat service area, which is
determined by the gross floor area stipulated in the
relevant property ownership certificate.
Heat service period Our heat service period shall follow the heat service
period prescribed by the measures adopted by the
relevant local authority for the administration of
heat services and use.
Quality Our provision of heat services shall be on a
continuous and stable basis and is subject to the
applicable laws, regulations and heating measures
promulgated and amended by the relevant
authorities from time to time.
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Heat rate and settlement The heat rate charged to our heat service customers
shall generally follow the benchmark heat rate
determined and approved by the local pricing
authorities, as multiplied by the actual heat service
area occupied by respective heat service customers.
We usually require our heat service customers to
make full prepayment of heat service fees prior to
the commencement of the heat service period.
Under some of our heat service agreements, late
payment penalty fees may apply if our heat service
customers fail to make such full prepayment.
Hence, heat service fees are calculated based on
heat service area instead of actual consumption of
heat.
Our rights
and obligations
We have the right to inspect and monitor heat
service conditions and operation of the units,
properties and premises to which we provide heat
services, and the equipment, devices and other
relevant parts therein, to ensure our supply service
quality. We are also entitled to request the cessation
of any unauthorised usage of heat and rectify
violation of the relevant procedures which causes
imbalance in our heat services. We are required to
patrol and carry out inspection of heat service
facilities quarterly to ensure heat service safety. We
are also required to provide notification in advance
if the heat services the interrupted due to certain
unexpected situations (i.e., force majeure events),
and ensure that the heat services can be resumed as
soon as possible.
Rights and obligations Customers are responsible for the maintenance and
repair of their own heat service equipment and
relevant parts.
Amendment of agreement Under some of our heat service agreements, heat
service customers may apply for amendments to the
heat service agreements with us, such as change of
usage, suspension or termination of heat services
and address.
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Breach of agreement Heat service customers are responsible for any
overdue payment owed to us and we may restrict or
suspend our heat service if they fail to make the
payment timely according to the heat service
agreements. On the other hand, under some of our
heat service agreements, we undertake the liability
of breach of heat service agreements by refunding
the heat fees.
Heat service customer satisfaction
We are dedicated to providing comprehensive and quality customer services to
accommodate our heat service customers’ needs. Our heat services management software tool
improves heat service end-user’s services and ensures their satisfaction. For more information,
see “– Heat services management software tool” in this section. During the Track Record
Period and up to the Latest Practicable Date, the complaints lodged by our heat service
customers were primarily related to minor technical issues for which our maintenance
personnel generally offered prompt repair works to ensure the stability of our heat service. We
have taken adequate and immediate measures in response to these complaints to ensure that
problems identified can be properly resolved. During the Track Record Period and up to the
Latest Practicable Date, we had not received any material complaints from our heat service
customers due to or in relation to the heat services provided by us.
Pricing
Heat rate for heat service users
According to the PRC Pricing Law, the PRC Government may direct, guide or determine
the prices of public utilities. It is stipulated in the Interim Measures that heat rates shall be set
by a pricing authority, being the relevant provincial people’s government or authorised
municipal or county people’s government, with reference to heat procurement costs, related tax
and the profit expected to be made by the service providers. Heating enterprises (entities) that
satisfy either one of the below requirements can submit price adjustment application to the
pricing authorities in writing: (1) heat rates are insufficient to cover the cost of heating,
resulting in operating losses; or (2) fuel price changed by more than 10%. The heat rate charged
to our heat service customers shall generally follow the benchmark heat rate determined and
approved by the local pricing authorities, as multiplied by the actual heat service area occupied
by respective heat service customers. Heat service fees are calculated based on heat service
area instead of actual consumption of heat.
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The table below sets out the monthly heat rates charged by us on different types of heat
service users by project during the Track Record Period:
Location
Monthly heat
rate for
residential heat
service
users
Monthly heat
rate for
non-residential
heat service
users
(RMB per sq.m.) (1) (RMB per sq.m.) (1)
Shanxi Province
Taiyuan Project 3.6 7.5
Shanxi Demonstration Zone Project 3.6 7.5
Shuozhou Project 2.52 4.8
Gansu Province
Lanzhou New Area Project 5.0/5.8
(2)
7.0 to 9.2/
8.0 to 10.2 (3)(4)
Inner Mongolia Autonomous Region
Hulunbuir Project 3.5 4.8
Notes:
(1) The prices include V AT.
(2) The monthly heat rate for residential heat service users for our Lanzhou New Area Project was RMB5.0
per sq.m for the 2019/2020, 2020/2021 and 2021/2022 heat service periods, and was raised to RMB5.8
per sq.m. effective from the beginning of the 2022/2023 heat service period pursuant to the notice issued
by the Lanzhou New Area Economic Development Bureau (Statistics Bureau)* (҅
(҅)) in November 2022. Such monthly heat rate adjustment was made following a cost review and
price hearing by the same bureau in response to increases in the cost of heat procurement in recent years.
(3) During the Track Record Period, the monthly heat rates charged by us in our Lanzhou New Area Project
varied depending on the type of non-residential heat service users in Lanzhou. Non-residential heat
service users included commercial heat service users, industrial heat service users, and public utilities,
catering and accommodation service providers.
(4) The monthly heat rates for non-residential heat service users for our Lanzhou New Area Project ranged
from RMB7.0 per sq.m to RMB9.2 per sq.m for the 2019/2020, 2020/2021 and 2021/2022 heat service
periods, and were raised to the range from RMB8.0 per sq.m. to RMB10.2 per sq.m. effective from the
beginning of the 2022/2023 heat service period pursuant to the notice issued by the Lanzhou New Area
Economic Development Bureau (Statistics Bureau)* (҅(҅)) in November 2022.
Such monthly heat rate adjustment was made following a cost review and price hearing by the same
bureau in response to increases in the cost of heat procurement in recent years.
Where there is an increase in costs due to circumstances beyond our control, such as
increases in our heat procurement costs, changes in laws, rules or government regulations or
orders, or force majeure events, we may apply to the relevant pricing authority for an
adjustment of our heat rates. The local pricing authority may as a result allow us to adjust the
heat rates which we charge to our heat service users. However, if the local pricing authority
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does not approve our application for an adjustment of our heat rates, we may not be able to pass
on the increase in our costs to our heat service users. Additionally, there is generally a time lag
between the increase in our costs and the upward adjustment of our heat rates. As a result of
the above, we may not be able to maintain our profitability, and our operating results may be
adversely affected. In 2018, we applied to adjust upwards the heat rates for our Hulunbuir
Project and our application was approved by Hailar District People’s Government* (ဧਜ
ִ݁in August 2018 after a public consultation had been conducted. During the Track
Record Period, we did not apply to the relevant pricing authority for an adjustment of our heat
rates. For details of our risk exposure due to pricing, see “Risk factors – Risks relating to our
business and industry – What we can charge for our heat services is subject to guided prices
prescribed from time to time by the PRC Government at various levels and therefore our
profitability may be materially and adversely affected if these pricing policies are not
favourable to us” in this prospectus. For a sensitivity analysis relating to the fluctuation in
costs, see “Financial Information – Description of major components of our results of operation
– cost of sales – sensitivity analysis” in this prospectus.
Pipeline connection fee
We are entitled to charge a pipeline connection fee under our Concession Agreements and
heat service agreements. The pipeline connection fee is one-off and mainly charged to real
developers and property owners or occupants when their properties are first connected to our
primary distribution pipelines. During the Track Record Period, we received pipeline
connection fee in Shanxi Province, Gansu Province and Inner Mongolia Autonomous Region.
The table below sets out the number of property developers and property owners or
occupants from which we received pipeline connection fees for each of the year during the
Track Record Period:
For the year ended 31 December
2020 2021 2022
Property developers 74 68 23
Property owners or occupants 35 33 30
Total 109 101 53
For the years ended 31 December 2020, 2021 and 2022, revenue from pipeline connection
fee was approximately RMB65.4 million, RMB74.2 million and RMB83.7 million,
representing approximately 4.8% and 5.7% and 5.8% of our total revenue for the same periods
respectively. The increase in the revenue from pipeline connection fee during the Track Record
Period was mainly due to the increase in our actual heat services area resulting from the
increased number of property developers and property owners or occupants connecting their
properties to our primary distribution pipelines.
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The table below sets out the range and average of the pipeline connection fee that we
received from property developers and property owners or occupants during the Track Record
Period.
For the year ended 31 December
2020 2021 2022
(RMB per
sq.m.)
(RMB per
sq.m.)
(RMB per
sq.m.)
Range 51.0-85.6 51.0-85.6 59.8-77.0
Average 60.3 63.1 64.7
According to Frost & Sullivan, it is an established industry practice for heat service
providers to charge pipeline connection fee in the heat service industry, and the pipeline
connection fee charged by our Group during the Track Record Period was in line with the
market rate.
As confirmed by our PRC Legal Advisers, during the Track Record Period and up to the
Latest Practicable Date, all pipeline connection fees which we received were permitted to be
charged by us under relevant Concession Agreements and heat services agreements, and we
have complied with all applicable laws and regulations in relation to pricing of our heat
services in all material aspects.
Guo Ban Han No. 129 and its potential impact on our Group
On 23 December 2020, the Opinion on Sorting Out and Standardising the Charges for
Urban Water, Electricity, Gas and Heat Supply Industry to Promote the High-quality
Development of the Industry (Guo Ban Han [2020] No. 129) (ᕄԶ˥ԶཥԶ
จԈ(਷፬Ռ[2020]129 ໮)) (“ Guo Ban Han No. 129 ”)
was issued by the General Office of the State Council to local governments. It took effect from
1 March 2021 and provided that by 2025, among other things, (i) the right to charge for
interface fees, centralised network construction fees, grid connection fees and other similar
fees (including pipeline connection fees) by urban centralised heat service enterprises in
northern heating areas from their users shall be cancelled if there is no legal and effective
policy basis to charge these fees; (ii) such cancellation shall be gradually implemented by local
governments in conjunction with the introduction of reasonable adjustments to the price of heat
services and upon the establishment of a governmental subsidy mechanism; and (iii) the timing
for implementation of such cancellation shall be determined by relevant local governments.
In 2021, each of the relevant pricing authorities of Shanxi Province, Gansu Province,
Inner Mongolia Autonomous Region and Henan Province published corresponding guidance
plans with a view to introducing and implementing the changes necessitated by Guo Ban Han
No. 129. Each of these local guidance plans reiterated the principle that the actual cancellation,
along with the implementation of reasonable price adjustments and subsidy mechanism, would
as a guiding principle take place no later than the end of 2025. As at the Latest Practicable
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Date, our PRC Legal Advisers advised that they have not found through public enquiries that
any of the local governments of Shanxi Province, Gansu Province, Inner Mongolia
Autonomous Region and Henan Province have announced any detailed policies in relation to
the complete cancellation of the right to charge the above-mentioned fees, or details of the
corresponding price adjustments and governmental subsidy mechanisms that will be
introduced. For details, see “Regulatory overview – Pricing – Charges for interface fees,
centralised network construction fees, grid connection fees and other similar fees” in this
prospectus.
Our PRC Legal Advisers have advised that the intention of Guo Ban Han No. 129 and the
corresponding guidance plans published by the relevant pricing authorities of Shanxi Province,
Gansu Province, Inner Mongolia Autonomous Region and Henan Province is to better regulate,
amongst other things, charges relating to heat service prices to ensure that users are charged
reasonably, and that heat service providers are appropriately compensated for their reasonable
costs incurred in the course of the provision of heat services. According to interviews
conducted with each of the deputy chief of the Commodity and Pricing Division (ஈ)
on 11 March 2022 and 10 November 2022 of Shanxi Province Development and Reform
Commission (ึ), the head of Pricing Management Section (၍ଣ
߅of Lanzhou New Area Economic Development Bureau (҅)o n2 4
February 2022, the head of Pricing Management Section (߅of Hulunbuir Municipal
Development and Reform Commission (ึ) on 20 May 2022 and
11 November 2022 and the deputy director of Xinmi Municipal Development and Reform
Commission (ึ) on 28 February 2023, being the officer-in-charge of
the relevant pricing authorities of Shanxi Province, Lanzhou New Area, Hulunbuir and Xinmi,
respectively, it was confirmed that the actual cancellation of the right to charge the pipeline
connection fees by the end of 2025 would be accompanied by the formulation and
establishment of the corresponding mechanisms of price adjustments and subsidies, and that
such cancellation would not take place without the establishment of such corresponding
mechanisms. Our PRC Legal Advisers have confirmed that the Shanxi Province Development
and Reform Commission, Lanzhou New Area Economic Development Bureau, Hulunbuir
Municipal Development and Reform Commission and Xinmi Municipal Development and
Reform Commission are the relevant competent authorities to be interviewed. As advised by
our PRC Legal Advisers, these pricing authorities are responsible for overseeing and
conducting pricing policies, and the representatives who provided the relevant confirmations
were the officers-in-charge of the internal departments responsible for the relevant matters of
the relevant pricing authorities. Our PRC Legal Advisers have also advised that (a) according
to Guo Ban Han No. 129, it was expressly stipulated that the actual cancellation of the right
to charge the above-mentioned fees should be accompanied by the formulation and
establishment of corresponding mechanisms of price adjustments and subsidies; and (b) based
on the aforementioned interviews, it is anticipated that the new laws and regulations regarding
the cancellation of the right to charge pipeline connection fees would be implemented such that
any cessation of pipeline connection fees being charged would be accompanied by certain
compensation whether in the form of price adjustment and/or subsidy. Based on the
aforementioned government interviews and our PRC Legal Advisers’ advice, our Directors are,
therefore, of the view that the cancellation of pipeline connection fees will be offset by the
reasonable adjustments to be made to heat service prices that heat service providers may
charge, as well as the compensation in the form of government subsidies or grants.
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Our PRC Legal Advisers have also advised that Guo Ban Han No. 129 and its related local
laws and regulations currently in force do not provide for any circumstances that pipeline
connection fees we have historically charged and received in relation to heat services we
provided in Shanxi Province, Lanzhou New Area, Hulunbuir or Xinmi be refunded. Each of the
Shanxi Province Development and Reform Commission (ึ), Lanzhou
New Area Economic Development Bureau (҅), and Hulunbuir Municipal
Development and Reform Commission (ึ) and Xinmi Municipal
Development and Reform Commission (ึ), being the relevant pricing
authorities of Shanxi Province, Lanzhou New Area, Hulunbuir and Xinmi, respectively, has
also confirmed that pipeline connection fees we have historically charged and received in
relation to heat services we provided in Shanxi Province, Lanzhou New Area, Hulunbuir or
Xinmi would not be required to be refunded. Our PRC Legal Advisers have confirmed that the
Shanxi Province Development and Reform Commission, Lanzhou New Area Economic
Development Bureau, Hulunbuir Municipal Development and Reform Commission and Xinmi
Municipal Development and Reform Commission (ึ) are the relevant
competent authorities to be interviewed. Accordingly, we do not expect that we will need to
refund any of the pipeline connection fees already received to date. Such pipeline connection
fees received in advance have already been recognised as contract liabilities during the relevant
reporting period, which would be recognised as revenue on a straight-line basis over the
relevant remaining concession period. Therefore, we do not expect any material adverse impact
on our revenue in the short run after the implementation of Guo Ban Hao No. 129 and the
corresponding policies to be published by the relevant local authorities.
When Guo Ban Hao No. 129 and the corresponding policies in relation to the pipeline
connection fees to be published by the relevant local authorities are fully implemented by the
end of 2025, we may no longer be able to receive any new pipeline connection fees. However,
the loss on revenue resulting from the cancellation of our right to charge pipeline connection
fees will somehow be compensated by the adjustments of heat rates and the subsidies or grants
under the governmental subsidy mechanisms to be formulated, or otherwise. We therefore do
not expect the cancellation of such right pursuant to Guo Ban Han No. 129 will (taking a
holistic view) have any material adverse impact on our overall financial position.
Please also see “Risk factors – Risks relating to our business and industry – Our heat rates
may not be adjusted proportionally and/or we may not receive sufficient subsidy for our heat
service operations to sufficiently cover the potential reduction in pipeline connection fee due
to any change in its mechanism” in this prospectus.
Payment and credit policy
All of our residential, commercial and industrial heat service customers are registered
with us for the purpose of paying heat service related fees. The registration process includes
opening of a user account. Our heat service customers are required to make payments of our
heat services fees into their user accounts prior to the commencement of each heat service
period. Payments for our heat services are then deducted from these user accounts. Revenue is
recognised at the point in time when our heat service is provided, generally on the transmission
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of heat. It is the responsibility of our heat service customers to ensure that they have made
proper payments of our heat service fees into their user accounts. We are entitled to impose late
payment penalty fees and temporarily suspend our heat services if payment to us is not
processed due to insufficient funds in their user accounts. We believe that our exposure to the
risks relating to credit control is remote as we usually require our heat service customers to
make full prepayments prior to the commencement of our heat services to them.
HEAT SERVICES MANAGEMENT SOFTW ARE TOOL
We are committed to improving people’s living standards with the application of
technology. We launched a heat services management software tool in July 2019, which is now
widely applied to our projects across all our actual heat service area for our heat services
customers. It is regularly maintained and upgraded. The central control centre of the heat
services management software tool is established in Taiyuan City and sub-control centres are
established in areas where our heat services projects in operation are located. The central
control centre can place heat production orders across the Group and monitor the heat
production process of all sub-control centres.
Our heat services management software tool is a digitalised intra-group software tool
which mainly consists of (i) a heat production monitoring software tool which monitors the
heat production process and the operation of our heat service facilities; and (ii) a heat
transmission monitoring software tool which monitors the heat transmission process.
In respect of the heat production monitoring software tool and the heat transmission
monitoring software tool, the software tool is able to monitor the operational status of heat
service facilities on a real-time basis to optimise their operational efficiency and energy
consumption. When the software tool detects any abnormal status in the heat service facilities,
it will send a warning signal so that appropriate measures can be taken.
We also have a customer service system which collects certain information of our heat
service customers, including their names and addresses. Such information is only used when
we are required to contact our heat service customers in the case of an emergency. According
to our internal procedures, access of our heat service customers’ information require the
approval of our senior management. Our Directors believe that we have adopted sufficient
internal control procedures to prevent leakage of information of our heat service customers.
Under the Cybersecurity Law of the PRC () (the
“Cybersecurity Law ”), network operators are required to protect their networks against
disruption, damage or unauthorised access, and to prevent data leakage, theft or tampering. In
addition, they will also be subject to specific rules depending on their classification under the
multi-level network security protection scheme. With respect to personal information
protection, the Cybersecurity Law requires network operators not to disclose, tamper with or
damage personal information collected or generated in the business operation, and they are
obligated to delete unlawfully collected information and to amend incorrect information.
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In December 2021, the Cybersecurity Review Measures (2021)* ()
were introduced. Under the Cybersecurity Review Measures (2021), online platform operators
(amongst others) carrying out data processing activities that affect or may affect national
security, are required to conduct a cybersecurity review. According to the Cybersecurity
Review Measures (2021), an online platform operator who holds and controls more than one
million users’ personal information needs to report to the Cybersecurity Review Office for a
cybersecurity review if it intends to be listed abroad* ( ਷̮ɪ̹).
Separately, the Draft Regulations On Network Data Security Management were
promulgated on 14 November 2021. Pursuant to the Draft Regulations On Network Data
Security Management, the State will focus on the protection of personal information and
important data and strictly protect core data. Data processors shall be responsible for the data
security and shall fulfil their obligation of data security protection in data processing. Data
processors shall take necessary measures such as backup, encryption and access control to
protect data from disclosure, theft, tampering, destruction, loss and illegal use, respond to
network security incidents, prevent illegal and criminal activities targeting and using data, and
maintain the integrity, confidentiality and usability of data. It stipulates that data processors
shall, in accordance with relevant national regulations, apply for cybersecurity review if they
are, among others, seeking to be listed abroad and controlling personal information of more
than one million users, or seeking to be listed in Hong Kong and affecting or may be affecting
national security. As at the Latest Practicable Date, the Draft Regulations On Network Data
Security Management had not been formally adopted.
We have been advised by our PRC Legal Advisers that as (i) we control, user information
of less than one million; and (ii) we are currently not a critical information infrastructure
operator and online platform operator, based on the Cybersecurity Review Measures (2021)
and the preliminary framework of the Draft Regulations On Network Data Security
Management, our Listing is not subject to the reporting requirement of the cybersecurity
review office in relation to cybersecurity review.
Based on a written confirmation that we received from the Office of the Jiangyin
Cybersecurity Affairs Commission* (܃being the
relevant competent authority to provide such confirmation, it was confirmed that we are not a
critical information infrastructure operator and/or online platform operator, hence, we are not
subject to the Security Review Measures (2021). Based on the same confirmation, it was also
confirmed that if the Draft Regulations On Network Data Security Management are formally
issued in the future, such regulations will not apply to our business (provided that our business
remains unchanged) and we will therefore not be required to apply for the cybersecurity review
in order to be listed in Hong Kong.
As at the Latest Practicable Date, based on the public search results found on the relevant
websites, such as China Judgements Online, China’s Enforcement Information Disclosure
website, website of each of Cyberspace Administration of China (ࢹڦ
܃and Ministry of Industry and Information Technology, we have not been subject to any
review, inquiries or investigations by any regulatory authorities in the PRC with respect to
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cybersecurity and data protection and we have not been involved in any litigation or arbitration
regarding cybersecurity or data protection. In addition, as at the Latest Practicable Date, we
have not been involved in any investigations on cybersecurity review made by the Cyberspace
Administration of China on such basis, and we have not received any inquiry, notice, warning,
or sanctions in such respect.
As advised by our PRC Legal Advisers, the exact details of the Cybersecurity Review
Measures (2021) and the current regulatory regime remains unclear, and the PRC government
authorities may have wide discretion in the interpretation and enforcement of these laws. Our
Directors and our PRC Legal Advisers therefore cannot preclude the possibility that new rules
or regulations promulgated in the future will impose additional compliance requirements on
our Group in relation to cybersecurity review. We have adhered to relevant laws and
regulations with respect to cybersecurity and data protection from time to time. Our in-house
lawyers will pay attention to the latest legal updates, including but not limited to, issuance of
consultation papers which may affect the introduction of new laws and regulations in the
future, that are related to our business operations. In the event that there are any legal updates
that may affect our business operations, we shall update our internal control measures
accordingly for ongoing legal compliance.
ENGINEERING CONSTRUCTION SERVICES
We provide engineering construction services for construction of the heat service
facilities to the concession grantors. For details of the concession grantors, see “– Heat services
– Our Concession Agreements” in this section. After entering into the relevant Concession
Agreements, we have the right and obligation to invest in, build or arrange for the development
of the heat service-related assets, including primary distribution pipelines, heat exchange
stations and other heat service facilities required for our provision of heat services within our
Concession Areas. Upon the expiration of our Concession Agreements, in the event that the
concession rights are not renewed, all heat service-related assets invested (and, in some cases,
under construction at the time) by us and the right to use in relation to heat service-related
assets which were not invested by us shall be transferred to the relevant concession grantor (or
party(ies) designated by the concession grantor). For details of the ownership and future
transfer of our operational assets, see “– Heat services – Our Concession Agreements” in this
section.
For the years ended 31 December 2020, 2021 and 2022, revenue generated from our
engineering construction services was approximately RMB362.1 million, RMB229.1 million
and RMB301.6 million, representing approximately 26.3%, 17.8% and 20.9%, of our total
revenue for the same years, respectively.
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The following table sets out our revenue generated from our engineering construction
services by service type for the years indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 % RMB’000 % RMB’000 %
Engineering construction
services for our concession
operations 349,356 96.5 208,133 90.8 271,010 89.9
Engineering construction
services provided to
customers 12,694 3.5 21,014 9.2 30,557 10.1
Total 362,050 100.0 229,147 100.0 301,567 100.0
Construction
We typically engage competent third-party contractors to construct the heat service
facilities for our provision of engineering construction services, while we are responsible for
managing and supervising the performance of such construction works. For details relating to
our selection of third-party contractors, see “Business – Our suppliers – Contractors for the
construction of primary distribution pipelines and heat service facilities – Selection and
management of our contractors” in this prospectus.
During the construction phase, we would have oversight of the progress, safety and
quality of the construction works. Our quality control team is responsible for overseeing the
quality of construction and any safety issues that may arise during the construction phase.
Upon completion of construction, we will test, inspect and optimise the heat service facilities
to ensure that the quality of these facilities meets the standards stipulated in the relevant
agreements entered into with the local governments. During the Track Record Period, we did
not detect any major quality or safety problems in relation to either the construction or the
subsequent operation of the heat service facilities constructed by third party contractors.
During the Track Record Period, we procured and supplied the pipelines, as well as the
devices and equipment for the heat exchange stations to the third party contractors for
construction of the heat service facilities. The third party contractors would provide all other
raw materials and carry out the engineering construction works according to our pre-approved
blueprints. It generally takes approximately six months to complete the construction work.
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Application of IFRIC 12
IFRIC 12 is applicable to our Concession Agreements and services provided thereunder.
Under IFRIC 12, we recognise revenue for the construction of heat service facilities for our
heat service projects. The construction services revenue for the initial establishment of the heat
service facilities under our Concession Agreements is calculated according to the total
construction costs plus a reasonable profit margin determined by Vincorn Consulting and
Appraisal Limited, an independent valuer, based on the prevailing market rate applicable to
similar construction services. For details, see “Financial information – Critical accounting
policies and estimates – Initial investment” in this prospectus.
The initial consideration for the acquisition of our concession rights and the establishment
of heat service facilities is accounted for as an intangible asset. An intangible asset (operating
concession) is recognised to the extent that the right to charge our customers is dependent upon
the usage or amount of our heat services rendered, which is not an unconditional right to
receive cash.
During the initial construction of heat service facilities for our provision of heat services,
we incurred significant cash outflow for the cost of the construction. At the same time, we
recognised non-cash revenue in respect of our engineering construction services. However, we
would not receive any payment in cash from the relevant government authorities for such
engineering construction services.
After the completion of the initial construction of the heat service facilities, we would
commence the provision of heat services and the actual cash inflow would be received when
we charged our heat service customers for our heat services over the remaining concession
period.
PROVISION OF EMC SERVICES
An EMC is an energy-conservation service contract under which an energy saving service
provider provides energy-conservation services (such as, and in our case, energy conservation
through the collection and utilisation of residual heat from recycling water) to an energy
consuming enterprise to achieve certain energy saving goals. In these contracts, the energy
saving service provider of the energy-conservation services is entitled to a share of the profit
accrued from energy conserved as a result of the energy conservation services provided.
According to the Frost & Sullivan Report, the EMC market in the PRC has developed
rapidly since the promulgation of the “12th Five-Year Plan” (ٟ
) in 2012. In line with the development of the electricity and
heat service industries in northern China, an increasing number of energy-related enterprises
in this region are opting for EMC services as a way to fulfil their environmental protection
objectives. Additionally, with a view to promoting the EMC business, the PRC Government has
promulgated a series of regulations and policies which offer preferential tax treatments for
companies providing energy conservation services.
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In March 2017, we entered into an Original EMC with an energy management service
company principally engaged in the business of power generation based in Gansu Province, the
PRC, pursuant to which we agreed to provide EMC services in an energy conservation project
in relation to the collection of residual heat from recycling water. We subsequently entered into
the Supplemental EMC on 15 December 2021 as the demand for residual heat by this customer
for EMC services did not meet the demand originally anticipated, and revenue generated from
the Original EMC was lowered than anticipated.
For the years ended 31 December 2020, 2021 and 2022, revenue generated from this EMC
project was approximately RMB4.2 million, RMB4.0 million and RMB3.0 million,
representing approximately 0.3%, 0.3% and 0.2% of our total revenue for the same years,
respectively.
Key terms of the Original EMC (as supplemented by the Supplemental EMC)
The key terms of the Original EMC (as supplemented by the Supplemental EMC) are set
out below:
Subject matter Under the Original EMC, we were responsible for
installing for the customer certain equipment and
machinery for the purpose of collecting residual
heat. The equipment and machinery would be
inspected by a qualified party selected by both
parties before putting into use. We were also
responsible for operating and managing the residual
heat collection facilities
Term The agreed term as stated in the Original EMC was
for 10 heat service periods starting from October
2017. The Supplemental EMC, extended the term to
the end of the heat service period of 2033/2034 or
when the aggregate amount of residual heat
collected reaches 18 million GJ
Sharing of revenue We are entitled to a share of revenue based on a
revenue-linked formula below:
Amount of residual heat collected x unit price x
sharing percentage
Amount of residual
heat collected
Actual volume of residual
heat collected, subject to the
minimum residual heat
collected in each heat
service period
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Unit price RMB30.44/GJ (excluding
tax)
Sharing revenue We shall be entitled to 50%
(as supplemented by the
Supplemental EMC)
Minimum residual heat collected
in each heat service period
As stipulated in the Supplemental EMC, the
minimum residual heat to be collected in each heat
service period shall be 1.242 million GJ. If the
actual residual heat collected in any heat service
period is less than 1.242 million GJ due to any issue
for which the Power Plant should be responsible,
1.242 million GJ will be adopted for the calculation
of the sharing of revenue and the total residual heat
collected over the term of the contract
Operating expenses of the
facilities
We are required to bear all operating expenses
Payment The customer is required to settle the sharing of
revenue (plus the relevant tax) to us within 25
working days upon receipt of invoice on a monthly
basis
Ownership and transfer We own the assets (including but not limited to
equipment and machinery) invested, purchased and
installed by us during the term of the contract. All
these assets will be transferred to the Power Plant
upon the expiration of the EMC provided that all
sums due to us have been fully settled
Early termination The customer is entitled to early terminate the EMC
services by paying us a sum equal to the value at the
relevant time of the EMC on its remaining term
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Our Directors believe that we can fully utilise the potential of our EMC business.
However, given our limited history and experience in operating under the EMC business
model, we may encounter risks and difficulties in relation to our EMC business. For relevant
information, see “Risk factors – Risks relating to our business and industry – Our EMC
services were launched with limited history” in this prospectus.
OTHER BUSINESSES
During the Track Record Period, we also engaged in (i) the provision of heat transmission
services to a number of customers; (ii) the sale of heat service facilities (including heat service
equipment, devices and relevant parts) to operators who required such facilities for their
business operation; and (iii) provision of designing services, which mainly consisted of indoor
heat operation designing and consulting services, to some government authorities and
commercial operators.
OUR SUPPLIERS
During the Track Record Period, in conducting our businesses, we procured (i) heat; (ii)
equipment, machinery and relevant parts and components including pipes, heat exchangers and
heat pumps, valves, bearings and frequency converters, and other materials such as steel,
cables, tools and labour protection supplies; and (iii) services for the construction of primary
distribution pipelines and heat service facilities. During the Track Record Period, we also
leased certain heat service facilities from a local government for conducting our heat services.
For the details of the leasing arrangements, see “– Our customers – A government
administration bureau which was our customer and also our lessor during the Track Record
Period” in this section.
During the Track Record Period and up to the Latest Practicable Date, we did not
experience any material lack of capacity, supply shortage, fluctuation in procurement price,
delay or disruption in our operations relating to our suppliers or any material product claims
attributable to our suppliers.
During the Track Record Period, our Group procured goods and services from certain
suppliers who will become connected persons of our Group upon the Listing. Such goods and
services included (i) heat service-related equipment, devices and materials; and (ii)
accommodation, catering, reception and conference organisation services. For details, see
“Connected transactions” in this prospectus.
Suppliers of heat
During the Track Record Period and up to the Latest Practicable Date, we procured heat
for our Taiyuan Project, Shuozhou Project and Hulunbuir Project from cogeneration plant
operators in the PRC. We take into account several factors when selecting our preferred
cogeneration plant operators, including but not limited to heat quality, price competitiveness
and proximity to our primary distribution network for our operational efficiency. For details,
see “Heat sources – Heat procured from cogeneration plants” in this section.
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Suppliers of coal for our production of heat
During the Track Record Period and up to the Latest Practicable Date, we procured coal
for our production of heat through coal-fired boilers for our Lanzhou New Area Project from
suppliers in the PRC. We take into account several factors when selecting our preferred coal
suppliers, including price competitiveness and proximity to our coal-fired boilers for heat
production efficiency.
Suppliers of equipment and machinery
During the Track Record Period and up to the Latest Practicable Date, we procured pipes,
heat exchangers and heat pumps, valves, bearings and frequency converters, and other
materials such as steel, cables and tools, from suppliers in the PRC. Our suppliers of equipment
and machinery are mainly sourced through tenders and are required to go through selection
processes according to our internal policies on the selection and management of suppliers. In
particular, we take into account several factors in selecting our preferred suppliers, including
but not limited to product quality, price competitiveness, relevant quality certifications and
after-sales services offering. We will only accept the products of our equipment and machinery
suppliers upon satisfactory quality inspection and receipt of the required quality proof.
Generally, our suppliers are required to provide after-sales services and product warranty
unless otherwise agreed.
Contractors for the construction of primary distribution pipelines and heat service
facilities
For the years ended 31 December 2020, 2021 and 2022, we engaged 37, 26 and 18
contractors in the PRC who were engaged in engineering and construction business for the
construction of heat service facilities such as primary distribution pipelines and heat exchange
stations, respectively. Most of the contractors we engaged for our engineering construction
services were Independent Third Parties, while Shuangliang Eco-Energy, the connected person
of our Company was also our contractor for construction of heat service facilities that we
purchased from Shuangliang Eco-Energy. For information relating to our heat service facilities,
see “– Heat distribution – Our heat service facilities” in this section. Such construction works
performed by the aforementioned contractors were generally for our provision of engineering
construction services. For details of such services, see “– Engineering construction services”
in this section. For the years ended 31 December 2020, 2021 and 2022, our construction costs
were approximately RMB315.5 million, RMB198.9 million and RMB261.8 million,
representing approximately 29.1%, 20.4% and 22.8% of our total cost of sales, respectively.
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Selection and management of our contractors
Key terms of the contracting agreements
In order to be selected by our Group, the contractors need to go through certain selection
processes as required by our internal policies governing the selection and management of
suppliers. We take into account several factors in selecting our contractors, including but not
limited to construction capability, past experience, industry reputation, quality, price, skill and
requisite qualifications and licences. Prospective contractors must first pass an initial
qualification assessment which includes accreditation and certification. After the initial
assessment, we will despatch a personnel in our business services department and/or
engineering department to conduct an on-site inspection on their qualifications. We only
engage the contractors upon our satisfactory inspection and receipt of their qualification proof.
We also require our contractors to provide service warranty and security deposits, unless
otherwise agreed. It is our Group’s policy to select our contractors for the construction of
pipelines and heat service facilities through competitive tender process or competitive
negotiation.
Our contracting agreements typically include the following key terms:
Term The term of our contracting agreements varies depending
on the duration of the relevant construction period, which
is typically less than one year.
Performance The constructed pipelines and heat service facilities
delivered by our contractors are required to meet certain
national standards stipulated in the relevant construction
laws and heating measures.
Our rights and obligations We should verify the qualifications and certifications of
our contractors for them to carry out the construction
works. In addition, we have both the right and obligation
to supervise and evaluate the construction works of our
contractors. Where necessary, we should provide support
to our contractors in the performance of their obligations
such as furnishing them with certain machinery and
equipment, and granting them access to our premises. We
are obligated to make timely payment of contracting fees
in accordance with the payment schedules stipulated in
the contracting agreements.
Contractor’s obligations Our contractors shall take all necessary safety measures
to comply with all safety standards in the performance of
their services. They are also responsible any damage to,
or loss of, any person or property arising out of their own
default in the course of providing their construction
services.
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Pricing The contracting fees payable by us are determined on an
arm’s length basis and on normal commercial terms with
reference to the duration of the construction period and
the scale and complexity of the work carried out.
Our top five suppliers
Purchases from our largest supplier in the years ended 31 December 2020, 2021 and 2022
amounted to approximately RMB100.6 million, RMB88.8 million and RMB89.3 million,
representing approximately 10.1%, 10.2% and 8.8% of our total purchases, respectively.
Purchases from our top five suppliers in the years ended 31 December 2020, 2021 and 2022
in aggregate amounted to approximately RMB402.1 million, RMB337.2 million and
RMB385.6 million, representing approximately 40.5%, 38.7% and 38.0% of our total
purchases, respectively. Our Directors confirm that none of our Directors, their respective
associates or any shareholder (who to the knowledge of our Directors owned 5% or more of
our Shares) held any interest in any of our top five suppliers during the Track Record Period.
The following tables set out certain information with respect to our top five suppliers in
each year during the Track Record Period.
Y ear ended 31 December 2020
Rank Supplier
Relationship
with us
Supplier’s
background
Products
purchased
Transaction
amount
As a
percentage
of our
total
purchase
Payment
method Credit term
The year in
which the
relevant
supplier started
its business
relationship
with our Group
(RMB’000) (%)
1 Shuozhou Thermal Power
Branch of Huadian
International Power Co.,
Ltd.* (΅Ϟ
ψᆠཥʱʮ̡)
(“Huadian International ”)
Independent
Third Party
Electricity
generation
Heat 100,592 10.1 Bank
transfer
10 days 2013
2 Hulunbuir City Construction
Investment (Group) Co.,
Ltd.* (ணҳ
༟(ණྠ)ப΂ʮ̡)
(“Hulunbuir City
Construction ”)
Independent
Third Party
City
construction
and public
utility
business
Heat 94,180 9.5 Bank
transfer
15 days 2013
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Rank Supplier
Relationship
with us
Supplier’s
background
Products
purchased
Transaction
amount
As a
percentage
of our
total
purchase
Payment
method Credit term
The year in
which the
relevant
supplier started
its business
relationship
with our Group
(RMB’000) (%)
3 Taiyuan Tianxiang Thermal
Insulation Co., Ltd* (ࡡ
ʮ̡)
Independent
Third Party
Production,
sales and
maintenance
of
polyurethane
direct buried
insulation
pipelines
Lagged
pipes
76,231 7.7 Bank
Transfer
Nil 2014
4 Shanxi Shentou Independent
Third Party
Electricity
generation
Heat 75,859 7.6 Bank
transfer
10 days 2011
5 Shanxi Datang Independent
Third Party
Construction
and operation
of coal-fired
generating
units, and
provision of
heat source
and
electricity
generation
Heat 55,284 5.6 Bank
transfer
10 days 2012
Total 402,146 40.5
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Y ear ended 31 December 2021
Rank Supplier
Relationship
with us
Supplier’s
background
Products
purchased
Transaction
amount
As a
percentage
of our
total
purchase
Payment
method Credit term
The year in
which the
relevant
supplier started
its business
relationship
with our Group
(RMB’000) (%)
1 Hulunbuir City Construction Independent
Third Party
City
construction
and public
utility
business
Heat 88,778 10.2 Bank
transfer
15 days 2013
2 Huadian International Independent
Third Party
Electricity
generation
Heat 71,106 8.2 Bank
transfer
10 days 2013
3 Jinneng Holding Power
Group Shuozhou Thermal
Power Group Co., Ltd.*
(ψᆠ
ʮ̡)( “ Jinneng
Holding ”)
Independent
Third Party
Sales of coal Heat 65,716 7.5 Bank
transfer
10 days 2020
4 Shanxi Shentou Independent
Third Party
Electricity
generation
Heat 62,253 7.1 Bank
transfer
10 days 2011
5 Shanxi Datang Independent
Third Party
Construction
and operation
of coal-fired
generating
units, and
provision of
heat source
and
electricity
generation
Heat 49,390 5.7 Bank
transfer
10 days 2012
Total 337,243 38.7
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Y ear ended 31 December 2022
Rank Supplier
Relationship
with us
Supplier’s
background
Products
purchased
Transaction
amount
As a
percentage
of our
total
purchase
Payment
method Credit term
The year in
which the
relevant
supplier started
its business
relationship
with our Group
(RMB’000) (%)
1 Hulunbuir City Construction Independent
Third Party
City
construction
and public
utility
business
Heat 89,330 8.8 Bank
transfer
15 days 2013
2 Jinneng Holding Independent
Third Party
Sales of coal Heat 88,146 8.7 Bank
transfer
10 days 2020
3 Baiyin Youse Railway
Transportation Logistics
Co., Ltd.* ( ͣვϞЍ᚛༩
ப΂ʮ̡)
Independent
Third Party
Logistic Service
Provider
Coal 82,197 8.1 Bank
transfer
7 days 2021
4 Huadian International Independent
Third Party
Electricity
generation
Heat 70,219 6.9 Bank
transfer
10 days 2013
5 Shanxi Shentou Independent
Third Party
Electricity
generation
Heat 55,734 5.5 Bank
transfer
10 days 2011
Total 385,626 38.0
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Inventory control
Our inventories include raw materials such as coal and other supplies which mainly
consist of pipeline components, valves and other relevant parts and components for our heat
services. During the Track Record Period, we purchased coal for heat production by our
coal-fired boilers in respect of our Lanzhou New Area Project. We typically purchase coal one
to two months in advance of the actual production of heat. We usually maintain a minimum
level of coal inventory which meets our heat generation needs for a period of up to two weeks.
We determine the quantity of other relevant parts and components to purchase based on our
level of existing inventory and estimated production requirements. We estimate such quantity
based on our work schedule and sometimes make purchases on an as-needed basis.
Our Directors understand the importance of inventory management in maintaining our
operational costs and risks at a low level. We monitor our inventory levels by taking into
account production planning, projected demand, current inventory levels, prevailing market
conditions, the availability of raw materials and supplies required by our operational needs
operation needs and our exposure to changes in raw material prices as well as our internal
resources. We also review and adjust our inventory control policy from time to time.
OUR CUSTOMERS
During the Track Record Period, our customers principally included the customers of our
engineering construction services and provision of heat services under our Concession
Agreements.
Our top five customers
Revenue generated from our largest customer in the years ended 31 December 2020, 2021
and 2022 amounted to approximately RMB399.9 million, RMB201.1 million and RMB206.5
million, representing approximately 29.1%, 15.6% and 14.3% of our total revenue,
respectively. Revenue generated from our top five customers in the years in aggregate
amounted to approximately RMB520.4 million, RMB406.1 million and RMB428.0 million,
representing approximately 37.8%, 31.4% and 29.6% of our total revenue, respectively. Our
Directors confirm that none of our Directors, their respective associates or any shareholder
(who to the knowledge of our Directors owned 5% or more of our Shares) held any interest in
any of our top five customers during the Track Record Period.
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The following tables set out certain information with respect to our top five customers in
each year during the Track Record Period.
Y ear ended 31 December 2020
Rank Customer
Relationship
with us
Customer’s
background
Products/
services sold/
provided by
our Group Revenue
As a
percentage
of our total
revenue
Payment
method Credit term
The year in
which the
relevant
customer started
its business
relationship
with our Group
(RMB’000) (%)
1 Customer A (2) Independent
Third Party
Government
authority
Engineering
construction
services and
provision and
distribution of
heat (i.e. the
consideration
for which was
paid by price
subsidies
granted to our
Group)
399,864
(1) 29.1 Bank
transfer
Nil 2012
2 Customer D (5) Independent
Third Party
Government
authority
Engineering
construction
services
56,230 4.1 N/A N/A 2013
3 Customer C
(4) Independent
Third Party
Government
authority
Engineering
construction
services
25,195 1.8 N/A N/A 2013
4 Customer F
(7) Independent
Third Party
Educational
institution
Provision and
distribution of
heat
19,561 1.4 Bank
transfer
15 days 2017
5 Customer B
(3) Independent
Third Party
Government
authority
Engineering
construction
services
19,502 1.4 N/A N/A 2018
Total 520,352 37.8
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Y ear ended 31 December 2021
Rank Customer
Relationship
with us
Customer’s
background
Products/
services sold/
provided by
our Group Revenue
As a
percentage
of our total
revenue
Payment
method Credit term
The year in
which the
relevant
customer started
its business
relationship
with our Group
(RMB’000) (%)
1 Customer A (2) Independent
Third Party
Government
authority
Engineering
construction
services and
provision and
distribution of
heat (i.e. the
consideration
for which was
paid by price
subsidies
granted to our
Group)
201,099
(1) 15.6 Bank
transfer
Nil 2017
2 Customer D (5) Independent
Third Party
Government
authority
Engineering
construction
services
94,649 7.3 N/A N/A 2013
3 Customer B
(3) Independent
Third Party
Government
authority
Engineering
construction
services
67,695 5.2 N/A N/A 2018
4 Customer G
(8) Independent
Third Party
Government
authority
Engineering
construction
services
22,976 1.8 N/A N/A 2012
5 Customer E
(6) Independent
Third Party
Government
authority
Engineering
construction
services
19,665 1.5 N/A N/A 2019
Total 406,084 31.4
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Y ear ended 31 December 2022
Rank Customer
Relationship
with us
Customer’s
background
Products/
services sold/
provided by
our Group Revenue
As a
percentage
of our total
revenue
Payment
method Credit term
The year in
which the
relevant
customer started
its business
relationship
with our Group
(RMB’000) (%)
1 Customer A (Note 2) Independent
Third Party
Government
authority
Engineering
construction
services and
provision and
distribution of
heat (i.e. the
consideration
for which was
paid by price
subsidies
granted to our
Group)
206,491
(1) 14.3 Bank
transfer
Nil 2012
2 Customer D (Note 5) Independent
Third Party
Government
authority
Engineering
construction
services
139,085 9.6 N/A N/A 2013
3 Customer B
(Note 3) Independent
Third Party
Government
authority
Engineering
construction
services
39,338 2.7 N/A N/A 2018
4 Customer G
(Note 8) Independent
Third Party
Government
authority
Engineering
construction
services
28,727 2.0 N/A N/A 2012
5 Xinbang
Construction
Group Co., Ltd
*
(ணණྠϞ
ʮ̡)(Note 10)
Independent
Third Party
Civil
engineering
service
provider
Engineering
construction
services
14,344 1.0 Bank
transfer
Nil 2022
(10)
Total 427,985 29.6
BUSINESS
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Notes:
(1) During the Track Record Period, we received price subsidies to compensate the shortfall in revenue from our
provision of heat services due to low heat rates under our Shuozhou Project. See “Financial information –
Description of major components of our results of operations – Revenue – Heat services” in this prospectus
for details.
(2) Customer A is a government association in charge of residential buildings and public infrastructure
management in Shuozhou area.
(3) Customer B is a public committee managing a designated area in Taiyuan and Jinzhong cities located in Shanxi
Province primarily focusing on the development of three industrial park. The area was established in 2016
under the authorisation of the central government, seeking to strengthen local economic development.
(4) Customer C is a public association in charge of residential buildings and public infrastructure management in
Hulunbuir area.
(5) Customer D is a public association in charge of residential buildings and public infrastructure management in
Lanzhou area.
(6) Customer E is a public association in charge of residential buildings and public infrastructure management in
Shuozhou area.
(7) Customer F is a technical secondary school founded in 2016 in Lanzhou New Area, nurturing professionals in
education field by providing relevant training.
(8) Customer G is a public association in charge of residential buildings and public infrastructure management in
Taiyuan area.
(9) Customer H is a government association in Shanxi Province endeavoring to promote local economy in Yunzhou
District of Datong City through developing economic strategies and enacting policies.
(10) During the Track Record Period, Xinbang Construction Group Co., Ltd
* (ʮ̡) was both a
customer and a supplier of our Group. See “– Our customers – An engineering construction company which
was our customer and also our supplier during the Track Record Period” below in this section for details.
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An engineering construction company which was our customer and also our supplier
during the Track Record Period
During the Track Record Period, an engineering construction company which is an
Independent Third Party was both a customer and a supplier of our Group. Such company is
a private company primarily engaged in the provision of civil engineering services in the PRC.
The aforementioned engineering construction company was a customer of our
engineering construction services in the year ended 31 December 2022. For the years ended
31 December 2020, 2021 and 2022, revenue from the provision of our engineering construction
services to such company was approximately nil, nil and RMB14.3 million, representing
approximately nil, nil and 1.0% of our total revenue, respectively. Our gross profit generated
from the provision of our engineering construction services to such company for the years
ended 31 December 2020, 2021 and 2022 amounted to approximately nil, nil and RMB2.2
million, representing approximately nil, nil and 0.7% of our gross profit, respectively.
During the Track Record Period, the aforementioned engineering construction company
provided engineering construction services to us. Our purchase amount in relation to
engineering construction services provided by such company for the years ended 31 December
2020, 2021 and 2022 amounted to RMB1.1 million, RMB11.1 million and RMB7.3 million,
representing approximately 0.1%, 1.3% and 0.7% of our total purchase for the same years,
respectively.
Our Directors have confirmed that our trade payables to and our trade receivables from
the aforementioned engineering construction company were settled separately, and the relevant
sales and purchases were neither inter-connected nor inter-conditional with each other. Our
Directors have also confirmed that all of the transactions involving such company were
conducted in the ordinary course of business under normal commercial terms and on an arm’s
length basis. The terms of our transactions with such company were individually and separately
negotiated between us and comparable to transaction terms with our other customers and
suppliers. The prices of the transactions with such company were no less favourable than from
our other customers and suppliers.
An urban development company which was our customer and also our supplier during the
Track Record Period
During the Track Record Period, an urban development company which is an Independent
Third Party was both a customer and a supplier of our Group. Such company is a SOE primarily
engaged in city development in Lanzhou of Gansu Province.
During the Track Record Period, the aforementioned urban development company was a
commercial heat service customer of our Group. For the years ended 31 December 2020, 2021
and 2022, revenue from the provision of our heat services to such company was approximately
RMB7.0 million, RMB8.9 million and RMB11.4 million, representing approximately 0.5%,
0.7% and 0.8% of our total revenue, respectively. Our gross profit generated from the provision
BUSINESS
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of our heat services to such company for the years ended 31 December 2020, 2021 and 2022
amounted to approximately RMB4.5 million, RMB3.9 million and RMB5.5 million,
representing approximately 1.5%, 1.2% and 1.8% of our gross profit, respectively.
During the Track Record Period, the aforementioned urban development company sold
gas-fired boilers to us for our provision of heat services in 2021. Our purchase amount in
relation to gas-fired boilers from such company for the years ended 31 December 2020, 2021
and 2022 amounted to nil, RMB23.7 million and nil, representing approximately nil, 2.7% and
nil of our total purchase, respectively.
Our Directors have confirmed that our trade payables to and our trade receivables from
the aforementioned urban development company were settled separately, and the relevant sales
and purchases were neither inter-connected nor inter-conditional with each other. Our Directors
have also confirmed that all of the transactions involving such company were conducted in the
ordinary course of business under normal commercial terms and on an arm’s length basis. The
terms of our transactions with such company were individually and separately negotiated
between us and comparable to transaction terms with our other customers and suppliers. The
prices of the transactions with such company were no less favourable than from our other
customers and suppliers.
A government administration bureau which was our customer and also our lessor during
the Track Record Period
During the Track Record Period, a government administration bureau which is an
Independent Third Party was both a customer and a lessor of our Group. Such government
administration bureau is a government entity in Shuozhou of Shanxi Province.
During the Track Record Period, the aforementioned government administration bureau
was a customer of our engineering construction services. According to our engineering
construction services agreement, we are entitled to receive consideration for our services
provided to such bureau. For the years ended 31 December 2020, 2021 and 2022, engineering
construction services provided to such bureau amounted to approximately RMB12.7 million,
RMB19.7 million and nil, respectively. There was no gross profit generated in these
transactions since the transactional amounts represented actual expenses which had been/will
be subsequently reimbursed by such bureau.
During the Track Record Period, the aforementioned government administration bureau
leased certain heat service facilities, including certain primary distribution pipelines and heat
exchange stations, to us for the operation of our Shuozhou Project. According to the heat
service facilities leasing arrangements, we shall pay RMB9.5 million to such bureau each year.
Our Directors have confirmed that our payables to the aforementioned government
administration bureau and rights to receive consideration from such bureau, assuming our
engineering construction services were fully performed, were neither inter-connected nor
inter-conditional with each other. Our Directors have also confirmed that the engineering
BUSINESS
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construction services and leasing arrangements were conducted in the ordinary course of our
concession operation under normal commercial terms and on an arm’s length basis. The terms
of our engineering construction services and leasing arrangements were individually and
separately negotiated between the government administration bureau and us.
QUALITY CONTROL AND SAFETY MAINTENANCE
We highly emphasise heat service quality. We strictly comply with all government
regulations prescribing heat service standards and safety and emergency response
requirements. Pursuant to the relevant laws and regulations, for residential heat service users,
day and night average in-room temperature (including that in living rooms and bedrooms)
should not be lower than 18ºC with heat services. We generally conduct quarterly safety
inspections of our primary distribution pipelines (and monthly safety inspections during heat
service period) to ensure that heat is safely transmitted to the heat exchange stations. Further,
our concession grantors may supervise or inspect our operations to ensure heat service safety.
We have developed and maintained safety management policies including staff trainings on
compliance of labour protection and work safety as required by the relevant PRC laws and
regulations, and developed a stringent reporting line in our management to safeguard our safety
production performance. We also established a comprehensive emergency response mechanism
in case of accidents and emergencies, and we may also need to submit the assessment report
in respect of the situation of facilities’ operation to the government authority for record. We
monitor each key stage involved in our provision of heat services, including heat production
and heat distribution, to ensure conformity with all specific requirements according to the
applicable regulations. As at the Latest Practicable Date, our quality control team consisted of
44 employees and they were primarily responsible for monitoring and adjusting equipment
operation.
During the Track Record Period and up to the Latest Practicable Date, our Group had not
experienced any significant incidents or accidents in relation to heat service safety and had not
received any material complaint in relation to the heat service quality.
REPORTING AND EMERGENCY RESPONSE MECHANISM
To maintain a robust and stable system for our heat services business, we have adopted
an effective emergency response mechanism to cope with any suspension of our heat services,
damage to heat service facilities or other accidents arising from our heat services operation.
With such mechanism, we are capable of minimising the risks associated with emergencies.
We have also adopted a comprehensive internal notification system, specifying different
reporting procedures for different levels and scales of accidents. Any malfunction that affects
the normal operation of our heat services must be notified to the dispatch centre within 20
minutes of such malfunction. The repair personnel must make a progress report to the
supervisor every two hours during troubleshooting. We will notify the occupants of the relevant
premises prior to the resumption of our heat services. In the case of serious malfunctions, the
heat service department should be informed in a timely manner.
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We have different emergency responses for different kinds of failure in respect of our heat
services. For a partial or full suspension of our heat services due to a breakdown of heating
facilities, our engineering department will immediately organise a repair of the facilities,
striving to resume heating as soon as possible. For our heat services in Hulunbuir of Inner
Mongolia Autonomous Region, where the weather is extremely cold during the winter,
Hulunbuir Shuangliang is equipped with emergency mobile heating vehicles which can provide
heat services in emergency situations such as a temporary suspension of our heat services. For
leakage in the distribution pipelines, emergency repair personnel will formulate repair plans
and temporary operation plans for the relevant distribution pipelines or heat exchange stations,
and implement the plans immediately upon approval. Accidental power shortage should be
reported to the local power supply bureau or the electricity control department for inspections
and repairs, and the standby generator should be put into operation immediately. For any
failure of the water supply systems used by us for the distribution of heat from our heat sources
to the heat exchange stations, and from the heat exchange stations to the premises to which we
provide heat services, the repair work should be conducted by the water supply company or our
repair personnel depending on the circumstance of such failure.
In addition, we have reserved personnel, resources and funds for our handling of heat
service emergencies. Our customer service system enables emergency incidents to be
conveniently reported to our customer service team, who will then report the relevant
information to the relevant departments for their further handling. Each of our heat service
operating subsidiaries and local branches are required to set up an emergency rescue team and
maintain emergency rescue devices, such that our central despatch and command centre can
coordinate and direct the emergency response actions of each subsidiary. Upon resolving an
emergency incident, the emergency command office shall immediately organise on-site
cleaning and production recovery work, followed by a comprehensive evaluation. The
emergency command office shall carefully analyse the cause of the emergency incident,
formulate and supervise the implementation of improvement measures and revise the existing
emergency plan. The emergency command office is also responsible for dealing with the public
relations aspect of emergency incidents. Each of our heat service related units shall conduct
periodic emergency drills under specific requirements.
During the Track Record Period, we had fully discharged our obligations to report the
occurrence of emergency events to the relevant authority and/or inform our heat service
customers of the same according to all relevant laws and regulations, as the case may be, and
we were not required to compensate any of our heat service customers due to heat service
disruption or suspension. Our Directors have confirmed that we have not experienced any
interruption or suspension of our heat services which had a material adverse impact on our
business operation during the Track Record Period and up to the Latest Practicable Date.
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MACHINERY, MAINTENANCE AND REPAIR
Our major heat production, procurement and collection equipment includes (i) coal-fired
boilers for our production of heat using such boilers; (ii) lithium bromide heat absorption
pumps for the collection of residual heat at cogeneration plants and coal-fired power plants;
(iii) electrically driven compression heat pumps and water-to-water heat exchangers for the
extraction of geothermal heat; and (iv) steam-to-water heat exchangers for the procurement of
heat from cogeneration plants. Our heat distribution mainly relies on our primary distribution
pipelines and the heat exchange systems. Each heat exchange system typically involves plate
heat exchangers, circulation pumps, make-up water pumps, strainers, water tanks, electric
power distribution cabinet and control cabinet. We obtain our heat production and distribution
machinery and equipment through procurement, operational leases and finance leases.
We have a dedicated team to ensure normal heat production and distribution as well as
emergency response. Our in-house maintenance personnel are typically responsible for routine
and ordinary maintenance and repair works. However, maintenance and repair works which are
complex in their nature and require specific expertise are undertaken by equipment
manufacturers and construction contractors, if necessary.
Our major maintenance works are typically carried out outside of our heat service period
every year. We maintain schedules and procedures for routine maintenance, inspection and
repairs and our primary distribution pipelines are subject to maintenance and repair throughout
the year. The maintenance and repair plan is formulated based on the conditions of the heat
service facilities and equipment recorded in the previous heat service period.
Our total maintenance expenses for our heat service facilities for the years ended 31
December 2020, 2021 and 2022 were approximately RMB16.5 million, RMB13.2 million and
RMB19.2 million, accounting for approximately 1.5%, 1.4% and 1.7% of our total cost of sales
for the same years, respectively.
A W ARDS, RECOGNITION AND ACCREDITATION
We obtained awards, recognition and accreditation from various government authorities
or other organisations in relation to our business. The following accolades are important to our
business operations.
Time of grant Award/accreditation Awarding authority Awarded entity
December 2022 High and New Technology
Enterprise Certificate
(ࣣ)
Inner Mongolia Autonomous Regional
Department of Science and
Technology, Inner Mongolia
Autonomous Regional Department of
Finance, Inner Mongolia
Autonomous Regional Taxation
Bureau of the State Taxation
Administration (ኪҦ
ᝂe
ਜ೼ਕ҅)
Hulunbuir
Shuangliang
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Time of grant Award/accreditation Awarding authority Awarded entity
December 2022 High and New Technology
Enterprise Certificate
(ࣣ)
Shanxi Provincial Department of
Science and Technology, Shanxi
Provincial Department of Finance,
Shanxi Provincial Taxation Bureau
of the State Taxation Administration
(݁
೼ਕ҅)
Shanxi
Shuangliang
New Energy
October 2022 High and New Technology
Enterprise Certificate
(ࣣ)
Gansu Provincial Department of
Science and Technology, Gansu
Provincial Department of Finance,
Gansu Provincial Taxation Bureau of
the State Taxation Administration
(݁
೼ਕ҅)
Lanzhou
Shuangliang
December 2021 High and New Technology
Enterprise Certificate
(ࣣ)
Shanxi Provincial Department of
Science and Technology, Shanxi
Provincial Department of Finance,
Shanxi Provincial Taxation Bureau
of the State Taxation Administration
(݁
೼ਕ҅)
Taiyuan
Renewable
Energy
December 2020 High and New Technology
Enterprise Certificate
(ࣣ)
Shanxi Provincial Department of
Science and Technology, Shanxi
Provincial Department of Finance,
Shanxi Provincial Taxation Bureau
of the State Taxation Administration
(݁
೼ਕ҅)
Shanxi
Demonstration
Zone Heat
Supply
March 2017 2016 Safe Production
Award – Advanced
Collective (2016τ
Ό͛ପ΋ආණ᜗)
Work Safety Committee of
Shanxi Shuozhou Economic
Development Zone (ψ຾᏶ක
ึ)
Shuozhou
Renewable
Energy
December 2014 Honesty Enterprise (ڦ
Άุ)
Taiyuan Working Committee for the
Identification of Small and Medium-
sized Integrity Enterprises (̹ʕ
ึ)
Taiyuan
Renewable
Energy
March 2012 Excellent Foreign
Investment Enterprise
(̮Ըҳ༟ᎴӸΆุ)
Shuozhou Investment Promotion
Bureau (ਠˏ༟҅)
Shuozhou
Renewable
Energy
BUSINESS
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COMPETITION
According to the Frost & Sullivan Report, the heat service market in the PRC is
fragmented with a large number of market players. Currently, most market players in the heat
services industry in the PRC fall into three categories: specialised heat services providers,
subsidiaries of power generation groups and property developers. The major players in the heat
services industry in the PRC are specialised heat services providers and most of the players are
State-owned companies. In 2022, the total actual heat services area in the PRC was 11,239.4
million sq.m.. The majority of the top 10 players were State-owned companies. The aggregate
heat services area of the top 10 companies accounted for more than 16.0% of the total actual
heat services area in the PRC in 2022, with the tenth largest heat services provider having an
actual heat services area of more than 100.0 million sq.m.. We were ranked No. 9 in terms of
the aggregate actual heat service area in Shanxi Province, Gansu Province and Inner Mongolia
Autonomous Region in 2022 with a market share of approximately 2.4% in terms of aggregate
actual heat service area, according to the Frost & Sullivan Report. We believe that we have
distinguished ourselves from our competitors through (i) potential of business growth with the
areas covered by concession rights we obtained; (ii) cross-provincial business coverage; (iii)
extensive experience in the use of clean heat sources; and (iv) our digitalised heat services
management software tool, which enable us to remain competitive in the future. See “Industry
overview – Competitive analysis of the heat services industry in the PRC” in this prospectus
for further details on the markets in which we operate and for a discussion of our competition.
RESEARCH AND DEVELOPMENT
We emphasise on the patents, copyrights, technological know-how and other intellectual
property required for our heat service operation in order to strengthen our leading position in
the heat service industry and enhance our competitiveness further. Our research efforts are
focused on improving our heat sources portfolio with a view to utilising more clean energy heat
sources, as well as improving our heat services management software tool to reduce costs and
enhance our operational efficiency. We have a dedicated research and development team
consisting of 20 employees with extensive industry experience in heat service related design
and technology. We have established a research and development centre in Taiyuan of Shanxi
to enhance our research and development capabilities, strengthen our research and application
of new energy heat service technologies and promote innovation. We have also collaborated
with leading research centres and educational institutions to develop innovative technologies.
For details, see “– Our competitive strengths” in this section.
Our research and development expenses were approximately RMB4.7 million, RMB7.7
million and RMB8.2 million for the years ended 31 December 2020, 2021 and 2022,
representing 0.4%, 0.8% and 0.7% of our total cost of sales for the same periods, respectively.
None of our research and development expenses were capitalised during the Track Record
Period.
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The following table sets out a list of key personnel in our research and development team,
which is located at our research and development headquarter in Taiyuan:
Name Education Relevant working experience
Mr. Chen Xibao
(௓ఃజ΋͛)
Mr. Chen graduated from
Zhengzhou College of
Technology* ( ቍψʈኪ৫)i n
June 1995. He majored in fine
chemical engineering.
Mr. Chen has been serving our
Group since December 2009. He
is primarily responsible for
research and analysis of market
development. Mr. Chen is the
person-in-charge of the Xinmi
Project, and is responsible for
the preparation works for the
commencement of our provision
of heat services in Xinmi from
the 2023/2024 heat service
period in or around November
2023. Mr. Chen is a member of
our senior management. For
details, see “Directors,
supervisors and senior
management – Senior
management” in this prospectus.
Mr. Ma Ningfu
(৵ྐྵӱ΋͛)
Mr. Ma graduated from
Southwest Jiaotong University
(ʹஷɽኪ) in June 2006.
He majored in
telecommunication and software
engineering science.
Mr. Ma has been working in
Shanxi Shuangliang New Energy
since January 2011. His
responsibilities cover the
research and development of our
heat services management
software tool and digitalisation
of our auto-control system in
our heat service value chain.
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Name Education Relevant working experience
Mr. Zhang Liangliang
(΋͛)
Mr. Zhang graduated from
Taiyuan University of
Technology (ଣʈɽኪ)i n
July 2010. He majored in
building environment and
equipment engineering.
Mr. Zhang has been working in
Shanxi Renewable Energy since
July 2010. His responsibilities
cover design and technology
related works. He was involved
in the development of the single
well circulation geothermal
heating system, of which Shanxi
Renewable Energy obtained
copyright registration on
11 April 2019 and obtained a
utility patent registration on
14 January 2020.
Ms. Jia Jia
(༠Գɾɻ)
Ms. Jia graduated from Taiyuan
University of Science and
Technology (Ҧɽኪ)i n
July 2007. She majored in
computer science and
technology.
Ms. Jia has been working in
Shanxi Renewable Energy since
August 2008. Her
responsibilities cover design and
technology related work. She
was involved in the
development of the combined
heating system of geothermal
heating and central heating, of
which Shanxi Renewable Energy
obtained a utility patent
registration on 4 March 2019.
Mr. Wu Ruipeng
(΋͛)
Mr. Wu graduated from Taiyuan
University of Technology (ࡡ
ଣʈɽኪ) in July 2010. He
majored in building environment
and equipment engineering.
Mr. Wu has been working in
Shanxi Renewable Energy since
July 2010. His responsibilities
cover design and technology
related work. He was involved
in the development of the
integrated heating pipe network
system based on multiple
heating methods, of which
Shanxi Renewable Energy
obtained a utility patent
registration on 19 May 2020.
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INTELLECTUAL PROPERTY
We place significant emphasis on developing our brand image alongside our cross-
provincial operation and we therefore think intellectual property rights are crucial to our
business. We currently possess a set of leading clean energy heat service technologies and a
variety of other heating technologies. As at the Latest Practicable Date, we have registered
eight domain names, eight trademarks and 27 copyrights. As at the same date, we also had 72
patents registered with CNIPA, five of which were for inventions relating to heat service
systems during cogeneration process that are leading technologies in the industry. The others
were for utility models relating to heat exchange operation and monitoring. In addition, we had
two inventions and three utility models pending registration for patents. For details of our
material intellectual properties, see “Statutory and general information – Further information
about our business – Intellectual property rights” as set out in Appendix VII to this prospectus.
We will continue to take a proactive approach and seek to maintain proper registration of
our intellectual property rights. We also rely on trade secrets protection and contractual
restrictions to safeguard our intellectual property rights. We closely monitor and collect
information on any instances of infringement on our intellectual property rights, and we take
legal action and cooperate with local authorities to protect our intellectual property rights
where necessary.
During the Track Record Period and up to the Latest Practicable Date, we were not
involved in any infringement of others’ intellectual property rights or infringement of our
intellectual property rights by others that would have a material adverse impact on our business
and we were not involved in any proceedings involving infringement of intellectual property
rights.
INSURANCE
As at the Latest Practicable Date, we maintained insurance policies which cover potential
losses or damages in respect of our business operations. These insurance policies cover, among
other things, properties, equipment and machinery, pipelines, vehicles, computers and other
properties owned by us. The insurance coverage varies at entity level to accord with local and
industry practise. Based on our past experience and understanding of the prevailing industry
practise in the locations where we operate, we believe the coverage of such property insurance
is adequate to cover any material property damages and is in line with the industry norm. As
we are expanding our business and we may face potential risk exposure due to the change of
regulatory schemes, we may be subject to certain losses and/or claims. For details, see “Risk
factors – Risks relating to our business and industry – Our insurance coverage may not
extensively cover the risks related to our business” in this prospectus.
We are required to maintain mandatory social security insurance policies for our
employees in the PRC pursuant to applicable PRC laws. See “– Employees” in this section for
further details. In addition, we expect that we will maintain directors’ and officers’ liability
insurances for the executive Directors and executive officers of our Company after the Listing.
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With the expansion of our business and potential new risk exposure, we may procure
further insurance policies as our Directors deem appropriate. During the Track Record Period
and up to the Latest Practicable Date, we did not experience any material business interruptions
or material insurance claims.
EMPLOYEES
As at the Latest Practicable Date, we had a total of 887 employees, amongst which over
57.2% had working experience of more than five years in heat service operation and
approximately 29.1% held professional title certificates in the areas such as engineering,
accounting and administration. Our employees are located across Jiangsu Province, Shanxi
Province, Gansu Province, Inner Mongolia Autonomous Region and Henan Province in the
PRC. For the years ended 31 December 2020, 2021 and 2022, our employee benefit expenses
were approximately RMB77.4 million, RMB90.0 million and RMB91.6 million, respectively.
During the Track Record Period and up to the Latest Practicable Date, our employees did
not negotiate their terms of employment through any labour union or by way of collective
bargaining agreements nor did we have any material disputes with our employees, or
experience any strike, labour disputes or industrial actions that may have a material adverse
effect on our business, financial position and results of operations. We believe that our senior
management has maintained a good relationship with our staff members.
The tables below set out breakdowns of employees by function, location and gender, and
the corresponding percentage of our total employees, as at the Latest Practicable Date:
Function
Number of
employees
Percentage
of our total
employees
(%)
Management 8 0.9
Heat service operation and customer services 711 80.2
R&D and technical support 21 2.4
Procurement 9 1.0
Operating and machinery control 16 1.8
Business advisory 8 0.9
Finance 35 3.9
Administration 79 8.9
Total 887 100.0
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Location
Number of
employees
Percentage
of our total
employees
(%)
Shanxi Province 581 65.5
Gansu Province 186 21.0
Inner Mongolia Autonomous Region 89 10.0
Henan Province 20 2.3
Jiangsu Province 11 1.2
Total 887 100.0
Gender
Number of
employees
Percentage
of our total
employees
(%)
Male 664 74.9
Female 223 25.1
Total 887 100.0
Training
We highly value our employees and place emphasis on the development of our employees.
In order to advance the skills and knowledge of our employees as well as to explore new
potentials from our workforce, we invest in continuing education and training programmes for
our management and ordinary staff members to update their skills and knowledge periodically.
Generally, our training focuses on matters relating to our operation, technical knowledge and
work safety standards and environmental protection.
Recruitment and remuneration
We believe that our quality personnel are our key to success and future development. In
the future, we will recruit talent from various sources, such as universities, online platforms,
third-party recruitment agencies, and other companies, and provide training and promotion
opportunities to our staff members of our own accord.
The remuneration package of our employees includes basic salary, performance salary
and allowances. We determine employee remuneration based on factors such as qualifications,
expertise and years of relevant experience. We must comply with PRC laws and regulations
relating to social welfare. In accordance with applicable PRC regulations, we currently
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participate in social insurance contribution plan organised by the relevant local governments.
We currently provide employees with a pension insurance programme, medical insurance
programme, unemployment insurance programme, individual work injury programme,
maternity insurance contributions and employee public housing reserve contributions and other
welfare benefit.
Social insurance and housing provident fund contributions
During the Track Record Period, some of our PRC subsidiaries did not make full
contributions to the social insurance and housing provident funds for some of our employees
as required under PRC laws and regulations. For further details, please see “– Regulatory
compliance – Non-compliance incidents – (1) Social insurance and housing provident fund
contributions” in this section.
Equal employment in the workforce
We promote equal employment opportunities and avoid all forms of illegal employment
such as child labour and forced labour as stipulated in our internal regulations on labour
management of employees. We respect the diverse backgrounds of our employees and strictly
eliminate ethnic discrimination.
During the Track Record Period and up to the Latest Practicable Date, we did not
experience any material labour dispute with our employees including any strikes and labour
disturbances nor receive any relevant complaints, notice or orders from relevant government
authorities or third parties that have materially interfered with our operations, and we believe
that our senior management has maintained a good working relationship with our staff.
Gender diversity in the workforce
We recognise gender diversity in the workplace as a key factor in our continuous
development and success. Since our incorporation, we have been actively promoting gender
equality within our Group. We incorporate gender equality into all aspects of our business
operation. We take into account gender diversity when we hire and promote talents. We provide
additional trainings to female employees which helps them to excel in our industry where the
male-female talent ratio is disproportional. We also invite female employees for advice so that
our decision-making process can be transparent. By such measures, our female employees are
closely allied and actively monitor any major decision that may have a significant impact on
female employees’ interests and benefits within our Group. In addition, we are committed to
grow our female leaders organically. We pay special attention to our female employees’
performance through our annual appraisal and promote suitable female employees to
management level in accordance with our gender diversity policy. As at the Latest Practicable
Date, we had a measurable number of female employees acting as the principals and leaders
of various units in our Group.
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Dispatched staff
As at 31 December 2020, 2021 and 2022, the total number of dispatched staff at four of
our subsidiaries was 211, 193 and 10, which accounted for approximately 24.8%, 18.1%, 5.1%
of the total number of our workers at those subsidiaries, respectively. For the years ended 31
December 2020, 2021 and 2022, the total cost involved in the labour dispatch arrangements
was approximately RMB1.8 million, RMB8.0 million and RMB0.4 million, respectively.
These labour dispatch arrangements were temporary in nature and according to the labour
dispatch agreements, dispatched staff were mainly involved in supporting functions of our
business operation in respect of warehouse and logistics management, cargo handling and
transportation. According to the labour dispatch agreements, (i) each subsidiary was
responsible for paying wages to the dispatched staff and ensure their occupational health and
safety; (ii) the employment agent was responsible for arranging for their insurance and other
welfare conditions as required by the applicable PRC laws and regulations; and (iii) we paid
service fees at a rate of RMB20.0 per staff to the employment agent, and the employment agent
provided suitable dispatched staff to work for our Group based on our job requirements. As the
dispatched staff were employed by an employment agent, they were not our formal employees.
During the Track Record Period, the percentage of dispatched staff that worked at four of
our subsidiaries exceeded the legally required threshold. For further details, please see “–
Regulatory compliance – Non-compliance incidents – (2) Dispatched staff” in this section.
OCCUPATIONAL HEALTH AND SAFETY
We are subject to various PRC laws and regulations regarding labour, safety and work
related incidents. For more information, see “Regulatory overview” in this prospectus. We are
committed to maintaining a safe working environment and promoting the awareness of
occupational health and safety within our Group. We place significant emphasis on quality
control on our raw materials and services, proper maintenance of our facilities as well as
maintenance of operation and heat usage safety. Our production safety unit is responsible for
safety and maintenance matters arising from different operation processes. As at the Latest
Practicable Date, our production safety unit comprised 50 employees (including technicians
and engineers), a majority of whom had more than three years of experience in the heat services
industry. Their responsibilities mainly include (i) keeping track of the relevant regulatory and
industry standards regarding safety, maintenance and quality control; (ii) formulating and
reviewing our internal safety inspection, facilities maintenance and quality control procedures
and standards; (iii) monitoring the implementation of the above procedures and standards in
our day to day operation and reporting high-level issues to senior management for instructions;
(iv) maintaining detailed records for related matters; and (v) delivering safety training for our
employees.
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We have established strict quality control standards on various aspects of our raw
materials supply, construction of primary distribution pipelines, facilities repairs and
maintenance to ensure the safety and stability of our heat service. We have internal procedure
manuals and policies to cover the maintenance of our operation facilities. We strictly follow
government regulations when adopting our own safety rules and emergency recovery plans,
which are imposed on all of our employees. Failure to comply with those regulations may result
in penalties, fines and sanctions. For details, see “Risk factors – Risks relating to our business
and industry – We are subject to a broad range of environmental, safety and health laws and
regulations in the PRC, compliance with which may be difficult or expensive. Failure to
comply with these laws and regulations may render us subject to penalties, fines, governmental
sanctions, proceedings and/or suspension or revocation of our licences or permits required for
our business operation” in this prospectus.
We conduct periodic inspections and maintenance projects for our heat service facilities
to ensure safe and stable operation. Any abnormality noted during the periodic safety checks
will be reflected in our safety records and follow-up remedial actions will be taken by the
responsible departments and officers accordingly.
We have established a production safety committee, where the general manager serves as
the director of the committee. We have also dedicated occupational safety personnel at each of
our operating subsidiaries in the PRC. These occupational safety personnel are in charge of (i)
conducting regular training sessions for employees on accident prevention and management;
and (ii) submitting occupational safety reports to the board of directors and performance
evaluation department. We believe our health and safety control measures are adequate and
comply with applicable laws and regulations in all material respects. During the Track Record
Period and up to the Latest Practicable Date, none of our employees had been involved in any
major accident during the course of their employment and the relevant PRC authorities had not
imposed any sanctions or penalty on us for incidents of non-compliance of any health and
safety laws or regulations in the PRC.
In view of the outbreak of COVID-19 in the PRC and to ensure continuous business
operations of our Group, we have adopted enhanced hygiene and precautionary measures since
January 2020 whereby our employees shall take all practicable steps to maintain a hygienic and
safe working environment. These include the following measures:
 requiring our employees to report their travel history and the health conditions of
themselves and their close contacts;
 requiring our employees to record their visits through the “Ding Ding Safe” App ( ৥
৥਄ੰ͂̔) to keep track of close-contacts of our employees when positive cases
of COVID-19 arise;
 requiring our employees to wear masks and strictly follow the rule of “one-metre”
distancing ( ɓϷᇞ);
 screening visitors to our business premises through temperature check and inquiry
on their exposure history; and
 frequently cleaning and disinfecting our business premises and our operational
facilities.
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Our Directors confirm that the additional costs associated with the above enhanced
measures did not have a significant impact on our Group during the Track Record Period. For
more information relating our response towards COVID-19, see “– Effects of the COVID-19
outbreak – Our response towards the COVID-19 outbreak” in this section.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
Climate change has been highlighted in the 2023 Global Risks Report issued by the World
Economic Form as one of the most severe environmental risks faced by the world in the
upcoming decade. Since climate change first entered the top rankings of the World Economic
Forum’s Global Risks Report in 2011, atmospheric levels of carbon dioxide, methane and
nitrous oxide have continued to rise and reach record highs today. The consequences of climate
change include, among others, intense droughts, water scarcity, severe fires, rising sea levels,
flooding, melting polar ice, catastrophic storms and declining biodiversity. In response to
climate change, many countries have pledged to commit to the global objective of carbon
neutrality. For example, in 2020, the PRC Government announced its plan of achieving carbon
peaking by 2030 and carbon neutrality by 2060. As a heat service provider, the operation of our
Group has an impact on the environment and contributes to climate change. This is primarily
due to the Group’s consumption of coal, followed by electricity, natural gas and diesel, in its
operations, all of which contribute to the production of GHG emissions and air pollution in the
form of sulfur dioxide, nitrogen oxides and particulate matter. Climate change poses both risks
and opportunities to market players in the heat service industry as such market players are
expected to have to reduce their GHG emissions by using a variety of low-carbon heating
technologies in order to meet governmental policies aimed at combating climate change.
Demand for renewable or non-fossil fuel energy sources are expected to continue to rise in the
future.
To cope with the increasing risk from climate change, environmental protection is viewed
as an integral corporate responsibility within our Group. We are dedicated to lowering the
negative environmental impact of our business operations, such as by improving our energy
efficiency and reducing our consumption of coal to minimise GHG emissions. To do so, we
strive to increase our use of renewable heat sources such as geothermal energy for our heat
service operations. For details of the measures taken by us to reduce the negative
environmental impact of our business operations, see “– Environmental, social and governance
– Our strategies to respond to climate-related risks and opportunities” in this section. In respect
of physical climate change risks, our Group has analysed historical data and designed our
facilities to withstand natural disasters such as heavy snow and storms. We have also developed
emergency plans to respond to the potential occurence of natural disasters.
Environmental stewardship is essential for us to achieve our CSR objective, which is to
maintain a balance between profit, people and the planet so as to ensure the sustainable
development of our business. We uphold the concept of sustainable development, focus on
diversity management, defend public interests and expect to generate value for our
Shareholders. As such, our Group has followed a policy on environmental, social and
governance (“ ESG”) responsibilities in accordance with the Listing Rules, which sets out our
CSR objectives and provides guidance on how we implement corporate social responsibility in
our daily operations.
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Our ESG policy
We have developed an ESG policy (the “ ESG Policy ”). Under our ESG Policy, we strive
to operate in a manner that protects the environment, safety and health of our employees and
communities. Our target is to sustainably connect with our employees, customers, and business
partners through a combination of initiatives which create long-lasting benefits. We provide
development and training activities for our employees, and solutions for our customers, and
encourage our business partners to actively fulfil corporate social responsibilities. We are also
committed to providing equal employment and development opportunities for all employees.
In the recruitment process, we prohibit discrimination based on differences in gender, ethnicity
and religious belief.
Specifically, our ESG Policy includes the following key areas: (i) environmental
protection and resource conservation; (ii) measures to deal with extreme weather; (iii) heat
services quality and compliance; (iv) investor rights protection and partnership handling; (v)
promotion of employment and protection of employee rights; (vi) CSR management; (vii) data
security and personal information protection; and (viii) staff training management.
Our ESG working group
Our Board has ultimate responsibility for ESG strategy, management, performance, and
reporting, and is responsible for reviewing and approving our Group’s major ESG-related
policies and frameworks in accordance with Appendix 27 to the Listing Rules. In addition, our
Board is responsible for reviewing the impact of climate change on our Group. In accordance
with our ESG Policy, we have established a management structure of the ESG working group
composed of our Board of Directors, senior management and relevant departments of our
Group (the “ ESG Working Group ”).
Our ESG Working Group established under the Board of Directors has well-defined duties
and responsibilities to oversee our Group’s ESG matters. Our ESG Working Group is headed
by Mr. Li Baoshan ( ҽᘒʆ΋͛), an executive Director and general manager of our Group, and
other members include the management of various departments. Directed and supervised by
our Board, the ESG Working Group is responsible for handling all ESG related matters,
monitoring and assessing any ESG related risks that we may be exposed to, identifying and
assessing risks and opportunities for climate change, organising regular meetings to discuss
and determine ESG-related issues that need to be further addressed by our senior management,
reporting to our Board regularly on ESG-related risks, opportunities and performance, advising
our Board in respect of ESG reporting, strategies, initiatives and objectives, and participating
in international and national conferences in respect of ESG-related matters.
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Environmental, social and climate-related risks and opportunities
We adopt a responsible and sustainable approach to operate our business, actively
maintain business transparency, and make a responsible commitment to our stakeholders. Our
Group strives to not only protect the rights and interests of our Shareholders, but also safeguard
the rights and interests of our employees, customers, suppliers, various communities, and
different stakeholders. In order to manage ESG matters more effectively, we have formulated
and revised relevant policies, and conducted regular reviews to coordinate relevant efforts
across our Group.
In addition, we pay close attention to the latest ESG-related laws and regulations and
update our ESG Policy accordingly to ensure that we comply with the latest regulatory laws
and regulations. We will use the following methods to identify, manage and assess material
ESG-related issues:
 Identification : We identify the economic, environmental and social impacts of our
business through media analysis, peer benchmarking and communication with key
stakeholders (including our major customers, major suppliers, and employees). We
discuss ESG-related issues with all stakeholders (including our investors, customers,
business partners and our employees) to collect their views on our ESG measures
and practices, which can help us better identify and consider the ESG issues and
risks inherent in our business operations and formulate effective ESG measures to
mitigate those risks.
 Management and assessment : We develop responses to ESG-related issues that may
affect our business and monitor the implementation of our plans. In addition, we
regularly assess ESG-related issues arising from our business operations, including
climate-related issues, ESG measures, major action plans, risk management policies,
and annual budget for implementing these ESG measures, as well as our business
plans.
Climate-related risks and opportunities
With increasing climate change effects and frequency of extreme weather events, we fully
realise that climate change is one of the crucial factors in achieving the sustainability of our
business. Supported by our ESG Working Group, our Board oversees climate-related risks and
opportunities regularly during board meetings and ensures that they are incorporated into our
overall ESG strategies. We will provide climate change competence training to our Board to
ensure that it is abreast of trends and developments in respect of climate change, and that it has
the necessary expertise and skills to oversee the management of climate-related issues. Where
necessary, our Board seeks professional advice from external experts to better support their
decision-making in respect of climate change matters.
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As the adverse effects of climate change become more evident, there is a possibility that
the industry will be exposed to substantial and/or frequent changes. For example, the global
objective of attaining carbon neutrality is expected to lead to stricter policies such as increases
in carbon pricing. Advances in heating technology and changes in customer awareness will
support the global objective of attaining carbon neutrality. In order to remain competitive,
market players in the heat services industry will have to adapt to decarbonisation objectives by
investing in the research and development of clean and low-carbon heat technologies. The
promotion of these clean and low-carbon heat technologies is expected to save energy and
reduce GHG emissions. Market players in the heat services industry are also expected to
provide heat services in a digitalised manner by allowing heat service users to adjust their
demands for services in real-time, which can help reduce heat wastage and improve energy
efficiency.
To ensure the stable and long-term returns for our stakeholders, we have identified and
assessed climate-related risks and opportunities that may affect our business and financial
performance. We continuously monitor and assess those identified risks to our business and
develop action plans to mitigate their impacts. We refer to the recommendations of the Task
Force on Climate-related Financial Disclosures (the “ TCFD”) to identify climate-related risks
and opportunities which are relevant to our business. For details of our strategies to respond
to climate-related risks and opportunities, please refer to “– Environmental, Social and
Governance – Our strategies to respond to climate-related risks and opportunities” in this
section.
All of our projects have obtained environmental impact assessments prior to construction.
We take corresponding measures in accordance with the requirements of environmental laws
and regulations to minimise the impact on the environment during project construction and
operation periods. As at the Latest Practicable Date, our heat service projects in operation were
located in Shanxi Province, Gansu Province and Inner Mongolia Autonomous Region. These
provinces are subject to the temperate continental climate which is characterised by cold
winters, windy springs, rainy summers and autumns, rare high temperature and hot weather,
dry air and less precipitation throughout the year. We have identified the following short-term
(1-3 years), medium-term (4-10 years), and long-term (over 10 years) climate-related risks and
their potential impacts on our business and financial performance.
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Classification Timeframe
Climate-related
risks assessed Potential impacts
Physical risks Acute Medium and
long term
 Frequency of
extreme weather
events such as
sandstorms,
blizzards, etc.
 Reduced production
capacity due to the
electricity shortage
 Increased operating costs
due to inadequate water
supply for our water
circulation network
Chronic Long term  Extreme variability
in weather patterns
 Increased costs due to the
damage to heat service
facilities
 Reduced revenues from
lower sales, for examples
the shortened heating
period
Long term  Rising mean
temperatures
Transition risks Policy and
law
Short term  Increased pricing of
GHG emissions
 Increased costs of
compliance with laws and
regulationsShort term  More stringent
obligations to
disclose the
information of
emissions
Short and
medium term
 Regulation on
existing products
and services
Technology Medium and
long term
 Costs of transition
to technology with
lower emissions
 Early retirement of the
coal-fuelled boilers
 Research and development
expenditures in new and
alternative technologies
such as solar power and
air heat pumps
 Costs to use/deploy carbon
capture and storage
technologies
Long term  Substitution of
existing heating
sources with clean
energy featuring
lower GHG
emissions
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Classification Timeframe
Climate-related
risks assessed Potential impacts
Market Short term  Increased cost of
raw materials
 Increased production costs
due to changes in the
prices of raw materials
(such as purchased
electricity and coal)
Medium and
long term
 Increased
stakeholders’
attention or negative
feedback
 Reduced company
profitability owing to the
negative impacts on talent
management and planning
(for example, brain drain)
 Shareholders may give up
from investing in fossil
fuel-related businesses
Heating represents a significant global share of the overall demand for final energy
consumption. Approximately 25% of final energy consumption in the European Union was
attributable to residential demand and approximately 20% of GHG emissions in the United
States was attributable to residential energy use in 2022. In response to such emissions,
achieving carbon neutral across the international heating industry will require major
infrastructure and technological development, as well as disruptive solutions and supportive
policies. It is expected that a large proportion of the power generated from renewable energy
sources (which is expected to account for approximately 80% of all power generated) will be
used directly for heating by 2050. Furthermore, in 2020, the PRC Government announced its
plan of achieving carbon peaking by 2030 and carbon neutrality by 2060. According to the PRC
Government’s plan of achieving carbon peaking by 2030, the proportion of non-fossil fuel
energy consumption in the PRC shall reach approximately 25% by 2030, and the carbon
dioxide emissions per unit of GDP shall be reduced by more than 65% as compared with 2005.
According to the PRC Government’s plan of achieving carbon neutrality by 2060, the
proportion of non-fossil fuel energy consumption in the PRC shall reach approximately 80%
by 2060.
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Climate-related opportunities
Type
Climate-related
opportunities
Potential benefits of
capitalising on climate-
related opportunities
Resource efficiency  Water recycling  Reduced operating costs
Energy sources  Use low emission energy,
such as geothermal energy
 The financial support of
government for heating
services powered by clean
energy
 Use of new heating
technologies and promote
the diversification of heat
sources
 Participation in carbon
market
 Reduced exposure to
increases in future fossil
fuel price
 Reduced GHG emissions
and therefore less risks
posed by increases in
carbon costs
 Increased capital
availability (e.g.,
investors’ increasing
interest in producers with
lower emissions)
Products and services  Expansion of geothermal
heating services
 Development of new
services, such as solar
power generation and
storage, through R&D and
innovation
 Users’ tendency for
cleaner energy
 Increased revenue through
the promotion and use of
clean energy sources (e.g.,
geothermal energy, solar
energy, air-source energy)
Markets  Use of public-sector
incentives
 Increased revenues by
entering new or emerging
markets in partnerships
with local governments
Business development
resilience
 Participation in renewable
energy programs and
adoption of energy
efficiency measures
 Increase the diversification
of heating energy
 Increased revenue by
using advanced heating
technologies to ensure our
business resiliency
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Our strategies to respond to climate-related risks and opportunities
Climate change risk forms part of our overall risk profile. We assess the overall level of
risk by taking into consideration a range of diverse risk factors across our business segments,
products and services. We have considered climate change risk in formulating our business
strategies and believe that our operation in the “Three North Region” across multiple provinces
enables us to distribute such risk and provide protection against the short-term effects and
impacts of climate change. Our ESG Working Group will carry out extreme weather
assessment, monitoring and process guidance, and the following mitigation measures, all of
which will assist our Group in mitigating the adverse impacts of extreme weather in our daily
operations:
 we monitor the indoor and outdoor temperatures in a daily routine. By installing
indoor temperature measurement equipment in the heat exchange station used by us,
we are able to monitor the indoor temperature in real time and adjust the flow in the
heat distribution network to reduce the electricity consumption while meeting the
needs of users;
 we have established an emergency preparedness team to formulate and implement
appropriate emergency plans and mechanisms and organise emergency drills and
training on a regular basis every year to improve our employees’ ability to cope with
emergencies; and
 we have purchased insurance for our heat exchange equipment and machinery to
mitigate risks of destruction and loss.
In order to reduce the risk of future climate change, we plan to apply clean and renewable
heat sources such as solar energy and geothermal energy to achieve a combination of
low-carbon heat sources when applicable. As renewable heat sources do not produce carbon
dioxide and other GHG emissions that contribute to global warming, such heat sources will
enable our Group to achieve our ESG target of reducing GHG emissions. Based on our business
development strategy and planning, we have identified climate-related opportunities in five
main aspects including resource efficiency, energy source, products and services, markets, and
business development resilience, with reference to the TCFD recommendations. For details of
these climate-related opportunities and the benefits of capitalising on such opportunities,
please refer to “– Environmental, social and governance – Environmental, social and
climate-related risks and opportunities – Climate-related opportunities” in this section. We
believe that these opportunities will accelerate the usage of low-carbon energy sources,
mitigating the pollution risks in our business operations by reducing our carbon footprint, all
of which can potentially allow us to reduce our operating costs in relation to GHG emissions,
thereby leading to an overall improvement in our business performance and financial results.
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In response to physical risks (driven by extreme weather events such as blizzards,
sandstorms, cold waves, and droughts), we have formulated detailed emergency plans and
educated our employees probably at risk on preparedness measures. In case of emergencies
(including natural disasters, accidents, public health events, and social security incidents), we
issue early graded warnings according to the urgency, the status and the possible consequences
of the emergency to ensure the safety of life and property of our employees and residents of
surrounding communities.
Given that our Group has invested in and will continue to invest in the use of clean heat
sources in the provision of heat services, the global objective of attaining carbon neutral
presents opportunities for our Group to distinguish itself from other players in the market as
a business which aligns with this trend. For details of the Group’s investment in clean heat
sources, see “– Our competitive strengths – We are able to utilise diversified heat sources,
providing clean and quality heat services” in this section. Our Group is prepared to adapt to
future changes in global and national policies which are expected to reflect the overall goal of
decarbonisation.
In addition to ESG policies and measures as aforementioned, our Group also adopted
various metrics and numeric targets on environmental-related matters of our business operation
based on historical data to implement our ESG Policy and achieve carbon neutrality by 2060.
For further details, see “– Environmental, social and governance – Metrics and targets on
environmental-related matters” and “Heat sources” in this section. In particular, each unit and
department of our Company is required to report the emission volume to the ESG Working
Group for assessment. We also promote “low carbon office environment” in our offices,
according to which our employees are encouraged to (i) consider twice before printing, (ii)
switch off the lightening services when they leave the offices; and (iii) reduce unnecessary
traveling if remote discussion can be achieved. Our Directors confirmed the above-mentioned
measures adopted by our Group for improving energy efficiency and reducing coal
consumption and carbon emission have been effective during the Track Record Period.
Under the low-carbon transformation of the global economy, we expect that clean heat
sources such as geothermal energy, solar energy, natural gas and air energy will show strong
competitiveness in the future heating market. Therefore, we are investing in developing
advanced technologies of waste heat recovery, solar energy, air energy and geothermal energy.
For our heating projects that have been completed and put into operation, we have taken the
following measures to improve our energy efficiency and reduce coal consumption:
 we have installed high-efficient, energy-saving and environment friendly boilers to
mitigate the pollution to the environment;
 we have installed our residual heat recycling and utilisation system inside
cogeneration plants to recover the exhaust heat for secondary heating; and
 we also use geothermal energy as a clean heat source for our heating business.
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Environmental protection
We operate our business with a responsible attitude towards the environment, actively
fulfil our corporate responsibilities, and promote green and sustainable development. In order
to achieve green operation, we have adopted a variety of energy conservation and emission
reduction measures to reduce energy consumption and pollutant emissions. Besides, we are
actively engaging in developing and utilising the use of clean energy in our business, and thus
to reduce GHG emissions during our operation.
We value the ecological value of natural environment, and we are committed to reducing
or eliminating the impact that our business may have on the environment. Our production
process is clean and efficient, and all projects meet the pollution discharge requirements
stipulated by the local governments. During the Track Record Period, we were not subject to
any administrative sanctions or penalties for violating environmental laws or regulations. We
will continue to strictly implement our environmental protection measures to ensure
compliance with the applicable PRC laws and regulations.
For the years ended 31 December 2020, 2021 and 2022, we incurred ESG-related costs
of approximately RMB1.4 million, RMB2.1 million and RMB2.1 million, respectively. The
costs were mainly related to our Group’s measures to ensure compliance with the applicable
environmental and health and safety laws and regulations. Going forward, we expect to incur
ESG-related costs of RMB2.3 million, RMB2.3 million and RMB2.5 million for the years
ending 31 December 2023, 2024 and 2025, respectively.
Reducing coal’s environmental impact and consumption
Our coal-fired boilers mainly come from Lanzhou Shuangliang. For the coal-fired boilers,
we have set up exhaust gas collection, treatment and monitoring facilities. We have taken a
variety of energy-saving and consumption-reducing measures, such as using clean heat sources
and developing a heating management software tool to improve resources efficiency, reduce
the intensity of resource consumption and GHG emissions, and reduce environmental impacts
from operations.
1. In terms of the selection and application of heat sources:
 the coal-fired boilers which we currently use in our Lanzhou New Area Project
were retrofitted in according to the “Plan for Winter Clean Heating in the
Northern Region (2017-2021)” (૶ᆎ՟า஝ྌ
(2017-2021) ). We have installed flue gas denitrification, desulfurisation and
dust removal treatment devices. After the retrofit, the emission mass
concentration of each of particular matter, SO
2 and NOx produced by the
coal-fired boilers which we currently use in our Lanzhou New Area Project are
within the “Comprehensive Implementation of the Work Plan for Ultra-low
Emissions and Energy-Saving Transformation of Coal-fired Power Plants”
() requisite pollutant
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emission standard of 10 mg/m 3, 35 mg/m 3 and 50 mg/m 3, respectively. The
retrofitted coal-fired boilers were certified by the Lanzhou New Area Ecology
and Environment Bureau* ( ᚆψอਜ͛࿒ᐑྤ҅) in 2019, which can reduce
the pollution caused by exhaust emissions to the environment;
 develop and adopt clean energy such as geothermal energy as an alternative of
fossil fuels and contribute to the GHG emission reduction.
 use of two 15.7MW absorption lithium bromide heat pump to recover the heat
from our Lanzhou Shuangliang’s boiler desulfurisation tower. The annual
recovered heat was 160,000 GJ-200,000 GJ, which accounting for about 8% of
the total heat supply.
 work with cogeneration power plants in the region to recover the circulating
water and flue gas waste heat, the project has been put into operation, with a
scale of 6*43.5MW and a heating capacity of 2.4 million square meters.
2. In terms of heating management:
 the heating management software tool is established to monitor the heat
production system and heating temperature in real time and combine the
monitoring parameters to realise automatic regulation of heating equipment,
reduce heat loss, and improve energy efficiency and heating safety;
 improve the raw coal sampling methods and use good quality coal for furnace
burning;
 conduct thermal insulation treatment on the heating system to improve heat
exchange efficiency, and also conduct regular inspection, cleaning and
maintenance of heating facilities to reduce heat loss and potential security
risks; and
 optimise the heating design scheme and equipment operation mode, reduce the
use of high-energy-consuming equipment, and run the circulating water pump
in an energy-saving mode to achieve the purpose of reducing energy
consumption.
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Metrics on environmental-related matters
Our ESG Working Group has identified the following key performance indicators
(“KPIs”) in relation to our provision of heat services (other than pipeline connection) under
concession for the years ended 31 December 2020, 2021 and 2022:
KPI Unit 2020 2021 2022
Resource usage
(1) Total energy
consumption
kWh in ’000s 734,643 600,180 688,601
Intensity kWh per
RMB1,000 of
revenue
generated
813 630 682
(a) Non-renewable
energy
consumption
Coal kWh in ’000s 695,349 561,632 639,406
Gasoline kWh in ’000s 91 205 84
Diesel fuel kWh in ’000s 236 160 201
Natural gas kWh in ’000s 2,078 1,943 2,299
Total kWh in ’000s 697,754 563,940 641,990
Intensity kWh per
RMB1,000 of
revenue
generated
772 592 636
(b) Renewable
energy
consumption
Geothermal
energy
kWh in ’000s 19,389 20,762 30,093
Intensity kWh per
RMB1,000 of
revenue
generated
21 22 30
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KPI Unit 2020 2021 2022
(c) Purchased
energy
consumption
Electricity kWh in ’000s 17,500 15,478 16,517
Intensity kWh per
RMB1,000 of
revenue
generated
19 16 16
(2) Total water
consumption
m
3 135,570 129,161 181,380
Intensity m 3 per
RMB1,000
of revenue
generated
0.15 0.14 0.18
GHG Emission
KPI Unit 2020 2021 2022
GHG emissions (Scope 1) tCO 2e 240,620 194,341 221,103
GHG emissions (Scope 2) tCO 2e 15,613 13,810 14,737
GHG total emissions tCO 2e 256,233 208,151 235,840
Intensity tCO 2e per
RMB1,000
of revenue
generated
0.28 0.22 0.23
Data description:
 Scope of entities: the provision of heat services (other than pipeline connection)
under the five heat service projects operated under concession under the auspices of
our Company, namely Taiyuan Project, Shanxi Demonstration Zone Project,
Shuozhou Project, Lanzhou New Area Project and Hulunbuir Project.
 Calculation of energy consumption: different types of energy consumption such as
coal, gasoline, diesel, natural gas and purchased electricity are converted to kWh.
The conversion coefficient of each energy unit refers to the “Energy statistics
manual (Annex 3 Units and Conversion Equivalents)” issued by International
Energy Agency.
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 The intensity represents the resources usage or the emissions per RMB1,000 of
revenue generated from our provision of heat services (other than pipeline
connection) and is calculated by dividing the resources usage or the emissions by the
revenue generated from our provision of heat services (other than pipeline
connection) under the five heat service projects operated under concession and times
1,000.
 The GHG emission calculation is based on two emission sources, namely direct
GHG emissions (coal, natural gas, gasoline and diesel for company vehicles), which
were calculated in accordance with the 2006 IPCC Guidelines for National
Greenhouse Gas Inventories ( 2006 ϋIPCC) and indirect
GHG emissions (purchased electricity), which were calculated in accordance with
2019 Annual Emission Reduction Project China Regional Grid Baseline Emission
Factors ( 2019Ϊɿ) issued by the
Ministry of Ecology and Environment of China (͛࿒ᐑྤ௅).
Key performance indicator Unit
2020
Emissions
2021
Emissions
2022
Emissions
NOx kg 38,736 43,191 30,297
SOx kg 2,276 3,903 8,335
Particulate matter kg 1,836 2,680 3,009
Total emissions kg 42,848 49,774 41,641
Intensity kg per
RMB1,000
of revenue
generated
0.26 0.33 0.22
Data description:
 The KPIs were calculated based on the total emissions produced by the coal-fired
boilers which we currently use and the revenue generated from provision of heat
service in our Lanzhou New Area Project.
Fluctuation of environmental data
There are many factors affecting the fluctuation of environmental data. The heating
demands and also the weather conditions were some of the main reasons. If the weather is too
cold for that year, then we need to increase the consumption of energy. In addition, our Group
has retrofitted the coal-fired boilers and installed new heating management system to monitor
heat loss and improve energy efficiency. Our Group also developed and adopted geothermal
energy and recovered the circulating water and flue gas waste heat. All these factors
contributed the fluctuation. Adoption of geothermal energy as a heat source for our Shanxi
Demonstration Zone Project positively impacts our environmental data in reducing GHG
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emissions because geothermal energy is a clean heat source and does not produce GHG
emissions. In 2022, the amount of heat generated from geothermal energy for our provision of
heat services amounted to the equivalent amount of heat generated from the combustion of
approximately 5,598 tonnes of coal, which enabled our Group to reduce approximately 10,406
tonnes of carbon dioxide in GHG emissions.
Emissions management
As mentioned previously, our Group has adopted the heating management system which
can help to achieve real-time operation monitoring, equipment remote control, automatic
output adjustment and problem solving, as well as the collection and analysis of operation data.
The technological achievements on heat supply service improves the quality of heating,
operational efficiency, and energy saving in our five heat service projects operated under
concession.
We use coal-fired boilers as one of the heat sources in our Lanzhou New Area Project, and
the coal-fired boilers we currently use installed flue gas denitrification, desulfurisation and
dust removal treatment devices and real time monitoring system. We measure exhaust gas from
coal-fired boilers we currently use by the following:
 The exhaust gas emission is regularly provided in the “monitoring information
record” to monitor the operation of the boiler;
 The entire combustion process is operated by a team with certified boiler workers
to ensure the proper use of equipment;
 In the event where an equipment is abnormal during operation, the emission shall be
stopped immediately. It can only be turned on after the problem is solved;
 If it exceeds the standard, the platform of pollution sources automatic monitoring
devices will alarm the Lanzhou city environmental protection office, and will make
the discharge meet the requirements according to the national standard.
Air emission performance and target
The coal-fired boilers which we currently use in our Lanzhou New Area Project comply
with the relevant pollutant emission standard accredited by the Lanzhou New Area Ecology and
Environment Bureau* ( ᚆψอਜ͛࿒ᐑྤ҅), which follows the national emission standard in
accordance with the Technical Specifications for Flue Gas Extremely-low Emission
Engineering of Coal-fired Power Plant (Standard: HJ 2053-2018) (ଣ
ʈ೻Ҧஔ஝ᇍ(ᅺ๟໮:HJ2053-2018)) (the “ Technical Specifications ”). The average emission
mass concentrations of nitrogen oxides (NOx), sulfur oxides (SOx), and particulate matter
(PM) of coal-fired boilers which we currently use in our Lanzhou New Area Project were about
26.2mg/m
3, 3.0mg/m 3, and 2.2mg/m 3 for the year ended 31 December 2022, respectively,
which was significantly lower than the required emission mass concentration limit of 50
mg/m
3, 35 mg/m 3 and 10 mg/m 3 specified in the Technical Specifications.
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We will continue to seek different opportunities in reducing air emissions at sources and
currently our target is to maintain our emission mass concentration of NOx, SOx and PM below
the required emission mass concentration limit specified in the Technical Specifications.
Resource consumption and GHG emissions targets
In addition, our ESG Working Group has targets and goals concerning the reduction for
the resource consumption and GHG emission, which we expect to achieve by 31 December
2025. The following table sets out our targets by item.
Item Target
Resources
Consumption
Energy Reduce 5% of energy use intensity by 2025
Water Reduce 5% of water use intensity by 2025
Emissions GHG emissions Reduce 5% emission intensity of Scope 1 &
Scope 2 GHG emissions by 2025
PRC government’s plans to become carbon neutral by 2060
To achieve emission peaking before 2030 and net zero by 2060, the total consumption of
coal must be capped and subsequently reduced, while the phase-down of coal for heat
generation is a priority. The principal barriers are primarily not technological or economic.
The barriers are mostly related to changes in policies and legislation. In some cases, local
socioeconomic considerations play a role, with some regional jobs and local economies being
heavily dependent on coal. Addressing these barriers will require clear political direction
coupled with careful transition planning to mitigate socioeconomic impacts that may arise due
to transformation of the current energy systems.
Our Group has taken major steps to reduce emission from coal plants, such as started to
use cleaner energy like geothermal and recovered the circulating water and flue gas waste heat.
Further coordination is needed between energy planning authorities and local institutions.
Complementing and building on the 14th Five-Year Energy Plan, and on the 15-year mid-term
vision, a long-term roadmap for the transition between now and 2060 can guide the activities
of multiple stakeholders and reconcile the short- and long-term objectives of the PRC.
Our Group will work closely with National Ministries and secure the active support of
provincial administrations. It is particularly critical to find economically viable alternative
solutions, particularly for provinces that are economically dependent on coal. Our Group will
further learn what works and assess the existing demonstration plants that use natural gas, and
will begin to address essential enabling conditions including financing, infrastructure,
standard, and use of cleaner energy conditions when receive clear signal from the government.
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Given that the Lanzhou New Area Ecology and Environmental Bureau* ( ᚆψอਜ͛࿒ᐑ
ྤ҅) has accredited that our coal-fired boilers which we currently use in our Lanzhou New
Area Project comply with the relevant national pollutant emission standard in accordance with
the Technical Specifications for Flue Gas Extremely-low Emission Engineering of Coal-fired
Power Plant (Standard: HJ 2053-2018)* (ଣʈ೻Ҧஔ஝ᇍ(ᅺ๟໮:HJ
2053-2018)), our Directors believe that the coal-fired boilers of our Group are able to satisfy
the national plan of achieving carbon peaking in 2030. We have no plan to replace our
coal-fired boilers for the time being as no concrete plan or measures have been announced in
view of achieving carbon neutrality by 2060 so far. The Lanzhou New Area Project uses
different heat sources, being heat produced by coal-fired boilers and residual heat collected at
plants. The Group will continuously monitor the development of the relevant government
policies and develop alternative heat sources to replace or supplement the coal-fired boilers.
Heat suppliers environmental assessment
Cogeneration plants in the PRC are highly regulated and monitored by the local
environmental authorities in the regions where they operate. Before cogeneration plants
commence operations, an assessment of the environmental impact of the plant and project
acceptance will be carried out by the local environmental authorities. In accordance with the
“Technical Specifications for the Continuous Detection of Flue Gas Emissions from Stationary
Pollution Sources”* (ஹᚃᏨ಻Ҧஔ஝ᇍ), third-party tests shall be
conducted on a monthly basis to ensure that local emission limits are being met by the
cogeneration plants.
Based on the above, our Directors are of the view that the relevant regulations and
policies in place provided a standard of the performance of the third- party heat suppliers from
the environmental perspective. In addition to the government policies in place, prior to formal
cooperation with the third-party heat suppliers, our Group requires prospective third-party heat
suppliers to provide the environmental impact report* ( ᐑྤᅂᚤజѓ) and environmental
protection project acceptance report* (ධ᜕ͦϗజѓ) issued by third-party agents. Our
Group would also obtain and assess pollution monitoring reports* (္಻జѓ).
Our Group would regularly evaluate the third-party heat suppliers in terms of
environmental control performance, for example, to monitor the pollution monitoring reports.
In the event that any irregularities or serious pollutants were noticed by the management of the
Company, our Group would follow up by making enquiries with the third-party heat suppliers
and procure them to rectify such irregularities. Further inspection and assessments may be
conducted by our Group if necessary.
Our Group’s overall ESG performance
Our Group has robust initiatives on our ESG performance. We have mapped out our ESG
risks and set up the ESG Working Group to manage and mitigate ESG risks. For environmental
matters, our Group has relatively high exposure to risks of compliance costs in relation to
emissions regulation. Thus, we have implemented stringent measures such as the retrofit of
boilers, and installed a heat management system to monitor air emissions as to reduce our
exposure to such regulatory risks.
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Our Group’s air emission intensity was 0.22 kg per RMB1,000 of revenue generated for
the year ended 31 December 2022, which was in line with the average air emission intensity
of our peers (being (i) a heat service provider in Jilin Province and a company listed on the
Main Board of the Stock Exchange; (ii) a heat service provider based in Shenyang, Liaoning
Province and a company listed on the Shenzhen Stock Exchange; and (iii) a heat service
provider based in Hangzhou, Zhejiang Province and a company listed on the Shanghai Stock
Exchange) (the “ Peers ”), being 0.22 kg per RMB1,000 of revenue generated for the same year.
In respect of GHG emissions, our Group has robust initiatives to reduce carbon emissions.
Our Group has started to utilise clean energy sources such as geothermal energy. Our Group’s
GHG emission intensity which was 0.23 tCO
2e per RMB1,000 of revenue generated for the
year ended 31 December 2022, while the average GHG emission intensity of the Peers was 0.25
tCO
2e per RMB1,000 of revenue generated for the same year.
In respect of resource consumption, our Group’s non-renewable energy consumption
intensity was 636 kWh per RMB1,000 of revenue generated for the year ended 31 December
2022, which was significant lower than that of 1,670 kWh per RMB1,000 of revenue of the
Peers for the same year.
We utilise geothermal heat as a heat source at our Shanxi Demonstration Zone Project.
Geothermal heat is classified as a low-carbon (green) energy ( ၠЍЭ၁ঐ๕) by the National
Energy Administration* (ঐ๕҅). In accordance with the Measures of National Energy
Administration for Adopting Renewable Energy According to Local Conditions for Heat
Services (), the use of
geothermal heat is encouraged as a heat source for the provision of heat services in response
to the PRC Government’s mission to reduce carbon emission, and with a view to combating
climate change. However, as the availability and reserves of natural and power resources in
each province and city are different, none of the Peers use geothermal heat as a heat source.
Based on the above, the ESG performance of our Group falls within the average range
when compared with the Peers.
Social matters
Our Group has policies on compensation, dismissal, equal opportunities, diversity and
anti-discrimination. Our Group respects the gender, age and ethnicity of each person.
Accordingly, our Group gives each job applicant an equal opportunity and we have an internal
policy in place to ensure that there is no discrimination as to gender, age and ethnicity. We also
attach importance to develop an internal management system within our Group, characterised
by anti-bribery, anti-corruption and anti-fraud. By establishing such system, internal rules and
regulations are developed to strengthen the anti-corruption management, and to conduct related
trainings for our Board and all employees. We are committed to build a corporate culture of
fairness, openness, integrity, and honesty, aiming to maintain the good reputation of our Group.
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Employees are an important asset to our Group and their growth can contribute to the
development of our Group. We have developed a training management system* ( ੃৅၍ଣ
) and a mentor and apprentice management system* (), which set
clear regulations on issues such as departmental responsibilities, types of training, training
plans, training implementation and impact evaluation. We strive to enhance the quality of our
staff through channels, such as standardising training procedures and expanding training
modes, aiming to achieve the simultaneous growth of our staff and our Company. Occupational
health and safety is also one of our priorities. For details relating to occupational health and
safety, see “– Occupational health and safety” in this section.
Our Board has the collective and overall responsibility for establishing, adopting and
reviewing the ESG vision and target of our Group, identifying the KPIs and the relevant
measurements and evaluating, determining and addressing our ESG-related risks in accordance
with Appendix 27 to the Listing Rules, together with other applicable recommendations from
the Stock Exchange. Our Board will assess, evaluate the ESG-related risks and review our
existing strategy, target and internal controls. If necessary, improvement will be implemented
to mitigate the risks that are material to our business operation and Shareholders from time to
time. After the Listing, we will publish an ESG report annually in accordance with Appendix
27 to the Listing Rules to qualitatively and quantitatively analyse and disclose important ESG
matters, risk management and the accomplishment of key performance objectively.
PROPERTIES
Owned properties
As at the Latest Practicable Date, we had obtained the immovable property rights of two
parcels of land and nine buildings (including the relevant parcels of land) in the PRC with an
aggregate site area of approximately 117,830.53 sq.m. (excluding commonly owned
commercial use land (ή) and commonly owned urban residential land (ᕄ
ή)) and an aggregate GFA of approximately 54,904.5 sq.m., which are mainly used
for our industrial use, commercial land use and commercial building use.
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A summary of our owned land and buildings as at the Latest Practicable Date is set out
below:
No. Location Properties held Owner Usage
Approximate
site area/
commonly
owned land
(ή)
Approximate
GFA
(sq.m.) (sq.m.)
1 Building No. 1&2, 168
South Wucheng Road
Taiyuan, Shanxi
Province
Production House,
Nos. 1-6 Building No. 1,
168 South Wucheng
Road, Taiyuan, Shanxi
Province
Taiyuan
Renewable
Energy
Industrial use 20,877.73 25,071.78
2 Building No. 1&2, 168
South Wucheng Road
Taiyuan, Shanxi
Province
1st Floor Parking Lot,
Building No. 1, 168
South Wucheng Road,
Taiyuan, Shanxi
Province
Taiyuan
Renewable
Energy
Industrial use/
parking lot
20,877.73 2,565.58
3 Building No. 1&2, 168
South Wucheng Road
Taiyuan, Shanxi
Province
No. 1 Kitchen, Building
No. 2, 168 South
Wucheng Road, Taiyuan,
Shanxi Province
Taiyuan
Renewable
Energy
Industrial use/
public utilities
(50 years)
20,877.73 672.40
4 Building No. 1&2, 168
South Wucheng Road
Taiyuan, Shanxi
Province
Floor Nos. 1- 12, Research
Block, Building No. 2,
168 South Wucheng
Road, Taiyuan, Shanxi
Province
Taiyuan
Renewable
Energy
Industrial use/
research
centre
20,877.73 19,178.56
5 Building No. 1&2, 168
South Wucheng Road
Taiyuan, Shanxi
Province
No. 1 Warehouse, Building
No. 2, 168 South
Wucheng Road, Taiyuan,
Shanxi Province
Taiyuan
Renewable
Energy
Industrial use/
warehouse
20,877.73 204.78
6 S-16, East to Mayi Road
and west to
Development Road,
Shuocheng District
S-16, East to Mayi Road
and west to
Development Road,
Shuocheng District
Taiyuan
Renewable
Energy
Urban
residential
use, other
commercial
land use/
residential use
89,219.99 1,059.51
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No. Location Properties held Owner Usage
Approximate
site area/
commonly
owned land
(ή)
Approximate
GFA
(sq.m.) (sq.m.)
7 S-20, East to Mayi Road
and west to
Development Road,
Shuocheng District
S-16, East to Mayi Road
and west to
Development Road,
Shuocheng District
Taiyuan
Renewable
Energy
Urban
residential
use, other
commercial
land use/
residential use
89,219.99 1,049.29
8 S-19, East to Mayi Road
and west to
Development Road,
Shuocheng District
S-16, East to Mayi Road
and west to
Development Road,
Shuocheng District
Taiyuan
Renewable
Energy
Urban
residential
use, other
commercial
land use/
residential use
89,219.99 282.21
9 S-21, East to Mayi Road
and west to
Development Road,
Shuocheng District
S-16, East to Mayi Road
and west to
Development Road,
Shuocheng District
Taiyuan
Renewable
Energy
Urban
residential
use, other
commercial
land use/
residential use
89,219.99 109.35
10 S-21-2, East to Mayi Road
and west to
Development Road,
Shuocheng District
S-16, East to Mayi Road
and west to
Development Road,
Shuocheng District
Taiyuan
Renewable
Energy
Urban
residential
use, other
commercial
land use/
residential use
89,219.99 113.10
11 S-22, East to Mayi Road
and west to
Development Road,
Shuocheng District
S-16, East to Mayi Road
and west to
Development Road,
Shuocheng District
Taiyuan
Renewable
Energy
Urban
residential
use, other
commercial
land use/
residential use
89,219.99 1,462.05
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No. Location Properties held Owner Usage
Approximate
site area/
commonly
owned land
(ή)
Approximate
GFA
(sq.m.) (sq.m.)
12 S-23, East to Mayi Road
and west to
Development Road,
Shuocheng District
S-16, East to Mayi Road
and west to
Development Road,
Shuocheng District
Taiyuan
Renewable
Energy
Urban
residential
use, other
commercial
land use/
residential use
89,219.99 356.17
13 North to Bei’er Street and
west to Wangcheng
Road Hulunbuir, Inner
Mongolia Autonomous
Region
North to Bei’er Street and
west to Wangcheng
Road, Hulunbuir, Inner
Mongolia Autonomous
Region
Hulunbuir
Shuangliang
Public facilities 30,000 –
14 Heping Garden 2-6
No. 101 & 1-7 No. 105,
Fendouban South
Manzhouli Road
Hulunbuir, Inner
Mongolia Autonomous
Region
No. 105, Heping Garden
Nos. 2-7, Fendouban,
South Manzhouli Road,
Hulunbuir, Inner
Mongolia Autonomous
Region
Hulunbuir
Shuangliang
Other
commercial
land use/
commercial
building use
136,588 264.70
15 Heping Garden 2-6
No. 101 & 1-7 No. 105,
Fendouban South
Manzhouli Road
Hulunbuir, Inner
Mongolia Autonomous
Region
No. 101, Heping Garden
Nos. 2-6, Fendouban,
South Manzhouli Road,
Hulunbuir, Inner
Mongolia Autonomous
Region
Hulunbuir
Shuangliang
Other
commercial
land use/
commercial
building use
136,588 150.37
16 Fuqiang Garden
Nos. 12-0-109 & 11-0-
101 Fendouban, South
Manzhouli Road
Hulunbuir, Inner
Mongolia Autonomous
Region
No. 12-0-109, Fuqiang
Garden, Fendouban,
South Manzhouli Road,
Hulunbuir, Inner
Mongolia Autonomous
Region
Hulunbuir
Shuangliang
Other
commercial
land use/
commercial
building use
62,776 209.04
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No. Location Properties held Owner Usage
Approximate
site area/
commonly
owned land
(ή)
Approximate
GFA
(sq.m.) (sq.m.)
17 Fuqiang Garden
Nos. 12-0-109 & 11-0-
101 Fendouban, South
Manzhouli Road
Hulunbuir, Inner
Mongolia Autonomous
Region
No. 11-0-101, Fuqiang
Garden, Fendouban,
South Manzhouli Road,
Hulunbuir, Inner
Mongolia Autonomous
Region
Hulunbuir
Shuangliang
Other
commercial
land use/
commercial
building use
62,776 209.30
18 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1001, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 66.72
19 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1002, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 66.17
20 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1003, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 66.17
21 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1004, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 66.20
22 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1005, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 81.15
23 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1006, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 59.92
BUSINESS
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--- page 331 ---
No. Location Properties held Owner Usage
Approximate
site area/
commonly
owned land
(ή)
Approximate
GFA
(sq.m.) (sq.m.)
24 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1007, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 61.37
25 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1008, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 61.37
26 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1009, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 65.65
27 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1010, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 92.22
28 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1011, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 61.72
29 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1012, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 61.72
30 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1013, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 63.46
BUSINESS
– 321 –


--- page 332 ---
No. Location Properties held Owner Usage
Approximate
site area/
commonly
owned land
(ή)
Approximate
GFA
(sq.m.) (sq.m.)
31 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1014, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 99.30
32 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1101, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 66.72
33 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1102, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 66.17
34 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1103, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 66.17
35 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1104, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 66.20
36 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1105, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 81.15
37 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1106, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 59.92
BUSINESS
– 322 –


--- page 333 ---
No. Location Properties held Owner Usage
Approximate
site area/
commonly
owned land
(ή)
Approximate
GFA
(sq.m.) (sq.m.)
38 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1107, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 61.37
39 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1108, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 61.37
40 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1109, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 65.65
41 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1110, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 92.22
42 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2- 1111, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 61.72
43 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1112, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 61.72
44 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1113, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 63.46
BUSINESS
– 323 –


--- page 334 ---
No. Location Properties held Owner Usage
Approximate
site area/
commonly
owned land
(ή)
Approximate
GFA
(sq.m.) (sq.m.)
45 10/F, 11/F, Integrated
Building, No. 21
Shanshuiyiyuan Phase 2,
Hulunbuir
21-2-2-1114, Fendouban,
South Hulunbuir Street,
Shanshuiyiyuan,
Hulunbuir
Hulunbuir
Shuangliang
Office 82,041.10 99.30
46 ES #20 north to Guihua
Road and ES #15 west
to Guihua Lu Lanzhou,
Gansu Province
ES #20 north to Guihua
Road and ES #15 west
to Guihua Lu, Lanzhou,
Gansu Province
Lanzhou
Shuangliang
Public facilities 66,952.80 –
Property activities
We occupy certain properties in the PRC in connection with our business operation. As
at 31 March 2023, certain of our property interests that are for property activities had a carrying
amount of 1% or above of our total assets. For details of such properties valued by our property
valuer (the “ Valued Properties ”), see the property valuation report as set out in Appendix IV
to this prospectus pursuant to Rule 5.01A of the Listing Rules. Save and except for the Valued
Properties, our Directors confirmed that as at 31 March 2023, no single property interest of
ours that are for property activities had a carrying amount of 1% or above of our total assets
and the total carrying amount of property interests not valued did not exceed 10% of our total
assets.
Our Directors confirm that as at 31 March 2023, no single property interest that did not
form part of our property activities had a carrying amount of 15% or more of our total assets.
Owned heat service facilities
As at the Latest Practicable Date, we owned and operated primary distribution pipelines
with an aggregate length of approximately 546.9 km. As at the same date, we owned one heat
exchange station located on our land, and 13 heat exchange stations located on third-party
owned land.
BUSINESS
– 324 –


--- page 335 ---
Leased properties
As at the Latest Practicable Date, we leased certain properties in the PRC. A summary of
these leased properties as at the Latest Practicable Date is set out below:
No. Location Landlord Tenant Lease period Usage
Approximate
GFA
(sq.m.)
1 Room 202,
2/F, No. 15
Shuangliang
Road, Ligang
Street, Jiangyin,
Jiangsu Province
Shuangliang
Spandex
Our Company From 1 January
2022 to
31 December
2024
Office 212.5
2 7/F, Jiangyin
International
Hotel, No. 299
Chengjiang West
Road, Jiangyin,
Jiangsu Province
Jiangyin Hotel Our Company From 1 January
2023 to
31 December
2025
Office 50
3 7/F, Jiangyin
International
Hotel, No. 299
Chengjiang West
Road, Jiangyin,
Jiangsu Province
Our Company Wise Living
Energy
From 1 January
2023 to
31 December
2025
Non-residential
usage
30
4 15/F, Incubator
No. 1,
Xinmin City
Environmental,
Innovation and
Entrepreneurship
Complex,
Intersection of
Miqi Road and
Renhe Road,
Quliang Town,
Xinmi City,
Zhengzhou,
Henan
Province
(1)
Shuangliang
Group (Henan)
Environmental
Technology Co.,
Ltd.* ( ᕐԄණྠ
(یئ)Ҧ
ʮ̡)
Zhengzhou
Wise Living
From 18
September 2020
to 17 September
2023
Office Not specified
BUSINESS
– 325 –


--- page 336 ---
No. Location Landlord Tenant Lease period Usage
Approximate
GFA
(sq.m.)
5 Room 903-915 and
Room 9001,
Fuhua Building,
No. 1
Zhongchuan
Street, New
Area, Lanzhou,
Gansu Province
Lanzhou New
Area
Technology and
Innovation
Management
Co., Ltd.*
(Ҧ
၍ଣϞ
ʮ̡)
Lanzhou
Shuangliang
From 2 April 2023
to 1 July 2023
Office 830
6 Room 2012, North
Tower, Gansu
Chamber of
Commerce
Building,
Beimiantan,
Chengguan
District,
Lanzhou, Gansu
Province
Mr. Ma Hongxing Lanzhou
Shuangliang
From 18 July 2018
to 15 August
2023
Office 337.38
7 Room 2012, North
Tower, Gansu
Chamber of
Commerce
Building,
Beimiantan,
Chengguan
District,
Lanzhou, Gansu
Province
Lanzhou
Shuangliang
Gansu Smart
Energy
Five years from
26 April 2019
Commercial usage 377.38
BUSINESS
– 326 –


--- page 337 ---
No. Location Landlord Tenant Lease period Usage
Approximate
GFA
(sq.m.)
8 33-102, Zone A,
Rainbow City,
New Area,
Lanzhou, Gansu
Province
Lanzhou Track
Industrial
Investment
Co., Ltd* ( ᚆψ
༸ྼุҳ༟Ϟ
ʮ̡),
formerly known
as Lanzhou
Subway
Business Hotel
Management
Co., Ltd.* ( ᚆψ
ֳ
ʮ̡)
Lanzhou
Shuangliang
From 1 January
2023 to
31 December
2023
Office and business
hall
220
9 33-102#
Southwestern
Corner, Zone A,
Rainbow City,
New Area,
Lanzhou, Gansu
Province
(2)
Lanzhou
Shuangliang
Gansu
Shuangliang
1 January 2023 to
31 December
2023
Commercial use Not specified
10 7/F, 8/F, No. 168,
Wuchengnan
Road,
Tanghuaiyuan
Area, Taiyuan,
Comprehensive
Reform
Demonstration
Zone, Shanxi
Province
Taiyuan
Renewable
Energy
Shanxi
Shuangliang
Renewable
Energy
1 January 2017 to
31 December
2036
Industrial usage 3,000
BUSINESS
– 327 –


--- page 338 ---
No. Location Landlord Tenant Lease period Usage
Approximate
GFA
(sq.m.)
11 4/F, No. 168,
Wuchengnan
Road,
Tanghuaiyuan
Area, Taiyuan,
Comprehensive
Reform
Demonstration
Zone, Shanxi
Province
Taiyuan
Renewable
Energy
Shanxi
Demonstration
Zone Heat
Supply
1 September 2018
to 31 August
2038
Industrial usage 700
12 3/F, No. 168,
Wuchengnan
Road,
Tanghuaiyuan
Area, Taiyuan,
Comprehensive
Reform
Demonstration
Zone, Shanxi
Province
Taiyuan
Renewable
Energy
Shanxi Smart
Life
1 January 2017 to
31 December
2036
Industrial usage 100
13 9/F, No. 168,
Wuchengnan
Road,
Tanghuaiyuan
Area, Taiyuan,
Comprehensive
Reform
Demonstration
Zone, Shanxi
Province
Taiyuan
Renewable
Energy
Shanxi Carbon
Trading
1 January 2017 to
31 December
2036
Industrial usage 60
BUSINESS
– 328 –


--- page 339 ---
No. Location Landlord Tenant Lease period Usage
Approximate
GFA
(sq.m.)
14 9/F, No. 168,
Wuchengnan
Road,
Tanghuaiyuan
Area, Taiyuan,
Comprehensive
Reform
Demonstration
Zone, Shanxi
Province
Taiyuan
Renewable
Energy
Shanxi
Shuangliang
New Energy
1 January 2017 to
31 December
2036
Industrial usage 200
15 Room 1101, 11/F,
Unit 2, Building
A20,
Liugangyuan,
Nanhuan Road,
Pingcheng Area,
Datong, Shanxi
Province
Mr. Fu Shengliang Datong
Renewable
Energy
From 1 January
2019 to
1 January 2034
Office 145.24
16 15/F, Incubator
No. 1,
Xinmin City
Environmental,
Innovation and
Entrepreneurship
Complex,
Intersection of
Miqi Road and
Renhe Road,
Quliang Town,
Xinmi City,
Zhengzhou,
Henan
Province
(1)
Shuangliang
Group (Henan)
Environmental
Technology Co.,
Ltd.* ( ᕐԄණྠ
(یئ)Ҧ
ʮ̡)
Tech-Thermal
(Zhengzhou)
From
10 December
2020 to
9 December
2023
Office Not specified
BUSINESS
– 329 –


--- page 340 ---
No. Location Landlord Tenant Lease period Usage
Approximate
GFA
(sq.m.)
17 Room 403,
Tumote Youqi
New Industrial
Park
Management
Committee
Administrative
Office, Baotou,
Inner Mongolia
Autonomous
Region
(1)
Baotou New
Industrial Co.,
Ltd.* ( ̍᎘̹อ
ப΂
ʮ̡)
Wise Living
Energy
(Baotou)
From
15 November
2022 to
14 November
2023
Office 60
18 Room 1601,
Section 3,
Ziguangyuan
Commercial
Building,
Juhua Century
City,
Hailar East
Street,
Xincheng District,
Hohhot City,
Inner Mongolia
Autonomous
Region
China Life
Insurance
Company Ltd.
Inner Mongolia
Autonomous
Region Branch
Inner Mongolia
Wise Living
From 1 August
2022 to 31 July
2027
Office 141
Notes:
(1) As at the Latest Practicable Date, no real estate certificates had been obtained for these properties.
(2) The lease for this property was terminated on 10 March 2023.
As at the Latest Practicable Date, no real estate certificates had been obtained by the
landlords for three out of the 18 leased properties set forth above (namely, properties no. 4, 16
and 17). Save for these three leased properties, real estate certificates of all other 15 leased
properties had been obtained by the landlords as at the Latest Practicable Date.
BUSINESS
– 330 –


--- page 341 ---
Details of these three leased properties with no real estate certificates are as follows:
 In respect of properties no. 4 and 16, as at the Latest Practicable Date, no real estate
certificate had been obtained by the landlord for these properties. The overall
development of the industrial park in which these properties are located has not yet
completed. The corresponding real estate certificates could be applied for by the
landlord of the industrial park upon completion. Since the industrial park is a
public-private partnership development project in collaboration with the
government, considering the extent of governmental involvement, our Directors
consider that the risk of us being evicted from or requested to cease to use these
properties due to the lack of real estate certificates is extremely low.
 In respect of property no. 17, as at the Latest Practicable Date, no real estate
certificate had been obtained by the landlord for this property, as the relevant
procedures for registration of the land had not been processed. The application for
real estate certificate for the property built on the land therefore has not yet
commenced. Since the landlord is a State-owned company, our Directors consider
that the risk of us being evicted from or requested to cease to use this property due
to the lack of real estate certificates is extremely low.
Our PRC Legal Advisers have advised that (i) it is the property owner’s responsibility to
obtain the relevant real estate certificates, and we as a tenant do not have the authority nor
responsibility to apply for any title certificate for such properties; and (ii) the absence of real
estate certificates for these three leased properties did not come about as a result of
non-compliance of any relevant PRC laws or regulations on the part of our Group. Since such
leased properties are primarily for office use, and alternative properties are readily available,
we do not expect it to be difficult for us to relocate to alternative premises even if we are
evicted from these leased properties. Our Directors are therefore of the view that the potential
relocation, if any, from these leased properties will not have a material adverse impact on our
business operations.
Further, as at the Latest Practicable Date, we leased (i) 451 third-party owned heat
exchange stations and the land on which they are located and (ii) the land on which the 13
self-owned heat exchange stations are located. We have obtained written permissions from or
entered into agreements with lessors who granted us the right to use the heat exchange stations
and/or the lands, where we were effectively leasing the heat exchange stations. Some of the
leases were for free, while some of them were for a fee payable by us. For details, see
“– Properties – Heat exchange stations for our heat service operation” below.
BUSINESS
– 331 –


--- page 342 ---
Failure to register lease agreements
Event of non-compliance and reasons
During the Track Record Period and up to the Latest Practicable Date, none of the 18 of
the lease agreements of the aforementioned properties leased by us had been registered by us.
In respect of three of the lease agreements, we were unable to register the corresponding
lease agreements with the relevant government authorities as we did not have the relevant real
estate certificates as required. In respect of the remaining 15 lease agreements, we were unable
to register them with the relevant government authorities primarily because the landlords did
not cooperate with us as needed for completing the registration. According to applicable PRC
administrative regulations, landlords need to provide us with certain documents (such as their
business licences or identification information) in order to complete the registration.
Legal consequences
According to the Urban Real Estate Administration Law of the PRC ( ʕശɛ͏΍ձ਷
), the Commercial Building Leasing Administrative Measures (גۜ
) and other relevant laws and regulations, the relevant local governments
may require the rectification of the non-registration of lease agreements within a certain period
of time. If rectification is not made within the specified time, we may be subject to a fine
ranging from RMB1,000 to RMB10,000 for each unregistered lease agreement. As advised by
our PRC Legal Advisers, the maximum potential penalty we may face in relation to these 18
unregistered lease agreements is RMB180,000 in aggregate.
As at the Latest Practicable Date, we had not received any such request to rectify and
register such lease agreements from the relevant government authorities.
Remedial measures and enhanced internal control measures
As the registration of 18 lease agreements will require the cooperation from the landlords
or will require the landlords to obtain the relevant real estate certificates, which is not within
our control, we will submit the application documents for lease registration once those
documents are in order. We will, as soon as practicable, complete the filing and registration
procedures for the relevant lease agreements that the landlords are willing to cooperate, and
will also actively communicate with the landlords to ask for their cooperation to register and
file the lease agreements and/or documents for all the outstanding unregistered lease
agreements.
BUSINESS
– 332 –


--- page 343 ---
We have adopted internal control policies requiring our Group to (i) assign a designated
person to complete the registration and filing of the lease agreements with the relevant
government authorities upon signing; (ii) record such registration and filing of the lease
agreements; (iii) regularly follow up on the status of registering and filing outstanding lease
agreements and/or documents; and (iv) assign another designated person to conduct regular
checks on whether all newly entered lease agreements have been duly registered with the
relevant government authorities or the required documents have been in the process of being
obtained for completing the registration. Our internal control consultant has reviewed the
corresponding enhanced internal control policies which our Group has adopted, and did not
have any further recommendation after such review.
Based on the above, our Directors are of the view, and the Sole Sponsor concurs, that the
enhanced internal control measures adopted by our Group are adequate, effective and sufficient
in preventing recurrence of similar future non-compliance.
Impact on our Group
As advised by our PRC Legal Advisers, under the Civil Code of the PRC ( ʕശɛ͏΍
Պ), the non-registration of the lease agreements does not affect the validity and
enforceability of the lease agreements. Also, our PRC Legal Advisers have confirmed that no
administrative penalty has been imposed by the relevant government authorities on our Group
for our non-registration of the lease agreements for the Track Record Period. Our Group has
undertaken that if our Group is requested by the relevant government authorities to rectify the
non-registration, we will follow the requisite procedures accordingly. Based on the above, our
PRC Legal Advisers have advised that the risk of our Group being penalised for such
non-compliance under the relevant PRC laws is low.
Our Directors have confirmed that based on the advice of our PRC Legal Advisers
aforementioned, the maximum amount of potential penalties of RMB180,000, should it be
levied, would merely account for a minimal portion of our total revenue.
Furthermore, pursuant to the Deed of Indemnity, our Controlling Shareholders will
indemnify our Group against any claims, fines and other liabilities from such non-registration
of the lease agreements. Our Directors are of the view that, based on the advice from our PRC
Legal Advisers, such non-compliance does not and will not have any material impact on the
operations or financial conditions of our Group.
BUSINESS
– 333 –


--- page 344 ---
Other properties occupied by us
A summary of other properties occupied by us as at the Latest Practicable Date is set out
below:
No. Location Occupant Usage
Approximate
area
Approximate
GFA
(sq.m.) (sq.m.)
1 Floor 4-7 of Ao’lin Central Square
Block A located at south to
Beizhang Village, north to Jinyang
Street, west to Tiyu Road and East
to Hangxiao area, Taiyuan City,
Shanxi Province (the “ Shantou
Complex ”)
Taiyuan
Renewable
Energy
Other
commercial
land use/
commercial
building use
4,405.86
(construction
area)
–
2 Building 1 and Building 2,
District 2, south advanced business
park, Jinsha Botanical Garden,
Shuocheng District, Shuozhou City,
Shanxi Province (the “ Jinsha
Buildings ”)
Shuozhou
Renewable
Energy
Other
commercial
land use/
commercial
building use
6,055.65
(construction
area)
–
3 Plot 4-06-2 Zone 1,
Science and Technology Innovation
City, Shanxi Transformation and
Comprehensive Reform
Demonstration Zone Taiyuan City,
Shanxi Province (the “ Science and
Technology Innovation City Land
Plot”)
Shanxi
Demonstration
Zone Heat
Supply
Public utility
land use
9,697.82
(site area)
–
(a) Shantou Complex
Failure to obtain relevant complete real estate certificate or complete relevant construction
acceptance checks
During the Track Record Period, relevant construction acceptance checks in relation to
the Shantou Complex were not completed. As advised by our PRC Legal Advisers, we were
neither the land owner nor the owner of construction project, and were not the party responsible
for the construction of the Shantou Complex, and were therefore not permitted under relevant
PRC laws and regulations to complete the relevant construction acceptance checks. On 28 July
2021, we obtained a written confirmation from the Construction and Public Utilities
Department of the Management Committee of Shanxi Transformation and Comprehensive
BUSINESS
– 334 –


--- page 345 ---
Reform Zone* (ணၾʮ͜ԫุ၍ଣ௅) confirming that
(i) our use of the Shantou Complex did not constitute a non-compliance under the relevant PRC
laws and regulations; and (ii) no penalty had been or will be imposed on us for our use of the
Shantou Complex. Our PRC Legal Advisers have confirmed that the Construction and Public
Utilities Department of the Management Committee of Shanxi Transformation and
Comprehensive Reform Zone is the relevant competent authority to provide the
aforementioned confirmation. As such, our PRC Legal Advisers advised that our use of the
Shantou Complex without completing the relevant construction acceptance checks did not
constitute a non-compliance on our part under the relevant PRC laws and regulations. As
advised by our PRC Legal Advisers, as we are not the party responsible for the construction
of the Shantou Complex, the risk of our Group being penalised for our occupation or use of the
relevant premises and being required to vacate from the relevant premises is remote. During
the Track Record Period, our Group had not been penalised in respect of the failure to complete
such checks. Our Directors expect that relevant construction acceptance checks in relation to
the Shantou Complex will be completed by the end of 2023. We have adopted internal control
measures to ensure that the relevant construction acceptance checks are completed in
preventing recurrence of similar incidents by seeking the relevant party responsible for
construction to provide confirmation to us that the relevant checks have been completed. If
such checks are not completed, we will seek to urge prompt rectification works to be done by
the relevant constructing party. Our construction department conducts regular review and
supervises the process of construction in relation to properties occupied and used by us. When
required, we will engage an external legal counsel to verify and provide legal opinions as to
the legal status of the properties and/or construction works.
The Shantou Complex was initially developed under a real estate development project by
a real estate developer (the “ First Shantou Developer ”) which is an Independent Third Party.
In 2010, such real estate development project was transferred to another real estate developer
(the “ Second Shantou Developer ”) which is also an Independent Third Party. The Second
Shantou Developer then granted an investment company (the “ Investment Company ”), which
is an Independent Third Party, the right to engage in the sale of commercial housing on its
behalf. In March 2014, we entered into a property sale and purchase agreement with the
Investment Company to purchase the Shantou Complex. As at the Latest Practicable Date, we
have paid approximately 94.5% of the consideration for the Shantou Complex. According to
confirmations issued by the Investment Company and the Second Shantou Developer, it was
agreed that we would only be required to pay the remaining portion of the consideration after
the real estate certificate for Shantou Complex has been obtained, and that they would not take
actions against us for breach of contract for the failure to fully pay the consideration before
occupying and using Shantou Complex.
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As advised by our PRC Legal Advisers, according to the Rules for the Implementation of
the Provisional Regulations on the Registration of Real Property (݄
), we would not be able to obtain a complete real estate certificate (ࣣuntil
the Second Shantou Developer had completed the first registration to obtain the real estate
certificates for both the land use right and building ownership (Ϟᛆ࿁Ꮠ
ࣣfor the whole real estate development project. The Second Shantou
Developer went through the necessary procedures and obtained a real estate certificate in
respect of the land use right (ࣣof the Shantou Complex.
However, the Second Shantou Developer had not yet completed the first registration to obtain
the real estate certificate in respect of building ownership (ࣣ)
for the whole real estate development project. We were therefore not able to complete the
relevant procedures to obtain a complete real estate certificate for the Shantou Complex. As
confirmed by our Directors, the Second Shantou Developer is in the process of obtaining the
complete real estate certificate for Shantou Complex, and such real estate certificate is
expected to be obtained by the end of 2023. We will seek to obtain the complete real estate
certificate for the Shantou Complex as soon as practicable when the Second Shantou Developer
has completed the first registration to obtain the real estate certificates for both the land use
right and building ownership for the whole real estate development project. Our PRC Legal
Advisers have advised that when the Second Shantou Developer has obtained the complete real
estate certificate, there is no material legal impediment that would prevent us from obtaining
the complete real estate certificate for Shantou Complex.
We have obtained written confirmations from the Investment Company and the Second
Shantou Developer that we are entitled to occupy the Shantou Complex despite the absence of
a complete real estate certificate. Our PRC Legal Advisers have confirmed that the
aforementioned written confirmations from them are legally binding.
Our PRC Legal Advisers have advised that (i) it is unlikely that we will be ordered to
vacate the Shantou Complex, and that our entitlement to occupy, use and further lease some
premises of the Shantou Complex is unlikely to be affected; and (ii) our use of the Shantou
Complex in the absence of the complete real estate certificate (ࣣcaused by the
above-mentioned reasons did not constitute a non-compliance on our part under the relevant
PRC laws and regulations.
Failure to register six tenancy agreements of the Shantou Complex
Event of non-compliance and reasons
During the Track Record Period and up to the Latest Practicable Date, we leased out
certain premises of the Shantou Complex and were unable to register the six tenancy
agreements of the corresponding units of the Shantou Complex that we leased out as we did
not have the relevant real estate certificate for Shantou Complex as required.
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Legal consequences
Pursuant to the Commercial Building Leasing Administrative Measures* (ॡ༣
جparties to tenancy agreements (i.e. landlords and tenants) shall jointly file the
tenancy agreements with the relevant government authorities for registration within 30 days
after the execution of the tenancy agreements, and provide the relevant real estate certificates
(ࣣand identity proof/business licences of the landlords and tenants. If the
administrative measures are violated, according to the Urban Real Estate Administration Law
of the PRC (), the Commercial Building Leasing
Administrative Measures () and other relevant laws and
regulations, the relevant local governments may require the rectification of the non-registration
within a certain period of time. If rectification is not made within the specified time, individual
owners or tenants may be subject to a fine up to RMB1,000 and corporate owners or tenants
may be subject to a fine up to RMB10,000 for each unregistered lease or tenancy agreement.
As advised by our PRC Legal Advisers, the maximum potential penalty we may face in relation
to these six unregistered tenancy agreements is RMB60,000 in aggregate.
As at the Latest Practicable Date, we had not received any such request to rectify the
non-registration of such tenancy agreements from the relevant government authorities.
Remedial measures and enhanced internal control measures
We have adopted internal control policies requiring our Group to (i) assign a designated
person to complete the registration and filing of the lease agreements with the relevant
government authorities upon signing; (ii) record such registration and filing of the lease
agreements; (iii) follow up on the status of registering and filing outstanding lease agreements
and/or documents; and (iv) assign another designated person to conduct regular checks on
whether all newly entered lease agreements have been duly registered with the relevant
authorities or the required real estate certificates have been in process of being obtained for
completing the registration. Our internal control consultant has reviewed the corresponding
enhanced internal control policies which our Group has adopted, and did not have any further
recommendation after such review.
Based on the above, our Directors and the Sole Sponsor are of the view that the enhanced
internal control measures adopted by our Group are adequate, effective and sufficient in
preventing recurrence of similar future non-compliance.
Impact on our Group
As advised by our PRC Legal Advisers, under the Civil Code of the PRC ( ʕശɛ͏΍
Պ), the non-registration of the tenancy agreements does not affect the validity and
enforceability of the tenancy agreements. Also, our PRC Legal Advisers have confirmed that
no administrative penalty has been imposed by the relevant government authorities on our
Group for our non-registration of the tenancy agreements for the Track Record Period. Our
Group has undertaken that if our Group is requested by the relevant government authorities to
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rectify the non-registration, we will register the tenancies concerned accordingly. Based on the
above, our PRC Legal Advisers have advised that the risk of our Group being penalised for
such non-compliance under the relevant PRC laws is remote.
Our Directors have confirmed that based on the advice of our PRC Legal Advisers
aforementioned, the maximum amount of potential penalties of RMB60,000, should it be
levied, would merely account for a minimal portion of our total revenue.
Furthermore, pursuant to the Deed of Indemnity, our Controlling Shareholders will
indemnify our Group against any claims, fines and other liabilities from such non-registration
of the tenancy agreements. Our Directors are of the view that, based on the advice from our
PRC Legal Advisers, such non-compliance does not and will not have any material impact on
the operations or financial conditions of our Group.
(b) Jinsha Buildings
In July 2014, we entered into a series of property sale and purchase agreement and
supplemental agreements with a real estate developer (“ Jinsha Buildings Seller ”), an
Independent Third Party, for the purchase of the Jinsha Buildings. As at the Latest Practicable
Date, we have fully paid the consideration for the Jinsha Buildings. However, as at the Latest
Practicable Date, no real estate certificates in respect of land use right and building ownership
(ࣣhad been obtained for the Jinsha Buildings. At
the time of our purchase of the Jinsha Buildings, the Jinsha Buildings Seller owned multiple
buildings for the entire development and the Jinsha Buildings only made up one part of the
entire development. As advised by our PRC Legal Advisers, we can only obtain a complete real
certificate for Jinsha Buildings when the Jinsha Buildings Seller completes the first registration
and obtains the real estate certificates for both the land use rights and building ownership ( ɺ
ࣣfor the whole real estate development. It would
have been unduly cumbersome to obtain a real estate certificate separately for the Jinsha
Buildings pending completion of the entire development, and we agreed with the Jinsha
Buildings Seller to defer the process until the entire development is completed. According to
a confirmation dated 30 March 2022 issued by the Jinsha Buildings Seller, it is in the process
of obtaining the complete real estate certificate for the Jinsha Buildings. To the best knowledge
of our Directors, the complete real estate certificate is expected to be obtained by the end of
2023. We will seek to obtain such real estate certificate for the Jinsha Buildings as soon as it
is practicable when the Jinsha Buildings Seller completes first registration and obtains the real
estate certificates for both the land use right and building ownership (Ϟ
ࣣfor the whole real estate development. Our PRC Legal Advisers have
advised that (i) when the Jinsha Buildings Sellers have obtained the complete real estate
certificate of the entire development, there is no material legal impediment that would prevent
us from obtaining the complete real estate certificate; (ii) it is unlikely that we will be ordered
to vacate the Jinsha Buildings, and that our entitlement to occupy and use the Jinsha Buildings
is unlikely to be affected; and (iii) our use of the Jinsha Buildings in the absence of the
complete real estate certificate caused by the above-mentioned reasons did not constitute a
material non-compliance on our part under the relevant PRC laws and regulations.
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During the Track Record Period, relevant construction acceptance checks and fire
inspection checks in relation to the Jinsha Buildings were not completed. As advised by our
PRC Legal Advisers, since we were neither the land owner nor the owner of the construction
project, we were therefore not the party responsible for the construction of the Jinsha
Buildings, and were not permitted under relevant PRC laws and regulations to complete the
relevant construction acceptance checks or fire inspection checks. On 29 July 2021, we
obtained a written confirmation from the Shuozhou City Shuocheng District Housing and
Urban-Rural Development Bureau* (ண҅), confirming, among
other things, that our occupation and use of the Jinsha Buildings without a complete real estate
certificate was not a non-compliance on our part. Our PRC Legal Advisers have confirmed that
the Shuozhou City Shuocheng District Housing and Urban-Rural Development Bureau is the
relevant competent authority to provide the aforementioned confirmation. Hence, as advised by
our PRC Legal Advisers, our use of the Jinsha Buildings without completing the relevant
construction acceptance checks or fire inspection checks did not constitute a non-compliance
on our part under the relevant PRC laws and regulations. As advised by our PRC Legal
Advisers, as we are not the party responsible for the construction of the Jinsha Buildings, the
risk of our Group being ordered to cease to occupy or use this property or penalised is remote.
During the Track Record Period, our Group had not been penalised in respect of the
third-parties’ failure to complete such checks. We have adopted internal control measures to
ensure that relevant construction acceptance checks and fire inspection checks are completed
in preventing recurrence of similar incidents. We will seek to ensure that the relevant party
responsible for construction to provide confirmation to us that the relevant checks have been
completed. If such checks are not completed, we will seek to urge prompt rectification works
to be done by the relevant constructing party. Our construction department conducts regular
checks on fire safety equipment and reviews on emergency evacuation plan for the premises
and buildings occupied by us. We also have regular inspections to ensure these properties are
equipped with proper fire safety facilities, equipment and safety signs, and all of which are in
good conditions. When required, we will engage an external legal counsel to verify and provide
legal opinions as to the legal status and safety standards of the properties and/or construction
works.
(c) Science and Technology Innovation City Land Plot
On 21 June 2021, we won a bid for the land use right of Science and Technology
Innovation City Land Plot during a State-owned construction land use right quotation and
assignment event held by the Shanxi Transformation and Comprehensive Reform
Demonstration Zone Land Administration Bureau* (ͪᇍਜɺή၍ଣ҅)
(“Shanxi Demonstration Zone Land Administration ”). On 1 July 2021, we entered into a
State-owned construction land use right transfer agreement with the Shanxi Demonstration
Zone Land Administration, pursuant to which the land use right of Science and Technology
Innovation City Land Plot would be transferred to us for the purpose of public utility land use
and for a term of 50 years. The construction land use permit (ࣣࡘin respect of
the Science and Technology Innovation City Land Plot was granted to us by the Shanxi
Demonstration Zone Land Administration on the same date. We have fully paid the
consideration under the aforementioned construction land use right transfer agreement. Our
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PRC Legal Advisers have advised that we have legally acquired the land use right of the
Science and Technology Innovation City Land Plot through the bidding process, and the
relevant construction land use right transfer agreement was properly approved, legally binding,
valid and enforceable.
As at the Latest Practicable Date, we were still in the process of obtaining the relevant
real estate certificate (ࣣfor the Science and Technology Innovation City Land
Plot from the Shanxi Demonstration Zone Land Administration, and it is expected to be
obtained by the end of 2023. Our PRC Legal Advisers have advised that (i) there is no material
legal impediment for us to obtain the real estate certificate of the land; (ii) prior to obtaining
the relevant real estate certificate, we are entitled to use the land of the Science and Technology
Innovation City Land Plot in accordance with the aforementioned construction land use permit;
and (iii) we can use the Science and Technology Innovation City Land Plot according to the
construction land use permit before we obtain the relevant real estate certificate.
We have constructed a building which includes facilities for extraction of geothermal heat
as heat source for our Shanxi Demonstration Zone Project as well as heat-exchange related
equipment for it to operate as a heat exchange station on this parcel of land. However, we
commenced the relevant construction without obtaining the construction planning permit (ܔ
ண஝ྌ஢̙) and construction commencement permit (ʈ஢̙) and did not complete the
relevant construction acceptance checks for such heat exchange station prior to putting it into
use. As at the Latest Practicable Date, we were still in the process of obtaining the construction
planning permit and construction commencement permit for such heat exchange station. We
expect to conduct the construction acceptance checks and obtain the relevant construction
planning permit and construction commencement permit prior to obtaining the abovementioned
real estate certificate. For details of the requirements for obtaining the construction planning
permit and construction commencement permit, see “– Properties – Failure to obtain certain
construction permits and/or complete relevant construction acceptance checks for the
construction of certain properties” in this section.
Heat exchange stations for our heat service operation
As part of our heat service operation, we use heat exchange stations which have been
installed with heat exchange-related equipment necessary for the provision of our heat service
operation under the Concession Agreements.
As at the Latest Practicable Date, there were 465 heat exchange stations in use,
comprising 451 third-party owned heat exchange stations and 14 self-owned heat exchange
stations. The heat exchange stations used in our operations are spread across our operating
areas covering different areas/regions in Taiyuan City, Shuozhou City, Shanxi Transformation
and Comprehensive Reform Demonstration Zone, Lanzhou New Area and Hulunbuir City.
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Set out below is a table showing the number of third-party owned heat exchange stations
and self-owned heat exchange stations used in our operations as at the Latest Practicable Date.
Third-party
owned heat
exchange
stations
Self-owned
heat
exchange
stations
Located on third-party owned land 451 13
Located on our land – 1
For the 451 third-party owned heat exchange stations, they are all located on third-party
owned land. These heat exchange stations were typically constructed by the property
developers, construction companies or owners of the housing estates and buildings within our
Concession Areas at the time when these housing estates and buildings were first developed.
They are usually situated in the common areas of these housing estates or building areas. As
advised by our PRC Legal Advisers, since we are only a lessee using these third-party owned
heat exchange stations, (i) we are not required to obtain the underlying construction related
permits and title certificates which include the land use right certificates ( ɺήᗇ), property
ownership certificates (ପᗇ) or the real estate certificates ( ʔਗପᗇ) (which are certificates
for land use right and property ownership combined together pursuant to new PRC laws); and
(ii) it is not our obligation to rectify the title defects of these third-party owned heat exchange
stations.
For the 13 self-owned heat exchange stations located on third-party owned land:
(a) 12 of them are in Shuozhou City, located in old housing estates and building areas
which did not include centralised heat service facilities (such as heat exchange
stations) when they were first developed. Upon the Shuozhou government’s
promotion of centralised heat services, we constructed the heat exchange stations at
the assigned locations by the Shuozhou government for these old housing estates
and building areas to facilitate our provision of heat services; and
(b) one of them is our origin station (१) with a set of residual heat collection and
utilisation system located in Shentou Second Power Station. For details, see “– Heat
Sources – Residual heat collected at plants” in this section.
For the one self-owned heat exchange station located on our land, it is part of the building
constructed by us on our Science and Technology Innovation City Land Plot which also serves
as our geothermal heat source plant, unlike most other heat exchange stations which are
typically situated in the common areas of the housing estates or building areas of the heat
service end-users. Such building on the Science and Technology Innovation City Land Plot has
been installed with both heat exchange-related equipment, as well as facilities for extraction of
geothermal heat as heat source for our Shanxi Demonstration Zone Project. For details of this
property, see “– Properties – Other properties occupied by us – (c) Science and Technology
Innovation City Land Plot” in this section.
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Of the 464 heat exchange stations located on third-party owned land, we are a lessee who
installs and operates the equipment in the heat exchange stations pursuant to written
permissions obtained from, or pipeline connection agreements (which usually cover various
aspects of the preparation needed for our provision of heat service, including how the primary
distribution pipelines would be constructed and connected to the premises of customers,
pursuant to which our customers shall pay us an one-off pipeline connection fee, as well as our
rights to use various heat service facilities (including heat exchange stations) on the premises
to facilitate the provision of heat service) (“ Pipeline Connection Agreements ”), construction
contracts, heat service agreements or lease agreements we entered into with, the lessors,
granting us the right to use the heat exchange stations and/or the land, either with a fee or free
of charge. Among these heat exchange stations and/or the land on which they are located, 366
were being used by us for free, while the remaining 98 were leased by us from the lessors with
fees payable by us. Most heat exchange stations were used by us for free, since our use of the
heat exchange stations is a prerequisite for the provision of heat service to our heat service
end-users, and we were generally able to mutually agree with lessors for free use of them under
our heat service arrangement. However, in some cases, fees were payable by us for our use of
heat exchange stations and/or the land on which they are located. Such fees were not charged
solely in relation to our use of the heat exchange stations and/or the land on which they are
located. They were part of wider heat service arrangements with the lessors for our use of heat
service facilities (including but not limited to heat exchange stations and/or the land on which
they are located) for the provision of heat services. Those heat exchange stations for which fees
are payable by us involved arrangement by local government authorities. Over 70% of them
were leased from the previous State-owned heat service providers which either constructed or
used those heat exchange stations for their heat service operations before, and we were
instructed by local government authorities to lease those heat exchange stations upon taking
over their heat service operations. The other heat exchange stations for which fees are payable
by us were directly leased from local government authorities or entities controlled by them.
The amount of fees paid by our Group during the Track Record Period was approximately
RMB41.3 million, RMB17.9 million and RMB25.1 million for the years ended 31 December
2020, 2021 and 2022, respectively. Such fees are reflected in intangible assets in the financial
statements of our Group, see Note 17 to the Accountant’s Report as set out in Appendix I to
this prospectus.
The lessors of the heat exchange stations and/or the land are mostly governmental or
government-related bodies, public institutions, State-owned companies, property developers,
construction companies, property management companies and heat service end-users. We
obtained written permissions from or entered into the abovementioned agreements with these
lessors due to one or a combination of reasons, including but not limited to, (i) they are the land
owners; (ii) they are government authorities which are responsible for the city development of
the relevant areas which require our provision of heat services; (iii) in certain cases for our
Shuozhou Project, they are the previous heat service providers, and the heat exchange stations
we leased from them had been used by them to provide heat services in our Concession Area
before we were granted the relevant concession; (iv) they are the property developers,
construction companies or property management companies of the relevant housing estates or
buildings to which we provide heat services; or (v) they are the heat service end-users.
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As advised by our PRC Legal Advisers, as a lessee using the heat exchange stations
and/or land on which they are located, in order to use such heat exchange stations located on
third-party land, we should obtain written permissions or enter into the abovementioned
agreements with the owners who possess the relevant title certificates in order to obtain proper
authorisation for the continuous use of the heat exchange stations and/or the land. For around
40% of the 464 heat exchange stations located on third-party owned land that were in use as
at the Latest Practicable Date, we were unable to obtain written permissions or enter into such
agreements with the proper owners.
Reasons for the third-party title defects
We consider that the reasons for the third-party title defects are mainly because the parties
which requested us to provide heat services lacked complete and valid authority to grant us
lawful right to use the heat exchange stations and/or the land. Considering the nature and
background of the lessors, as well as the historical underlying circumstances under which we
were requested to use the heat exchange stations and/or land, we believe that the third-party
title defects were beyond our control and can only be rectified by relevant owners of such heat
exchange stations and/or land.
Due to cold weather in winter in the “Three North Region”, centralised heat service is
considered a basic necessity that affects people’s livelihood. Hence, as a part of the basic
ancillary facilities for centralised heat service, heat exchange stations were usually constructed
by the property developers, construction companies or owners of the buildings (whether these
are residential buildings such as housing estates and apartments, or non-residential buildings
such as office buildings, government institutions, schools, hospitals, airports and train stations)
at the time when these buildings were first developed.
To transmit heat from our heat distribution network to the buildings where centralised
heat services are needed, we need to install heat exchange equipment in heat exchange stations.
As such, heat exchange stations are considered a prerequisite for our provision of centralised
heat service. Hence, the heat exchange stations and/or land (where we constructed heat
exchange stations) we used were usually designated and provided by the owners and occupants
of the buildings where centralised heat service are needed. Therefore, substantially all of the
heat exchange stations used by us are third-party owned.
However, not all of the owners or occupants of the buildings were able to provide us the
relevant complete and valid title certificates of the heat exchange stations and/or land (where
we constructed heat exchange stations) which they designated or provided for our use. Some
of the heat exchange stations were already in existence and in use by previous heat service
providers before we took over and used them for our heat service operations, while some others
were constructed by third parties as part of the building development, yet we were requested
to use them even though relevant complete and valid title certificates were not provided to us.
Due to particular circumstances of specific projects, we were also requested to construct 13
heat exchange stations on third-party owned land even though no complete and valid title
certificates have been provided. However, since centralised heat services is considered a basic
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necessity that affects the people’s livelihood, we cannot refuse to use those heat exchange
stations and/or land (where we constructed heat exchange stations) solely because of the
owners or occupants’ inability to provide complete and valid title certificates of them.
Further, relevant government authorities have acknowledged the historical underlying
reasons for certain title defects, for example, certain lessors that did not provide complete title
documents were government authorities or public institutions which did not obtain relevant
title certificates when they first started using the relevant properties. In some other cases, the
heat exchange stations were used for provision of heat services to government or public
properties, and those stations were either leased to us for our heat service operation pursuant
to government orders, or located within the premises of which the construction was
commissioned by the local governments.
As confirmed by the relevant competent authorities in respect of our Concessions, without
their consent, we cannot cease the provision of our heat services solely because of the title
defects of the heat exchange stations used by us, which would otherwise result in a suspension
of heat service to our heat service customers. There are relevant PRC regulations and policies,
namely the Measures of City Yellow Line Management () and the
Standard for Urban Residential Area Planning and Design (ᅺ๟),
that provide certain protection to us by stipulating that heat exchange equipment including heat
exchange stations cannot (by law) be demolished or relocated without proper authorisation
from relevant government authorities.
Besides, the heat service end-users would not be able to engage other heat service
providers to operate these heat exchange stations as we were granted a concession to provide
heat services exclusively in that area under the relevant concession.
The title defects in relation to the heat exchange stations we used have been categorised
into the following types:
Type IA – third-party owned heat exchange stations located on third-party owned land
(without property ownership certificate)
There are a total of 271 “Type IA” heat exchange stations (representing approximately
58.3% of the total number of heat exchange stations). These third-party owned heat exchange
stations are located on third-party owned land.
We have either obtained written permissions from or entered into Pipeline Connection
Agreements, construction contracts, heat service agreements or lease agreements with the
lessors for the use of the heat exchange station and the land on which the heat exchange
stations were located. We have requested for title certificates from the lessors. 264 of these
lessors have provided us the land use right certificates (under the names of relevant lessors),
and five of these lessors have provided us the land use right certificates (under the names of
the land owners) as well as the authorisation from the relevant land owners authorising the
lessors’ use of the land.
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Type IB – third-party owned heat exchange stations located on third-party owned land
(without both land use right certificate and property ownership certificate)
There are a total of 180 “Type IB” heat exchange stations (representing approximately
38.7% of the total number of heat exchange stations). These third-party owned heat exchange
stations are located on third-party owned land.
We have either obtained written permissions from or entered into Pipeline Connection
Agreements, construction contracts, heat service agreements or lease agreements with the
lessors for the use of the heat exchange stations and the land on which the heat exchange
stations were located. Although we have requested for title certificates from the lessors, they
did not provide us the relevant land use right certificates or property ownership certificates. We
then further inquired with the lessors to understand their background and the grant of the right
of use of the heat exchange stations and the land on which the heat exchange stations were
located. In particular, we understood that some grants involved government authorities.
Set out below is a breakdown of the background of the lessors of these “Type IB” heat
exchange stations.
Lessors
Number
of stations
(1) Shuocheng Housing Bureau 53
(2) Hailar Bureau 8
(3) Previous State-owned heat service providers 70
(4) Others 49
Total 180
Our provision of heat services for certain areas were in response to the relevant
government authorities’ requests for promotion of city development. Therefore, we obtained
written permissions from, or entered into agreements with, local government authorities or
previous State-owned heat service providers for the use of heat exchange stations. Since our
use of these 131 heat exchange stations (with lessors under (1), (2) and (3) above) involved
arrangement by government authorities, and these lessors did not provide us with relevant title
certificates of both the land and heat exchange stations, we sought confirmations that the
lessors have the right to grant us the use of such land and heat exchange stations.
For 53 of these heat exchange stations, we have obtained a written confirmation from
Shuocheng Housing Bureau confirming that it or its subsidiaries has ownership of the heat
exchange stations and has the right to use the land, and that it or its subsidiaries has the right
to grant the use of these heat exchange stations to us.
For eight of these heat exchange stations, we have also obtained a Written confirmation
from Hailar Bureau confirming that these eight heat exchange stations invested and constructed
by it were entrusted to us for heat service operations.
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As advised by our PRC Legal Advisers, Shuocheng Housing Bureau and Hailar Bureau
are the relevant competent authorities supervising construction related matters of Shuocheng
District of Shuozhou City and Hailar District of Hulunbuir City, respectively.
70 of these heat exchange stations were leased to us with the coordination of local
government authorities in Shuozhou by three State-owned heat service providers, which were
our predecessor heat service providers in Shuozhou City before we were granted the
concession. They had been using these heat exchange stations to provide heat services,
therefore the local government authorities coordinated for those heat exchange stations to be
leased to us upon our taking over of the provision of heat services in the area.
We have also obtained a confirmation from Shuozhou City Natural Resources Bureau (ࣤ
ψ̹஝ྌձІ್༟๕҅)( “Shuozhou Planning and Natural Resources Bureau ”) confirming
that each of Shuocheng Housing Bureau and its subsidiaries as well as the three State-owned
heat service providers has the right to use the respective heat exchange stations and the land
as mentioned above. As advised by our PRC Legal Advisers, Shuozhou Planning and Natural
Resources Bureau is the relevant competent authority for real estate confirmation and
registration in Shuozhou City.
Lessors of the remaining 49 heat exchange stations are public institutions, property
developers, construction companies, property management companies or heat service end-
users. We had either entered into construction contracts or heat service agreements with the
lessors or obtained written permissions from the lessors as they required heat services to be
provided in the relevant real estates or buildings which they are responsible for the
construction or management, or they are the heat service end-users. For those with construction
contracts or heat service agreements, both the lessors and us were involved in the construction
of the heat exchange stations, with the lessors responsible for funding the construction, while
we participated in the design and construction management of the heat exchange stations since
we would be using the heat exchange stations for our operation during the course of the
provision of heat services. However, since our use of these remaining 49 heat exchange stations
did not involve any government authority, the relevant government authorities did not give
similar confirmations to those obtained in respect of those 53, eight and 70 heat exchange
stations.
Type IIA – self-owned heat exchange stations located on third-party owned land (without
property ownership certificate)
There are a total of three “Type IIA” heat exchange stations (representing approximately
0.6% of the total number of heat exchange stations). These self-owned heat exchange stations
are located on third-party owned land.
We have either obtained written permissions from or entered into lease agreements with
lessors for the right to use the land on which the heat exchange stations were located. We have
requested for title certificates from the lessors. These lessors have provided us the land use
right certificates (under the relevant lessor’s name).
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Type IIB – self-owned heat exchange stations located on third-party owned land (without
both land use right certificate and property ownership certificate)
There are a total of 10 “Type IIB” heat exchange stations (representing approximately
2.2% of the total number of heat exchange stations). These self-owned heat exchange stations
are located on third-party owned land.
We have either obtained written permissions from or entered into Pipeline Connection
Agreements or lease agreements with the lessors for the use of land on which the heat exchange
stations were located. Although we have requested for title certificates from the lessors, they
did not provide us relevant land use right certificates. We then further inquired with the lessors
to understand their background and the grant of the right of use of the land on which the heat
exchange stations were located. In particular, we understood that a grant involved a
government authority.
Set out below is a breakdown of the background of the lessors of these “Type IIB” heat
exchange stations.
Lessors
Number
of stations
(1) Shuocheng Housing Bureau 1
(2) Others 9
Total 10
The land in respect of one of the self-owned heat exchange stations was leased from
Shuocheng Housing Bureau, so as to comply with its request for our provision of heat services
to certain areas for promotion of city development. We obtained a written confirmation from
Shuocheng Housing Bureau confirming that it has the right to use the land on which the heat
exchange station is located and that it has the right to grant the use of such land to us. We have
also obtained a written confirmation from Shuozhou Planning and Natural Resources Bureau
confirming the same. As advised by our PRC Legal Advisers, Shuocheng Housing Bureau is
the relevant competent authority supervising construction related matters of Shuocheng
District of Shuozhou City, and Shuozhou Planning and Natural Resources Bureau is the
relevant competent authority for real estate confirmation and registration in Shuozhou City.
Lessors in respect of the remaining nine heat exchange stations included public
institutions, construction companies and heat service end-users. We have obtained written
permissions, or entered into Pipeline Connection Agreements or lease agreements with them as
they required heat services to be provided to the buildings they constructed or resided.
However, since our use of these remaining nine heat exchange stations did not involve any
arrangement by government authorities, the relevant government authorities did not give
similar confirmations to those obtained in respect of the other heat exchange station.
BUSINESS
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Type III – a self-owned heat exchange station located on our land (without real estate
certificate)
There is one “Type III” heat exchange station (representing approximately 0.2% of the
total number of heat exchange stations). This heat exchange station is owned by us and located
on our Science and Technology Innovation City Land Plot.
As at the Latest Practicable Date, the real estate certificate for this heat exchange station
had not been issued. As advised by our PRC Legal Advisers, as we had legally bid for the
relevant land and had fully settled the consideration for such land, there is no material legal
impediment for us to obtain the title certificate for such land. For details, see “– Properties –
Other properties occupied by us – (c) Science and Technology Innovation City Land Plot” in
this section.
BUSINESS
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--- page 359 ---
Set out below is a breakdown of the 465 heat exchange stations in use for our operations as at the Latest Practicable Date by project and by
type of the title defect and their revenue contribution of fee from customers for provision and distribution of heat for the year ended 31 December
2022:
Taiyuan Project
Shanxi Demonstration
Zone Project Shuozhou Project Lanzhou New Area Project Hulunbuir Project Total
Number
of heat
exchange
stations
Revenue
contribution
Percentage
of revenue
contribution
Number
of heat
exchange
stations
Revenue
contribution
Percentage
of revenue
contribution
Number
of heat
exchange
stations
Revenue
contribution
Percentage
of revenue
contribution
Number
of heat
exchange
stations
Revenue
contribution
Percentage
of revenue
contribution
Number
of heat
exchange
stations
Revenue
contribution
Percentage
of revenue
contribution
Number
of heat
exchange
stations
Revenue
contribution
Percentage
of revenue
contribution
(RMB’000) (%) (RMB’000) (%) (RMB’000) (%) (RMB’000) (%) (RMB’000) (%) (RMB’000) (%)
Third-party owned heat
exchange stations:
Type IA 34 89,315 65.8 10 10,812 62.6 54 51,265 17.5 103 179,697 97.9 70 185,321 85.7 271 516,410 61.1
Type IB
– Shuocheng Housing
Bureau – – – – – – 53 54,374 18.6 – – – – – – 53 54,374 6.4
– Hailar Bureau – – – – – – – – – – – – 8 2,627 1.2 8 2,627 0.3
– Previous state-owned heat
service providers – – – – – – 70 109,863 37.6 – – – – – – 70 109,863 13.0
– Others 13 46,454 34.2 1 891 5.2 17 13,199 4.5 6 3,849 2.1 12 28,209 13.1 49 92,602 11.0
Sub-total 47 135,769 100.0 11 11,703 67.8 194 228,701 78.2 109 183,546 100.0 90 216,157 100.0 451 775,876 91.8
Self-owned heat exchange
stations:
Type IIA – – – – – – 3 32,706 11.2 – – – – – – 3 32,706 3.8
Type IIB
– Shuocheng Housing
Bureau – – – – – – 1 2,367 0.8 – – – – – – 1 2,367 0.3
– Others – – – – – – 9 28,544 9.8 – – – – – – 9 28,544 3.4
Type III – – – 1 5,560 32.2 – – – – – – – – – 1 5,560 0.7
Sub-total – – – 1 5,560 32.2 13 63,617 21.8 – – – – – – 14 69,177 8.2
Total 47 135,769 100.0 12 17,263 100.0 207 292,318 100.0 109 183,546 100.0 90 216,157 100.0 465 845,053 100.0
BUSINESS
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--- page 360 ---
Set out below is a breakdown of the 465 heat exchange stations in use for our operations as at the Latest Practicable Date by project and by
type of the title defect and their revenue contribution of fee from customers for provision and distribution of heat for the year ended 31 December
2021:
Taiyuan Project
Shanxi Demonstration
Zone Project Shuozhou Project Lanzhou New Area Project Hulunbuir Project Total
Number
of heat
exchange
stations
Revenue
contribution
Percentage
of revenue
contribution
Number
of heat
exchange
stations
Revenue
contribution
Percentage
of revenue
contribution
Number
of heat
exchange
stations
Revenue
contribution
Percentage
of revenue
contribution
Number
of heat
exchange
stations
Revenue
contribution
Percentage
of revenue
contribution
Number
of heat
exchange
stations
Revenue
contribution
Percentage
of revenue
contribution
Number
of heat
exchange
stations
Revenue
contribution
Percentage
of revenue
contribution
(RMB’000) (%) (RMB’000) (%) (RMB’000) (%) (RMB’000) (%) (RMB’000) (%) (RMB’000) (%)
Third-party owned heat
exchange stations:
Type IA 34 72,995 59.6 10 6,021 60.7 54 44,904 16.2 103 143,647 97.8 70 170,812 84.8 271 438,379 57.8
Type IB
– Shuocheng Housing
Bureau – – – – – – 53 47,637 17.2 – – – – – – 53 47,637 6.3
– Hailar Bureau – – – – – – – – – – – – 8 2,571 1.3 8 2,571 0.3
– Previous state-owned heat
service providers – – – – – – 70 108,012 38.9 – – – – – – 70 108,012 14.2
– Others 13 49,549 40.4 1 848 8.6 17 13,315 4.8 6 3,266 2.2 12 28,104 13.9 49 95,082 12.6
Sub-total 47 122,544 100.0 11 6,869 69.3 194 213,868 77.0 109 146,913 100.0 90 201,487 100.0 451 691,681 91.2
Self-owned heat exchange
stations:
Type IIA – – – – – – 3 33,514 12.1 – – – – – – 3 33,514 4.4
Type IIB
– Shuocheng Housing
Bureau – – – – – – 1 2,318 0.8 – – – – – – 1 2,318 0.3
– Others – – – – – – 9 28,019 10.1 – – – – – – 9 28,019 3.7
Type III – – – 1 3,048 30.7 – – – – – – – – – 1 3,048 0.4
Sub-total – – – 1 3,048 30.7 13 63,851 23.0 – – – – – – 14 66,899 8.8
Total 47 122,544 100.0 12 9,917 100.0 207 277,719 100.0 109 146,913 100.0 90 201,487 100.0 465 758,580 100.0
BUSINESS
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--- page 361 ---
Set out below is a breakdown of the 465 heat exchange stations in use for our operations as at the Latest Practicable Date by project and by
type of the title defect and their revenue contribution of fee from customers for provision and distribution of heat for the year ended 31 December
2020:
Taiyuan Project
Shanxi Demonstration
Zone Project Shuozhou Project Lanzhou New Area Project Hulunbuir Project Total
Number
of heat
exchange
stations
Revenue
contribution
Percentage
of revenue
contribution
Number
of heat
exchange
stations
Revenue
contribution
Percentage
of revenue
contribution
Number
of heat
exchange
stations
Revenue
contribution
Percentage
of revenue
contribution
Number
of heat
exchange
stations
Revenue
contribution
Percentage
of revenue
contribution
Number
of heat
exchange
stations
Revenue
contribution
Percentage
of revenue
contribution
Number
of heat
exchange
stations
Revenue
contribution
Percentage
of revenue
contribution
(RMB’000) (%) (RMB’000) (%) (RMB’000) (%) (RMB’000) (%) (RMB’000) (%) (RMB’000) (%)
Third-party owned heat
exchange stations:
Type IA 34 58,872 55.4 10 4,608 62.5 54 40,444 15.1 103 120,954 97.3 70 155,809 83.5 271 380,687 55.0
Type IB
– Shuocheng Housing
Bureau – – – – – – 53 43,488 16.3 – – – – – – 53 43,488 6.3
– Hailar Bureau – – – – – – – – – – – – 8 2,458 1.3 8 2,458 0.4
– Previous state-owned heat
service providers – – – – – – 70 105,973 39.6 – – – – – – 70 105,973 15.3
– Others 13 47,306 44.6 1 834 11.3 17 13,600 5.1 6 3,293 2.7 12 28,283 15.2 49 93,316 13.5
Sub-total 47 106,178 100.0 11 5,442 73.8 194 203,505 76.1 109 124,247 100.0 90 186,550 100.0 451 625,922 90.5
Self-owned heat exchange
stations:
Type IIA – – – – – – 3 34,263 12.8 – – – – – – 3 34,263 5.0
Type IIB
– Shuocheng Housing
Bureau – – – – – – 1 2,152 0.8 – – – – – – 1 2,152 0.3
– Others – – – – – – 9 27,683 10.3 – – – – – – 9 27,683 4.0
Type III – – – 1 1,929 26.2 – – – – – – – – – 1 1,929 0.3
Sub-total – – – 1 1,929 26.2 13 64,098 23.9 – – – – – – 14 66,027 9.5
Total 47 106,178 100.0 12 7,371 100.0 207 267,603 100.0 109 124,247 100.0 90 186,550 100.0 465 691,949 100.0
BUSINESS
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View of our Directors
Despite there are title defects associated with the heat exchange stations and the land on
which the heat exchange stations are located, our PRC Legal Advisers are of the view that the
imperfect titles associated with these heat exchange stations and the land are unlikely to have
any material adverse effect on our daily operations, and would not affect the validity of our
Concession Agreements and the legality of our heat service operations in any material respect.
Our Directors, after considering the advice from our PRC Legal Advisers, are of the view that
the risks arising from the title defects, whether individually or collectively, did not have and
are unlikely to have a material adverse impact on our provision of heat services, financial
position and results of our operations. In particular:
(a) the risk of us being evicted from the heat exchange stations currently used by us, or
being requested to remove or relocate our equipment and machinery installed therein
leading to the disruption of our operation, is remote because:
(i) we have never been evicted nor are we aware of any steps taken to evict us
from any heat exchange stations used by us since we began the operation of our
first concession in 2012;
(ii) the removal or relocation of the heat exchange equipment from the heat
exchange stations would disrupt our provision of heat services to our heat
service customers, which in turn will affect the livelihood and work conditions
of our heat service customers in our Concession Areas. Moreover, as advised
by our PRC Legal Advisers, the Measures of City Yellow Line Management
() and the Standard for Urban Residential Area
Planning and Design (ᅺ๟) stipulate that heat
exchange equipment including heat exchange stations cannot (by law) be
demolished or relocated without proper authorisation from relevant
government authorities. It is not in the government’s interest to cause
disruption of our heat service operation which is considered as a basic
necessity for the people;
(iii) as advised by our PRC Legal Advisers, in light of the confirmations given by
relevant government authorities, as well as the Measures of City Yellow Line
Management () and the Standard for Urban Residential
Area Planning and Design (ᅺ๟), since we have an
obligation to ensure stable heat services to our heat service customers despite
the existence of the title defects of the heat exchange stations currently used by
us, the risk of us being penalised or requested to demolish or relocate the heat
exchange stations currently in use or requested to remove our equipment
installed therein is remote;
BUSINESS
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--- page 363 ---
(iv) as at the Latest Practicable Date, we were not aware of any authorisation given
by relevant government authorities ordering the demolition or relocation of any
heat exchange station for our heat service operation due to its title defect. Even
if we are indeed requested by the government to remove or relocate the heat
exchange equipment from the heat exchange stations currently used by us, we
believe that the government would assist us or give us sufficient time for
identifying a new heat exchange station for relocation;
(v) as the heat exchange stations are usually situated in the common areas of the
housing estates or building areas within our Concession Areas and are used to
provide heat services to these housing estates or buildings, the owners of these
housing estates and buildings rely on our expertise as a heat service provider
to operate the heat exchange stations for continuous provision of heat services
to their housing estates and buildings. It would not be in the interest of the land
owners or owners of the heat exchange stations to evict us from or request us
to cease to use those heat exchange stations to provide heat services to these
housing estates or buildings as they would not be able to engage other heat
service providers to operate those heat exchange stations given that we were
granted a concession to provide heat service exclusively in that area under the
relevant concession;
(vi) during the Track Record Period, our Group had not been requested by relevant
government authorities to rectify the title defects of any heat exchange station
we used and/or constructed;
(vii) to the best knowledge of our Directors, we have never been involved in any
dispute arising from any title defect of the heat exchange stations within our
Concession Areas which led to the removal of the equipment installed or
compensation claims;
(viii) as advised by our PRC Legal Advisers, the confirmations from relevant
competent government authorities that our continued use of the heat exchange
stations with title defects will not affect the validity of our concession
operations remain legally binding and valid; and
(ix) it is not uncommon for PRC heat service providers to have heat exchange
stations associated with certain title defects, as confirmed by the study carried
out by Frost & Sullivan; and
(b) in addition to the above, we believe that the title defects, whether individually or
collectively, are unlikely to result in any material adverse financial impact on us due
to the following reasons:
(i) to the best knowledge of our Directors, we have never been penalised, nor
threatened to be penalised by the relevant competent government authorities
for the abovementioned title defects;
BUSINESS
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--- page 364 ---
(ii) there is no direct connection between the revenue and profit attributable to the
relevant heat exchange stations and the property title issues relating to them on
an aggregate basis, mainly because: (a) the operation of the heat exchange
stations is independent from one another, and it is unlikely that a large scale
of demolition and relocation or a large number of disputes, legal proceedings
or material administrative penalties will arise from the property title issues
relating to such heat exchange stations at the same time; (b) no single heat
exchange station is considered material to our operations as a whole; (c) such
property title issues have never had any material adverse impact on our
operations and business development; and (d) we are the exclusive heat service
provider in our respective Concession Areas, hence our customers rely on us
for continued provision of heat services and will not be able to find an
alternative heat service provider if we were evicted from the heat exchange
stations because of their title issues;
(iii) we have either obtained written permissions from or entered into agreements
with the lessors for the use of the heat exchange stations and/or the land for all
of the 464 heat exchange stations located on third-party owned land. Our PRC
Legal Advisers have advised that such written permissions or agreements for
the use of those 464 heat exchange stations and/or the land are legally binding
and valid, notwithstanding that some of the abovementioned lessors may not be
the proper owners who have the authority to grant the right of such use;
(iv) as advised by our PRC Legal Advisers, in the unlikely event that we are evicted
from one of the heat exchange stations currently used by us, or are requested
to remove or relocate our equipment and machinery installed therein, the
operations of other heat exchange stations currently in use from which we have
not been evicted would not be affected;
(v) in the unlikely event that any legal action or claim is lodged by a third party
against us in relation to the title defects of the heat exchange stations, revenue
generated from our heat services will not be confiscated;
(vi) in the event that an owner or a third party with legitimate rights raises
objection to our occupation of the relevant heat exchange station, we may
consider to enter into an official lease or licence arrangement with that owner
or third party for our continued use, or seek an alternative site for our heat
exchange station;
(vii) even if we are requested to demolish the heat exchange station or relocate the
equipment and machinery and connecting pipelines installed to a new heat
exchange station, we believe we would receive advanced notices and the
relevant government authorities will assist us in finding alternative premises
for the new heat exchange station in a timely manner;
BUSINESS
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(viii) the cost of relocating our equipment, machineries and connecting pipelines
from an existing heat exchange station to a new heat exchange station is
relatively modest. Our equipment, machineries and connecting pipelines could
generally be dismantled, reassembled and reused at alternative sites. We
estimate such relocation cost to be in the range of approximately RMB17,000
to RMB200,000, which we do not believe to be material. We will endeavour to
carry out and complete any relocation of heat exchange stations outside heat
service period (i.e. during May and up to September of each year), such that
it would not result in any disruption to the provision of heat services;
(ix) as advised by our PRC Legal Advisers, in case we are evicted from a heat
exchange station by a third party, we are generally entitled to seek
compensation or damages against the lessors for the breach of their contractual
undertaking given under the aforementioned written permissions and
agreements; and
(x) we expect that it will not be practically difficult to find alternative locations for
relocation. In particular, Shuangliang Technology (one of our Controlling
Shareholders) has undertaken that, for so long as it remains as our Controlling
Shareholder, if we, for whatever reason, are unable to use any heat exchange
station for our normal heat service operation, it will find alternative locations
that are legally compliant and suitable for the relocation of the heat exchange
stations currently used by us, and it will indemnify us against all costs resulting
from such relocation, as well as all penalties or compensation that we may be
required to pay as a result of the title defects. Additionally, pursuant to the
Deed of Indemnity, the Controlling Shareholders have also undertaken to
indemnify our Company for any losses arising from the title defects.
Rectification of the title defects
If the lessors are the owners of the land and the heat exchange stations and they held the
relevant title certificates, then their title to those land and heat exchange stations could be
demonstrated by providing both the land use rights certificates and the property ownership
certificates or real estate certificates to us.
According to Article 14 of the Provisional Regulations on Real Estate Registration
(ʔਗପ೮াᅲБૢԷ), the first application for registration of real estate that has not been
registered can only be applied by the relevant owner.
Pursuant to paragraph 2 of article 2 of the Rules for the Implementation of the Provisional
Regulations on the Registration of Real Property (),
buildings and structures (such as houses) and fixtures (such as forest and trees) should be
registered together with the land use right certificate owners under the real estate registration
system in the PRC.
BUSINESS
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Article 61 of the Urban Real Estate Management Law () stipulates
that, where a property is built on real estate land acquired by means of transfer or allocation
pursuant to the law, the land use right certificate shall be presented for completion of
registration formalities with the real estate administration authorities of a People’s Government
of county level and above. The real estate administration authorities of the People’s
Government of county level and above shall issue a property ownership certificate upon
verification.
As advised by our PRC Legal Advisers, according to the above provisions, registration of
the heat exchange station needs to be carried out with the land use right certificate, and can
only be applied by the land use right owner. As such, if the land use right and the property
ownership belong to different parties, such property ownership cannot be registered, and
neither the land owner nor property owner could rectify such title defects unless either the land
use right or the property ownership could be transferred to the same party. In order to carry out
such transfer, we must be able to identify the land use right holder, the relevant land use right
certificate must have been issued to that holder, and the relevant land use right or property has
to be legally permitted to be independently transferred.
As advised by our PRC Legal Advisers, if the relevant title certificates have not been
obtained by the proper owners, only the land owner who is also the owner of the heat exchange
station located on such land can apply the relevant title certificates in order to rectify the title
defects, otherwise the title defects in relation to these heat exchange stations could not be
rectified due to separate land and building ownership (ήʱᕎ) under relevant PRC laws and
regulations.
The title defects in relation to the 451 third-party owned heat exchange stations located
on third-party owned land (i.e. 271 Type IA heat exchange stations and 180 Type IB heat
exchange stations) were not caused by us, and their coming into existence was beyond our
control.
 As we do not own or construct these 451 heat exchange stations, we are not required
to apply for the underlying construction related permits or title certificates which
include the land use right certificates ( ɺήᗇ), property ownership certificates (ג
ପᗇ) or real estate certificates ( ʔਗପᗇ).
 For the 271 “Type IA” heat exchange stations, the lessors have provided us the land
use rights certificates and the authorisation from the relevant land owners (if
applicable) but not the relevant property ownership certificates. Our PRC Legal
Advisers advised that such title defects can only be rectified by the owner of the land
who is also the owner of the heat exchange station located on such land due to
separated land and building ownership (ήʱᕎ) under relevant PRC laws and
regulations.
BUSINESS
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--- page 367 ---
 For the 180 “Type IB” heat exchange stations, the lessors did not provide us relevant
land use right certificates or property ownership certificates to prove that they are
the land owners or the heat exchange station owners. Our PRC Legal Advisers
advised that such title defects can only be rectified by the owners of both the land
and the heat exchange stations for the same reason above.
Our PRC Legal Advisers advised that (i) as we are not the owner of the land and the heat
exchange stations but only an occupant of these 451 heat exchange stations, we do not have the
authority or responsibility to apply for any title certificate; and (ii) there are no laws or
regulations requiring us, and we (as the occupant of the property) do not have a statutory
responsibility, to ask relevant owners to apply to real estate registration authorities for any title
certificate.
For the 13 self-owned heat exchange stations located on third-party owned land (i.e. Type
IIA and Type IIB), lessors in respect of three “Type IIA” heat exchange stations have provided
us the land use right certificates (under the relevant lessor’s name), while lessors in respect of
10 “Type IIB” heat exchange stations did not provide us with relevant land use right
certificates. As advised by our PRC Legal Advisers, we would not be able to apply for the
corresponding property ownership certificates and/or real estate certificates for such heat
exchange stations due to separated land and building ownership under relevant PRC laws and
regulations. Further, as advised by our PRC Legal Advisers, as we are not the owner of the land
where we constructed these 13 heat exchange stations, we would not be able to apply for the
construction planning permits and complete the corresponding construction acceptance checks
due to separated land and building ownership under the relevant PRC laws and regulations.
If any third party owner of the heat exchange station is not the land owner, such third
party owner of the heat exchange station cannot apply for the property ownership certificate,
but it may still evict us from or request us to cease to use the relevant heat exchange station.
In such event, most lessors (as the land owners or party authorised by the land owners)
confirmed that they would use their best endeavours to negotiate with such third party owners
of heat exchange stations for our continued use in order to provide heat services.
Legal consequences of the title defects
Our PRC Legal Advisers have advised that there are no laws and regulations providing
for any potential penalty that may be imposed on us in connection with our use of the
third-party owned 451 heat exchange stations with title defects. In respect of the 14 heat
exchange stations owned by us, see “– Properties − Failure to obtain certain construction
permits and/or complete relevant construction acceptance checks for the construction of certain
properties” in this section for the maximum penalty that may be imposed on us.
BUSINESS
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--- page 368 ---
Our PRC Legal Advisers have also advised that, under the relevant PRC laws and
regulations, the heat exchange stations with title defects may be requested to be demolished or
relocated or we may be requested to remove or relocate our equipment installed therein.
Further, we may be subject to claims (such as accounts for rents) lodged by third parties who
can prove that they are the actual owners of the heat exchange stations and/or the land. Our
PRC Legal Advisers have advised that, (i) if such third parties suffered damages resulting from
our use of the heat exchange stations and/or land without their consent, they have the right to
seek compensation from us, yet we are in turn entitled to seek compensation or damages from
the lessors for their breach of contractual obligations under the written permissions or
agreements we entered into with them; (ii) if we are prevented from using the heat exchange
stations by any rightful third party, we are also entitled to seek compensation or damages
against these lessors for their breach of contractual obligations under the abovementioned
written permissions or agreements; and (iii) regardless of whether the lessors which have given
us the written permission or entered into agreements with us are the land owners or the heat
exchange station owners, the written permissions or agreements remain legally binding and
valid as between the relevant lessors and us. We have never received any notice or had any such
claims or disputes lodged against us from any third parties claiming to be proper owners of the
land and/or heat exchange station. Also, as elaborated in “– Confirmations from relevant
government authorities” in this section below, relevant government authorities have confirmed
that no complaint or report had been received by them for our violation of relevant housing
management and construction planning laws in respect of the heat exchange stations, and that
they will assist us in finding alternative premises as heat exchange stations if we need to
relocate or become unable to properly occupy or use the existing heat exchange stations for our
heat services operations.
Our PRC Legal Advisers have also advised that the Measures of City Yellow Line
Management () and the Standard for Urban Residential Area Planning
and Design (ᅺ๟) stipulate that heat exchange equipment including
heat exchange stations cannot (by law) be demolished or relocated without proper authorisation
from relevant government authorities. During the Track Record Period and up to the Latest
Practicable Date, we had not been asked nor had we been ordered by relevant government
authorities or the owners of the heat exchange stations/land, nor were we aware of any
intention on their part to require us, to demolish or relocate any of the heat exchange stations
we use for our heat service operation due to their title defects.
Since centralised heat services is considered a basic necessity that affects the people’s
livelihood, and taking into consideration the circumstances set out above, we believe it is
unlikely that relevant government authorities or the owners of the heat exchange stations
and/or the land would order or require the demolition or relocation of the heat exchange
stations or our equipment installed therein without finding alternative sites for us.
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Confirmations from relevant government authorities
As most of the title defects were beyond our control and could only be rectified by
relevant owners of such heat exchange stations and/or land, we have sought clarification and
confirmation from relevant government authorities regarding, amongst other things, our use of
the heat exchange stations.
Written confirmations have been obtained from relevant competent authorities on the
following matters relating to our use of the heat exchange stations:
(a) the title defects of the heat exchange stations did not affect the validity of the
respective Concession Agreements, would not affect the legality of our heat service
operations, and would not cause an early termination of the respective Concession
Agreements. This was confirmed in respect of:
(i) our Hulunbuir Project by the Hulunbuir City Housing and Urban-Rural
Development Bureau (ண҅), which is the grantor of
our Hulunbuir Concession Agreement;
(ii) our Taiyuan Project by the Taiyuan City Bureau of Municipal Affairs
Administration (ඊ၍ଣ҅), which is the grantor of our Taiyuan
Concession Agreement;
(iii) our Shanxi Demonstration Zone Project by the Construction and Public
Utilities Department of the Management Committee of Shanxi Transformation
and Comprehensive Reform Demonstration Zone (ͪᇍਜ၍
ணၾʮ͜ԫุ၍ଣ௅), which is the relevant competent authority
responsible for overseeing and coordinating matters relating to heat services
within the Shanxi Transformation and Comprehensive Reform Demonstration
Zone and an internal department of the concession grantor as advised by our
PRC Legal Advisers;
(iv) our Shuozhou Project by Shuozhou City Bureau of Municipal Affairs
Administration (̹၍ଣ҅), which is the relevant competent authority
overseeing matters related to heat services in Shuozhou City, and this authority
and the concession grantor are both internal departments of Shuozhou
Municipal Government as advised by our PRC Legal Advisers; and
(v) our Lanzhou New Area Project by Lanzhou New District Urban and Rural
Construction and Transportation Bureau (ணձʹஷ၍ଣ҅),
the relevant competent authority overseeing matters related to heat services
and an internal department of the concession grantor for our Lanzhou New
Area Project as advised by our PRC Legal Advisers;
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(b) if due to changes in municipal planning or other factors, we need to relocate or
become unable to properly occupy or use the existing heat exchange stations for our
heat services operations, the respective authorities will assist us in finding
alternative premises as heat exchange stations, so as to ensure that the provision of
heat services to residents will not be affected. This was confirmed in respect of:
(i) our Hulunbuir Project by (1) the People’s Government of Hailar District of
Hulunbuir City (ִ݁which is the highest
competent authority in relation to matters in the concession areas of Hailar
District of Hulunbuir city including but not limited to constructions and public
utilities matters as advised by our PRC Legal Advisers, and (2) the Hulunbuir
City Housing and Urban-Rural Development Bureau (ඊ
ண҅), which is the grantor of our Hulunbuir Concession Agreement;
(ii) our Taiyuan Project and Shanxi Demonstration Zone Project by the
Construction and Public Utilities Department of the Management Committee
of Shanxi Transformation and Comprehensive Reform Demonstration Zone ( ʆ
ணၾʮ͜ԫุ၍ଣ௅), which is the
competent authority in construction matters in jurisdiction which concession
grantee is registered for its place of business and responsible for overseeing
and coordinating matters relating to constructions and other auxiliary
infrastructure as advised by our PRC Legal Advisers;
(iii) our Shuozhou Project by Shuozhou City Housing and Urban-Rural
Development Bureau (ண҅), which is the relevant
competent authority supervising and managing town planning and construction
related matters of Shuozhou City as advised by our PRC Legal Advisers; and
(iv) our Lanzhou New Area Project by Lanzhou New Area Zhongchuan Park
Management Committee (ึ), the relevant
competent authority which is a subordinate authority to the concession grantor
for our Lanzhou New Area Project as advised by our PRC Legal Advisers;
(c) the heat exchange stations that have been used and continue to be used by us have
complied with PRC laws, regulations, rules and other regulatory documents
regarding housing management and construction planning, and there was no
violation of housing management and construction planning related regulations.
This was confirmed in respect of:
(i) our Hulunbuir Project up to 27 February 2023 by Hulunbuir City Housing and
Urban-Rural Development Bureau (ண҅), which is
the grantor of our Hulunbuir Concession Agreement;
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(ii) our Taiyuan Project and Shanxi Demonstration Zone Project up to 12 April
2023 by the Construction and Public Utilities Department of the Management
Committee of Shanxi Transformation and Comprehensive Reform
Demonstration Zone (ணၾʮ͜ԫุ၍
ଣ௅), which is the competent authority in construction matters in jurisdiction
which concession grantee is registered for its place of business and responsible
for overseeing and coordinating matters relating to constructions and other
auxiliary infrastructure as advised by our PRC Legal Advisers;
(iii) our Shuozhou Project up to 27 February 2023 by Shuozhou City Housing and
Urban-Rural Development Bureau (ண҅), which is the
relevant competent authority supervising and managing town planning and
construction related matters of Shuozhou City as advised by our PRC Legal
Advisers; and
(iv) our Lanzhou New Area Project up to 11 April 2023 by Lanzhou New Area
Zhongchuan Park Urban (Township) Construction Management Bureau ( ᚆψ
̹(ඊ)ண၍ଣ҅) and Lanzhou New Area Xicha Park Urban
(Township) Construction Management Bureau (̹(ඊ)ܔ
ண၍ଣ҅), which are the relevant competent authorities for supervising and
managing town planning and construction related matters of Zhongchuan Park
and Xicha Park in Lanzhou New Area as advised by our PRC Legal Advisers;
(d) no complaint or report had been received by the respective authorities for violation
of relevant housing management and construction planning laws in respect of the
heat exchange stations, and the respective authorities did not have any dispute,
conflict or legal proceeding with us in relation to housing management and
construction planning in respect of the heat exchange stations. This was confirmed
in respect of:
(i) our Hulunbuir Project (1) up to 27 February 2023 by the Hulunbuir City
Housing and Urban-Rural Development Bureau (ண
҅), which is the grantor of our Hulunbuir Concession Agreement, and (2) up
to 14 July 2021 by the People’s Government of Hailar District of Hulunbuir
City (ִ݁which is the highest competent authority
in relation to matters in the concession areas of Hailar District of Hulunbuir
city including but not limited to constructions and public utilities matters as
advised by our PRC Legal Advisers;
(ii) our Taiyuan Project and Shanxi Demonstration Zone Project up to 12 April
2023 by the Construction and Public Utilities Department of the Management
Committee of Shanxi Transformation and Comprehensive Reform
Demonstration Zone (ணၾʮ͜ԫุ၍
ଣ௅), which is the competent authority in construction matters in jurisdiction
which concession grantee is registered for its place of business and responsible
for overseeing and coordinating matters relating to constructions and other
auxiliary infrastructure as advised by our PRC Legal Advisers;
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(iii) our Shuozhou Project up to 27 February 2023 by Shuozhou City Housing and
Urban-Rural Development Bureau (ண҅), which is the
relevant competent authority supervising and managing town planning and
construction related matters of Shuozhou City as advised by our PRC Legal
Advisers; and
(iv) our Lanzhou New Area Project up to 11 April 2023 by Lanzhou New Area
Zhongchuan Park Urban (Township) Construction Management Bureau ( ᚆψ
̹(ඊ)ண၍ଣ҅) and Lanzhou New Area Xicha Park Urban
(Township) Construction Management Bureau (̹(ඊ)ܔ
ண၍ଣ҅), which are the relevant competent authorities for supervising and
managing town planning and construction related matters of Zhongchuan Park
and Xicha Park in Lanzhou New Area as advised by our PRC Legal Advisers;
(e) without consent from the relevant authority, we cannot cease the provision of our
heat services solely because of title defects of the heat exchange stations used by us,
so as to avoid suspension of heat service. This was confirmed in respect of:
(i) our Hulunbuir Project by the Hulunbuir City Housing and Urban-Rural
Development Bureau (ண҅), which is the grantor of
our Hulunbuir Concession Agreement;
(ii) our Taiyuan Project by the Taiyuan City Bureau of Municipal Affairs
Administration (ඊ၍ଣ҅), which is the grantor of our Taiyuan
Concession Agreement;
(iii) our Shanxi Demonstration Zone Project by the Construction and Public
Utilities Department of the Management Committee of Shanxi Transformation
and Comprehensive Reform Demonstration Zone (ͪᇍਜ၍
ணၾʮ͜ԫุ၍ଣ௅), which is the relevant competent authority
responsible for overseeing and coordinating matters relating to heat services
within the Shanxi Transformation and Comprehensive Reform Demonstration
Zone and an internal department of the concession grantor as advised by our
PRC Legal Advisers;
(iv) our Shuozhou Project by Shuozhou City Bureau of Municipal Affairs
Administration (̹၍ଣ҅), which is the relevant competent authority
overseeing matters related to heat services in Shuozhou City, and this authority
and the grantor are both internal department of Shuozhou Municipal
Government as advised by our PRC Legal Advisers; and
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(v) our Lanzhou New Area Project by Lanzhou New Area Zhongchuan Park Urban
(Township) Construction Management Bureau (̹(ඊ)ܔ
ண၍ଣ҅) and Lanzhou New Area Xicha Park Urban (Township) Construction
Management Bureau (̹(ඊ)ண၍ଣ҅), the relevant
competent authorities which are subordinate authorities to the Concession
grantor for our Lanzhou New Area Project as advised by our PRC Legal
Advisers;
(f) there had not been disputes on property rights over heat exchange stations within the
jurisdiction the respective competent authorities which resulted in the need for
relocation of any heat exchange station or the need for compensation. This was
confirmed in respect of:
(i) our Hulunbuir Project up to 27 February 2023 by the Hulunbuir City Housing
and Urban-Rural Development Bureau (ண҅), which
is the grantor of our Hulunbuir Concession Agreement;
(ii) our Taiyuan Project up to 6 March 2023 by the Taiyuan City Bureau of
Municipal Affairs Administration (ඊ၍ଣ҅), which is the grantor of
our Taiyuan Concession Agreement;
(iii) our Shanxi Demonstration Zone Project up to 12 April 2023 by the
Construction and Public Utilities Department of the Management Committee
of Shanxi Transformation and Comprehensive Reform Demonstration Zone ( ʆ
ணၾʮ͜ԫุ၍ଣ௅), which is the
relevant competent authority responsible for overseeing and coordinating
matters relating to heat services within the Shanxi Transformation and
Comprehensive Reform Demonstration Zone and an internal department of the
concession grantor as advised by our PRC Legal Advisers;
(iv) our Shuozhou Project up to 27 February 2023 by Shuozhou City Bureau of
Municipal Affairs Administration (̹၍ଣ҅), which is the relevant
competent authority overseeing matters related to heat services in Shuozhou
City, and this authority and the grantor are both internal department of
Shuozhou Municipal Government as advised by our PRC Legal Advisers; and
(v) our Lanzhou New Area Project up to 11 April 2023 by Lanzhou New Area
Zhongchuan Park Urban (Township) Construction Management Bureau ( ᚆψ
̹(ඊ)ண၍ଣ҅) and Lanzhou New Area Xicha Park Urban
(Township) Construction Management Bureau (̹(ඊ)ܔ
ண၍ଣ҅), the relevant competent authorities which are subordinate
authorities to the Concession grantor for our Lanzhou New Area Project as
advised by our PRC Legal Advisers;
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(g) we were not involved in any material non-compliance relating to real property
within the jurisdiction of the respective authorities, and had not been penalised by
the respective authorities for any violations of real property related PRC laws or
regulations within its jurisdiction. This was confirmed in respect of:
(i) our Hulunbuir Project up to 13 April 2023 by the Hulunbuir City Housing and
Urban-Rural Development Bureau (ண҅), which is
the competent authority for supervising and managing town planning and
construction related matters in Hulunbuir City;
(ii) our Taiyuan Project and Shanxi Demonstration Zone Project up to 12 April
2023 by the Construction and Public Utilities Department of the Management
Committee of Shanxi Transformation and Comprehensive Reform
Demonstration Zone (ணၾʮ͜ԫุ၍
ଣ௅), which is the competent authority in construction matters and
coordinating matters relating to constructions within the Shanxi
Transformation and Comprehensive Reform Demonstration Zone as advised by
our PRC Legal Advisers;
(iii) our Shuozhou Project up to 17 January 2023 by Shuozhou City Shuocheng
District Housing and Urban-Rural Development Bureau (ձ
ண҅), which is the relevant competent authority responsible for
supervising and managing town planning and construction related matters
within Shuocheng District as advised by our PRC Legal Advisers; and
(iv) our Lanzhou New Area Project up to 17 January 2023 by Lanzhou New District
Urban and Rural Construction and Transportation Bureau (ண
ձʹஷ၍ଣ҅), which is the relevant competent authority responsible for
supervising urban and rural construction, housing security within Lanzhou
New Area as advised by our PRC Legal Advisers.
(h) we were not involved in any material non-compliance relating to construction within
the jurisdiction of the respective authorities, and had not been investigated or
penalised by the respective authorities for any violations of construction related
PRC laws or regulations within its jurisdiction. This was confirmed in respect of:
(i) our Shanxi Demonstration Zone Project up to 18 January 2023 by the
Construction and Public Utilities Department of the Management Committee
of Shanxi Transformation and Comprehensive Reform Demonstration Zone ( ʆ
ணၾʮ͜ԫุ၍ଣ௅), which is the
competent authority responsible for overseeing construction within the Shanxi
Transformation and Comprehensive Reform Demonstration Zone as advised by
our PRC Legal Advisers; and
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(ii) our Shuozhou Project up to 17 January 2023 by Shuozhou City Shuocheng
District Housing and Urban-Rural Development Bureau (ձ
ண҅), which is the relevant competent authority supervising
construction related matters of Shuocheng District as advised by our PRC
Legal Advisers.
Our PRC Legal Advisers have advised that the aforementioned authorities are the relevant
competent authorities to issue opinions with respect to the aforementioned issues concerning
the heat services we provide in their respective administrative regions.
Enhanced internal control measures
We have adopted the following enhanced internal control measures to address current and
future problems concerning title defects:
(1) we have amended our internal control manual, including Measures of Heat
Exchange Stations and Origin Stations ( ౬ᆠ१,), in order to
strengthen our execution and monitoring system in respect of the title defects and to
ensure that our Directors, supervisors and senior management are properly updated
on a regular basis;
(2) we have designated our operation department as the department responsible for
carrying out overall monitoring and management of the title defects. This includes
conducting regular and random checks and inspections on the status of the title
defects, following up with the progress of obtaining title certificates and proper
authorisations for those heat exchange stations with title defects, and preparing a
monthly report based on the progress status for the new heat exchange stations;
(3) we have compiled a register to record and document the details and status of heat
exchange stations with title defects. Designated staff will follow up with the status
of the heat exchange stations with title defects at specified times and will make
quarterly progress reports to the operation department;
(4) we will (i) have an internal control evaluation on the title defects of heat exchange
stations from time to time; (ii) evaluate the works of the designated staff in handling
such title defects; (iii) assess the overall status of title defects; and (iv) report to our
Directors, supervisors and senior management regarding the risks arising from title
defects and assess the risks in a timely manner based on the factors such as any
claims or eviction by third parties for unauthorised use shall there be any such
incidents arising in the future;
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(5) we will ensure that proper authorisations or confirmations in relation to the right to
use the land and/or heat exchange stations are obtained during construction of heat
exchange stations or installation of equipment in any existing heat exchange
stations, and will endeavour to obtain all relevant title certificates before putting
heat exchange stations into use. If title certificates are unable to be obtained, our
operation department should report to our management team prior to commencement
of heat service period. After the lessors grant us the right to use the heat exchange
stations, we will also obtain authorisation from our management team before putting
them into use for our operation;
(6) we will ensure that proper disclaimers and an indemnity provision will be included
in new written permission and agreements for use of heat exchange stations to be
obtained from the lessors before installing our equipment into any new heat
exchange stations, so as to ensure that the lessors will be responsible for any
damages and losses arising from their title defects;
(7) for lessors who were unable to provide relevant title certificates, we have sought
confirmation from the relevant regulatory authority to confirm that the relevant
government authorities will assist us in finding alternative premises as heat
exchange stations, so as to ensure that the provision of heat services to residents will
not be affected, and we will seek to obtain the same should we have to use any other
heat exchange stations with title defects in the future; and
(8) we will engage external legal advisers to provide legal training to our Directors and
senior management on a regular basis in order to keep pace with relevant laws and
regulations.
Our internal control consultant has reviewed the corresponding internal control policies,
and did not have any further recommendation after such review.
Based on the above, our Directors and the Sole Sponsor are of the view that the enhanced
internal control measures adopted by our Group are adequate and sufficient in preventing
recurrence of similar future incidents.
Failure to obtain certain construction permits and/or complete relevant construction
acceptance checks for the construction of certain properties
Event of non-compliance and reasons
During the Track Record Period, we failed to obtain certain construction permits and/or
complete relevant construction acceptance checks for (a) 14 heat exchange stations owned by
us for our Shanxi Demonstration Zone Project and Shuozhou Project, and (b) our peak shaving
station for our Lanzhou New Area Project.
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In respect of the 14 heat exchange stations (of which one was located on our land and 13
were located on third-party owned land) owned by us, we did not obtain the relevant
construction planning permits before commencement of construction and/or complete the
relevant construction acceptance checks before putting them into use.
 For that one heat exchange station (i.e. Type III) located on our land in Science and
Technology Innovation City Land Plot, we commenced the relevant construction
without obtaining the construction planning permit (ண஝ྌ஢̙) and construction
commencement permits (ʈ஢̙) prior to the construction and did not
complete relevant construction acceptance checks of such heat exchange station
prior to putting it into use, with a view to expediting the progress of construction to
ensure the provision of heat services for the winter heating season to new users in
the relevant areas due to urgent needs. As at the Latest Practicable Date, we were
in the process of obtaining the construction planning permit and construction
commencement permit, after which we expect to conduct the construction
acceptance checks and obtain the real estate certificate (ࣣIt is
expected that the real estate certificate will be obtained by the end of 2023.
 For those 13 heat exchange stations (i.e. Type IIA and Type IIB) which were located
on third-party owned land, since we were not the land owner, as advised by our PRC
Legal Advisers, we were not permitted under relevant PRC laws and regulations to
apply for the construction planning permits and complete the corresponding
construction acceptance checks due to separate land and building ownership (ή
ʱᕎ). As at the Latest Practicable Date, we could not obtain the relevant permits
before commencement of construction and/or complete the relevant construction
acceptance checks as we were not the owner of such land and could not provide the
land use rights certificate which is required to obtain such construction permits and
complete such construction acceptance checks.
In respect of our peak-shaving station, we did not complete the construction acceptance
checks before its commencement of operation. According to the construction plan of such
peak-shaving station, six peak-shaving boilers and the corresponding buildings to be
constructed. After completion of construction of three peak-shaving boilers and the
corresponding buildings, our peak-shaving station commenced operation in response to urgent
needs of residents under our Lanzhou New Area Project as it was winter at the material time.
As we had not yet completed the construction of all six peak-shaving boilers and all
corresponding buildings according to the construction plan, we could not complete the
requisite construction acceptance check of the constructed buildings where the three
constructed boilers are located at the time. We attended a meeting with the government prior
to our commencement of operation of the peak-shaving station, and understood that we are
required to ensure we have the ability to provide heat services for the upcoming heat service
period in order to satisfy the urgent needs of residents of Lanzhou New Area Project. We
therefore had to start operating our peak-shaving station despite not having completed the
relevant construction acceptance check. It was subsequently agreed with the relevant
authorities that the construction acceptance check of the constructed buildings where the three
BUSINESS
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constructed boilers are located will be carried out first according to the respective construction
schedule of each of the peak-shaving boilers and the corresponding buildings. As at the Latest
Practicable Date, we were in the process of conducting the construction acceptance check
covering the constructed buildings where the three constructed boilers are located. It is
expected that the construction acceptance check covering the constructed buildings where the
three constructed boilers are located shall be completed by the end of 2023.
During the Track Record Period and up to the Latest Practicable Date, there had not been
any material safety incidents directly attributable to the safety conditions of the 14 heat
exchange stations owned by us and the peak-shaving station during our time of operation.
Legal consequences
According to Urban and Rural Planning Law of the PRC (ඊ஝ྌ
), if a construction project proceeded without obtaining the construction planning permit
or violated relevant provisions under the construction planning permit (ணʈ೻஝ྌ஢̙ᗇ),
the relevant government authority may stop the construction. It may also request for
rectification or demolition of the building or structure within a certain time limit and impose
a fine of not more than 10% of the construction cost, and any revenue generated from the
building or structure may be confiscated.
According to the Measures for Construction Permission Management of Construction
Projects (), for any construction project without a construction
permit (ʈ஢̙ᗇ) being obtained, the relevant government authority may stop the
construction, request for rectification within a specified time limit, impose on the owner of the
construction project a fine of 1% to 2% of the contract value of the construction project, and
impose a fine of not more than RMB30,000 upon the contractor. Further, no construction
commencement permit is required for construction projects with an investment amount of less
than RMB300,000 or with a construction area of less than 300 sq.m.. As at the Latest
Practicable Date, there were five heat exchange stations owned by us did not require a
construction commencement permit, and for the remaining nine heat exchange stations owned
by us, we failed to obtain a construction commencement permit.
Pursuant to the Construction Law of the PRC (), and the
Regulations on the Quality Management of Construction Projects (ணʈ೻ሯඎ၍ଣૢ
Է), the relevant government authority may impose an administrative fine in the amount
between 2% to 4% of the construction cost contract value to owner of the construction project
for the failure to conduct a construction acceptance check ( ംʈ᜕ϗ) before use.
As confirmed by our Directors the maximum potential penalty that may be imposed on
our Group amounts to approximately RMB7.6 million, which represents the aggregate amount
of (i) 10% of the total construction cost in relation to the 14 heat exchange stations owned by
us; (ii) 2% of the total contract value of the project sum in relation to the nine heat exchange
stations which we failed to obtain construction permits; and (iii) 4% of the total contract value
of the project sum in relation to the 14 heat exchange stations owned by us.
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Remedial measures and enhanced internal control measures
We have adopted a set of internal control policies to ensure our construction projects are
in compliance with applicable statutory procedures and to prevent any recurrence of similar
future non-compliance:
(a) prior to the commencing construction works, we are required to obtain all the
requisite construction permits and approvals from the relevant competent
government authorities;
(b) prior to the commencement of operation of each newly constructed facility or
equipment, the relevant constructor shall prepare an acceptance report for review by
our supervising engineer, who will subsequently sign the acceptance report;
(c) if the supervising engineer considers the acceptance procedures are inadequate to
meet the acceptance conditions required, a notice will be issued to the relevant
contractor to rectify any deficiency identified;
(d) upon satisfaction of acceptance conditions as determined by our supervising
engineer, our supervising unit and project construction unit will further review
whether the relevant construction project has gone through all required procedures
before commencement of operation or use; and
(e) we are not allowed to commence operations or use any newly constructed facility or
equipment until we obtain the official notice of completion of construction
acceptance procedures.
Our internal control consultant has reviewed the corresponding enhanced internal control
policies which our Group has adopted, and did not have any further recommendation after such
review.
Based on the above, our Directors and the Sole Sponsor are of the view that the enhanced
internal control measures adopted by our Group are adequate, effective and sufficient in
preventing recurrence of similar future non-compliance.
Impact on our Group
We have obtained confirmations from the relevant competent government authorities that
no penalty will be imposed on us in respect of the above-mentioned non-compliance.
In respect of the heat exchange station constructed for our Shanxi Demonstration Zone
Project, we obtained a written confirmation from the Construction and Public Utilities
Department of the Management Committee of Shanxi Transformation and Comprehensive
Reform Demonstration Zone (ணၾʮ͜ԫุ၍ଣ௅),
confirming that, among others, (i) our failure to obtain the requisite construction permits and/or
complete construction completion acceptance check for heat exchange stations owned by us
does not constitute a material non-compliance; and (ii) it will not impose administrative
penalties on us for this reason.
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In respect of the heat exchange stations constructed for our Shuozhou Project, we
obtained a written confirmation from Shuozhou City Housing and Urban-Rural Development
Bureau (ண҅) confirming that, among others, (i) our failure to obtain the
requisite construction permits and/or complete relevant construction acceptance checks for
heat exchange stations owned by us does not constitute a material non-compliance; and (ii) it
will not impose administrative penalties on us for this reason.
In respect of the peak-shaving station, we obtained a written confirmation from Lanzhou
New Area Zhongchuan Area Urban (Rural) Development Management Bureau ( ᚆψอਜʕʇ
̹(ඊ)ண၍ଣ҅) confirming that (i) given the peak-shaving station is mainly used for
heat services operation which is public utility relating to people’s livelihood, in order to ensure
the normal provision of heat service, we can continue to use such peak-shaving station; (ii) our
use of the peak-shaving station does not constitute a material non-compliance; and (iii) no
penalty has been or will be imposed on us in this regard.
As we have received confirmations from the relevant competent government authorities,
our PRC Legal Advisers are of the view that the risk of us being requested to cease the use of
such heat exchange stations and peak-shaving station and/or being penalised as a result of such
non-compliance is remote, and that such non-compliance would not have a material impact on
the business operation of our Group.
Based on the above-mentioned confirmations received from relevant competent
government authorities and the advice from our PRC Legal Advisers, our Directors confirm
that such non-compliances do not and will not have any material impact on the operations or
financial position of our Group.
Other facilities owned by us
In addition to the owned properties, leased properties and equipment installed in heat
exchange stations set out above, we also own heat service facilities for our operation. Almost
all of our facilities are located in Shanxi Province, Gansu Province and Inner Mongolia
Autonomous Region, and mainly comprise primary distribution pipelines and facilities and
devices we installed in the heat exchange stations used by us. See “Heat distribution – Our heat
service facilities” in this section for details.
BUSINESS
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REGULATORY COMPLIANCE
Save as disclosed in this section, our Directors are of the view that we had complied with
all relevant laws and regulation in all material respects during the Track Record Period and up
to the Latest Practicable Date.
Licences, permits and certificates
We are subject to laws, regulations and supervision by different levels of regulatory
authorities and are required to maintain various licences, permits and certificates in order to
operate our business. A summary of such relevant PRC laws and regulations to which our
business operations are subject is set out in “Regulatory overview” in this prospectus. Our PRC
Legal Advisers have confirmed that we had obtained necessary licences, permits and
certificates for our current business operations in all material aspects in the PRC and such
licences, permits and certificates are valid and remain in effect as at the Latest Practicable
Date. The following table sets out the details of our licences, permits and certificates which are
material to our operations:
No.
Licence, permit and
certificate name Serial number Awarding body Recipient Date of award Validity
1 Pollutant discharge permit
(રϮ஢̙ᗇ)
91620100073586604Y001P Lanzhou New Area Ecology
and Environment Bureau
(ᚆψอਜ͛࿒ᐑྤ҅)
Lanzhou
Shuangliang
13 September
2021
12 September
2026
2 Work safety licence
(τΌ͛ପ஢̙ᗇ)
(Jin)JZ An Xu Zheng Zi
[2020]010334-3/1 (ࣜJZτ
஢ᗇο[2020]010334-3/1
Taiyuan Municipal
Administrative Approval
Services Management Bureau
(ਕ၍ଣ҅)
Taiyuan
Renewable
Energy
12 November
2020
11 November
2023
(Note)
3 Work safety licence
(τΌ͛ପ஢̙ᗇ)
(Jin)JZ An Xu Zheng Zi
[2017]TY0272-2/2
(ࣜJZτ஢ᗇο
[2017]TY0272-2/2
Taiyuan Municipal Commission
of Housing and Urban-Rural
Development
(ࡰ
ึ)
Shanxi
Shuangliang
Renewable
Energy
27 December
2017
7 December
2023
(Note)
4 Work safety licence
(τΌ͛ପ஢̙ᗇ)
(Jin)JZ An Xu Zheng Zi
[2020]060028 (ࣜJZτ஢ᗇ
ο[2020]060028
Shuozhou Municipal
Administrative Approval
Services Management Bureau
(ਕ၍ଣ҅)
Shuozhou
Renewable
Energy
29 October 2020 28 October
2023
(Note)
5 Construction industry
enterprise qualification
(ࣣ)
D314006270 Taiyuan Municipal Commission
of Housing and Urban-Rural
Development
(۬
ึ)
Shanxi
Shuangliang
Renewable
Energy
14 June 2017 31 December
2023
(Note)
6 Construction industry
enterprise qualification
(ࣣ)
D314006536 Taiyuan Municipal of Housing
and Urban-Rural
Development Bureau
(ண҅ )
Taiyuan
Renewable
Energy
10 December
2019
31 December
2023
(Note)
BUSINESS
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--- page 382 ---
No.
Licence, permit and
certificate name Serial number Awarding body Recipient Date of award Validity
7 Construction industry
enterprise qualification
(ࣣ)
D314078474 Shuozhou Municipal
Administrative Approval
Services Management Bureau
(ਕ၍ଣ҅)
Shuozhou
Renewable
Energy
13 January 2020 13 January 2025
8 Engineering design
qualification certificate
(Municipal sector
(Heating engineering)
Grade 2) (༟ሯ
ࣣ(Бุ(ᆠɢʈ
೻)ਖ਼ุɔॴ))
A214012131 Shanxi Provincial Department
of Housing and Urban-Rural
Development
(۬
ணᝂ)
Shanxi
Shuangliang
New Energy
4 May 2017 31 December
2023
(Note)
9 High and New Technology
Enterprise Certificate
(ࣣ)
GR202114000653 Shanxi Provincial Department
of Science and Technology
(ኪҦஔᝂ); Shanxi
Provincial Department of
Finance (ᝂ);
Shanxi Provincial Office of
the State Taxation
Administration (೼ਕᐼ
೼ਕ҅)
Taiyuan
Renewable
Energy
7 December 2021 7 December 2024
10 High and New Technology
Enterprise Certificate
(ࣣ)
GR201914000016 Shanxi Provincial Department
of Science and Technology
(ኪҦஔᝂ); Shanxi
Provincial Department of
Finance (ᝂ);
Shanxi Provincial Office of
the State Taxation
Administration (೼ਕᐼ
೼ਕ҅)
Shanxi
Shuangliang
New Energy
12 December
2022
12 December
2025
11 High and New Technology
Enterprise Certificate
(ࣣ)
GR202014000500 Shanxi Provincial Department
of Science and Technology
(ኪҦஔᝂ); Shanxi
Provincial Department of
Finance (ᝂ);
Shanxi Provincial Office of
the State Taxation
Administration (೼ਕᐼ
೼ਕ҅)
Shanxi
Demonstration
Zone Heat
Supply
3 December 2020 3 December
2023
(Note)
BUSINESS
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--- page 383 ---
No.
Licence, permit and
certificate name Serial number Awarding body Recipient Date of award Validity
12 High and New Technology
Enterprise Certificate
(ࣣ)
GR2022622000035 Gansu Provincial Department
of Science and Technology,
Gansu Provincial Department
of Finance, Gansu Provincial
Taxation Bureau of the State
Taxation Administration
(޲
޲
೼ਕ҅)
Lanzhou
Shuangliang
18 October 2022 18 October 2025
13 Food operation licence
(຾ᐄ஢̙ᗇ)
JY31401710001753 Taiyuan Food and Drug
Administration Bureau (ࡡ
္ຖ၍ଣ҅)
Shanxi Smart Life 3 August 2022 2 August 2027
14 Heat service operation
licence ( Զᆠ຾ᐄ஢̙
ᗇ)
Hai Gong Ri Zi No.
2020003 ऎԶᆠοୋ
2020003 ໮
Hailar Region Housing and
Urban-Rural Development
Bureau (ඊ
ண҅)
Hulunbuir
Shuangliang
22 December
2020
21 December
2025
Note: We will apply for renewal of respective licences and permits prior to the expiration. Our PRC Legal Advisers
have advised that as at the Latest Practicable Date, there was no material legal impediment for us to renew any
licences or permits that will expire in 2023, as long as (i) we continue to comply with the relevant legal
requirements for the renewal; and (ii) we take all necessary steps and submit the relevant applications in
accordance with the requirements prescribed by the applicable PRC laws and regulations.
Non-compliance incidents
During the Track Record Period and up to the Latest Practicable Date, save for the
non-compliance incidents as disclosed in “– Properties – Other properties occupied by us – (a)
Shantou Complex – Failure to register six tenancy agreements of the Shantou Complex” and
“– Properties – Failure to obtain certain construction permits and/or complete relevant
construction acceptance checks for the construction of certain properties” in this section and
below under this paragraph, our Directors are not aware of any non-compliance incidents,
which taken as a whole, in the opinion of our Directors, are likely to have a material and
adverse effect on our business, financial condition or results of operations. During the same
periods, we also did not experience any other material non-compliance of the laws or
regulations, which taken as a whole, in the opinion of our Directors, reflects negatively on the
ability or tendency of our Company, our Directors or our senior management, to operate our
business in a compliant manner.
BUSINESS
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--- page 384 ---
Set forth below is a summary of our non-compliance incidents during the Track Record Period and up to the Latest Practicable Date, as well
as rectification actions and preventive measures that we have taken in respect of such incidents:
Event(s) of non-compliance and reasons Legal consequences
Remedial measures and
enhanced internal control measures Impact on our Group
(1) Social insurance and housing provident fund contributions
During the Track Record Period, some of our PRC subsidiaries
did not make full contributions to the social insurance and
housing provident funds for some of our employees as
required under PRC laws and regulations.
For the years ended 31 December 2020, 2021 and 2022, we
estimate the shortfall in the amount of contributions made by
the Company to its employees’ social insurance was
approximately RMB0.5 million, RMB1.3 million and RMB1.3
million, respectively, and the shortfall in the amount of
unpaid housing provident fund was approximately RMB1.1
million, RMB1.0 million and RMB0.6 million, respectively.
We failed to make full contributions to the social insurance and
housing provident funds for some of our employees as a
result of insufficient understanding and incorrect
interpretation by our human resources personnel in relation to
the applicable PRC laws and regulations relating to social
insurance and housing provident fund contributions.
The main reasons that contributions were not made for
certain employees are: (i) certain employees had passed their
statutory retirement ages were rehired after retirement and it
was thought that no social insurance contributions need to be
made for them under the relevant laws and regulations; (ii)
certain employees had already made contributions elsewhere
before joining our Group, and we were unable to make
contributions for them locally without their contributions.
According to relevant PRC laws and regulations, we are
required to make contributions to social insurance fund
(including pension fund, medical insurance, unemployment
insurance, work-related injury insurance, and maternity
insurance) and housing provident fund for the benefit of our
employees in the PRC.
According to relevant PRC laws and regulations in respect of
social insurance contributions, if we do not pay the full
amount of social insurance contributions as required, the
relevant government authorities may demand us to pay the
outstanding social insurance contributions by the deadline
stipulated by them, and we may be liable to a late payment
fee equal to 0.05% of the outstanding amount for each day of
delay. We may be liable to an additional fine from one to
three times of the outstanding contributions amount if we fail
to make such payments by the deadline stipulated by them.
In respect of the outstanding housing provident fund
contributions, we may be ordered to pay the outstanding
housing provident fund contributions within the time period
stipulated by relevant government authorities. If payment is
not made within such stipulated time period, relevant PRC
government authorities may apply to PRC courts for
compulsory enforcement.
As at the Latest Practicable Date, no administrative penalties
had been imposed by relevant regulatory authorities regarding
the outstanding social insurance and housing provident funds,
and we had not been ordered to settle any shortfall. The late
payment fees that we may be liable for amounted to
approximately RMB0.2 million, RMB0.3 million and
RMB40,000 for the years ended 31 December 2020, 2021 and
2022, respectively. Our Directors confirmed that if we are
ordered to make such payment by competent government
authorities, we will do so within the prescribed time period.
As advised by our PRC Legal Adviser, we do not expect to
incur fines for the outstanding amounts of social insurance
contributions if we make such payment within the prescribed
time period when we are ordered to do so by competent
government authorities. See “Risk factors – Risks relating to
our business and industry – We may be subject to penalties
for our failure to contribute to social insurance fund and
housing provident fund on behalf of some of our employees”
in this prospectus for more information.
We will strictly, in the future, follow the relevant PRC laws and
regulations in respect of social insurance and housing provident
fund contributions. Our human resources manager will be
responsible for our compliance with full contribution of social
insurance and housing provident fund.
From an internal control perspective, we have issued an
administrative notice, namely Management Measures of Social
Insurance and Housing Provident Fund* (ږ
), pursuant to which our legal department and human
resource department will regularly check the compliance status of
social insurance and housing provident fund contributions to prevent
any shortfall.
We have adopted internal control policies requiring our human
resource department to (i) provide, on a monthly basis, an updated
list of social insurance and housing provident fund contribution to
our management for review; and (ii) consult our PRC Legal
Advisers on the relevant laws and regulations on social insurance
and housing provident fund contributions from time to time.
Since 2022, we have been in the process of adjusting the
contribution base of social insurance and housing provident funds
for our employees with a view to fully comply with the relevant
PRC laws and regulations. The adjustment of the contribution base
is usually made during a designated time period each year and such
time period varies in different regions pursuant to the relevant PRC
laws and regulations. As at the Latest Practicable Date, we had
completed all adjustment of contribution base of housing provident
fund for all of our employees and we expect to make full
contribution of social insurance for all of our employees by the end
of 2022, depending on when the administrative window of each of
Shanxi Province, Gansu Province and Inner Mongolia Autonomous
Region opens for our application for the adjustment of the
contribution base.
Our internal control consultant has reviewed the corresponding
enhanced internal control policies which our Group has adopted,
and did not have any further recommendation after such review.
Based on the above, our Directors and the Sole Sponsor are of the
view that the enhanced internal control measures adopted by our
Group are adequate, effective and sufficient in preventing recurrence
of similar future non-compliance.
Our Directors have considered the following in assessing our
exposures arising from our failure to make full contribution to
social insurance and housing provident funds:
(i) during the Track Record Period and up to the Latest
Practicable Date, we had not received any notification from
relevant government authorities requiring us to pay any
shortfalls or penalties with respect to social insurance and
housing provident funds;
(ii) during the Track Record Period and up to the Latest
Practicable Date, we had not been subject to any
administrative penalties, material litigations and legal
proceedings, nor were we aware of any material employee
complaints or material labour disputes with our employees
with respect to social insurance and housing provident funds;
(iii) during the Track Record Period and as at the Latest Practicable
Date, no penalties had been imposed on us with respect to
social insurance and housing provident funds;
(iv) we had not received any complaint from our employees and
were not aware of any employee lodging any complaint to the
relevant authority or bureau, or other competent authorities or
initiating any arbitration or court proceedings against our
Group in relation to our failure to make social insurance or
housing provident fund contributions; and
(v) we will make full contributions or pay any shortfall within a
prescribed time period if demanded by the relevant government
authorities.
Based on the above, our PRC Legal Advisers consider that the risk of
our Group being penalised or ordered to make retrospective payments
or make up the shortfall to the social insurance or housing provident
fund contributions as a result of our failure to make the contributions
as mentioned above is remote. In light of the above, our Directors
believe that our failure to fully contribute to social insurance and
housing provident funds during the Track Record Period would not
have any material adverse effect on our financial performance or
results of operations.
Based on the above, there is no imminent need to make provisions for
social insurance and housing provident fund contributions on our
financial statements. Nonetheless, our Controlling Shareholders have
undertaken to fully indemnify our Group if we are ordered by the
relevant government authorities to pay the outstanding social
insurance and housing provident fund contributions and the aggregate
late payment fees and additional fine according to the relevant PRC
laws and regulations.
BUSINESS
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--- page 385 ---
Event(s) of non-compliance and reasons Legal consequences
Remedial measures and
enhanced internal control measures Impact on our Group
(2) Dispatched staff
During the Track Record Period, the percentage of dispatched
staff that worked at four of our subsidiaries exceeded the
threshold of 10% as required by the Interim Provisions on
Labour Dispatch () (the “ Interim
Provisions ”) (the “ Labour Dispatch Incident ”).
As at 31 December 2020, 2021 and 2022, the total number of
dispatched staff at four of our subsidiaries was 211, 193 and
10, which accounted for approximately 24.8%, 18.1% and
5.1% of the total number of our staff at those subsidiaries,
respectively.
These labour dispatch arrangements were temporary in nature
(e.g. heat supply period). And our dispatched staff were
mainly involved in supporting functions of our business
operation in respect of warehouse and logistics management,
cargo handling and transportation.
During the Track Record Period, due to inadequate legal
knowledge and inadvertent oversight of relevant legal
requirements of certain employees of our four subsidies, we
did not fully comply with the Interim Provision, and the
number of dispatched staff engaged by us exceeded 10% of
the total number of our employees.
Pursuant to the Interim Provisions which came into effect on 1
March 2014, an employer shall strictly control the number of
dispatched staff to make sure that it does not exceed 10% of
the total number of its staff.
According to the Interim Provisions and the Labour Contract
Law of the PRC* (), in the event of violation
of the Interim Provisions, the relevant labour authorities
would order the violating company to rectify such violation.
If violation was not rectified within a specified time limit,
relevant labour authorities may impose a maximum penalty of
RMB10,000 for each dispatched staff exceeding the limit. If
we fail to rectify such violation within the time limit required
by relevant labour authorities, the maximum potential penalty
that we may face for the Labour Dispatch Incident is
RMB2.52 million.
As at the Latest Practicable Date, all of our four subsidiaries
completed the rectification process and brought the dispatched staff
level below the limit by subcontracting certain services such as
logistics, warehouse management and cargo handling previously
provided by the dispatched staff to third-party service providers.
We expect that we will continue to use dispatched staff from time to
time in order to better allocate our resources to the provision of
heat services operations. We have implemented certain internal
control measures such as preparing a control list to monitor the
proportion of dispatched staff and such list will be submitted to
human resource department for review every three months. In
addition, our human resources department has published our own
Measures of Regulation of Dispatch Staff ()
as a guiding principle for each subsidiary to closely monitor the
percentage of its dispatched staff in order to comply with the
Interim Provisions at all times.
Our internal control consultant has reviewed the corresponding
enhanced internal control policies which our Group has adopted,
and did not have any further recommendation after such review.
Based on the above, our Directors and the Sole Sponsor consider that
we have taken adequate and effective measures to ensure the
percentage of dispatched staff working in our Group will remain
below the prescribed limit going forward.
During the Track Record Period and up to the Latest Practicable Date,
we had not received any notice of rectification from any relevant
labour authorities nor is there any pecuniary penalty imposed on us
in relation to any violation of the Interim Provisions.
We have fully completed the rectification process and have obtained
written confirmations from the relevant competent human resources
and social security authorities, (being Lanzhou New District
Zhongchuan Park Civil Affairs and Social Security Bureau ( ᚆψอ
ღ҅), Shuozhou City Human Resources
and Social Security Bureau (ღ҅),
Shuozhou Labor Security Supervision Comprehensive
Administrative Law Enforcement Team (ღ္࿀ၝΥБ
ඟ), Human Resources Department of the Management
Committee of Shanxi Transformation and Comprehensive Reform
Demonstration Zone (ึɛɢ༟๕
௅), and General Enforcement Bureau of the Management
Committee of Shanxi Transformation and Comprehensive Reform
Demonstration Zone (ج
҅)) which confirmed that (i) our Labour Dispatch Incident was not
a material non-compliance; (ii) there was no complaint lodged
against us; and (iii) we has not been and will not be subject to
administrative penalties due to the Labour Dispatch Incident.
Based on the above, our PRC Legal Advisers are of the view that (i)
the risk of us being subject to administrative penalties is remote;
and (ii) the above-mentioned subcontracting arrangements are
different from and do not constitute labour dispatch arrangements,
and are therefore not subject to the Interim Provisions.
Accordingly, our Directors are of the view that the Labour Dispatch
Incident will not have a material adverse impact on our business or
results of operations.
BUSINESS
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--- page 386 ---
Event(s) of non-compliance and reasons Legal consequences
Remedial measures and
enhanced internal control measures Impact on our Group
(3) Failure to obtain mining permit for extracting geothermal heat
During the Track Record Period and up to the Latest Practicable
Date, we failed to obtain mining permit for extracting
geothermal heat ( મᘤ஢̙ᗇ).
At the relevant time, we attempted to apply for a mining permit
in accordance with these PRC laws and regulations but were
unable to obtain one. At the relevant time and up to the
Latest Practicable Date, there has been no established practice
for Shanxi Province to issue such mining permit to heat
service providers operating there.
Under the Mineral Resources Law of the PRC ( ʕശɛ͏΍ձ
) and the Procedures for Administrative
Measures for Registration of the Mining of Mineral
Resources (), a mining permit
should be obtained for the mining and extraction of
geothermal heat. The Regulations on Authorising the Issuance
of Excavation Licences and Mining Permits (બᛆ཯೯
) provides that each province,
municipality and autonomous region has the right to adopt its
own laws and regulations in respect of the issuance of mining
permits in relation to the mining and extraction of geothermal
heat. In Shanxi Province, the Regulations of Administration
of Mineral Resources of Shanxi Province (ᘤପ༟๕
၍ଣૢԷ) provide that mining permits for mining and
extracting geothermal heat should be issued at provincial
level.
According to the Mineral Resources Law of the PRC ( ʕശɛ
), in the event of mining without the
relevant mining permit, the relevant government authority
may order the violating company to stop mining, confiscate
their products extracted from the mining activity concerned,
and impose a fine on them. According to the Detailed Rules
for the Implementation of the Mineral Resources Law of PRC
(ૢԷ  ) , a fine of no more than 50% of
the gains from the mining activity concerned may be imposed
on the violating Company for mining without the relevant
mining permit.
We conducted an interview with the Department of Natural Resources
of Shanxi Province* (І್༟๕ᝂ) (the “ Shanxi Natural
Resources Department ”) on 26 November 2021 and 27 February
2023 and it confirmed to us that no penalty has been or will be
imposed on us for our extraction of geothermal heat as heat source
for the Shanxi Demonstration Zone Project without a mining permit.
We also conducted an interview with the Management Committee of
Shanxi Transformation and Comprehensive Reform Demonstration
Zone* (ึ) on 16 April 2022,
which confirmed that our concession right will not be terminated
due to our failure to obtain a mining permit.
We have adopted internal control policies requiring our Group to, in
the future, (i) commence heat service operations only after all
necessary licences, permits or approvals have been obtained from
relevant authorities; (ii) designate staff to monitor our Group’s
compliance with relevant laws and regulations; and (iii) designate
staff to keep record of the licences, permits or approvals obtained to
ensure that we are able to renew our licences and permits with the
relevant government authorities in time. Our internal control
consultant has reviewed the corresponding enhanced internal control
policies which our Group has adopted, and did not have any further
recommendation after such review.
Based on the above, our Directors and the Sole Sponsor are of the
view that the enhanced internal control measures adopted by our
Group are adequate, effective and sufficient in preventing recurrence
of similar future non-compliance.
We conducted interviews with the Shanxi Natural Resources
Department, and consulted them in relation to our failure to obtain a
mining permit for the purpose of extracting geothermal heat. It was
confirmed to us that (i) the Shanxi Natural Resources Department
would consider a number of factors, including the location of the
mining areas, mineral reserves, particular fluidity of minerals and
all relevant local circumstances in respect of the extraction of
underground resources in Shanxi Province; and (ii) no mining
permits for the purpose of extracting geothermal heat had been
issued to heat service providers in Shanxi Province, as an
established provincial practice.
It was confirmed to us that (i) our failure to obtain (and thus the
lacking of) a mining permit for the purpose of extracting geothermal
heat was in line with the current practice of Shanxi Province and
did not constitute a material non-compliance of the relevant rules
and laws; (ii) no penalty had been or will be imposed on us for our
extraction of geothermal heat as heat source for the Shanxi
Demonstration Zone Project without a mining permit; and (iii)
revenue generated from the Shanxi Demonstration Zone Project will
not be confiscated as a result of us not having a mining permit. Our
PRC Legal Advisers have confirmed that Shanxi Natural Resources
Department is the relevant competent authority in charge of all
matters in respect of the regulation of natural resources and the
issuance of mining permits at provincial level and the officer
interviewed at the Shanxi Natural Resources Department in relation
to the mining and extraction of geothermal heat was competent to
provide those confirmations.
We also conducted interviews with the Management Committee of
Shanxi Transformation and Comprehensive Reform Demonstration
Zone* (ึ), which confirmed that
(i) our failure to obtain (and thus the lacking of) a mining permit
did not give rise to any violation of the Shanxi Demonstration Zone
Concession Agreement and our concession right will not be
terminated due to our failure to obtain a mining permit; and (ii) in
an unlikely event that we are ordered to cease to extract geothermal
heat, we are still entitled to use other heat sources to provide heat
services under the Concession Agreement. Our PRC Legal Advisers
have confirmed that the Management Committee of Shanxi
Transformation and Comprehensive Reform Demonstration Zone*
(ึ) (being the concession
grantor) is the relevant competent authority in charge of all matters
in respect of the concession and the officer interviewed was
competent to provide the relevant confirmations.
BUSINESS
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--- page 387 ---
Event(s) of non-compliance and reasons Legal consequences
Remedial measures and
enhanced internal control measures Impact on our Group
Based on the above, our PRC Legal Advisers are of the view that the
risks of any material impact on the operations of our Group, due to
our failure to obtain a mining permit for the purpose of extracting
geothermal heat, and the risk that a penalty will be imposed on us
for such non-compliance, are remote.
Our Directors are of the view that, based on the advice from our PRC
Legal Advisers and the confirmation from the relevant government
authority, such non-compliance does not and will not have any
material impact on the operations or financial conditions of our
Group.
BUSINESS
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--- page 388 ---
Suitability for Listing and Directors’ suitability
Each of our Directors has confirmed that the non-compliance incidents did not involve
any fraud or dishonesty and did not impugn his/her character, integrity or competence. Having
considered the relevant facts and circumstances, the financial condition and/or business
operations of our Group as a whole have not been and will not be materially and adversely
affected. Moreover, as confirmed by our Directors and our PRC Legal Advisers, our Group’s
non-compliance incidents were isolated events relating to a wide variety of laws and
regulations, and only came about under specific circumstances some of which were not caused
by us and beyond our control. We did not deliberately contravene the relevant laws, nor did we
intend to conduct any of our business operations in any non-law-abiding manner. As explained
above, some of the non-compliance incidents could not be rectified by us, including failure to
obtain certain construction permits and/or complete relevant construction acceptance check for
the construction of certain properties, failure to register lease and tenancy agreements, and
failure to obtain a mining permit for extracting geothermal heat. For non-compliance incident
relating to dispatched staff, our Group had completed the rectification process. For non-
compliance incidents relating to social insurance and housing provident fund contributions, our
Group has completed all adjustment of contribution base of housing provident fund for all of
our employees and made full contribution of social insurance for all of our employees as at the
Latest Practicable Date. In any event, our Group had obtained confirmations from relevant
competent government authorities acknowledging these non-compliance incidents would not
lead to a cessation of or material adverse impact on our business operations. Our PRC Legal
Advisers advised that none of the aforesaid non-compliances will have a material adverse
impact on our continued operation of our concessions and other business activities.
Having considered the nature and reasons for the historical non-compliance incidents
identified and disclosed in “– Properties – Other properties occupied by us – (a) Shantou
Complex – Failure to register six tenancy agreements of the Shantou Complex” and “–
Properties – Failure to obtain certain construction permits and/or complete relevant
construction acceptance checks for the construction of certain properties” in this section and
“– non-compliance incidents” above, the remedial actions taken and the enhanced internal
control measures adopted by us, our Directors are of the view that, and the Sole Sponsor
concurs that, (i) our enhanced internal control measures are adequate and effective to prevent
recurrence of future non-compliance incidents; and (ii) none of the past non-compliance
incident would affect the suitability of our Directors to act as directors of a listed issuer under
Rules 3.08 and 3.09 of the Listing Rules or our suitability for listing under Rule 8.04 of the
Listing Rules.
RISK MANAGEMENT AND INTERNAL CONTROL
We are primarily exposed to the following risks: (i) operational risks, such as access to
heat sources, prices of energy resources, weather, quality control and customer services; (ii)
regulatory risks, such as government policies on pricing, safety, environmental protection and
obtaining of required licences, permits and certificates; (iii) financial risks, such as interest rate
risk, credit risk and capital management; and (iv) environmental and social risks, such as
climate change, supply chain and human resources.
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Our Directors are responsible for formulating and overseeing the implementation of our
internal control measures and the effectiveness of our quality management system. To enhance
our internal controls as well as in connection with the Listing, our Group has engaged an
independent internal control consultant to perform a review over our internal controls over
financial reporting in July 2021 and January 2023, covering entity-level control, revenue and
receivables, heating engineering construction, heating equipment production and cost
management, purchase and payables, treasury, human resources and payroll, financial
reporting, tax, fixed assets, intangible assets, insurance, intellectual property, environmental
protection and information technology. The scope of internal control review work performed
and the long form report issued have been agreed between the Sole Sponsor, the internal
control consultant and our Group.
As a result of the internal control review conducted by our internal control consultant, we
have identified certain areas in our internal control system, policies and procedures that require
improvement. We have subsequently taken remedial actions in response to the findings and
recommendations by our internal control consultant.
The internal control consultant performed a follow-up review on our Group’s internal
control system in September 2021 and February 2023, with regard to the remedial actions taken
by our Group. The work performed and the follow-up review did not identify any material
internal control weakness, and our internal control consultant did not raise any further
recommendation. The aforementioned internal control review was conducted based on the
information provided by our Company and no assurance or opinion was expressed by the
internal control consultant. The following sets out the key measures adopted by our Group
under our risk management and internal control system:
 as our business continues to expand, we will refine and enhance our internal control
system in response to the evolving requirements of our expanded operations as
appropriate. We will continue to review our internal control system to ensure
compliance with applicable legal and regulatory requirements;
 See “Regulatory compliance – Non-compliance incidents” in this section for our
enhanced internal control measures that we have implemented to prevent recurrence
of similar non-compliance incidents. Our Directors and the Sole Sponsor are of the
view that the enhanced internal control measures are adequate, effective and
sufficient in preventing recurrence of similar future non-compliance;
 Mr. Ma Ke ( ৵д΋͛), one of our company secretaries, will act as the principal
channel of communication between members of our Group and our Company in
relation to legal, regulatory and financial reporting compliance matters of our Group
as well as the chief coordinators to oversee the internal control procedures in
general. Upon receipt of any queries or reports on legal, regulatory and financial
reporting compliance matters, he will look into the matter and, if considered
appropriate, seek advice, guidance and recommendation from professional advisers
and report to relevant members of our Group and/or our Board;
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 we have established a compliance department which is responsible for monitoring
legal and regulatory compliance and the control environment at the group level as
well as the subsidiary level. The compliance department comprises our legal and
company secretarial teams;
 our Directors believe that compliance creates value for us. We are dedicated to
cultivating a compliance culture among all of our employees. To ensure such
compliance culture is embedded into daily workflow and set the expectations for
individual behavior across our Group, we will conduct regular internal compliance
checks and inspections, adopt strict accountability internally and conduct
compliance training;
 we will comply with the Corporate Governance Code. We have established three
board committees, namely, the audit committee, the remuneration committee and the
nomination committee, with respective terms of reference in compliance with the
Corporate Governance Code. For details, see “Directors, supervisors and senior
management” in this prospectus;
 we have formulated an anti-bribery policy at the group level, which covers the
anti-bribery measures, channels for reporting suspected bribery, such as the hot-line
and mail box, and disciplinary actions against bribery within our Group;
 in September 2021, we published our ESG risk management and disclosure report
which regulates, among other things, our responsibility to the environment and
community, corporate governance, health and safety within our Group. Under this
report, we are required, among other things, to monitor and manage our emissions
and use of resources. See “– Environmental, social and governance” in this section
for further details regarding our ESG policy; and
 we have formulated a comprehensive internal control policy which covers various
major areas of our operations including approval process and authority, compliance,
risk management, capital investment management and contract management. For
example:
(i) in terms of contract management, we have developed a contract management
system at a group level which covers, among other things, the signing,
approval process, internal monitoring and dispute resolution of the contracts
entered into by our Group;
(ii) in terms of risk management, we have developed a risk management system at
a group level which stipulates, among other things, our risk management
framework, internal risk monitoring, risk management process and frequency
of compliance checks within our Group. Our Directors are in charge of matters
in relation to risk management;
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(iii) in terms of capital management, we have formulated a fixed assets
management system at a group level which regulates, among other things, the
addition, disposal and accounting treatment of fixed assets within our Group.
We have also developed management measures on internal capital flow at a
group level which sets out internal rules governing among other things, group
borrowings and capital flows.
Based on the above, our Directors are of the view that our Group has taken reasonable
steps to establish a proper internal control system to minimise risks of non-compliance and
prevent future recurrence of the non-compliance incidents disclosed in this section, at both
working and monitoring levels, and hence, our Directors are of the view that the internal
control measures adopted by our Group are adequate and effective in preventing recurrence of
future non-compliance by our Group with legal and regulatory requirements. The Sole Sponsor
concurs with the views of our Directors if the enhanced internal control measures can be
continuously implemented and regularly reviewed.
LITIGATION
From time to time, we may become subject to legal proceedings, investigations and
claims incidental to the conduct of our business. During the Track Record Period and up to the
Latest Practicable Date, some of the members of our Group were involved in legal proceedings.
As advised by our PRC Legal Advisers, these members of our Group were mainly involved in
the legal proceedings relating to the disputes in the ordinary course of our business, and none
of these litigations would have a material adverse effect on our assets and financial position.
THE IMPLICATIONS OF THE DRAFT MEASURES AND DRAFT RULES ON OUR
GROUP’S OPERATIONS AND FINANCIAL PERFORMANCE IF THEY WERE TO BE
PROMULGATED AND IMPLEMENTED IN THEIR CURRENT FORMS
Implications of the Draft Measures on our Group’s operations and financial performance
if they were to be promulgated and implemented in their current forms
On 10 April 2020, the NDRC published the Draft Measures for the Price and Fee Control
and the Draft Measures for the Supervision and Review of the Pricing Cost (collectively the
“Draft Measures ”) which were open for public consultation between 10 April 2020 and 9 May
2020. As at the Latest Practicable Date, the implementation and enactment of the Draft
Measures were pending, and there had been no further announcements from the NDRC as to
whether and when the Draft Measures will be amended, supplemented or revised, or adopted
and promulgated. For details of the Draft Measures, please see “Regulatory overview –
Pricing” in this prospectus.
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Our PRC Legal Advisers advised that:
(a) the Draft Measures are formulated based on the relevant existing laws and
regulations to provide more specified and more comprehensive provisions on the
management of urban centralised heating prices and heat pricing cost supervision
and review:
(i) according to the Interim Measures and the Draft Measures for the Price and Fee
Control, both of them were formulated in accordance with the PRC Pricing
Law and other relevant laws and regulations in order to regulate the
management of urban heating prices, protect the legitimate rights and interests
of heat service providers and users and promote the development of urban
heating, energy conservation and environmental protection. As such, the
general provisions of the Interim Measures and the Draft Measures for the
Price and Fee Control, such as the purpose of their enactment and their scope
of application, are substantially the same in significant respects;
(ii) according to the Draft Measures for the Supervision and Review of the Pricing
Cost, the measures were specifically drafted for the cost supervision and
review of heat rates within the frameworks of the Measures for the Supervision
and Review of the Government’s Pricing (),
aiming to improve the standardisation and reasonableness of pricing of heat, to
strengthen cost supervision and review of heat supply, and to regulate the
conduct of the cost supervision and review of pricing of heat;
(b) the Draft Measures, if implemented in their current form by NDRC, will become
national departmental regulations (஝௝), pursuant to the Legislation Law of the
People’s Republic of China (ججAs such, the Draft Measures,
if implemented in their current form, would therefore be enforced nation-wide by
relevant competent departments of the NDRC, which the pricing departments of the
provincial people’s governments or authorised municipal or county people’s
governments should follow such departmental regulations when formulating
respective local heat rates and subsidy policies, and conducting cost supervision and
review; and
(c) the Draft Measures laid out certain provisions such as the determination of heat
prices and supervision and review of costs in relation to the heat supply industry in
general for the relevant local government authorities to follow. Hence, the Draft
Measures, if implemented in their current form, the relevant local government
authorities would have authority to formulate respective local heat rates and subsidy
policies, and conduct cost assessments under the relevant laws and regulations, after
taking into account their actual circumstances locally, and therefore the matters
taken into consideration by relevant local government authorities might vary
between them.
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Based on the above, our Directors are of the view, and the Sole Sponsor concurs, that in
the event that the Draft Measures were promulgated in their current form, and the local pricing
authorities decide to make substantial downward adjustment on the heat rates in the regions
where our Group provides heat service and without providing sufficient price subsidies to
compensate for such loss, or deduct certain costs to be included in the calculation of the price
subsidies when conducting cost assessments which subsequently leads to a significant
reduction in the amount of price subsidies to be received by us, there would be a material
adverse effect on our business, financial condition and operating results.
As for the potential implication of the proposal to abolish the Interim Measures that
provided the basis for our Group to negotiate with the Shuozhou government for price
subsidies, given that the implementation of the Draft Measures for the Price and Fee Control
and the proposed abolishment of the Interim Measures shall take place simultaneously, and
having considered that Article 15 of the current form of the Draft Measures for the Price and
Fee Control provides that “the local people’s government may subsidise the heat enterprises in
the areas where heat rates are not sufficient to compensate for the normal relevant heat service
costs, and cannot be adjusted in a timely manner”, which as advised by our PRC Legal Advisers
is equivalent to Article 25 of the Interim Measures, our Directors are of the view, and the Sole
Sponsor concurs, that the Draft Measures for the Price and Fee Control, if implemented in the
current form, would continue to provide a basis for our Group to negotiate with the Shuozhou
government for price subsidies. Thus, in the case of a downward adjustment of heat rates, as
our Group can negotiate with the Shuozhou Government for price subsidies, our Directors are
of the view, and the Sole Sponsor concurs that the downward adjustment would not cause any
material adverse impact on our Group.
Implications of the Draft Rules on our Group’s operations and financial performance if
they were to be promulgated and implemented in their current forms
On 20 April 2022, the Shuozhou City Bureau of Municipal Affairs Administration (ψ
̹၍ଣ҅) issued the Draft Rules open for public consultation between 20 April and 20
May 2022, and on 6 September 2022, it reissued the Draft Rules open for public consultation
between 6 September and 16 September 2022. As at the Latest Practicable Date, the
implementation and enactment of the Draft Rules were pending, and there had been no further
announcement from the Shuozhou City Bureau of Municipal Affairs Administration as to
whether and when the Draft Rules will be amended, supplemented, revised adopted or
promulgated.
As advised by our PRC Legal Advisers, the Draft Rules clearly stipulate that the Draft
Rules were formulated for the purpose of strengthening heat supply management, improving
heat supply service, promoting the healthy development of centralised heat services business
and protecting and improving people’s livelihoods. According to the Announcement on the
Draft Rules for Public Comments Again (ψ̹ණʕԶᆠૢԷ(ࣩ)(ᅄӋจԈ
ᇃ)ʮѓ), the Draft Rules were formulated in accordance with national
and Shanxi provincial laws and regulations (such as the Civil Code of the PRC ( ʕശɛ͏
Պ) and the Property Management Regulations (ุ၍ଣૢԷ)), and taking
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into account the local actual circumstances of Shuozhou City. As advised by our PRC Legal
Advisers, the Draft Rules apply to entities within the Shuozhou City administrative area which
engage in the business of centralised heat services planning, construction, operations and heat
consumption activities, as well as the relevant management affairs of centralised heat services.
The main contents of the Draft Rules, which relate to the planning, construction, operation and
heat consumption activities and management of centralised heat services in Shuozhou City,
including but not limited to (i) the promotion of public-private partnership (PPP) in centralised
heat services, (ii) responsibilities for the construction and maintenance of primary distribution
pipeline network and construction of secondary distribution pipeline network, (iii) facility
safety requirements, (iv) heat service standards (heat service period and heat supply
temperature standards), (v) heat source guarantee obligations, (vi) main contents of heat supply
contracts, (vii) main rights and obligations of both heat service providers and heat service
users, (viii) service evaluation and performance management and (ix) legal responsibilities, are
relatively clear and specific.
According to the Draft Rules and the Group’s confirmation, our PRC Legal Advisers are
of the view that the Draft Rules do not contain any provisions that would have a material
adverse impact on the business environment of the heat service market in Shuozhou City and
our Group’s major rights and obligations under the relevant Concession Agreement, nor any
provision that would impose restrictions on the concession right already acquired by our
Group, and do not specifically modify the existing heat pricing model (which the heat rate still
determined by the local pricing authorities) or government subsidy procedures.
Our Directors are of the view that (i) the obligations of heat service provider stated in the
Draft Rules are within the scope of the Group’s capabilities and the Group is able to continue
fulfil such obligations; (ii) the Group expects to be able to continue to maintain high quality
heat services based on its historical performance and development as required in the Draft
Rules; and (iii) the Company is expected to meet the standards of the performance evaluation.
Our Directors are also of the view that in respect of our Shuozhou project, our Company has
already entered into a Concession Agreement with the government which clearly identifies the
rights and obligations of both parties, and to date, our Company has continued to provide heat
services in compliance with the terms of the Concession Agreement, including but not limited
to the sale of heat at the heat rate set by the Shuozhou government, while the Shuozhou
government has also continued to provide price subsidies to the Company in according to the
Concession Agreement.
As advised by our PRC Legal Advisers, if ultimately promulgated by the Shuozhou
Municipal People’s Government in its current form, the Draft Rules will be a local government
regulation at Shuozhou Municipal level and will be less authoritative than national and Shanxi
provincial laws and regulations. During the Track Record Period, we did not commit any
material breach of the existing national or Shanxi Provincial laws or regulations or the
Concession Agreement, nor was any penalty been imposed on us.
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Based on the above, as advised by our PRC Legal Advisers, implementation of the Draft
Rules in their current form is not expected to have any material adverse impact on the
operations of our Group. As such, our Directors are of the view, and the Sole Sponsor concurs,
that the implementation of the Draft Rules in their current form would have no material adverse
impact on the operations and financial performance of our Group.
EFFECTS OF THE COVID-19 OUTBREAK
Effects of the COVID-19 outbreak on our business operations
An outbreak of respiratory illness caused by a novel coronavirus (COVID-19) was first
reported in late 2019 and continues to spread across the PRC and globally. In March 2020, the
World Health Organisation characterised the outbreak of COVID-19 as a global pandemic. As
at the Latest Practicable Date, measures responding to COVID-19 relating to temporary travel
restrictions and shutdown of certain business operations had been lifted, leading to the gradual
resumption of normal commercial and industrial business operations.
During the year ended 31 December 2020, we received a government subsidy of
RMB4,335.7 for purchasing supplies such as masks for the prevention of COVID-19. During
the Track Record Period, we did not receive any other government subsidy and/or financial
assistance in relation to the outbreak of COVID-19.
In respect of our heat services
Our provision of heat services has not been interrupted since the COVID-19 outbreak as
the provision of heat services is a basic necessity in northern China. During the Track Record
Period and up to the Latest Practicable Date, our heat service customers included both
residential and non-residential heat service customers. For example, northern China
experienced the shutdown of certain industrial and commercial business operations from
February to April of 2020. However, due to the fact that heat service fees were calculated based
on actual heat service area (instead of actual consumption of heat) and were prepaid by our
customers prior to the commencement of the heat service period, and also our customers were
able to resume normal business operation as soon as the local governments lifted restrictions
once the spread of COVID-19 was under control, our Directors consider that the demand for
heat service from our heat service customers did not materially fluctuate due to measures
imposed by the PRC Government in response to the outbreak of COVID-19 (the “ COVID-19
Measures ”). For the two months ended 30 April in the 2019/2020 heat service period,
2020/2021 heat service period and 2021/2022 heat service period, we had 237,979, 265,823
and 282,438 heat service customers, respectively. Since the COVID-19 outbreak, we have not
experienced material dispute with our heat suppliers for the provision of our heat services, nor
have we encountered any difficulty in securing sufficient heat sources to ensure the stability
of our heat services.
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We encountered delays in the settlement of trade receivables by some of our customers,
being mainly property development companies and property management companies, since the
outbreak of COVID-19 as their business activities have been interrupted. The balance of our
trade receivables (excluding notes receivables and lease receivables) aged over one year
amounted to approximately RMB78.3 million, RMB93.5 million and RMB91.6 million,
representing approximately 19.7%, 24.5% and 17.4% of our trade receivables (excluding notes
receivables and lease receivables) as at 31 December 2020, 2021 and 2022, respectively. For
the years ended 31 December 2020, 2021 and 2022, our trade receivables (excluding notes
receivables and lease receivables) aged over one year from property development companies
and property management companies amounted to approximately RMB47.2 million, RMB52.1
million and RMB55.3 million, representing approximately 60.2%, 55.7% and 60.4% of our
trade receivables (excluding notes receivables and lease receivables) aged over one year,
respectively. In light of this, our Group has adopted various measures to manage credit risk.
We consider that the delays in settlement of trade receivables would not have a material
adverse impact on our business and operation in the long term. For details of the measures
adopted by our Group to manage credit risk and the subsequent settlement of our Group’s trade
receivables, see “Financial information – Discussion of certain items of consolidated
statements of financial position – Current assets and current liabilities – Trade receivables” in
this prospectus.
In respect of our engineering construction services
Our provision of engineering construction services was not materially affected by the
outbreak of COVID-19 during the Track Record Period. Our Directors have confirmed that we
closely monitored the construction progress of our contractors for the provision of our
engineering construction services, and we managed to complete all engineering construction
services to facilitate our provision of heat services during the Track Record Period.
Our response towards the COVID-19 outbreak
In response to the COVID-19 outbreak and its resurgence from time to time, we have
issued internal notices, implemented a series of COVID-19 response plans and adopted
enhanced hygiene and precautionary measures for our heat service in our actual heat service
area. Our senior management, together with the general managers of various operating entities
within our Group, are responsible for overseeing the operation of each department and team
and ensure they operate in a safe manner during the pandemic. Our human resources
department and administration officers are jointly responsible for monitoring the
implementation of our COVID-19 health and hygiene measures. In light of our cross-provincial
operation in four provinces and one autonomous region, domestic travel records of our staff
and managers are accurately recorded for our internal risk management.
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From January 2020 and up to the Latest Practicable Date, we incurred an aggregate cost
of approximately RMB89,600 for purchasing protective masks and other medical and cleaning
supplies. We consider our response measures towards the COVID-19 outbreak are adequate and
effective at each level within our Group.
Our Directors believe that the additional costs associated with the enhanced measures,
after taking into consideration the medical and cleaning supplies distributed by the local
governments and the promulgation of relevant regulatory policies such as deduction of a
portion of the payment of social insurance contribution and announcement and implementation
of refund of PRC corporate income tax credits, have no significant impact on our financial
position as at 31 December 2020, 2021 and 2022.
In light of the above, our Directors confirm that the outbreak of COVID-19 and its
resurgence from time to time has not had a material adverse impact on our Group’s continuing
business operations and financial position.
Based on the above, our Directors consider that COVID-19 is unlikely to result in any
material adverse impact on our business operation and financial performance in the foreseeable
future. We believe our future plans set out in “– Our business strategies” are feasible, and it
is unlikely that we would change the use of the net proceeds from the Global Offering as
disclosed in “Future plans and use of proceeds” in this prospectus as a result of the COVID-19.
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OVERVIEW
During the Track Record Period, we had entered into certain related party transactions,
details of which are set out in note 38 to the accountant’s report as set out in Appendix I to this
prospectus. Several transactions are expected to continue after the Listing and shall constitute
continuing connected transactions (as defined under Chapter 14A of the Listing Rules) of our
Company upon the Listing.
BACKGROUND OF THE RELEV ANT CONNECTED PERSONS AND RELATED
PARTY
Shuangliang Eco-Energy
Shuangliang Eco-Energy is a joint stock limited liability company incorporated in the
PRC and listed on the Shanghai Stock Exchange (stock code: 600481.SH), which is principally
engaged in the manufacturing and sales of products of (i) energy-saving and water-saving
systems; and (ii) new energy systems ( อঐ๕ӻ୕). As at the Latest Practicable Date, the
equity interest of Shuangliang Eco-Energy was held (i) as to approximately 17.61% by
Shuangliang Group Co.; (ii) as to approximately 9.00% by Shuangliang Technology; (iii) as to
approximately 15.53% by Shanghai Tongsheng LP; (iv) as to approximately 1.04% by Jiangsu
Lichuang; (v) as to approximately 0.78% by Mr. Miao Shuangda ( ᐷᕐɽ΋͛); and (vi) as to
approximately 0.52% by Jiangsu Chengli Investment Consulting Co., Ltd., a subsidiary of
Shuangliang Group Co.. Mr. Miao Shuangda (one of our Controlling Shareholders) and his
associates collectively hold (i) approximately 68% of the registered capital in Shuangliang
Group Co., (ii) approximately 65% of the registered capital in Shuangliang Technology, (iii)
approximately 65% of the registered capital in Jiangsu Lichuang, and (iv) approximately
68.5% of the interest in Shanghai Tongsheng LP. Each of Shuangliang Group Co., Shuangliang
Technology and Jiangsu Lichuang is therefore a connected person of our Company. The general
partner of Shanghai Tongsheng LP is Shuangliang Technology who has full power (i) to
execute the business of Shanghai Tongsheng LP, and (ii) to represent Shanghai Tongsheng LP
for its external affairs. Therefore, Shanghai Tongsheng LP would also be regarded as a
connected person of our Company. Mr. Miao Shuangda (one of our Controlling Shareholders)
and his associates, both directly and indirectly and individually and collectively, hold
approximately 44.48% equity interest in Shuangliang Eco-Energy. Therefore, Shuangliang
Eco-Energy is a connected person of our Company under Chapter 14A of the Listing Rules.
During the Track Record Period, Shuangliang Eco-Energy Group had mainly supplied us with
equipment for heat service.
CONNECTED TRANSACTIONS
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Shuangliang New Energy Equipment
Shuangliang New Energy Equipment is a limited liability company established in the PRC
which is principally engaged in manufacturing and sales of new energy equipment. Its
registered capital is held as to 15% by Jiangsu Lichuang (one of our Controlling Shareholders)
and 85% by Shuangliang Eco-Energy, respectively. As a subsidiary of Shuangliang Eco-Energy
(which is a connected person of our Company as mentioned above), Shuangliang New Energy
Equipment is a connected person of our Company under Chapter 14A of the Listing Rules.
Shuangliang New Energy Equipment had mainly supplied us with equipment for heat service
during the Track Record Period.
Shuangliang Boiler
Shuangliang Boiler is a limited liability company established in the PRC which is
principally engaged in manufacturing and sales of boilers. Its registered capital is held as to
66.67% by Shuangliang Technology (one of our Controlling Shareholders). As a subsidiary of
Shuangliang Technology, Shuangliang Boiler is a connected person of our Company under
Chapter 14A of the Listing Rules. During the Track Record Period, Shuangliang Boiler had
supplied us with equipment for heat service.
Shuangliang Group Co.
Shuangliang Group Co. is a limited liability company established in the PRC which is
principally engaged in manufacturing and sales of devices, equipment and accessories. Mr.
Miao Shuangda ( ᐷᕐɽ΋͛) (one of our Controlling Shareholders) and his associates
collectively hold an aggregate of approximately 68% of the registered capital in Shuangliang
Group Co.. Therefore, Shuangliang Group Co. is an associate of Mr. Miao Shuangda and hence
a connected person of our Company under Chapter 14A of the Listing Rules. During the Track
Record Period, Shuangliang Group Co. had authorised us to use one of its trademarks (
).
The authorisation period ended on 31 December 2021 and has not been extended. Therefore,
with the exception to the trademark or logo shown on the machinery or devices our Group
procured from Shuangliang Group Co. and/or its associated companies, our Group has ceased
to use Shuangliang Group Co.’s trademark as at the Latest Practicable Date and has no
intention to use such trademark in the future.
Jiangyin Hotel
Jiangyin Hotel is a limited liability company established in the PRC which is principally
engaged in accommodation business. Its registered capital is held as to 75% by Shuangliang
Group Co. (which is a connected person of our Company as mentioned above), and thus
Jiangyin Hotel is a subsidiary of Shuangliang Group Co. and hence a connected person of our
Company under Chapter 14A of the Listing Rules. During the Track Record Period, Jiangyin
Hotel had provided us services of accommodation, catering, reception and conference
organising, and leased premises to us.
CONNECTED TRANSACTIONS
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Shuangliang Spandex
Shuangliang Spandex is a limited liability company established in the PRC which is
principally engaged in the production of differentiated chemical fibres and spandex high-tech
chemical fibres. Its registered capital is held as to 6.4% by Shuangliang Technology, 65.7% by
Jiangyin Youli Investment Management Company Limited* (ʮ̡)
which is a wholly-owned subsidiary of Shuangliang Technology and 27.9% by Kinsale
Technology Limited which is a company incorporated in the British Virgin Islands with limited
liability and a connected person of our Company. Shuangliang Spandex is an associate of
Shuangliang Technology and hence a connected person of our Company. During the Track
Record Period, Shuangliang Spandex has leased office premises to us.
The following diagram shows the shareholding relationship amongst the relevant
connected persons of our Company as at the Latest Practicable Date:
Shuangliang
Group Co.
Shuangliang
Technology (Note 3)
Jiangsu Lichuang
(Note 4)
Shuangliang Eco-Energy
Jiangyin
Hotel
Shuangliang
Boiler
0.78%
68% 65% 65%
17.61% 9.00% 1.04%15.53%
75% 66.67%
collectively (with their associates)
Shuangliang
New Energy
Equipment
15%85%
10%
Jiangsu Chengli
Investment
Consulting Co.,
Ltd.
0.52%
60% 40%
Mr. Miao Shuangda
(Notes 1 & 5)
Mr. Miao Wenbin
(Notes 1 & 5)
Ms. Miao Shuya
(Notes 2 & 5)
Mr. Miao Heida
(Notes 1 & 5)
Mr. Miao Zhiqiang
(Notes 2 & 5)
Shuangliang
Spandex
72.1% (Note 6)
68.5%
Shanghai
Tongsheng LP
Notes:
1. Mr. Miao Shuangda ( ᐷᕐɽ΋͛) and Mr. Miao Heida ( ᐷලɽ΋͛) are siblings and uncle of their respective
brothers’ children. Mr. Miao Shuangda is the father of Mr. Miao Wenbin ( ᐷ˖੸΋͛).
2. Mr. Miao Zhiqiang ( ᐷқ੶΋͛) and Ms. Miao Shuya ( ᐷബૹɾɻ) are cousins of Mr. Miao Wenbin ( ᐷ˖੸
΋͛).
3. Shuangliang Technology is a Controlling Shareholder and the general partner of Shanghai Tongsheng LP.
4. Jiangsu Lichuang is a Controlling Shareholder.
5. Each of Mr. Miao Shuangda ( ᐷᕐɽ΋͛), Mr. Miao Wenbin ( ᐷ˖੸΋͛), Ms. Miao Shuya ( ᐷബૹɾɻ), Mr.
Miao Heida ( ᐷලɽ΋͛), and Mr. Miao Zhiqiang ( ᐷқ੶΋͛) is a Controlling Shareholder.
6. Shuangliang Technology directly holds 6.4% of registered capital of Shuangliang Spandex and indirectly holds
65.7% of the same through its wholly-owned subsidiary.
CONNECTED TRANSACTIONS
– 390 –


--- page 401 ---
Sinopec New Star
Sinopec New Star is a limited liability company established in the PRC which is
principally engaged in the development, construction and operation of heating, cooling and
power generation projects, exploration and utilisation of renewable energy, and provision of
heat services. Its registered capital is held as to 51% by Sinopec Green Energy Geothermal
Development Co., Limited* (ʮ̡), 40% by Taiyuan Renewable
Energy and 9% by Shanxi Taiyangneng Solar Thermal Power Generation Co., Limited* ( ʆГ
ʮ̡). Sinopec New Star is indirectly held as to 40% by our Company and
hence an associate of our Company. During the Track Record Period, we entered into finance
lease agreements with Sinopec New Star, as well as purchased certain equipment from Sinopec
New Star, having considered (i) our previous cooperative relationship with Sinopec New Star;
and (ii) Sinopec New Star’s understanding of our procurement requirement, such as the
specifications of products purchased by us.
RELATED PARTY TRANSACTIONS BEFORE LISTING
Lease Agreements
On 1 January 2022, our Company entered into a lease agreement with Shuangliang
Spandex, pursuant to which Shuangliang Spandex agreed to lease the office premises to our
Company (the “ Lease Agreement 1 ”, the terms of which were modified pursuant to a
supplemental agreement dated 27 February 2023).
On 1 January 2023, our Company entered into a lease agreement with Jiangyin Hotel,
pursuant to which Jiangyin Hotel agreed to lease the office premises to our Company
(the “ Lease Agreement 2 ”, together with Lease Agreement 1, the “ Lease Agreements ”).
A summary of the Lease Agreements is set out as follows:
No. Location Landlord Tenant Lease period Usage
Approximate
GFA Rental
(RMB)
1. Room 202, 2/F, No. 15
Shuangliang Road,
Ligang Street, Jiangyin,
Jiangsu Province
Shuangliang
Spandex
Our Company From 1 January
2022 to
31 December
2024
Office 212.5 sq.m. 10,000 per
year
2. 7/F, Jiangyin International
Hotel, No. 299
Chengjiang West Road,
Jiangyin, Jiangsu
Province
Jiangyin Hotel Our Company From 1 January
2023 to
31 December
2025
Office 50 sq.m. 70,000 per
year
Subject to compliance with the Listing Rules, our Company will negotiate with
Shuangliang Spandex and Jiangyin Hotel before the respective expiry of each of the Lease
Agreements on renewing the Lease Agreements.
CONNECTED TRANSACTIONS
– 391 –


--- page 402 ---
Listing Rules Implications
Upon application of IFRS 16, we recognised right-of-use assets in relation to the fixed
term leases in the form of an asset (representing the right to use the underlying assets during
the lease term) and a liability (for the obligation to make lease payment). Each of the Lease
Agreements is subject to a fixed term and is regarded as an one-off connected acquisition of
capital asset under the Listing Rules. As the Lease Agreements were entered into prior to the
Listing and the transactions thereunder are one-off in nature, the transactions (in relation to the
rental) under the Lease Agreements will not be subject to any of the reporting, announcement,
annual review and independent shareholders’ approval requirements under Chapter 14A of the
Listing Rules. In the event that there are any material changes to the terms and conditions of
the Lease Agreements, we shall comply with Chapter 14A of the Listing Rules in respect of
such agreement as and when appropriate, including, where required, seeking independent
shareholders’ approval prior to effectuating such changes.
Finance Lease Agreement with Sinopec New Star as Lessor
On 1 March 2020, Taiyuan Renewable Energy (as lessee) entered into a finance lease
agreement with Sinopec New Star (as lessor) in respect of lease of the medium-deep
geothermal wells (the “ Finance Lease Agreement 1 ”).
Pursuant to the Finance Lease Agreement 1, Sinopec New Star agreed to lease the
medium-deep geothermal wells (“ Geothermal Wells ”) for the Shanxi Demonstration Zone
Project for a period of ten years, commencing from 1 March 2020 to 28 February 2030. The
annual rental fee is approximately RMB1.5 million payable by Taiyuan Renewable Energy
quarterly. Upon the expiry of the lease period, Taiyuan Renewable Energy has the option to
acquire the Geothermal Wells. The parties have agreed that Taiyuan Renewable Energy may
acquire the Geothermal wells before the expiry of the lease period, and the transfer price shall
be determined on the basis of the value of the Geothermal Wells as determined by an
independent auditor/valuer on the audit/valuation reference date agreed by the parties (the
“Carrying Value of the Geothermal Wells ”) less the rent paid by Taiyuan Renewable Energy
during the lease period. The Carrying Value of the Geothermal Wells shall be not less than the
book value of the Geothermal Wells of approximately RMB14.8 million as at the date of the
Finance Lease Agreement 1. The Finance Lease Agreement 1 will be renewed after the expiry
of the lease period if Taiyuan Renewable Energy chooses not to acquire the Geothermal Wells
upon the expiry of the lease period and the terms will be negotiated by the parties.
Finance Lease Agreements with Sinopec New Star as Lessee
On 1 March 2020, Taiyuan Renewable Energy (as lessor) entered into a finance lease
agreement with Sinopec New Star (as lessee) in respect of lease of our unused primary
distribution pipelines (the “ Finance Lease Agreement 2 ”).
CONNECTED TRANSACTIONS
– 392 –


--- page 403 ---
Pursuant to the Finance Lease Agreement 2, Taiyuan Renewable Energy agreed to lease
our unused primary distribution pipelines of approximately 36.5 km (the “ Distribution
Pipelines ”) to Sinopec New Star for a period of ten years, commencing from 1 March 2020 to
28 February 2030. The annual rental fee is approximately RMB3.9 million payable by Sinopec
New Star quarterly. Upon the expiry of the lease period, Sinopec New Star has the option to
acquire the Distribution Pipelines. The parties have agreed that Sinopec New Star may acquire
the Distribution Pipelines before the expiry of the lease period, and the transfer price shall be
determined on the basis of the value of the Distribution Pipelines as determined by an
independent auditor/valuer on the audit/valuation reference date agreed by the parties (the
“Carrying Value of the Distribution Pipelines ”) less the rent paid by Sinopec New Star
during the lease period. The Carrying Value of the Distribution Pipelines shall be not less than
the book value of the Distribution Pipelines of approximately RMB38.5 million as at the date
of the Finance Lease Agreement 2. The parties agree to renew Finance Lease Agreement 2 after
the expiry of the lease period if Sinopec New Star chooses not to acquire the Distribution
Pipelines upon the expiry of the lease period and the terms will be negotiated by the parties.
Purchase of equipment from Sinopec New Star
During the Track Record Period, our Group has purchased certain equipment from
Sinopec New Star for the construction of our heat service facilities, which is in our ordinary
and usual course of business and on normal commercial terms. The respective purchase price
shall be determined between our Group on one hand, and Sinopec New Star on the other hand,
with reference to the prevailing market price for the scale and purchase of similar equipment.
The aggregate transaction amounts of such purchases from Sinopec New Star were
approximately RMB2.8 million, RMB2.5 million and RMB3.4 million for the years ended 31
December 2020, 2021 and 2022, respectively.
Listing Rules Implications
As Sinopec New Star is indirectly held as to 40% by our Company and hence an associate
of our Company, Sinopec New Star will not become a connected person upon the Listing. The
transactions under the Finance Lease Agreement 1, the Finance Lease Agreement 2 and the
purchase of equipment with Sinopec New Star will not be subject to any of the reporting,
announcement, annual review and independent shareholders’ approval requirements under
Chapter 14A of the Listing Rules. In the event that there are any material changes to the terms
and conditions of the transactions with Sinopec New Star or the shareholding percentage held
by our Company in Sinopec New Star, we shall comply with Chapter 14A of the Listing Rules
in respect of connected transaction as and when appropriate.
CONNECTED TRANSACTIONS
– 393 –


--- page 404 ---
FULLY EXEMPT CONTINUING CONNECTED TRANSACTION
Accommodation, catering, reception and conference organising services provided by
Jiangyin Hotel
Principal terms
Our Group has been procuring consumer services, including but not limited to
accommodation, catering, reception and conference organising services (the “ Comprehensive
Services ”), from Jiangyin Hotel since 2010, which are in our ordinary and usual course of
business and on normal commercial terms or better than those available from Independent
Third Parties. The respective service fees to be charged shall be determined after arm’s length
negotiations between our Group on one hand, and Jiangyin Hotel on the other hand, with
reference to (i) the prevailing market price for the provision of similar Comprehensive
Services; and (ii) all costs incurred for the provision of such services.
Reasons for entering into the Comprehensive Services transactions
Taking into account that (i) our Company has over 10 years of business relationship with
Jiangyin Hotel; (ii) the quality of Comprehensive Services provided by Jiangyin Hotel has been
satisfactory to us; and (iii) the proximity of the relevant facilities of Jiangyin Hotel with our
Company, we expect that we will continue to engage Jiangyin Hotel for such Comprehensive
Services after the Listing from time to time on an as-needed basis, which will constitute
continuing connected transactions for us under Chapter 14A of the Listing Rules.
Historical amounts
Type Connected person Nature of transactions
For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Fully exempt continuing
connected transaction
Jiangyin Hotel  Accommodation,
catering, reception and
conference organising
services
641 642 1,107
Annual caps and basis
Our Directors estimate that the annual caps for the Comprehensive Services for the years
ending 31 December 2023, 2024 and 2025 will not exceed RMB1.5 million, RMB1.5 million
and RMB1.5 million, respectively.
CONNECTED TRANSACTIONS
– 394 –


--- page 405 ---
Implications under the Listing Rules for the Comprehensive Services transactions
The expected annual caps for the Comprehensive Services for each of the years ending
31 December 2023, 2024 and 2025 is less than HK$3.0 million and the relevant applicable
percentage ratios (other than the profit ratio) with respect to the Comprehensive Services
transactions contemplated, are expected to be less than 5% on an annual basis. Therefore the
provision of Comprehensive Services by Jiangyin Hotel constitute de minimis transactions
under Rule 14A.76(1) of the Listing Rules and are therefore fully exempt from the independent
shareholders’ approval, reporting, annual review, announcement and all disclosure
requirements under Chapter 14A of the Listing Rules.
PARTIALLY EXEMPT CONTINUING CONNECTED TRANSACTIONS
Master Agreements for (a) purchase of heat services-related equipment, devices and
materials; and (b) procurement of add-on services in relation to heat services-related
equipment, devices and materials
Principal terms
On 29 May 2023, our Company entered into (i) Annual Master Supply and Service
Agreement for the year ending 31 December 2023 (the “ Master Agreement 1 ”) with
Shuangliang Eco-Energy (on its own and on behalf of its subsidiaries); and (ii) Master Supply
Agreement for the three years ending 31 December 2025 with Shuangliang Boiler (the “ Master
Agreement 2 ”, together with the Master Agreement 1 referred hereinafter to as collectively the
“Master Agreements ”).
Pursuant to the Master Agreement 1, our Company shall purchase heat services-related
equipment, devices and materials (with related supporting services) and/or add-on services in
relation to heat services-related equipment, devices and materials (such as equipment
modification, maintenance and safety monitoring). The Master Agreement 1 with a term ending
31 December 2023 has been approved by the independent shareholders of Shuangliang
Eco-Energy. The Master Agreement 1 shall commence from the Listing Date and will expire
on 31 December 2023. Our Company will duly consider the need of procurement of heat
services-related equipment, devices and materials (with related supporting services) and
related add-on services and enter into a new agreement upon expiry of the Master Agreement
1.
Pursuant to the Master Agreement 2, our Company shall purchase heat services-related
equipment, devices and materials (with related supporting services). The Master Agreement 2
shall commence from the Listing Date and will expire on 31 December 2025.
CONNECTED TRANSACTIONS
– 395 –


--- page 406 ---
The following sets out the principal terms of the Master Agreements:
We will make purchase order or service request with Shuangliang Eco-Energy Group or
Shuangliang Boiler from time to time on an as-needed basis when we need to purchase any heat
services-related equipment, devices and materials (with related supporting services) and/or
add-on services in relation to heat services-related equipment, devices and materials. The
purchase price for each individual purchase order and/or the service fee for each request shall
be determined after arm’s length negotiations between Shuangliang Eco-Energy Group or
Shuangliang Boiler and us from time to time with reference to the then prevailing market price,
quality and logistics capacity of similar products or services in the market by way of
independent third-party quotation.
Since the Master Agreements are framework agreements, the Master Agreements did not
specify any repayment terms. According to our dealings with Shuangliang Eco-Energy Group
and Shuangliang Boiler during the Track Record Period, we are usually required to settle the
relevant fees by instalments in accordance with the terms of each agreement. The actual
payment terms should be determined on a case by case basis.
Reasons for entering into the Master Agreements
For Master Agreement 1
For conducting our business, we procured heat service-related equipment, such as pipes,
heat exchangers and heat pumps. Shuangliang Eco-Energy Group has supplied heat services-
related equipment, devices and materials (with related supporting services) and provided
add-on services in relation to heat services-related equipment, devices and materials to our
Group since 2014.
Taking into account (i) Shuangliang Eco-Energy is a company established in 1995 and
listed on the Shanghai Stock Exchange and has been supplying heat service-related equipment
for some time; (ii) Shuangliang Eco-Energy Group is capable of supplying equipment, devices,
materials and services required by our Group; (iii) Shuangliang Eco-Energy Group was able to
meet our requirements on a timely basis with a price that we considered relatively competitive,
our Directors consider that entering into the Master Agreement 1 with Shuangliang Eco-Energy
(on its own and on behalf of its subsidiaries) would allow our Group to maintain a stable supply
of heat services-related equipment, devices and materials (with related supporting services) as
well as related add-on services required for our business.
Further, our Directors are of the opinion that the terms of the Master Agreement 1 are fair
and reasonable, on normal commercial terms or better and in the interest of our Group and the
Shareholders as a whole.
CONNECTED TRANSACTIONS
– 396 –


--- page 407 ---
For Master Agreement 2
For conducting our business, we procured boilers as one of the heat service-related
equipment. Shuangliang Boiler has been supplying heat services-related equipment, devices
and materials (with related supporting services) to our Group during the Track Record Period.
Taking into account that (i) Shuangliang Boiler is capable of supplying certain equipment,
devices, materials and providing related supporting services required by our Group on a timely
basis with a competitive price, satisfactory product quality and after-sales service offerings;
and (ii) Shuangliang Boiler has a track record in going through our supplier selection processes
and supplying heat services-related equipment including boilers, our Directors consider that
entering into the Master Agreement 2 with Shuangliang Boiler would allow our Group to
maintain a stable supply of heat services-related equipment, devices and materials.
Further, our Directors are of the opinion that the terms of the Master Agreement 2 are fair
and reasonable, on normal commercial terms or better and in the interest of our Group and the
Shareholders as a whole.
Historical amounts
For Master Agreement 1
In respect of Shuangliang Eco-Energy, during the Track Record Period, Hulunbuir
Shuangliang, Taiyuan Renewable Energy, Gansu Shuangliang and Lanzhou Shuangliang had
purchased heat services-related equipment, devices and materials (with related supporting
services) or received add-on services in relation to heat services-related equipment, devices
and materials from Shuangliang Eco-Energy and its subsidiary, namely Shuangliang New
Energy Equipment.
For the three years ended 31 December 2020, 2021 and 2022, the transaction amounts
with Shuangliang Eco-Energy Group were as follows:
Connected person Nature of transactions For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Shuangliang Eco-Energy and
Shuangliang New Energy
Equipment
 Purchase of heat services-
related equipment, devices
and material (with related
supporting services)
30,103 11,743 11,683
 Add-on services in relation
to heat services-related
equipment, devices and
material
170 148 2,231
CONNECTED TRANSACTIONS
– 397 –


--- page 408 ---
During the Track Record Period, the changes in our transaction amounts with Shuangliang
Eco-Energy Group were in line with the varying procurement demand for each of our projects.
On 20 March 2019 and 5 July 2019, our Group entered into a technology agreement and a
commercial agreement with Shuangliang Eco-Energy in respect of Phase I construction for the
flue gas waste heat recovery and utilisation project* ( ๧ंቱᆠΫϗл͜ධͦɓಂʈ೻)o ft h e
Lanzhou New Area Project (the “ Lanzhou New Area Project Agreement ”), under which
Shuangliang Eco-Energy was responsible for the design, supply of various equipment,
instruments and devices, construction and installation, delivery of the relevant documents and
testing. Certain services and/or products under the Lanzhou New Area Project Agreement were
received during the year ended 31 December 2020, representing approximately 40% of the total
transaction amount for the year ended 31 December 2020. In addition to the Lanzhou New Area
Project Agreement, Shuozhou Project and Taiyuan Project also procured from Shuangliang
Eco-Energy Group during the year ended 31 December 2020. For the year ended 31 December
2021, there was no service and/or product received under the Lanzhou New Area Project
Agreement, and our procurement from Shuangliang Eco-Energy Group was mainly made for
Taiyuan Project and Shanxi Demonstration Zone Project for which the procurement demand
was lower as compared to that for the year ended 31 December 2020. Therefore, the transaction
amount was lower as compared to the year ended 31 December 2020. For the year ended 31
December 2022, our procurement of heat services-related equipment, devices and materials
from Shuangliang Eco-Energy Group was mainly made for Taiyuan Project, and the transaction
amount was similar to that for the year ended 31 December 2021.
There was an increase for the transaction amount for add-on services for the year ended
31 December 2022 as compared to the years ended 31 December 2020 and 2021, as we entered
into a new service agreement in respect of the maintenance and repair of the Lithium bromide
absorption heat pumps unit for Shuozhou Project in 2022.
For Master Agreement 2
In respect of Shuangliang Boiler, during the Track Record Period, Lanzhou Shuangliang
had purchased heat services-related equipment, devices and materials (with related supporting
services) from Shuangliang Boiler.
For the three years ended 31 December 2020, 2021 and 2022, the transaction amounts
with Shuangliang Boiler were as follows:
Connected person Nature of transactions For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Shuangliang Boiler  Purchase of heat services-
related equipment and devices
(with related supporting
services) (i.e. boilers)
419 2,205 2,177
CONNECTED TRANSACTIONS
– 398 –


--- page 409 ---
During the Track Record Period, the changes in the transaction amounts with Shuangliang
Boiler for the three years ended 31 December 2020, 2021 and 2022 were basically in line with
the numbers of boilers purchased during the same period. The boilers purchased from
Shuangliang Boiler were mainly used as back-up heat services in the event of heat supply
shortage, unexpected incidents, sudden demand, suspension or disruption. For the year ended
31 December 2020, there was only one boiler purchased from Shuangliang Boiler for the
Shanxi Demonstration Zone Project. The increase in our transaction amount with Shuangliang
Boiler for the year ended 31 December 2021 was mainly due to the purchase of five boilers for
the Taiyuan Project and Shanxi Demonstration Zone Project. Our transaction amount with
Shuangliang Boiler for the year ended 31 December 2022 remained stable as compared with
the transaction amount for the year ended 31 December 2021, as five boilers were purchased
for the Taiyuan Project during 2022.
Annual caps and basis
For Master Agreement 1
Our Directors estimate that under the Master Agreement 1 for the year ending 31
December 2023,
(i) the transaction amount between our Group and Shuangliang Eco-Energy Group for
the purchase of heat services-related equipment, devices and materials (with related
supporting services) will not exceed RMB10.5 million;
(ii) the transaction amount for the add-on services in relation to heat services-related
equipment, devices and materials will not exceed RMB200,000.
In arriving at the aforesaid annual caps, our Directors have considered (i) the existing
contracts entered into between our Group and Shuangliang Eco-Energy Group in respect of
procurement of four heat pumps for the Taiyuan Project; (ii) the expected procurement of seven
sets of fully manufactured skid-mounted heat exchange unit (ᅪༀ౬ᆠዚଡ଼) for the
Hulunbuir Project, one heat pump for the Taiyuan Project and four heat pumps for the Shanxi
Demonstration Zone Project for the year ending 31 December 2023; (iii) the historical
transaction amounts between our Group and Shuangliang Eco-Energy Group for the years
ended 31 December 2021 and 2022; and (iv) the expected demand for heat services-related
equipment, devices and materials (with related supporting services) and/or add-on services in
relation to heat service-related equipment, devices and materials with reference to the
prevailing market price for similar products/services in the market.
For Master Agreement 2
Our Directors estimate that under the Master Agreement 2, the transaction amount
between our Group and Shuangliang Boiler for the purchase of heat service-related equipment,
devices and materials with related supporting services will not exceed RMB4.0 million,
RMB4.5 million and RMB4.7 million for the years ending 31 December 2023, 2024 and 2025,
respectively.
CONNECTED TRANSACTIONS
– 399 –


--- page 410 ---
In arriving at the aforesaid annual cap for the year ending 31 December 2023, our
Directors have considered (i) the expected procurement of not more than four sets of boilers
for the Shanxi Demonstration Zone Project and six sets of boilers for the Taiyuan Project for
the year ending 31 December 2023; (ii) the expected average procurement cost for boiler at
approximately RMB400,000 per unit; and (iii) the transaction amount in relation to the
purchase of heat services-related equipment, devices and materials (with related supporting
services) from Shuangliang Boiler for the year ended 31 December 2022. Our Group will also
procure related materials and services from Shuangliang Boiler from time to time.
The annual caps for the years ending 31 December 2024 and 2025 are estimated with
reference to (i) the annual cap for the year ending 31 December 2023; and (ii) the estimated
increase in the actual heat service area.
Implications under the Listing Rules for the Master Agreements
Given that (i) both Shuangliang Eco-Energy and Shuangliang Boiler (a subsidiary of
Shuangliang Technology) are controlled by Mr. Miao Shuangda ( ᐷᕐɽ΋͛); (ii) the terms of
each of the Master Agreements are substantially identical, except for their respective
contracting parties, annual caps and terms of duration; and (iii) both of the Master Agreements
set out the purchase of heat service-related equipment, devices and materials with related
supporting services, our Directors are of the view that, when calculating the relevant applicable
ratios, all transaction amounts of each of the Master Agreements shall be aggregated.
The aggregated annual caps for the years ending on 31 December 2023, 2024 and 2025
under the Master Agreements are RMB14.7 million, RMB4.5 million and RMB4.7 million,
respectively. The relevant applicable percentage ratios (other than the profit ratio) with respect
to the transactions contemplated under the Master Agreements, as aggregated, are expected to
exceed 0.1% but less than 5% on an annual basis. Therefore the transactions under the Master
Agreements are subject to the reporting and announcement requirements, but are exempted
from the circular, independent financial advice and independent shareholders’ approval
requirements under Chapter 14A of the Listing Rules.
W AIVER APPLICATION FOR PARTIALLY EXEMPT CONTINUING CONNECTED
TRANSACTIONS
As the continuing connected transactions under “Partially exempt continuing connected
transactions” in this section are expected to continue in the ordinary and usual course of our
business on a continuing and recurring basis over a period of time and have been fully
disclosed in this section, our Directors consider that it would add administrative costs to our
Company if these transactions are subject to strict compliance with the announcement
requirements set out under Chapter 14A of the Listing Rules.
CONNECTED TRANSACTIONS
– 400 –


--- page 411 ---
Accordingly, we have applied to the Stock Exchange for, and the Stock Exchange has
granted us, a waiver of the above partially exempt continuing connected transactions to be
exempted from strict compliance with the announcement requirements during the subsistence
of the Master Agreements pursuant to Rule 14A.105 of the Listing Rules, subject to the
following conditions:
(i) the respective proposed annual caps for the continuing connected transactions under
the Master Agreements as stated above will not be exceeded;
(ii) we are still subject to the reporting requirements pursuant to Rules 14A.49 and
14A.71 of the Listing Rules and shall disclose the details of the continuing
connected transactions under the Master Agreements in the annual reports for the
three financial years ending 31 December 2025;
(iii) if any of the material terms of the continuing connected transactions under the
Master Agreements are altered and/or if our Group enters into any new continuing
connected transaction with (i) Shuangliang Eco-Energy Group; and (ii) Shuangliang
Boiler, in the future resulting in the aggregate annual amount paid or payable by our
Group to them during the subsistence of the Master Agreements exceeding the
proposed annual caps as stated above, our Company will comply with the relevant
requirements under Chapter 14A of the Listing Rules;
(iv) upon expiry of the waiver, or upon the expiry of the respective term of the Master
Agreements, our Company will comply with the relevant requirements under
Chapter 14A of the Listing Rules; and
(v) in the event of any further amendments to the Listing Rules which impose more
stringent requirements than those as of the date of this submission on the continuing
connected transactions, our Company will take appropriate steps to ensure
compliance with such requirement within a reasonable time.
The transactions under the Master Agreements will be reviewed by the auditors and our
independent non-executive Directors in accordance with Chapter 14A of the Listing Rules on
an annual basis to ensure that the purchases or services procured will be conducted on normal
commercial terms or better and not prejudicial to our Group and the Shareholders as a whole.
DIRECTORS’ VIEW
Our Directors, including the independent non-executive Directors, are of the view that the
continuing connected transactions disclosed in this section, which have been and will be
entered into in the ordinary and usual course of business of our Group, are fair and reasonable,
on normal commercial terms or better, and in the interests of our Company and the
Shareholders as a whole, and that the proposed annual caps for the partially exempt continuing
connected transactions described in this section are fair and reasonable and in the interest of
our Company and the Shareholders as a whole.
CONNECTED TRANSACTIONS
– 401 –


--- page 412 ---
CONFIRMATION FROM THE SOLE SPONSOR
The Sole Sponsor, having reviewed the relevant information and historical figures (where
applicable) relating to the continuing connected transactions as disclosed above, is of the view
that (i) the above continuing connected transactions have been and will be entered into in the
ordinary and usual course of business of our Group, are on normal commercial terms or better,
and are fair and reasonable and in the interests of our Company and the Shareholders as a
whole; and (ii) the proposed annual caps for these transactions are fair and reasonable and in
the interests of our Company and the Shareholders as a whole.
CONNECTED TRANSACTIONS
– 402 –


--- page 413 ---
BACKGROUND OF OUR CONTROLLING SHAREHOLDERS
Immediately after completion of the Global Offering (assuming the Over-allotment
Option is not exercised), Shuangliang Technology and Jiangsu Lichuang will hold
approximately 49.75% and 16.91% of the registered capital of our Company, respectively. As
at the Latest Practicable Date, Mr. Miao Shuangda ( ᐷᕐɽ΋͛), Mr. Miao Wenbin ( ᐷ˖੸΋
͛), Mr. Miao Zhiqiang ( ᐷқ੶΋͛), Ms. Miao Shuya ( ᐷബૹɾɻ), Mr. Miao Heida ( ᐷල
ɽ΋͛), Mr. Jiang Rongfang ( Ϫ࿲˙΋͛), Mr. Ma Peilin (΋͛), and Mr. Ma Fulin ( ৵
΋͛) (together the “ Individual Shareholders ”) were the legal and beneficial owners of
the entire issued share capital of both Shuangliang Technology and Jiangsu Lichuang. Since the
Individual Shareholders have decided to restrict their ability to exercise direct control over our
Company by holding their equity interests through Shuangliang Technology and Jiangsu
Lichuang, all of Shuangliang Technology, Jiangsu Lichuang and the Individual Shareholders
will be regarded as a group of our Controlling Shareholders under the Listing Rules.
Shuangliang Technology and Jiangsu Lichuang are investment holding companies, which
were established in the PRC on 18 December 1997 and 24 December 1997, respectively. As at
the Latest Practicable Date, our Controlling Shareholders collectively held (i) approximately
82% of the registered capital of Shuangliang Group Co.; (ii) directly or indirectly through
Shanghai Tongsheng LP and other corporate vehicles, approximately 44.48% of the total issued
shares of Shuangliang Eco-Energy, the shares of which are listed on Shanghai Stock Exchange;
(iii) approximately 66.67% of the registered capital of Shuangliang Boiler; and (iv) certain
equity interest in other companies which engage in the businesses in the industries of water
environment engineering construction and water ecology protection, cooling machines,
biochemistry and biology and fertilisers, packaging film, spandex, hotel, and development,
design and construction intelligent systems and cloud computing.
INDEPENDENCE FROM OUR CONTROLLING SHAREHOLDERS
Having considered the following factors, our Directors are of the view that our Group is
capable of independently carrying on our business from, and does not place undue reliance on,
our Controlling Shareholders upon the Listing:
Clear delineation of business
Our Group is principally engaged in the provision of heat services to our residential and
non-residential heat services customers under our concession rights. In addition to our
provision of heat services, which is considered as a public utility business, we also provide
heat-related (i) engineering construction services; and (ii) EMC services. Our Directors
consider heat services and heat-related engineering construction services as our core
businesses. Our core businesses (namely heat services and heat-related engineering
construction services) accounted for approximately 97.0%, 98.0% and 97.0% of our total
revenue for the years ended 31 December 2020, 2021 and 2022, respectively.
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
– 403 –


--- page 414 ---
The businesses of our Controlling Shareholders (other than our Group) are principally
conducted by (i) Shuangliang Group Co. and its subsidiaries (“ Shuangliang Group Co.
Group ”); (ii) Shuangliang Eco-Energy Group; (iii) Shuangliang Boiler; and other companies
directly or indirectly owned by our Controlling Shareholders and which are not the subsidiaries
of Shuangliang Group Co., Shuangliang Eco-Energy and Shuangliang Boiler (“ Other
Companies ”). The table below sets out the businesses of our Group and those of our
Controlling Shareholders and companies (other than our Group) controlled by them.
Our Group
Our Controlling Shareholders and companies
(other than our Group) controlled by them
Shuangliang Group
Co. Group
Shuangliang Eco-
Energy Group
Shuangliang Boiler Other Companies
Business
segments
Core business
 Provision of heat services
to residential and non-
residential heat service
end-users
 Heat-related engineering
construction services
Others
 Heat-related EMC services
 Sales of heat-related
equipment
Core business
 Manufacturing,
trading and sale
of equipment
devices and
accessories
Others
 Water
environment
engineering
construction and
water ecology
protection
 Cooling machines
 Biochemistry,
biology and
fertilisers
 Packaging film
 Hotel services
 Investment
management
Core business
 Manufacturing
and sale of
products of (i)
energy-saving and
water-saving
systems; and (ii)
new energy
systems ( อঐ๕
ӻ୕)
Others
 EMC services in
relation to
conservation of
electricity or
water
Core business
 Manufacturing
and sale of
boilers
 Investment management
 Development, design and
construction of intelligent
systems and cloud
computing
 Engineering constructions
services in relation to
water environment
protection and management
 Spandex
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
– 404 –


--- page 415 ---
Our Directors are of the view that there is a clear delineation between these businesses
conducted by such companies controlled by our Controlling Shareholders and those of our
Group. The table below illustrates these businesses and reasons for such clear delineation of
businesses.
Business Conducted by
Reasons for clear delineation from the
businesses of our Group
Manufacturing, trading and
sale of equipment
devices and accessories
(i) Shuangliang Group Co.
Group
(ii) Shuangliang Eco-Energy
Group (for energy-saving
and water-saving systems
and new energy systems)
– Our heat services-related equipment sold only cover
(i) semi-finished skid-mounted heat exchange unit
(ᅪༀ౬ᆠዚଡ଼) and (ii) heat meters (ඎ
ڌ)
Shuangliang Eco-Energy Group sells, amongst
others, fully manufactured skid-mounted heat
exchange unit (ᅪༀ౬ᆠዚଡ଼), and does not
manufacture or sell heat meters (ڌ)
Shuangliang Group Co. Group manufactures and
sells (i) equipment, devices in relation to
environment protection and (ii) equipment, devices
and accessories in relation to environmental
pollution prevention
– Our Group does not carry out trading of equipment
or devices
Manufacturing and sale of
boilers
Shuangliang Boiler Our Group does not manufacture or sell boilers
Cooling machines Shuangliang Group Co.
Group
Our Group does not manufacture or sell cooling machines
Biochemistry, biology and
fertilisers
Shuangliang Group Co.
Group
Our Group does not carry out biochemistry, biology and
fertilisers business
Packaging film Shuangliang Group Co.
Group
Our Group does not manufacture or sell packaging film
Hotel services Shuangliang Group Co.
Group
Our Group does not provide hotel services
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
– 405 –


--- page 416 ---
Business Conducted by
Reasons for clear delineation from the
businesses of our Group
Investment management (i) Shuangliang Group Co.
Group
(ii) Jiangyin Youli Investment
Management Company
Limited* ( Ϫ௕ʾлҳ༟
ʮ̡), being one
of the Other Companies
Our Group does not carry out investment management
business
EMC services Shuangliang Eco-Energy
Group
– Our EMC services are related to conservation of heat
for thermal power plant
– The EMC services conducted by Shuangliang Eco-
Energy Group are related to conservation of
electricity or water for commercial and industrial
building
Engineering construction
services
(i) Shuangliang Group Co.
Group
(ii) Jiangsu Shuangliang
Environmental
Technology Co.,
Limited* ( ϪᘽᕐԄᐑྤ
ʮ̡), being one
of the Other Companies
– Our engineering construction services are related to
heat services under our Concession Agreements
– The engineering construction services conducted by
Shuangliang Group Co. Group are related to water
environment and water ecology protection
– The engineering construction services conducted by
Jiangsu Shuangliang Environmental Technology
Co., Limited are related to water environment
protection and management
Spandex Shuangliang Spandex, being
one of the Other Companies
Our Group does not manufacture or sell spandex
Development, design and
construction of
intelligent systems and
cloud computing
Wuxi Hundun, being one of
the Other Companies
Our Group does not carry out development, design and
construction of intelligent systems and cloud computing
business
Taking into account the aforementioned delineating reasons, our Directors are of the view
that the businesses of our Controlling Shareholders and companies controlled by them (other
than our Group) are clearly delineated and do not compete with the businesses of our Group.
As at the Latest Practicable Date, our Controlling Shareholders had confirmed that none
of them and their respective close associates had any interest in any business which competes
or is likely to compete, whether directly or indirectly, with our business which would require
disclosure under Rule 8.10 of the Listing Rules.
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
– 406 –


--- page 417 ---
Operational independence
We believe that we can operate independently from our Controlling Shareholders due to
the following reasons:
(a) all relevant qualifications and licences necessary to operate our businesses,
including the grant of concession rights for exclusive provision of heat services in
the relevant Concession Areas, are held by our Group, and we enjoy all the rights
and benefits thereof;
(b) we have sufficient capital, operations, assets, facilities and employees to operate and
function our business independently from our Controlling Shareholders. We do not
rely on our Controlling Shareholders for access to customers, because we have
independent access to our customers. We are principally engaged in the provision of
heat services to residential and non-residential heat service customers, and our
non-residential heat service customers include property management companies,
commercial operators, government institutions, education institutions, airports, train
stations and hospitals. Our employees are independent from, and none of them are
remunerated by, our Controlling Shareholders and their respective associates;
(c) we also maintain a comprehensive set of internal control procedures for facilitating
the effective operation of our business. With reference to the relevant laws,
regulations and rules, we have developed sound corporate governance practice and
have adopted our rules of procedure for general meetings, rules of procedure for
Board meetings and connected transactions regulations in order to maintain effective
and independent operation; and
(d) we have a designated office serving our Board (responsible for the day-to-day affairs
of our Board), general office (responsible for administrative matters and the
operation of our Group), financial department (responsible for financial cost
management, contract cost department (responsible for and undertaking the control
and management of costs relating to the total cost structure of the development
projects), audit department (responsible for internal audit), engineering department
(responsible for engineering project implementation and management), technology
and quality management department (responsible for the research and development
of quality technology and product), safety and environmental management
department (responsible for safe production), material center and legal department,
human resources department, corporate control department (responsible for
comprehensive management of corporate). These departments are led and
supervised by our own senior management team. Our senior management report to
our Board and make decisions and form business plan and strategies in sales,
marketing, finance, technology, research and development and human resources
management independently from our Controlling Shareholders. In addition, we have
our own internal financial procedures and prepare our own financial budget
independently.
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
– 407 –


--- page 418 ---
We have entered into a number of transactions with the associates of our Controlling
Shareholders. In particular, we have entered into transactions with Shuangliang Eco-Energy
Group and Shuangliang Boiler for the purchase of heat services-related equipment and
procurement of add-on services in relation to heat service-related equipment in the course of
operation of our business during the Track Record Period. We also rented office premises from
Jiangyin Hotel and Shuangliang Spandex, the respective terms of which shall expire 31
December 2025 and 31 December 2024. Jiangyin Hotel is a direct non wholly-owned
subsidiary of Shuangliang Group Co., while Shuangliang Spandex is an indirect non
wholly-owned subsidiary of Shuangliang Technology. In addition, during the Track Record
Period, Jiangyin Hotel also provided accommodation, catering, reception and conference
organising services to our Group.
Our Directors are of the view that the above transactions will not undermine the
operational independence of our Group due to the following reasons:
(a) given that for the three years ended 31 December 2020, 2021 and 2022, the
aggregated transaction amounts for purchase of plant and equipment and other assets
and services from the associates of our Controlling Shareholders were
approximately RMB37.8 million, RMB15.8 million and RMB18.4 million, which
accounted for approximately 3.8%, 1.8% and 1.8% of our total cost of purchases,
respectively, the transaction amounts with the associates of our Controlling
Shareholders;
(b) the services we obtain from our Controlling Shareholders (including add-on services
in relation to heat services-related equipment, renting of offices premises,
subscription to accommodation, catering, reception and conference organising
services) are supporting in nature;
(c) we are not bound to and will not enter into further transactions with the associates
of our Controlling Shareholders unless we agree to do so;
(d) such equipment or assets purchased can be obtained or procured from Independent
Third Parties on similar or comparable commercial terms; and
(e) we have been engaged and will continue to be engaged in business relations with our
suppliers and customers, which are independent from our Controlling Shareholders.
Our Directors believe that these connected transactions will not give rise to any
business dependence or reliance issue between our Group and our Controlling
Shareholders or their respective associates, and that we will be able to find
substitute suppliers for the supply of products and equipment necessary for the
operation of our Group.
Based on the above, our Directors are of the view that there is no operational dependence
by our Group on the Controlling Shareholders or their respective associates.
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
– 408 –


--- page 419 ---
Financial independence
During the Track Record Period and up to the Latest Practicable Date, we have
established our own finance department with a team of independent financial staff who are
responsible for our financial management, accounting, reporting, funding and internal control
functions, which are independent from our Controlling Shareholders.
We are capable of making financial decisions independently according to our own needs,
and our Controlling Shareholders do not and will not interfere with our use of funds. We
maintain and manage bank accounts independently and do not share any bank accounts with
our Controlling Shareholders and/or their associates. We are registered independently for tax
in accordance with applicable laws and we pay tax independently pursuant to applicable PRC
tax laws and regulations, rather than on a combined basis with our Controlling Shareholders
or other enterprises under their control.
Our Group’s bank borrowings guaranteed by Shuangliang Group Co., a connected person
of our Company, as at 31 December 2020, 2021 and 2022 amounted to RMB286.1 million,
RMB271.9 million and RMB378.1 million, respectively. The guarantees provided by
Shuangliang Group Co. for our bank borrowings will be released upon the Listing. Our Group’s
bank borrowings guaranteed by Shuangliang Technology, one of our Controlling Shareholders,
as at 31 December 2020, 2021 and 2022 amounted to RMB90.0 million, RMB130.0 million and
nil, respectively. As at the Latest Practicable Date, such bank borrowings guaranteed by
Shuangliang Technology had been fully repaid. See notes 28 and 38(g) to the accountant’s
report as set out in Appendix I to this prospectus for details of the guarantees provided. Our
Directors are of the view that we are capable of obtaining financing from external sources
without reliance of the securities or collaterals provided by the Controlling Shareholders.
During the Track Record Period, our subsidiaries, namely Shuozhou Renewable Energy,
Hulunbuir Shuangliang, Lanzhou Shuangliang and Gansu Smart Energy entered into certain
financial lease agreements with Beijing Zhongchuang, a connected person of our Company, in
respect of sales and lease-back or financial arrangements in relation to certain assets and
equipment for operating heat service business of our Group (the “ Financial Lease
Agreements ”). The purpose of entering into the Financial Lease Agreements was to improve
the financial structure of our Group particularly our asset liability ratio, and to obtain financing
for the operation of our Group. The interest rate under these Financial Lease Agreements
ranged from 6.30% per annum to 6.90% per annum. The Financial Lease Agreements matured
in December 2022.
Our Directors confirm that (i) the terms of the Financial Lease Agreements were
determined by arm’s length negotiations between the respective parties with reference to the
prevailing market rent at the time when the Financial Lease Agreements were entered into and
on normal commercial terms which are fair and reasonable; and (ii) all borrowings and interest
under the Financial Lease Agreements shall be fully repaid to Beijing Zhongchuang before
Listing, and the Financial Lease Agreements will cease before Listing.
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
– 409 –


--- page 420 ---
As at 31 December 2020, 2021 and 2022, the outstanding balance of our borrowings from
Beijing Zhongchuang amounted to approximately RMB556.5 million, RMB300.9 million and
nil, which accounted for approximately 11.1%, 6.0% and nil of our total assets, respectively.
We intend to use bank borrowings to repay the outstanding balance of the borrowings and
interest under the Financial Lease Agreements.
During the Track Record Period, we also entered into a financing arrangement with
Shuangliang Technology pursuant to which advances from Shuangliang Technology were made
to us to facilitate our normal business development needs. As at 31 December 2019, such
advances from Shuangliang Technology had been fully repaid. Save for the above financing
arrangement, there was no other financing arrangement between our Group and the Controlling
Shareholders and/or their associates during the Track Record Period and up to the Latest
Practicable Date.
Our Directors believe that we have the ability to conduct our business independently from
our Controlling Shareholders and/or their associates from a financial perspective and are able
to maintain financial independence from our Controlling Shareholders due to the following
reasons:
(a) during the Track Record Period, instead of relying on the financial assistance
provided by our Controlling Shareholders and/or their associates, our Group had
diversified its sources of fund to borrowings from including banks and other
financial institutions; as at 31 December 2020, 2021 and 2022, our Group had
aggregate banking facilities of approximately RMB1,308.6 million, RMB1,061.3
million and RMB1,707.5 million, respectively; for details, see note 28 to the
accountant’s report as set out in Appendix I to this prospectus;
(b) we are able to obtain borrowing from Independent Third Parties on comparable
terms, as well as pledging the equity interest of our subsidiaries for securing bank
loans;
(c) our working capital will be funded by our operating income; for the years ended 31
December 2020, 2021 and 2022, our Group had recorded total revenue of
approximately RMB1,376.3 million, RMB1,290.6 million and RMB1,443.7 million,
respectively;
(d) our financial management department is capable of discharging the treasury
functions for cash receipts and payments, accounting, reporting and internal control
independently from our Controlling Shareholders and their associates.
Other than disclosed above, our Directors confirm that we do not intend to obtain any
further borrowings, guarantees, pledges or mortgages from any of our Controlling Shareholders
or their respective associates following the Listing.
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
– 410 –


--- page 421 ---
Management independence
Our Board currently consists of nine Directors, comprising three executive Directors,
three non-executive Directors and three independent non-executive Directors. Our supervisory
committee consists of three members. Mr. Miao Wenbin ( ᐷ˖੸΋͛), Mr. Ma Fulin (؍
΋͛) and Ms. Xu Lijie ( ஢ᘆᆎɾɻ), are the non-executive Directors and Mr. Ma Peilin ( ৵
΋͛) is one of the members of our supervisory committee. Mr. Miao Wenbin ( ᐷ˖੸΋
͛), Mr. Ma Fulin (΋͛) and Mr. Ma Peilin (΋͛) are our Controlling
Shareholders through their respective shareholdings in Shuangliang Technology and Jiangsu
Lichuang, while Ms. Xu Lijie ( ஢ᘆᆎɾɻ) is the cousin-in-law of Mr. Miao Wenbin ( ᐷ˖੸
΋͛) and the daughter-in-law of Mr. Miao Heida ( ᐷලɽ΋͛), one of our Controlling
Shareholders.
Our Directors are of the view that our Group will be able to operate independently from
our Controlling Shareholders upon the Listing for the following reasons:
(a) except our three non-executive Directors, namely Mr. Miao Wenbin ( ᐷ˖੸΋͛),
Mr. Ma Fulin (΋͛) and Ms. Xu Lijie ( ஢ᘆᆎɾɻ), none of our Directors
will hold any directorship or senior management roles in the associated companies
of our Controlling Shareholders upon the Listing. For details of roles of Mr. Miao
Wenbin ( ᐷ˖੸΋͛), Mr. Ma Fulin (΋͛) and Ms. Xu Lijie ( ஢ᘆᆎɾɻ)i n
the associated companies of our Controlling Shareholders, see “Directors,
supervisors and senior management – Board of Directors – Non-executive
Directors” in this prospectus. Mr. Miao Wenbin ( ᐷ˖੸΋͛), Mr. Ma Fulin ( ৵၅
΋͛) and Ms. Xu Lijie ( ஢ᘆᆎɾɻ), being the non-executive Directors, are not
involved in day-to-day management or affairs and operations of our businesses. In
the event that either Mr. Miao Wenbin ( ᐷ˖੸΋͛), Mr. Ma Fulin (΋͛)o r
Ms. Xu Lijie ( ஢ᘆᆎɾɻ) is required to abstain from any Board meeting of our
Company, or any matter which may give rise to a potential conflict of interest with
our Controlling Shareholders and/or their associates, the remaining Directors will
have sufficient expertise and experience to fully consider any of such matter;
(b) our Directors believe that our Board has a balanced composition of executive
Directors, non-executive Directors and independent non-executive Directors which
ensures the independence of our Board in making decisions affecting our Company.
Our three independent non-executive Directors account for one-third of our Board
as required under the Listing Rules, and none of these three independent non-
executive Directors have, and will have any ongoing role with the associated
companies of our Controlling Shareholders and accordingly, our independent
non-executive Directors can exercise independent judgement free from any conflict
of interest;
(c) we have adopted a number of corporate governance measures in order to manage any
potential conflict of interests which may arise between our Group and our
Controlling Shareholders as to safeguard the interests of our independent
Shareholders, the details of which are set out in “– Corporate Governance Measures”
below; and
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
–4 1 1–


--- page 422 ---
(d) each of our Directors is aware of his/her fiduciary duties as a Director, which
require, among other things, that he/she acts for the benefit and in the best interest
of our Shareholders as a whole and does not allow any conflict between his/her
duties as a Director and his/her personal interests to affect the performance of
his/her duties as a Director.
Based on the above, our Directors believe that our management team is independent from
our Controlling Shareholders, and that our Company can operate its business independently
from our Controlling Shareholders, and that all of our Directors have relevant experience and
ability to ensure proper and effective operation of our Board.
CORPORATE GOVERNANCE MEASURES
With a view to managing any potential conflict of interests arising between our Group and
our Controlling Shareholders as well as safeguarding the interests of our independent
Shareholders, we will adopt the following measures:
(a) in the event that the proposal of connected transactions between our Group and other
business or entity in which any Director or his respective associates had any interest
is submitted to our Board for consideration, such interested Director shall not be
counted in the quorum of the meeting, and shall abstain from voting on such matters.
In such event, the other non-interested Directors, with the assistance of our senior
management, will be responsible for making decisions for our Board. If necessary,
our Company will engage external professionals such as auditors, valuers and other
advisers to give advice;
(b) each Director is aware of his/her fiduciary duties as a Director, which require,
among other things, that he/she acts for the benefit of our Company and the
Shareholders as a whole and does not allow any conflict of interests between his/her
duties as a Director and his/her personal interests. If potential conflict of interest
arises, the interested Director(s) will bring the matter to the independent non-
executive Directors and shall not be present during the discussion of the relevant
resolution in which the conflict of interest may arise and shall abstain from voting
on such proposed resolution;
(c) our Company will engage Guotai Junan Capital Limited as our compliance adviser
who shall ensure that our Company is properly guided and advised as to compliance
with the Listing Rules and any other applicable laws and regulations. In particular,
any transactions between our Company and its connected persons shall be in
compliance with the relevant requirements of Chapter 14A of the Listing Rules,
including the announcement, annual reporting and independent shareholders’
approval requirements (if applicable) under the Listing Rules;
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
– 412 –


--- page 423 ---
(d) the independent non-executive Directors may engage an independent professional
advisers in appropriate circumstances at the costs of our Company; and
(e) our Directors are obliged under the Articles of Association to declare to our Board
any potential conflict of interest with our Group at Board meetings. It is provided
in the Articles of Association that a Director shall not vote (nor be counted in the
quorum) on any resolution of our Board approving any contract or arrangement or
other proposal in which he/she or any of his/her associates is materially interested.
Our Board (including the independent non-executive Directors) will monitor the
potential conflict of interest of Directors and our Directors have to submit
confirmations to our Board disclosing details of any interests in competing
businesses in any interim or annual reports to be issued by our Company.
Our Directors consider that the above corporate governance measures are sufficient to
manage any potential conflict of interests between each of Controlling Shareholders and their
respective associates and our Group, and that the interests of our Shareholders, in particular,
the minority Shareholders are protected.
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
– 413 –


--- page 424 ---
BOARD OF DIRECTORS
Our Board currently consists of nine Directors, comprising three executive Directors,
three non-executive Directors and three independent non-executive Directors. Our Board is
responsible and has the general authority for the management and operation of our Company,
as well as exercising other powers, functions and duties as conferred by our Articles of
Association. Our Directors are appointed for a term of three years and are eligible for
re-election upon expiry of their term of office.
The following table sets out certain information regarding the members of our Board.
Name Age Current position
Date of
appointment of
initial term
of office
Date of joining
our Group Roles and responsibilities
Relationship
with other
Directors/
supervisors/
senior
management
Mr. Geng Ming
(অჼ΋͛)
59 Chairman and
executive
Director
18 December
2015
3 September
2010
Convening and hosting
Board meetings, hosting
general meetings of our
Company, participating
in the decision-making
process of our Group’s
daily operation and
management
Nil
Mr. Li Baoshan
(ҽᘒʆ΋͛)
56 Executive Director
and general
manager
18 December
2015
26 September
2010
Overall management
oversight of our Group’s
business
Nil
Mr. Luo Wei
(ᖯਃ΋͛)
49 Executive Director,
deputy general
manager, and
Board secretary
23 November
2016
20 September
2015
Participating in daily
operation, management
and the decision making
of our Group, and taking
charge of the daily
activities of the office of
our Board
Nil
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
– 414 –


--- page 425 ---
Name Age Current position
Date of
appointment of
initial term
of office
Date of joining
our Group Roles and responsibilities
Relationship
with other
Directors/
supervisors/
senior
management
Mr. Miao Wenbin
(ᐷ˖੸΋͛)
44 Non-executive
Director
27 April 2020 27 April 2020 Participating in strategic
planning and advising
on the decision making
of our Group
Cousin-in-law of
Mr. Ma Fulin
(΋͛),
our non-
executive
Director, and
cousin-in-law
of Ms. Xu
Lijie ( ஢ᘆᆎ
ɾɻ), our
non-executive
Director
Mr. Ma Fulin
(΋͛)
59 Non-executive
Director
27 April 2020 10 October 2010 Participating in strategic
planning and advising
on decision-making of
our Group
Brother of
Mr. Ma Peilin
(΋͛),
our supervisor,
and cousin-in-
law of Mr.
Miao Wenbin
(ᐷ˖੸΋͛),
our non-
executive
Director
Ms. Xu Lijie
(஢ᘆᆎɾɻ)
45 Non-executive
Director
13 April 2023 13 April 2023 Participating in strategic
planning and advising
on decision-making of
our Group
Cousin-in-law of
Mr. Miao
Wenbin ( ᐷ˖
੸΋͛), our
non-executive
Director
Mr. Cheung Ho
Kong
(΋͛)
43 Independent
non-executive
Director
29 May 2023 29 May 2023 Supervising and providing
independent opinions
and advice to our Board
Nil
Dr. Tse Hiu Tung,
Sheldon
(௹ɻ)
58 Independent
non-executive
Director
29 May 2023 29 May 2023 Supervising and providing
independent opinions
and advice to our Board
Nil
Dr. Zhu Qing
(௹ɻ)
66 Independent
non-executive
Director
29 May 2023 29 May 2023 Supervising and providing
independent opinions
and advice to our Board
Nil
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
– 415 –


--- page 426 ---
Chairman
Mr. Geng Ming ( অჼ΋͛), aged 59, joined our Group in September 2010 and is
currently the chairman of our Board and an executive Director. Mr. Geng Ming is primarily
responsible for convening and hosting Board meetings, hosting general meetings of our
Company, participating in decision making process of our Group’s daily operation and
management.
Mr. Geng Ming has also held several positions in the companies within our Group,
including acting as (i) a supervisor of Shanxi Shuangliang Renewable Energy between October
2010 and April 2014 and the chairman of the board of directors of Shanxi Shuangliang
Renewable Energy since May 2014; (ii) a director of Gansu Shuangliang since January 2013;
(iii) a supervisor of Hulunbuir Shuangliang between March 2013 and January 2014 and a
director of Hulunbuir Shuangliang since January 2014; (iv) a director of Lanzhou Shuangliang
since February 2014; (v) an executive director of Wise Living Energy since November 2016;
(vi) the chairman of the board of directors of Wise Living Energy (Baotou) since November
2020; and (vii) an executive director of Wise Living Times (Beijing) Technology Company
Limited* (˾(̏ԯ)ʮ̡) since August 2022, and has been responsible for
managing and supervising the operation of these companies.
Prior to joining our Group, Mr. Geng Ming gained corporate management experience
from the following companies:
Period of services
Names of companies
outside our Group
Principal business
activities Last positions
Main
responsibilities
Between
May 1996 and
June 1997, and
between September
1998 and April 2004
Tianjin Office (፬ԫ
ஈ) of Shuangliang Eco-
Energy Systems
Company Limited Sales
Branch*
(ࠢ
ʮ̡ቖਯʱʮ̡)
(formerly known as
Jiangsu Shuangliang
Air-conditioning
Limited Sales Branch*
(΅
ʮ̡ቖਯʱʮ̡))
(“Shuangliang Eco-
Energy Sales Branch ”)
(Note 1)
 Sale of environmental
equipment and devices
 Manager  Managing
sales
operation in
Tianjin
market
 Sales of environmental
equipment and devices
 Deputy
general
manager
 Managing and
supervising
operation, and
forming
business
development
plans
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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Period of services
Names of companies
outside our Group
Principal business
activities Last positions
Main
responsibilities
Between
July 1997 and
August 1998
Jiangyin Hotel
(Note 2) Hotel business General manager Managing and
supervising
daily operation
Between
May 2004 and July
2010
Jiangsu Lishide Chemical
Company Limited*
(ʮ
̡) (formerly known as
Jiangsu Lishide Storage
Company Limited*
(ʮ
̡)
(Note 3)
Production of chemicals General manager Managing and
supervising
daily operation,
safety
production and
sales network
Notes:
(1) Shuangliang Eco-Energy Sales Branch was held as to 44.48% in aggregate by Mr. Miao Shuangda ( ᐷ
ᕐɽ΋͛) (one of our Controlling Shareholders) and his associates as at the Latest Practicable Date.
(2) Jiangyin Hotel was held as to 68% in aggregate by Mr. Miao Shuangda ( ᐷᕐɽ΋͛) (one of our
Controlling Shareholders) and his associates as at the Latest Practicable Date.
(3) Jiangsu Lishide Chemical Company Limited was a subsidiary of Shuangliang Technology (one of our
Controlling Shareholders) as at the Latest Practicable Date.
Mr. Geng Ming graduated from the Inner Mongolia College of Technology* ( ʫႆ̚ʈኪ
৫) (currently known as the Inner Mongolia University of Technology ( ʫႆ̚ʈุɽኪ)) in
Inner Mongolia, the PRC with a major in chemical engineering ( ʷʈዚ૛) in July 1986. He
was accredited as an engineer in chemical engineering ( ʷʈዚ૛) by the Office of Leading
Unit of Shaanxi Province Professional Title Deformation* (܃)
in April 1995.
Immediately following the completion of the Global Offering (taking no account of any
Shares which may be allocated and issued pursuant to the exercise of the Over-allotment
Option), Mr. Geng Ming will be interested in 2,000,000 Shares, representing approximately
0.66% of the issued share capital of our Company within the meaning of Part XV of the SFO.
Executive Directors
Mr. Li Baoshan ( ҽᘒʆ΋͛), aged 56, joined our Group in September 2010. He is
currently an executive Director and the general manager of our Company, and is primarily
responsible for the overall management oversight of our Group’s business.
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 428 ---
Mr. Li Baoshan has and had also held several positions in the companies within our
Group, including acting as (i) a general manager of Taiyuan Renewable Energy between May
2009 and December 2020; (ii) the chairman of the board of directors of Datong Renewable
Energy Since September 2009; (iii) the chairman of the board of directors of Lvliang City
Renewable Energy between November 2009 and December 2019; (iv) a director and a general
manager of Shanxi Shuangliang Renewable Energy since October 2010; (v) a director of Inner
Mongolia Wise Living since June 2018; and (vi) a director of Tech-Thermal (Zhengzhou) since
December 2020, and was responsible for managing and supervising the operation of these
companies.
Mr. Li Baoshan joined Sinopec New Star, an associate of our Company, in September
2014 and is currently its director. Sinopec New Star is principally engaged in the business of
development, construction and operation of heating and cooling and power generation projects,
and exploration and utilisation of renewable energy, and provision of heat services. Mr. Li
Baoshan’s main responsibilities at Sinopec New Star include attending the board meetings,
participating in the decision making in relation to business plans and investment plans, as well
as formulation of management policy.
Mr. Li Baoshan has and had served several public offices as set out in the following table:
Period of services Names of public offices Positions
Between July 2016 to
July 2020
Research Institute of Shanxi Province
Renewable Energy* ( ʆГ̙Ύ͛ঐ
Ӻ৫) in Shanxi Province, the
PRC
Legal representative
Between August 2017
to August 2021
Shanxi Province Renewable Energy
Industry Association* (̙Ύ
͛ঐ๕՘ึ) in Shanxi Province, the
PRC
Legal representative
Not Applicable 12th Meeting of National
Representatives All-China
Federation of Industry &
Commerce* ( ʕ਷ʈਠุᑌΥึୋɤ
ɽึ) in the PRC held
in November 2017
Representative
Since January 2018 12th Committee of The Chinese
People’s Political Consultative
Conference, Shanxi Province, the
PRC* (՘ਠึᙄୋɤ
ึ)
Committee member
Mr. Li Baoshan graduated from the master’s program in economics and management ( ຾
᏶၍ଣ) at Shanxi Provincial Committee Party School of C.P.C* (ࣧ)
currently known as Shanxi Provincial Committee Party School of C.P.C (Shanxi
Administrative College)* (ࣧ(ኪ৫)) in Shanxi Province, the PRC in
July 2005. He was accredited as an engineer by the Shanxi Province Forestry Department
Intermediate Technical Job Evaluation Committee* (ึ)
on 20 July 1997.
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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Immediately following the completion of the Global Offering (taking no account of any
Shares which may be allocated and issued pursuant to the exercise of the Over-allotment
Option), Mr. Li Baoshan will be interested in 6,000,000 Shares, representing approximately
1.99% of the issued share capital of our Company within the meaning of Part XV of the SFO.
Mr. Luo Wei ( ᖯਃ΋͛), aged 49, joined our Company in September 2015 and is
currently an executive Director, a deputy general manager of our Company and the Board
secretary. Mr. Luo Wei is primarily responsible for participating in daily operation,
management and decision making of our Group, and taking charge of the daily activities of the
office of our Board.
Mr. Luo Wei has also held several positions in the companies within our Group, including
acting as (i) a supervisor of Wise Living Energy since November 2016; (ii) a supervisor of
Gansu Smart Energy since November 2016; (iii) a supervisor of Lanzhou Shuangliang since
December 2016; (iv) a supervisor of Gansu Shuangliang since December 2016; (v) a supervisor
of Hulunbuir Shuangliang since December 2016; (vi) a supervisor of Shanxi Shuangliang
Renewable Energy since April 2017; (vii) a supervisor of Inner Mongolia Wise Living since
June 2018; (viii) a supervisor of Lanzhou Wise Living between August 2018 and March 2023;
(ix) a director of Wise Living Energy (Baotou) since November 2020; and (x) a director of
Tech-Thermal (Zhengzhou) since December 2020, and has been responsible for managing and
supervising the operation of these companies.
Mr. Luo Wei has approximately 25 years of working experience in auditing and financial
matters and gained experience from various auditing and corporate positions. Mr. Luo Wei
commenced his career as an auditor in Nanjing Yongsheng United Accountant’s Firm* (ԯ
הa firm providing audit services) between September 1994 and May
2001 and worked at the audit department of Shuangliang Group Co. (a connected person of our
Company) between May 2001 and January 2004, where he was responsible for dealing with
auditing and financial matters in both companies. Subsequently, he served as the chief financial
officer at Shuangliang Spandex (a subsidiary of Shuangliang Technology, one of our
Controlling Shareholders) which principally engages in the business of production of
differentiated chemical fibres and spandex high-tech chemical fibres between January 2004
and December 2013, and was mainly responsible for overseeing overall financial matters.
Between January 2014 and September 2015, he worked as a general manager at Wuxi
Zhongchuang Technology Microfinance Company Limited* (ʮ
̡) (formerly known as Wuxi FinTech Small Loans Limited* (ࠢ
ʮ̡) and Wuxi Changda Shuangliang Technology Microfinance Company Limited* ( ೌ፼̹
ʮ̡), a company held as to 40% by Shuangliang Technology and
20% by Jiangsu Lichuang, our Controlling Shareholders) which is in the money lending
business, and he was mainly responsible for the overall management of business and operation.
Mr. Luo Wei graduated from Nanjing Audit College (ኪ৫) (currently known as
Nanjing Audit University (ɽኪ)) in Jiangsu Province, the PRC, with a college degree
in finance in July 1994. Mr. Luo Wei was accredited as a Certified Public Accountant by the
Chinese Institute of Certified Public Accountants (՘ึ) on 26 November
2009.
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 430 ---
Non-executive Directors
Mr. Miao Wenbin ( ᐷ˖੸΋͛), aged 44, joined our Group in April 2020 and is currently
a non-executive Director. Mr. Miao Wenbin is primarily responsible for participating in
strategic planning and advising on decision making of our Group.
Mr. Miao Wenbin has and had served several companies (including listed companies) as
set out in the following table:
Period of services
Names of companies
outside our Group
Principal business
activities
Last/current
position Main responsibilities
Between January
2004 and
December 2006
Shuangliang Eco-Energy
Sales Branch
(Note 1)
Sale of environmental
equipment and devices
Assistant of
general manager
Participating in the
management of sales
business
Since
January 2007
Shuangliang Group Co.
(Note 2)
Manufacturing and sales of
devices, equipment and
accessories
Vice president Managing affairs of
investment and
public relations
Since
January 2009
Shanghai Shuangliang
Equity Investment
Company Limited* ( ɪऎ
ʮ̡)
(formerly known as
Shanghai Shuangliang
Borun Equity Investment
Company Limited* ( ɪऎ
ʮ
̡))
(Note 3)
Equity investment and
investment management
Chairman of the
board and
general manager
Convening and hosting
the board meetings,
hosting general
meetings, managing
operation and
supervision
Since March 2014 Wuxi Zhongchuang
Technology Microfinance
Company Limited* ( ೌ፼
ࠢ
ʮ̡) (formerly known as
Wuxi FinTech Small
Loans Limited* ( ೌ፼̹ፄ
ʮ̡)
and Wuxi Changda
Shuangliang Technology
Microfinance Company
Limited* (༺ᕐԄ
ʮ
̡))
(Note 7)
Money lending business Director Attending the board
meetings,
participating in the
decision making of
business plans and
investment plans as
well as formulation
of management
policy
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 431 ---
Period of services
Names of companies
outside our Group
Principal business
activities
Last/current
position Main responsibilities
Between June 2014
and February
2020
Jiangsu Hagong Intelligent
Robot Co., Ltd* (۞
ʮ
̡)), a company listed on
Shenzhen Stock Exchange
(stock code: 000584)
Manufacturing high-end
intelligent equipment
manufacturing and
artificial intelligence
robots
Director Attending the board
meetings,
participating in the
decision making of
business plans and
investment plans as
well as formulation
of management
policy
Since October 2014 Jiangsu Shuangliang
International Trade
Company Limited* ( Ϫᘽ
ʮ̡)
Trading of goods Director Attending the board
meetings,
participating in the
decision making of
business plans and
investment plans as
well as formulation
of management
policy
Between
August 2015 and
October 2022
Wuxi Shuangliang
Biological Technology
Company Limited* ( ೌ፼
ʮ̡)
(Note 4)
R&D, technology transfer
and technical services of
pharmaceuticals,
biological reagents,
chemical reagents,
pharmaceutical
intermediates, and APIs
Chairman of the
board
Convening and hosting
the board meetings,
hosting general
meetings,
participating in the
decision making
process of the
company’s daily
operation and
management
Since
March 2016
Wuxi Biotech Company
Limited* (ي
ʮ̡)
R&D, technology transfer
and technical services of
pharmaceuticals,
biological reagents,
chemical reagents,
pharmaceutical
intermediates, and APIs
Chairman of the
board
Convening and hosting
the board meetings,
hosting general
meetings,
participating in the
decision making
process of the
company’s operation
and management
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 432 ---
Period of services
Names of companies
outside our Group
Principal business
activities
Last/current
position Main responsibilities
Since June 2017 Shuangliang Technology Investment holding Chairman of the
board
Convening and hosting
the board meetings,
hosting general
meetings, and
participating in the
decision making of
the company’s
operation and
management
Since August 2017 Shuangliang Eco-Energy
(stock code: 600481.SH),
a company listed on
Shanghai Stock Exchange
(Note 5)
Manufacturing and sales of
products of (i) energy-
saving and water-saving
system; and (ii) new
energy system ( อঐ๕ӻ
୕)
Chairman of the
board
Convening and hosting
the board meetings,
hosting general
meetings,
participating in the
decision making of
the company’s daily
operation and
management
Since
January 2018
Zhejiang Shangda Public
Environmental Protection
Company Limited* ( एϪ
ʮ̡)
(formerly known as
Zhejiang Shuangliang
Shangda Environmental
Protection Company
Limited* ( एϪᕐԄਠ༺ᐑ
ʮ̡), Hangzhou
Zhanwang Environmental
Technology Company
Limited* (߅ڭ
ʮ̡), Zhejiang
Shangda Environmental
Protection Company
Limited* (Ϟ
ʮ̡), Hangzhou
Zhejiang-business
Environmental
Engineering Company
Limited* (ψएਠɽᐑྤ
ʮ̡))
Manufacturing and sales of
environmental protection
equipment
Director Attending the board
meetings,
participating in the
decision making of
business plans and
investment plans as
well as formulation
of management
policy
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 433 ---
Period of services
Names of companies
outside our Group
Principal business
activities
Last/current
position Main responsibilities
Since
October 2018
Shanghai Shuangliang Jiaxin
Investment Management
Company Limited* ( ɪऎ
ʮ
̡) (formerly known as
Shanghai Fantong
Investment Management
Company Limited* ( ɪऎ
ʮ̡))
(Note 3)
Investment management Chairman of the
board
Convening and hosting
the board meetings,
hosting general
meetings,
participating in the
decision making
process of the
company’s operation
and management
Between November
2018 and
November 2019
and since
February 2021
Wuxi Hundun
(Note 6) Development, design and
construction of intelligent
systems and cloud
computing
Director Attending the board
meetings, and
participating in the
decision making in
relation to business
plans and investment
plans as well as
formulation of
management policy
Notes:
(1) Shuangliang Eco-Energy Sales Branch was held as to 44.48% in aggregate by Mr. Miao Shuangda
(ᐷᕐɽ΋͛) (one of our Controlling Shareholders) and his associates as at the Latest Practicable Date.
(2) Shuangliang Group Co. was held as to 68% in aggregate by Mr. Miao Shuangda ( ᐷᕐɽ΋͛) (one of
our Controlling Shareholders) and his associates as at the Latest Practicable Date.
(3) Shanghai Shuangliang Equity Investment Company Limited and Shanghai Shuangliang Jiaxin
Investment Management Company Limited were subsidiaries of Shuangliang Group Co.. Shuangliang
Group Co. was held as to 68% in aggregate by Mr. Miao Shuangda ( ᐷᕐɽ΋͛) (one of our Controlling
Shareholders) and his associates as at the Latest Practicable Date.
(4) Wuxi Shuangliang Biological Technology Company Limited was a subsidiary of Shuangliang
Technology (one of our Controlling Shareholders) as at the Latest Practicable Date.
(5) Shuangliang Eco-Energy was held as to 44.48% in aggregate by Mr. Miao Shuangda ( ᐷᕐɽ΋͛) (one
of our Controlling Shareholders) and his associates as at the Latest Practicable Date.
(6) Wuxi Hundun was held as to 83.8% by Shanghai Tongsheng LP. Shanghai Tongsheng LP was held as
to 68.5% in aggregate by Mr. Miao Shuangda ( ᐷᕐɽ΋͛) (one of our Controlling Shareholders) and
his associates as at the Latest Practicable Date.
(7) Wuxi Zhongchuang Technology Microfinance Company Limited was held as to 40% by Shuangliang
Technology and 20% by Jiangsu Lichuang, both were our Controlling Shareholders as at the Latest
Practicable Date.
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 434 ---
Further, Mr. Miao Wenbin holds several public offices:
Period of services Names of public offices
Last/current
position
Since January 2015 Jiangyin Young Entrepreneurs
Association* (՘ึ)
Vice chairman
Since May 2015 Jiangsu Young Entrepreneurs Association*
(ᑌΥึ)
Vice chairman
Between
September 2016
and August 2018
APEC China Business Council ( ԭ˄຾Υ
ଡ଼ᔌ(APEC) ʕ਷ʈਠଣԫึ)
Council member
Since December
2017
Jiangsu Sushang Development Promotion
Association* (ආึ)
Co-chairman
Since April 2019 Jiangsu Youth Association* (ϋᑌ
Υึ)
Committee member
Not Applicable Fifth Meeting of the 13th National
People’s Congress of Jiangsu Province*
(ɽึୋʞϣึ
ᙄ) held in January 2022
Representative
Mr. Miao Wenbin obtained a bachelor’s degree in information management from Nanjing
University (ԯɽኪ) in Jiangsu Province, the PRC, in July 2000. He further achieved a
master’s degree of business administration (financial management emphasis) from City
University of Seattle in Seattle, Washington State, the U.S., in September 2003.
Mr. Miao Wenbin is one of our Controlling Shareholders through his shareholdings in
Shuangliang Technology and Jiangsu Lichuang.
Mr. Ma Fulin (΋͛), aged 59, joined our Group in October 2010 and is currently
a non-executive Director. Mr. Ma Fulin is primarily responsible for participating in strategic
planning and advising on decision-making of our Group.
Mr. Ma Fulin had also held several positions in the companies within our Group,
including acting as (i) the chairman of the board of directors of Shanxi Shuangliang Renewable
Energy between October 2010 and May 2014, (ii) the chairman of the board of directors of
Hulunbuir Shuangliang between March 2013 and February 2014, and (iii) a director of
Lanzhou Shuangliang between July 2013 and February 2014, and was responsible for
managing and supervising the operation of these companies.
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 435 ---
Prior to joining our Group, Mr. Ma Fulin has accumulated his rich managerial experience
through several business and management positions as set out in the following table:
Period of services
Names of companies
outside our Group
Principal business
activities
Last/current
position Main responsibilities
Since
October 1995
Shuangliang Group
Co.(Note 1)
Manufacturing and sales of
devices, equipment and
accessories
Vice president ( ਓ
ᐼ൒)
Managing the sales of
various products
Since
December 1997
Shuangliang Technology Investment holding Director Attending the
board meetings,
participating in the
decision making in
relation to business
plans and investment
plans, as well as
formulation of
management policy
Since
October 1998
Jiangsu Chengli Investment
Consulting Company
Limited* (ے
ʮ̡)
(Note 2)
Advising on investments Director Attending the
board meetings, and
participating in the
decision making of
the company’s
operation and
management
Since March 2000 Shuangliang Boiler
(Note 3) Manufacturing and sales of
boilers
Director Attending the board
meetings,
participating in the
decision making of
business plans and
investment plans, as
well as formulation
of management
policy
Since December
2003
Jiangsu Shuangliang
Composite Material
Company Limited* ( Ϫᘽ
ʮ̡)
(Note 4)
Manufacturing of plastic
alloys (GMT sheet) and
its products
Director Attending the board
meetings,
participating in the
decision making of
business plans and
investment plans as
well as formulation
of management
policy
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 436 ---
Period of services
Names of companies
outside our Group
Principal business
activities
Last/current
position Main responsibilities
Between September
2004 and April
2020, and since
May 2020
Jiangsu Lichuang Investment Holding  Chairman of the
board (between
September 2004
and April 2020)
 Director (since
May 2020)
 Convening and
hosting the board
meetings, hosting
general meetings,
and participating in
the decision making
process of the
company’s daily
operation and
management
 Attending the board
meetings,
participating in the
decision making of
business plans and
investment plans, as
well as formulation
of management
policy
Since June 2005 Jiangyin Shuangliang
Machinery Company
Limited* ( Ϫ௕ᕐԄዚ૛Ϟ
ʮ̡)
(Note 3)
Research, development and
production of cleaning
machines and their
accessories
Director Attending the board
meetings,
participating in the
decision making of
business plans and
investment plans as
well as formulation
of management
policy
Since August 2011 Beijing Supower Technology
Co. Ltd ( ̏ԯᘽཥঐ๕Ҧ
ʮ̡)
Project contracting Director Attending the board
meetings,
participating in the
decision making of
business plans and
investment plans as
well as formulation
of management
policy
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 437 ---
Period of services
Names of companies
outside our Group
Principal business
activities
Last/current
position Main responsibilities
Since August 2017 Jiangyin Shuangliang
Graphene Photocatalysis
Technology Company
Limited* ( Ϫ௕ᕐԄͩኈଖ
ʮ̡)
(formerly known as
Jiangyin Lichuang
Graphene Photocatalysis
Technology Company
Limited* ( Ϫ௕л௴ͩኈଖ
ʮ̡))
Air pollution prevention and
control services
Director Attending the board
meetings, and
participating in the
decision making in
relation to business
plans and investment
plans as well as
formulation of
management policy
Notes:
(1) Shuangliang Group Co. was held as to 68% in aggregate by Mr. Miao Shuangda ( ᐷᕐɽ΋͛) (one of
our Controlling Shareholders) and his associates as at the Latest Practicable Date.
(2) Jiangsu Chengli Investment Consulting Company Limited was a subsidiary of Shuangliang Group Co..
Shuangliang Group Co. was held as to 68% in aggregate by Mr. Miao Shuangda ( ᐷᕐɽ΋͛) (one of
our Controlling Shareholders) and his associates as at the Latest Practicable Date.
(3) Shuangliang Boiler and Jiangyin Shuangliang Machinery Company Limited were subsidiaries of
Shuangliang Technology (one of our Controlling Shareholders) as at the Latest Practicable Date.
(4) Jiangsu Shuangliang Composite Material Company Limited was held as to 60.7% in aggregate by Mr.
Ma Fulin (΋͛) (our non-executive Director and one of our Controlling Shareholders), Mr. Ma
Peilin (΋͛) (our supervisor and one of our Controlling Shareholders) and their associates.
Mr. Ma Fulin obtained a bachelor’s degree in chemical-engineering from the Inner
Mongolia College of Technology* ( ʫႆ̚ʈኪ৫) (currently known as the Inner Mongolia
University of Technology ( ʫႆ̚ʈุɽኪ)) in Inner Mongolia, the PRC, in July 1986. He
further achieved an executive master’s degree of business administration (Executive MBA
Programme) from China Europe International Business School ( ʕᆄ਷ყʈਠኪ৫)i n
Shanghai, the PRC, in March 2002.
Mr. Ma Fulin is one of our Controlling Shareholders through his shareholdings in
Shuangliang Technology and Jiangsu Lichuang.
Ms. Xu Lijie ( ஢ᘆᆎɾɻ), aged 45, joined our Group in April 2023 and is currently a
non-executive Director. Ms. Xu Lijie is primarily responsible for participating in strategic
planning and advising on decision-making of our Group.
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 438 ---
Prior to joining our Group, Ms. Xu Lijie has and had served several companies as set out
in the following table:
Period of services
Names of companies
outside our Group
Principal business
activities
Last/current
position Main responsibilities
Between October
1999 and
September 2007
Shuangliang
Eco-Energy Sales
Branch
(Note 1)
Sale of environmental
equipment and
devices
Staff Participating in project
bidding, developing sales
market, and coordinating
sales resources of all
branches
Between October
2007 and
September 2019
Shuangliang
Spandex
(Note 2)
Production of
differentiated
chemical fibres and
spandex high-tech
chemical fibres
Head of
management*
(ڗand
deputy general
manager
Managing daily operation,
participating in the
discussion and decision
making of development
plans, operation strategies,
work plans as well as
major issues in daily
operation, participating in
external coordination on
any communication or
dealing with government
authorities, and reviewing
important reports,
documents and materials
submitted and printed
externally
Between September
2019 and
February 2020
Shuangliang Group
Co.
(Note 3)
Manufacturing and
sales of devices,
equipment and
accessories
Deputy director of
president office*
(ᐼ൒፬ਓ˴΂)
Standardising the daily
implementation of various
management systems,
managing the
administrative aspect of
the company, handling and
formulating main targets,
plans, policies and
systems, participating in
the company’s major
decision making,
arranging regular meetings
of the company, and
organising and handling
events and matters relating
to external affairs
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 439 ---
Period of services
Names of companies
outside our Group
Principal business
activities
Last/current
position Main responsibilities
Since February 2020 Jiangsu Shuangliang
Cooling System
Co., Ltd.* ( Ϫᘽᕐ
ʮ
̡)
(Note 4)
Air cooling systems*
(иӻ୕)
Executive director Being responsible for the
company’s development,
production and operation
management, setup and
adjustment of
organisations, salary
adjustments, establishment
and improvement of
important rules and
regulations, and
management of other
major issues
Since November
2021
Jiangyin Shuangliang
Bihong Steel
Structure
Engineering
Technology Co.,
Ltd* ( Ϫ௕ᕐԄ̀
҃፻࿴ʈ೻ҦஔϞ
ʮ̡)
(Note 5 )
Provision of design,
construction,
maintenance and
consultancy services
relating to steel
structure works and
other construction
works
Director and
general manager
Being responsible for the
overall management of the
company’s daily operation
and business
Ms. Xu Lijie graduated from Jiangsu Luoshe Normal School* (ࣧi n
Jiangsu Province, the PRC, with a college degree in ordinary teachers* (ਖ਼ุ) in July
1996.
Notes:
(1) Shuangliang Eco-Energy Sales Branch was held as to 44.48% in aggregate by Mr. Miao Shuangda ( ᐷᕐɽ΋
͛) (one of our Controlling Shareholders) and his associates as at the Latest Practicable Date.
(2) Shuangliang Spandex was a subsidiary of Shuangliang Technology (one of our Controlling Shareholders) as
at the Latest Practicable Date.
(3) Shuangliang Group Co. was held as to 68% in aggregate by Mr. Miao Shuangda ( ᐷᕐɽ΋͛) (one of our
Controlling Shareholders) and his associates as at the Latest Practicable Date.
(4) Jiangsu Shuangliang Cooling System Co., Ltd. was a subsidiary of Shuangliang Eco-Energy. Shuangliang
Eco-Energy was held as to 44.48% in aggregate by Mr. Miao Shuangda ( ᐷᕐɽ΋͛) (one of our Controlling
Shareholders) and his associates as at the Latest Practicable Date.
(5) Jiangyin Shuangliang Bihong Steel Structure Engineering Technology Co., Ltd was a subsidiary of
Shuangliang Eco-Energy. Shuangliang Eco-Energy was held as to 44.48% in aggregate by Mr. Miao Shuangda
(ᐷᕐɽ΋͛) (one of our Controlling Shareholders) and his associates as at the Latest Practicable Date.
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 440 ---
INDEPENDENT NON-EXECUTIVE DIRECTORS
Mr. Cheung Ho Kong (΋͛), aged 43, was appointed as an independent
non-executive Director on 29 May 2023. He is responsible for supervising and providing
independent opinions and advice to our Board.
Mr. Cheung Ho Kong is a managing director of China Goldlink Capital Group Limited
since November 2021, which is primarily engaged in the business of financial service. Mr.
Cheung Ho Kong has accumulated more than 20 years of experience in accounting and finance
in the following companies, where he was mainly involved in audit and corporate finance
matters.
Period of services
Names of
companies
Principal
business
activities Last position
Between September
2001 and December
2004
KPMG Audit, tax and
advisory
services
Assistant manager
Between January
2005 and May
2007
Hong Kong
Exchanges and
Clearing Limited
(stock code: 388),
a company listed
on the Stock
Exchange
Stock exchange
operation
Assistant manager
Between June 2007
and May 2010
GuocoCapital
Limited (currently
known as Mason
Securities
Limited)
Financial service Senior manager
Between June 2010
and April 2013
Guotai Junan (Hong
Kong) Limited
Financial service Associate director
Between April 2013
and January 2014
Taiping Capital
Limited
Financial service Executive director
Between April 2014
and November
2021
Messis Capital
Limited
Financial service Managing director
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 441 ---
Mr. Cheung Ho Kong has been a certified public accountant of The Hong Kong Institute
of Certified Public Accountants since January 2005. Further, he has been a responsible officer
licensed and registered with the SFC to conduct type 1 (dealing in securities) regulated
activities since April 2016 and type 6 (advising on corporate finance) regulated activities since
August 2012.
Mr. Cheung Ho Kong obtained a bachelor’s degree in accounting and finance from the
University of Hong Kong in Hong Kong in November 2001 and a master’s degree in business
administration through a distant learning program from Royal Holloway and Bedford New
College of University of London in the U.K. in December 2018.
Dr. Tse Hiu Tung, Sheldon (௹ɻ) (also known as Xie Xiaodong), aged 58, was
appointed as our independent non-executive Director on 29 May 2023. He is responsible for
supervising and providing independent opinions and advice to our Board.
Since 1998, Dr. Tse Hiu Tung, Sheldon has been a practicing solicitor in Hong Kong and
is currently a partner at a law firm in Hong Kong, and has over 20 years of experience in
corporate finance, mergers and acquisitions, private equity and foreign direct investment
matters. Outside our Group, Dr. Tse Hiu Tung, Sheldon has held positions in the following
companies the shares of which are listed on the Stock Exchange in the past three years:
Period of services
Names of listed
companies
Last/current
position Main responsibilities
Between August
2018 and
December 2020
Fullsun International
Holdings Group Co.,
Limited, a company
listed on the Stock
Exchange (stock
code: 627)
Independent
non-executive
director
Overseeing the
management of the
group independently
Since September
2020
China Aircraft Leasing
Group Holdings
Limited, a company
listed on the Stock
Exchange (stock
code: 1848)
Independent
non-executive
director
Overseeing the
management of the
group independently
Dr. Tse Hiu Tung, Sheldon is qualified to practise law in Hong Kong (admitted in July
1998), England and Wales (admitted in November 1998) and the PRC (admitted in September
1995). Dr. Tse Hiu Tung, Sheldon is currently a China-appointed Attesting Officer ( ʕ਷։ৄ
ʮᗇɛ). He has also been a member of the 12th China Political Consultative Committee of
Guizhou Province since January 2018.
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 442 ---
Dr. Tse Hiu Tung, Sheldon obtained a bachelor’s degree in law from Zhongshan
University in Guangzhou, the PRC in July 1986. Further, Dr. Tse Hiu Tung, Sheldon obtained
a degree of master of laws and a degree of doctor of philosophy from the University of London,
the United Kingdom in November 1989 and January 1994, respectively.
Dr. Zhu Qing (௹ɻ), aged 66, was appointed as an independent non-executive
Director on 29 May 2023. He is responsible for supervising and providing independent
opinions and advice to our Board.
Dr. Zhu Qing has been working in the School of Finance (ፄኪ৫) of Renmin
University of China ( ʕ਷ɛ͏ɽኪ) in Beijing, the PRC since June 1987 with current position
as a professor, and has been responsible for teaching and research work in the fields of public
finance and tax. Dr. Zhu Qing (௹ɻ) has also served as an independent director of
Zhongtai Trust Company Limited (ப΂ʮ̡) (formerly known as Agricultural
Bank of China Xiamen Trust and Investment Company* (ৄҳ༟ʮ̡))
since July 2014, responsible for overseeing the management of the group independently.
Further, he has and had held the positions in several listed companies as set out in the
following table:
Period of
services Names of listed companies
Last/current
positions Main responsibilities
Between
June 2014 and
February 2017
Jiangsu Hagong Intelligent
Robot Co., Ltd* (۞
ʮ
̡) (formerly known as
Jiangsu Youli Investment
Holding Company
Limited* ( Ϫᘽʾлҳ༟છ
ʮ̡)) (stock
code: 000584), a company
listed on Shenzhen Stock
Exchange
Independent
director
Overseeing the
management of the
group independently
Between
April 2013 and
April 2018,
and since
March 2022
Jangho Group Company
Limited* (ٰ
ʮ̡) (stock code:
601886), a company listed
on Shanghai Stock
Exchange
Independent
director
Overseeing the
management of the
group independently
Between August
2014 and June
2021
Industrial Bank Company
Limited (΅Ϟ
ʮ̡) (stock code:
601166), a company listed
on Shanghai Stock
Exchange
Independent
director
Overseeing the
management of the
group independently
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 443 ---
Period of
services Names of listed companies
Last/current
positions Main responsibilities
Since June 2021 Industrial Bank Company
Limited (΅Ϟ
ʮ̡) (stock code:
601166), a company listed
on Shanghai Stock
Exchange
Supervisor Monitoring and
supervising the
operational and
financial activities of
the company
Between
January 2017
and October
2020
Zhejiang Jinlihua Electric
Company Limited* ( एϪ
ʮ̡)
(stock code: 300069), a
company listed on
Shenzhen Stock Exchange
Independent
director
Overseeing the
management of the
group independently
Since
June 2017
Jiangsu Jiangyin Rural
Commercial Bank
Company Limited* ( Ϫᘽ
΅Ϟ
ʮ̡) (stock code:
002807), a company listed
on Shenzhen Stock
Exchange
Independent
director
Overseeing the
management of the
group independently
Dr. Zhu Qing obtained a bachelor’s degree in economics majoring in public finance from
the Beijing Economics Institute ( ̏ԯ຾᏶ኪ৫) (currently known as Capital University of
Economics and Business (ɽኪ)) in Beijing, the PRC in July 1984. Further, Dr.
Zhu Qing obtained a master’s degree in economics from Renmin University of China ( ʕ਷ɛ
͏ɽኪ) in Beijing, the PRC in July 1987 and a doctorate degree in economics from Renmin
University of China ( ʕ਷ɛ͏ɽኪ) in June 2001.
Dr. Zhu Qing was accredited as an independent director by Shanghai Stock Exchange ( ɪ
ה׸in April 2013.
Except as disclosed in this section, to the best of the knowledge, information and belief
of our Directors, supervisors and senior management having made all reasonable enquiries,
there are no other matters that need to be brought to the attention of the Shareholders in
connection with the appointment of our Directors, supervisors and senior management, and
there is no information relating to our Directors, supervisors and senior management that is
required to be disclosed pursuant to Rule 13.51(2) or paragraph 41(3) of Appendix 1A to the
Listing Rules, including matters relating to directorships held by our Directors, supervisors and
senior management in any public companies, the securities of which are listed on any securities
market in Hong Kong or overseas in the last three years immediately preceding the date of this
prospectus.
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 444 ---
Save as disclosed in “Relationship with our Controlling Shareholders” in this prospectus,
none of our Directors, supervisors and senior management has any interests in any business,
apart from our Group’s business, which competes or is likely to compete, either directly or
indirectly, with our Group’s business.
SUPERVISORY COMMITTEE
Our supervisory committee consists of three members, one of whom is an employee
representative supervisor. The supervisors are appointed for a term of three years and eligible
for re-election upon expiry of their term of office.
The following table sets out certain information regarding the members of our
supervisory committee.
Name Age Current position
Date of
appointment of
initial term
of office
Date of joining
our Group
Roles and
responsibilities
Relationship
with other
Directors/
supervisors/
senior
management
Mr. Ma Peilin
(΋͛)
56 Chairman of our
supervisory
committee
November 2015 January 2013 Directing the activities of
our supervisory
committee, monitoring
and supervising our
operational and financial
activities
Brother of
Mr. Ma Fulin,
a non-
executive
Director of
our Company
Mr. Chen Zhen
(΋͛)
41 Supervisor April 2020 April 2020 Monitoring and
supervising our
operational and financial
activities
Nil
Mr. Liu Zhigang
(΋͛)
43 Employee
representative
supervisor
September 2019 August 2015 Monitoring and
supervising our
operational and financial
activities
Nil
Mr. Ma Peilin (΋͛), aged 56, is the chairman of the supervisory committee of
our Company. He was appointed as our supervisor on 17 November 2015, and is primarily
responsible for directing the activities of our supervisory committee, and monitoring and
supervising our operational and financial activities.
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 445 ---
Mr. Ma Peilin joined our Group as a supervisor at Gansu Shuangliang between January
2013 and April 2014 and was responsible for monitoring and supervising operational and
financial activities. Since December 2015, he has been the chairman of the supervisory
committee of our Company, and has been responsible for directing the activities of the
supervisory committee, monitoring and supervising our operational and financial activities.
Outside of our Group, Mr. Ma Peilin had gained his work experience in several companies
as set out in the following table:
Period of services
Names of public offices
outside our Group Principal business activities
Last/current
position Main responsibilities
Between January 1993
and October 1995,
between March 2000
and December 2006,
and since January
2017
Shuangliang Group
Co.
(Note 1)
Manufacturing and sales of
devices, equipment and
accessories
President Managing and
supervising daily
operation and business
Between
October 1995 and
March 2000, and
since August 2015
Shuangliang Eco-Energy, a
company listed on Shanghai
Stock Exchange (stock code:
600481.SH)
(Note 2)
Manufacturing and sales of
products of (i) energy-
saving and water-saving
system; and (ii) new energy
system ( อঐ๕ӻ୕)
Supervisor Monitoring and
supervising
operational and
financial activities
Between September
2004 and April
2020, and since
May 2020
Jiangsu Lichuang Investment Holding  Director
(between
September 2004
and April 2020)
 Chairman of
the board (since
May 2020)
 Attending the board
meetings,
participating in the
decision making of
business plans and
investment plans, as
well as formulation of
management policy
 Convening and
hosting the board
meetings, hosting
general meetings, and
participating in the
decision making
process of the
company’s daily
operation and
management
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 446 ---
Period of services
Names of public offices
outside our Group Principal business activities
Last/current
position Main responsibilities
Between November
2005 and June 2017
Shuangliang Technology Investment holding Chairman of the
board
Convening and hosting
the board meetings,
hosting general
meetings, participating
in the decision
making process of the
company’s daily
operation and
management
Since October 2012 Beijing Zhongchuang
(Note 3) Financial leasing Chairman of the
board
Convening and hosting
the board meetings,
hosting general
meetings, participating
in the decision
making process of the
company’s daily
operation and
management
Since November 2013 Jiangsu Lishide Chemical
Company Limited* ( Ϫᘽл
ʮ̡) (formerly
known as Jiangsu Lishide
Storage Company Limited*
(ʮ
̡))
(Note 4)
Manufacturing chemicals Director Attending the board
meetings, participating
in the decision
making of business
plans and investment
plans as well as
formulation of
management policy
Since March 2014 Wuxi Zhongchuang Technology
Microfinance Company
Limited* (Ҧʃ
ʮ̡) (formerly
known as Wuxi FinTech
Small Loans Limited* ( ೌ፼
ʮ
̡) and Wuxi Changda
Shuangliang Technology
Microfinance Company
Limited* (߅
ʮ̡))
(Note 5)
Money lending business Chairman of the
board
Convening and hosting
the board meetings,
hosting general
meetings, participating
in the decision
making process of the
company’s daily
operation and
management
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 447 ---
Period of services
Names of public offices
outside our Group Principal business activities
Last/current
position Main responsibilities
Between January 2015
and February 2017
Jiangsu Hagong Intelligent
Robot Co., Ltd* (ʈ౽
ʮ̡)), a
company listed on Shenzhen
Stock Exchange (stock code:
000584)
Manufacturing high-end
intelligent equipment
manufacturing and artificial
intelligence robots
Chairman of the
board
Convening and hosting
the board meetings,
hosting general
meetings, participating
in the decision
making process of
daily operation and
management
Notes:
(1) Shuangliang Group Co. was held as to 68% in aggregate by Mr. Miao Shuangda ( ᐷᕐɽ΋͛) (one of
our Controlling Shareholders) and his associates as at the Latest Practicable Date.
(2) Shuangliang Eco-Energy was held as to 44.48% in aggregate by Mr. Miao Shuangda ( ᐷᕐɽ΋͛) (one
of our Controlling Shareholders) and his associates as at the Latest Practicable Date.
(3) Beijing Zhongchuang was held as to 90% by Mr. Ma Fulin (΋͛) (our non-executive Director
and one of our Controlling Shareholders), Mr. Ma Peilin (΋͛) (our supervisor and one of our
Controlling Shareholders) and their associates as at the Latest Practicable Date.
(4) Jiangsu Lishide Chemical Company Limited was a subsidiary of Shuangliang Technology (one of our
Controlling Shareholders) as at the Latest Practicable Date.
(5) Wuxi Zhongchuang Technology Microfinance Company Limited was held as to 40% by Shuangliang
Technology and 20% by Jiangsu Lichuang, both are our Controlling Shareholders as at the Latest
Practicable Date.
Between November 2001 and February 2005, Mr. Ma Peilin was a supervisor of Shenzhen
Zhongtuo Investment Co., Limited (ʮ̡) (a company established in
Shenzhen, Guangdong Province, the PRC in the business of investment management)
(“Zhongtuo Investment ”). The business licence of Zhongtuo Investment was revoked on 1
February 2005 for not undergoing regulatory annual inspection, and was not deregistered as at
the Latest Practicable Date. Mr. Ma Peilin confirmed that (i) Zhongtuo Investment was solvent
immediately prior to the revocation of business licence; and (ii) there was no wrongful act or
any personal liability on his part leading to the revocation of business licence of Zhongtuo
Investment.
Mr. Ma Peilin obtained a bachelor’s degree in economics from Inner Mongolia University
of Finance and Economics ( ʫႆ̚ৌ຾ኪ৫) in Inner Mongolia, the PRC, in July 1990 and an
executive master’s degree of business administration (Executive MBA Programme) from China
Europe International Business School ( ʕᆄ਷ყʈਠኪ৫) in Shanghai, the PRC, in July 2006.
Mr. Ma Peilin was awarded as the Accountant of the Year 2010* (2010ɛ
يby China Association of Chief Financial Officers (՘ึ) on 19 December
2010.
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 448 ---
Mr. Ma Peilin is one of our Controlling Shareholders through his shareholdings in
Shuangliang Technology and Jiangsu Lichuang.
Mr. Chen Zhen (΋͛), aged 41, was appointed as a supervisor of our Company for
the first time on 27 April 2020, and he is primarily responsible for monitoring and supervising
our operational and financial activities.
Between October 2009 and May 2012, Mr. Chen Zhen gained his corporate and audit
experience by working at Talent Certified Public Accountants (הa firm
providing audit services in Jiangsu Province, the PRC and as a treasurer at Shuangliang
Eco-Energy (a company which is principally engaged in the manufacturing and sales of
products of (i) energy-saving and water-saving systems and (ii) new energy systems ( อঐ๕
ӻ୕)) between June 2012 and December 2012. Between January 2013 and September 2019,
Mr. Chen Zhen was promoted as the chief financial officer of Shuangliang New Energy
Equipment, and was responsible for overall management of auditing and financial matters.
Since September 2019, Mr. Chen Zhen has been the general manager of the auditing
department of Shuangliang Group Co. (a company which is principally engaged in the
manufacturing of equipment, devices and accessories) and has been mainly responsible for
internal control and overall management of audit affairs. Since September 2022, Mr. Chen
Zhen has been a supervisor of Shuangliang Eco-Energy.
Mr. Chen Zhen obtained a bachelor’s degree of art majoring in journalism from Nanchang
University (ɽኪ) in Jiangxi Province, the PRC in July 2004. Mr. Chen Zhen obtained a
master’s degree of business administration from Southeast University (ɽኪ) in Jiangsu
Province, the PRC, in March 2012.
Mr. Liu Zhigang (΋͛), aged 43, is an employee representative supervisor of our
Company. He was appointed as our supervisor for the first time in September 2019, and is
primarily responsible for monitoring and supervising our operational and financial activities.
Mr. Liu Zhigang joined our Group in August 2015 and has held several positions in the
companies within our Group, including acting as (i) the deputy general manager of Hulunbuir
Shuangliang between August 2015 and September 2018, and the general manager and a director
of Hulunbuir Shuangliang since March 2022; and (ii) a director of Inner Mongolia Wise Living
since June 2018 and the deputy general manager of Inner Mongolia Wise Living since
September 2018, and has been mainly responsible for the overall management of these
companies.
Mr. Liu Zhigang was a sales representative at Shuangliang Eco-Energy Sales Branch (a
branch which is principally engaged in the sales of environmental equipment and devices)
between May 2010 and September 2014, where he was responsible for marketing and sales, Mr.
Liu later worked as a sales manager between September 2014 and August 2015, where he was
responsible for managing and supervising operation and formation of business development
plans.
Mr. Liu Zhigang graduated from Inner Mongolia Agricultural University ( ʫႆุ༵̚ɽ
ኪ) in Inner Mongolia, the PRC, with a major in environmental engineering in July 2004.
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 449 ---
SENIOR MANAGEMENT
The following table sets out certain information regarding the members of our senior
management.
Name Age Current position
Date of
appointment of
initial term of
office
Date of joining
our Group
Roles and
responsibilities
Relationship
with other
Directors/
supervisors/
members of
our senior
management
Mr. Li Baoshan
(ҽᘒʆ΋͛)
56 Executive Director
and general
manager
December 2015 May 2009 Overall management
oversight of our Group
business
Nil
Mr. Hu Xirong
(፼࿲΋͛)
52 Deputy general
manager
January 2018 October 2010 Participating in the daily
operation of our Group
with a focus on its
marketing, public
relation and business
development
Nil
Mr. Luo Wei
(ᖯਃ΋͛)
49 Executive Director,
deputy general
manager, and
Board secretary
September 2015 September 2015 Participating in the daily
operation, management
and decision making of
our Group; and taking
charge of the daily
activities of the office of
our Board
Nil
Mr. Chen Xibao
(௓ఃజ΋͛)
49 Deputy general
manager
December 2015 October 2010 Heating technology, CCHP
(a balanced energy mix)
and quality control with
a focus on project
expansion and
development in
Zhengzhou, Henan
Province, the PRC
Nil
Mr. Yang Xiaojin
(เʃආ΋͛)
35 Chief financial
officer
October 2019 May 2017 Overall financial
management of our
Group
Nil
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 450 ---
Mr. Li Baoshan ( ҽᘒʆ΋͛), aged 56, is the general manager of our Company. For
details of biography of Mr. Li Baoshan, see “Directors, supervisors and senior management –
Board of Directors – Executive Directors” in this prospectus.
Mr. Hu Xirong (፼࿲΋͛), aged 52, is one of the deputy general managers of our
Company. Mr. Hu Xirong is primarily responsible for participating in the daily operation of our
Group with a focus on its marketing, public relation and business development.
Mr. Hu Xirong has and had also held several positions in the companies within our Group,
including acting as (i) a director of Shanxi Shuangliang Renewable Energy since October 2010;
(ii) a supervisor of Shuozhou Renewable Energy since May 2011, and (iii) a director of
Tech-Thermal (Zhengzhou) since December 2020.
Mr. Hu Xirong served as an executive Director between October 2021 and March 2023.
He resigned as an executive Director effective from 28 March 2023 due to re-allocation of
directorate posts. Mr. Hu Xirong has confirmed that he does not have any disagreement with
our Board, and there is no other matter relating to his resignation that needs to be brought to
the attention of the Shareholders or the Stock Exchange.
Prior to joining our Group, Mr. Hu Xirong was a branch manager and a sales
representative at Shanxi Office ( ʆГ፬ԫஈ) of Shuangliang Eco-Energy Sales Branch
between April 1998 and October 2010, and was responsible for the product sales and marketing
in the Shanxi market.
Mr. Hu Xirong graduated with a bachelor’s degree in accounting from Shanxi College of
Finance and Economics* ( ʆГৌ຾ኪ৫) (currently known as Shanxi University of Finance
and Economics ( ʆГৌ຾ɽኪ)) in Shanxi Province, the PRC, in July 1993. Further, Mr. Hu
Xirong obtained a master’s degree of business administration from Shanxi University of
Finance and Economics ( ʆГৌ຾ɽኪ) in December 2008. Mr. Hu Xirong was accredited as
a Certified Public Accountant by the Chinese Institute of Certified Public Accountants ( ʕ਷
՘ึ) on 20 December 2002.
Mr. Luo Wei ( ᖯਃ΋͛), aged 49, is one of the deputy general managers of our
Company. For details of biography of Mr. Luo Wei, see “Directors, supervisors and senior
management – Board of Directors – Executive Directors” in this prospectus.
Mr. Chen Xibao ( ௓ఃజ΋͛), aged 49, joined our Group in December 2009 and is
currently one of the deputy general managers of our Company. He is primarily responsible for
heating technology, CCHP (a balanced energy mix) and quality control with a focus on project
expansion and development in Zhengzhou, Henan Province, the PRC.
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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--- page 451 ---
In addition to his role as a deputy general manager of our Company, Mr. Chen Xibao has
and had held several other positions within our Group including acting as (i) a vice president
of Shanxi Shuangliang Renewable Energy between December 2009 and October 2015; (ii) a
supervisor of Southern Taiyuan Heat Supply between April 2013 and March 2020; (iii) an
executive director and a general manager of Zhengzhou Wise Living since November 2018;
and (iv) a supervisor of Tech-Thermal (Zhengzhou) since December 2020, and has been
responsible for managing and supervising the operation of these companies.
Mr. Chen Xibao gained his managerial experience through various positions before
joining our Group, the details of which are set out in the following table:
Period of services Names of public offices
Principal business
activities Positions Main responsibilities
Between March 2001 and
November 2006 and
between December 2007
and November 2009
Architecture Eco-energy
Research Institute of
Zhengzhou University
Multi-Functional Design
and Research Academy*
(Ӻ৫
ה)
Research and
development
Chief engineer and
deputy dean
Supervising projects of
research and
development
Between December 2006 and
December 2007
Linzhou Second
Construction Group
Construction Company
Limited* (ܔ
ʮ̡)
Construction New and
renewable
energy
development and
utilisation
engineer
Planning, design,
construction,
commissioning and
maintenance of new
and renewable
energy projects
Between February 2006 and February 2012, Mr Chen Xibao was a supervisor of
Zhengzhou Clay Building Energy Saving Technology Co., Limited* (ጘືঐҦஔϞ
ʮ̡) (a company established in Zhengzhou, Henan Province, the PRC and was engaged in
the business of energy contract management services) (“ Zhengzhou Clay ”). The business
licence of Zhengzhou Clay was revoked on 17 February 2012 for not undergoing regulatory
annual inspection, which was not deregistered as at the Latest Practicable Date. Mr. Chen
Xibao confirmed that (i) Zhengzhou Clay was solvent immediately prior to the revocation of
business licence; and (ii) there was no wrongful act or any personal liability on his part leading
to the revocation of business licence of Zhengzhou Clay.
Further, Mr. Chen Xibao has been a vice chairman (ڗof Shanxi Renewable
Energy Association* ( ʆГ̙Ύ͛ঐ๕՘ึ) and a vice dean of Shanxi Renewable Energy
Academy* (Ӻ৫) since December 2010.
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Mr. Chen Xibao graduated with a college degree majoring in fine chemical engineering
from Zhengzhou College of Technology* ( ቍψʈኪ৫) (currently known as Zhengzhou
University ( ቍψɽኪ)) in Henan Province, the PRC in June 1995. Mr. Chen Xibao further
obtained a bachelor’s degree of engineering majoring in computer science and technology
through correspondence education from the PLA Information Engineering University ( ʕ਷༆
ʈ೻ɽኪ) (currently known as the PLA Strategic Support Force Information
Engineering University (ʈ೻ɽኪ)) in Henan Province, the
PRC, in June 2010. He was accredited as an urban construction engineer* (ࢪb y
Anyang People’s Government (ִ݁in Henan Province, the PRC, in September
2007.
Mr. Y ang Xiaojin ( เʃආ΋͛), aged 35, joined our Group in May 2017 and is currently
the chief financial officer of our Company. He is primarily responsible for the overall financial
management of our Group. Within our Group, Mr. Yang Xiaojin has also been serving as the
chief financial officer of Shanxi Shuangliang Renewable Energy since May 2017, and has been
responsible for managing and supervising financial and auditing affairs.
Prior to joining our Group, Mr. Yang Xiaojin worked as an audit specialist dealing with
internal audit matters in Shuangliang Group Co. (a company which is principally engaged in
the manufacturing of equipment, devices and accessories) between April 2014 and May 2015.
He then worked at Shuangliang Eco-Energy (a company which is principally engaged in the
manufacturing and sales of products of (i) energy-saving and water-saving systems and (ii) new
energy systems ( อঐ๕ӻ୕)) as a finance manager between June 2016 and April 2017 and was
responsible for managing and processing financials of its group and subsidiaries.
Mr. Yang Xiaojin obtained a bachelor’s degree majoring in business administration from
Tiangong University (ʈุɽኪ) in Tianjin Municipality, the PRC, in June 2011. Mr. Yang
Xiaojin further obtained a master’s degree of management majoring in accounting from the
same university in March 2014.
Except as disclosed in this section, none of the members of our senior management held
any other directorships in public companies, the securities of which are listed on any securities
market in Hong Kong or overseas, in the last three years immediately preceding the date of this
prospectus.
BOARD SECRETARY
Mr. Luo Wei (ᖯਃ΋͛), aged 49, is currently the Board secretary of our Company. For
details of biography of Mr. Luo Wei, see “Directors, supervisors and senior management –
Board of Directors – Executive Directors” in this prospectus.
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JOINT COMPANY SECRETARIES
M r .M aK e( ৵д΋͛), aged 31, is the joint company secretary of our Company effective
from the Listing Date. Within our Group, Mr. Ma Ke has been a supervisor of Wise Living
Energy (Baotou) since November 2020, a supervisor of Tech-Thermal (Zhengzhou) since
December 2020 and a supervisor of Wise Living Times (Beijing) Technology Company
Limited* (˾(̏ԯ)ʮ̡) since August 2022, and has been responsible for
monitoring and supervising operational and financial activities.
Prior to joining our Group, Mr. Ma Ke commenced his career in July 2017 as an assistant
auditor at Talent Certified Public Accountants (הBeijing office, a firm
providing audit service until May 2018. From August 2018 to December 2019, he worked at
Bank of China Insurance Company Limited (ʮ̡) in Beijing, the PRC.
Mr. Ma Ke obtained a bachelor’s degree majoring in accounting from University of San
Francisco in California, the U.S. in May 2016, and further obtained a master’s degree of
finance from Tulane University in New Orleans, Louisiana, the U.S. in May 2017.
Mr. Tso Ping Cheong, Brian (΋͛), aged 42, is the joint company secretary of
our Company effective from the Listing Date.
Mr. Tso Ping Cheong, Brian has over 16 years of experience in accounting and financial
management. From September 2003 to December 2008, Mr. Tso Ping Cheong, Brian worked
for Ernst & Young and last held the position of manager and was responsible for the assurance
and advisory business services. From December 2008 to May 2010, he worked for Greenheart
Group Limited (stock code: 94), a company listed on the Main Board of the Stock Exchange
as financial controller. From May 2010 to August 2012, he worked for Maxdo Project
Management Company Limited as senior vice president of the investment team. Since October
2020, Mr. Tso Ping Cheong, Brian has been a company secretary of Bright Future Technology
Holdings Limited (stock code: 1351), a company listed on the Main Board of the Stock
Exchange. Mr. Tso Ping Cheong, Brian founded Teton CPA Company, an accounting firm, in
January 2013 and he has been the sole proprietor since then.
Mr. Tso Ping Cheong, Brian obtained his bachelor’s degree in accountancy from the Hong
Kong Polytechnic University in Hong Kong in November 2003. He obtained his master’s
degree in corporate governance from the Hong Kong Polytechnic University in Hong Kong in
October 2013. Mr. Tso Ping Cheong, Brian is currently a practising and fellow member of the
Hong Kong Institute of Certified Public Accountants, a fellow member of the Association of
Chartered Certified Accountants and the Hong Kong Institute of Chartered Secretaries.
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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Pursuant to Rule 3.28 of the Listing Rules, an issuer must appoint as its company
secretary an individual who, by virtue of his or her academic or professional qualifications or
relevant experience, is, in the opinion of the Stock Exchange, capable of discharging the
functions of company secretary.
We have applied to the Stock Exchange for, and the Stock Exchange has granted us, a
waiver from strict compliance with Rules 3.28 and 8.17 of the Listing Rules, with regards to
the qualifications of Mr. Ma Ke for acting as one of the joint company secretaries. For further
details of this waiver application, see “Waivers from strict compliance with the Listing Rules
– Joint company secretaries” in this prospectus.
W AIVER FROM RULE 8.12 AND RULE 19A.15 OF THE LISTING RULES
We have applied to the Stock Exchange for, and the Stock Exchange has granted us, a
waiver from strict compliance with Rule 8.12 and Rule 19A.15 of the Listing Rules regarding
the requirement of management presence in Hong Kong. For details of the waiver, see
“Waivers from strict compliance with the Listing Rules – Management presence in Hong
Kong” in this prospectus.
BOARD COMMITTEES
Our Board delegates certain responsibilities to various Board committees. In accordance
with the relevant PRC laws and regulations, the Articles of Association and the Listing Rules,
we have established our audit committee, remuneration committee, and nomination committee.
Audit committee
We have established our audit committee with the terms of reference in compliance with
relevant laws and regulations of the PRC, Rule 3.21 of the Listing Rules and paragraph D.3.3
of part 2 of the Corporate Governance Code as set out in Appendix 14 to the Listing Rules.
Audit committee of our Company consists of three Directors, namely Mr. Cheung Ho Kong ( ੵ
΋͛), Dr. Zhu Qing (௹ɻ) and Mr. Miao Wenbin ( ᐷ˖੸΋͛). Mr. Cheung Ho Kong
(΋͛) currently serves as the chairman of our audit committee. The primary
responsibilities of the audit committee include but not limited to:
 monitoring and evaluating the work of the external auditor;
 supervising the implementation of our internal audit system of our Company;
 being responsible for the communications among the management level of our
Company, internal and external audit;
 reviewing the financial reports of our Company;
 examining the financial reporting system, risk management and internal control
systems of our Company;
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 making recommendations to our Company on the appointment, re-appointment and
removal of the external auditor; and
 performing such other duties determined by our Board or required under the relevant
laws and regulations.
Remuneration committee
We have established our remuneration committee with the terms of reference in
compliance with relevant laws and regulations of the PRC, Rule 3.25 of the Listing Rules and
paragraph E.1.2 of part 2 of the Corporate Governance Code as set out in Appendix 14 to the
Listing Rules. The remuneration committee of our Company consists of three Directors,
namely Dr. Zhu Qing (௹ɻ), Dr. Tse Hiu Tung, Sheldon (௹ɻ) and Mr. Ma Fulin
(΋͛). Dr. Zhu Qing (௹ɻ) currently serves as the chairman of our remuneration
committee. The primary responsibilities of the remuneration committee include but not limited
to:
 making recommendations to our Board on our Company’s policy and structure for
all remuneration of our Directors and senior management and making
recommendations on employee benefit arrangement and formulating a formal and
transparent procedure for developing remuneration policies;
 determining the specific remuneration for all executive Directors and senior
management and proposing to our Board with respect to the remuneration of the
non-executive Directors;
 discussing the policies of and plans on the salary, benefits and rewards of our
Company, making recommendations to our Board about and monitoring the
implementation of the same; and
 performing such other duties determined by our Board or required under the relevant
laws and regulations.
Nomination committee
We have established our nomination committee with the terms of reference in compliance
with relevant laws and regulations of the PRC, Rule 3.27A of the Listing Rules and paragraph
B.3.1 of part 2 of the Corporate Governance Code as set out in Appendix 14 to the Listing
Rules. The nomination committee of our Company consists of three Directors, namely Mr.
Geng Ming ( অჼ΋͛), Dr. Zhu Qing (௹ɻ) and Dr. Tse Hiu Tung, Sheldon (௹ɻ).
Mr. Geng Ming currently serves as the chairman of our nomination committee. The primary
responsibilities of the nomination committee include but not limited to:
 making recommendations to our Board on its size and composition to complement
our Company’s business operation and shareholding structure;
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 reviewing and making recommendations to the selection standards and procedures
of Directors and senior management;
 reviewing the structure, size and composition (including skills, knowledge and
experience) of our Board at least annually and making recommendations on any
proposed changes to our Board to complement our Company’s corporate strategies;
 assessing the independence of our independent non-executive Directors; and
 performing such other duties determined by our Board or required under the relevant
laws and regulations.
REMUNERATION POLICY AND EMOLUMENT OF OUR DIRECTORS,
SUPERVISORS AND SENIOR MANAGEMENT
Our Group offers our executive Directors, employee representative supervisor and senior
management members, who are also employees of our Company, remuneration in the form of
salaries, allowances, discretionary bonus and benefits in kind. Our independent non-executive
Directors receive emolument-based on their responsibilities (including being members or
chairman of the Board committees). We adopt a market and incentive based employee
emolument structure and implement a multi-layered evaluation system which focuses on
performance and management goals.
For the three years ended 31 December 2020, 2021 and 2022, the aggregate emolument
(including the aggregate amount of fees, salaries, discretionary bonus, welfare contribution
plans (including pensions), housing, other allowances and other benefits in kind) of our
Directors and supervisors were approximately RMB6,001,000, RMB7,971,000 and
RMB7,179,000, respectively. Details of the arrangement for remuneration are set out in Note
9(c) to the accountant’s report as set out in Appendix I to this prospectus. In accordance with
the arrangements currently in force, the aggregate emolument payable to our Directors and
supervisors for the year ending 31 December 2023 will be approximately RMB8.6 million.
For the three years ended 31 December 2022, the aggregate amount of emolument of the
five highest-paid individuals of our Group excluding Directors and supervisors were
RMB1,616,000, RMB2,200,000 and RMB950,000, respectively.
During the Track Record Period, no remuneration was paid to, or receivable by, our
Directors, supervisors or the five highest-paid individuals of our Company as an inducement
to join or upon joining our Company, or as a compensation for loss of office in the Track
Record Period. In addition, none of our Directors or supervisors had waived any emolument
during the same period.
Save as disclosed above, no other payments have been paid, or are payable, by our
Company or any of our subsidiaries to our Directors, supervisors or the five highest paid
individuals of our Company for the Track Record Period.
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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COMPLIANCE ADVISER
We have appointed Guotai Junan Capital Limited as our compliance adviser pursuant to
Rules 3A.19 and 19A.05 of the Listing Rules. Pursuant to Rule 3A.23 of the Listing Rules, our
compliance adviser will advise us 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 under the
Listing Rules, is contemplated, including share issues and share repurchases;
(c) where we propose to use the net proceeds from the Global Offering in a manner
different from that detailed in this prospectus or where our Group’s business
activities, developments or results of operation deviate from any forecast, estimate
or other information in this prospectus; and
(d) where the Stock Exchange makes an inquiry of our Company regarding unusual
movements in the price or trading volume of its listed securities or any other matters
under Rule 13.10 of the Listing Rules.
The term of appointment will commence on the Listing Date and end on the date on which
we despatch our annual report of the first full financial year commencing after the Listing Date
and such appointment may be subject to extension by mutual agreement.
CORPORATE GOVERNANCE
Our Directors recognise the importance of incorporating elements of good corporate
governance in the management structures and internal procedures of our Group so as to achieve
effective accountability and are committed to ensure the lawful, ethical and responsible
operation of our Group’s businesses. Our Company has adopted the core provisions stated in
the Corporate Governance Code, with internal compliance policies in place which set out our
compliance requirements so as to ensure consistency with the code provisions stated in the
Corporate Governance Code.
In addition, our Company provides regular and ad hoc trainings to our employees to
familiarise them with our internal compliance policies and equip them with the necessary
knowledge for effective and consistent implementation of our internal compliance policies.
Our Company is also committed to the view that our Board should include a balanced
composition of executive Directors and independent non-executive Directors to ensure a strong
independent element on our Board, which allows for effective exercise of independent
judgement.
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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In addition, pursuant to the Corporate Governance Code as set out in Appendix 14 to the
Listing Rules, our Board will regularly review whether each of our Directors is devoting
sufficient time and attention to the affairs of our Group including but not limited to the review
of the attendance record of Board meetings or Board committee meetings. Should there be
concerns on the time commitments by the relevant Director(s) to our Group, our Board may
request the relevant Director(s) to provide an update to our Board in relation to any changes
with respect to his significant commitments.
As at the Latest Practicable Date, to the best of the knowledge, information and belief of
our Directors having made all reasonable enquiries, our Directors were not aware of any
deviation from the code provisions of the Corporate Governance Code as set out in Appendix
14 to the Listing Rules.
BOARD DIVERSITY POLICY
In order to enhance the effectiveness of our Board and maintain a high standard of
corporate governance, we have adopted a board diversity policy, which sets out the aim and
approach towards achieving and maintaining diversity of our Board. Pursuant to such board
diversity policy, when selecting candidates to our Board, we will consider a wide range of
factors, including but not limited to, the appropriate balance of gender, skills, age, cultural and
education background, ethnicity, professional experience, knowledge, length of service and
any other factors that our Board may consider relevant and applicable from time to time, in
order to achieve board diversity. The ultimate decision of the appointment will be based on
merit and contribution that the selected candidates will bring to our Board.
Our Directors have a balanced mix of knowledge and skills, including overall corporate
management, business strategies and planning, heating engineering, construction projects
management, finance and business administration. They also obtained degrees in various areas,
including engineering, economics, education, finance, accounting and business administration.
We have three independent non-executive Directors, representing one-third of the members of
our Board. Further, our Board has a relatively wide range of age, ranging from 43 years old to
65 years old.
While one of our Directors is a female, we recognise that the gender diversity at the Board
level can be further improved. As much as we value gender parity and female leadership that
enhance the effectiveness of our Board and standard of corporate governance, we are in an
industry that is dominated primarily by male professionals with science background. With that
said, our Board will ensure that appropriate balance of gender diversity is achieved with
reference to investors’ expectation, and international and local recommended best practices.
With a view to developing a pipeline of potential successors to our Board that may achieve
gender diversity, we will (i) make appointments based on merits with reference to board
diversity as a whole; (ii) take steps to promote gender diversity at all levels of our Group by
recruiting staff of different gender; (iii) consider the possibility of nominating female
management staff who has the necessary skills and experience to our Board; and (iv) provide
career development opportunities and more resources in training female staff with the aim of
promoting them to our senior management or our Board so that we will have a pipeline of
female senior management and potential successors to our Board in a few years’ time.
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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Going forward, our nomination committee will be responsible for ensuring the diversity
of our Board. After the Listing, our nomination committee will monitor the implementation of
our board diversity policy, review and amend this policy when necessary to ensure its
effectiveness. We will also disclose the implementation of our board diversity policy in our
corporate governance report on an annual basis.
Taking into account our existing business model and specific needs as well as the
different background and abilities of our Directors, our Directors are of the view that the
current composition of our Board satisfies our board diversity policy.
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SUBSTANTIAL SHAREHOLDERS AS AT THE LATEST PRACTICABLE DATE
As at the Latest Practicable Date, our registered capital was RMB226,000,000 comprising
226,000,000 Domestic Shares and the following persons directly or indirectly controlled or
were entitled to exercise the control of 10% or more of our Shares:
Name of Shareholder Nature of interest
Number and class of
securities
Approximate
percentage of
shareholding
Shuangliang Technology (Note 1 ) Legal and beneficial
owner
150,000,000 Domestic
Shares
66.38%
Jiangsu Lichuang (Note 2 ) Legal and beneficial
owner
51,000,000 Domestic
Shares
22.58%
Notes:
(1) The registered capital of Shuangliang Technology is held as to 20% by Mr. Miao Shuangda ( ᐷᕐɽ΋
͛), 15% by Mr. Miao Wenbin ( ᐷ˖੸΋͛), 10% by Mr. Miao Zhiqiang ( ᐷқ੶΋͛), 10% by Ms.
Miao Shuya ( ᐷബૹɾɻ), 10% by Mr. Miao Heida ( ᐷලɽ΋͛), 15% by Mr. Jiang Rongfang ( Ϫ࿲
˙΋͛), 10% by Mr. Ma Peilin (΋͛) and 10% by Mr. Ma Fulin (΋͛).
(2) The registered capital of Jiangsu Lichuang is held as to 20% by Mr. Miao Shuangda ( ᐷᕐɽ΋͛), 15%
by Mr. Miao Wenbin ( ᐷ˖੸΋͛), 10% by Mr. Miao Zhiqiang ( ᐷқ੶), 10% by Ms. Miao Shuya ( ᐷ
ബૹɾɻ), 10% by Mr. Miao Heida ( ᐷලɽ΋͛), 15% by Mr. Jiang Rongfang ( Ϫ࿲˙΋͛), 10% by
Mr. Ma Peilin (΋͛) and 10% by Mr. Ma Fulin (΋͛).
SUBSTANTIAL SHAREHOLDERS UPON THE LISTING
So far as our Directors are aware immediately following the completion of the Global
Offering, and assuming the Over-allotment Option is not exercised, the following persons will,
have or be deemed or taken to have interests or short positions in our Shares or underlying
shares of our Company which would be required to be disclosed to us and the Stock Exchange
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 nominal value of any class of share capital carrying
rights to vote in all circumstances at general meetings of our Company:
Name of Shareholder
Nature of
interest Class of Shares
Immediately prior to the
Global Offering (Note)
Immediately following the
completion of the Global
Offering (Note)
Number
Percentage
(approx.) Number
Percentage
(approx.)
Shuangliang Technology Beneficial owner Domestic Shares 150,000,000 (L) 66.38% 150,000,000 (L) 49.75%
Jiangsu Lichuang Beneficial owner Domestic Shares 51,000,000 (L) 22.58% 51,000,000 (L) 16.91%
Note: The letter “L” denotes a long position in our Shares.
SUBSTANTIAL SHAREHOLDERS
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Save as disclosed in “– Substantial Shareholders upon the Listing” in this section, our
Directors are not aware of any person who will, immediately following the completion of the
Global Offering, have a direct or indirect interest or short position in the Shares or the
underlying Shares of our Company which would fall to be disclosed to our Company and the
Stock Exchange under the provision of Divisions 2 and 3 of Part XV of the SFO, or directly
or indirectly be 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 member of our Company.
We are not aware of any arrangement which may result in any change of control in our
Company at any subsequent date.
For those who are directly and/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
meeting of any other member of our Group, see “Statutory and general information” as set out
in Appendix VII to this prospectus.
SUBSTANTIAL SHAREHOLDERS
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This section presents certain information regarding our share capital before and upon
completion of the Global Offering.
BEFORE THE GLOBAL OFFERING
As at the Latest Practicable Date, the registered capital of our Company was
RMB226,000,000, comprising 226,000,000 Domestic Shares of nominal value RMB1.00 each.
UPON COMPLETION OF THE GLOBAL OFFERING
Immediately following completion of the Global Offering, assuming that the Over-
allotment Option is not exercised, our share capital would be categorised as follows:
Description of Shares
Number of
Shares
Approximate
percentage of
issued share
capital
Domestic Shares 226,000,000 74.93%
H Shares to be issued under the Global Offering 75,600,000 25.07%
301,600,000 100.00%
Immediately following completion of the Global Offering and assuming that the
Over-allotment Option is fully exercised, our share capital would be categorised as follows:
Description of Shares
Number of
Shares
Approximate
percentage of
issued share
capital
Domestic Shares 226,000,000 72.22%
H Shares to be issued under the Global Offering 86,940,000 27.78%
312,940,000 100.00%
SHARE CLASSES
Upon completion of the Global Offering, we would have two classes of Shares: Domestic
Shares and H Shares. Domestic Shares and H Shares are all ordinary Shares in the share capital
of our Company. However, apart from certain qualified domestic institutional investors in the
PRC, the qualified PRC investors under the Shanghai-Hong Kong Stock Connect and other
persons who are entitled to hold our H Shares pursuant to relevant PRC laws and regulations
or upon approvals of any competent authorities, H Shares generally cannot be subscribed for
or be traded between legal or natural persons of the PRC.
SHARE CAPITAL
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Domestic Shares and H Shares are regarded as one class of shares under our Articles of
Association, and Domestic Shares and H Shares will rank pari passu with each other in all other
respects and, in particular, will rank equally for all dividends or distributions declared, paid or
made after the date of this prospectus. All dividends in respect of our Shares are to be declared
and paid by us in Hong Kong dollars or Renminbi. In addition to cash, dividends may be
distributed in the form of Shares.
CONVERSION OF OUR DOMESTIC SHARES INTO H SHARES
All our Domestic Shares are not listed or traded on any stock exchange. The holders of
Domestic Shares may convert their Domestic Shares into H Shares provided such conversion
shall have gone through any requisite internal approval process and complied with the
regulations prescribed by the securities regulatory authorities of the State Council and the
regulations, requirements and procedures prescribed by the overseas stock exchange(s) and
have been approved by the securities regulatory authorities of the State Council, including the
CSRC. The listing of such converted Shares on the Stock Exchange will also require the
approval of the Stock Exchange.
Based on the procedures for the conversion of our Domestic Shares into H Shares as
disclosed in this section, we can apply for the listing of all or any portion of our Domestic
Shares on the Stock Exchange as H Shares in advance of any proposed conversion to ensure
that the conversion process can be completed promptly upon notice to the Stock Exchange and
delivery of Shares for entry on the H Share register. As any listing of additional Shares after
our initial listing on the Stock Exchange is ordinarily considered by the Stock Exchange to be
a purely administrative matter, it will not require such prior application for listing at the time
of our Listing.
No class Shareholder voting is required for the listing and trading of the converted Shares
on the Stock Exchange. Any application for listing of the converted Shares on the Stock
Exchange after our initial listing is subject to prior notification by way of announcement to
inform Shareholders and the public of such proposed conversion.
See “Risk factors – Risks relating to our business and industry – The sales or potential
sales of substantial amounts of our H Shares in the public market (including any future
offering) may affect the prevailing market price of our H Shares and our ability to raise capital
in the future, and future additional issuance of securities may dilute your shareholdings” in this
prospectus for more details.
After all the requisite approvals have been obtained, the following procedures will need
to be completed: the relevant Domestic Shares will be withdrawn from the Domestic Share
register and we will re-register such Shares on our H Share register maintained in Hong Kong
and instruct the H Share registrar to issue H Share certificates. Registration on our H Share
register will be on the condition that (a) our H Share registrar lodges with the Stock Exchange
a letter confirming the proper entry of the relevant H Shares on the H Share register and the
due dispatch of H Shares certificates and (b) the admission of the H Shares to trade on the
Stock Exchange will comply with the Listing Rules and the General Rules of CCASS and the
CCASS Operational Procedures in force from time to time. Until the converted Shares are
re-registered on our H Share register, such Shares would not be listed as H Shares.
SHARE CAPITAL
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So far as we are aware, none of our Shareholders currently propose to convert any of their
Domestic Shares into H Shares.
REGISTRATION OF SHARES NOT LISTED ON OVERSEAS STOCK EXCHANGE
According to the Notice of Centralised Registration and Deposit of Non-overseas Listed
Shares of Companies Listed on an Overseas Stock Exchange (ྤ̮ɪ̹
) issued by the CSRC, an overseas listed company is
required to register and deposit its shares that are not listed on the overseas stock exchange
with China Securities Depository and Clearing Corporation Limited within 15 working days
upon listing and provide a written report to the CSRC regarding the centralised registration and
deposit of non-overseas listed shares as well as the offering and listing of the H Shares.
SHARE CAPITAL
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The following discussion and analysis of our business, financial position and results
of operations are based on and should be read in conjunction with our financial
statements as at and for each of the years ended 31 December 2020, 2021 and 2022,
including the notes thereto, as set out in the accountant’ s report as set out in Appendix
I to this prospectus and other financial information appearing elsewhere in this
prospectus. Our consolidated financial statements have been prepared in accordance
with IFRS, which may differ in certain material aspects from generally accepted
accounting principles in other jurisdictions. Unless the context otherwise requires,
financial information described in this section is described on a consolidated basis.
The following discussion and analysis contain 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 a cross-provincial heat service provider mainly operating in the “Three North
Region”. According to the Frost & Sullivan Report, we were ranked No. 9 in terms of the
aggregate actual heat service area in Shanxi Province, Gansu Province and Inner Mongolia
Autonomous Region in 2022, with a market share of approximately 2.4% in terms of aggregate
actual heat service area. We are principally engaged in the provision of heat services to
residential and non-residential heat service customers under concession rights. In addition to
our provision of heat services, which is considered as a public utility business, we also provide
heat-related (i) engineering construction services; and (ii) EMC services. We have had over a
decade of operational experience since we started our operation in 2010.
During the Track Record Period and up to the Latest Practicable Date, our principal
business was the provision of heat services. As a core public utility service in northern China,
such business has generated steady revenue and cash flow for us. For the years ended
31 December 2020, 2021 and 2022, we primarily generated revenue from our heat services.
Revenue generated from our heat services for the years ended 31 December 2020, 2021 and
2022 was approximately RMB973.3 million, RMB1,035.2 million and RMB1,098.9 million,
representing approximately 70.7%, 80.2% and 76.1% of our total revenue, respectively.
BASIS OF PREPARATION
The historical financial information of our Group has been prepared in accordance with
International Financial Reporting Standards (“IFRS”) and related interpretations issued by the
International Accounting Standards Board (the “IASB”).
FINANCIAL INFORMATION
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The historical financial information of our Group has been prepared under the historical
cost convention, as modified by the revaluation of financial assets at fair value through profit
or loss and investment properties, which are carried at fair value.
The preparation of the historical financial information of our Group in conformity with
IFRS requires the use of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying our Group’s accounting policies. The areas
involving a higher degree of judgement or complexity, or areas where assumptions and
estimates are significant to the historical financial information of our Group are disclosed in
Note 4 to the accountant’s report as set out in Appendix I to this prospectus.
As at 31 December 2022, our Group had net current liabilities of approximately
RMB551.8 million. The net current liabilities included contract liabilities amounting to
approximately RMB440.5 million which represented advance receipts from customers in
relation to heat service and pipeline connection fee. Such contract liabilities will normally be
recognised as revenue in subsequent years and will not involve cash outflow in the future. Our
Group’s total borrowings as at 31 December 2022 amounted to approximately RMB881.2
million of which RMB246.8 million are classified as current liabilities, while its cash and cash
equivalents amounted to RMB378.1 million as at the same date.
Management closely monitors our Group’s financial performance and liquidity position.
Our Group generated cash inflow from operating activities for each of the three years ended
31 December 2020, 2021 and 2022 which amounted to approximately RMB442.5 million,
RMB500.0 million and RMB617.8 million, respectively. Our Group planned its capital
expenditure activities in a conservative manner to avoid any excessively high liquidity risk
exposure. Our management proactively managed the financing structure of our Group and was
able to renew the short-term borrowings and raise new borrowings during the Track Record
Period as necessary. As at 31 December 2022, our Group had unused banking facilities
amounting to approximately RMB824.0 million. Although our Group failed to comply with
certain covenants and financial undertakings of two long-term bank borrowings during the
Track Record Period, we successfully obtained waivers from strict compliance with the
covenants and financial undertakings of the two long-term bank borrowings from the relevant
banks.
As at 31 December 2022, our Group had unused banking facilities amounting to
approximately RMB824.0 million, of which approximately RMB60 million is available to our
Group up to June 2023, RMB125.0 million is available to our Group up to July 2023 and could
be extended to July 2024, RMB489.5 million is available to our Group up to April 2024, and
the remaining RMB149.5 million is available to our Group up to December 2030.
Our Directors have reviewed our Group’s cash flow projections for a period not less than
twelve months from the balance sheet date, made due enquiries with management and
considered the bases and assumptions of the projections. Our Directors are of the opinion that,
taking into account our Group’s financial performance and operating cash inflows, the capital
expenditure plans, the continuous availability of existing banking facilities, our Group will
have sufficient financial resources to support its operations and to meet its financial obligations
as and when they fall due in the coming twelve months from 31 December 2022. The Historical
Financial Information has been prepared on a going concern basis.
FINANCIAL INFORMATION
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In preparation of the historical financial information as disclosed in this prospectus, the
following issued new standards and amendments to existing standards are not yet effective and
have not yet been adopted by our Group:
Effective for the
financial year
beginning on or after
IFRS 17 Insurance contracts 1 January 2023
IAS 1 and IFRS
Practice Statement 2
(Amendments)
Disclosure of accounting policies 1 January 2023
IAS 8 (Amendments) Definition of accounting
estimates
1 January 2023
IAS 12 (Amendments) Deferred tax related to assets and
liabilities arising from a single
transaction
1 January 2023
IFRS 16 (Amendments) Lease liability on sale and
leaseback
1 January 2024
IAS 1 (Amendments) Classification of liabilities as
current or non-current
1 January 2024
IAS 1 (Amendments) Non-current liabilities with
covenants
1 January 2024
IFRS 10 and IAS 28
(Amendments)
Sale or contribution of assets
between an investor and its
associate or joint venture
To be determined
Our Group has commenced an assessment of the impact of these new or revised standards
and amendments. According to the preliminary assessment made by our Directors, no
significant impact on the financial performance and position of our Group is expected when
they become effective.
KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS
Our results of operations and financial position have been and will continue to be affected
by a number of factors, including those set out in “Risk factors” in this prospectus and those
discussed below:
Economic conditions, government policies or business environment in the “Three North
Region”
During the Track Record Period, all of our revenue was generated from services provided
in the “Three North Region”. Due to such concentration, and also considering the provision of
heat service is a regulated industry in the PRC, any development in government policies or
business environment in the “Three North Region” materially affects our business, financial
position and results of operations.
FINANCIAL INFORMATION
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This includes (but is not limited to) (i) changes in the economic condition, the level of
economic activities and the pace of urban development; (ii) the future regional development
prospects; (iii) changes in government regulations and policies regarding heat service industry
and its related businesses; and (iv) our ability to compete with other heat service providers
operating in the “Three North Region” by renewing our current Concession Agreements upon
their expiry and obtaining new concession rights. These macro-environmental factors are,
generally speaking, beyond our control.
Our concession rights for heat services business
We were principally engaged in heat service projects under five concessions in Shanxi
Province, Gansu Province and Inner Mongolia Autonomous Region. Our concession right to
provide heat services in Xinmi of Henan Province was granted to us in December 2021. As at
the Latest Practicable Date, we had reached the final stages of our preparation to provide heat
services in Xinmi. We expect that our provision of heat services in Xinmi will commence from
the 2023/2024 heat service period in or around November 2023.
We have concession rights under our Concession Agreements to supply heat for a total
Concession Area of approximately 419.9 million sq.m. in the above-mentioned provinces and
autonomous region. For more information relating to the terms of our Concession Agreements,
see “Business – Our Concession Agreements” in this prospectus. We cannot assure you that the
Concession Agreements will not be terminated prior to their expiration or we will be successful
in renewing the terms with the concession grantors prior to or upon their expiration. If there
is change to our Concession Agreements or our Concession Area, our operation, our business,
financial position and results of operations may be affected. See “Risk factors – Our concession
rights for our heat services business will expire or may be terminated before expiration” in this
prospectus for related risks.
Expansion of actual heat service area
During the Track Record Period, our actual heat service area increased by approximately
2.4 million sq.m., or 6.4%, from approximately 37.4 million sq.m. as at 31 December 2020 to
approximately 39.8 million sq.m. as at 31 December 2021. Our actual heat service area further
increased by 2.1 million sq.m., or 5.3% to approximately 41.9 million sq.m. as at 31 December
2022. Growth of our actual heat service area was mainly attributable to (i) organic growth of
actual heat service areas driven by urbanisation and municipal planning; and (ii) requests from
customers for connection to our heat distribution network.
Pursuant to the relevant PRC laws and regulations, heat service area of a particular heat
service provider and the construction of primary distribution pipelines thereof are subject to
municipal planning by the relevant local government. We believe that our revenue generation
relating to our actual heat service area will remain stable as our concession rights give us the
exclusive right to provide heat services in our Concession Area under concession rights. Other
heat service providers are unlikely to enter our actual heat service area due to the concession
rights and other significant entry barriers. For more information relating to the entry barriers
FINANCIAL INFORMATION
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of heat service market, see “Industry overview – Competitive analysis of the heat services
industry in the PRC – Entry barriers of the heat services industry in the PRC” in this
prospectus. Since expansion of our actual heat service area is subject to municipal planning and
authorisation by the local government, any future changes in the municipal planning by the
local government or relevant laws and regulations, or our failure to obtain authorisation to
operate in the areas we wish to expand, will materially affect our growth potential. See “Risk
factors – Risks relating to our business and industry – Our actual heat service area may be
adjusted due to unanticipated events” in this prospectus.
Government grants and price subsidies
The provision of heat services is considered to be a public utility in northern China. It is
regulated and at the same time supported by the PRC Government and local governments by
way of government grants and price subsidies. During the Track Record Period, the
government grants we received were primarily related to our heat service operation, and the
price subsidies we received were related to our Shuozhou Project. Government grants are not
recurring in nature nor are they determined by any formula that is related to heat rates and
actual heat services areas of the heat service as they are determined by the local government
on an incidental basis. Price subsidies to our Shuozhou Project granted to us are not one-off
in nature and have been continuously granted to us. See “Risk factors – Risks relating to our
business and industry – We may not be entitled to any form of government grants or subsidies,
including price subsidies for our Shuozhou Project in the future, under the applicable PRC laws
and regulations that are evolving from time to time” in this prospectus.
Heat procurement price
During the Track Record Period, we procured heat from cogeneration plants for our
Taiyuan Project, Shuozhou Project and Hulunbuir Project. Heat procurement price is subject to
regulatory control. The price determined by the local government and pricing bureau is binding
on us. For details, see “Business – Heat sources – Heat procured from cogeneration plants” in
this prospectus. Since we cannot automatically nor necessarily proportionally transfer any
increased heat procurement cost in its entirety to our heat service customers, if heat
procurement price increases significantly, our profitability is likely to be affected. For related
information, see “Risk factors – Fluctuation in heat procurement cost may materially and
adversely affect our profitability” in this prospectus.
Fluctuations in coal procurement costs
Coal is the primary raw material used for the heat production by our coal-fired boilers in
Lanzhou of Gansu Province. Coal is also a major raw material for heat production at the
cogeneration plants from which we purchase heat. Accordingly, our heat services business is,
to a certain extent, affected by fluctuations in coal price. See “Industry overview – Analysis
of the heat services industry in the PRC – Coal price and heat services price – Coal price in
China” and “Business – Heat sources – Heat produced by our coal-fired boilers” in this
prospectus. Since we may not necessarily be able to transfer all of the increased coal
procurement cost to our heat service customers, if coal price increases, our profitability may
be affected. For related information, see “Risk factors – Fluctuation in coal procurement cost
may materially and adversely affect our profitability” in this prospectus.
FINANCIAL INFORMATION
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Preferential tax scheme
During the Track Record Period, some of our subsidiaries were entitled to preferential tax
treatments as well as other incentives. However, these preferential tax schemes and incentives
are reviewed by the relevant authority from time to time, and on an as-needed basis and
therefore may be adjusted from time to time. We cannot assure that the preferential tax
treatments and incentives we enjoy currently will remain unchanged going forward. Our tax
expenses may increase and incentives can be withdrawn, which may affect our financial
position accordingly. See “Risk factors – Risks relating to our business and industry – There
is no assurance that we will continue to receive the preferential tax treatment or other
incentives we currently enjoy” in this prospectus for relevant information.
Heat rate mechanism
Heat rate which applies to all our heat service projects is subject to regulatory control in
the PRC. The heat rate applies to all our heat service projects. According to the PRC Pricing
Law (), the PRC Government may formulate, adjust or guide
public utilities prices. Local government authorities, upon approval by the local municipal
government, usually set the benchmark heat rates. For details, see “Business – Heat
distribution – Pricing” and “Regulatory overview – Overview – Pricing” in this prospectus.
It is possible that heat rates in the geographical regions in which we operate our heat
service projects are adjusted downwards. Meanwhile, our procurement prices (such as our coal
procurement price, being our primary procurement cost) may be adjusted upwards by our
suppliers. Since we cannot necessarily transfer the entire increased costs to our heat service
customers, our financial performance may be adversely affected. See “Business – Heat
distribution – Pricing” and “Risk factors – Fluctuation in coal procurement cost may materially
and adversely affect our profitability” in this prospectus for more information.
IFRIC 12 Service Concession Arrangements
Set out below is a simplified diagram illustrating the accounting treatment of service
concession arrangements under IFRS:
Criteria
(1) The grantor of the project controls or regulates what services we must  provide
with the heat supply facilities, to whom we must provide the service, and at
what price
(2) The grantor of the project controls, through  ownership, beneficial entitlement
or otherwise, any significant residual interest in the heat supply facilities at the
end of the service concession arrangement or the heat supply facilities are used
in the service concession arrangement for their entire useful life
(3) The heat supply facilities are constructed or acquired from a third party for the
purpose of the service concession arrangement or existing heat supply facilities
of the grantor of the project to which we are given access for the purpose of the
service concession arrangement
– operation revenue (service
fee) received/receivable)
recognised
– construction revenue
recognised
– construction costs charged
Statements
of
comprehensive
income
Construction phase Operation phase
Statements
of
cash flows
Statements
of
financial
position
– payment for construction
costs is classified under
investing activities
– no cash flow effect for
construction revenue
– an intangible asset is
recognised to the extent
that we receive a right to
charge users of our heat
services
– service fee received is
classified under operating
activities
– amortisation charge of
intangible assets
– intangible assets are
amortised on a
straight-line basis over
the concession period
Service Concession Arrangement
Project fulfilling
all of (1), (2) and
and (3) with
non-guaranteed
revenue stream
FINANCIAL INFORMATION
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Impact of the accounting treatment for service concession arrangements
The accounting treatment for service concession arrangements involves judgement and
affects the presentation of our results of operation. We have entered into Concession
Agreements with several governmental authorities to operate and manage our heat service
facilities for a term ranging from 25 to 30 years. IFRIC 12 Service Concession Arrangements
is applicable to our concession agreements and services provided thereunder. Under these
service concession arrangements:
 the concession grantors control or regulate the services which we must provide with
the infrastructure, to whom we must provide the services, and at what price; and
 the concession grantors generally control any significant residual interest in the
infrastructure at the end of the term of the arrangement. All heat service related
infrastructure invested (and, in some cases, under construction at the time) by us and
the right to use in relation to heat service-related assets which were not invested by
us will generally be transferred to the concession grantors upon the expiry of the
relevant concession term.
Under IFRIC 12 Service Concession Arrangements, we recognise revenue during both the
construction phase and the operation phase of our heat service projects. We recognise non-cash
revenue during the construction phase, which appears on our financial statements as revenue
from “construction services for our concession operations”. Such revenue is affected by the
number of our heat service projects under construction, the estimated fair value of the
construction work of our heat service projects, and the stage of completion.
The fair value of our construction services was calculated as the estimated total
construction cost plus a profit margin which was based on the prevailing market rate applicable
to construction services rendered in a similar location. Such profit margin was estimated with
reference to the profit margin range of 14.6% to 16.35% which was derived from the valuation
conducted by Vincorn Consulting and Appraisal Limited, an independent valuer.
The valuation in estimating the gross profit margins of our Group’s engineering
construction services under the concession arrangements has been prepared in accordance with
the International Valuation Standards published by the International Valuation Standards
Council. The independent valuer has applied the market approach in estimating the gross profit
margins of our Group’s construction services under the concession arrangements.
The independent valuer conducted research on companies for the estimation of the gross
margins for our Group’s construction service under the concession arrangements. The
independent valuer identified companies which are companies: (i) listed on the stock
exchanges of the PRC or Hong Kong; and (ii) principally engaged in the construction service
business for the power generation and heat services industry.
FINANCIAL INFORMATION
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The following table sets out our revenue by project phase in which the revenue was
recognised for the years indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Construction phase
– Construction service for our
concession operations 349,356 208,133 271,010
Operation phase
– Heat services 973,277 1,035,153 1,098,943
Total 1,322,633 1,243,286 1,369,953
The following table sets out the sensitivity analysis of our construction services for our
concession operations for the years ended 31 December 2020, 2021 and 2022 in relation to
movements in the profit margin for the respective years indicated.
For the year ended 31 December
2020 2021 2022
Changes in
revenue % change
Changes in
revenue % change
Changes in
revenue % change
RMB’000 RMB’000 RMB’000
Increase/(decrease) of profit margin
5% 2,328 0.67% 1,462 0.70% 1,726 0.64%
3% 1,397 0.40% 877 0.42% 1,036 0.38%
1% 466 0.13% 292 0.14% 345 0.13%
-1% (466) -0.13% (292) -0.14% (345) -0.13%
-3% (1,397) -0.40% (877) -0.42% (1,036) -0.38%
-5% (2,328) -0.67% (1,462) -0.70% (1,726) -0.64%
While we record revenue on the statement of comprehensive income during the
construction phase, we record intangible assets correspondingly. An intangible asset is
recognised to the extent that the right to charge our heat service customers is dependent upon
the usage or amount of our heat services rendered. The intangible asset is amortised on a
straight-line basis over the remaining concession period when it becomes available for use, that
is, at the point in time when we exercise our concession rights to charge public users.
FINANCIAL INFORMATION
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The following table sets out the movements in the balances of our Group’s intangible
assets (operating concessions) during the Track Record Period.
Intangible
assets
(operating
concessions)
RMB’000
As at 1 January 2020 2,852,216
Additions 458,969
Amortisation (164,396)
As at 31 December 2020 3,146,789
Additions 208,132
Disposal (4,348)
Amortisation (183,008)
As at 31 December 2021 3,167,565
Additions 359,084
Disposal (4,640)
Amortisation (193,770)
Impairment (9,398)
As at 31 December 2022 3,318,841
Intangible assets are subject to impairment testing when there is an impairment indicator,
i.e. whenever events or circumstances indicate that the carrying amount may not be
recoverable. An example of an impairment indicator is if the actual net cash inflow or operating
profit or loss are significantly worse than budgeted. See “Discussion of certain items of
consolidated statements of financial position – Non-current assets and liabilities – Intangible
assets” in this section for details.
Revenue from heat services is recognised on a straight-line basis over the period (i.e. the
heat service period usually starts from October of each year and ends in April of the following
year) because the customer simultaneously receives and consumes the benefits provided by our
Group.
As a result of the aforementioned business model, we incur significant cash outflow for
the cost of the construction in the early years of our heat service projects, and are exposed to
operational risk and the credit risk of our customers until the end of the concession term.
Despite we recognise revenue in respect of our engineering construction services during the
same period, we will not receive any payment in cash for such engineering construction
services. We will only receive actual cash inflow when we charge our heat service customers
during the operation period. Therefore, it results in a cash flow mismatch between the
construction phase and the operation phase.
FINANCIAL INFORMATION
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Services and customer mix
During the Track Record Period, the majority of our revenue was derived from the
provision of heat services relating to the five concessions all of which are BOT contracts.
For the years ended 31 December 2020, 2021 and 2022, revenue generated from our heat
services, which includes fees from customers for provision and distribution of heat, price
subsidies from local government and pipeline connection fee, was approximately RMB973.3
million, RMB1,035.2 million and RMB1,098.9 million, representing approximately 70.7%,
80.2% and 76.1% of our total revenue, respectively; revenue generated from our engineering
construction services was approximately RMB362.1 million, RMB229.1 million and
RMB301.6 million, representing approximately 26.3%, 17.8% and 20.9% of our total revenue,
respectively; and revenue generated from our EMC services was approximately RMB4.2
million, RMB4.0 million and RMB3.0 million, representing approximately 0.3%, 0.3% and
0.2% of our total revenue, respectively.
Cash flow and external financing
From time to time, we may need external financing to supplement cash flows from
operations in order to meet our payment obligations in full and on time. During the Track
Record Period, our borrowings were primarily bank borrowings, but also included other
borrowings. If we fail to secure sufficient external financing or generate sufficient cash flows
from our operations to finance our projects, or if our finance costs increase materially, our
business, financial position, results of operation and prospects may be affected.
Seasonality
Our heat services are affected by seasonality. During the Track Record Period, our heat
services experienced seasonality due to its business nature. Revenue generated from heat
services was recognised over the heat service period, usually begins from October of each year
to April of the following year, by reference to the progress towards complete satisfaction of the
performance obligation. As a result, our revenue generated from the provision of heat services
was higher in the first and fourth quarter during each financial year. In addition, we incurred
our cost of sales for the provision of heat services during different periods of the year. Heat
and coal procurement costs were typically incurred over the heat service period, while
maintenance and repair costs in relation to our concession operation were incurred outside the
heat service period during which maintenance and repair works were carried out and the rest
of the cost components such as employee expenses and depreciation of right-of-use assets
spread throughout the year. In addition, our financial performance of heat services may vary
depending on weather condition. See “Risk factors – Risks relating to our business and industry
– Our heat service operation is affected by seasonality” in this prospectus for more details.
Therefore, our quarterly or interim results may not be a meaningful indicator of our overall
performance.
FINANCIAL INFORMATION
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Our engineering construction services also experienced seasonality during the Track
Record Period since most of our engineering construction services were conducted outside the
heat service period in order to avoid interruption or suspension of heat services to our heat
service customers. Therefore, revenue generated from our engineering construction services
was generally recognised outside the heat service period. Therefore, you should not solely rely
on our quarterly or interim results to assess our annual performance.
Impact of COVID-19
An outbreak of respiratory illness caused by a novel coronavirus (COVID-19) was first
reported in late 2019 and continues to spread across the PRC and globally. In March 2020, the
World Health Organisation characterised the outbreak of COVID-19 as a global pandemic. As
at the Latest Practicable Date, measures responding to COVID-19 relating to temporary travel
restrictions and shutdown of certain business operations had been lifted, leading to the gradual
resumption of normal commercial and industrial business operations. For details of the impact
of COVID-19 on our business operations, see “Business – Effects of the COVID-19 outbreak
– Effects of the COVID-19 outbreak on our business operations” in this prospectus.
The situation of the COVID-19 pandemic is constantly evolving and it remains uncertain
when it will end. The COVID-19 pandemic has, and may continue to, adversely affect the
global and PRC’s economy. As a result, our business operation and financial position may be
adversely affected.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We have identified certain accounting policies that are most significant to the preparation
of our historical financial information. Some of our significant accounting policies involve
subjective assumptions and estimates, as well as complex judgements by our management
relating to accounting items. Our Group makes estimates and assumptions concerning the
future. Estimates and judgements are continuously evaluated and are based on historical
experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances. The resulting accounting estimates will, by definition,
seldom equal the related actual results. Our Directors believe that accounting policies in
relation to (i) service concession arrangements; (ii) impairment assessment of intangible assets
(iii) useful lives of the property, plant and equipment; (iv) expected credit loss for receivables;
(v) current tax and deferred income tax; and (vi) revenue recognition are amongst the most
significant accounting estimates and judgements used in the preparation of our financial
statements. See Note 4 to the accountant’s report as set out in Appendix I to this prospectus for
the critical accounting estimates and judgements.
FINANCIAL INFORMATION
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--- page 476 ---
IFRIC 12 Service Concession Arrangements
We have entered into Concession Agreements with several governmental authorities to
operate and manage our heat service facilities for a term ranging from 25 to 30 years. IFRIC
12 is applicable to our Concession Agreements and services provided thereunder.
As stated in the accountant’s report as set out in Appendix I to this prospectus, the key
assumptions in calculating the value of the concession rights under the Concession Agreements
include a basis of the estimated total construction cost plus a profit margin ranging from
approximately 14.6% to 16.35% during the Track Record Period.
Initial investment
During the initial construction of heat service facilities for our provision of heat services,
we recognised non-cash revenue in respect of our engineering construction services under our
Concession Agreements which is calculated according to the total construction costs plus a
reasonable profit margin based on the prevailing market rate applicable to similar construction
services.
Revenue from engineering construction services is recognised over time by measuring the
progress towards complete satisfaction of the services. The progress towards complete
satisfaction of the performance obligation is measured based on our Group’s efforts or inputs
to the satisfaction of the performance obligations, by reference to the costs incurred up to the
end of the reporting period as a percentage of total estimated costs for each contract.
Significant judgement is exercised when determining the fair value of the consideration for the
construction service. An estimate of the construction margin was used in the process of
determining such fair value.
While we record revenue in respect of our engineering construction services on the
statement of comprehensive income during the construction phase, we record intangible assets
accordingly. The initial consideration for the acquisition of our concession rights and the
establishment of heat service facilities is accounted for as an intangible asset (operating
concession), which is recognised to the extent that the accumulating right to charge our heat
service customers is dependent upon the usage or amount of our heat services rendered, and is
not an unconditional right to receive cash.
Operational phase post acquisition
Our Group recognises revenue (i) for the upgrading and expansion of the existing heat
service facilities; and (ii) for heat service operation, whereby revenue is recognised for the
provision of heat services.
FINANCIAL INFORMATION
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--- page 477 ---
(i) Upgrading and expansion of the existing heat service facilities
Similar to the initial establishment of the heat service facilities, during the upgrading and
expansion of the heat service facilities, our Group recognised non-cash revenue in respect of
the heat service facilities construction services. The construction services revenue for the
upgrading and expansion services under the Concession Agreement is calculated as the total
construction costs plus a reasonable profit margin advised by Vincorn Consulting and
Appraisal Limited, an independent valuer, based on prevailing market rate applicable to
comparable construction services.
Revenue from upgrading and expansion of the existing heat service facilities is
recognised over time by measuring the progress towards complete satisfaction of the
construction. The progress towards complete satisfaction of the performance obligation is
measured based on our Group’s efforts or inputs to the satisfaction of the performance
obligations, by reference to the costs incurred up to the end of the reporting period as a
percentage of total estimated costs for each contract. Significant judgement is exercised in
determining the fair value of the consideration for the construction service. An estimate of the
construction margin was used in the process of determining such fair value.
(ii) Heat service operation during the concession period
During the operating period when heat services are provided, revenue is recognised on a
straight line basis over the scheduled period (i.e. from October of each year to April of the
following year) because the customers simultaneously receive and consume the benefits
provided by our Group. The revenue is measured mainly by reference to the proportion of days
of provision of heat to total number of days of the scheduled period as regulated by the
government. Costs for heat service operation are recognised the period in which they are
incurred.
Our Group depreciates the property, plant and equipment, and amortises the intangible
assets in accordance with the accounting policies. See Note 2.7 and Note 2.9 to the
accountant’s report as set out in Appendix I to this prospectus. The estimated useful lives
reflect our Directors’ estimate of the periods that our Group intends to derive future economic
benefits from the use of these assets.
Our Group makes allowances on receivables based on assumptions about risk of default
and expected loss rates. Our Group used judgement in making these assumptions and selecting
the inputs to the impairment calculation, based on our Group’s past history, existing market
conditions as well as forward looking estimates at the end of each reporting period. Where the
expectation is different from the original estimate, such difference will impact the carrying
amount of trade and other receivables and deposits and the impairment losses in the periods in
which such estimate has been changed. For details of the key assumptions and inputs used, see
Note 3.1(b) to the accountant’s report as set out in Appendix I to this prospectus.
Revenue recognition
Revenue is measured based on the consideration specified in a contract with a customer
and excludes amounts collected on behalf of third parties. Our Group recognises revenue when
we transfer control over a product or service to a customer. This may be at a point in time or
over time.
FINANCIAL INFORMATION
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Our Group satisfies a performance obligation and recognises revenue over time, if one of
the following criteria is met:
 when the customer simultaneously receives and consumes the benefits provided by
our Group’s performance as our Group performs;
 when our Group’s performance creates or enhances an asset that the customer
controls as the asset is created or enhanced; or
 when our Group’s performance does not create an asset with an alternate use to our
Group and our Group has an enforceable right to payment for performance
completed to date.
If none of the above conditions are met, our Group recognises revenue at a point in time
at which the performance obligation is satisfied for the sale of that good or service when
control has been passed. If control of the product or service is transferred over time, revenue
is recognised over the period of the contract by measuring the progress towards complete
satisfaction of that performance obligation.
When the contract contains a financing component which provides the customer 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 the separate financing transaction between our
Group and the customer at contract inception.
When another party is involved in providing goods or services to a customer, our Group
determines whether the nature of its promise is a performance obligation to provide the
specified goods or services itself (i.e. our Group is a principal) or to arrange for those goods
or services to be provided by the other party (i.e. our Group is an agent).
Our Group is a principal if we control the specified good or service before that good or
service is transferred to a customer. Our Group is an agent if its performance obligation is to
arrange for the provision of the specified good or service by another party. In this case, our
Group does not control the specified good or service provided by another party before that
good or service is transferred to the customer.
When our Group acts as a principal, we recognise revenue in the gross amount of
consideration to which we expect to be entitled in exchange for the specified good or service
transferred. When our Group acts as an agent, we recognise revenue in the amount of any fees
or commission to which we expect to be entitled in the exchange for arranging for the specified
goods or services to be provided by the other party.
FINANCIAL INFORMATION
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(i) Provision and distribution of heat (including price subsidies from government)
Revenue from the provision and distribution of heat is recognised on a straight-line basis
over the period when heat is provided to customers because the customers simultaneously
receive and consume the benefits provided by our Group. The revenue is measured by reference
to the proportion of the number of days of provision of heat to the total number of days of the
scheduled period as regulated by the local government.
In certain region, our Group provides heat and charges users at prices substantially lower
than those in certain nearby regions and the local government of that region gives price
subsidies to our Group. Our Group has assessed that such price subsidies, as determined by the
relevant concession agreement and a specific formula pursuant to a notice issued to our Group
by the local government, are in substance compensations for our Group’s revenue due to the
lower heat rates and our Group has contractual rights to receive such price subsidies in a
recurring rather than an incidental manner. Therefore, the price subsidies receivable from the
local government of that region are recognised as revenue over the scheduled period where
there is a reasonable assurance that the price subsidies could be received. For further details
regarding the revenue recognition of price subsidies from local government recognised as
revenue during the Track Record Period in accordance with IFRS 15, see “– Description of
major components of our results of operations – Revenue – Heat services – (ii) Price subsidies
from local government” below.
(ii) Engineering construction services
Revenue from engineering construction services is recognised over time by measuring the
progress towards complete satisfaction of the services. The progress towards complete
satisfaction of the performance obligation is measured based on our Group’s efforts or inputs
to the satisfaction of the performance obligations, by reference to the costs incurred up to the
end of the reporting period as a percentage of total estimated costs for each contract.
(iii) Pipeline connection fees
Our Group receives pipeline connection fees from customers for constructing the primary
distribution pipelines and connecting them to the premises of our customers. The pipeline
connection fees received from customers is non-refundable and is to facilitate the future
service of provision of heat. Revenue from pipeline connection fees is recognised on a
straight-line basis over the applicable Operation Period.
(iv) Heat transmission services
Revenue from the provision of the heat transmission service is recognised at the point in
time when control of heat is transferred to the customers.
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(v) Sale of goods
Our Group sells heat exchange facilities, meters and other heat supply related equipment
to our customers. Revenue from sale of goods is recognised at the point in time when the
control of the product is transferred to the customer which generally coincides with delivery
and acceptance of the goods sold.
(vi) Energy management services
Our Group provides energy management services to a corporate customer by helping it to
save energy for its heat supply facilities. Revenue from energy management services is
recognised over the period when the service is rendered.
(vii) Designing services
Revenue from designing services rendered, including designing, consulting and
feasibility studies with respect to the heat supply projects, is recognised at the point in time
when the customers are satisfied with the designing results delivered by our Group.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
The following table sets out our consolidated statements of comprehensive income with
line items in absolute amounts for the years indicated. Our historical results presented below
are not necessarily indicative of the results that may be expected for any future period.
For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Revenue 1,376,321 1,290,635 1,443,732
Cost of sales (1,084,931) (976,969) (1,146,851)
Gross profit 291,390 313,666 296,881
Administrative expenses (124,951) (141,306) (139,589)
(Provision)/reversal of impairment
losses on financial assets and contract
assets (13,548) 995 23,118
Other income 48,384 73,584 53,742
Other losses – net (157) (19) (3,603)
Operating profit 201,118 246,920 230,549
FINANCIAL INFORMATION
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--- page 481 ---
For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Finance income 26,393 29,354 26,314
Finance costs (92,866) (81,503) (84,065)
Finance costs – net (66,473) (52,149) (57,751)
Share of profit of associates accounted
for using the equity method 9,282 11,960 13,538
Profit before income tax 143,927 206,731 186,336
Income tax expense (45,611) (35,671) (45,961)
Profit and total comprehensive
income for the year 98,316 171,060 140,375
Profit and total comprehensive
income attributable to:
– Owners of our Company 66,830 110,696 96,431
– Non-controlling interests 31,486 60,364 43,944
98,316 171,060 140,375
Earnings per share (expressed in
RMB per share)
– Basic and diluted 0.30 0.49 0.43
FINANCIAL INFORMATION
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--- page 482 ---
DESCRIPTION OF MAJOR COMPONENTS OF OUR RESULTS OF OPERATIONS
Revenue
For the years ended 31 December 2020, 2021 and 2022, our revenue was approximately
RMB1,376.3 million, RMB1,290.6 million and RMB1,443.7 million, respectively. During the
Track Record Period, our revenue was mainly generated from (i) our heat services; and (ii) our
engineering construction services. During the Track Record Period, all of our revenue was
generated in the PRC.
The following table sets out our revenue by type of service/product for the years
indicated.
For the year ended 31 December
2020 2021 2022
(RMB’000) % (RMB’000) % (RMB’000) %
Heat services
– Fees from customers for
provision and distribution of heat 739,940 53.8 778,442 60.3 853,542 59.1
– Price subsidies from local
government 167,908 12.1 182,500 14.2 161,676 11.2
– Pipeline connection fee 65,429 4.8 74,211 5.7 83,725 5.8
Sub-total 973,277 70.7 1,035,153 80.2 1,098,943 76.1
Engineering construction services 362,050 26.3 229,147 17.8 301,567 20.9
EMC services 4,157 0.3 3,972 0.3 3,002 0.2
Heat transmission services 16,961 1.2 14,533 1.1 5,521 0.4
Sale of goods 16,344 1.2 5,756 0.4 23,581 1.6
Designing services 1,658 0.1 518 0.1 6,585 0.5
Others 1,874 0.2 1,556 0.1 4,533 0.3
Total 1,376,321 100.0 1,290,635 100.0 1,443,732 100.0
Heat services
During the Track Record Period, revenue generated from our heat services included (i)
fees from customers for provision and distribution of heat, (ii) price subsidies from local
government, and (iii) pipeline connection fee, the majority of which was attributable to (i) and
(ii).
During the Track Record Period, our revenue generated from heat services mainly derived
from Shanxi Province, Gansu Province and Inner Mongolia Autonomous Region.
FINANCIAL INFORMATION
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--- page 483 ---
The following table sets out a breakdown of revenue generated from our provision and
distribution of heat for the years indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Heat services
– Fees from customers for provision
and distribution of heat 739,940 778,442 853,542
– Price subsidies from local government 167,908 182,500 161,676
– Pipeline connection fee 65,429 74,211 83,725
973,277 1,035,153 1,098,943
(i) Fees from customers for provision and distribution of heat
Our customers for our provision and distribution of heat generally included
residential and non-residential customers. Revenue from our provision and distribution of
heat amounted to RMB739.9 million, RMB778.4 million and RMB853.5 million for the
years ended 31 December 2020, 2021 and 2022, respectively. Revenue from our provision
and distribution of heat is recognised on a straight line basis over the scheduled heat
service period.
The table below sets out our revenue generated from (i) our fees from customers for
provision and distribution of heat by heat service project and (ii) price subsidies from
local government in Shuozhou, for the years indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 % RMB’000 % RMB’000 %
Projects under concession
Shanxi Province
– Taiyuan Project 106,178 11.7 122,545 12.8 135,768 13.4
– Shanxi Demonstration
Zone Project 7,371 0.8 9,917 1.0 17,263 1.7
– Shuozhou Project 435,513 48.0 466,224 48.5 453,996 44.7
Gansu Province
– Lanzhou New Area
Project 166,929 18.4 151,411 15.8 185,108 18.2
FINANCIAL INFORMATION
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--- page 484 ---
For the year ended 31 December
2020 2021 2022
RMB’000 % RMB’000 % RMB’000 %
Inner Mongolia
Autonomous Region
– Hulunbuir Project 187,376 20.6 203,100 21.1 217,803 21.5
Sub-total 903,367 99.5 953,197 99.2 1,009,938 99.5
Others 4,481 0.5 7,745 0.8 5,280 0.5
Total 907,848 100.0 960,942 100.0 1,015,218 100.0
For the years ended 31 December 2020, 2021 and 2022, revenue from provision and
distribution of heat for our Taiyuan Project amounted to RMB106.2 million, RMB122.5
million and RMB135.8 million, representing 11.7%, 12.8% and 13.4% of our total
revenue from provision and distribution of heat, respectively.
For the years ended 31 December 2020, 2021 and 2022, our revenue from provision
and distribution of heat for our Shanxi Demonstration Zone Project amounted to RMB7.4
million, RMB9.9 million and RMB17.3 million, representing 0.8%, 1.0% and 1.7% of our
total revenue from provision and distribution of heat, respectively.
For the years ended 31 December 2020, 2021 and 2022, revenue from provision and
distribution of heat for our Shuozhou project, amounted to RMB435.5 million, RMB466.2
million and RMB454.0 million, representing 48.0%, 48.5% and 44.7%, respectively,
being the largest portion of the total revenue from provision and distribution of heat over
the Track Record Period.
For the years ended 31 December 2020, 2021 and 2022, our revenue from provision
and distribution of heat for our Lanzhou New Area Project amounted to RMB166.9
million, RMB151.4 million and RMB185.1 million, representing 18.4%, 15.8% and
18.2% of our total revenue from provision and distribution of heat, respectively.
For the years ended 31 December 2020, 2021 and 2022, our revenue from provision
and distribution of heat for our Hulunbuir Project amounted to RMB187.4 million,
RMB203.1 million and RMB217.8 million, representing 20.6%, 21.1% and 21.5% of our
total revenue from provision and distribution of heat, respectively.
FINANCIAL INFORMATION
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--- page 485 ---
Revenue from provision and distribution of heat in other locations in Shanxi
Province and in other regions represented our heat services independent from our
concessions. In aggregate, such revenue amounted to approximately RMB4.5 million,
RMB7.7 million and RMB5.3 million for the years ended 31 December 2020, 2021 and
2022, respectively.
Our customers of provision and distribution of heat generally included two types,
namely (i) residential heat service customers, and (ii) non-residential heat service
customers (including but not limited to commercial operators of office buildings or
shopping malls, manufacturing companies, public facilities like hospital and train station,
etc.)
The table below sets out our revenue generated from customers for our provision and
distribution of heat by customer type for the years indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 % RMB’000 % RMB’000 %
Residential 433,627 58.6 484,139 62.2 519,806 60.9
Non-residential 306,313 41.4 294,303 37.8 333,736 39.1
Total 739,940 100.0 778,442 100.0 853,542 100.0
Residential
Our heat services to residential heat service customers amounted to RMB433.6
million, RMB484.1 million and RMB519.8 million respectively, representing
58.6%, 62.2% and 60.9% of our total revenue from heat services for the years ended
31 December 2020, 2021 and 2022. The amount increased steadily during the Track
Record Period as a result of an increase in the total number of our residential
customers that used heat during the heat service periods, along with the growth of
demand for our heat services leading to the expansion of our actual heat service area
under our concessions. During the Track Record Period, the monthly heat rates for
our residential heat service customers ranged from RMB2.5 per sq.m. to RMB5.8
per sq.m. in the regions we are operating. The monthly heat rate for residential heat
service customers for our Lanzhou New Area Project increased from RMB5.0 per
sq.m. to RMB5.8 per sq.m. for the 2022/2023 heat service period. Save for such
increase, the heat rates remained unchanged in each of Shanxi Province, Gansu
Province and Inner Mongolia Autonomous Region during the Track Record Period.
See “Business – Heat distribution – Pricing – Heat rate for heat service users” in this
prospectus for a summary of our heat rate.
FINANCIAL INFORMATION
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--- page 486 ---
Non-residential
Our heat services to non-residential customers amounted to RMB306.3
million, RMB294.3 million, and RMB333.7 million, respectively, representing
41.4%, 37.8%, and 39.1% of our total revenue from heat services in the respective
years. The revenue from our non-residential heat service customers decreased for
the year ended 31 December 2021 as a result of a decrease in the total number of
our non-residential heat service customers using heat due to the cessation of our heat
services provided to certain non-residential heat service customers in Lanzhou City
during 2021 (such as hotel operators and other commercial operators whose
businesses were closed). The revenue from our non-residential heat service
customers increased to approximately RMB333.7 million for the year ended 31
December 2022 as compared to approximately RMB294.3 million in 2021 due to the
increase in total number of our non-residential heat service customers during the
year. During the Track Record Period, the monthly heat rate for our non-residential
heat service customers ranged from RMB4.8 per sq.m. to RMB10.2 per sq.m.. The
monthly heat rates for non-residential heat service users for our Lanzhou New Area
Project increased to the range of RMB8.0 per sq.m. to RMB10.2 per sq.m. for the
2022/2023 heat service period from the range of RMB7.0 per sq.m. to RMB9.2 per
sq.m. for the 2019/2020, 2020/2021 and 2021/2022 heat service periods. Save for
such increase, the heat rates for our non-residential heat service users remained
unchanged in each of Shanxi Province, Gansu Province and Inner Mongolia
Autonomous Region during the Track Record Period. See “Business – Heat
distribution – Pricing – Heat rate for heat service users” in this prospectus for a
summary of our heat rate.
(ii) Price subsidies from local government
During the Track Record Period, we recognised revenue from the price subsidies for
our Shuozhou Project in the amount of approximately RMB167.9 million, RMB182.5
million and RMB161.7 million, respectively.
Recognition of price subsidies from local government under our Shuozhou
Project
The price subsidies from local government under our Shuozhou Project were
recognised as our Group’s revenue during the Track Record Period in accordance
with IFRS 15. The reasons are set out below:
(a) The Shuozhou Concession Agreement is regarded as a contract
between our Group and our customer. The Shuozhou Concession
Agreement is contractually bound to provide reasonable amount of
subsidy and compensation to our Group when a loss is incurred due to
insufficient heat rates or pricing standard. According to Appendix A to
IFRS 15, a customer is defined as “the party that has contracted with an
FINANCIAL INFORMATION
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--- page 487 ---
entity to obtain goods or services that are an output of the entity’s
ordinary activities in exchange for consideration” and revenue is defined
as “the income arising in the course of an entity’s ordinary activities”.
Paragraph 47 of IFRS 15 further stipulates that “an entity shall consider
the terms of the contract and its customary business practices to
determine the transaction price. The transaction price is the amount of
consideration to which an entity expects to be entitled in exchange for
transferring promised goods or services to a customer”. Given that the
local pricing authority has been maintaining the heat rates of Shuocheng
District in Shuozhou City at a low level in order to alleviate the impact
on the livelihood of the local residents, Shuozhou government
compensated our Group for charging such low heat rates by providing us
price subsidies as the payment of part of the consideration for the heat
services provided to the heat service customers in the course of our
Group’s ordinary activities. Based on the above, the Shuozhou
government, being a contracting party to the Shuozhou Concession
Agreement, is considered as a customer in the whole concession
arrangement.
(b) The amount of the price subsidies was determined by the specific
formula stipulated under the “Minutes of the Shuozhou City Mayor’s
Office Meeting of the People’s Government of Shuozhou (2016)
No. 45” (ࠅߏ2016) ୋ45ಂ)
(“No. 45 of 2016 Minutes”). The specific formula for the calculation of
the price subsidies is as follows:
Price subsidies = relevant heat service costs x (1+3%) - monthly heat
rate x (actual) heat service area x number of months within the relevant
heat service period
The amount of price subsidies was effectively the shortfall of the heat rate
charged by our Group below the relevant heat service cost, marked up by
a certain percentage and providing the operator a reasonable return. As
such, our Directors are of the view that the price subsidies are in
substance compensations for part of the shortfall of our Group’s revenue
due to the low heat rates.
(c) There was reasonable assurance that the price subsidies could be
received. The compensations from Shuozhou government were
contemplated under the Shuozhou Concession Agreement so long as heat
rates are not sufficient to compensate the relevant heat service costs and
cannot be adjusted in a timely manner, and were not provided on an
incidental manner. Our Group has been granted and receiving such price
subsidies since the 2015/2016 heat service period and up to the Track
Record Period on a recurring basis without default nor has any
FINANCIAL INFORMATION
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--- page 488 ---
retrospective adjustment of the approved price subsidies ever taken place.
Further, based on the interviews with the chief ( ˴΂) of the Shuozhou
Centre, which is a subordinate public institution of the Shuozhou City
Bureau of Municipal Affairs Administration* (̹၍ଣ҅) and
the vice head (ڗof the Shuozhou Municipal Government (ψ̹
ִ݁on 15 January 2020 and 2 November 2022, respectively, it was
confirmed that there will be no change to the subsidising mechanism for
the price subsidies pursuant to the No. 45 of 2016 Minutes, and that such
subsidising mechanism is expected to remain in force in the foreseeable
future as provided under the No. 45 of 2016 Minutes. As advised by our
PRC Legal Advisers, the Shuozhou Municipal Government is the
competent higher level authority of the Shuozhou City Bureau of
Municipal Affairs Administration in Shuozhou city. Given that the
interviewees from the Shuozhou Centre of the Shuozhou City Bureau of
Municipal Affairs Administration and the Shuozhou Municipal
Government were the officers-in-charge of the authorities which is
responsible for matters relating to heat provision and urban planning in
the respective jurisdictions in Shuozhou city, our PRC Legal Advisers are
of the view that they have the authority to provide the confirmation in
relevant interviews. As such, our Directors are of the view that there was
reasonable assurance that the price subsidies could be received.
Based on the above, our Directors are of the view that price subsidies
from the local government are considered as revenue generated from the
ordinary activities of our Group and meets the definition of “revenue”
under IFRS 15 – Contracts with Customer. The reporting accountant of
our Company concurs with the aforementioned view of our Directors.
The nature of price subsidies is different from that of other government
grants recognised as our Group’s other income, mainly because (i) such
price subsidies represent compensation of the shortfall in our revenue
resulting from the low heat rates set by the local pricing authority in order
to alleviate the burden of the residents of Shuocheng District given the
backdrop of favourable laws and governmental policies, (ii) the amount
of price subsidies is determined by a specific formula, where the price
subsidies are dependent on and directly proportional to the actual heat
service area of the heat service users; and (iii) price subsidies are
considered to be recurring in nature.
FINANCIAL INFORMATION
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--- page 489 ---
Provision of price subsidies from local government
While our Group was in negotiation of the terms of the Shuozhou Concession
Agreement with Shuozhou government, our Directors were given to understand that
Shuozhou government was willing to grant monetary compensation and include the
relevant clauses which made it contractually obligated to provide such compensation
under the Shuozhou Concession Agreement after taking into consideration a
combination of factors and reasons below:
(a) In order to alleviate the impact on the livelihood of the local citizens in
Shuocheng District in Shuozhou City, the local pricing authority had been
maintaining the heat rates (for both residential and non-residential heat
service users) at a low level and such heat rates had not been raised since
2006. Given such low heat rates, the concession operation of heat service
business in Shuocheng District would not be commercially desirable if
the permissible heat rate was not upward adjusted in a reasonable manner
or in the absence of a reasonable amount of subsidy and compensation by
Shuozhou government.
(b) The operation of heat service projects under concession is typically
capital intensive in nature and requires significant upfront funding for the
construction of pipeline networks and heat service equipment throughout
the extremely long concession period (which normally has an initial term
of 30 years).
(c) The provision of subsidies by local governments was permitted under the
established legal framework under PRC laws. The provision of subsidies
by local governments to heat service providers as a result of low heat
rates was contemplated under the Interim Measures. Article 25 of the
Interim Measures provides that “the provincial or municipal people’s
government may temporarily subsidise the heat enterprises (entities) in
the areas where heat rates are not sufficient to compensate for the normal
relevant heat service costs, and cannot be adjusted in a timely manner”.
Having considered the commercial as well as legal reasons above, our
Directors believed that the provision of monetary subsidies by Shuozhou
government and inclusion of the relevant terms in the Shuozhou Concession
Agreement was to increase the attractiveness of the Shuozhou Project to our Group
as we considered the provision of subsidies being an incentive for us to operate the
concession that was otherwise commercially undesirable, particularly when
operation of a heat service concession represented a long term commitment and high
level of capital requirement from our Group. Furthermore, we considered that the
contractual obligation to provide subsidies from the local government may provide
us the downside protection from any disruption to a stable heat service caused by
any pricing restrictions, increase in heat costs or any other factors which may
adversely affect quality of living of the local heat service users.
FINANCIAL INFORMATION
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--- page 490 ---
Further, we believe that the provision of subsidies was in line with relevant
PRC laws and government policies that were issued to encourage private enterprises
to enter the field of public utilities operation such as heat services. For example, the
Notice of Implementation Opinions on Further Encouraging and Guiding Private
Capital to Enter the Field of Municipal Public Utilities (Ι೯ආɓӉོᎸձˏ
) provides that incentives
and subsidising mechanisms should be implemented by local governments to bring
in private enterprises to the public utilities business, and that the PRC government
should improve its pricing and subsidy mechanism, formulate reasonable pricing in
public utilities business so as to allow operators of public utilities business to be
reasonably compensated for costs incurred to obtain reasonable profit.
There were laws and regulations following the implementation of the Interim
Measures which continued to be in line with the favourable governmental policies
to support heat service providers by providing compensation or subsidy. On a
national regulation level, Article 19 of the Measures for the Administration of
Concession for Infrastructure and Public Utilities (ձʮ͜ԫุत஢຾ᐄ
) provides that when the charges are insufficient to cover the
construction and operating costs of concession projects and the reasonable earnings,
the governments may provide viability gap subsidies, including other relevant
development and operation rights and interests granted by the governments for
concession projects; and Article 21 provides that local government may make
commitment under the terms of concession agreements for necessary and reasonable
monetary subsidies. The Rules on Centralised Heat Supply for Shuozhou City
(Draft) (Draft for Comments) (ψ̹ණʕԶᆠૢԷ(ࣩ)(ᅄӋจԈᇃ)) also
provides that the projects shall have rights and obligations of parties clearly defined,
establish a coordinated mechanism in terms of investments, subsidies and heat rate.
Pursuant to the terms of the Shuozhou Concession Agreement, our Group is
entitled to a reasonable amount of subsidy and compensation from the concession
grantor if our Group has incurred losses due to low heat rates. As advised by our
PRC Legal Advisers, (i) in the event that we have incurred losses resulting from low
heat rates and thus shall enjoy any price subsidies under the Shuozhou Concession
Agreement but the Shuozhou government does not pay price subsidies to us in full
compliance with the specific formula or the Shuozhou government refuses to pay
price subsidies to us at all, the Shuozhou government would breach its obligations
under the Shuozhou Concession Agreement and we may have legal recourse or
remedies against the Shuozhou government by initiating an administrative
proceeding according to the Administrative Procedure Law of the PRC (ൡத
) against the Shuozhou government to claim for the Shuozhou government to
continue the performance of its obligations, take remedial action, compensate for
losses or assume other obligations.
FINANCIAL INFORMATION
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Determination of the amount of price subsidies
Pursuant to the Notice of NDRC and Ministry of Construction on issuing the
Interim Measures for the Price Control of Urban Heat Services (։e
ٝlocal authorities were
requested by the NDRC and the then Ministry of Construction to enforce the Interim
Measures (which are regulations at the national level as described above) in
accordance to the “ actual circumstances of the locality ”. Hence, local governments
may implement and govern matters in relation to heat rates and provision of price
subsidies in its respective jurisdiction in manners and forms deemed appropriate to
the respective local governments for their respective jurisdictions.
As confirmed by Frost & Sullivan, there is no universal formula adopted by all
heat service providers in the PRC for the calculation of price subsidiaries or other
compensation, as different local governments are faced with different factors,
reasons and circumstances and based on these different factors, reasons and
circumstances, they would determine their own way of assessing the appropriate
level of price subsidies or other compensation for local heat service providers.
Generally speaking, local governments would consider the following major factors
as a whole when determining how to formulate the support they offer to their heat
service providers: (i) local heat rates set by their own local pricing authorities; (ii)
cost structures and heat procurement costs of the local heat service providers; (iii)
financial conditions of the local governments themselves; and (iv) the affordability
of the local residents in different areas. This is in line with circumstances
contemplated in, and falls within the ambit of, Article 10 set out in the Interim
Measures, which states that “ the determination and adjustment of heat rates shall
follow the principles of making reasonable compensations for cost, promoting heat
conservancy and persisting in the principle of fair burden sharing” (ձ
ۆࡡٙIt is not
uncommon that heat procurement costs vary from one area to another in the PRC due
to the different ex-factory heat rates set by different local governments after taking
into account their respective local circumstances. Given such difference in local
circumstances, it is not uncommon that heat service providers in different regions,
cities or areas in the PRC to incur varying level of heat service costs as confirmed
by Frost & Sullivan.
Based on the above, the formula for calculation of the price subsidies
stipulated under the No. 45 of 2016 Minutes was derived based on the specific facts
and circumstances of Shuocheng District.
The Shuozhou government’s heat service year commences on 1 May of a year
and ends on 30 April of the following year (“ Shuozhou Government’s Heat
Service Y ear(s)”). For each of the three Shuozhou Government’s Heat Service Years
ended 30 April 2022, we submitted financial information in relation to our Shuozhou
Project as audited by our PRC local auditor, as well as the actual heat service area
for our Shuozhou Project to the relevant government authorities to assess, determine
and calculate the amount of price subsidies entitled by our Group.
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For the purpose of assessing, determining and calculating the amount of price
subsidies entitled by our Group under the Shuozhou Project for each of the three
Shuozhou Government’s Heat Service Years ended 30 April 2022, the Pricing Cost
Supervision Conclusion Assessment Reports* (ᄆϓ္͉ᄲഐሞజѓ) were
issued by the Shuozhou DRC, the competent authority responsible for heat pricing
and assessing heat service costs as advised by our PRC Legal Advisers, pursuant to
relevant PRC laws and regulations to confirm the total relevant heat service costs.
For the purpose of determining the relevant heat service cost used in the calculation
of price subsidies, some items of heat service cost submitted to the government
authorities may be determined not to be included for calculating the total amount of
price subsidies, which generally included (i) costs which were not incurred in the
relevant heat service period; (ii) expenses which exceeded the maximum amount
capped by the government; (iii) costs related to pipeline connection fees, which were
not directly related to the provision and distribution of heat; and (iv) the difference
in depreciation expenses of heat service assets arising from the difference in
assumptions adopted by us in relation to the useful lives of heat service assets and
those adopted by the government. The Assessment Reports on Actual Heat Service
Area* (జѓ/ഐሞజѓ) were issued by the
Assessment and Monitoring Centre of Shanxi Provincial Bureau of Statistics* ( ʆГ
Ꮸ಻ʕː) (the “ Assessment and Monitoring Centre of
Shanxi Provincial Bureau of Statistics ”), the competent authorities responsible for
monitoring and assessing statistics on economic and social development in the
relevant municipal area, and an industry consulting company which was instructed
by the Assessment and Monitoring Centre of Shanxi Provincial of Statistics to
prepare an assessment report as confirmed by our Directors, to confirm the actual
heat service area for residential and non-residential heat users under our Shuozhou
Project. Subsequently, based on the total relevant heat service costs and the actual
heat service area as confirmed in each of the aforementioned reports, the Shuozhou
City Bureau of Municipal Affairs Administration* (̹၍ଣ҅), the
competent authorities responsible for the operation and safety of municipal public
facilities as advised by our PRC Legal Advisers, and Shuozhou DRC jointly issued
a confirmation report which set out the finalised amount of price subsidies for each
of the three Shuozhou Government’s Heat Service Years ended 30 April 2022 and
the detailed calculation of such finalised amount of price subsidies pursuant to the
specific formula stipulated under the No. 45 of 2016 Minutes.
According to a sensitivity analysis conducted for illustrative purpose, if no
price subsidies had been entitled and based on the current monthly heat rate of
RMB2.52 per sq.m. and RMB4.8 per sq.m. for our residential and non-residential
customers under our Shuozhou Project, respectively, the Shuozhou Project would
have incurred a gross loss of heat services of approximately RMB109.1 million,
RMB84.4 million and RMB117.6 million for the years ended 31 December 2020,
2021 and 2022, respectively. If the monthly heat rates for residential and
non-residential customers were to be adjusted upward to such an extent that we
would cease to be entitled to any price subsidies under the Shuozhou Project based
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on the No. 45 of 2016 Minutes, such monthly heat rates would reach the breakeven
points where the price subsidies from the Shuozhou government entitled
by us during the Track Record Period were assumed to be fully factored into the heat
rates (i.e. assuming that if the heat rates had been adjusted upwards to such an extent
that we were no longer entitled to such price subsidies). Based on our expectation
that the monthly heat rates for both residential and non-residential customers would
be adjusted by the same degree, to reach the breakeven points, the current monthly
heat rates of RMB2.52 per sq.m. and RMB4.80 per sq.m. for residential and
non-residential customers, respectively, would increase by approximately 59.1%,
57.4% and 56.5% for each of the 2019/2020, 2020/2021 and 2021/2022 heat service
periods. For illustrative purposes only, the following table sets out the breakeven
monthly heat rates for residential customers and non-residential customers of
Shuozhou Project, with all other factors remaining constant, for each of the
2019/2020, 2020/2021 and 2021/2022 heat service periods under the aforementioned
assumption. Based on the sensitivity analysis mentioned above, if the monthly heat
rates were increased to the aforementioned breakeven monthly heat rates, the
increase in our revenue from fee from customers for provision and distribution of
heat would be insufficient to fully offset the decrease in our revenue from price
subsidies, primarily because the inputs of parameters adopted by our Group in the
calculation of our revenue from fee from customers for provision and distribution of
heat in accordance with IFRS 15, were different from those adopted by the local
government authorities in the calculation of the price subsidies in accordance with
relevant laws and regulations. Hence, under the above scenario, each of our Group’s
revenue, gross profit and net profit would have decreased by the same amount,
which would be approximately RMB11.8 million and RMB21.3 million for the years
ended 31 December 2020 and 2021, respectively.
Breakeven monthly heat rates
Heat service period
2019/2020 2020/2021 2021/2022
RMB per
sq.m.
RMB per
sq.m.
RMB per
sq.m.
Residential 4.01 3.97 3.94
Non-residential 7.64 7.55 7.51
Under the Announcement No. 45 of the State Administration of Taxation in
2019, the government subsidies directly linked to income or quantity of its sales of
goods, services, intangible assets and real estates were subject to value-added tax
with effect from 1 January 2020. Value-added tax in the amount of RMB15.1
million, RMB16.4 million and RMB14.6 million were deducted from the subsidies
recognised as part of our revenue for the years ended 31 December 2020, 2021 and
2022, respectively. As such, the deduction of such value-added tax had an offsetting
effect on the amount of subsidies recognised as part of our revenue for the years
ended 31 December 2020, 2021 and 2022. Revenue from price subsidies in relation
to our Shuozhou Project for the year ended 31 December 2021 increased by
FINANCIAL INFORMATION
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approximately 8.7% when compared to that for the year ended 31 December 2020
primarily as a result of the expansion of our Shuozhou Project leading to the
increase in revenue from provision and distribution of heat during the same period.
Revenue from price subsidies for our Shuozhou Project for the year ended 31
December 2022 decreased by approximately 11.4% when compared to that for the
year ended 31 December 2021 because of the decrease in relevant heat service costs
used for the calculation of price subsidies. Such decrease in heat service costs was
primarily attributable to the deduction of the entire amount of approximately
RMB20.0 million (representing a government grant received by Shuozhou
Renewable Energy in relation to the capital expenditure for the upgrade of the heat
service facilities), instead of the amount representing the depreciation expense in
relation to the useful lives of such heat service facilities, from the total heat service
costs used for the calculation of price subsidies when the relevant government
authorities conducted assessment on such costs.
(iii) Pipeline connection fee
According to the terms of our Concession Agreements and heat service agreements,
we may charge pipeline connection fee. The pipeline connection fee is a one-off charge
and is charged when our customers first connect their properties to our primary
distribution pipelines. During the Track Record Period, our heat service customers in
Shanxi Province, Gansu Province and Inner Mongolia Autonomous Region paid pipeline
connection fees to us. Revenue from pipeline connection fee in each actual heat service
area was recognised on a straight-line basis over the relevant remaining concession
period. For the years ended 31 December 2020, 2021 and 2022, revenue from pipeline
connection fee was approximately RMB65.4 million, RMB74.2 million and RMB83.7
million, representing approximately 4.8%, 5.7% and 5.8% of our total revenue,
respectively. Revenue from our pipeline connection fee increased during the Track
Record Period primarily attributed to an increase in the total number of property
developers and property owners or occupants who first connect their properties to our
primary distribution pipelines.
Engineering construction services
During the Track Record Period, revenue generated from our engineering construction
services was mainly related to our concession operation. During the Track Record Period, we
provided all of our engineering construction services in the PRC. For details of our engineering
construction services projects during the Track Record Period, see “Business – Engineering
construction services” in this Prospectus.
Revenue from engineering construction services was recognised over time by measuring
the progress towards complete satisfaction of the services. For the years ended 31 December
2020, 2021 and 2022, revenue generated from our engineering construction services was
approximately RMB362.1 million, RMB229.1 million and RMB301.6 million, representing
approximately 26.3%, 17.8% and 20.9% of our total revenue, respectively. Revenue from our
FINANCIAL INFORMATION
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engineering construction services decreased from 2020 to 2021, primarily attributable to the
general expansion of our concession operation in 2021 without any further large-scale
construction activities as well as a general decrease in construction activities. For the year
ended 31 December 2022, revenue from our engineering construction services increased by
approximately 31.6% to approximately RMB301.6 million as compared to approximately
RMB229.1 million in 2021. The increase was mainly due to (i) the increase in demand for heat
service, resulting in more engineering construction activities to facilitate our provision of heat
services and (ii) the construction project of new peak-shaving boiler (which will be a coal-fired
boiler) in our heat source peak-shaving station for our Lanzhou New Area Project.
The following table sets out our revenue generated from our engineering construction
services by service type for the years indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 % RMB’000 % RMB’000 %
Engineering construction services
for our concession operations 349,356 96.5 208,133 90.8 271,010 89.9
Engineering construction services
provided to customers 12,694 3.5 21,014 9.2 30,557 10.1
Total 362,050 100.0 229,147 100.0 301,567 100.0
The following table sets out our revenue generated from our engineering construction
services by geographical location for the years indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 % RMB’000 % RMB’000 %
Shanxi Province
– Taiyuan 35,976 9.9 92,020 40.2 98,622 32.7
– Shuozhou 244,650 67.6 38,264 16.7 44,815 14.9
Gansu Province
– Lanzhou 56,230 15.5 94,649 41.3 139,084 46.1
Inner Mongolia
Autonomous
Region
– Hulunbuir 25,194 7.0 4,214 1.8 10,520 3.5
Henan Province
– Zhengzhou
(Note) – – – – 8,526 2.8
Total 362,050 100.0 229,147 100.0 301,567 100.0
Note: It mainly represented (i) procurement of pipelines, devices and equipment; and (ii) construction of heat
service facilities for heat transmission for the preparation work of the Xinmi Project in two of the areas
according to the local urban developments.
FINANCIAL INFORMATION
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The following table sets out the revenue and gross profit from construction services for our concession operations, and subcontracting costs
recorded by our Group for each heat service project under concession for the years indicated:
For the year ended 31 December
2020 2021 2022
Revenue
Subcontracting
costs Gross profit Revenue
Subcontracting
costs Gross profit Revenue
Subcontracting
costs Gross profit
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Taiyuan Project 16,474 14,278 2,196 22,976 19,747 3,229 28,726 25,068 3,658
Shanxi Demonstration Zone
Project 19,502 16,902 2,600 67,695 58,183 9,512 39,338 34,326 5,012
Shuozhou Project 231,956 201,036 30,920 18,599 15,986 2,613 44,815 39,105 5,710
Hulunbuir Project 25,194 21,836 3,358 4,214 3,622 592 10,520 9,179 1,341
Lanzhou New Area Project 56,230 48,735 7,495 94,649 81,347 13,302 139,085 121,366 17,719
Xinmi Project – – – – – – 8,526 7,440 1,086
Total 349,356 302,787 46,569 208,133 178,887 29,248 271,010 236,484 34,526
FINANCIAL INFORMATION
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The following table sets out the respective balances of prepayments and other payables
outstanding in relation to engineering construction services for each project as at 31 December
2022:
As at 31 December 2022
Prepayments
Other
payables
RMB’000 RMB’000
Taiyuan Project 1,965 43,311
Shanxi Demonstration Zone Project 2,476 23,868
Shuozhou Project 2,446 52,393
Hulunbuir Project 4,519 8,883
Lanzhou New Area Project 1,004 119,382
Xinmi Project – 28,667
During the Track Record Period, we also provided engineering construction services
(non-IFRIC 12 Service Concession Agreement) which were one-off in nature. Majority of our
revenue from these one-off engineering construction services was derived from a reformation
project in Shuozhou City. In May 2019, we entered into a cooperation agreement with the
Shuozhou City Shuocheng District Housing Urban-Rural Construction Administration Bureau*
(ண҅)( “ Shuocheng District Government ”), pursuant to which
we were entrusted by the Shuocheng District Government to undertake the engineering
construction work on 19 urban villages in Shuocheng District of Shuozhou City (the
“Reformation Project ”). The Reformation Project was implemented by the Shuocheng
District Government to reflect the aim of the “2017 Action Plan for Air Pollution Prevention
and Control in Shuozhou City” (ط2017ྌ) to promote clean
energy and control pollution from coal burning. Despite the 19 urban villages were in the
Concession Area under the Shuozhou Project, these engineering construction services were for
the purpose of upgrading the heat service infrastructure in the urban villages and a separate
engineering construction services agreement was entered into with the Shuocheng District
Government for such project with terms other than those set out in the Shuozhou Concession
Agreement, including but not limited to the terms stating that (i) the legal titles of the
constructed assets belong to the Shuocheng District Government and there would be no
subsequent transfer arrangement; and (ii) the Shuocheng District Government was solely
responsible for the construction costs. Given that the Reformation Project was to improve the
livelihoods of people in Shuocheng District of Shuozhou City, and for the purpose of
maintaining a good relationship with the Shuocheng District Government, we took up the
Reformation Project at cost as agreed with the Shuocheng District Government, resulting in our
zero gross profit margin on the Reformation Project during the Track Record Period.
FINANCIAL INFORMATION
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EMC services
During the Track Record Period, our revenue generated from EMC services represented
the income for our services to operate and manage the heat service facilities in our customer’s
power plant to collect the residual heat generated from its operation, and the resulting accounts
receivable will be settled subsequently based on the amount calculated by pre-determined
revenue sharing ratio and the actual amount of residual heat collected for each heat service
period.
For the years ended 31 December 2020, 2021 and 2022, revenue generated from our EMC
services amounted to approximately RMB4.2 million, RMB4.0 million and RMB3.0 million,
respectively.
Others
During the Track Record Period, revenue generated from other businesses included (i)
fees from customers for our provision of heat transmission, (ii) sale of heat service facilities,
and (iii) fees from customers for designing services. Our heat transmission services comprised
transmission of heat to a number of customers. Our sale of goods comprised sale of heat service
equipment, devices and relevant parts to the operators who required these facilities for their
business operation. Our designing services mainly comprised indoor heat operation designing
and consultancy services to some government authorities and commercial operators.
Cost of sales
During the Track Record Period, our cost of sales mainly included (i) costs for purchase
of heat, (ii) construction costs of engineering construction services, (iii) amortisation of
intangible assets, and (iv) materials consumed. For the years ended 31 December 2020, 2021
and 2022, such items amounted to approximately RMB938.7 million, RMB847.8 million and
RMB986.4 million in aggregate, representing approximately 86.5%, 86.8% and 86.0% of our
total cost of sales, respectively. For the same periods, our total cost of sales was approximately
RMB1,084.9 million, RMB977.0 million and RMB1,146.9 million, respectively.
The following table sets out a breakdown of our cost of sales for the years indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 % RMB’000 % RMB’000 %
Cost for purchase of heat 380,312 35.1 376,447 38.5 400,948 35.0
Amortisation of intangible
assets 163,758 15.1 182,382 18.7 194,283 16.9
Impairment of intangible
assets – – – – 9,398 0.9
Materials consumed 79,165 7.3 90,073 9.2 129,401 11.3
FINANCIAL INFORMATION
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--- page 499 ---
For the year ended 31 December
2020 2021 2022
RMB’000 % RMB’000 % RMB’000 %
Construction costs of
engineering construction
services 315,481 29.1 198,908 20.4 261,767 22.8
Depreciation of right-of-use
assets 172 0.0 172 0.0 – –
Cost of goods sold 13,294 1.2 1,944 0.2 12,555 1.1
Utility costs 71,538 6.6 73,772 7.6 69,756 6.1
Maintenance expenses 16,091 1.5 12,331 1.3 18,469 1.6
Employee benefit expenses 19,083 1.8 19,515 2.0 21,770 1.9
Depreciation of property,
plant and equipment 2,254 0.2 2,597 0.3 2,837 0.2
Others 23,783 2.1 18,828 1.8 25,667 2.2
1,084,931 100.0 976,969 100.0 1,146,851 100.0
During the Track Record Period, costs of purchase of heat represented the direct heat
procurement costs incurred for our heat services. The amortisation of intangible assets was
recognised on a straight-line basis over the remaining concession periods. Materials consumed
mainly consisted of coal that was consumed in coal-fired boilers to generate heat for our
Lanzhou New Area Project, as well as other consumables which were used in our ordinary
course of business operation. Construction costs were incurred for constructing heat service
facilities according to our Concession Agreements.
Construction costs are recognised when we incur actual costs for constructing heat service
facilities and generate engineering construction services revenue. For the years ended 31
December 2020, 2021 and 2022, our construction costs amounted to approximately RMB315.5
million, RMB198.9 million and RMB261.8 million, respectively.
The amortisation of intangible assets mainly relates to the amortisation of our operating
concessions. Such amortisation is recognised on a straight-line basis over the remaining
concession period as direct costs incurred for our provision and distribution of heat services.
For the years ended 31 December 2020, 2021 and 2022, our amortisation of intangible assets
amounted to approximately RMB163.8 million, RMB182.4 million and RMB194.3 million,
respectively.
Materials consumed mainly comprise coal and other chemicals that are consumed in
coal-fired boilers for our Lanzhou New Area Project to produce heat for our provision of heat
services. For the years ended 31 December 2020, 2021 and 2022, our materials consumed
amounted to approximately RMB79.2 million, RMB90.1 million and RMB129.4 million,
respectively.
FINANCIAL INFORMATION
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The following table sets out our cost of sales by type of service/product for the years
indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 % RMB’000 % RMB’000 %
Heat services 741,187 68.3 764,700 78.3 859,497 74.9
Engineering construction
services 315,481 29.1 198,908 20.4 261,767 22.8
EMC services 876 0.1 1,674 0.2 3,309 0.3
Heat transmission services 10,963 1.0 8,280 0.8 2,083 0.2
Sale of goods 13,294 1.2 1,944 0.2 12,555 1.1
Designing services 1,940 0.2 285 – 3,622 0.3
Others 1,189 0.1 1,178 0.1 4,018 0.4
Total 1,084,931 100.0 976,969 100.0 1,146,851 100.0
Sensitivity analysis
Any unfavourable changes to heat rates, heat procurement price, material procurement
prices and construction costs may adversely affect our revenue, cash flows and results of
operations. For illustrative purposes, the table below sets out a sensitivity analysis of the effect
of fluctuations in heat rates, heat procurement prices, material procurement prices and
construction costs on our profit before tax during the Track Record Period. Fluctuations are
assumed to be 5% and 10%, respectively. Prospective investors should note that this sensitivity
analysis is based on assumptions and is for reference only. As such, it should not be viewed
as actual effect.
Impact on our profit before tax
For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Average heat rate
+/- 5% 36,547 38,922 42,677
+/- 10% 73,094 77,844 85,354
Average heat procurement price
+/- 5% 19,016 18,822 20,047
+/- 10% 38,031 37,645 40,095
FINANCIAL INFORMATION
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Impact on our profit before tax
For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Average material procurement price
+/- 5% 3,983 4,521 6,470
+/- 10% 7,966 9,421 12,940
Average construction costs
+/- 5% 15,774 9,945 13,088
+/- 10% 31,548 19,891 26,177
Heat services
Costs of sales for our provision of heat services primary consists of (i) purchase of heat;
(ii) amortisation of intangible assets; (iii) materials consumed (including coal and other
consumables); and (iv) utility costs. For the years ended 31 December 2020, 2021 and 2022,
costs of sales for our provision of heat services were approximately RMB741.2 million,
RMB764.7 million and RMB859.5 million, respectively.
Engineering construction services
Costs of sales for our provision of engineering construction services represents
construction costs, including direct material costs and contracting costs, for the construction of
heat service facilities. For the years ended 31 December 2020, 2021 and 2022, costs of sales
for our provision of engineering construction services were approximately RMB315.5 million,
RMB198.9 million and RMB261.8 million, respectively.
EMC services
Costs of sales for our provision of EMC services primarily consists of (i) employee
benefit expenses, and (ii) utility and other operation costs. For the years ended 31 December
2020, 2021 and 2022, costs of sales for our provision of EMC services were approximately
RMB0.9 million, RMB1.7 million and RMB3.3 million, respectively.
Heat transmission services
Costs of sales for our heat transmission services mainly include the relevant direct costs
for the purchase of heat. For the year ended 31 December 2020, 2021 and 2022, costs of sales
for our heat transmission services were approximately RMB11.0 million, RMB8.3 million and
RMB2.1 million, respectively.
FINANCIAL INFORMATION
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Gross profit and gross profit margin
For the years ended 31 December 2020, 2021 and 2022, our gross profit amounted to
approximately RMB291.4 million, RMB313.7 million and RMB296.9 million, respectively.
For the same periods, our gross profit margin was approximately 21.2%, 24.3% and 20.6%,
respectively.
The following table sets out our gross profit and gross profit margin by type of
service/product for the years indicated.
For the year ended 31 December
2020 2021 2022
Gross
profit
Gross
profit
margin
Gross
profit
Gross
profit
margin
Gross
profit
Gross
profit
margin
RMB’000 % RMB’000 % RMB’000 %
Heat services 232,090 23.8 270,453 26.1 239,446 21.8
Engineering
construction services 46,569 12.9 30,239 13.2 39,800 13.2
EMC services 3,281 78.9 2,298 57.9 (307) (10.2)
Heat transmission
services 5,998 35.4 6,253 43.0 3,438 62.3
Sale of goods 3,050 18.7 3,812 66.2 11,026 46.8
Designing services (282) (17.0) 233 45.0 2,964 45.0
Others 684 36.5 378 24.3 514 11.4
Total 291,390 21.2 313,666 24.3 296,881 20.6
Gross profit of heat services (including fees from customers for provision and distribution
of heat, price subsidies from local government and pipeline connection fee)
For the years ended 31 December 2020, 2021 and 2022, gross profit for our heat services
was approximately RMB232.1 million, RMB270.5 million and RMB239.4 million,
respectively. For the same periods, the gross profit margin of our heat services was
approximately 23.8%, 26.1% and 21.8%, respectively.
FINANCIAL INFORMATION
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The following table sets out the gross profit/(loss) margin of our heat services by heat
service project under operation for the years indicated.
For the years ended 31 December
2020 2021 2022
%%%
Shanxi Province
Taiyuan Project 39.3 44.1 45.1
Shanxi Demonstration Zone Project (60.3) (55.7) (13.4)
Shuozhou Project 13.2 20.5 9.0
Gansu Province
Lanzhou New Area Project 26.9 9.4 9.8
Inner Mongolia Autonomous Region
Hulunbuir Project 38.1 43.3 43.8
Gross profit margin of Taiyuan Project
For the years ended 31 December 2020, 2021 and 2022, the gross profit margin for the
Taiyuan Project was approximately 39.3%, 44.1%, and 45.1%, respectively. The increases in
gross profit margin for this project during the Track Record Period were due to the expansion
of our heat service area for the project, while our cost of sales did not increase to the same
extent due to the implementation of cost-saving strategies such as conducting daily operational
analysis and weather variation studies to improve the precision of heat control in the heat
exchange stations used by us.
Gross loss margin of Shanxi Demonstration Zone Project
For the years ended 31 December 2020, 2021 and 2022, the gross loss margin for the
Shanxi Demonstration Zone Project was approximately 60.3%, 55.7% and 13.4%, respectively.
Our gross loss margin for this project for the years ended 31 December 2020, 2021 and 2022
was mainly due to a relatively high level of depreciation compared to our revenue. During the
initial phase of this project, the initial construction of heat service facilities, particularly the
pipeline and facilities for extraction of geothermal heat as heat source for this project, led to
a relatively high level of depreciation, while its operation scale was relatively small at this
stage. Our gross loss margin gradually decreased during the Track Record Period as a result of
the continuing expansion of actual heat service area, leading to a higher revenue generated
from provision of heat services, while the aforementioned depreciation expense remained
stable during the Track Record Period.
FINANCIAL INFORMATION
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Gross profit margin of Shuozhou Project
For the years ended 31 December 2020, 2021 and 2022, the gross profit margin for the
Shuozhou Project was approximately 13.2%, 20.5% and 9.0%, respectively.
As disclosed in the paragraph headed “Financial Information – Description of major
components of our results of operations – Revenue – Heat services – (ii) Price subsidies from
local government”, the local government authorities calculated the price subsidies by applying
a 3% mark-up margin on the relevant heat service costs and deduct the revenue based on the
financial information submitted by us as adopted in a specific formula (“the Government
Formula ”).
The gross profit margin of the Shuozhou Project (the “ Shuozhou GP Margin ”) is higher
than the 3% mark-up margin because (i) the formulae for the two ratios were different where
the Shuozhou GP Margin is calculated by dividing the gross profit by revenue, while the 3%
mark-up margin is calculated by dividing the gross profit by relevant heat service costs; and
(ii) the inputs of the parameters for the two ratios were different. The following table sets out
the details of the major differences in the inputs of the parameters for the two ratios.
Inputs of the parameters Shuozhou GP Margin Government Formula
(1) Revenue
Fee from customers for
provision and
distribution of heat
Exclusive of V AT Inclusive of V AT
Pipeline connection fee Included Excluded
(2) Heat service cost
Heat procurement
cost
(1)
From our Group’s
perspective
from Shuozhou Renewable
Energy perspective
Administrative expenses
and finance expenses
Excluded Included
Cost assessment (2) Not applicable Some items of heat service
cost submitted to the
government authorities
may be determined not
to be included for
calculating the total
amount of price
subsidies
FINANCIAL INFORMATION
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--- page 505 ---
Notes:
1. During the Track Record Period, part of the heat consumed by Shuozhou Renewable Energy for
provision and distribution of heat was procured from Taiyuan Renewable Energy which in turn procured
such heat from Shanxi Datang and Shanxi Shentou, both of which are Independent Third Parties. See
“Business – Heat procured from cogeneration plants” for details. The cost in relation to Taiyuan
Renewable Energy’s procurement of heat from Shanxi Datang and Shanxi Shentou represents the cost
of heat procurement incurred by our Group, and was adopted in the calculation of Shuozhou GP Margin
to reflect the profitability of our Shuozhou Project from our Group’s prospective.
2. See “Revenue – (ii) Price subsidies from local government – Determination of the amount of price
subsidies” in this section for details of the cost assessment conducted by the government authorities.
The gross profit margin for the Shuozhou Project increased for the year ended 31
December 2021. Such increase was mainly due to an increase in price subsidies which was in
line with the expansion of the actual heat service area of this project, as well as a decrease in
costs as we began sourcing heat from a new cogeneration plant with a shorter heat transmission
distance. The gross profit margin for this project decreased for the year ended 31 December
2022, mainly due to the decrease in the price subsidies from a local government. According to
a sensitivity analysis conducted for illustrative purpose, if price subsidies had not been
recognised as revenue, the Shuozhou Project would have incurred a gross loss margin of
39.2%, 28.6% and 38.6% for the years ended 31 December 2020, 2021 and 2022, respectively.
Gross profit margin of Lanzhou New Area Project
For the years ended 31 December 2020, 2021 and 2022, the gross profit margin for the
Lanzhou New Area Project was approximately 26.9%, 9.4% and 9.8%, respectively. The gross
profit margin for the Lanzhou New Area Project decreased for the year ended 31 December
2021. Such decrease was mainly due to an increase in costs resulting from a substantial
increase in coal prices. The gross profit margin for this project remained stable at 9.8% for the
year ended 31 December 2022.
Gross profit margin of Hulunbuir Project
The gross profit margin for the Hulunbuir Project remained stable during the Track
Record Period, and was 38.1%, 43.3% and 43.8% for the years ended 31 December 2020, 2021
and 2022, respectively.
The gross profit margins for our heat service projects are largely affected by (i) the
monthly heat rates for our heat services, which are set by the relevant pricing authorities and
generally do not fluctuate in accordance with market dynamics; and (ii) the type of heat source
used for the heat project, which affects our cost of heat. During the Track Record Period, we
procured heat from cogeneration plants in the PRC for our Taiyuan Project, Hulunbuir Project
and Shuozhou Project. The procurement prices of heat from such cogeneration plants are set
by the relevant pricing authorities. The gross profit margins for our Taiyuan Project and our
Hulunbuir Project were higher than the gross profit margins for our other heat projects, mainly
because it is generally cheaper to purchase heat from cogeneration plants as compared to
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self-generating heat. On the other hand, the gross profit margin for our Shuozhou Project was
lower during the Track Record Period as the purchase price of heat was slightly higher than that
for the Taiyuan Project and the Hulunbuir Project. During the Track Record Period, heat for our
Lanzhou New Area Project was produced through coal-fired boilers. As a result, the gross
profit margin for our Lanzhou New Area Project was impacted by the relatively high prices for
the procurement of coal, which led to a lower gross profit margin for this project during the
period. During the Track Record Period, the gross profit margin for our Shanxi Demonstration
Zone Project was the lowest of our heat service projects, mainly due to a relatively high level
of depreciation compared to our revenue in relation to the construction of heat service facilities
for the project in 2019.
Gross profit of engineering construction services
For the years ended 31 December 2020, 2021 and 2022, gross profit for our engineering
construction services was approximately RMB46.6 million, RMB30.2 million and RMB 39.8
million, respectively. For the same periods, the gross profit margin for our engineering
construction services was approximately 12.9%, 13.2% and 13.2%, respectively.
Gross profit/(loss) of EMC services
For the years ended 31 December 2020 and 2021, gross profit for our EMC services was
approximately RMB3.3 million and RMB2.3 million, respectively. For the years ended 31
December 2022, the gross loss for our EMC services was approximately RMB0.3 million. For
the same periods, the gross profit margin of our EMC services was approximately 78.9% and
57.9%, respectively, and the gross loss margin was approximately 10.2% for the year ended 31
December 2022.
The gross profit decreased from RMB3.3 million for the year ended 31 December 2020
to RMB2.3 million for the year ended 31 December 2021 which was mainly resulting from an
increase in staff costs and maintenance expenses incurred during the year.
The gross profit decreased by approximately RMB2.6 million or 113.4% from a gross
profit of approximately RMB2.3 million for the year ended 31 December 2021 to a gross loss
of approximately RMB0.3 million for the year ended 31 December 2022. The gross profit
margin amounted to approximately 57.9% for the years ended 31 December 2021 and the gross
loss margin amounted to approximately 10.2% for the year ended 31 December 2022,
respectively. The change from gross profit to gross loss of our Group was mainly resulted from
our execution of the Supplemental EMC, resulting in lower revenue generated from the EMC
services while the cost of sales for EMC services increased from RMB1.7 million for the year
ended 31 December 2021 to RMB3.3 million for the year ended 31 December 2022, mainly due
to the increase in coal price and staff costs.
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Administrative expenses
Administrative expenses mainly consist of (i) employee benefit expenses; (ii)
depreciation of property, plant and equipment; (iii) research and development expenses; (iv)
travelling expenses; and (v) business entertainment expenses. For the years ended 31 December
2020, 2021 and 2022, our administrative expenses were approximately RMB125.0 million,
RMB141.3 million and RMB139.6 million, respectively. The following table sets out a
breakdown of our administrative expenses for the years indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 % RMB’000 % RMB’000 %
Employee benefit expenses 54,329 43.5 63,969 45.3 62,632 44.8
Depreciation of property,
plant and equipment 9,106 7.3 10,167 7.2 12,393 8.9
Amortisation of intangible
assets 2,292 1.8 1,900 1.3 650 0.5
Research and development
expenses 4,675 3.7 7,739 5.5 8,166 5.9
Depreciation of right-of-use
assets 2,940 2.4 4,607 3.3 4,615 3.3
Legal and professional fees 4,334 3.5 5,617 4.0 2,722 2.0
Office expenses 1,469 1.2 1,188 0.8 1,085 0.8
Auditor remuneration 891 0.7 1,320 0.9 858 0.6
Travelling expenses 7,815 6.3 6,606 4.7 5,780 4.1
Business entertainment
expenses 10,929 8.7 12,440 8.8 10,625 7.6
Technical service expenses 2,629 2.1 2,677 1.9 2,673 1.9
Utility expenses 818 0.7 1,146 0.8 1,386 1.0
Property management and
rental expenses 2,375 1.9 2,684 1.9 2,607 1.9
Tax and other surcharges 4,372 3.5 4,203 3.0 4,189 3.0
Listing expenses – – 299 0.2 3,597 2.6
Others 15,976 12.7 14,745 10.4 15,611 11.1
Total 124,950 100.0 141,307 100.0 139,589 100.0
Employee benefit expenses were the largest portion of our administrative expenses during
the Track Record Period, which included basic salary, bonus and pension.
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Depreciation of property, plant and equipment represented mainly the depreciation of the
building premises used for our operations and was relatively stable during the Track Record
Period.
Research and development expenses mainly represented our costs incurred for the
purpose of the innovation and development of our portfolio of heat sources.
Reversal/(provision) of impairment losses on financial assets and contract assets
During the Track Record Period, we recorded reversals or provisions of impairment losses
in respect of our trade, lease and other receivables and contract assets, For the years ended 31
December 2020, 2021 and 2022, we recorded a provision of impairment losses of
approximately RMB13.5 million, a reversal of impairment losses of approximately RMB1.0
million and a reversal of impairment loss of approximately RMB23.1 million, respectively.
Other income
During the Track Record Period, other income consisted of (i) government grants; and (ii)
rental income. For the years ended 31 December 2020, 2021 and 2022, our other income was
approximately RMB48.4 million, RMB73.6 million and RMB53.7 million, respectively. The
following table sets out a breakdown of our other income for the years indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Government grants 32,518 58,722 37,472
Rental income 15,866 14,862 16,270
48,384 73,584 53,742
For the years ended 31 December 2020, 2021 and 2022, we recorded government grant
related income of approximately RMB32.5 million, RMB58.7 million and RMB37.5 million,
respectively, primarily attributable to government grants in respect of our heat service
operation, subsidising our purchase/construction of heat service facilities or subsidising for
losses of our heat service projects. Government grants are not recurring in nature, there are no
specific formulae for the determination of the government grants, they were determined by the
local government on an incidental basis, and they are not directly related to heat rates. The
types of government grants may differ each year and the income are recognised when they are
received. We recognised government grants of approximately RMB10.0 million, RMB24.4
million and nil for the years ended 31 December 2020, 2021 and 2022, respectively, to make
up for the aggregate losses of our Lanzhou New Area Project since 2013 and up to the end of
2018. We recognised government grants of approximately nil, RMB8.0 million and RMB10.0
million for the years ended 31 December 2020, 2021 and 2022, respectively, mainly for the
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agreed shortfall by the local government for the heat service year from 1 April 2019 to
31 March 2020 of our Shanxi Demonstration Zone Project. Such grants represented the agreed
loss and shortfall in the governments’ discretion, taking into consideration, among others,
excessive loss at the early stage of operation and prior to achieve economies of scales; and
motivating the implementation of clean and renewable energy sources. We recognised
government grants of approximately RMB0.9 million, RMB3.5 million and RMB3.0 million
for the years ended 31 December 2020, 2021 and 2022, respectively, for our Shuozhou Project,
of which approximately RMB0.9 million, RMB1.0 million and RMB2.9 million was used to
subsidise our purchase/construction for the heat service facilities. Our rental income was
mainly arisen from the lease with tenants in our investment properties – Shantou Complex and
industrial complex.
Other losses – net
During the Track Record Period, our net other losses primarily consisted of (i) fair value
losses of investment properties; (ii) gains on investments in wealth management products; (iii)
gains/(losses) on disposal of property, plant and equipment; (iv) gains on disposal of intangible
assets; and (v) gains on disposal of right-of-use assets. The following table sets out a
breakdown of our other gains/(losses) – net for the years indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Fair value losses of investment
properties (6,300) (2,000) (5,300)
Gains on disposal and deregistration of
subsidiaries 72 4 39
Gains on investments in wealth
management products, net 1,207 418 146
Gains/(losses) on disposal of property,
plant and equipment, net 3,443 (119) 242
Gains on disposal of intangible assets – 462 1,086
Others 1,421 1,216 184
(157) (19) (3,603)
Our fair value losses of investment properties were mainly due to a change in the market
value of our investment properties (namely Shantou Complex and certain levels of industrial
complex), based on a valuation conducted by an independent valuer for the years ended 31
December 2020, 2021 and 2022, respectively. Our gains on investments in wealth management
products (being the short-term investment products or structured bank deposits) referred to fair
value gains based on their expected return rates.
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Finance income
During the Track Record Period, our finance income mainly consisted of (i) interest
income from financing arrangements; (ii) interest income from a loan to a related party;
(iii) interest income derived from bank deposits; (iv) interest income from a finance lease to
a related party; and (v) interest income from lease receivables. For the years ended
31 December 2020, 2021 and 2022, our finance income was approximately RMB26.4 million,
RMB29.4 million and RMB26.3 million, respectively.
The following table sets out a breakdown of our finance income for the years indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Finance income
Interest income derived from bank
deposits 2,519 1,822 2,696
Interest income from financing
arrangements (1) 17,462 13,659 10,877
Interest income from finance lease to a
related party (2) 1,320 1,468 1,334
Interest income from lease
receivables (3) 692 4,813 10,983
Interest income from loans to a related
party (4) 4,400 7,592 424
26,393 29,354 26,314
Notes:
(1) For details related to the relevant financing arrangements, see “Discussion of certain items of
consolidated statements of financial position – Current assets and liabilities – Prepayments and other
receivables” in this section.
(2) On 1 March 2020, we entered into a finance lease with Sinopec New Star, an associate of our Company.
The finance lease has a fixed term of 10 years.
(3) The lease receivables were recognised in relation to the EMC arrangement for which we leased certain
equipment and machinery for a power plant in 2017. See “Business – Provision of EMC services” in this
prospectus for details.
(4) On 8 July 2020, we entered into a loan financing arrangement with Beijing Zhongchuang, a related party
of our Company. Such loan financing arrangement has a fixed term of three years.
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Finance costs
During the Track Record Period, our finance costs mainly consisted of (i) interest
expenses on borrowings; (ii) interest expenses on lease liabilities; (iii) interest paid on
installment payment of acquisition of intangible assets; (iv) interest expenses on installment
payment of purchase of equipment; and (v) interest expenses on loans from government. For
the years ended 31 December 2020, 2021 and 2022, our finance costs was approximately
RMB92.9 million, RMB81.5 million and RMB84.1 million, respectively.
The following table sets out a breakdown of our finance costs for the years indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Interest expenses on borrowings (85,659) (72,686) (62,858)
Interest expenses on lease liabilities (1,218) (1,465) (1,386)
Interest expenses on installment payable
for acquisition of intangible assets (2,338) (5,087) (3,090)
Interest expenses on installment payable
for purchase of equipment (1,657) – –
Interest expenses on loans from
government (1,342) (1,343) (931)
Unwinding of provision
(Note) (652) (922) (1,156)
Loss from modification of lease
receivables – – (14,644)
(92,866) (81,503) (84,065)
Note:
Unwinding of provision mainly refers to periodic amortisation of discounting effect on the non-current
provision being made in relation to our service concession.
Our net finance costs decreased from approximately RMB66.5 million for the year ended
31 December 2020 to approximately RMB52.1 million for the year ended 31 December 2021,
mainly due to a decrease in our bank and other borrowings resulting from our repayments
during the same period. Our net finance costs increased from approximately RMB52.1 million
for the year ended 31 December 2021 to approximately RMB57.8 million for the year ended
31 December 2022, mainly due to a loss from modification of lease receivables resulting from
the modification of EMC and a decrease in interest income from a loan to Beijing Zhongchuang
as such loan was fully repaid in 2022. For the year ended 31 December 2022, our loss from
modification of lease receivables was resulted from the modification of EMC. In February
2022, we signed an addendum to a supplemental agreement containing payment schedule with
our EMC customer, to modify the payment schedule. The modification of EMC, including but
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not limited to a decrease in the percentage of sharing revenue and the extension of payment
schedule, resulted in a decrease in the carrying amount of the lease receivables from such
EMC, being the difference between the present value of the original contractual cash flows and
the present value of the modified contractual cash flows for the remaining period. Such
decrease, amounting to approximately RMB14.6 million, was recognised as our loss from
modification of lease receivables for the year ended 31 December 2022.
Share of profit of associates accounted for using the equity method
Share of profit of associates accounted for using the equity method is derived from our
Group’s equity interests in our associates, namely Sinopec New Star and Shaanxi Gas Group
New Energy Development. Sinopec New Star is principally engaged in the development,
construction and operation of heating, cooling and power generation projects, exploration and
utilisation of renewable energy, and provision of heat services. Shaanxi Gas Group New
Energy Development is principally engaged in the sale of natural gas and related businesses.
For the years ended 31 December 2020, 2021 and 2022, our share of net profit of associates
accounted for using the equity method was approximately RMB9.3 million, RMB12.0 million
and RMB13.5 million, respectively.
Income tax expenses
For the years ended 31 December 2020, 2021 and 2022, our income tax expenses were
approximately RMB45.6 million, RMB35.7 million and RMB46.0 million, respectively.
During the Track Record Period, all of our profits were derived from our business in the PRC
and our profits generated from our operations were principally subject to the PRC corporate
income tax. The reconciliation of the tax expense applicable to profit before tax at the statutory
rates for the jurisdictions in which our Company and majorities of subsidiaries are domiciled
to the tax expense at the effective tax rate is disclosed in Note 11 to the accountant’s report as
set out in Appendix I to this prospectus.
The table below sets out our income tax expenses for the years indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Current income tax:
– PRC corporate income tax 47,095 53,858 60,337
Deferred income tax (1,484) (18,187) (14,376)
46,074 35,671 45,961
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For the years ended 31 December 2020, 2021 and 2022, our effective tax rate was
approximately 31.7%, 17.3% and 24.7%, respectively. Our effective tax rate decreased from
31.7% in 2020 to 17.3% in 2021. Such decrease was mainly attributable to the decrease in
profit before tax in 2020 and an increase in tax losses not recognised for deferred income tax
assets, which was mainly due to increase in the losses from Shuozhou Renewable Energy in
2020. Our effective tax rate increased from approximately 17.3% for the year ended 31
December 2021 to approximately 24.7% for the year ended 31 December 2022.
During the Track Record Period, some of our subsidiaries were entitled to preferential tax
treatments as well as other incentives pursuant to the relevant tax laws and regulations.
Taiyuan Renewable Energy was approved as a high and new technology enterprise in
2018 and was subject to a preferential CIT rate of 15% from 2018 to 2020 according to the
relevant CIT laws. In December 2021, Taiyuan Renewable Energy was approved to the renewal
of high and new technology enterprise for three years from 2021 to 2023, and a preferential
CIT rate of 15% has been applied for 2021. In September 2019, Shanxi Shuangliang New
Energy was qualified as a high and new technology enterprise and entitled to enjoy a
preferential CIT rate of 15% from 2019 to 2021 and was approved for the renewal as a high
and new technology enterprise in 2022. In December 2020, Shanxi Demonstration Zone Heat
Supply was qualified as a high and new technology enterprise and entitled to enjoy a
preferential CIT rate of 15% from 2020 to 2022.
During the Track Record Period, Lanzhou Shuangliang and Hulunbuir Shuangliang were
subject to a preferential PRC corporate income tax rate of 15% according to the relevant PRC
corporate income tax laws and regulations since they are qualified as High and New
Technology Enterprises ( ৷อҦஔΆุ) and are enterprises established and operated in the
western region of the PRC with the latest approvals given in October 2022 and December 2022,
respectively, where they were subject to such preferential CIT rate of 15% from 2022 to 2024.
In addition, according to the relevant tax circulars issued by the PRC tax authorities, Gansu
Smart Energy was entitled to other tax concessions and was exempted from taxation for three
consecutive years since 2017, followed by a 50% reduction of the applicable tax rates for
another three consecutive years. Gansu Smart Energy was exempted from taxation from 2017
to 2019 and was entitled to a preferential PRC corporate income tax rate of 12.5% from 2020
to 2022.
Since the commencement of the Track Record Period and up to the Latest Practicable
Date, we had fulfilled all our income tax obligations and have not had any unresolved tax
issues or disputes with the relevant tax authorities.
Profit for the year
As a result of the foregoing, for the years ended 31 December 2020, 2021 and 2022, our
net profit was approximately RMB98.3 million, RMB171.1 million and RMB140.4 million,
respectively. For the same periods, our net profit margin was approximately 7.1%, 13.3% and
9.7%, respectively.
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YEAR-TO-YEAR COMPARISON OF RESULTS OF OPERATIONS
Y ear ended 31 December 2022 compared to year ended 31 December 2021
Revenue
Our consolidated revenue increased by approximately RMB153.1 million, or 11.9%, from
approximately RMB1,290.6 million for the year ended 31 December 2021 to RMB1,443.7
million for the year ended 31 December 2022, primarily due to a combined effect of an increase
in the revenue generated from our engineering construction services of approximately
RMB72.4 million, or 31.6%, as well as the increase in the revenue generated from our heat
services of approximately RMB63.8 million, or 6.2% during the same period. Such increase
was mainly attributable to (i) a general increase of constructions activities for our concession
projects; and (ii) an increase in the actual heat service area brought by the expansion of our
concession projects in general during the year.
The change in revenue over 2022 by major service/product type is analysed as follows:
(i) The revenue from the provision and distribution of heat (which included fees from
customers for distribution and provision of heat and price subsidies from a local
government) increased by approximately RMB54.3 million or 5.6% from RMB960.9
million for the year ended 31 December 2021 to RMB1,015.2 million for the year
ended 31 December 2022, which was mainly related to an increase in the actual heat
service area brought by the expansion of our concession projects in general during
the same year.
(ii) The revenue from pipeline connection fee increased by approximately RMB9.5
million or 12.8%, from RMB74.2 million for the year ended 31 December 2021 to
RMB83.7 million for the year ended 31 December 2022, which was mainly related
to the increase in the actual heat service area.
(iii) The revenue from our engineering construction services increased by approximately
RMB72.4 million or 31.6% from RMB229.1 million for the year ended 31 December
2021 to RMB301.6 million for the year ended 31 December 2022, which was mainly
due to (i) the increase in our actual heat service area, resulting in more engineering
construction activities to facilitate our provision of heat services and (ii) a new
construction project provided to a customer in Shanxi during the same year.
(iv) The revenue from our EMC services decreased by approximately RMB1.0 million
or 25.0% from RMB4.0 million for the year ended 31 December 2021 to RMB3.0
million for the year ended 31 December 2022, which was mainly due to our
execution of the Supplemental EMC, resulting in lower revenue generated from the
Original EMC during the year.
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(v) The revenue from our heat transmission services decreased by approximately
RMB9.0 million or 62.1% from RMB14.5 million for the year ended 31 December
2021 to RMB5.5 million for the year ended 31 December 2022 because one of our
major heat transmission customers, being a heat supply company in the PRC, did not
require heat transmission services from us during the year as it started to utilise an
alternative heat source.
(vi) The revenue from sale of goods increased by approximately RMB17.8 million or
309.7% from RMB5.8 million for the year ended 31 December 2021 to RMB23.6
million for the year ended 31 December 2022, which was mainly due to an increase
in demand for heat service devices and equipment during the year.
Cost of sales
Cost of sales increased by approximately RMB169.9 million or 17.4% from
approximately RMB977.0 million for the year ended 31 December 2021 to approximately
RMB1,146.9 million for the year ended 31 December 2022, which was in line with the increase
in our revenue from the provision of our heat services and engineering construction services
during the year.
Gross profit and gross profit margin
As a result of the foregoing, our gross profit decreased by approximately RMB16.8
million or 5.4% from approximately RMB313.7 million for the year ended 31 December 2021
to approximately RMB296.9 million for the year ended 31 December 2022. Our gross profit
margin decreased from approximately 24.3% for the year ended 31 December 2021 to
approximately 20.6% for the year ended 31 December 2022, primarily attributable to the
decrease in gross profit of our heat services due to the decrease in price subsidies for our
Shuozhou Project.
The gross profit and gross profit margin by major type of service/product are analysed as
follows:
(i) Heat services (including fees from customers for the provision and distribution of
heat, price subsidies from local government and pipeline connection fee)
The gross profit decreased by approximately RMB31.1 million or 11.5% from
approximately RMB270.5 million for the year ended 31 December 2021 to approximately
RMB239.4 million for the year ended 31 December 2022. The gross profit margin
amounted to approximately 26.1% and 21.8% for the year ended 31 December 2021 and
for the year ended 31 December 2022, respectively. The decrease in gross profit and
grossprofit margin was mainly attributed to (i) the decrease in price subsidies revenue for
the Shuozhou Project for the year ended 31 December 2022 and (ii) an increase in costs
resulting from a substantial increase in coal price, resulting in an increase in procurement
prices for our Lanzhou New Area Project during the same year. For further details of the
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gross profit margin of our heat services by heat service project during the Track Record
Period, see “Gross profit of heat services (including fees from customers for provision
and distribution of heat, price subsidies from local government and pipeline connection
fee)” in this section.
(ii) Engineering construction services
The gross profit increased by approximately RMB9.6 million or 31.6% from
approximately RMB30.2 million for the year ended 31 December 2021 to approximately
RMB39.8 million for the year ended 31 December 2022 because the increase in
construction activities for our concession projects, mainly attributable to expansions in
Taiyuan Project and Lanzhou New Area Project. The gross profit margin amounted to
approximately 13.2% and 13.2% for the years ended 31 December 2021 and 2022,
respectively. The gross profit margin remained stable for the year ended 31 December
2022.
(iii) EMC services
The gross profit decreased by approximately RMB2.6 million or 113.4% from a
gross profit of approximately RMB2.3 million for the year ended 31 December 2021 to
a gross loss of approximately RMB0.3 million for the year ended 31 December 2022. The
gross profit margin amounted to approximately 57.9% for the years ended 31 December
2021 and the gross loss margin amounted to approximately 10.2% for the year ended 31
December 2022, respectively. The decrease in gross profit and gross profit margin mainly
resulted from our execution of the Supplemental EMC, resulting in lower revenue
generated from the Original EMC during the year ended 31 December 2022 as compared
to in 2021.
(iv) Heat transmission services
The gross profit decreased by approximately RMB2.8 million or 45.0% from
approximately RMB6.3 million for the year ended 31 December 2021 to approximately
RMB3.4 million for the year ended 31 December 2022 because the reduced amount of
heat transmitted as one of our major customers for our heat transmission services did not
procure heat from us during the year. The gross profit margin amounted to approximately
43.0% and 62.3% for the year ended 31 December 2021 and for the year ended 31
December 2022, respectively. The increase in gross profit margin mainly resulted from
higher fees charged by us for our heat transmission service to a new customer for our heat
transmission services during 2022 as compared to 2021.
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(v) Sale of goods
The gross profit increased by approximately RMB7.2 million or 189.2% from
approximately RMB3.8 million for the year ended 31 December 2021 to approximately
RMB11.0 million for the year ended 31 December 2022 because of the increase in sale
of heat service devices and equipment during the year. The gross profit margin amounted
to approximately 66.2% and 46.8% for the year ended 31 December 2021 and for the year
ended 31 December 2022, respectively. The decrease in gross profit margin was mainly
attributed to the increase in sales of lower margin heat service devices and equipments
which offset the effect of increase in revenue in the total sale of heat service device and
equipment during the year.
Administrative expenses
Administrative expenses remained relatively stable at approximately RMB139.6 million
for the year ended 31 December 2022 as compared to RMB141.3 million for the year ended 31
December 2021.
Reversal of impairment losses on financial assets and contract assets
The reversal of impairment losses on financial assets and contract assets increased by
approximately RMB22.1 million or 2,223.4% from approximately RMB1.0 million for the year
ended 31 December 2021 to approximately RMB23.1 million for the year ended 31 December
2022, primarily resulting from a decrease in expected credit loss rate related to our EMC
customer during the year.
Other income
Other income decreased by approximately RMB19.8 million or 27.0% from
approximately RMB73.6 million for the year ended 31 December 2021 to approximately
RMB53.7 million for the year ended 31 December 2022, primarily attributable to the reduction
of government grants provided by the relevant local government for our Lanzhou New Area
Project.
Other losses – net
Net other losses increased from approximately RMB0.02 million for the year ended 31
December 2021 to net other losses of approximately RMB3.6 million for the year ended 31
December 2022. This increase was primarily attributable to a significant decrease in market
rental of our investment properties during the year, resulting in a fair value losses of such
investment properties.
FINANCIAL INFORMATION
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Finance income
Finance income decreased by approximately RMB3.0 million or 10.4% from
approximately RMB29.4 million for the year ended 31 December 2021 to approximately
RMB26.3 million for the year ended 31 December 2022. This decrease was primarily
attributable to a significant decrease of interest income from loans to Beijing Zhongchuang as
such loan was fully repaid in 2022.
Finance costs
Finance costs increased by approximately RMB2.6 million or 3.1% from approximately
RMB81.5 million for the year ended 31 December 2021 to approximately RMB84.1 million for
the year ended 31 December 2022. This increase was primarily attributable to an increase in
loss from modification of lease receivables during the year.
Income tax expenses
Income tax expense increased by approximately RMB10.3 million or 28.8% from
approximately RMB35.7 million for the year ended 31 December 2021 to approximately
RMB46.0 million for the year ended 31 December 2022. This increase was primarily
attributable to the increase in current income tax expense in relation to PRC corporate income
tax during the year.
Y ear ended 31 December 2021 compared to year ended 31 December 2020
Revenue
Our consolidated revenue decreased by approximately RMB85.7 million, or 6.2%, from
approximately RMB1,376.3 million for the year ended 31 December 2020 to RMB1,290.6
million for the year ended 31 December 2021, primarily due to a combined effect of decrease
by approximately RMB133.0 million in revenue generated from our engineering construction
services. Nonetheless, revenue generated from our heat services increased by approximately
RMB61.9 million, or 6.4% during the same period. Such increase was mainly attributable to
the expansion of our Shuozhou Project and Hulunbuir Project which led to an increase in the
actual heat service area of the aforementioned two projects during the same period.
The change in revenue over 2021 by major service/product type is analysed as follows:
(i) The revenue from the provision and distribution of heat (which included fees from
customers for distribution and provision of heat and price subsidies from a local
government) increased by approximately RMB53.1 million or 5.8% from RMB907.8
million for the year ended 31 December 2020 to RMB960.9 million for the year
ended 31 December 2021, which was mainly related to the expansion of our heat
services during the year.
(ii) The revenue form pipeline connection fee increased by approximately RMB8.8
million or 13.5%, from RMB65.4 million for 2020 to RMB74.2 million for the year
ended 31 December 2021, which was in line with increase in the actual heat service
area.
FINANCIAL INFORMATION
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(iii) The revenue from our engineering construction services decreased by RMB133.0
million or 36.7% from RMB362.1 million for the year ended 31 December 2020 to
RMB229.1 million for the year ended 31 December 2021, which was mainly due to
a one-off construction of primary distribution pipelines for our Shuozhou Project in
order to extend and connect our heat distribution network to a cogeneration plant as
a new heat source to enhance our heat transmission efficiency in 2020.
(iv) The revenue from our EMC services remained stable at RMB4.2 million and
RMB4.0 million for the year ended 31 December 2020 and the year ended 31
December 2021, respectively.
(v) The revenue from our heat transmission services decreased by approximately
RMB2.5 million or 14.7% from approximately RMB17.0 million for the year ended
31 December 2020 to RMB14.5 million for the year ended 31 December 2021,
mainly due to less heat being transmitted during the year, as the largest heat
transmission contract ended on November 2021.
(vi) The revenue from sale of goods decreased by approximately RMB10.5 million or
64.4% from approximately RMB16.3 million for the year ended 31 December 2020
to RMB5.8 million for the year ended 31 December 2021 which was mainly due to
a decrease in demand for heat service devices and equipment during the year.
Cost of sales
Cost of sales decreased by approximately RMB107.9 million or 9.9% from approximately
RMB1,084.9 million for the year ended 31 December 2020 to approximately RMB977.0
million for year ended 31 December 2021, primarily attributable to the decrease in costs for the
construction of primary distribution pipelines for our Shuozhou Project.
Gross profit and gross profit margin
As a result of the foregoing, our gross profit increased by approximately RMB22.3
million or 7.7% from approximately RMB291.4 million for the year ended 31 December 2020
to approximately RMB313.7 million for the year ended 31 December 2021. Our gross profit
margin increased from approximately 21.2% for the year ended 31 December 2020 to
approximately 24.3% for the year ended 31 December 2021, primarily attributable to an
increase in gross profit of our heat services due to the expansion of our actual heat service area.
FINANCIAL INFORMATION
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The gross profit and gross profit margin by major type of service/product are analysed as
follows:
(i) Heat services (including fees from customers for the provision and distribution of
heat, price subsidies from local government and pipeline connection fee)
The gross profit increased by RMB38.4 million or 16.5% from approximately
RMB232.1 million for the year ended 31 December 2020 to RMB270.5 million for the
year ended 31 December 2021. The gross profit margin amounted to 23.8% and 26.1% for
2020 and 2021, respectively. The increase in gross profit and gross profit margin was
mainly attributed to an improvement of profitability of the Hulunbuir Project, mainly as
a result of an increase in our actual heat service area and a decrease in our cost of sales
for the Hulunbuir Project since there was a downward adjustment on unit cost of heat
procurement in the region during the year. The increase in revenue from pipeline
connection fee also led to an increase in the gross profit during the year.
(ii) Engineering construction services
The gross profit decreased by RMB16.4 million or 35.2% from approximately
RMB46.6 million for the year ended 31 December 2020 to RMB30.2 million for the year
ended 31 December 2021 because there was no large scale construction for primary
distribution pipeline in 2021. The gross profit margin remained stable at 12.9% and 13.2%
for 2020 and 2021, respectively.
(iii) EMC services
The gross profit decreased from RMB3.3 million for the year ended 31 December
2020 to RMB2.3 million for the year ended 31 December 2021 which was mainly
resulting from an increase in staff costs and maintenance expenses incurred during the
year.
(iv) Heat transmission services
The gross profit remained stable at approximately RMB6.0 million for the year
ended 31 December 2020 to RMB6.3 million for the year ended 31 December 2021. The
gross profit margin increased from approximately 35.4% for 2020 to 43.0% for 2021
which was mainly resulting from a decrease in the unit cost of heat procurement in
Hulunbuir.
(v) Sale of goods
The gross profit increased by RMB0.7 million or 22.6% from approximately
RMB3.1 million for the year ended 31 December 2020 to RMB3.8 million for the year
ended 31 December 2021 and the gross profit margin increased from 18.7% for the year
ended 31 December 2020 to 66.2% for the year ended 31 December 2021, which was
mainly resulting from an increase in sales of heat service related devices such as
semi-finished skid-mounted heat exchange units which generally has a higher gross profit
margin.
FINANCIAL INFORMATION
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Administrative expenses
Administrative expenses increased by approximately RMB16.3 million or 13.0% from
approximately RMB125.0 million for the year ended 31 December 2020 to RMB141.3 million
for the year ended 31 December 2021 as we incurred more employee benefit expenses for our
expansion of our Lanzhou New Area Project and Shuozhou Project and incurred more research
and development expenses.
Reversal/(provision) of impairment losses on financial assets and contract assets
We recorded a provision of impairment losses on financial assets and contract assets of
approximately RMB13.5 million for the year ended 31 December 2020 and recorded a reversal
of impairment losses of approximately RMB1.0 million for the year ended 31 December 2021,
primarily resulting from our execution of the Supplemental EMC, thereby decreasing the
expected credit loss rate related to our EMC customer during the same period.
Other income
Other income increased by approximately RMB25.2 million from approximately
RMB48.4 million for the year ended 31 December 2020 to approximately RMB73.6 million for
the year ended 31 December 2021, primarily attributable to additional government grants
received from the relevant local governments for our Lanzhou New Area Project and Shanxi
Demonstration Zone Project, respectively.
Other losses – net
Net other losses decreased from approximately RMB0.2 million for the year ended 31
December 2020 to net other losses of approximately RMB0.02 million for the year ended 31
December 2021. This decrease was primarily attributable to the decrease in fair value losses
of our investment properties, mainly resulting from a decrease in market rental and losses on
disposal of our property, plant and equipment being recognised during the same period.
Finance income
Finance income increased by approximately RMB3.0 million or 11.4% from
approximately RMB26.4 million for the year ended 31 December 2020 to approximately
RMB29.4 million for the year ended 31 December 2021. This increase was primarily
attributable to an increase in interest income from lease receivables and interest income from
loans to Beijing Zhongchuang.
Finance costs
Finance costs decreased by approximately RMB11.4 million or 12.3% from
approximately RMB92.9 million for the year ended 31 December 2020 to approximately
RMB81.5 million for the year ended 31 December 2021. This decrease was primarily
attributable to a decrease in bank and other borrowings resulting from our repayments during
the same period.
FINANCIAL INFORMATION
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Income tax expenses
Income tax expense decreased by approximately RMB9.9 million or 21.7% from
approximately RMB45.6 million for the year ended 31 December 2020 to approximately
RMB35.7 million for the year ended 31 December 2021. This decrease was primarily
attributable to an increase in credit of our deferred income tax.
DISCUSSION OF CERTAIN ITEMS OF CONSOLIDATED STATEMENTS OF
FINANCIAL POSITION
The following table sets out selected information from our consolidated financial
statements as at the dates indicated, which have been extracted from our audited consolidated
financial statements included in the accountant’s report as set out in Appendix I to this
prospectus.
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
ASSETS
Non-current assets
Property, plant and equipment 164,800 156,521 155,929
Investment properties 274,500 272,500 267,200
Right-of-use assets 34,171 29,890 28,381
Intangible assets 3,169,936 3,190,673 3,340,965
Investments accounted for using
the equity method 72,713 84,824 94,966
Trade receivables 68,964 81,867 88,158
Prepayments and other receivables 304,209 238,119 41,865
Contract assets 44,137 58,671 14,610
Deferred income tax assets 41,117 49,140 53,674
4,174,547 4,162,205 4,085,748
Current assets
Inventories 32,900 38,178 48,926
Trade receivables 364,744 337,726 477,986
Prepayments and other receivables 324,544 215,510 153,127
Financial assets at fair value through
profit or loss 11,041 17,139 –
Restricted cash 34,848 76,688 100,374
Cash and cash equivalents 91,826 136,185 378,068
859,903 821,426 1,158,481
Total assets 5,034,450 4,983,631 5,244,229
FINANCIAL INFORMATION
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As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
EQUITY AND LIABILITIES
Equity attributable to owners of
our Company
Share capital 226,000 226,000 226,000
Other reserves 162,739 186,008 200,114
Retained earnings 131,767 218,791 301,003
520,506 630,799 727,117
Non-controlling interests 92,179 151,597 195,445
Total equity 612,685 782,396 922,562
LIABILITIES
Non-current liabilities
Borrowings 371,973 597,762 634,464
Other payables 67,004 32,631 7,386
Contract liabilities 1,506,471 1,628,637 1,821,454
Lease liabilities 22,215 18,387 18,677
Deferred income 54,831 85,125 83,459
Deferred income tax liabilities 40,322 30,167 20,331
Provision 15,382 20,210 25,593
2,078,198 2,412,919 2,611,364
Current liabilities
Borrowings 936,663 463,515 246,750
Trade and other payables 965,506 816,102 976,277
Contract liabilities 409,505 462,888 440,546
Lease liabilities 1,342 1,588 1,005
Current income tax liabilities 30,551 44,223 45,725
2,343,567 1,788,316 1,710,303
Total liabilities 4,421,765 4,201,235 4,321,667
Total equity and liabilities 5,034,450 4,983,631 5,244,229
FINANCIAL INFORMATION
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--- page 524 ---
Non-current assets and liabilities
Property, plant and equipment
During the Track Record Period, property, plant and equipment mainly represented the
properties and facilities that we owned for our normal course of business operation. We owned
certain levels of industrial complex, Jinsha Buildings and some retail properties, which were
classified as buildings under property, plant and equipment. As at 31 December 2020, 2021 and
2022, the total net book amounts of our property, plant and equipment were approximately
RMB164.8 million, RMB156.5 million and RMB155.9 million, respectively. The decrease in
total net book amounts of our property, plant and equipment, mainly resulted from the
depreciation throughout the Track Record Period and our disposal of certain pipelines and heat
service facilities to Sinopec New Star, our associate, in 2020.
Investment properties
During the Track Record Period, our investment properties included certain levels of
industrial complex and Shantou Complex that we used for rental purpose. Investment
properties were valued by an Independent Third Party by using an income approach. The
following table sets out the movement in our investment properties for the years indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Balance at beginning of the year 280,800 274,500 272,500
Net losses from fair value adjustment (6,300) (2,000) (5,300)
Balance at the end of the year 274,500 272,500 267,200
The following table sets out the amounts recognised in profit or loss for our investment
properties as at the dates indicated.
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Rental income from operating leases 15,866 14,862 15,149
Fair value losses (6,300) (2,000) (5,300)
During the same period, the fluctuation of investment properties was mainly related to the
fluctuation of fair value adjustments mainly due to change in market conditions.
FINANCIAL INFORMATION
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Right-of-use assets
During the Track Record Period, we entered into a number of new leases of office
buildings for our operation in Lanzhou and Hulunbuir upon the expiry of the original leases.
We also own certain land use rights of office premises, industrial and commercial complex and
State-owned allocated land use rights ( ਷Ϟྌᅡɺή). Such leases and land use rights were
recognised as right-of-use assets. Right-of-use assets were generally depreciated over the
shorter of the asset’s useful life and the lease term on a straight-line basis. Payments associated
with short-term leases and leases of low-value assets are recognised on a straight-line basis as
an expense in profit or loss. For the details of the measurement and depreciation of our
right-of-use assets, see Note 2.30 to the accountant’s report as set out in Appendix I to this
prospectus.
We had right-of-use assets of approximately RMB34.2 million, RMB29.9 million and
RMB28.4 million as at 31 December 2020, 2021 and 2022, respectively. Our right-of-use assets
decreased from approximately RMB34.2 million as at 31 December 2020 to approximately
RMB29.9 million as at 31 December 2021 and further decreased to approximately RMB28.4
million as at 31 December 2022 mainly because of the depreciation of such right-of-use assets.
Intangible assets
As at 31 December 2020, 2021 and 2022, our intangible assets included (i) goodwill in
relation to Taiyuan Renewable Energy; (ii) operating concessions; and (iii) software,
amounting to RMB3,169.9 million, RMB3,190.7 million and RMB3,341.0 million,
respectively. Our intangible assets were mostly related to our operating concessions, which
accounted for 99.3%, 99.3% and 99.3% of our total intangible assets balances as at 31
December 2020, 2021 and 2022, respectively.
Our intangible assets increased from approximately RMB3,169.9 million as at 31
December 2020 to approximately RMB3,190.7 million as at 31 December 2021 and further
increased to approximately RMB3,341.0 million as at 31 December 2022. Such increases were
mainly attributable to the construction of additional heat service facilities leading to the
increase in our operating concession assets.
Intangible assets in relation to operating concessions are recognised principally when we
recognise related revenue from engineering construction services for our concession
operations. During the Track Record Period, the largest portion of our intangible assets in
relation to our operating concessions was related to our Lanzhou New Area Project, primarily
due to the fact that we self-produced heat by coal-fired boilers for such project. The smallest
portion of our intangible assets in relation to our operating concessions was related to our
Shanxi Demonstration Zone Project in Taiyuan, which only commenced operations in
September 2018. Intangible assets in relation to our other heat service projects generally
increased due to our continuing expansion during the Track Record Period.
FINANCIAL INFORMATION
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The following table sets out our operating concessions recognised under intangible assets
by geographical location as at the dates indicated.
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Shanxi Province
Taiyuan 689,007 735,297 755,579
Shuozhou 780,557 728,861 692,334
Gansu Province
Lanzhou 967,568 1,020,891 1,111,423
Inner Mongolia Autonomous Region
Hulunbuir 709,657 682,516 662,906
Henan Province
Zhengzhou – – 96,599
Total 3,146,789 3,167,565 3,318,841
In June 2017, we reduced our original Concession Area in Taiyuan of Shanxi Province.
See “Business – Heat services – Reduction of the size of the Concession Boundary Area for our
Taiyuan Project and the possible transfer of the heat facilities in relation to the Subject Area
which is currently under negotiation” in this prospectus for the relevant background.
Subsequent to the end of 2016/2017 heat service period, we ceased to provide any heat services
in the Subject Area and have not recorded any revenue in respect of the Subject Area. All our
heat service facilities in the Subject Area have been subsequently operated by a new operator.
At the end of August 2017, the carrying value of the concession relating to the Subject Area
amounted to approximately RMB71.4 million (with original cost and accumulated amortisation
of RMB81.9 million and RMB10.5 million, respectively). Since our Group could no longer
generate any future economic benefits from the concession relating to the Subject Area, our
Group decided to accelerate the amortisation for the concession relating to the Subject Area
and the carrying value of which became zero after such accelerated amortisation took place.
The carrying value of intangible assets is reviewed for impairment annually or when
events or changes in circumstances indicate the carrying amounts may not be recoverable in
accordance with the accounting policy for the impairment of non-financial assets. The
recoverable amount for impairment assessment is the higher of its fair value less costs of
disposal and value-in-use. The determination of recoverable amount involves significant
estimates. Estimating the value-in-use requires our Group to make estimates for future cash
flows and to determine appropriate discount rates and other assumptions. A change in such
estimates will result in an adjustment to the estimated impairment provision. Further, goodwill
acquired in a business combination is allocated to the CGU that is expected to benefit from that
business combination.
FINANCIAL INFORMATION
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Impairment tests for goodwill related to Taiyuan Renewable Energy
Goodwill acquired in a business combination is allocated to the CGU that is expected to
benefit from that business combination. Taiyuan Renewable Energy’s business was transferred
to and undertaken by our Group on 10 October 2010. Our Directors consider Taiyuan
Renewable Energy as a separate CGU and the goodwill is allocated to this CGU.
The recoverable amount of the CGU related to Taiyuan Renewable Energy is determined
based on value-in-use calculations. The calculation uses pre-tax cash flow projections based on
financial forecasts prepared by management covering a five-year period. Cash flows beyond
the five-year periods are extrapolated using the estimated growth rates stated below.
The following table sets out the key assumptions for the CGU that have goodwill
allocated to it:
As at 31 December
2020 2021 2022
Net profit margin 26.40% 26.50% 27.10%
Revenue growth rate 6%-10% 6%-10% 3%-4%
Terminal growth rate 3.00% 3.00% 3.00%
Pre-tax discount rate 13.52% 13.50% 13.36%
The revenue growth rate is mainly related to the actual heat service area served by the
CGU under the relevant concession agreements. Taking into consideration the increase in
actual heat service area of the relevant concessions of the CGU during the Track Record Period
and the future expansion plan for the heat service business of our Group under concession
rights, our Directors expected that the CGU had a steady growth in actual heat service area of
6%-10% in 2020 and 2021, and 3%-4% in 2022.
Having considered China’s long-term inflation rate being stable at around 3% during the
Track Record Period, our Directors expected the terminal growth rate of the CGU to be 3% and
did not adjust their expectation during the Track Record Period.
Based on the result of the goodwill impairment test performed by our Directors, the
estimated recoverable amount exceeded the carrying amount by approximately RMB130.7
million, RMB142.5 million and RMB149.3 million as at 31 December 2020, 2021 and 2022,
respectively. Accordingly, no impairment provision was required to be made during the Track
Record Period. Our Directors have performed a sensitivity analysis on the key assumptions
used in the impairment test of goodwill. Any reasonably possible change in the key
assumptions on which the recoverable amount is based would not cause the carrying amount
of the CGU to exceed its recoverable amount.
FINANCIAL INFORMATION
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If the net profit margin used in the value-in-use calculation had decreased by 10% from
management’s estimate as at 31 December 2020, 2021 and 2022, the headroom (i.e. the amount
by which the estimated recoverable amount exceeded the carrying amount) would have
decreased to approximately RMB69.5 million, RMB72.5 million and RMB86.3 million,
respectively.
If the revenue growth rate used in the value-in-use calculation had decreased by 10% from
management’s estimate as at 31 December 2020, 2021 and 2022, the headroom would have
decreased to approximately RMB114.8 million, RMB123.6 million and RMB139.8 million,
respectively.
If the terminal growth rate used in the value-in-use calculation had decreased by 10%
from management’s estimate as at 31 December 2020, 2021 and 2022, the headroom would
have decreased to approximately RMB115.4 million, RMB125.2 million and RMB132.8
million, respectively.
If the pre-tax discount rate used in the value-in-use calculation had increased by 10%
from management’s estimate as at 31 December 2020, 2021 and 2022, the headroom would
have decreased to approximately RMB56.7 million, RMB66.0 million and RMB77.7 million,
respectively.
Impairment tests for intangible assets relating to Shuozhou Renewable Energy
The recoverable amount of the CGU relating to Shuozhou Renewable Energy is
determined based on value-in-use calculations. The calculation uses pre-tax cash flow
projections based on financial forecasts prepared by management covering the remaining
service concession period since the date of assessment.
The carrying value of our intangible assets has been reviewed for impairment annually by
our management for the preparation of the financial statements of our Group since then. The
recoverable amount of the operating concession assets of Shuozhou Renewable Energy
approximated their carrying amount and therefore no impairment loss was recognised for the
years ended 31 December 2020 and 2021, respectively.
For the year ended 31 December 2022, an impairment loss of approximately RMB9.4
million was recognised, primarily attributable to the decrease in the expected net profit margin
of Shuozhou Renewable Energy for the remaining service concession periods of the Shuozhou
Project according to the most recent financial forecasts prepared by our management. Such
decrease was mainly because (i) our management lowered the expected revenue growth rate of
Shuozhou Renewable Energy for the remaining service concession periods of the Shuozhou
Project in the most recent financial forecast since the actual expansion in the actual heat service
areas in 2022 for the Shuozhou Project was below our management’s expectation; and (ii) the
expected costs of sales for the remaining service concession periods of the Shuozhou Project
in the financial forecast were revised upwards due to the increase in cost of sales of Shuozhou
Renewable Energy in 2022.
FINANCIAL INFORMATION
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The following table sets out the key assumptions for the impairment assessment:
As at 31 December
2020 2021 2022
Net profit margin -3.1%-17.4% -1.7%-22.1% -7.2%-17.3%
Revenue growth rate 2%-3% 2%-3% 2%-3%
Pre-tax discount rate 14.35% 13.99% 13.63%
The revenue growth rate is mainly related to the actual heat service area served by the
CGU under the Shuozhou Concession Agreement. Taking into consideration the increase in
actual heat service area of the relevant concessions of the CGU during the Track Record Period
and the future expansion plan of the CGU, our Directors expected that the CGU had a steady
growth in actual heat service area of 2%-3% during the Track Record Period.
Our Directors consider that no impairment charge in 2020 and 2021 was required after
performing the impairment assessment. As at 31 December 2020 and 2021, the recoverable
amount of the CGU related to Shuozhou Renewable Energy approximated its carrying amount.
Therefore, our Directors consider that any reasonably possible changes in the key assumptions
as indicated below will result in further impairment charge to be recognised.
If the net profit margin used in the value-in-use calculation had decreased by 5% from
management’s estimate as at 31 December 2020, 2021 and 2022, we would have recognised a
further impairment against the carrying amount of intangible assets of approximately RMB5.8
million, RMB8.0 million and RMB16.7 million, respectively.
If the revenue growth rate used in the value-in-use calculation had decreased by 5% from
management’s estimate as at 31 December 2020, 2021 and 2022, we would have recognised a
further impairment against the carrying amount of intangible assets of approximately RMB7.4
million, RMB8.9 million and RMB5.1 million, respectively.
If the pre-tax discount rate used in the value-in-use calculation had increased by 2% from
management’s estimate as at 31 December 2020, 2021 and 2022, we would have recognised a
further impairment against the carrying amount of intangible assets of approximately RMB10.6
million, RMB12.4 million and RMB11.0 million, respectively.
Investments in associates accounted for using the equity method
Investments in associates accounted for using the equity method represent our
investments in our associates, namely our 40% equity interest in Sinopec New Star and 10%
equity interest in Shaanxi Gas Group New Energy Development. We had investments in
associates accounted for using the equity method of approximately RMB72.7 million,
RMB84.8 million and RMB95.0 million as at 31 December 2020, 2021 and 2022, respectively.
The increase in our investments in associates throughout the Track Record Period was mainly
due to the increase in the net profit of Sinopec New Star as a result of its expanding heat service
area over the Track Record Period.
FINANCIAL INFORMATION
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See “Description of major components of our results of operations – Share of profit of
associates accounted for using the equity method” in this section for details.
Contract assets
Contracts assets mainly represent our rights to receive consideration in respect of our
engineering construction services provided to a local government.
As at 31 December 2020, 2021 and 2022, our contract assets amounted to approximately
RMB44.1 million, RMB58.7 million and RMB14.6 million, respectively.
Our contract assets increased from 2020 to 2021 as we provided more engineering
construction services which were pending certification by the local government. A project
settlement report for the engineering construction services provided in 2019 was issued by the
local government in 2022, therefore such part of contract assets were transferred to trade
receivable resulting in the decrease in contract assets in 2022.
As at 30 April 2023, no contract assets as at 31 December 2022 had been subsequently
certified by the local government.
Our Directors consider that there is no recoverability issue for contract assets and
sufficient provision has been made because (i) the customer is a local government and related
credit risk is relatively low; and (ii) a project settlement report for part of our engineering
construction services was issued by the customer, and as such, approximately 75.1% of our
contract assets as at 31 December 2021 were transferred to trade receivables in 2022.
Provisions
Provisions represent provisions made for maintenance and/or restoration under our
Concession Agreements. Provisions are measured at the present value of management’s best
estimate of the expenditures required to settle the present obligation at the end of the Track
Record Period. The discount rate used to determine the present value is a pre-tax rate that
reflects current market assessments of the time value of money and the risks specific to the
liability. The increase in the provision due to the passage of time is recognised as an interest
expense.
Under our Concession Agreements, our Group has contractual obligations (i) to maintain
the infrastructure to a specified level of serviceability or (ii) to restore the infrastructure to a
specified condition before it is handed over to the Grantor at the end of the service
arrangement. These contractual obligations to maintain or restore the infrastructure, except
forany upgrade element, are recognised in the consolidated statements of financial position and
measured in accordance with IAS 37 at the best estimate of the expenditures that will be
required to settle the contractual obligations.
FINANCIAL INFORMATION
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--- page 531 ---
Provisions made for such maintenance amounted to approximately RMB15.4 million,
RMB20.2 million and RMB25.6 million as at 31 December 2020, 2021 and 2022, respectively.
The increase in our provisions during the Track Record Period was primarily resulted from an
increased level of usage of our heat service facilities along with the expansion of our actual
heat service area.
Current assets and current liabilities
The following table sets out our current assets and current liabilities as at the dates
indicated.
As at 31 December
As at
30 April
2020 2021 2022 2023
RMB’000 RMB’000 RMB’000 RMB’000
(unaudited)
Inventories 32,900 38,178 48,926 37,682
Trade receivables 364,744 337,726 477,986 560,144
Prepayments and other
receivables 324,544 215,510 153,127 138,804
Financial assets at fair value
through profit or loss 11,041 17,139 – –
Restricted cash 34,848 76,688 100,374 113,167
Cash and cash equivalents 91,826 136,185 378,068 158,775
Total current assets 859,903 821,426 1,158,481 1,008,572
Borrowings 936,663 463,515 246,750 231,875
Trade and other payables 965,506 816,102 976,277 995,705
Contract liabilities 409,505 462,888 440,546 67,240
Lease liabilities 1,342 1,588 1,005 924
Current income tax liabilities 30,551 44,223 45,725 38,875
Total current liabilities 2,343,567 1,788,316 1,710,303 1,334,619
Net current liabilities 1,483,664 966,890 551,822 326,047
FINANCIAL INFORMATION
– 521 –


--- page 532 ---
As at 31 December 2020, 2021 and 2022, our net current liabilities were approximately
RMB1,483.7 million, RMB966.9 million and RMB551.8 million, respectively. Such net
current liabilities primarily consisted of our (i) trade and other payables; (ii) borrowings; and
(iii) contract liabilities. During the Track Record Period, we had substantial planned capital
expenditures for the purchase of property, plant and equipment and construction services for
our construction of heat service facilities, resulting in a significant amount of other payables
for the acquisition of intangible assets. During this period, we also had a substantial amount
of borrowings which was mainly used to support our capital expenditures, and which
contributed to our net current liability position. As at 31 December 2020 and 2021, some of our
borrowings (in the amounts of approximately RMB193.0 million and RMB179.0 million,
respectively), were classified as current liabilities due to our failure to comply with certain
covenants and financial undertakings in respect of two long-term bank borrowings, leading to
a higher level of current liabilities for those years. As at 31 December 2022, Hulunbuir
Shuangliang had re-complied with such financial covenants, and accordingly, we reclassified
the loan amounting to RMB158.0 million as at 31 December 2022 as non-current liabilities
according to the original payment schedules as set out in the relevant loan contract. As at 31
December 2022, Lanzhou Shuangliang had not re-complied with such financial covenants. In
March 2020, we obtained from the lending bank a letter of waiver from strict compliance with
certain financial covenants which continued to take effect as at the Latest Practicable Date as
confirmed by a supplemental interview with the lending bank on 24 February 2023.
Accordingly, we reclassified Lanzhou Shuangliang’s loan amounting to approximately
RMB286.1 million, RMB271.9 million and RMB203.1 million as at 31 December 2020, 2021
and 2022, respectively, as non-current liabilities according to the original payment schedules
as set out in the relevant loan contract. As such, our Directors are of the view that there would
not be any financial consequences for the failure to comply with the financial covenants. Our
net current liabilities during the Track Record Period were also attributable to a significant
amount of contract liabilities (which represented the advance receipts from customers in
relation to our heat services and pipeline connection fee) at the end of each year. Such contract
liabilities will be recognised as revenue in the following years when the relevant services are
provided. Our net current liabilities were higher as at 31 December 2020 primarily due to an
increase in short-term borrowings mainly related to our initial capital expenditures required for
the expansion of our heat services. See “Risk factors – Risks relating to our business and
industry – We had net current liabilities as at 31 December 2020, 2021 and 2022” in this
prospectus for the risk relating to our net current liabilities.”
In order to improve our net current liabilities position, our Directors confirm that: (i) we
will continue to closely monitor our net current liabilities position and optimise our future cash
depletion plan and composition of our indebtedness in order to achieve a net current assets
position; (ii) we have obtained banking facilities, resulting in a total of RMB824.0 million in
unutilised banking facilities as at 31 December 2022, and are committed to maintaining stable
relationships with our principal banks so as to obtain and/or renew bank borrowings in a timely
manner if so required and on terms acceptable to our Group; and (iii) when our short-term bank
loans become due, we will endeavour to extend the term of such loans, and refinance such
short-term bank loans with long-term bank loans.
FINANCIAL INFORMATION
– 522 –


--- page 533 ---
Our net current liabilities decreased by approximately RMB415.1 million, or 42.9% from
RMB966.9 million as at 31 December 2021 to RMB551.8 million as at 31 December 2022.
Such decrease was primarily resulted from (i) a decrease in current portion of borrowings by
approximately RMB216.8 million or 46.8%; and (ii) an increase in cash and cash equivalents
by approximately RMB241.8 million or 177.6%. Our net current liabilities decreased by
approximately RMB225.8 million, or 40.9% from RMB551.8 million as at 31 December 2022
to RMB326.0 million as at 30 April 2023. Such decrease was primarily resulted from (i) a
decrease in contract liabilities by approximately RMB373.3 million or 84.7%.
Our net current liabilities decreased by approximately RMB516.8 million, or 34.8%, from
RMB1,483.7 million as at 31 December 2020 to RMB966.9 million as at 31 December 2021.
Such decrease primarily resulted from a decrease in (i) trade and other payables by
approximately RMB149.4 million or 15.5%; and (ii) borrowings by approximately RMB473.1
million or 50.5%, which were partially offset by an increase in (i) restricted cash by
approximately RMB41.8 million or 120.1%; and (ii) cash and cash equivalents by
approximately RMB44.4 million or 48.4%.
Despite our net current liabilities position during the Track Record Period, our Directors
confirm that we did not experience any material financial difficulties with respect to our cash
flow for the following reasons:
 we did not experience any material deterioration in our revenue and net profit during
the Track Record Period;
 our net cash from operating activities recorded steady growth during the Track
Record Period as a result of the organic growth of our business;
 we were not involved in any material legal proceeding in relation to our failure to
settle our trade payables during the Track Record Period;
 we were not involved in any material legal proceeding in relation to our failure to
repay our loans during the Track Record Period;
 during the Track Record Period, we did not experience any difficulty in obtaining
credit facilities and there was no situation in which a financial institution refused to
provide us with a credit facility;
 during the Track Record Period, there was no situation in which we were unable to
obtain the normal business credit of a supplier; and
 during the Track Record Period, we did not experience any difficulty in fulfilling our
loan repayment obligations, interest or tax obligations or paying wages to our
employees.
FINANCIAL INFORMATION
– 523 –


--- page 534 ---
Our Directors believe that we are able manage our liquidity risk and ensure working
capital sufficiency due to the stability of our operating cash flow, in particular from our
provision of heat services. For the years ended 31 December 2020, 2021 and 2022, net cash
generated from our operating activities amounted to approximately RMB442.5 million,
RMB500.0 million and RMB617.8 million, respectively. Going forward, we have implemented
a policy to strictly manage the collection of trade receivables to ensure the stability of our
operating cash flow. In addition, our management has supervised and will continue to supervise
the scale and timing of our investment and capital expenditures to ensure that such
expenditures do not result in excessively high liquidity risk exposure. Further, our management
has been actively communicating with financial institutions to obtain new credit facilities and
adjust the loan structure of our Group by increasing the proportion of our long-term borrowings
and reducing the proportion of our short-term borrowings. For future borrowings, we will
negotiate with banks to obtain long-term bank loans on favourable terms. From an internal
control perspective, we have also designated Mr. Yang Xiaojin, our chief financial officer, to
regularly review and update our liquidity funding policies to ensure that it is aligned with our
business plan and financial position, and report comprehensively on our Group’s working
capital and liquidity management to our Board at least once every quarter.
As at 31 December 2022, our Group had unused banking facilities amounting to
RMB824.0 million, of which RMB60 million is available to our Group up to June 2023,
RMB125.0 million is available to our Group up to July 2023 and could be extended to July
2024, RMB489.5 million is available to our Group up to April 2024 and the remaining
RMB149.5 million is available to our Group up to December 2030.
Our Directors have reviewed our Group’s cash flow projections for a period not less than
twelve months from the balance sheet date, made due enquiries with management and
considered the bases and assumptions of the projections. Our Directors are of the opinion that,
taking into account our Group’s financial performance and operating cash inflows, the capital
expenditures plans, the continuous availability of existing facilities and the new credit facilities
secured, our Group will have sufficient financial resources to support its operations and to meet
its financial obligations as and when they fall due in the coming twelve months from
31 December 2022. Accordingly, our historical financial information has been prepared on a
going concern basis.
Inventories
During the Track Record Period, our inventories mainly consisted of (i) raw materials in
relation to our heat services such as coal and other chemical consumables; (ii) raw materials
being used in our engineering construction services like parts; and (iii) work in progress such
as semi-finished skid-mounted heat exchange units and other equipment mainly related to the
our sale of heat service-related goods. Costs are assigned to individual items of inventory on
the basis of weighted average costs. The following table sets out a breakdown of the
inventories as at the dates indicated.
FINANCIAL INFORMATION
– 524 –


--- page 535 ---
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Raw materials and consumables 32,851 38,178 48,926
Work in progress 49 – –
32,900 38,178 48,926
Our inventories increased by approximately RMB10.7 million, or 28.2%, from
approximately RMB38.2 million as at 31 December 2021 to approximately RMB48.9 million
as at 31 December 2022, mainly due to (i) the increase in our coal stock to support more coal
consumption for our provision of heat service due to the overall expansion of actual heat
service area of our Group, and (ii) the increase in coal price in 2022. Our inventories increased
by approximately RMB5.3 million, or 16.1%, from approximately RMB32.9 million as at 31
December 2020 to approximately RMB38.2 million as at 31 December 2021, mainly due to an
increase in procurement price of coals which were consumed in order to generate heat for our
Lanzhou New Area Project.
The following table sets out our average inventories turnover days for the years indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Average inventories turnover days (1) 151.3 140.4 111.5
Note:
(1) Average inventories turnover days are equal to the average balances of inventories divided by the
respective cost of sales and multiplied by 365 days for a year. Average balances of inventories are equal
to the sum of the balances of inventories at the beginning of the period and the balances of inventories
at the end of the year and divided by two.
Our average inventories turnover days were 151.3 days, 140.4 days and 111.5 days for the
years ended 31 December 2020, 2021 and 2022, respectively. Our inventories turnover days
decreased from approximately 151.3 days for the year ended 31 December 2020 to
approximately 140.4 days for the year ended 31 December 2021 and further decreased to
approximately 111.5 days for the year ended 31 December 2022, mainly because we managed
our inventories more frequently and efficiently to reduce our inventories level, resulting in
higher inventories turnover rate.
For the years ended 31 December 2020, 2021 and 2022, ending balances of our coal stock
were approximately RMB6.4 million, RMB11.0 million and RMB19.1 million, respectively.
FINANCIAL INFORMATION
– 525 –


--- page 536 ---
We periodically review our inventory levels for slow-moving inventory, obsolescence or
decline in market value. Write-down of inventories is recorded when estimated net realisable
value is less than cost. In view of the fact that (i) we generally consumed our raw materials in
relation to our heat services within the heat service period and keep it at a low level when it
is outside the heat service period, and (ii) our raw materials used in engineering construction
services generally had a long lifespan, no write-down of inventories was recorded during the
Track Record Period. In light of the above, we considered that there is no recoverability issue
for inventories and that sufficient provision has been made.
As at 30 April 2023, approximately RMB22.1 million, or 45.1% of our inventories as at
31 December 2022 had been subsequently sold to our customers and/or consumed by our
Group.
Trade receivables
During the Track Record Period, our trade receivables mainly represented fees from
customers for provision and distribution of heat, price subsidies from local government, and
pipeline connection fee.
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Included in current assets
Trade receivables
– Related parties 11,443 8,252 10,090
– Third parties 385,612 373,483 515,490
397,055 381,735 525,580
Notes receivables – – 50
Lease receivables 24,251 35,106 21,346
Less: allowance for impairment of trade
receivables and lease receivables (56,562) (79,115) (68,990)
364,744 337,726 477,986
Included in non-current assets
Lease receivables 127,855 116,737 109,749
Less: allowance for impairment of lease
receivables (58,891) (34,870) (21,591)
68,964 81,867 88,158
Total trade receivables 433,708 419,593 566,144
FINANCIAL INFORMATION
– 526 –


--- page 537 ---
Our trade receivables mainly represent the amounts receivable from (i) local government
for price subsidies; (ii) certain large customers of our heat services, such as governmental
institutions and property management companies; and (iii) the customer of EMC services. For
more information relating to credit policy, see “Business – Heat distribution – Payment and
credit policy” in this prospectus.
The following table sets out our trade receivables by customer types as at the dates
indicated.
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Local government for price subsidies 156,200 122,057 156,000
Customers of heat services 193,904 190,801 236,459
The customer of EMC services 68,963 81,867 89,771
Customers of engineering
construction services – – 51,549
Others 14,641 24,868 32,365
Total trade receivables 433,708 419,593 566,144
As at 31 December 2020, 2021 and 2022, our trade receivable from our EMC customer
amounted to approximately RMB69.0 million, RMB81.9 million and RMB89.8 million,
respectively. The EMC customer did not meet the demand originally anticipated in the Original
EMC during the Track Record Period. We subsequently entered into the Supplemental EMC to
negotiate the settlement of the trade receivable and extended the payment schedule, resulting
in a decrease in the percentage of sharing revenue and longer payment cycles.
Our trade receivables decreased by approximately RMB14.1 million, or 3.3%, from
RMB433.7 million as at 31 December 2020 to RMB419.6 million as at 31 December 2021.
Such decrease was primarily due to more settlement made by our customers, including the
decrease in the outstanding balance of price subsidies from Customer A, which is the
government authority granting price subsidies. Our trade receivables increased by
approximately RMB146.6 million, or 34.9%, from approximately RMB419.6 million as at 31
December 2021 to approximately RMB566.1 million as at 31 December 2022. Such increase
was primarily due to (i) an increase in amount receivable from local government for price
subsidies for the heat services provided in 2022; and (ii) an increase in receivables in relation
to the engineering construction services provided to a local government, which is transferred
from contract assets.
FINANCIAL INFORMATION
– 527 –


--- page 538 ---
The following table sets out an aging analysis of our trade receivables (excluding notes
receivables and lease receivables) from the date of sales, as at the dates indicated.
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Within 1 year 318,786 288,269 434,000
1 to 2 years 59,186 60,780 52,158
2 to 3 years 11,044 17,381 24,704
Over 3 years 8,039 15,305 14,718
397,055 381,735 525,580
The balance of our trade receivables (excluding notes receivables and lease receivables)
aged over one year amounted to approximately RMB78.3 million, RMB93.5 million and
RMB91.6 million, representing approximately 19.7%, 24.5% and 17.4% of our trade
receivables (excluding notes receivables and lease receivables) as at 31 December 2020, 2021
and 2022, respectively. For the years ended 31 December 2020, 2021 and 2022, our trade
receivables (excluding notes receivables and lease receivables) aged over one year from
property development companies and property management companies amounted to
approximately RMB47.2 million, RMB52.1 million and RMB55.3 million, representing
approximately 60.2%, 55.7% and 60.4% of our trade receivables (excluding notes receivables
and lease receivables) aged over one year, respectively. The increase in the balance of our trade
receivables (excluding notes receivables and lease receivables) aged over one year from
approximately RMB78.3 million as at 31 December 2020 to approximately RMB93.5 million
as at 31 December 2021 was mainly attributable to the outbreak of COVID-19 as a global
pandemic since early 2020. To contain the COVID-19, the PRC Government has imposed a
number of measures across the PRC including, but not limited to, temporary travel restrictions
and quarantine for travellers or returnees and shutdown of certain business operations. As a
result, some of our customers, being mainly property development companies and property
management companies, faced temporary interruption of business activities and financial
difficulties in their business operations which led to longer settlement periods or their
inabilities in settling the amount due to us. However, taking into account the necessity of heat
for such customers, we did not suspend our heat services to them and instead entered into
negotiations with them in good faith to make settlement for our heat services at a later time.
In light of this, our Group has adopted various measures to manage credit risk, such as (i)
conducting monthly review of our balance of trade receivables to regularly analyse aging of our
trade receivables; (ii) following up with our customers more frequently in order to improve
settlement of the trade receivable balances; and (iii) assessing the credit quality of our
customers by taking into account various factors such as their financial position, historical
settlement record and other factors including, but not limited to, the economic impact of the
unprecedented COVID-19 pandemic on the customers and the regions in which they operate.
The balance of our trade receivables aged over one year slightly decreased as at 31 December
2022 due to the gradual resumption of normal commercial and industrial business operations.
FINANCIAL INFORMATION
– 528 –


--- page 539 ---
The following table sets out our (i) average trade receivables and contract assets turnover
days and (ii) trade receivables turnover days for the years indicated.
For the year ended 31 December
2020 2021 2022
Average trade receivables and contract
assets turnover days (1) 147.4 148.6 152.6
Average trade receivables turnover
days(2) 135.2 133.9 145.0
Notes:
(1) Average trade receivables and contract assets turnover days are calculated based on the average gross
balances of trade receivables and contract assets divided by respective revenue (excluded the
engineering construction services income for concessions) and multiplied by 365 days for a year.
Average gross balances of trade receivables and contract assets are equal to the sum of the gross
balances of trade receivables and contract assets at the beginning of the year and the gross balances of
trade receivables and contract assets at the end of the year and divided by two.
(2) Average trade receivables turnover days are calculated based on the average gross balances of trade
receivables divided by respective revenue (excluded the engineering construction services income for
concessions) and multiplied by 365 days for a year. Average gross balances of trade receivables are
equal to the sum of the gross balances of trade receivables at the beginning of the period and the gross
balances of trade receivables at the end of the year and divided by two.
Our average trade receivables and contract assets turnover days remained relatively stable
at 147.4 days and 148.6 days for the years ended 31 December 2020 and 2021, respectively.
Our turnover days increased from approximately 148.6 days for the year ended 31
December 2021 to approximately 152.6 days for the year ended 31 December 2022, which was
mainly due to aforementioned impact of COVID-19.
Our average trade receivables turnover days remained relatively stable at 135.2 days and
133.9 days for the years ended 31 December 2020 and 2021, respectively. Our turnover days
increased from approximately 133.9 days for the year ended 31 December 2021 to
approximately 145.0 days for the year ended 31 December 2022, which was mainly due to
aforementioned impact of COVID-19.
As at 30 April 2023, approximately RMB147.5 million, or 28.1% of our trade receivables
as at 31 December 2022 were subsequently settled.
Our notes receivables represented the notes from our customers in respect of their
payment to us. We did not record notes receivables as at 31 December 2020 and 31 December
2021 because we did not receive notes from customers. Our notes receivables as at 31
December 2022 amounted to approximately RMB0.1 million.
FINANCIAL INFORMATION
– 529 –


--- page 540 ---
Lease receivables represented the amounts receivable from a power plant in relation to the
EMC arrangement for which we leased certain equipment and machinery installed in such
power plant by us in 2017. See “Business – Provision of EMC services” in this prospectus for
details. Such balance remained relatively stable during the Track Record Period.
Our trade receivables generally have no credit term as we require fees for the provision
and distribution of heat and pipeline connection fees to be paid in advance in accordance with
our industry practice. Our loss allowance provision of trade receivables and contract assets as
at 31 December 2020, 2021 and 2022 amounted to approximately RMB115.6 million,
RMB114.3 million and RMB90.6 million, respectively. The loss allowance provision of trade
receivables from our EMC customer as at 31 December 2020, 2021 and 2022 amounted to
approximately RMB98.3 million, RMB87.8 million and RMB42.9 million, representing
approximately 85.2%, 77.0% and 47.4% of our loss allowance provision of trade receivables
and contract assets, respectively.
Our Group applies the IFRS 9 simplified approach to measure the expected credit loss
(“ECL”), which uses a lifetime expected loss provision for all trade receivables. The historical
loss rates are adjusted to reflect current and forward-looking information on macroeconomic
factors affecting the ability of the customers to settle the receivables. Our Group has identified
the Consumer Price Index, Producer Price Index and the unemployment rate of the cities in
which it sells its goods and services to be the most relevant factors, and accordingly adjusts the
historical loss rates based on the expected changes in these factors.
The following table sets out the movements in loss allowance provision of trade
receivables and lease receivable and contract assets for the years indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
At the beginning of the year 102,229 115,635 114,308
Provision/(reversal) of loss allowance
recognised in profit or loss
– Trade receivables and lease
receivables 13,284 (1,468) (23,404)
– Contract assets 112 141 (259)
At the end of the year 115,635 114,308 90,645
At the year ended 31 December
Loss allowance provision of:
– Trade receivables and lease
receivables 115,453 113,985 90,581
– Contract assets 182 323 64
115,635 114,308 90,645
FINANCIAL INFORMATION
– 530 –


--- page 541 ---
We have been constantly evaluating the financial and credit conditions of our customers
and periodically make collective assessment on the recoverability of trade receivables. We use
a provision matrix to calculate expected credit loss from trade receivables. The provision rates
are based on the number of days past due for different groupings of various customer segments
that have similar loss pattern. For the expected loss rates adopted and movement of the gross
carrying amount of and loss allowance provision for our trade receivables, please refer to note
3.1(b) to the accountant’s report as set out in Appendix I to this prospectus.
In view of the fact that (i) the trade receivables from the local government for price
subsidies are generally settled after the heat service period upon the completion of the
assessment and issuance of formal reports by the local government authorities and no default
events occurred historically; (ii) the trade receivables from the customers, who are
governmental institutions and/or State-owned companies, normally have a longer settlement
period due to their longer and more complex internal process in settling payments to suppliers,
while maintaining generally high historical recovery rates due to their good credit standing;
(iii) we have made collective assessment on the trade receivables from other customers
andfollowed up with them more frequently based on their historical settlement records, overall
quality and credit strength, and we have adopted higher expected loss rates on these customers;
and (iv) the settlement rate of our trade receivables is consistent with its historical patterns, we
considered that there is no recoverability issue for our trade receivables, and that sufficient
provision has been made on trade receivables.
Prepayments and other receivables
The following table sets out the breakdown of our prepayments and other receivables as
at the dates indicated.
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Included in current assets
Other receivables and deposits
– Amounts due from a related party 154,400 40,074 –
– Deposits 11,610 8,542 8,798
– Consideration receivable from
disposal of intangible assets 10,564 10,564 1,482
– Consideration receivable from
disposal of right-of-use assets – – –
– Receivable of financing arrangements
with a third party 52,412 54,724 59,072
– Others 9,732 10,091 11,013
238,718 123,995 80,365
FINANCIAL INFORMATION
– 531 –


--- page 542 ---
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Less: allowance for impairment of other
receivables and deposits (3,500) (4,085) (4,754)
235,218 119,910 75,611
Deductible value-added tax 54,946 53,070 19,736
Prepayments to suppliers 16,028 18,292 16,304
Prepayments for income tax 5,590 2,727 3,856
Prepaid Listing expenses 12,762 21,511 37,620
89,326 95,600 77,516
324,544 215,510 153,127
Included in non-current assets
Receivable of financing arrangements
with a third party 106,980 46,207 –
Receivable of finance lease of plant and
equipment to a related party 30,786 28,403 25,886
Less: allowance for impairment of other
receivables and deposits (642) (389) (265)
137,124 74,221 25,621
Prepayments to related parties 79 3,747 3,819
Deductible value-added tax 155,639 145,315 –
Prepayments for intangible assets 11,367 14,836 12,425
167,085 163,898 16,244
304,209 238,119 194,992
During the Track Record Period, amounts due from a related party was mainly attributable
to the loan financing arrangement with Beijing Zhongchuang. Such amount decreased from
approximately RMB154.4 million as at 31 December 2020 to approximately RMB40.1 million
as at 31 December 2021 resulting from the repayment made by Beijing Zhongchuang during
the same period. As at 31 December 2022, Beijing Zhongchuang had fully repaid the amounts
due to us in accordance with the loan financing arrangement.
FINANCIAL INFORMATION
– 532 –


--- page 543 ---
During the Track Record Period, deposits mainly represented deposits required for utility
services. Our deposits remained relatively stable at approximately RMB8.5 million and
RMB8.8 million as at 31 December 2021 and 2022, respectively. Our deposits decreased from
approximately RMB11.6 million as at 31 December 2020 to approximately RMB8.5 million as
at 31 December 2021, as the utility deposits related to our business operation in Shuozhou of
Shanxi Province were adjusted downwards during the same period.
As at 30 April 2023, approximately RMB63.1 million, or 32.4% of our prepayments and
other receivables as at 31 December 2022 had been subsequently utilised/settled.
During the Track Record Period, consideration receivable from disposal of right-of-use
assets represented the difference between our purchase price of such assets and the
compensation received from the Management Committee of Shanxi Transformation and
Comprehensive Reform Demonstration Zone* (ึ) for the
transfer of a parcel of idle land to it for public usage, which was fully settled in 2019. During
the Track Record Period, consideration receivable from disposal of intangible assets
represented the compensation related to land reclamation relating to such parcel of idle land by
the local government in Taiyuan of Shanxi Province in 2019.
During the Track Record Period, our Group recognised finance income from receivables
from financing arrangements with an energy company, which is not a connected person to our
Group. In early 2018, such energy company was engaged by the local government authority to
conduct the engineering construction works for Xinmi Project. The engineering construction
works for phase I of Xinmi Project were completed in December 2018. But the energy company
experienced serious financial difficulties so phase II of the engineering construction works
cannot be duly completed. After obtaining consent from the local government authority, it
started to identify suitable transferee for the heat service-related assets of phase I of Xinmi
Project. It was our Group’s strategic target to explore the heat services market in Xinmi city
of Henan Province at that time and our Group needed such an opportunity to enter into its heat
services market, therefore our Group approached the energy company for cooperation. On 4
December 2018, we entered into a series of arrangements with such energy company, pursuant
to which they undertook sale and buyback arrangements with our Group for certain heat service
infrastructure for the provision of heat service in Xinmi. Such energy company sold such
facilities to our Group in December 2018. The total consideration payable to them by our
Group for the sale and buyback arrangements was approximately RMB176.0 million. They
agreed to purchase back the infrastructure at a total consideration of RMB244.1 million over
five years. According to the payment schedule, RMB48.8 million will be paid each year during
a five-year operating period. The repurchase price included the effect of the time value of
money which is more than the original sale price of the heat service infrastructure. Therefore,
the arrangement was accounted for as a financing arrangement provided by our Group to the
aforementioned energy company. For the years ended 31 December 2020, 2021 and 2022, our
Group recognised finance income from the aforesaid receivables of approximately RMB17.5
million, RMB13.7 million and RMB10.9 million, respectively. Such heat service infrastructure
for the provision of heat service in Xinmi is expected to be one of the heat service facilities
of our Xinmi Project in the future. Such receivables decreased during the Track Record Period
FINANCIAL INFORMATION
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as the aforementioned energy company consistently repaid us in accordance with the
repayment schedule as stipulated in the relevant agreements. As advised by our PRC Legal
Advisers, such sale and buyback arrangements stipulated under relevant agreements do not
violate the relevant PRC laws and regulation. Save for the financing arrangements as
mentioned above, our Directors confirmed that there is no past or present relationship
(including but not limited to business, shareholding, employment, family, trust, financing and
fund flows) between the energy company, its shareholders, directors, senior management
and/or any of their respective associates and our Group, our shareholders, directors, senior
management and/or any of their respective associates.
During the Track Record Period, other receivables mainly included deposits and
prepayments to our suppliers mainly related to our engineering construction services. Other
receivables remained relatively stable during the same period.
Deductible value-added tax represented the recoverable of the value-added tax in relation
to the heat procurement, purchase of coals and construction services. Deductible value-added
tax decreased over the Track Record Period mainly because the increase in the revenue
throughout the Track Record Period resulted in the increase in output value-added taxes,
leading to the decrease in deductible value-added tax.
The table below sets out our prepayments as at the dates indicated.
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Prepayments for:
– suppliers 16,028 18,292 16,304
– income tax 5,590 2,727 3,856
– Listing expenses 12,762 21,511 37,620
– intangible assets 11,367 14,836 12,425
Total 45,747 57,366 70,205
During the Track Record Period, our prepayments mainly consisted of our prepayments
for (i) suppliers; (ii) income tax; (iii) Listing expenses to be capitalised; and (iv) intangible
assets. During the same period, our prepayments for suppliers were primarily our prepayments
in relation to our heat services, which mainly represented prepayments for heat procurement
costs and coal procurement costs. Our prepayments for intangible assets mainly represented
our prepayments for certain heat service facilities required for our engineering construction
services under our concession rights.
FINANCIAL INFORMATION
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--- page 545 ---
Our prepayments increased from approximately RMB45.7 million as at 31 December
2020 to approximately RMB57.4 million as at 31 December 2021, and further increased to
approximately RMB70.2 million as at 31 December 2022, which were mainly due to the
increase in prepayments for Listing expenses.
Financial assets at fair value through profit or loss
During the Track Record Period, financial assets at fair value through profit or loss
represented the investments in wealth management products issued by banks in the PRC with
expected investment return rates ranged from 2.10% to 3.88% per annum. The financial assets
at fair value through profit or loss were all denominated in RMB. Since we collected the
prepayments from our heat service customers before or at the beginning of each heat service
period, we utilised temporary idle funds to invest in wealth management products to optimise
our capital structure.
As at 31 December 2020, 2021 and 2022, we had financial assets at fair value through
profit or loss of approximately RMB11.0 million, RMB17.1 million and nil, respectively.
Our investment in wealth management products is categorised within level 3 of fair value
measurement. In relation to the valuation of the wealth management products, our Directors
have considered and understand, among others, the following: (i) the terms of the wealth
management products subscription agreements; (ii) the valuation related policies and other
supporting documents; (iii) the available market information of similar wealth management
products; (iv) the expected return rates of the wealth management products and cost of
financing in order to assess the level of returns to our Group; and (v) the methodology,
assumptions and key parameters adopted for our valuation of such financial instruments. Based
on the above considerations, our Directors are of the view that the valuation of our Group’s
level 3 financial instruments is fair and reasonable and the financial statements of our Group
are properly prepared.
Details of the fair value measurement of our level 3 financial instruments, particularly the
fair value hierarchy, the valuation techniques and key inputs, including significant
unobservable inputs and the relationship of unobservable inputs to fair value of level 3
measurements are disclosed in Note 3.3 to our accountant’s report as set out in Appendix I to
this prospectus. Our Company’s reporting accountant has carried out audit procedures 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. Our reporting accountant’s opinion on
the historical financial information of our Group for the Track Record Period as a whole is set
out on pages I-1 to I-2 of this prospectus.
In relation to the valuation analysis performed by our Directors, the Sole Sponsor has
conducted relevant due diligence work, including but not limited to (i) discussing with
management of our Company regarding the nature and background of its investment in the
wealth management products, including the risk profiles, and the reasons for making such
FINANCIAL INFORMATION
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--- page 546 ---
investments; (ii) reviewing the relevant wealth management products subscription agreements
and profile of financial products to independently assess the merits of the proposed
investments; (iii) discussing with our Company about the material information affecting the
valuation of the wealth management products; (iv) discussing with our Company about the
methodology, assumptions and parameters for the valuation of the wealth management
products; and (v) discussing with our Company’s reporting accountant to understand the work
they have performed in relation to the valuation of the wealth management products for the
purpose of reporting on the historical financial information of our Group, as a whole, for the
Track Record Period.
Based on the work done by our Directors and our Company’s reporting accountant, and
having considered the relevant due diligence done as stated above, nothing has come to the
attention of the Sole Sponsor that would cause the Sole Sponsor to question the valuation
analysis performed by our Company on its level 3 financial instruments.
Our treasury and investment policy
It is our treasury management policy to utilise surplus cash reserves to invest in financial
products and generate income without interfering with our business operations or capital
expenditures, in order to provide sustainable benefits for our Group. We expect to continue to
invest in such financial products after Listing. Mr. Luo Wei, our executive Director, a deputy
general manager of our Company and our Board secretary, and Mr. Yang Xiaojin, our chief
financial officer, both possess the management expertise for the investment in financial
products. Mr. Luo Wei has approximately 25 years of working experience in auditing and
financial matters and gained experience from various auditing and corporate positions. Mr. Luo
Wei was accredited as a Certified Public Accountant by the Chinese Institute of Certified
Public Accountants (՘ึ) on 20 December 2002. Mr. Yang Xiaojin also has
significant experience in finance and accounting. Prior to joining our Group, Mr. Yang Xiaojin
worked as an auditing specialist in Shuangliang Group Co. between April 2014 and May 2015
and then worked as a finance manager in Shuangliang Eco-Energy between June 2016 and
April 2017. See “Directors, supervisors and senior management” in this prospectus for further
details. To control our risks, we typically invest in low-risk and short-term financial products
issued by banks in the PRC.
We have adopted the following internal control measures in place for our investments in
financial assets such as wealth management products:
 we typically use our idle funds or spare cash to invest in low-risk financial products,
and such investment shall not affect our operation activities and capital expenditures
in relation to our main scope of business;
 the financial products we invest in shall be generally short-term and the annualised
expected return rate of which shall be typically higher than the annual interest rate
of fixed deposits;
 we generally invest in financial products provided by sizable and reputable licensed
commercial banks;
FINANCIAL INFORMATION
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 our Board is responsible for the overall planning and evaluation of treasury policy.
For investments with an investment amount which is expected to utilise (i) more
than 50% of our Group’s total net assets and (ii) more than 30% of our Group’s total
assets based on the latest audited financial statements of our Group, approval from
our Board must be obtained before the investment is made. All investments shall
comply with the Listing Rules if applicable; and
 our finance department is responsible for the review and oversight of the on-going
performance of the financial products.
Restricted cash
During the Track Record Period, our restricted cash represented deposits placed with the
banks for the issuance of bank acceptance notes and as deposits of capital expenditures. As at
31 December 2020, 2021 and 2022, we had restricted cash of approximately RMB34.8 million,
RMB76.7 million and RMB100.4 million, respectively. The main reason for the increase in the
restricted cash during the Track Record Period was that an increase in the amount of cash
pledged for bank’s acceptance notes and bank loan over the Track Record Period.
Trade and other payables – current liabilities
During the Track Record Period, our trade payables included trade payables to third
parties and related parties in relation to our purchases during the ordinary course of our
business operation. For details of our transactions of trade nature with related parties, see
“Related party transactions” in this section. We were typically not granted any credit term by
our major suppliers during the Track Record Period. Our other payables included payables for
acquisition of intangible assets, payables for acquisition of property, plant and equipment,
employee benefits payables, other taxes payables and others. As at 31 December 2020, 2021
and 2022, our trade and other payables included in current liabilities were RMB965.5 million,
RMB816.1 million and RMB976.3 million, respectively.
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Trade payables
– third parties 261,666 259,455 333,259
Notes payables 73,241 57,802 109,738
Other payables
– amounts due to related parties 50,279 43,195 31,566
– payables for acquisition of
intangible assets 407,349 270,678 299,269
– payables for acquisition of
property, plant and equipment 4,357 4,230 4,217
FINANCIAL INFORMATION
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--- page 548 ---
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
– employee benefits payables 24,804 28,286 25,218
– other taxes payables 28,527 24,599 37,080
– interest payables 808 489 1,107
– employee reimbursement payables 843 717 2,465
– dividends payables to
non-controlling interests 40,778 40,778 40,778
– loans from government 28,724 28,067 22,498
– refundable pipeline connection fees 17,811 14,175 2,941
Installment payment for acquisition of
intangible assets 14,408 34,373 40,551
Others 11,911 9,258 25,590
965,506 816,102 976,277
Our current trade payables primarily relate to our heat procurement that we require for our
business operations. The change in balances of our current trade payables is generally in line
with the change in heat procurement cost, and remained relatively stable from 2020 to 2021.
The increase in the current trade payables from 2021 to 2022 was mainly due to (i) the increase
in procurement of heat and coal and (ii) increase in coal price.
During the Track Record Period, our notes payables mainly represented banks’
acceptance bill. Notes payables decreased from approximately RMB73.2 million as at 31
December 2020 to approximately RMB57.8 million as at 31 December 2021 and increased to
approximately RMB109.7 million as at 31 December 2022 mainly due to the gradual change
in the settlement method by using more notes issued by us for the settlement of the payables
from our suppliers.
During the Track Record Period, our payables for acquisition of intangible assets mainly
represented the heat service facilities required for the provision of our engineering construction
services under our concession rights. Our payables for acquisition of intangible assets
decreased from approximately RMB407.3 million as at 31 December 2020 to approximately
RMB270.7 million as at 31 December 2021 and slightly increased to approximately RMB299.3
million as at 31 December 2022, which were in line with the changes in our cost of sales of
our engineering construction services during the Track Record Period.
During the Track Record Period, our payables for acquisition of property, plant and
equipment mainly represented those equipments related to the provision of our heat services.
Our payables for acquisition of property, plant and equipment remained stable as at 31
December 2020, 2021 and 2022.
FINANCIAL INFORMATION
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--- page 549 ---
During the Track Record Period, loans from government were mainly related to our
business in Shanxi Province. In August 2012 and July 2013, we entered into agreements with
Shanxi Provincial Government Investment Asset Management Centre (“ Shanxi Government
Investment Centre ”), pursuant to which Shanxi Government Investment Centre provided to us
interest free loans in the aggregate amount of RMB27,500,000 with a term of seven years to
support our construction of heating projects in Shanxi Province. Advances in the amount of
RMB23,000,000 enjoyed an interest-free period from 2012 to 2019 and advances in the amount
of RMB4,500,000 enjoyed an interest-free period from 2013 to 2020. After that, interest would
be calculated according to the benchmark loan interest rate. During the Track Record Period
and as at the Latest Practicable Date, we did not repay the aforementioned outstanding loans
to the government. Such loans were repayable on demand by the government.
During the Track Record Period, refundable pipeline connection fee was related to the
shantytown reformation scheme in Hulunbuir of Inner Mongolia Autonomous Region.
According to a government notice issued by the local government, 50% of the pipeline
connection fee we received was refundable to our heat service customers before or at the
beginning of each heat service period. As a result, we recorded refundable pipeline connection
fee of approximately RMB17.8 million, RMB14.2 million and RMB2.9 million as at 31
December 2020, 2021 and 2022, respectively.
Our dividends payable to non-controlling interests amounted to approximately RMB40.8
million, RMB40.8 million and RMB40.8 million as at 31 December 2020, 2021 and 2022,
respectively. Our Directors expect such dividends payable will be settled upon the Listing.
The following table sets out an aging analysis of our trade payables based on
goods/services receipt dates, as at the dates indicated.
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Within 1 year 203,639 183,213 224,470
1 to 2 years 28,750 22,777 34,074
2 to 3 years 12,555 25,687 22,761
Over 3 years 16,722 27,778 51,954
261,666 259,455 333,259
Our trade payables aged over one year amounted to approximately RMB58.0 million,
RMB76.2 million and RMB109.8 million as at 31 December 2020, 2021 and 2022, representing
approximately 22.2%, 29.4% and 32.9% of our total trade payables, respectively. The overall
increase of our trade payables aged over one year during the Track Record Period was mainly
attributable to the amount payable to a supplier of heat of our Taiyuan Project, which is a SOE.
We are currently still under negotiation with the Taiyuan Administration in respect of the
FINANCIAL INFORMATION
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--- page 550 ---
transfer of our heat facilities in the Subject Area. See “Business – Heat services – Heat service
projects under concession operation – Reduction of the size of the Concession Boundary Area
for our Taiyuan Project and the possible transfer of the heat facilities in relation to the Subject
Area which is currently under negotiation” for details. The Directors are of the view that the
heat procurement fees payable by us will be assessed and settled together with the
consideration and agreement to be reached in respect of the heat facilities of the Subject Area.
The table below sets out our average trade payables and payables for acquisition of
intangible assets turnover days for the years indicated.
For the year ended 31 December
2020 2021 2022
Average trade payables and payables for
acquisition of intangible assets
turnover days
(Note) 286.2 306.6 255.6
Note: Average trade payables and payables for acquisition of intangible assets turnover days is equal to the
average trade payables and payables for acquisition of intangible assets divided by relevant cost of sales
(excluding the amortisation of relevant intangible assets, right-of-use assets and property plant and
equipment) and multiplied by 365 days for a year. Average trade payables and payables for acquisition
of intangible assets are equal to the sum of the trade payables and payables for acquisition of intangible
assets at the beginning of the period and the trade payables and payables for acquisition of intangible
assets at the end of the year and divided by two.
Our average trade payables and payables for acquisition of intangible assets turnover days
was 286.2 days, 306.6 days and 255.6 days for the years ended 31 December 2020, 2021 and
2022, respectively.
Our average trade payables and payables for acquisition of intangible assets turnover days
were relatively high throughout the Track Record Period, mainly attributable to (i) the amount
payable to a supplier of heat if Taiyuan Project as discussed above; and (ii) the amount due to
the suppliers of heat of our Shuozhou Project, who are SOEs, which generally would be settled
after we received price subsidies from the local government.
Our turnover days increased from approximately 286.2 days for 2020 to 306.6 days for
2021 which was merely due to decrease in costs of sales.
Our turnover days decreased from approximately 306.6 days for 2021 to approximately
255.6 days for 2022, which was mainly due to shorter payment terms provided by our
suppliers.
As at 30 April 2023, approximately RMB93.7 million, or 28.1% of the trade payables as
at 31 December 2022 were subsequently settled.
Contract liabilities
Our contract liabilities represented the payments received from customers by us while the
goods or services are yet to be delivered. Our contract liabilities mainly included the payments
received in advance in respect of (i) our provision and distribution of heat; and (ii) pipeline
connection fees.
FINANCIAL INFORMATION
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--- page 551 ---
The table below sets out our contract liabilities as at the dates indicated.
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Included in current liabilities
Provision and distribution of heat 334,067 381,208 345,139
Pipeline connection fees 73,863 80,159 95,032
Sale of goods 350 420 348
Others 1,225 1,101 27
Included in non-current liabilities
Pipeline connection fees 1,506,471 1,628,637 1,821,454
1,915,976 2,091,525 2,262,000
For our provision and distribution of heat, we normally regulates our customers to make
upfront payments before the commencement of service period. For pipeline connection fees,
the contract liabilities balances refer to the total pipeline connection fees received since the
beginning of respective concession periods. Subsequently, the pipeline connection fee will be
recognised as revenue over respective concession periods.
The table below sets out the aging analysis of our contract liabilities in respect of pipeline
connection fees by heat service project as at 31 December 2022.
Taiyuan
Project
Shanxi
Demonstration
Zone Project
Shuozhou
Project
Lanzhou
Project
Hulunbuir
Project
Xinmi
Project Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Within 1 year 37,140 1,317 13,086 23,222 20,267 – 95,032
Between 1 and
2 years 37,140 1,317 13,086 23,222 20,267 570 95,602
Between 2 and
5 years 111,420 3,952 39,258 69,665 60,801 1,709 286,805
Over 5 years 460,350 42,109 188,681 413,577 319,520 14,810 1,439,047
646,050 48,695 254,111 529,686 420,855 17,089 1,916,486
FINANCIAL INFORMATION
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--- page 552 ---
Our contract liabilities (current) include advances received from customers in relation to
the provision and distribution of heat as we generally receive payment from customers before
the heat service period, pipeline connection service and construction and maintenance services.
As at 31 December 2020, 2021 and 2022, our contract liabilities (current) were approximately
RMB409.5 million, RMB462.9 million and RMB440.5 million, respectively. Our contract
liabilities (current) increased by RMB53.4 million, or 13.0%, from RMB409.5 million as at 31
December 2020 to RMB462.9 million as at 31 December 2021, primarily due to an increase in
number of heat service customers. Our contract liabilities (current) decreased by RMB22.3
million, or 4.8%, from RMB462.9 million as at 31 December 2021 to RMB440.5 million as at
31 December 2022, primarily due to a decrease in advances payment from customers in relation
to the provision and distribution of heat.
As at 30 April 2023, approximately RMB371.5 million, or 16.4% of our contract
liabilities as at 31 December 2022 had been subsequently recognised as revenue.
Deferred income
During the Track Record Period, our deferred income represented government grants
relating to the purchase of property, plant and equipment which were recognised on a
straight-line over the relevant course of useful live of the respective heat service facilities. As
at 31 December 2020, 2021 and 2022, we had deferred income of approximately RMB54.8
million, RMB85.1 million and RMB83.5 million, respectively. Our deferred income increased
by RMB30.3 million, or 55.3% from RMB54.8 million as at 31 December 2020 to RMB85.1
million as at 31 December 2021 mainly attributable to the government grant of RMB20.0
million received by our Shuozhou Project during the year ended 31 December 2021 to
subsidise our upgrade of the heat service facilities.
The following table sets out the movement of deferred income for the year indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
At the beginning of the year 68,765 54,831 85,125
Additions – 44,500 17,000
Recognised in profit or loss (13,934) (14,206) (18,666)
At the end of the year 54,831 85,125 83,459
The increase in our deferred income in 2021 was mainly due to an increase in receipt of
government subsidies during the year. The decrease in our deferred income in 2020 was mainly
due to the periodic amortisation of the income over the period without any new addition in
2020. Our deferred income remained stable as at 31 December 2022.
FINANCIAL INFORMATION
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--- page 553 ---
Indebtedness
The following table sets out the breakdown of our indebtedness as at the dates indicated.
As at 31 December
As at
30 April
2020 2021 2022 2023
RMB’000 RMB’000 RMB’000 RMB’000
(unaudited)
Current
– Borrowings 936,663 463,515 246,750 231,875
– Lease liabilities 1,342 1,588 1,005 924
– Loans from government 28,724 28,067 22,498 22,818
966,729 493,170 270,253 255,617
Non-current
– Borrowings 371,973 597,762 634,464 621,938
– Lease liabilities 22,215 18,387 18,677 17,992
– Amounts advanced from
related party 700 700 700 700
394,888 616,849 653,841 640,630
Total 1,361,617 1,110,019 924,094 896,247
Borrowings
During the Track Record Period, our borrowings primarily consisted of bank borrowings.
As at 31 December 2020, 2021 and 2022, our bank borrowings were approximately
RMB1,308.6 million, RMB1,061.3 million and RMB881.2 million, respectively. As at 30 April
2023, being the latest practicable date for this indebtedness statement, our bank borrowings
were approximately RMB853.8 million. Our bank borrowings and other borrowings were
unsecured or secured and/or guaranteed, and denominated in RMB.
FINANCIAL INFORMATION
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--- page 554 ---
The table below sets out a breakdown of our borrowings as at the dates indicated.
As at 31 December
As at
30 April
2020 2021 2022 2023
RMB’000 RMB’000 RMB’000 RMB’000
(unaudited)
Included in non-current
liabilities:
Other borrowings
– secured 53,000 49,500 – –
– unsecured 556,518 300,854 – –
Bank borrowings
– unsecured and guaranteed 286,118 271,923 203,075 203,967
– unsecured – – 59,500 59,500
– secured and guaranteed – – 408,139 399,846
895,636 622,277 670,714 663,313
Less: current portion of
non-current liabilities (523,663) (24,515) (36,250) (41,375)
371,973 597,762 634,464 621,938
Included in current
liabilities:
Bank borrowings
– secured and guaranteed 223,000 209,000 100,000 –
– unsecured and guaranteed 190,000 230,000 100,000 180,000
– secured and unguaranteed – – 10,500 10,500
Current portion of
non-current liabilities 523,663 24,515 36,250 41,375
936,663 463,515 246,750 231,875
Total borrowings 1,308,636 1,061,277 881,214 853,813
FINANCIAL INFORMATION
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--- page 555 ---
As at 31 December 2020, 2021 and 2022 and 30 April 2023, we had aggregate credit
facilities of approximately RMB1,308.6 million, RMB1,061.3 million, RMB1,707.5 million
and RMB1,861.5 million, respectively. Unused facilities as at the same dates amounted to
approximately nil, nil, RMB824.0 million and RMB969.4 million, respectively.
As at 31 December 2020, 2021 and 2022, the other borrowings of Lanzhou Shuangliang
amounted to RMB53.0 million, RMB49.5 million and nil, respectively, were secured by
intangible assets, which comprised our heat service pipelines. As at 31 December 2020, 2021
and 2022 and 30 April 2023, the bank borrowings of Taiyuan Renewable Energy amounting to
RMB30.0 million, RMB30.0 million, nil and nil, respectively, were guaranteed by Shanxi
Shuangliang Renewable Energy and secured by the concession right under the Taiyuan
Concession Agreement; and the bank borrowings of Hulunbuir Shuangliang amounting to
RMB193.0 million, RMB179.0 million, RMB158.0 million and RMB158.0 million,
respectively, were guaranteed by our Company and secured by trade receivables.
Bank borrowings of approximately RMB100.0 million as at 31 December 2020 and 2021
were guaranteed by a company owned as to 96.0% by a business acquaintance of one of our
Controlling Shareholders (the “ Guarantor ”). At the same time, Shuangliang Group Co.
provided its guarantee to a subsidiary of the Guarantor for its bank loan of similar amount to
our bank borrowings of approximately RMB100 million. Our bank borrowings guaranteed by
the Guarantor had been fully settled as at the Latest Practicable Date. In addition, bank
borrowings of RMB286.1 million, RMB271.9 million, RMB203.1 million and RMB204.0
million as at 31 December 2020, 2021 and 2022 and 30 April 2023, respectively, were
guaranteed by Shuangliang Group Co.. Bank borrowings of RMB90.0 million, RMB130.0
million, nil and nil as at 31 December 2020, 2021 and 2022 and 30 April 2023 were guaranteed
by Shuangliang Technology. Bank borrowings of Lanzhou Shuangliang amounting to RMB53.0
million, RMB49.5 million, nil and nil as at 31 December 2020, 2021 and 2022 and 30 April
2023 were guaranteed by our Company and secured by intangible assets which comprised our
heat service pipelines; the bank borrowings of Shuozhou Renewable Energy amounting to
RMB175.0 million and RMB162.5 million were guaranteed by Taiyuan Renewable Energy, our
Company, Shuangliang Group Co. and Mr. Miao Wenbin, and secured by trade receivables for
price subsidies and certain intangible assets as at 31 December 2022 and 30 April 2023,
respectively. Bank borrowings amounting to RMB274.6 million and RMB224.3 million were
guaranteed by Gansu Shuangliang as at 31 December 2022 and 30 April 2023, respectively.
Shuangliang Group Co. and Shuangliang Technology were our connected persons. For the
details, see “Relationship with our Controlling Shareholders – Independence from our
Controlling Shareholders – Financial independence” in this prospectus. As at the Latest
Practicable Date, the borrowings guaranteed by Shuangliang Technology had been fully settled,
and the guarantees by Shuangliang Group Co. and Mr. Miao Wenbin will be released upon the
Listing.
FINANCIAL INFORMATION
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--- page 556 ---
Certain of our bank borrowings are subject to the fulfilment of covenants relating to
certain debt servicing financial indicators during the Track Record Period. During the Track
Record Period, Lanzhou Shuangliang, a subsidiary of our Company, failed to comply with its
debt liability ratio covenant and current ratio covenant under its loan contract with the lending
bank. As at 31 December 2022, Lanzhou Shuangliang had not re-complied with such financial
covenants. In March 2020, we obtained from the lending bank a letter of waiver from strict
compliance with certain financial covenants which continued to take effect as at the Latest
Practicable Date as confirmed by a supplemental interview with the lending bank on 24
February 2023. Accordingly, we reclassified the loan amounting to approximately RMB286.1
million, RMB271.9 million and RMB203.1 million as at 31 December 2020, 2021 and 2022,
respectively, as non-current liabilities according to the original payment schedules as set out
in the relevant loan contract.
As at 31 December 2020 and 2021, certain bank loan amounting to approximately
RMB193.0 million and RMB179.0 million was classified as current liability in the
consolidated statements of financial position as our Group did not comply with certain
financial covenants, respectively. As at 31 December 2020, Hulunbuir Shuangliang, a
subsidiary of our Company, failed to comply with its debt liability ratio covenant and
interest-bearing debt ratio covenant under its loan contract. As at 31 December 2022,
Hulunbuir Shuangliang had re-complied with such financial covenants. In connection with
Hulunbuir Shuangliang’s loan contract, we obtained a waiver letter from the lending bank on
March 2022. Accordingly, we reclassified the loan amounting to RMB158.0 million as at 31
December 2022 as non-current liabilities according to the original payment schedules as set out
in the relevant loan contract. See Note 3.1(c) to the accountant’s report as set out in Appendix
I to this prospectus for maturity analysis of term loans with a repayment on demand clause
based on agreed scheduled repayments.
In respect of the above-mentioned failure to comply with certain financial covenants for
two bank borrowings, we have adopted enhanced internal control measures to prevent
recurrence of similar incidents. Such measures include: (i) adopting a policy requiring us to
assess the viability of financial covenants included in loan agreements upon taking out new
bank loans; (ii) all loan agreements and financial covenants contained in such agreements shall
be approved by our chief financial officer; (iii) all financial covenants that we are required to
comply with shall be recorded and reviewed regularly to ensure our compliance to the same
financial covenants; and (iv) our chief financial officer shall regularly monitor our ability to
comply with such financial covenants and confirm our compliance status of the same in each
financial year and in each report to ensure the ongoing compliance with our financial
covenants.
In view of the fact that (i) our internal control consultant completed a follow-up review
on the above internal control measures and did not make further recommendation on our
internal control measures relating to the financial covenants; and (ii) we have strictly complied
with such enhanced internal control measures since the adoption of these measures, our
Directors are of the view that the enhanced internal control measures adopted by our Group are
effective in preventing recurrence of similar incidents.
FINANCIAL INFORMATION
– 546 –


--- page 557 ---
In addition, we obtained other borrowings, which mainly comprised several sales and
leaseback financing arrangements between Beijing Zhongchuang and us, which normally have
a term of one to two years and bear a fixed interest rate of 6.3% to 6.9% per annum and were
secured by heat service pipelines. As at the Latest Practicable Date, these other borrowings
from Beijing Zhongchuang had been fully settled.
For details regarding legal compliance of the financing arrangements involving Beijing
Zhongchuang and Shuangliang Technology, see “– Related party transactions – (v) financing
arrangements” below.
The following table sets out the annual weighted average effective interest rates of
borrowings as at 31 December 2020, 2021 and 2022 and the annualised weighted average
effective interest rates of borrowings as at 30 April 2023.
As at 31 December
As at
30 April
2020 2021 2022 2023
(unaudited)
Borrowings 6.03% 5.67% 5.09% 4.98%
As at 30 April 2023, being the latest practicable date for the purpose of this indebtedness
statement, we had unused facilities of approximately RMB969.4 million.
Lease liabilities
During the Track Record Period, we incurred lease liabilities as a result of our leasing of
pipeline, heat service equipment and office premises. These lease liabilities were measured at
net present value of the minimum lease payments during the lease terms that are not yet paid.
There was no extension option clause in the relevant lease agreements. As at 31 December
2020, 2021 and 2022 and 30 April 2023, our lease liabilities amounted to approximately
RMB23.6 million, RMB20.0 million, RMB19.7 million and RMB18.9 million, respectively.
FINANCIAL INFORMATION
– 547 –


--- page 558 ---
The table below sets out a breakdown of our lease liabilities as at the dates indicated.
As at 31 December
As at
30 April
2020 2021 2022 2023
RMB’000 RMB’000 RMB’000 RMB’000
(unaudited)
Lease liabilities
– Current 1,342 1,588 1,005 924
– Non-current 22,215 18,387 18,677 17,992
23,557 19,975 19,682 18,916
Guarantee
Our guarantee provided to an associate in respect of its borrowings amounted to RMB7.2
million, RMB7.2 million, nil and nil as at 31 December 2020, 2021 and 2022 and 30 April
2023, respectively. Such guarantee had been released as at the Latest Practicable Date.
Amount advanced from a related party
Amount advanced from a related party amounted to RMB700,000, RMB700,000,
RMB700,000 and RMB700,000 as at 31 December 2020, 2021 and 2022 and 30 April 2023.
Such amount advanced from a related party was of a non-trade nature and is expected to be
settled upon the Listing.
Indebtedness statement and confirmation
Except as disclosed in this section above or any intra-group liabilities, we did not have
any outstanding or authorised to be issued but unissued debt securities, term loans, other
borrowings or indebtedness in nature of borrowing, acceptance credits, mortgages and charges,
contingent liabilities or guarantees. Save as disclosed above, our Directors confirm that there
had been no material adverse change in our indebtedness since 30 April 2023 and up to the date
of this prospectus.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows
We had cash and cash equivalents of approximately RMB91.8 million, RMB136.2 million
and RMB378.1 million as at 31 December 2020, 2021 and 2022, respectively. Our cash and
cash equivalents are all held in RMB.
FINANCIAL INFORMATION
– 548 –


--- page 559 ---
The following table sets out our cash flows for the years indicated.
For the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Net cash generated from operating
activities 442,542 500,027 617,839
Net cash used in investing activities (340,136) (98,725) (117,858)
Net cash used in financing activities (66,755) (356,943) (258,098)
Net increase in cash and cash equivalents 35,651 44,359 241,883
Cash and cash equivalents at beginning
of the year 56,175 91,826 136,185
Cash and cash equivalents at end of the
year 91,826 136,185 378,068
Net cash from operating activities
Net cash from operating activities primarily consists of (i) profit before tax; (ii)
adjustments for non-cash profit or loss items such as amortisation of intangible assets and
profit from construction services under concession operations; and (iii) changes in working
capital. Net cash flows from our operating activities was approximately RMB442.5 million,
RMB500.0 million and RMB617.8 million for the years ended 31 December 2020, 2021 and
2022, respectively.
For the year ended 31 December 2020, we had net cash generated from operating
activities of approximately RMB442.5 million, which was primarily attributable to (i) profit
before tax of approximately RMB143.9 million; (ii) amortisation of intangible assets of
approximately RMB166.1 million; (iii) profit from construction services under operating
concessions of approximately RMB46.6 million; and (iv) cash inflows of approximately
RMB145.0 million for working capital adjustment. Our general working capital adjustment
included (i) an increase in contract liabilities of approximately RMB162.8 million, which was
primarily due to an increase in our heat fees received in advance; (ii) an increase in restricted
cash of approximately RMB54.7 million, which was primarily due to the policy related to
restricted cash; (iii) a decrease in trade and other payables of approximately RMB44.8 million,
which was primarily due to payment to our major suppliers of construction and maintenance;
and (iv) a decrease in trade and other receivables of approximately RMB28.7 million, which
was primarily due to payment from our major customers for our construction, maintenance and
other services.
FINANCIAL INFORMATION
– 549 –


--- page 560 ---
For the year ended 31 December 2021, we had net cash generated from operating
activities of approximately RMB500.0 million, which was primarily attributable to (i) profit
before tax of approximately RMB206.7 million; (ii) amortisation of intangible assets of
approximately RMB184.3 million; (iii) profit from construction services under operating
concessions of approximately RMB29.2 million; and (iv) cash inflows of approximately
RMB132.6 million for working capital adjustments. Our general working capital adjustments
included (i) an increase in contract liabilities of approximately RMB175.5 million, which was
primarily due to an increase in our heat fees received in advance; (ii) a decrease in restricted
cash of approximately RMB3.0 million, which was primarily due to the policy related to
restricted cash; (iii) a decrease in trade and other payables of approximately RMB11.4 million,
which was primarily due to payment to our major suppliers of construction and maintenance;
and (iv) a decrease in trade and other receivables of approximately RMB8.8 million, which was
primarily due to payment from our major customers for our construction, maintenance and
other services.
For the year ended 31 December 2022, we had net cash generated from operating
activities of approximately RMB617.8 million, which was primarily attributable to (i) profit
before tax of approximately RMB186.3 million; (ii) amortisation of intangible assets of
approximately RMB194.9 million; (iii) profit from construction services under operating
concessions of approximately RMB34.5 million; and (iv) cash inflows of approximately
RMB295.6 million for working capital adjustments. Our general working capital adjustments
included (i) an increase in contract liabilities of approximately RMB170.5 million, which was
primarily due to an increase in pipeline connection fee resulting from the expansion of our heat
service area; (ii) an increase in restricted cash of approximately RMB51.4 million, which was
primarily due to an increase in the amount of cash pledged for bank’s acceptance notes and
bank loan; and (iii) an increase in trade and other payables of approximately RMB127.3
million, which was primarily due to an increase in procurement costs of coal.
Net cash from operating activities increased from approximately RMB442.5 million for
the year ended 31 December 2020 to approximately RMB500.0 million for the year ended 31
December 2021, and further increased to approximately RMB617.8 million for the year ended
31 December 2022. Such increases were primarily due to the continuous expansion of our
Group’s heat services business, as well as the measures adopted by our Group to improve
payment collection.
Net cash used in investing activities
During the Track Record Period, our net cash flows from investing activities were
principally used in (i) purchases and disposal of financial assets at fair value through profit or
loss; (ii) purchases of intangible assets; (iii) loans provided and repaid to a related party; and
(iv) proceeds from financing arrangements with a third party. Our net cash used in investing
activities was approximately RMB340.1 million, RMB98.7 million and RMB117.9 million for
the years ended 31 December 2020, 2021 and 2022, respectively.
FINANCIAL INFORMATION
– 550 –


--- page 561 ---
For the year ended 31 December 2020, our net cash used in investing activities amounted
to approximately RMB340.1 million, mainly attributable to (i) cash payment in the purchases
of items of property, plant and equipment in 2020 of approximately RMB57.6 million; (ii)
purchases of intangible assets of approximately RMB213.0 million; (iii) purchase of financial
assets at fair value through profit or loss of approximately RMB743.9 million and disposal of
financial assets at fair through profit or loss of approximately RMB748.1 million; and (iv)
loans provided to a related party of about RMB150.0 million.
For the year ended 31 December 2021, our net cash used in investing activities amounted
to approximately RMB98.7 million, mainly attributable to (i) purchases of intangible assets in
2021 of approximately RMB300.3 million; (ii) purchase of financial assets at fair value
through profit or loss of approximately RMB77.0 million; (iii) disposal of financial assets at
fair value through profit or loss of approximately RMB71.3 million; and (iv) government
grants received in relation to purchase of intangible assets of approximately RMB44.5 million.
For the year ended 31 December 2022, our net cash used in investing activities amounted
to approximately RMB117.9 million, mainly attributable to (i) purchases of intangible assets
in 2022 of approximately RMB273.7 million; (ii) loans repaid by a related party of
approximately RMB40.0 million; (iii) a decrease in restricted cash for deposit of capital
expenditure of approximately RMB38.8 million; and (iv) proceeds from financing
arrangements with a third party of approximately RMB31.0 million.
Net cash used in investing activities decreased from approximately RMB340.1 million for
the year ended 31 December 2020 to approximately RMB98.7 million for the year ended 31
December 2021, primarily attributable to the repayment of the loans and interest by the related
party, as well as government grants received in relation to our purchase of intangible assets.
Net cash used in investing activities increased from approximately RMB98.7 million for the
year ended 31 December 2021 to approximately RMB117.9 million for the year ended 31
December 2022, primarily due to (i) a change from release of restricted cash for intangible
assets to a cash inflow of restricted cash of approximately RMB38.8 million and (ii) an
increase in disposal of intangible assets; which was partially offset by a reduction in disposal
of financial assets at fair value through profit or loss during the year.
Net cash used in financing activities
During the Track Record Period, our net cash flows from financing activities mainly
included (i) proceeds from and repayment of borrowings; (ii) loans and repayment of loans
from a related party; and (iii) payments for lease liabilities. Our net cash used in financing
activities amounted to approximately RMB66.8 million, RMB356.9 million and RMB258.1
million for the years ended 31 December 2020 and 2021 and 2022, respectively.
For the year ended 31 December 2020, our net cash used in financing activities amounted
to approximately RMB66.8 million, mainly attributable to (i) repayment of borrowings of
approximately RMB889.5 million; (ii) interest paid on borrowings of approximately RMB85.1
million; and (iii) purchase of equipment by instalments of approximately RMB48.0 million,
which were partially offset by proceeds from borrowings of approximately RMB995.2 million.
FINANCIAL INFORMATION
– 551 –


--- page 562 ---
For the year ended 31 December 2021, our net cash used in financing activities amounted
to approximately RMB356.9 million, mainly attributable to (i) repayment of borrowings of
approximately RMB748.4 million; and (ii) interest paid on borrowings of approximately
RMB73.0 million, which was partially offset by proceeds from borrowings of approximately
RMB501.0 million.
For the year ended 31 December 2022, our net cash used in financing activities amounted
to approximately RMB258.1 million, mainly attributable to (i) proceeds from borrowing of
approximately RMB846.0 million; and (ii) repayment of borrowings of approximately
RMB976.6 million.
Net cash used in financing activities increased significantly from approximately
RMB66.8 million for the year ended 31 December 2020 to RMB356.9 million for the year
ended 31 December 2021, primarily attributable to a decrease in our proceeds from borrowings
of approximately RMB494.2 million, which was partially offset by a decrease in our repayment
of borrowings by approximately RMB141.2 million. Net cash used in financing activities
decreased from approximately RMB356.9 million for the year ended 31 December 2021, to
approximately RMB258.1 million for the year ended 31 December 2022. The decrease was
primarily due to an increase in our repayment of borrowings of approximately RMB976.6
million, which was partially offset by proceeds from borrowings of approximately RMB846.0
million during the year.
CAPITAL EXPENDITURES
Our historical capital expenditures during the Track Record Period primarily included
expenditures for our purchases of property, plant and equipment and construction of heat
service facilities. We funded our capital expenditures requirements and long-term investments
during the Track Record Period mainly from cash flow generated from our operations and bank
facilities. Our capital expenditures amounted to approximately RMB270.6 million, RMB305.1
million and RMB288.9 million for the years ended 31 December 2020, 2021 and 2022,
respectively.
Our capital expenditures for the year ending 31 December 2023 are expected to amount
to approximately RMB324.8 million, which will be primarily used for procuring raw
materials/contracting for constructing heat service facilities for expansion of our heat services.
We plan to fund our future capital expenditures using the net proceeds received from the Global
Offering and internal resources, including but not limited to: our cash and cash equivalents and
banking facilities. We may reallocate the funds to be utilised for our capital expenditures and
future development based on our ongoing business plans.
CAPITAL COMMITMENTS
During the Track Record Period, we had capital expenditures contracted for but not yet
incurred. Our capital commitments were mainly related to intangible assets that we purchased
for the construction of heat service facilities in order to expand our existing heat service project
and preparing for a new heat service project. The following table sets out our capital
commitments as at the dates indicated.
FINANCIAL INFORMATION
– 552 –


--- page 563 ---
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Intangible assets 68,990 111,294 57,963
CONTINGENT LIABILITIES
Our Directors confirmed that we did not have any outstanding loan capital, bank
overdrafts and liabilities under acceptance or other similar indebtedness, debentures,
mortgages, charges or loans, or acceptance credits or hire purchase commitments, guarantees
or other material contingent liabilities or any covenant in connection therewith as at 30 April
2023, being the latest date for the purpose of the indebtedness statement.
WORKING CAPITAL CONFIRMATION
Our future cash requirements will depend on many factors, including our operating
income, changing business conditions and future developments, including any potential
investments or acquisitions we may decide to pursue. Heat service is a basic necessity for the
livelihood and work conditions of the residents in the regions we are operating. Therefore, we
believe that our operating income generated from our business operations will remain stable.
Accordingly, we anticipate that net cash generated from operating activities will remain stable
going forward.
Our Directors confirm that, taking into account our current cash and cash equivalents,
anticipated cash flows from operations, proceeds from the Global Offering and banking/credit
facilities available to us, as well as the mitigating factors to our net current liabilities as
discussed above, we will have available sufficient working capital for our present requirements
that is for at least the next 12 months from the date of this prospectus.
OFF-BALANCE SHEET TRANSACTIONS
During the Track Record Period and up to the Latest Practicable Date, we had not entered
into any off-balance sheet transaction.
RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the ability, directly or indirectly,
control the other party or exercise significant influence over the other party in making financial
and operation decisions. Parties are also considered to be related if they are subject to common
control. Members of key management and their close family member of us are also considered
as related parties.
FINANCIAL INFORMATION
– 553 –


--- page 564 ---
During the Track Record Period, we carried out certain transactions with related parties
as set out in Note 38 to the accountant’s report as set out in Appendix I to this prospectus.
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Sale of goods and services to
Shuangliang New Energy Equipment 13,920 – –
Sinopec New Star 2,825 2,468 3,375
Purchases of plant and equipment from
Shuangliang Boiler 419 2,205 2,177
Shuangliang New Energy Equipment 11,244 – –
Shuangliang Eco-Energy 19,029 11,891 13,913
Wuxi Hundun 308 644 268
Shuangliang Eco Engineering 6,201 – –
Sinopec New Star – 464 891
Purchases of services from
Jiangyin Hotel 641 642 1,107
Shuangliang Spandex – – 10
Lease arrangements
Finance lease of plant and equipment to
Sinopec New Star 30,786 – –
Interest income from financing lease to
Sinopec New Star 1,320 1,468 1,334
Finance lease from Sinopec New Star 11,031 – –
Interest expense on finance lease from
Sinopec New Star 643 592 538
Lease from Jiangyin Hotel 181 – –
Interest expense on lease from Jiangyin
Hotel 11 6 2
Financing arrangements
Loans provided to Beijing Zhongchuang 150,000 – –
Loans repaid by Beijing Zhongchuang – 110,000 40,000
Interest received from Beijing
Zhongchuang – 11,918 498
Interest income from loan to Beijing
Zhongchuang 4,400 7,592 424
Interest paid to Beijing Zhongchuang 46,764 29,405 10,937
Interest expenses to Beijing
Zhongchuang 47,233 29,668 10,187
Borrowings from Beijing Zhongchuang 450,000 11,000 –
FINANCIAL INFORMATION
– 554 –


--- page 565 ---
The following table sets out the outstanding balances as at 31 December 2020, 2021 and
2022 in relation to certain transactions with related parties as set out in Appendix I to this
prospectus.
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Trade nature
Trade receivables for sale of goods
or services
Shuangliang New Energy Equipment 5,048 2,608 2,608
Shuangliang Eco-Energy – 7 –
Sinopec New Star 6,395 5,637 7,482
11,443 8,252 10,090
Receivable of finance lease of plant
and equipment to a related party
Sinopec New Star 30,786 28,403 25,886
Prepayments for purchase of goods or
services
Shuangliang Eco-Energy 24 3,379 3,376
Shuangliang Boiler 55 – 75
Wuxi Hundun – 368 368
79 3,747 3,819
Contract liabilities for sales of services
Sinopec New Star 530 – –
FINANCIAL INFORMATION
– 555 –


--- page 566 ---
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Trade and other payables for purchase
of goods and services
Shuangliang Eco-Energy 13,741 11,933 3,648
Shuangliang Boiler 73 731 37
Zhejiang Shuangliang Shangda 8 8 8
Jiangyin Hotel 84 140 210
Shuangliang Eco Engineering 20,421 17,526 17,526
Shuangliang New Energy Equipment 13,412 9,705 6,705
Sinopec New Star 1,608 2,130 2,585
Wuxi Hundun 232 322 147
49,579 42,495 30,866
Payable for finance lease of plant and
equipment from a related party
Sinopec New Star 10,199 9,317 8,380
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Non-trade nature
Amounts due from a related party
Beijing Zhongchuang 154,400 40,074 –
Amounts advanced from a related party
Sinopec New Star
(Note) 700 700 700
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Other borrowings
Beijing Zhongchuang 556,518 300,854 –
Note: The amounts advanced from a related party will be settled upon the Listing.
FINANCIAL INFORMATION
– 556 –


--- page 567 ---
(i) Sale of goods and services
During the Track Record Period, our sales of good and services to Jiangsu Shuangliang
New Energy Equipment and Sinopec New Star mainly represented the sales of heat service
related products such as semi-finished skid-mounted heat exchange unit and other equipment
for their manufacturing purposes.
(ii) Purchases of plant and equipment and other assets
During the Track Record Period, our purchases of plant and equipment and other assets
from Shuangliang Boiler, Shuangliang New Energy Equipment, Shuangliang Eco-Energy,
Shuangliang Eco Engineering and Sinopec New Star mainly represented the purchases of plant
and equipment for our heat service facilities construction.
During the same period, our purchases of other assets from Wuxi Hundun mainly
represented a one-off purchase of a IT system and relevant services to support our heat service
operation.
(iii) Purchase of services
During the Track Record Period, Jiangyin Hotel provided us services of catering and
conference organising in the leased premises to us, and Shuangliang Spandex leased a property
for office use to us.
(iv) Lease arrangements
During the Track Record Period, leases with related parties included (i) leases to and from
Sinopec New Star; and (ii) lease arrangement with Jiangyin Hotel. Lease to Sinopec New Star
represented leasing of our unused primary distribution pipelines to Sinopec New Star for its
heat services; and lease from Sinopec New Star represented leasing of two medium-deep
geothermal wells for our Shanxi Demonstration Zone Project.
(v) Financing arrangements
During the Track Record Period, we entered into certain financing arrangements with (i)
Beijing Zhongchuang and (ii) Shuangliang Technology. Financing arrangements with Beijing
Zhongchuang included (i) a one-off short term loan provided to Beijing Zhongchuang; and (ii)
sales and leaseback financing arrangements from Beijing Zhongchuang to support our medium
to long term capital expenditures to construct our heat service facilities. Advances from
Shuangliang Technology were for the purpose of facilitating our normal business development
needs.
FINANCIAL INFORMATION
– 557 –


--- page 568 ---
As advised by our PRC Legal Advisers, according to the General Lending Provisions ( ൲
ۆissued by the PBOC in 1996, only financial institutions may engage in business of
extending loans, and loans between companies that are not financial institutions are prohibited.
The PBOC may impose penalties on the lender in the amount equivalent to one to five times
of the income generated from loan advancing activities. However, based on the fact that our
Group had not been subject to penalties for the loans and advances during the Track Record
Period and up to the Latest Practicable Date, and having considered the following reasons:
(a) according to the Provisions of the Supreme People’s Court on Several
Issues concerning the Application of Law in the Trial of Private Lending Cases
() (the “ No. 6
Provisions ”) promulgated on 6 August 2015, last revised on 29 December 2020 and
became effective on 1 January 2021, (i) in terms of a private lending contract
concluded between legal persons or unincorporated organisations or between a legal
person and an unincorporated organisation for the need of production and operation,
except under any of the circumstances as prescribed in Article 13 thereof and in
Article 146, Article 153 and Article 154 of the Civil Code of the PRC, relevant
people’s court shall recognise the validity of the private lending contract; and (ii)
relevant people’s court shall support the claim by the lender for the payment of the
interests under the lending contract where the annual interest rate agreed by the
parties to the lending contract does not exceed four times of the loan prime rate for
one-year loan when the contract is concluded;
(b) in accordance with the Legislation Law of the People’s Republic of China ( ʕശ
), National People’s Congress and Standing Committee of the
National People’s Congress enacts the laws, while the State Council enacts
administrative regulations in accordance with the constitution and the laws of the
PRC. The PBOC only enacts the departmental regulations in accordance with the
laws and administrative regulations. The General Lending Provisions issued by the
PBOC are only departmental regulations but not laws and administrative regulations
of the PRC;
(c) according to (i) our loan agreement entered into with Beijing Zhongchuang; and (ii)
the written confirmation provided by our Group in relation to the advances from
Shuangliang Technology, such loan and advances were made for the purpose of the
parties’ normal business operation. They did not involve any circumstances as
prescribed in Article 13 of the No. 6 Provisions and in Article 146, Article 153 and
Article 154 of the Civil Code of the PRC and the annual interest rate of each of the
loan and advances is within the scope allowed by the No. 6 Provisions; and
(d) our PRC Legal Advisers made a consultation with the Jiangyin sub-branch of PBOC,
the relevant competent authority as confirmed by our PRC Legal Advisers, which
confirmed that PBOC does not govern the ordinary course of lending activities
between legal persons for the need of ordinary business operation and it will not
impose any penalties on us for such loan and advances,
FINANCIAL INFORMATION
– 558 –


--- page 569 ---
our PRC Legal Advisers are of the view that (i) the above loan and advances are legally binding
on the parties; (ii) such loan and advances are not in violation of PRC mandatory laws and
administrative regulations; (iii) such loan and advances do not constitute a material adverse
impact on our Group’s business operation; and (iv) the risk of us being penalised by the PBOC
is remote.
As advised by our PRC Legal Advisers, based on the written confirmations issued by
Hulunbuir City Housing and Urban-Rural Development Bureau* (ண
҅)( “ Hulunbuir Bureau ”), Shuozhou Gas and Heating Supply Guarantee Centre* (ψ̹Զ
ღʕː)( “Shuozhou Centre ”, formerly known as the Shuozhou City Gas and Heating
Service Centre* (ਕʕː)) Lanzhou Bureau, each of them being a
competent authority to provide such confirmation, the provision of loans from Beijing
Zhongchuang by way of sales and leaseback financing arrangements does not affect the validity
of the relevant concession agreements, nor does it have any impact on the legal compliance of
our heat services. Based on the above, our PRC Legal Advisers are of the view that the sales
and leaseback financing arrangements are in compliance with the relevant PRC laws and
regulations.
Our Directors have confirmed that the material related party transactions during the Track
Record Period were conducted on arm’s length basis, and in aggregate would not distort our
historical results over the Track Record Period or make out historical results over the Track
Record Period not reflective of our expectations of our future performance.
KEY FINANCIAL RATIOS
The following table sets out our key financial ratios as at the dates and for the years
indicated.
As at/for the year ended 31 December
2020 2021 2022
Current ratio (1) 0.4 0.5 0.7
Quick ratio (2) 0.4 0.4 0.6
Return on total assets (3) 2.0% 3.4% 2.7%
Return on equity (4) 17.4% 24.5% 16.5%
Gearing ratio (5) 2.1 1.4 1.0
Net debt to equity ratio (6) 2.0 1.2 0.5
Interest coverage (7) 2.5 times 3.5 times 3.2 times
Net profit margin (8) 7.1% 13.3% 9.7%
Notes:
(1) Current ratio is calculated by dividing total current assets by total current liabilities as at the end of the
year.
(2) Quick ratio is calculated by dividing total current assets less inventories by total current liabilities as
at the end of the year.
FINANCIAL INFORMATION
– 559 –


--- page 570 ---
(3) Return on total assets is calculated by dividing net profit by the average balances of the total assets for
the year.
(4) Return on equity is calculated by dividing net profit by the average balances of equity for the year.
(5) Gearing ratio is calculated by dividing total borrowings by total equity as at the end of the year.
(6) Net debt to equity ratio is calculated by dividing net debt by total equity as at the end of the year. Net
debt is calculated as total borrowings less cash and cash equivalents as at the end of the year.
(7) Interest coverage is calculated based on the profit before interest and income tax for the year divided
by respective finance costs for the year.
(8) Net profit margin is equal to net profit divided by total revenue for the year.
Current ratio
Our Group’s current ratio was 0.4, 0.5 and 0.7 as at 31 December 2020, 2021 and 2022,
respectively. Our Group’s current ratio increased from 0.4 as at 31 December 2020 to 0.5 as
at 31 December 2021, and further increased to 0.7 as at 31 December 2022, mainly due to a
continuing decrease in our current liabilities resulting from a reduction in our short-term
borrowings during the Track Record Period and a decrease in our contract liabilities in respect
of our provision and distribution of heat as at 31 December 2022.
Quick ratio
Our Group’s quick ratio was 0.4, 0.4 and 0.6 as at 31 December 2020, 2021 and 2022,
respectively. Our Group’s quick ratio remained stable at 0.4 and 0.4 as at 31 December 2020
and 2021, respectively. Our quick ratio increased from 0.4 as at 31 December 2021 to 0.6 as
at 31 December 2022, mainly due to the aforementioned decrease in our contract liabilities
while our level of quick assets remained stable.
Return on total assets
Our Group’s return on total assets was 2.0%, 3.4% and 2.7% for the years ended 31
December 2020, 2021 and 2022, respectively, the changes of which were generally in line with
the changes in our net profit during the same years. Our Group’s return on total assets increased
from 2.0% for the year ended 31 December 2020 to 3.4% for the year ended 31 December 2021,
mainly due to the increase in our net profit during the year, and our return on total assets
decreased to 2.7% for the year ended 31 December 2022 mainly due to a decrease in net profit
during the year.
Return on equity
Our Group’s return on equity was 17.4%, 24.5% and 16.5% for the years ended
31 December 2020, 2021 and 2022, respectively. Our Group’s return on equity increased from
17.4% for the year ended 31 December 2020 to 24.5% for the year ended 31 December 2021
as the increase in our Group’s net profit outpaced the increase in our Group’s equity. Our return
on equity decreased from 24.5% for the year ended 31 December 2021 to 16.5% for the year
ended 31 December 2022, mainly due to a decrease in net profit.
FINANCIAL INFORMATION
– 560 –


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Gearing ratio
Our Group’s gearing ratio was 2.1, 1.4 and 1.0 as at 31 December 2020, 2021 and 2022.
Our gearing ratio improved from 2.1 as at 31 December 2020 to 1.4 as at 31 December 2021,
and further improved to 1.0 as at 31 December 2022 mainly due to the continuing increase in
our Group’s total equity as well as the continuing decrease in our total borrowings throughout
the Track Record Period.
Net debt to equity ratio
Our Group’s net debt to equity ratio decreased from 2.0 as at 31 December 2020 to 1.2
as at 31 December 2021, and further decreased to 0.5 as at 31 December 2022, mainly due to
a continuing increase in our retained earnings and non-controlling interests and a decrease in
our borrowings over the Track Record Period.
Interest coverage
Our Group’s interest coverage ratio increased from 2.5 times for the year ended 31
December 2020 to 3.5 times for the year ended 31 December 2021, because of the combined
effect of (i) the increase in our Group’s profit before finance costs and tax; and (ii) the decrease
in finance costs as a result of the decrease in overall borrowings. Our Group’s interest coverage
ratio decreased to 3.2 times for the year ended 31 December 2022 due to the combined effect
of (i) a slight increase in finance costs and (ii) a decrease in our Group’s profit before finance
costs and tax compared to that for the year ended 31 December 2022.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We are exposed to a variety of financial risks, including market risk (including exchange
risk, interest rate risk and price risk), credit risk and liquidity risk. See Note 3.1 to the
accountant’s report as set out in Appendix I to this prospectus. We manage and monitor these
exposures to ensure appropriate measures are implemented in a timely and effective manner.
We did not hedge or consider necessary to hedge any of these risks as at the Latest Practicable
Date.
DIVIDEND AND DIVIDEND POLICY
No dividend had been paid or declared by our Company during the Track Record Period
and up to the Latest Practicable Date. We currently aim to pay a total dividend in respect of
each financial year of not less than 30% of our annual distributable profit. The declaration and
payment of future dividends will be subject to various factors, including our future earnings
and cash inflows, future plan for use of funds, long-term development of our business, statutory
reserves, discretionary common reserve funds, legal and regulatory restrictions, and other
factors which our Directors consider relevant. We may declare and pay dividends by way of
cash or by other means that we consider appropriate in the future. Distribution of dividends
will be decided by our Board at their discretion and will be subject to Shareholders’ approval.
FINANCIAL INFORMATION
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--- page 572 ---
In addition, our dividend policy will also be subject to our Articles of Association, the PRC
Company Law, any other applicable PRC laws and regulations. In any event, we will pay
dividends out of our profit after tax only after we have made the following allocations:
(1) recovery of accumulated losses, if any;
(2) allocation to the statutory common reserve fund an amount of no less than 10% of
our profit after tax, as determined under PRC GAAP; and
(3) allocation, if any, to a discretionary common reserve fund an amount approved by
the shareholders in a shareholders’ meeting.
We are a joint stock limited company established in the PRC on 3 September 2010 and
the payment and amount of any future dividend will also depend on the availability of
dividends received from our subsidiaries of our Group. Payment of dividends is subject to
restrictions under PRC laws. Under PRC laws, dividends may be paid only out of distributable
profits. Distributable profits are our net profit as determined under PRC GAAP or IFRS,
whichever is lower, less any recovery of accumulated losses and appropriations to statutory and
other reserves that we are required to make. Moreover, because 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. For risks in relation
to payment of dividends, see “Risk factors – Risks relating to our business and industry –
Payment of dividends is subject to restrictions under PRC laws” in this prospectus.
DISTRIBUTABLE RESERVES
As at 31 December 2022, our Group had distributable reserves of RMB300.3 million.
LISTING EXPENSES
The estimated total Listing expenses, including underwriting commissions (based on the
mid-point of the Offer Price range and assuming that the Over-allotment Option is not
exercised) for the Global Offering, are approximately RMB81.5 million (HK$89.5 million),
representing approximately 32.9% of the gross proceeds from the Global Offering. Such
estimated total Listing expenses include (i) underwriting-related expenses, including
underwriting commission of approximately RMB11.2 million (HK$12.3 million); (ii) fees and
expenses of our legal advisers and reporting accountant of approximately RMB46.8 million
(HK$51.4 million); and (iii) other fees and expenses of approximately RMB23.5 million
(HK$25.9 million). Up to 31 December 2022, Listing expenses of approximately RMB4.2
million (HK$4.6 million) were expensed through the statement of profit or loss, while as at 31
December 2022, approximately RMB37.6 million (HK$41.3 million) was recognised as
prepaid Listing expenses, and such amount is expected to be recognised directly as a deduction
from equity upon the Listing. For the year ending 31 December 2023, an estimated amount of
approximately RMB4.0 million (HK$4.4 million) is expected to be expensed through the
statement of profit or loss and an additional amount of approximately RMB35.7 million
(HK$39.2 million) is expected to be recognised directly as a deduction from equity upon the
Listing.
FINANCIAL INFORMATION
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--- page 573 ---
UNAUDITED PRO FORMA STATEMENT OF ADJUSTED CONSOLIDATED NET
TANGIBLE LIABILITIES
The following unaudited pro forma statement of adjusted consolidated net tangible
liabilities of our Group prepared in accordance with Rule 4.29 of the Listing Rules is to
illustrate the effect of the Global Offering on the consolidated net tangible liabilities of our
Group 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 liabilities of our
Group has been prepared for illustrative purposes only and, because of its hypothetical nature,
it may not provide a true picture of our consolidated net tangible liabilities had the Global
Offering been completed as at 31 December 2022 or at any future dates. It is prepared based
on our consolidated net assets as at 31 December 2022 as set out in the accountant’s report as
set out in Appendix I to this prospectus, and adjusted as described below. “Unaudited pro forma
adjusted consolidated net tangible liabilities” as set out in Appendix II to this prospectus do not
form part of the accountant’s report.
During the Track Record Period, under IFRIC 12 Service Concession Arrangements, we
recognised intangible assets to the extent of the right to charge our heat service customers
during the construction phase of heat service facilities. As such, the intangible assets
represented a significant portion of the total assets of our Group. The intangible assets were
excluded in the calculation of our Group’s unaudited pro forma adjusted consolidated tangible
financial information, resulting in the unaudited pro forma adjusted consolidated net tangible
liabilities of our Group attributable to owners of our Company per Share.
Audited
consolidated net
tangible liabilities
of our Group
attributable to
owners of our
Company as at
31 December 2022
Estimated net
proceeds from the
Global Offering
Unaudited pro
forma adjusted
consolidated net
tangible liabilities
of our Group
attributable to
owners of our
Company as at
31 December 2022
Unaudited pro forma adjusted
consolidated net tangible
liabilities of our Group
attributable to owners of our
Company per Share
RMB’000 RMB’000 RMB’000 RMB HK$
Note 1 Note 2 Note 3
Based on an Offer Price of
HK$3.00 per Share (1,552,917) 131,006 (1,421,911) (4.71) (5.17)
Based on an Offer Price of
HK$4.20 per Share (1,552,917) 209,855 (1,343,062) (4.45) (4.89)
FINANCIAL INFORMATION
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Notes:
1. The audited consolidated net tangible liabilities of our Group attributable to owners of our Company as at
31 December 2022 is extracted from the accountant’s report as set out in Appendix I to this prospectus, which
is based on the audited consolidated net assets of our Group attributable to owners of our Company as at
31 December 2022 of approximately RMB727,117,000 with adjustment for the intangible assets of our group
attributable to owners of our Company as at 31 December 2022 of approximately RMB2,280,034,000 (being
the audited consolidated intangible assets of our Group as at 31 December 2022 of approximately
RMB3,340,965,000 with adjustment for the intangible assets attributable to non-controlling interests as at 31
December 2022 of approximately RMB1,060,931,000).
2. The estimated net proceeds from the Global Offering are based on 75,600,000 Offer Shares and the indicative
Offer Prices of HK$3.00 per Offer Share and HK$4.20 per Offer Share, being the low end and high end of the
indicative Offer Price range, respectively, after deduction of the underwriting fees and other related expenses
(excluding Listing expenses of approximately RMB280,000, nil, RMB299,000, RMB3,597,000 which have
been accounted for in the consolidated statements of comprehensive income of our Group during the years
ended 31 December 2019, 2020, 2021 and 2022), without taking into account any Shares which may be allotted
and issued upon the exercise of the Over-allotment Option, or any Shares which may be allotted and issued
or repurchased by our Company pursuant to the general mandates.
3. The unaudited pro forma adjusted consolidated net tangible liabilities of our Group attributable to owners of
our Company per Share is arrived at after the adjustments referred to in the preceding paragraphs and on the
basis that 301,600,000 Shares were in issue assuming the Global Offering had taken place on 31 December
2022, without taking into account any Shares which may be allotted and issued upon the exercise of the
Over-allotment Option, or any Shares which may be allotted and issued or repurchased by our Company
pursuant to the general mandates.
4. For the purpose of this unaudited pro forma adjusted consolidated net tangible liabilities, the amounts stated
in Renminbi are converted into Hong Kong dollars at a rate of RMB1.00 to HK$1.0987. No representation is
made that Renminbi amounts have been, could have been or may be converted to Hong Kong dollars, or vice
versa, at that rate.
5. No adjustment has been made to reflect any trading results or other transactions of our Group entered into
subsequent to 31 December 2022.
6. The property interests valued in the property valuation report as set out in Appendix IV to this prospectus
represented the investment properties of our Group, which were initially measured at cost and subsequently
carried at fair value, hence no depreciation charge on investment properties was recorded by our Group during
the Track Record Period. Therefore, it would not give rise to a disclosure requirement under note 6 to
paragraph 21 of Appendix 1A to the Listing Rules.
NO MATERIAL ADVERSE CHANGE AND RECENT DEVELOPMENTS
Our Directors have confirmed that, since 31 December 2022 (being the date to which our
Company’s latest consolidated financial results were prepared) and up to the date of this
prospectus, there has been no material adverse change in our financial or trading position or
prospects and no event has occurred that would materially and adversely affect the information
shown in our consolidated financial statements in the accountant’s report as set out in Appendix
I to this prospectus. For the details in relation to the recent developments of our Group, see
“Summary – Recent developments and no material adverse change” in this prospectus.
FINANCIAL INFORMATION
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--- page 575 ---
DISCLOSURE UNDER RULES 13.13 TO 13.19 OF THE LISTING RULES
Our Directors confirm that as at 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.
PROPERTY INTEREST AND PROPERTY V ALUATION
As at 31 March 2023, certain of our property interests that are for property activities had
a carrying amount of above 1% of our total assets. For such properties valued by our property
valuer (the “ Valued Properties ”), see the property valuation report as set out in Appendix IV
to this prospectus pursuant to Rule 5.01A of the Listing Rules. The table below sets out the
reconciliation between the carrying amount of the property interests for such Valued Properties
as at 31 December 2022 as sets out in Appendix I to this prospectus and the revalued amount
of our property interests for such Valued Properties as at 31 March 2023.
RMB’000
Carrying amount of our Valued Properties as at 31 December 2022
as sets out in Appendix I to this prospectus 267,200
Less: Net valuation changes as at 31 March 2023 (2,450)
Valuation as at 31 March 2023 264,750
Given the independent valuer has applied the market approach and income capitalisation
approach for the valuation of property interests as set out in Appendix IV to this prospectus,
we recorded fair value gains or losses of investment properties as included in the statement of
profit or loss for the period in which they arose. Our Group will reassess the fair value of the
investment properties at the end of each reporting period and our Directors are of the view that
there was no indication of material change on the valuation of the investment properties up to
the Latest Practicable Date. Save and except for the Valued Properties, our Directors confirmed
that as at 31 March 2023, no single property interest of ours for property activities had a
carrying amount above 1% of our total assets and the total carrying amount of property
interests not valued did not exceed 10% of our total assets.
FINANCIAL INFORMATION
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--- page 576 ---
FUTURE PLANS
We strive to optimise our heat service operation and enhance our position as an
well-established cross-provincial heat service operator in the PRC through our business
strategies. See “Business – Our strategies” in this prospectus for a detailed description of our
future plans.
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately HK$187.5 million
(equivalent to approximately RMB170.6 million from the Global Offering, after deducting the
underwriting commissions and other estimated expenses payable by us in connection with the
Global Offering, assuming an Offer Price of HK$3.60 per H Share (being the mid-point of the
indicative Offer Price range) and that the Over-allotment Option is not exercised.
Our Directors intend to apply the net proceeds from the Global Offering for the following
purposes:
(1) approximately HK$93.7 million (equivalent to approximately RMB85.3 million),
representing approximately 50.0% of the net proceeds from the Global Offering,
will be used for construction of new peak-shaving boiler (which will be a coal-fired
boiler) in our heat source peak-shaving station for our Lanzhou New Area Project
(ணධͦ) (the “ Lanzhou Peak-shaving Boiler
Construction ”). The construction activities mainly consist of (i) construction of
new coal-fired boiler and relevant supporting equipment; (ii) construction of heat
source peak-shaving station and supporting infrastructure; and (iii) other ancillary
construction activities such as installation of transmission line.
According to the approval from Lanzhou New Area Economy Development Bureau*
(҅) obtained in March 2020, the new peak-shaving boiler has
commenced construction in June 2022 and the construction and construction
acceptance check is expected to be completed prior to the commencement of
2023/2024 heat service period. The new heat source peak-shaving boiler will be put
into use upon the completion of construction acceptance check to meet the demand
for heat services. Therefore, the construction of a heat source peak-shaving boiler
can support the increasing demand for heat services along with the steady expansion
of our actual heat service area. In February 2021, we applied to Lanzhou Bureau to
commence the Lanzhou Peak-shaving Station Construction Project. For the details
related to our heat source peak-shaving boiler, see “Business – Heat sources” in this
prospectus. We expect that the Lanzhou Peak-shaving Boiler Construction can meet
the growing demand of heat services attributable to the construction activities of
public utility infrastructure in Lanzhou New Area ( ᚆψอਜ). See “Business – Our
strategies – Bolster our business presence in the “Three North Region” and enlarge
our customer base” in this prospectus for more details related to the urbanisation and
economic reform in Lanzhou New Area ( ᚆψอਜ) in the following five years. In
FUTURE PLANS AND USE OF PROCEEDS
– 566 –


--- page 577 ---
light of the above and as confirmed by Frost & Sullivan, our Directors consider that
the demand for heat services will not be shrunken in the long run and no change in
PRC government policies with respect to heat services will be likely to render the
implementation plan for the Lanzhou Peak-shaving Boiler Construction not viable
as at the Latest Practicable Date. Given that there was no concrete governmental
plan or measures announced in view of achieving carbon neutrality by 2060 as at the
Latest Practicable Date, our Directors believe there is no indication that the Lanzhou
Peak-shaving Boiler Construction would be rendered not viable. We will also
continuously monitor the development of the relevant government policies and
develop alternative heat sources to replace or supplement the coal-fired boilers.
We expect that the net proceeds allocated to the Lanzhou Peak-shaving Boiler
Construction will be fully utilised by 2024 with details breakdown of the proceeds
to be allocated as below:
Major uses
Amount of
net proceeds
Percentage of
total net
proceeds
Time frame
2023 2024
(RMB in millions) (%) (RMB in millions)
(i) Construction of new
coal-fired boiler and
relevant supporting
equipment 63.8 37.4 40.0 23.8
(ii) Construction of heat
source peak-shaving
station and supporting
infrastructure 13.0 7.6 9.3 3.7
(iii) Others 8.5 5.0 8.5 –
Total 85.3 50.0 57.8 27.5
(2) approximately HK$75.0 million (equivalent to approximately RMB68.2 million),
representing approximately 40.0% of the net proceeds from the Global Offering,
will be used for the construction of primary distribution pipelines and heat service
facilities, procurement of relevant equipment and devices for our heat service
operation and future expansion of our Xinmi Project (ධͦ)
(the “ Xinmi Project Preparation and Expansion ”). The Xinmi Project Preparation
and Expansion includes (i) construction of primary distribution pipeline networks;
(ii) procurement of raw materials for the construction of primary distribution
pipeline networks; and (iii) engagement of third-party contractors for construction-
related services including design and consultancy services.
FUTURE PLANS AND USE OF PROCEEDS
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--- page 578 ---
In December 2021, we obtained a concession to operate a heat service project in
Xinmi of Henan Province which is outside of the “Three North Region”. We expect
that our heat service operation in Xinmi will commence from the 2023/2024 heat
service period in or around November 2023. We expect we can fully utilise our total
Concession Area in Xinmi of Henan Province and expand our heat service
accordingly in response to the Overall Xinmi City Urban-rural Development
(2018-2035) (ඊᐼ᜗஝ྌ(2018-2035), which has designated a target that
90% of the administrative area in Xinmi shall have access to heat services by 2035.
For the background of our preparation of the Xinmi Project Preparation and
Expansion, see “Business – Our strategies – Expand our national footprint and
increase our market share” in this prospectus.
We expect that the net proceeds allocated to the Xinmi Project Preparation and
Expansion will be fully utilised by 2024 with details breakdown of the proceeds to
be allocated as below:
Major uses
Amount of
net proceeds
Percentage of
total net
proceeds
Time frame
2023 2024
(RMB in millions) (%) (RMB in millions)
(i) Construction of primary
distribution pipeline
networks 26.3 15.4 22.6 3.7
(ii) Procurement of raw
materials for the
construction of primary
distribution pipeline
networks 39.2 23.0 37.1 2.1
(iii) Engagement of third-party
contractors for
construction-related
services including design
and consultancy services 2.7 1.6 2.1 0.6
Total 68.2 40.0 61.8 6.4
According to the Frost & Sullivan Report, to meet the increasing demand for the
heat services, which mainly results from the rapid growth in urbanisation rate and
the increasing penetration of the heat services in the PRC, total area and pipeline
length of the heat services in the PRC rose significantly during the last few years.
According to the same report, most of the municipal heating regulations adopted in
the cities where the Group operates such as the Administrative Measures for Urban
Heat Supply and Use in Lanzhou New Area ()
and Hulunbuir Urban Heat Supply Administration Measures (Trial) (Ԏဧ̹
) specify that companies providing heat services would need to
FUTURE PLANS AND USE OF PROCEEDS
– 568 –


--- page 579 ---
have stable and reliable heating resources ensuring a stable supply of heat services.
In addition, the sustainability of the heat service business in the PRC is less likely
to be affected due to the risk of stagflation in the world economy and global
instabilities and uncertainties. In light of the above and as confirmed by Frost &
Sullivan, our Directors consider that the demand for heat services will not be
shrunken in the long run and no change in PRC government policies with respect to
heat services will be likely to render the implementation plan for the Xinmi Project
Preparation and Expansion not viable as at the Latest Practicable Date.
(3) approximately HK$18.8 million (equivalent to approximately RMB17.1 million),
representing approximately 10.0% of the net proceeds from the Global Offering,
will be used as working capital and other general corporate purposes.
We expect that the net proceeds allocated to the foregoing purposes will be fully utilised
by 2024, presuming that there is no significant change of conditions, with details breakdown
of the proceeds to be allocated as below:
Major categories
Amount of
proceeds
Percentage
of total
proceeds
Time frame
2023 2024
(RMB in
millions) (%) (RMB in millions)
Lanzhou Peak-shaving
Boiler Construction
85.3 50.0 57.8 27.5
Xinmi Project Preparation and
Expansion
68.2 40.0 61.8 6.4
The above allocation of the proceeds will be adjusted on a pro rata basis in the event that
the Offer Price is fixed at a higher or lower level compared to the mid-point of the estimated
Offer Price range:
If the Offer Price is fixed at HK$4.20 per H Share, being the high-end of the Offer Price
range stated in this prospectus and assuming no exercise of the Over-allotment Option, the net
proceeds will be increased by approximately HK$43.3 million. If the Offer Price is fixed at
HK$3.00 per H Share, being the low-end of the Offer Price range stated in this prospectus and
assuming no exercise of the Over-allotment Option, the net proceeds will be reduced by
approximately HK$43.3 million. If the Offer Price is set either above or below the mid-point
of the indicative Offer Price range, we intend to adjust our allocation of net proceeds for the
above purposes on a pro rata basis.
The additional net proceeds that we would receive if the Over-allotment Option is
exercised in full would be HK$39.0 million after deducting the underwriting commissions and
other estimated expenses payable by us in connection with the Global Offering (assuming an
Offer Price of HK$3.60 per H Share, being the mid-point of the Offer Price range stated in this
prospectus). Additional net proceeds received due to the exercise of any Over-allotment Option
will be utilised according to the allocation of net proceeds for the above purposes on a pro rata
basis.
FUTURE PLANS AND USE OF PROCEEDS
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--- page 580 ---
To the extent that the net proceeds are not immediately applied to the above purposes and
to the extent permitted by applicable laws and regulations, we will only deposit those net
proceeds into short-term interest-bearing accounts at licensed commercial banks and/or other
authorised financial institutions (as defined under the SFO or the Commercial Banking Law of
the People’s Republic of China (جand other relevant laws in the
PRC).
We will make an appropriate announcement if there is any change to the above proposed
use of proceeds.
FUTURE PLANS AND USE OF PROCEEDS
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--- page 581 ---
THE CORNERSTONE PLACING
Our Company has entered into a cornerstone investment agreement (the “ Cornerstone
Investment Agreement ”) with an investor described below (the “ Cornerstone Investor ”),
pursuant to which the Cornerstone Investor has agreed to, subject to certain conditions,
subscribe for a certain number of the Offer Shares (rounded down to the nearest whole board
lot of 1,000 H Shares) at the Offer Price that may be purchased for an aggregate amount of
RMB50.0 million (or approximately HK$54.9 million) (inclusive of the brokerage fee, SFC
transaction levy, AFRC transaction levy and Stock Exchange trading fee) (the “ Cornerstone
Placing ”). The number of Offer Shares to be subscribed for by the Cornerstone Investor is
subject to the determination of the final Offer Price.
Set out below is the aggregate number of Offer Shares, and the corresponding percentage
to our Company’s total registered capital under the Cornerstone Placing:
Assuming an Offer Price of HK$3.00 (being the low-end of the indicative Offer Price
range set out in this prospectus), the total number of H Shares to be subscribed by the
Cornerstone Investor would be 18,128,000 H Shares, representing approximately (i) 24.0% of
the Offer Shares, assuming that the Over-allotment Option is not exercised; (ii) 6.0% of the
total Shares in issue upon completion of the Global Offering, assuming that the Over-allotment
Option is not exercised; and (iii) 5.8% of the total Shares in issue upon completion of the
Global Offering, assuming that the Over-allotment Option is fully exercised.
Assuming an Offer Price of HK$3.60 (being the mid-point of the indicative Offer Price
range set out in this prospectus), the total number of H Shares to be subscribed by the
Cornerstone Investor would be 15,106,000 H Shares, representing approximately (i) 20.0% of
the Offer Shares, assuming that the Over-allotment Option is not exercised; (ii) 5.0% of the
total Shares in issue upon completion of the Global Offering, assuming that the Over-allotment
Option is not exercised; and (iii) 4.8% of the total Shares in issue upon completion of the
Global Offering, assuming that the Over-allotment Option is fully exercised.
Assuming an Offer Price of HK$4.20 (being the high-end of the indicative Offer Price
range set out in this prospectus), the total number of H Shares to be subscribed by the
Cornerstone Investor would be 12,948,000 H Shares, representing approximately (i) 17.1% of
the Offer Shares, assuming that the Over-allotment Option is not exercised; (ii) 4.3% of the
total Shares in issue upon completion of the Global Offering, assuming that the Over-allotment
Option is not exercised; and (iii) 4.1% of the total Shares in issue upon completion of the
Global Offering, assuming that the Over-allotment Option is fully exercised.
The Cornerstone Placing will form part of the International Offering and the Cornerstone
Investor will not subscribe for any Offer Shares under the Global Offering (other than pursuant
to the Cornerstone Investment Agreement). The Offer Shares to be subscribed by the
Cornerstone Investor will rank pari passu in all respect with the fully paid H Shares in issue
and will be counted towards the public float of our Company under Rule 8.08 of the Listing
Rules and in compliance with the requirement under Rule 8.08(3) of the Listing Rules.
CORNERSTONE INVESTOR
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--- page 582 ---
Immediately following the completion of the Global Offering, the Cornerstone Investor will
not become a substantial shareholder of our Company, nor will the Cornerstone Investor have
any Board representation in our Company. Other than a guaranteed allocation of the relevant
Offer Shares at the final Offer Price, the Cornerstone Investor does not have any preferential
rights in the Cornerstone Investment Agreement compared with other public Shareholders.
Our Company is of the view that leveraging on the background of the Cornerstone
Investor and its shareholder, the Cornerstone Placing will help raise the profile of the Listing
and attract investors’ interest and stimulate demand. We also believe it shows that such
Cornerstone investor has confidence in our business and prospect.
To the best knowledge of our Company, (i) the Cornerstone Investor is an Independent
Third Party; (ii) the subscriptions of the Offer Shares by the Cornerstone Investor is not
financed directly or indirectly by our Company, our Directors, our supervisors, our Controlling
Shareholders, substantial Shareholders, existing Shareholders, or any of their subsidiaries or
respective close associates; and (iii) the Cornerstone Investor is not accustomed to take
instructions from our Company, our Directors, our supervisors, our Controlling Shareholders,
substantial Shareholders, existing Shareholders or any of their subsidiaries or respective close
associates in relation to the acquisition, disposal, voting or other disposition of the Offer
Shares.
As confirmed by the Cornerstone Investor, (i) its subscription under the Cornerstone
Placing would be financed by its internal resources and/or the financial resources of its
shareholders; (ii) there are no side agreements/arrangement between our Company and the
Cornerstone Investor or any benefit, direct or indirect, conferred on the Cornerstone Investor
by virtue of or in relation to the Cornerstone Placing, other than a guaranteed allocation of the
relevant Offer Shares at the Offer Price; and (iii) neither the Cornerstone Investor nor any of
its shareholders is listed on any stock exchange, and all necessary approvals (including
approvals from its shareholders, if relevant) have been obtained with respect to its subscription
under the Cornerstone Placing.
The Offer Shares to be subscribed for by the Cornerstone Investor might be affected by
the reallocation of the Offer Shares between the International Offering and the Hong Kong
Public Offering. If the total demand for Offer Shares in the Hong Kong Public Offering falls
within the circumstance as set out in the section headed “Structure of the Global Offering –
Hong Kong Public Offering – Reallocation” in this prospectus, the number of Offer Shares
under the International Offering may be reallocated to the Hong Kong Public Offering on a pro
rata basis to satisfy the public demands under the Hong Kong Public Offering. Details of the
actual number of Offer Shares to be allocated to the Cornerstone Investor will be disclosed in
the allotment results announcement to be issued by us on or around Friday, 7 July 2023.
The Cornerstone Investor has agreed that the Overall Coordinator and the Sole Global
Coordinator (for themselves and on behalf of the Underwriters) may defer the delivery of all
or any part of the Offer Shares it has subscribed for to a date later than the Listing Date.
Despite having agreed to a potential delayed delivery arrangement, the Cornerstone Investor
CORNERSTONE INVESTOR
– 572 –


--- page 583 ---
has agreed that it shall pay for the relevant Offer Shares that they have subscribed on or before
the Listing Date, and there will be no delayed settlement of payment. The delayed delivery
arrangement is in place to facilitate the over-allocation in the International Offering. There will
be no delayed delivery if there is no over-allocation in the International Offering. For details
of the Over-allotment Option and the stabilisation action by the Stabilising Manager, see
“Structure of the Global Offering – International Offering – Over-allotment Option” and
“Structure of the Global Offering – International Offering – Stabilisation” in this prospectus,
respectively.
THE CORNERSTONE INVESTOR
The information about our Cornerstone Investor set forth below has been provided by the
Cornerstone Investor in connection with the Cornerstone Placing.
Jiang Gang International Investment Company Limited (ʮ̡)
Our Company has entered into a Cornerstone Investment Agreement with Jiang Gang
International Investment Company Limited (ʮ̡)( “ Jiang Gang
International ”), pursuant to which Jiang Gang International has agreed to, subject to certain
conditions, subscribe for a certain number of the Offer Shares (rounded down to the nearest
whole board lot of 1,000 H Shares) at the Offer Price that may be purchased for an aggregate
amount of RMB50.0 million (inclusive of the brokerage fee, SFC transaction levy, AFRC
transaction levy and Stock Exchange trading fee). Jiang Gang International is a private
company incorporated in Hong Kong with limited liability and is principally engaged in the
investment holding. As at the Latest Practicable Date, Jiang Gang International is wholly-
owned by Jiangyin State-owned Capital Holding Group Financial Investment Company
Limited* (ʮ̡)( “ Jiangyin State-owned Financial
Investment ”) which is in turn ultimately and beneficially owned by the State-owned Assets
Supervision and Administration Office of Jiangyin People’s Government* (਷
܃Jiangsu Province, the PRC.
The shareholder of Jiang Gang International, i.e. Jiangyin State-owned Financial
Investment holds 3.5% registered capital of Wuxi Hundun which is a connected person of our
Company. The remaining 96.5% of the registered capital of Wuxi Hundun is held as to 83.8%
by Shanghai Tongsheng LP, 5.8% by Jiangyin Yongyou Smart Technology Equity Investment
Fund (Limited Partnership)* (ږ(Υྫ)), 4.5% by
Shuangliang Technology and 2.4% by Wuxi Liande Investment Partnership (Limited
Partnership)* ( ೌ፼ᑌᅃҳ༟ΥྫΆุ(Υྫ)). As Shanghai Tongsheng LP is an associate
of Mr. Miao Shuangda ( ᐷᕐɽ΋͛) (one of our Controlling Shareholders) and Shuangliang
Technology is our Controlling Shareholder, Wuxi Hundun is a connected person of our
Company. Furthermore, our non-executive Director Mr. Miao Wenbin ( ᐷ˖੸) is also a
director of Wuxi Hundun between November 2018 and November 2019 and since February
2021. Wuxi Hundun is principally engaged in the development, design and construction of
intelligent systems and cloud computing. The revenue of Wuxi Hundun for the year ended
31 December 2022 was approximately RMB54.4 million. For the years ended 31 December
2020, 2021 and 2022, our purchases of plant and equipment from Wuxi Hundun amounted to
CORNERSTONE INVESTOR
– 573 –


--- page 584 ---
approximately RMB308,000, RMB644,000 and RMB268,000, respectively, which mainly
represented a one-off purchase of a IT system and relevant services to support our heat service
operation. We became acquainted with Jiang Gang International through introduction of a
director of Wuxi Hundun. Except for (i) Jiangyin State-owned Financial Investment’s 3.5%
shareholding in the registered capital of Wuxi Hundun; and (ii) Jiangyin Xinzhengcheng
Energy Development Co., Ltd* (ʮ̡)( “Jiangyin Xinzhengcheng ”),
the registered capital of which being held as to 20% by Wuxi Hundun and 80% by an indirectly
wholly-owned subsidiary of State-owned Assets Supervision and Administration Office of
Jiangyin People’s Government* (܃there is no past or
present relationship (business or otherwise) between (i) the Cornerstone Investor, its
shareholders, directors, senior management and employees, or any of their respective
associates; and (ii) our Company, our subsidiaries, our Shareholders, Directors, senior
management and employees, or any of their respective associates. Jiangyin Xinzhengcheng was
newly-established in February 2023, it has no business operation as at the Latest Practicable
Date. The registered business scope of Jiangyin Xinzhengcheng is electricity generation,
electricity supply and electrical related business.
As confirmed by our Company, our Controlling Shareholders, Wuxi Hundun, Jiang Gang
International and Jiangyin State-owned Financial Investment, there is no benefit through Wuxi
Hundun to Jiang Gang International to facilitate the Cornerstone Placing. As confirmed by our
Company, our Controlling Shareholders and Jiangyin State-owned Financial Investment, there
is no benefit through the business arrangement/other relationship between our Controlling
Shareholders and Jiangyin State-owned Financial Investment to Jiang Gang International to
facilitate the Cornerstone Placing.
Jiang Gang International has obtained approval from Jiangyin State-owned Financial
Investment to invest in our Company and Jiangyin State-owned Financial Investment has
obtained approval from its ultimate and beneficial owner with respect to Jiang Gang
International’s investment in our Company.
CORNERSTONE INVESTOR
– 574 –


--- page 585 ---
The tables below set forth the details of the Cornerstone Placing:
Based on the Offer Price of HK$3.00 (being the low-end of the indicative Offer Price
range)
Cornerstone
Investor
Total investment
amount (1)
Number
of Offer
Shares to be
subscribed (2)
Assuming the
Over-allotment Option
is not exercised
Assuming the
Over-allotment Option
is fully exercised
Approximate
%o ft h e
Offer Shares
Approximate
%o ft h e
total Shares
in issue
immediately
following the
completion
of Global
Offering
Approximate
%o ft h e
Offer Shares
Approximate
%o ft h e
total Shares
in issue
immediately
following the
completion
of Global
Offering
Jiang Gang
International RMB50,000,000 18,128,000 24.0 6.0 20.9 5.8
Notes:
1. Including brokerage, the SFC transaction levy, the AFRC transaction levy and the Stock Exchange
trading fee.
2. Rounded down to the nearest board lot of 1,000 H Shares.
Based on the Offer Price of HK$3.60 (being the mid-point of the indicative Offer Price
range)
Cornerstone
Investor
Total investment
amount (1)
Number
of Offer
Shares to be
subscribed (2)
Assuming the
Over-allotment Option
is not exercised
Assuming the
Over-allotment Option
is fully exercised
Approximate
%o ft h e
Offer Shares
Approximate
%o ft h e
total Shares
in issue
immediately
following the
completion
of Global
Offering
Approximate
%o ft h e
Offer Shares
Approximate
%o ft h e
total Shares
in issue
immediately
following the
completion
of Global
Offering
Jiang Gang
International RMB50,000,000 15,106,000 20.0 5.0 17.4 4.8
Notes:
1. Including brokerage, the SFC transaction levy, the AFRC transaction levy and the Stock Exchange
trading fee.
2. Rounded down to the nearest board lot of 1,000 H Shares.
CORNERSTONE INVESTOR
– 575 –


--- page 586 ---
Based on the Offer Price of HK$4.20 (being the high-end of the indicative Offer Price
range)
Cornerstone
Investor
Total investment
amount (1)
Number
of Offer
Shares to be
subscribed (2)
Assuming the
Over-allotment Option
is not exercised
Assuming the
Over-allotment Option
is fully exercised
Approximate
%o ft h e
Offer Shares
Approximate
%o ft h e
total Shares
in issue
immediately
following the
completion
of Global
Offering
Approximate
%o ft h e
Offer Shares
Approximate
%o ft h e
total Shares
in issue
immediately
following the
completion
of Global
Offering
Jiang Gang
International RMB50,000,000 12,948,000 17.1 4.3 14.9 4.1
Notes:
1. Including brokerage, the SFC transaction levy, the AFRC transaction levy and the Stock Exchange
trading fee.
2. Rounded down to the nearest board lot of 1,000 H Shares.
CLOSING CONDITIONS
The obligation of the Cornerstone Investor to subscribe the Offer Shares under the
Cornerstone Investment Agreement is subject to, among other things, the following closing
conditions:
(i) the Hong Kong Underwriting Agreement and the International Underwriting
Agreement being 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 the Hong Kong Underwriting Agreement and the International Underwriting
Agreement and neither of the aforesaid Underwriting Agreements having been
terminated;
(ii) the Offer Price having been agreed upon between the Company, the Sponsor-OC, the
Overall Coordinator and the Sole Global Coordinator (for themselves and on behalf
of the Underwriters);
CORNERSTONE INVESTOR
– 576 –


--- page 587 ---
(iii) the Listing Committee having granted the listing of, and permission to deal in, the
H Shares (including the Offer Shares to be subscribed by the Cornerstone Investor),
and that such approval, permission or waiver having not been revoked prior to the
commencement of dealings in the H Shares on the Stock Exchange;
(iv) no laws 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 Agreement and there shall be no orders or
injunctions from a court of competent jurisdiction in effect precluding or prohibiting
consummation of such transactions; and
(v) the respective representations, warranties, undertakings, confirmations and
acknowledgments of the Cornerstone Investor under the Cornerstone Investment
Agreement are (on the date of the relevant Cornerstone Investment Agreement) and
will be (on the Listing Date and delivery date, where applicable, the delayed
delivery date) accurate and true in all respects and not misleading and that there is
no breach of the Cornerstone Investment Agreement on the part of such Cornerstone
Investor and/or the wholly-owned subsidiaries of the Cornerstone Investor.
RESTRICTIONS ON THE CORNERSTONE INVESTOR
The Cornerstone Investor has agreed that without the prior written consent of each of our
Company, the Sponsor OC, the Overall Coordinator and the Sole Global Coordinator (for
themselves and on behalf of the Underwriters) and the Sole Sponsor, it will not, whether
directly or indirectly, at any time during the period of six months starting from and inclusive
of the Listing Date (the “ Lock-up Period ”), (i) dispose of, in any way, any of the Offer Shares
it/he has subscribed for pursuant to the Cornerstone Investment Agreement (the “ Cornerstone
Shares ”) or any interest in any company or entity holding any of such Cornerstone Shares; (ii)
allow itself to undergo a change of control (as defined in The Codes on Takeovers and Mergers
and Share Buy-backs promulgated by the SFC) at the level of its ultimate beneficial owner; (iii)
agree or contract to, or publicly announce any intention to enter into any of the foregoing
transactions; or (iv) enter into any transactions directly or indirectly with the same economic
effect as any aforesaid transaction (whether any of the foregoing transactions described in (i),
(ii) and (iii) above is to be settled in cash or by delivery of the Cornerstone Shares or such other
securities or otherwise), save for certain limited circumstances, such as transfers to any of
its/his wholly-owned subsidiaries/companies which will be bound by the same obligations of
such Cornerstone Investor, including the Lock-up Period restriction.
CORNERSTONE INVESTOR
– 577 –


--- page 588 ---
HONG KONG UNDERWRITERS
The Hong Kong Underwriters are:
Guotai Junan Securities (Hong Kong) Limited
Orient Securities (Hong Kong) Limited
CEB International Capital Corporation Limited
ABCI Securities Company Limited
China Galaxy International Securities (Hong Kong) Co., Limited
Kingsway Financial Services Group Limited
Livermore Holdings Limited
Fortune (HK) Securities Limited
Selina & Co. Limited
UNDERWRITING
This prospectus is published solely in connection with the Hong Kong Public Offering.
The Hong Kong Public Offering is fully underwritten by the Hong Kong Underwriters on a
conditional basis on the terms and conditions set out in this prospectus, the GREEN
Application Form relating thereto and the Hong Kong Underwriting Agreement. The
International Offering is expected to be fully underwritten by the International Underwriters.
If, for any reason, the Offer Price is not agreed upon between the Overall Coordinator and the
Sole Global Coordinator (for themselves and on behalf of the Underwriters and the Capital
Market Intermediaries) and our Company, the Global Offering will not proceed and will lapse.
The Global Offering comprises the Hong Kong Public Offering of initially 7,560,000
Hong Kong Offer Shares and the International Offering of initially 68,040,000 International
Offer Shares, subject, in each case, to reallocation on the basis as described in “Structure of
the Global Offering” in this prospectus as well as to the Over-allotment Option in the case of
the International Offering.
UNDERWRITING
– 578 –


--- page 589 ---
UNDERWRITING ARRANGEMENTS AND EXPENSES
Hong Kong Public Offering
Hong Kong Underwriting Agreement
The Hong Kong Underwriting Agreement was entered into on Tuesday, 27 June 2023. As
described in the Hong Kong Underwriting Agreement, we are offering initially 7,560,000 Hong
Kong Offer Shares for subscription by the public in Hong Kong on the terms and subject to the
conditions set out in this prospectus and the GREEN Application Form. Subject to the Listing
Committee granting the listing of, and permission to deal in, our H Shares to be issued as
mentioned herein, and subject to 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 which are being offered but are not taken up under the Hong Kong Public
Offering on the terms and conditions of this prospectus and the GREEN Application Form
relating thereto and the Hong Kong Underwriting Agreement.
The Hong Kong Underwriting Agreement is conditional upon and subject to (among other
things) the International Underwriting Agreement having been signed and becoming
unconditional and not having been terminated in accordance with its terms.
Grounds for termination
The obligations of the Hong Kong Underwriters to subscribe or procure subscribers to
subscribe for the Hong Kong Offer Shares under the Hong Kong Underwriting Agreement will
be subject to termination with immediate effect by notice from the Sole Sponsor, the
Sponsor-OC, the Overall Coordinator and/or the Sole Global Coordinator (for themselves and
on behalf of the Hong Kong Underwriters and the Capital Market Intermediaries) if at any time
prior to 8:00 a.m. on the Listing Date any of the following events shall occur:
(a) there develops, occurs, exists or comes into effect:
(i) any change or prospective change (whether or not permanent) in the business
or in the business or in the financial or trading position of the Group; or
(ii) any event, circumstance, or series of events, in the nature of force majeure
(including, without limitation, any acts of government, declaration of a local,
national, regional or international emergency or war, political change,
calamity, crisis, epidemic, pandemic, outbreaks, escalation, adverse mutation
or aggravation of diseases (including, without limitation, COVID-19 (and such
related/mutated form), Severe Acute Respiratory Syndrome (SARS), swine or
avian flu, H5N1, H1N1, H7N9, Ebola virus, Middle East respiratory syndrome
and such related/mutated forms), comprehensive sanctions, strikes, lock-outs,
other industrial actions, fire, explosion, flooding, earthquake, tsunami,
volcanic eruption, civil commotion, riots, rebellion, public disorder, acts of
war, outbreak or escalation of hostilities (whether or not war is declared), acts
of God, acts of terrorism (whether or not responsibility has been claimed),
paralysis in government operations, interruptions or accidents or delay in
transportation) or other state of emergency in whatever form, in or affecting,
directly or indirectly, the Hong Kong, the PRC, the United States, the United
Kingdom, the European Union (or any member thereof), Japan, Singapore or
any other jurisdiction relevant to our Group (collectively, the “ Relevant
Jurisdictions ” and each a “ Relevant Jurisdiction ”); or
UNDERWRITING
– 579 –


--- page 590 ---
(iii) any change or development involving a prospective change or development, or
any event, circumstance or series of events likely to result in or representing
any change or development involving a prospective change, in local, national,
regional or international financial, economic, political, military, industrial,
fiscal, legal, regulatory, currency, credit or market matters or conditions, equity
securities or exchange control or any monetary or trading settlement system or
other financial markets (including, without limitation, conditions in the stock
and bond markets, money and foreign exchange markets, the interbank markets
and credit markets), in or affecting any Relevant Jurisdiction; or
(iv) 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 generally on the Stock Exchange, the New
York Stock Exchange, the NASDAQ Global Market, the Tokyo Stock
Exchange, the London Stock Exchange, the Shenzhen Stock Exchange and the
Shanghai Stock Exchange; or
(v) any general moratorium on commercial banking activities in Hong Kong
(imposed by the Financial Secretary or the Hong Kong Monetary Authority or
other competent administrative, governmental or regulatory commission,
board, body, authority or agency, or any stock exchange (including, without
limitation, the Stock Exchange, the SFC and the CSRC), self-regulatory
organisation or other non-governmental regulatory authority, or any court,
tribunal or arbitrator, in each case whether national, central, federal,
provincial, state, regional, municipal, local, domestic or foreign
(“Authority ”)), New York (imposed at Federal or New York State level or
other competent Authority), London, the PRC, the European Union (or any
member thereof), Japan, Singapore or any of the other Relevant Jurisdictions
or any disruption in commercial banking or foreign exchange trading or
securities settlement or clearance services, procedures or matters in or
affecting any of the Relevant Jurisdictions; or
(vi) any deterioration of any pre-existing local, national, regional or international
financial, economic, political, military, industrial, fiscal, legal, regulatory,
currency, credit or market matters or conditions in or affecting any of the
Relevant Jurisdictions;
(vii) any new law or regulation or any change or development involving a
prospective change in existing law or regulation or any event or circumstance
resulting in a change or development involving a prospective change in the
interpretation or application thereof by any court or other competent Authority
in or affecting any of the Relevant Jurisdictions; or
(viii) the imposition of comprehensive sanctions or the withdrawal of trading
privileges which existed on the date of the Hong Kong Underwriting
Agreement in whatever form, directly or indirectly, by, or for, in Hong Kong,
the PRC or any of the Relevant Jurisdictions; or
UNDERWRITING
– 580 –


--- page 591 ---
(ix) any change or development involving a prospective change or amendment in
or affecting taxation or exchange control, currency exchange rates or foreign
investment regulations (including, without limitation, a material devaluation of
the Hong Kong dollar or the Renminbi against any foreign currencies), or a
change in the system under which the value of the Hong Kong dollar is linked
to that of the United States dollar or Renminbi is linked to any foreign currency
or currencies), or the implementation of any exchange control, in any of the
Relevant Jurisdictions or affecting an investment in the Offer Shares; or
(x) any litigation, dispute legal action, claim regulatory investigation or action
being threatened or instigated or announced against any member of our Group
any Director, any Supervisor or any Controlling Shareholder; or
(xi) an Authority or a political body or organisation in any of the Relevant
Jurisdictions commencing any investigation or other action, or announcing an
intention to investigate or take other action, against any Director; or
(xii) a contravention by any member of our Group or any Director or Supervisor of
any applicable laws including the Listing Rules; or
(xiii) any material loss or damage sustained by any member of our Group; or
(xiv) any change or prospective change or development, or any materialisation of
any of the risks set out in “Risk Factors” in this prospectus; or
(xv) any non-compliance of this prospectus (or any other documents used in
connection with the contemplated offer and sale of the H Shares) or any aspect
of the Global Offering with the Listing Rules or any other applicable law; or
(xvi) other than with the prior written consent of the Overall Coordinator and Sole
Global Coordinator, the issue or requirement to issue by our Company of any
supplement or amendment to this prospectus or the GREEN Application Form
(or to any other documents used in connection with the contemplated offer and
sale of the H Shares) pursuant to the Companies Ordinance, the Companies
(Winding Up and Miscellaneous Provisions) Ordinance or the Listing Rules or
any other applicable laws or any requirement or request of the Stock Exchange,
the SFC and/or the CSRC; or
UNDERWRITING
– 581 –


--- page 592 ---
which, individually or in the aggregate, in the sole and absolute opinion of the Sole
Sponsor, the Sponsor-OC, the Overall Coordinator and the Sole Global Coordinator
(for themselves and on behalf of the Joint Bookrunners, the Joint Lead Managers,
the Co-Managers, the Hong Kong Underwriters and the Capital Market
Intermediaries) or any of them:
(1) has or will or may have a material adverse effect on the assets, liabilities,
business, trading position, earnings, general affairs, management, prospects,
shareholders’ equity, profits, losses, results of operations, performance,
position or condition, financial, operational or otherwise, of any member of our
Group; or
(2) has or will have or may have a material adverse effect on the success or
marketability of the Global Offering or the level of applications under the
Hong Kong Public Offering or the level of interest or the distribution of the
Offer Shares under the International Offering; or
(3) makes or will make or may make it inadvisable or inexpedient or impracticable
or incapable or not commercially viable for the Global Offering to proceed or
to market the Global Offering or the delivery or distribution of the Offer Shares
on the terms and in the manner contemplated by the offering documents for the
Global Offering; or
(4) has or will have or may have the effect of making any part of the Hong Kong
Underwriting Agreement (including underwriting) incapable of performance in
accordance with its terms or preventing or delaying the processing of
applications and/or payments pursuant to the Global Offering or pursuant to
the underwriting thereof; or
(b) any of the Sole Sponsor, the Sponsor-OC, the Overall Coordinator and the Sole
Global Coordinator for themselves and on behalf of the Joint Bookrunners, the Joint
Lead Managers, the Co-Managers, the Hong Kong Underwriters and the Capital
Market Intermediaries) shall become aware of the fact that:
(i) any statement contained in any of this prospectus, the GREEN Application
Form, the formal notice, the overall coordinator announcement, the disclosure
package, the preliminary offering circular, the final offering circular, the Price
Determination Agreement, the cornerstone investment agreement (as described
in “Cornerstone Investor” in this prospectus), the receiving bank agreement,
the H Share Registrar agreement, the Deed of Indemnity and/or in any notices,
announcements, advertisements, communications or other documents
(including any announcement, circular, document or other communication
pursuant to the Hong Kong Underwriting Agreement) issued or used by or on
behalf of our Company in connection with the Global Offering (including any
supplement or amendment thereto) the “ Offer Related Documents ”) was,
UNDERWRITING
– 582 –


--- page 593 ---
when it was issued, or has become, untrue, incorrect or incomplete in any
material respect or misleading or deceptive in any respect, or that any forecast,
estimate, expression of opinion, intention or expectation contained in any such
documents is not fair and honest and not based on reasonable assumptions or
reasonable grounds in any material respect; or
(ii) any matter has arisen or has been discovered which would, had it arisen or been
discovered immediately before the date of this prospectus, constitute an
omission from, or misstatement in, any of the Offer Related Documents; or
(iii) any material adverse change or any development involving a prospective
material adverse change (whether or not permanent) in the assets, liabilities,
business, trading position, earnings, general affairs, management, prospects,
shareholders’ equity, profits, losses, results of operations, performance,
position or condition, financial, operational or otherwise, of any member of our
Group; or
(iv) there is a breach of, or any event or circumstance rendering untrue or incorrect
in any material respect or misleading, any of the warranties given under the
Hong Kong Underwriting Agreement or the International Underwriting
Agreement (including any supplement or amendment thereto) (other than any
such breach thereof by the Sole Sponsor, the Sponsor-OC, the Overall
Coordinator, the Hong Kong Underwriters or the Capital Market
Intermediaries); or
(v) any event, act or omission which gives or is likely to give rise to any liability
of any of the indemnifying parties pursuant to the Hong Kong Underwriting
Agreement; or
(vi) the approval by the CSRC and the Listing Committee of the Stock Exchange
of the listing of, and permission to deal in, the H Shares to be issued or sold
(including any additional H Shares that may be issued or sold pursuant to the
exercise of the Over-allotment Option) under the Global Offering is refused or
not granted, other than subject to customary conditions, on or before the date
of the Listing, or if granted, the approval is subsequently withdrawn, cancelled,
qualified (other than customary conditions), revoked or withheld; or
(vii) our Company withdraws this prospectus (and/or any other Offer Related
Documents) or the Global Offering; or
(viii) any expert (other than the Sole Sponsor) named in this prospectus has
withdrawn its consent to being named therein, or any person has withdrawn its
consent to the issue of the Hong Kong Prospectus with the inclusion of its
report, letters, and/or opinions (as the case may be) and references to its name
included in the form and context in which it respectively appears; or
UNDERWRITING
– 583 –


--- page 594 ---
(ix) there is a prohibition on our Company for whatever reason from offering,
allotting, issuing or selling any of the Offer Shares (including pursuant to any
exercise of the Over-allotment Option) pursuant to the terms of the Global
Offering; or
(x) any Director, Supervisor or member of senior management of our Company (as
disclosed in this prospectus) is vacating his or her office; or
(xi) any Director, Supervisor or member of senior management of our Company (as
disclosed in this prospectus) is being charged with an indictable offence or is
prohibited by operation of law or otherwise disqualified from taking part in the
management of a company, or there is the commencement by any
governmental, political or regulatory body of any investigation or other action
against any Director, supervisor or member of senior management of our
Company (as disclosed in this prospectus) in his or her capacity as such, or an
announcement by any governmental, political or regulatory body that it intends
to commence any such investigation or take any such action; or
(xii) a significant portion of the orders placed or confirmed in the book building
process have been withdrawn, terminated or cancelled; or
(xiii) any valid demand by any creditor for repayment or payment of any of our
Group’s indebtedness or an order or petition for the winding up or liquidation
of any member of our Group or any composition or arrangement made by any
member of our Group with its creditors or a scheme of arrangement entered
into by any member of the Group or any resolution for the winding-up of any
member of our Group or the appointment of a provisional liquidator, receiver
or manager over all or part of the assets or undertaking of any member of our
Group or anything analogous thereto occurring in respect of any member of our
Group; or
(xiv) that the investment commitments by the cornerstone investor after signing of
the cornerstone investment agreement (as described in “Cornerstone Investor”
in this prospectus) have been withdrawn, terminated, cancelled or otherwise
not fulfilled.
UNDERWRITING
– 584 –


--- page 595 ---
Undertakings to the Stock Exchange pursuant to the Listing Rules
Undertakings by us
Pursuant to Rule 10.08 of the Listing Rules our Company has undertaken to the Stock
Exchange that, except pursuant to the Global Offering (including pursuant to the Over-
allotment Option) or in certain circumstances provided under Rules 10.08(1) to 10.08(4) of the
Listing Rules, no further shares or securities convertible into equity securities of our Company
(whether or not of a class already listed) may be issued or form the subject of any agreement
to such 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).
Undertakings by our Controlling Shareholders
Pursuant to Rule 10.07 of the Listing Rules, each of our Controlling Shareholders has
undertaken to us that except pursuant to the Global Offering and the Over-allotment Option,
it/he shall not:
(a) in the period commencing on the date by reference to which disclosure of its/his
shareholding in our Company is made in this prospectus and ending on the date
which is six months from the Listing Date (the “ First Six-month Period ”), 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 securities of the Company that
it/he is shown to, beneficially own in this prospectus (the “ Parent Shares ”); or
(b) in the period of a further six months commencing on the date on which the First
Six-month Period expires (the “ Second Six-month Period ”), 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 Parent Shares if, immediately following such
disposal or upon the exercise or enforcement of such options, rights, interests or
encumbrances, it/he will cease to be a controlling shareholder (as defined in the
Listing Rules) of our Company or a member of a group of the Controlling
Shareholders of our Company or would together with the other Controlling
Shareholders cease to be “Controlling Shareholders” (as defined in the Listing
Rules) of our Company.
According to Note (2) to Rule 10.07(2) of the Listing Rules, nothing in Rule 10.07 shall
prevent the Controlling Shareholders from using securities of our Company beneficially owned
by him/it as security (including a charge or pledge) in favour of an authorised institution (as
defined in the Banking Ordinance (Chapter 155 of the Laws of Hong Kong) (“ Banking
Ordinance ”)) for a bona fide commercial loan.
UNDERWRITING
– 585 –


--- page 596 ---
Further, pursuant to Note (3) to Rule 10.07(2) of the Listing Rules, each of our
Controlling Shareholders has undertaken to (among others) us and the Stock Exchange that,
during the First Six-month Period and the Second Six-month Period, he or it will:
(a) when he or it pledges or charges any of our securities beneficially owned by him/it
in favour of an authorised institution (as defined in the Banking Ordinance) for a
bona fide commercial loan pursuant to Note (2) to Rule 10.07(2) of the Listing
Rules, immediately inform us of such pledge or charge together with the number of
securities so pledged or charged; and
(b) when he/it receives indications, either verbal or written, from the pledgee or chargee
that any of our pledged or charged securities will be disposed of, immediately
inform us of such indications.
We will also inform the Stock Exchange as soon as we have been informed of the above
matters (if any) by the Controlling Shareholders (or its respective shareholders) and disclose
such matters by way of an announcement as required under the Listing Rules as soon as
possible after being so informed by any of the Controlling Shareholders (or its respective
shareholders).
Undertakings pursuant to the Hong Kong Underwriting Agreement
Undertakings by our Company
Pursuant to the Hong Kong Underwriting Agreement, our Company has undertaken to
each of the Sole Sponsor, Sponsor-OC, Overall Coordinator, Sole Global Coordinator, Joint
Bookrunners, Joint Lead Managers, Co-Managers and the Hong Kong Underwriters that, and
our Controlling Shareholders have agreed to procure that, except for the offer and sale of the
Offer Shares pursuant to the Global Offering (including pursuant to the Over-allotment
Option), during the period commencing on the date of the Hong Kong Underwriting Agreement
and ending on, and including, the date that is six months after the Listing Date (the “ First
Half-Y ear Period ”), our Company will not, and will procure each other member of our Group
not to, without the prior written consent of the Sole Sponsor, Sponsor-OC, Overall Coordinator
and the Sole Global Coordinator (for themselves and on behalf of the Hong Kong Underwriters
and the Capital Market Intermediaries) and unless in compliance with the requirements of the
Listing Rules:
(a) allot, issue, sell, accept subscription for, offer to allot, issue or sell, contract or agree
to allot, issue or sell, mortgage, charge, pledge, 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 any mortgage, charge, pledge, lien or other security interest or
any option, restriction, right of first refusal, right of pre-emption or other third party
claim, right, interest or preference or any other encumbrance of any kind
(“Encumbrance ”) over, or agree to transfer or dispose of or create an Encumbrance
over, either directly or indirectly, conditionally or unconditionally, any H Shares or
any other securities of our Company or any shares or other securities of such other
UNDERWRITING
– 586 –


--- page 597 ---
member of our Group, 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 H Shares or any shares of such other member of our Group, as
applicable); or
(b) enter into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of H Shares or any other
securities of our Company or any shares or other securities of such other member of
our Group, 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 H
Shares or any shares of such other member of our Group, as applicable); or
(c) enter into any transaction with the same economic effect as any transaction specified
in paragraph (a) or (b) above; or
(d) offer to or agree to or announce any intention to effect any transaction specified in
paragraph (a), (b) or (c) above,
in each case, whether any of the transactions specified in paragraph (a), (b) or (c) above is to
be settled by delivery of H Shares or such other securities of our Company or shares or other
securities of such other member of our Group, as applicable, or in cash or otherwise (whether
or not the issue of H Shares or such other securities will be completed within the First
Half-Year Period).
Further, in the event that, during the period of six months commencing on the date on
which the First Half-year Period expires (the “ Second Half-Y ear Period ”), our Company
enters into any of the transactions specified in paragraph (a), (b) or (c) above or offers to or
agrees to or announces any intention to effect any such transaction, our Company shall take all
reasonable steps to ensure that it will not create a disorderly or false market in the securities
of our Company.
Undertakings by our Controlling Shareholders
Pursuant to the Hong Kong Underwriting Agreement, each of our Controlling
Shareholders has undertaken to each of our Company, the Sole Sponsor, the Sponsor-OC, the
Overall Coordinator, the Sole Global Coordinator, the Joint Bookrunners, the Joint Lead
Managers, the Co-Managers, the Hong Kong Underwriters and the Capital Market
Intermediaries, that except pursuant to the Global Offering (including the issue of H Shares
pursuant to the exercise of the Over-allotment Option) without the prior written consent of the
Sole Sponsor, the Sponsor-OC, the Overall Coordinator and the Sole Global Coordinator (for
themselves and on behalf of the Hong Kong Underwriters and the Capital Market
Intermediaries) and unless in compliance with the requirements of the Listing Rules:
(a) it/he/she will not, and will procure that the relevant registered holder(s) will not, at
any time during the First Half-Year Period:
UNDERWRITING
– 587 –


--- page 598 ---
(i) sell, offer to sell, contract or agree to sell, mortgage, charge, pledge,
hypothecate, lend, grant or sell any option, warrant, contract or right to
purchase, grant or purchase any option, warrant, contract or right to sell, or
otherwise transfer or dispose of or create an Encumbrance over, or agree to
transfer or dispose of or create an Encumbrance over, either directly or
indirectly, conditionally or unconditionally, any H Shares or any other
securities of our Company or any interest therein (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 H Shares, or any such other securities or any interest in any of the
foregoing, as applicable) (the “ Relevant Shares ”) or any interest in any
company or entity holding, directly or indirectly, any of the Relevant Shares
(the “ Holding Entity ”); 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 of the Relevant Shares
or an interest in any Holding Entity; or
(iii) enter into any transaction with the same economic effect as any transaction
specified in paragraph (i) or (ii) above; or
(iv) offer to or agree to or announce any intention to effect any transaction
specified in paragraph (i), (ii) or (iii) above;
in each case, whether any of the transactions specified in (i), (ii) or (iii) above is to
be settled by delivery of H Shares or such other securities of our Company or shares
or other securities of such other member of our Group, as applicable, or in cash or
otherwise (whether or not the issue of H Shares or such other securities will be
completed within the First Half-Year Period);
(b) it/he/she will not and will procure that the relevant registered holder(s) will not,
during the Second Half-Year Period, enter into any of the transactions specified in
paragraph (a) (i), (ii) or (iii) above or offer to or agree to or announce any intention
to effect any such transaction if, immediately following any sale, transfer or disposal
or upon the exercise or enforcement of any option, right, interest or Encumbrance
pursuant to such transaction, it/he/she will cease to be a “controlling shareholder”
(as the term is defined in the Listing Rules) of our Company; and
(c) until the expiry of the Second Half-Year period, in the event that it/he/she enters into
any of the transactions specified in paragraph (a) (i), (ii) or (iii) above or offers to
or agrees to or announces any intention to effect any such transaction, it/he/she will
take all reasonable steps to ensure that it/he/she will not create a disorderly or false
market in the securities of our Company.
UNDERWRITING
– 588 –


--- page 599 ---
Each of our Controlling Shareholders has further undertaken to each of the Company, the
Sole Sponsor, the Sponsor-OC, the Overall Coordinator, the Sole Global Coordinator, the Joint
Bookrunners, the Joint Lead Managers, the Co-Managers, the Hong Kong Underwriters and the
Capital Market Intermediaries that, within the period commencing on the date of this
prospectus and ending on the date which is 12 months after the Listing Date, it will
immediately inform the Company, the Sole Sponsor, the Sponsor-OC, the Overall Coordinator
and the Sole Global Coordinator of:
(i) any pledges or charges of any H Shares or other securities (including any interests
therein) of our Company beneficially owned by it, together with the number of H
Shares or other securities (including any interests therein) of our Company so
pledged or charged and the purpose for which such pledge or charge is to be created;
and
(ii) any indication received by it, either verbal or written, from the pledgee or chargee
of any H Shares or other securities (including any interests therein) of our Company
pledged or charged that such H Shares or other securities (including any interests
therein) of our Company so pledged or charged will be disposed of.
Our Company undertakes to each of the Sole Sponsor, the Sponsor-OC, the Overall
Coordinator, the Sole Global Coordinator, the Joint Bookrunners, the Joint Lead Managers, the
Co-Managers, the Hong Kong Underwriters and the Capital Market Intermediaries that upon
receiving such information in writing from any of the Controlling Shareholders it will, as soon
as practicable and if required pursuant to the Listing Rules, notify the Stock Exchange and
make a public disclosure in relation to such information by way of an announcement.
Indemnity
We, our Controlling Shareholders and our Executive Directors have agreed to indemnify
the Sole Sponsor, the Sponsor-OC, the Overall Coordinator, the Sole Global Coordinator, the
Joint Bookrunners, the Joint Lead Managers, the Co-Managers, the Hong Kong Underwriters
and the Capital Market Intermediaries for certain losses which they may suffer, including
losses incurred arising from their performance of their obligations under the Hong Kong
Underwriting Agreement and any breach by us, our Controlling Shareholders or our Executive
Directors of the Hong Kong Underwriting Agreement.
The International Offering
In connection with the International Offering, it is expected that our Company, our
Controlling Shareholders and our Executive Directors will enter into the International
Underwriting Agreement with the Sole Sponsor, the Sponsor-OC, the Overall Coordinator, the
Sole Global Coordinator, the International Underwriters and the Capital Market Intermediaries.
Under the International Underwriting Agreement, the International Underwriters would,
subject to certain conditions set out therein, severally and not jointly agree to purchase the
International Offer Shares or procure purchasers to purchase such International Offer Shares.
UNDERWRITING
– 589 –


--- page 600 ---
Over-allotment option
We will grant to the International Underwriters the Over-allotment Option, exercisable by
the Overall Coordinator and the Sole Global Coordinator on behalf of the International
Underwriters, to require us to offer up to an aggregate of 11,340,000 additional H Shares,
together representing 15% of the number of H Shares initially being offered under the Global
Offering, at the Offer Price to solely cover over-allocations in the International Offering, if any.
It is expected that the International Underwriting Agreement may be terminated on
similar grounds as the Hong Kong Underwriting Agreement. Potential investors should note
that if the International Underwriting Agreement is not entered into, or is terminated, the
Global Offering will not proceed.
Underwriting commission and expenses
The Underwriters will receive an underwriting commission equal to 3.0% of the aggregate
Offer Price of all the Offer Shares, including Offer Shares to be issued pursuant to the
Over-allotment Option (the “ Fixed Fees ”). Our Company may also, in its sole and absolute
discretion, pay to the Overall Coordinator and the Sole Global Coordinator (or any one of
them) an incentive fee of up to but not exceeding 1.5% of the aggregate Offer Price payable
in respect of all the Offer Shares (including Offer Shares to be issued pursuant to the
Over-allotment Option) (the “ Discretionary Fees ”). The ratio of Fixed Fees and Discretionary
Fees payable to all Underwriters is therefore approximately 66.7:33.3. For unsubscribed Hong
Kong Offer Shares reallocated to the International Offering, we will pay an underwriting
commission at the rate applicable to the International Offering and such commission will be
paid to the relevant International Underwriters (and not the Hong Kong Underwriters).
No additional fee will be payable by our Company to the Underwriters. The Sole Sponsor
will, in addition, receive a fee acting as the sponsor to the Listing and will be reimbursed for
its expenses.
Assuming the Over-allotment Option is not exercised at all and based on an Offer Price
of HK$3.60 per H Share (being the mid-point of the indicative Offer Price range stated in this
prospectus), the aggregate commissions and fees, together with the Listing fees, SFC
transaction levy, AFRC transaction levy, Stock Exchange trading fee, legal and other
professional and printing and other expenses, payable by our Company relating to the Global
Offering are estimated to be approximately HK$89.5 million. We will also pay for all expenses
in connection with any exercise of the Over-allotment Option.
Hong Kong Underwriters’ interests in our Company
Save for their respective obligations under the Hong Kong Underwriting Agreement
and/or the International Underwriting Agreement or as otherwise disclosed in this prospectus,
as at the Latest Practicable Date, 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 purchase, or to nominate persons to subscribe for or purchase, any securities in our
Company.
UNDERWRITING
– 590 –


--- page 601 ---
Following the completion of the Global Offering, the Hong Kong Underwriters and their
affiliated companies may hold a certain portion of the H Shares as a result of fulfilling their
obligations under the Hong Kong Underwriting Agreement and/or the International
Underwriting Agreement.
Independence of the Sole Sponsor
Guotai Junan Capital Limited satisfies the independence criteria applicable to sponsors as
set out in Rule 3A.07 of the Listing Rules.
Other services provided by the Underwriters
The Overall Coordinator, the Sole Global Coordinator, the Hong Kong Underwriters and
the Capital Market Intermediaries or their respective affiliates have, from time to time,
provided and expect to provide in the future investment banking and other services to our
Company and our respective affiliates, for which such Overall Coordinator Sole Global
Coordinator, Hong Kong Underwriters or their respective affiliates have received or will
receive customary fees and commissions.
ACTIVITIES BY SYNDICATE MEMBERS
The underwriters of the Hong Kong Public Offering and the International Offering and the
Capital Market Intermediaries (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 stabilising process.
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 relation
to the H Shares, those activities could include acting as agent for buyers and sellers of the H
Shares, entering into transactions with those buyers and sellers in a principal capacity,
proprietary trading in the H Shares, and entering into over the counter or listed derivative
transactions or listed and unlisted securities transactions (including issuing securities such as
derivative warrants listed on a stock exchange) which have as their underlying assets, assets
including the H Shares. Those activities may require hedging activity by those entities
involving, directly or indirectly, the buying and selling of the H 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 H Shares, in baskets of
securities or indices including the H Shares, in units of funds that may purchase the H Shares,
or in derivatives related to any of the foregoing.
In relation to issues by Syndicate Members or their affiliates of any listed securities
having the H 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 H Shares in most cases.
UNDERWRITING
– 591 –


--- page 602 ---
All such activities may occur both during and after the end of the stabilising period
described in “Structure of the Global Offering” in this prospectus. Such activities may affect
the market price or value of the H Shares, the liquidity or trading volume in the H Shares and
the volatility of the price of the H 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 Stabilising Manager or any person acting for
it) must not, in connection with the distribution of the Offer Shares, effect any
transactions (including issuing or entering into any option or other derivative
transactions relating to the Offer Shares). Whether in the open market or otherwise,
with a view to stabilising 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
– 592 –


--- page 603 ---
THE GLOBAL OFFERING
This prospectus is published in connection with the Hong Kong Public Offering which
forms part of the Global Offering. The Global Offering comprises:
(i) the Hong Kong Public Offering of 7,560,000 H Shares (subject to reallocation) in
Hong Kong as described in “– Hong Kong Public Offering” in this section below;
and
(ii) the International Offering of 68,040,000 H Shares, consisting of the offering of our
H Shares outside the United States in reliance on Regulation S under the U.S.
Securities Act. At any time from the Listing Date until 30 days after the last day for
lodging of applications in the Hong Kong Public Offering, the Overall Coordinator
and the Sole Global Coordinator, as representative of the International Underwriters
and the Capital Market Intermediaries, have an option to require our Company to
allot and issue up to 11,340,000 additional H Shares, representing approximately
15% of the Offer Shares initially available under the Global Offering, at the Offer
Price to cover over-allocations in the International Offering, if any. If the
Over-allotment Option is exercised in full, the Offer Shares will represent
approximately 27.8% of our Company’s enlarged share capital 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, a press
announcement will be made.
Investors may either apply for Offer Shares under the Hong Kong Public Offering or
apply for or indicate an interest for Offer Shares under the International Offering, but may not
do both.
The Offer Shares will represent approximately 25.07% of the enlarged issued share
capital of our Company immediately after the completion of the Global Offering without taking
into account the exercise of the Over-allotment Option. If the Over-allotment Option is
exercised in full, the Offer Shares will represent approximately 27.8% of the enlarged issued
share capital immediately after the completion of the Global Offering and the exercise of the
Over-allotment Option as set out in “– International Offering – Over-allotment Option” below.
The number of Offer Shares to be offered under the Hong Kong Public Offering and the
International Offering may be subject to reallocation as set out in “– Hong Kong Public
Offering – Reallocation” in this section.
STRUCTURE OF THE GLOBAL OFFERING
– 593 –


--- page 604 ---
CONDITIONS OF THE GLOBAL OFFERING
Acceptance of all applications for Offer Shares pursuant to the Global Offering will be
conditional on, among others:
(i) the Listing Committee granting the listing of, and permission to deal in, the Offer
Shares to be issued pursuant to the Global Offering (including the additional H
Shares which may be issued pursuant to the exercise of the Over-allotment Option)
(subject only to allotment) and such listing and permission not subsequently having
been revoked prior to the commencement of dealing in our H Shares on the Stock
Exchange;
(ii) the Offer Price having been fixed on or around the Price Determination Date;
(iii) the execution and delivery of the International Underwriting Agreement on or
around the Price Determination Date; and
(iv) the obligations of the Underwriters and the Capital Market Intermediaries under
each of the Hong Kong Underwriting Agreement and the International Underwriting
Agreement becoming and remaining unconditional and not having been terminated
in accordance with the terms of the respective agreements or otherwise.
If, for any reason, the Offer Price is not agreed between the Overall Coordinator and
the Sole Global Coordinator (for themselves and on behalf of the Underwriters and the
Capital Market Intermediaries) and our Company by 12:00 noon on Friday, 7 July 2023,
the Global Offering will not proceed and will lapse.
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. We will
cause a notice of the lapse of the Hong Kong Public Offering to be published on our website
(http://www.hjkj.cn ) and the Stock Exchange’s website ( www.hkexnews.hk ) on the next
Business Day following such lapse. In such eventuality, all application monies will be returned,
without interest, on the terms set out in “How to Apply for Hong Kong Offer Shares” in this
prospectus. In the meantime, all application monies will be held in separate bank account(s)
with the receiving bank(s) or other bank(s) in Hong Kong licensed under the Banking
Ordinance (Chapter 155 of the Laws of Hong Kong) (as amended from time to time).
Share certificates for the Hong Kong Offer Shares are expected to be issued on
Friday, 7 July 2023 but will only become valid evidence of title at 8:00 a.m. on Monday,
10 July 2023 provided that (i) the Global Offering has become unconditional in all
respects; and (ii) the right of termination as described in “Underwriting – Underwriting
Arrangements and Expenses – Hong Kong Public Offering – Hong Kong Underwriting
Agreement – Grounds for termination” has not been exercised. Investors who trade H
Shares prior to the receipt of share certificates or prior to the share certificates bearing
valid evidence of title do so entirely at their own risk.
STRUCTURE OF THE GLOBAL OFFERING
– 594 –


--- page 605 ---
HONG KONG PUBLIC OFFERING
Number of Offer Shares initially offered
Our Company is initially offering 7,560,000 H Shares for subscription by the public in
Hong Kong at the Offer Price, representing 10% of the total number of Offer Shares initially
available under the Global Offering (assuming that the Over-allotment Option is not
exercised). The Hong Kong Offer Shares will represent approximately 2.5% of our Company’s
enlarged share capital immediately after completion of the Global Offering, assuming that 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
“– Conditions of the Global Offering” in this section.
Allocation
Allocation of 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. The allocation of Hong Kong Offer Shares 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 that those
applicants who are not successful in the ballot may not receive any Hong Kong Offer Shares.
The total number of the Offer Shares available under the Hong Kong Public Offering
(after taking into account any reallocation referred to below) is to be divided equally into two
pools for allocation purposes: pool A and for pool B with any odd board lots being allocated
to Pool A.
 Pool A: The Offer Shares in pool A will be allocated on an equitable basis to
applicants who have applied for Offer Shares with an aggregate subscription price
of HK$5 million (excluding the brokerage, the Stock Exchange trading fee, the SFC
transaction levy and AFRC transaction levy payable) or less; and
 Pool B: The 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
subscription price of more than HK$5 million (excluding the brokerage, the Stock
Exchange trading fee, the SFC transaction levy and AFRC transaction levy payable)
and up to the value of pool B.
STRUCTURE OF THE GLOBAL OFFERING
– 595 –


--- page 606 ---
Investors should be aware that applications in pool A and applications in pool B may
receive different allocation ratios. If the Offer Shares in one (but not both) of the pools are
undersubscribed, the surplus Offer Shares will be transferred to the other pool to satisfy
demand in that pool and be allocated accordingly. For the purpose of this subsection only, the
“subscription price” for the Offer Shares means the price payable on application therefor
(without regard to the Offer Price as finally determined). Multiple or suspected multiple
applications and any application for more than 3,780,000 Hong Kong Offer Shares, being 50%
of the 7,560,000 Hong Kong Offer Shares are liable to be rejected.
Reallocation
The allocation of the Offer Shares between the Hong Kong Public Offering and the
International Offering is subject to adjustment. Paragraph 4.2 of Practice Note 18 of the Listing
Rules requires a clawback mechanism to be put in place which would have the effect of
increasing the number of Offer Shares under the Hong Kong Public Offering to a certain
percentage of the total number of Offer Shares to be offered under the Global Offering if
certain prescribed total demand levels are reached as further described below:
 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 of the number of Offer
Shares initially available under the Hong Kong Public Offering, then Offer Shares
will be reallocated to the Hong Kong Public Offering from the International
Offering so that the total number of Offer Shares available under the Hong Kong
Public Offering will be 22,680,000 Offer Shares, representing 30% of the Offer
Shares initially available under the Global Offering;
 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 of the number of Offer
Shares initially available under the Hong Kong Public Offering, then Offer Shares
will be reallocated to the Hong Kong Public Offering from the International
Offering so that the total number of Offer Shares available under the Hong Kong
Public Offering will be 30,240,000 Offer Shares, representing 40% of the Offer
Shares initially available under the Global Offering; and
 if the number of Offer Shares validly applied for under the Hong Kong Public
Offering represents 100 times or more of the number of Offer Shares initially
available under the Hong Kong Public Offering, then Offer Shares will be
reallocated to the Hong Kong Public Offering from the International Offering so that
the total number of Offer Shares available under the Hong Kong Public Offering will
be 37,800,000 Offer Shares, representing 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
Coordinator and the Sole Global Coordinator deems appropriate.
STRUCTURE OF THE GLOBAL OFFERING
– 596 –


--- page 607 ---
In addition, the Overall Coordinator and the Sole Global Coordinator may at its sole
absolute discretion reallocate Offer Shares from the International Offering to the Hong Kong
Public Offering to satisfy valid applications under the Hong Kong Public Offering. In
accordance with the Guidance Letter HKEX-GL91-18 issued by the Stock Exchange, if (a) the
International Offering is undersubscribed and the Hong Kong Public Offering is fully
subscribed or oversubscribed or (b) the International Offering is fully subscribed or
oversubscribed and the Hong Kong Public Offering is oversubscribed by less than 15 times of
the total number of Offer Shares initially available under the Hong Kong Public Offering, then
the Overall Coordinator and Sole Global Coordinator may only reallocate Offer Shares from
the International Offering to the Hong Kong Public Offering other than pursuant to Practice
Note 18 of the Listing Rules on the following conditions in accordance with Guidance Letter
HKEX-GL91-18 (the “ Allocation Cap ”):
(i) the maximum total number of Offer Shares available under the Hong Kong Public
Offering following such reallocation shall not be more than double the number of
Hong Kong Offer Shares initially available under the Hong Kong Public Offering
(i.e. 15,120,000 Offer Shares); and
(ii) the final Offer Price shall be fixed at the bottom of the indicative Offer Price range
stated in this Prospectus.
If the Hong Kong Public Offering is not fully subscribed for, the Overall Coordinator and
the Sole Global Coordinator may reallocate all or any unsubscribed Hong Kong Offer Shares
to the International Offering, in such proportions as the Overall Coordinator and the Sole
Global Coordinator deems appropriate. The Allocation Cap is not triggered.
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 Coordinator, subject to the Practice
Note 18 of the Listing Rules and the Allocation Cap (as applicable).
Details of any reallocation of Offer Shares between the Hong Kong Public Offering and
the International Offering will be disclosed in the results announcement of the Global Offering,
expected to be published on Friday, 7 July 2023.
Applications
Each applicant under the Hong Kong Public Offering will 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, and such applicant’s application is liable to be rejected if the said
undertaking and/or confirmation is breached and/or untrue (as the case may be) or it has been
or will be placed or allocated Offer Shares under the International Offering.
STRUCTURE OF THE GLOBAL OFFERING
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--- page 608 ---
The Listing of the Offer Shares on the Stock Exchange is sponsored by the Sole Sponsor.
Applicants under the Hong Kong Public Offering are required to pay, on application, the
maximum price of HK$4.20 per Offer Share in addition to any brokerage, SFC transaction levy,
AFRC transaction levy and Stock Exchange trading fee payable on each Offer Share. If the
Offer Price, as finally determined in the manner described in “– Price Determination of the
Global Offering” in this section, is less than the maximum price of HK$4.20 per H Share,
appropriate refund payments (including the brokerage, SFC transaction levy, AFRC transaction
levy and Stock Exchange trading fee attributable to the surplus application monies) will be
made to successful applicants, without interest. See “How to Apply for Hong Kong Offer
Shares” in this prospectus for further details.
References in this prospectus to applications, the GREEN Application Form, application
monies or the procedure for application relate solely to the Hong Kong Public Offering.
INTERNATIONAL OFFERING
Number of Offer Shares offered
Subject to reallocation as described above, the International Offering will consist of an
aggregate of 68,040,000 H Shares to be initially offered by us.
Allocation
The International Offering will include selective marketing of Offer Shares to
professional, institutional and other investors anticipated to have a sizeable demand for such
Offer Shares in Hong Kong and other jurisdictions outside the United States 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 “– Price Determination of the Global
Offering” in this section 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 of the Offer Shares on the Stock
Exchange. 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 our Company and our Shareholders as a whole.
The Overall Coordinator and the Sole Global Coordinator (for themselves and on behalf
of the Underwriters and the Capital Market Intermediaries) may require any investor who has
been offered 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
Coordinator and the Sole Global Coordinator so as to allow it to identify the relevant
application under the Hong Kong Public Offering and to ensure that it is excluded from any
application for Offer Shares under the Hong Kong Public Offering.
STRUCTURE OF THE GLOBAL OFFERING
– 598 –


--- page 609 ---
Over-allotment option
In connection with the Global Offering, we are expected to grant an Over-allotment
Option to the International Underwriters, exercisable at the sole discretion of the Overall
Coordinator and the Sole Global Coordinator on behalf of the International Underwriters and
the Capital Market Intermediaries.
Pursuant to the Over-allotment Option, the Overall Coordinator and the Sole Global
Coordinator has the right, exercisable at any time from the date of the International
Underwriting Agreement until 30 days from the date of the last day for the lodging of
applications under the Hong Kong Public Offering, to require our Company to allot and issue
up to 11,340,000 additional Offer Shares, representing approximately 15% of the initial Offer
Shares, at the same price per Offer Share under the International Offering to cover
over-allocation in the International Offering, if any. If the Over-allotment Option is exercised
in full, the additional Offer Shares will represent approximately 3.62% of our enlarged share
capital 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. The Overall Coordinator and the Sole Global Coordinator may
also cover any over-allocations by purchasing the H Shares in the secondary market or by a
combination of purchases in the secondary market and a partial exercise of the Over-allotment
Option. Any such secondary market purchase will be made in compliance with all applicable
laws, rules and regulations.
STABILISATION
Under the Securities and Futures (Price Stabilizing) Rules under the SFO, stabilisation
actions can be permitted only if the size of the Global Offering is equal to or more than
HK$100 million as described above. Stabilisation is a practice used by underwriters in some
markets to facilitate the distribution of securities. To stabilise, the underwriters may bid for, or
purchase, the new securities in the secondary market during a specified period of time to retard
and, if possible, prevent any decline in the market price of the securities below the offer price.
Such transactions may be effected in all jurisdictions where it is permitted to do so, in each
case in compliance with all applicable laws, rules and regulations, including those of Hong
Kong. In Hong Kong, activity aimed at reducing the market price is prohibited and the price
at which stabilisation is effected is not permitted to exceed the offer price.
In connection with the Global Offering, the Stabilising Manager and/or any of its
affiliates or any person acting for it, on behalf of the Underwriters and the Capital Market
Intermediaries, may over-allocate or effect short sales or any other stabilising transactions with
a view to stabilising or maintaining the market price of the H Shares at a level higher than that
which might otherwise prevail in the open market for a limited period of up to 30 calendar days
after the last day for the lodging of applications under the Hong Kong Public Offering. Short
sales involve the sale by the Stabilising Manager of a greater number of H 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 Stabilising Manager may
close out the covered short position by either exercising the Over-allotment Option to purchase
additional H Shares or purchasing H Shares in the open market. In determining the source of
STRUCTURE OF THE GLOBAL OFFERING
– 599 –


--- page 610 ---
the H Shares to close out the covered short position, the Stabilising Manager will consider, the
price of H Shares in the open market as compared to the price at which they may purchase
additional H Shares pursuant to the Over-allotment Option. Stabilising transactions consist of
certain bids or purchases made for the purpose of preventing or retarding a decline in the
market price of the H Shares while the Global Offering is in progress. Any market purchases
of the H 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 Stabilising
Manager or any person acting for it to conduct any such stabilising activity, which if
commenced, will be done at the absolute discretion of the Stabilising Manager and may be
discontinued at any time. Any such stabilising activity is required to be brought to an end
within 30 days of the last day for lodging of applications under the Hong Kong Public Offering.
The number of H Shares that may be over-allocated will not exceed the number of H
Shares that may be allotted and issued by our Company under the Over-allotment Option,
namely 11,340,000 H Shares, which is 15% of the H 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, stabilising activities must be carried out in accordance with the Securities
and Futures (Price Stabilizing) Rules (Chapter 571W of the Laws of Hong Kong). Stabilising
actions permitted pursuant to the Securities and Futures (Price Stabilizing) Rules (Chapter
571W of the Laws of Hong Kong) include:
(a) over-allocation for the purpose of preventing or minimising any reduction in the
market price;
(b) selling or agreeing to sell the H Shares so as to establish a short position in them for
the purpose of preventing or minimising any deduction in the market price;
(c) subscribing, or agreeing to subscribe, for the H Shares pursuant to the
Over-allotment Option in order to close out any position established under (a) or (b)
above;
(d) purchasing, or agreeing to purchase, the H Shares for the sole purpose of preventing
or minimising any reduction in the market price;
(e) selling the H Shares to liquidate a long position held as a result of those purchases;
and
(f) offering or attempting to do anything described in (b), (c), (d) and (e) above.
Stabilising actions by the Stabilising Manager, and/or 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 stabilisation.
STRUCTURE OF THE GLOBAL OFFERING
– 600 –


--- page 611 ---
As a result of effecting transactions to stabilise or maintain the market price of the H
Shares, the Stabilising Manager, and/or its affiliates or any person acting for it, may maintain
a long position in the H Shares. The size of the long position, and the period for which the
Stabilising Manager, or any person acting for it, will maintain the long position is at the
discretion of the Stabilising Manager and is uncertain. In the event that the Stabilising Manager
liquidates this long position by making sales in the open market, this may lead to a decline in
the market price of the H Shares.
Stabilising action by the Stabilising Manager, and/or its affiliates or any person acting for
it, is not permitted to support the price of the H Shares for longer than the stabilising period,
which begins on the day on which trading of the H Shares commences on the Stock Exchange
and ends on the thirtieth day after the last day for the lodging of applications under the Hong
Kong Public Offering. As a result, demand for the H Shares, and their market price, may fall
after the end of the stabilising period. These activities by the Stabilising Manager may
stabilise, maintain or otherwise affect the market price of the H Shares. As a result, the price
of the H Shares may be higher than the price that otherwise may exist in the open market. Any
stabilising action taken by the Stabilising Manager, or any person acting for it, may not
necessarily result in the market price of the H Shares staying at or above the Offer Price either
during or after the stabilising period. Bids for or market purchases of the H Shares by the
Stabilising Manager, or any person acting for it, may be made at a price at or below the Offer
Price and therefore at or below the price paid for the H Shares by purchasers. A public
announcement in compliance with the Securities and Futures (Price Stabilizing) Rules (Chapter
571W of the Laws of Hong Kong) will be made within seven days of the expiration of the
stabilising period.
PRICE DETERMINATION OF THE GLOBAL OFFERING
The Offer Price is expected to be fixed on the Price Determination Date, which is
expected to be on or around Monday, 3 July 2023, and in any event not later than 12:00 noon
on Friday, 7 July 2023, by agreement between the Overall Coordinator, the Sole Global
Coordinator (for themselves and on behalf of the Underwriters and the Capital Market
Intermediaries) and our Company.
The Offer Price will be not more than HK$4.20 per H Share and is expected to be not less
than HK$3.00 per H Share unless otherwise announced, as further explained below, not later
than the morning of the last day for lodging applications under the Hong Kong Public Offering.
Applicants under the Hong Kong Public Offering must pay, on application, the maximum Offer
Price of HK$4.20 per H Share, plus 1% brokerage, 0.0027% SFC transaction levy, 0.00015%
AFRC transaction levy and 0.00565% Stock Exchange trading fee.
STRUCTURE OF THE GLOBAL OFFERING
– 601 –


--- page 612 ---
Prospective investors should be aware that the Offer Price to be determined on the
Price Determination Date may be, but is not expected to be, lower than the indicative
Offer Price range stated in this prospectus.
The Overall Coordinator and the Sole Global Coordinator (for themselves and on behalf
of the Underwriters and the Capital Market Intermediaries) may, where considered appropriate,
based on the level of interest expressed by prospective professional, institutional and other
investors during the book-building process, and with the consent of our Company,reduce the
number of Offer Shares offered in the Global Offering and/or the indicative Offer Price range
below that stated in this prospectus 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, we 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 published on our website ( http://www.hjkj.cn ) and the Stock Exchange’s
website ( www.hkexnews.hk ) notices of the reduction in the number of Offer Shares being
offered under the Global Offering and/or the indicative Offer Price range. We will, as soon as
practicable following the decision to make such reduction, issue a supplemental prospectus
updating investors of the change in the number of Offer Shares being offered under the Global
Offering and/or the indicative Offer Price range, extend the period under which the Hong Kong
Public Offering was opened for acceptance to allow potential investors sufficient time to
consider their subscriptions or reconsider their submitted subscriptions, and give potential
investors who had applied for the Hong Kong Offer Shares the right to withdraw their
applications under the Hong Kong Public Offering. Upon issue of such a notice, the number
of Offer Shares offered in the Global Offering and/or the revised Offer Price range will be final
and conclusive and the Offer Price, if agreed upon by the Overall Coordinator, the Sole Global
Coordinator (for themselves and on behalf of the Underwriters and the Capital Market
Intermediaries) and our Company, will be fixed within such revised Offer Price range.
Applicants should have regard to the possibility that any announcement of a reduction in the
number of Offer Shares being offered under the Global Offering and/or the indicative Offer
Price range may not be made until the day which is the last day for lodging applications under
the Hong Kong Public Offering.
Such notice and supplemental prospectus 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 such
reduction. In the absence of any such notice and supplemental prospectus so published, the
number of Offer Shares will not be reduced and/or the Offer Price, if agreed upon by our
Company with the Overall Coordinator and the Sole Global Coordinator (for themselves and
on behalf of the Underwriters and the Capital Market Intermediaries), will under no
circumstances be set outside the Offer Price range as stated in this prospectus.
If you have already submitted an application for the Hong Kong Offer Shares before the
last day for lodging applications under the Hong Kong Public Offering, you will not be allowed
to subsequently withdraw your application. However, if the number of Offer Shares and/or the
Offer Price range is reduced, applicants 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.
STRUCTURE OF THE GLOBAL OFFERING
– 602 –


--- page 613 ---
The final Offer Price, the levels of indication of interest in the Global Offering, the results
of applications and the basis of allotment of Offer Shares under the Hong Kong Public
Offering, are expected to be announced on Friday, 7 July 2023 in the manner set out in “How
to Apply for Hong Kong Offer Shares – 11. Publication of Results” in this prospectus.
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 subject to our Company, the
Overall Coordinator and the Sole Global Coordinator (for themselves and on behalf of the
Underwriters and the Capital Market Intermediaries) agreeing on the Offer Price. Our
Company expects to enter into the International Underwriting Agreement relating to the
International Offering on the Price Determination Date. See “Underwriting” in this prospectus
for details of the underwriting arrangements.
References in this prospectus to application, the GREEN Application Form, application
monies or the procedure for applications relate solely to the Hong Kong Public Offering.
H SHARES WILL BE ELIGIBLE FOR CCASS
All necessary arrangements have been made enabling our H Shares to be admitted into
CCASS. If the Stock Exchange grants the listing of, and permission to deal in, our H Shares
and our Company complies with the stock admission requirements of HKSCC, our H Shares
will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in
CCASS with effect from the date of commencement of dealings in our 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.
DEALING ARRANGEMENTS
Assuming that the Hong Kong Public Offering becomes unconditional at or before 8:00
a.m. in Hong Kong on Monday, 10 July 2023, it is expected that dealings in our H Shares on
the Stock Exchange will commence at 9:00 a.m. on Monday, 10 July 2023. The H Shares will
be traded in board lots of 1,000 Shares. The stock code of the H Shares will be 2481.
STRUCTURE OF THE GLOBAL OFFERING
– 603 –


--- page 614 ---
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 Stock Exchange at
www.hkexnews.hk under the “ HKEXnews> New Listings> New Listing Information ”
section, and our website at www.hjkj.cn. If you require a printed copy of this
prospectus, you may download and print from the website addresses above.
The contents of the electronic version of this prospectus are identical to the printed
prospectus 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 prospectus is available online at the website
addresses above.
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 White Form eIPO service through the designated website at
www.eipo.com.hk ;o r
(2) apply through CCASS EIPO service to 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
HOW TO APPLY FOR HONG KONG OFFER SHARES
– 604 –


--- page 615 ---
(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
+852 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 at 1/F, One & Two Exchange Square, 8
Connaught Place, Central, Hong Kong by completing an input request.
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.
Our Company, the Overall Coordinator, the Sole Global Coordinator, the White Form
eIPO 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;
 have a Hong Kong address;
 are outside the United States, and are not a United States Person (as defined in
Regulation S); and
 are not a legal or natural person of the PRC.
If an application is made by a person under a power of attorney, the Overall Coordinator
and the Sole Global Coordinator may accept it at their discretion and on any conditions they
think fit, including evidence of the attorney’s authority.
The number of joint applicants may not exceed four and they may not apply by means of
White Form eIPO service for the Hong Kong Offer Shares.
HOW TO APPLY FOR HONG KONG OFFER SHARES
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--- page 616 ---
Unless permitted by the Listing Rules, you cannot apply for any Hong Kong Offer Shares
if you:
 are an existing beneficial owner of Shares in our Company and/or any of our
subsidiaries;
 are a Director, a supervisor or the chief executive officer of our Company and/or any
of our subsidiaries;
 are a close associate (as defined in the Listing Rules) of any of the above; or
 have been allocated or have applied for or indicated an interest in any International
Offer Shares or otherwise participate in the International Offering.
Items Required for the Application
If you apply for Hong Kong Offer Shares online through the White Form eIPO service,
you must:
 have a valid Hong Kong identity card number; and
 provide a valid e-mail address and a contact telephone number.
If you are applying for the Hong Kong Offer Shares online by instructing your broker or
custodian who is 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.
3. TERMS AND CONDITIONS OF AN APPLICATION
By applying through the application channels specified in this prospectus, among other
things, you:
(i) undertake to execute all relevant documents and instruct and authorise our
Company, the Overall Coordinator and/or the Sole Global Coordinator (or its agents
or nominees), as agents of our Company, to execute any documents for you and to
do on your behalf all things necessary to register any Hong Kong Offer Shares
allocated to you in your name or in the name of HKSCC Nominees as required by
the Articles;
(ii) agree to comply with the Companies Ordinance, the Companies (Winding Up and
Miscellaneous Provisions) Ordinance and the Articles;
(iii) confirm that you have read the terms and conditions and application procedures set
out in this prospectus, and agree to be bound by them;
HOW TO APPLY FOR HONG KONG OFFER SHARES
– 606 –


--- page 617 ---
(iv) confirm that you have received and read this prospectus and have only relied on the
information and representations contained in this prospectus in making your
application and will not rely on any other information or representations except
those in any supplement to this prospectus;
(v) confirm that you are aware of the restrictions on the Global Offering set out in this
prospectus;
(vi) agree that none of our Company, the Overall Coordinator, the Sole Global
Coordinator, the Sole Sponsor, the Sponsor-OC, the Underwriters, the Capital
Market Intermediaries, the White Form eIPO Service Provider, their respective
directors, officers, employees, partners, agents, advisers or any other parties
involved in the Global Offering is or will be liable for any information and
representations not in this prospectus (and any supplement to it);
(vii) undertake and confirm that you or the person(s) for whose benefit you have made
the application have not applied for or taken up, or indicated an interest for, and will
not apply for or take up, or indicate an interest for, any International Offer Shares
under the International Offering nor participated in the International Offering;
(viii) agree to disclose to our Company, our H Share Registrar, the receiving banks, the
Overall Coordinator, the Sole Global Coordinator, the Sole Sponsor, the Sponsor-
OC, the Underwriters, the Capital Market Intermediaries and/or their respective
advisers and agents any personal data which they may require about you and the
person(s) for whose benefit you have made the application;
(ix) if the laws of any place outside Hong Kong apply to your application, agree and
warrant that you have complied with all such laws and none of our Company, the
Overall Coordinator, the Sole Global Coordinator, the Sole Sponsor, the Sponsor-
OC, the Underwriters and the Capital Market Intermediaries nor any of their
respective officers or advisers will breach any law outside Hong Kong as a result of
the acceptance of your offer to purchase, or any action arising from your rights and
obligations under the terms and conditions contained in this prospectus;
(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;
HOW TO APPLY FOR HONG KONG OFFER SHARES
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--- page 618 ---
(xiv) agree to accept the Hong Kong Offer Shares applied for, or any lesser number
allocated to you under the application;
(xv) authorise our Company to place your name(s) or the name of the HKSCC Nominees,
on our Company’s register of members as the holder(s) of any Hong Kong Offer
Shares allocated to you, and our Company and/or its agents to send any share
certificate(s) and/or any e-Refund payment instructions and/or any refund cheque(s)
to you or the first-named applicant for joint application by ordinary post at your own
risk to the address stated on the application, unless you fulfil the criteria mentioned
in the paragraph headed “14. Despatch/Collection of Share Certificates and Refund
Monies – Personal Collection” below to collect share certificate(s)/or refund
cheque(s);
(xvi) declare and represent that this is the only application made and the only application
intended by you to be made to benefit you or the person for whose benefit you are
applying;
(xvii) understand that our Company, the Overall Coordinator and the Sole Global
Coordinator will rely on your declarations and representations in deciding whether
or not to make any allotment of any of the Hong Kong Offer Shares to you and that
you may be prosecuted for making a false declaration;
(xviii) (if the application is made for your own benefit) warrant that no other application
has been or will be made for your benefit by giving electronic application
instructions to HKSCC or to the White Form eIPO Service Provider by you or by
anyone as your agent or by any other person; and
(xix) (if you are making the application as an agent for the benefit of another person)
warrant that (i) no other application has been or will be made by you as agent for
or for the benefit of that person or by that person or by any other person as agent
for that person by giving electronic application instructions to HKSCC; and (ii)
you have due authority to give electronic application instructions on behalf of that
other person as their agent.
For the avoidance of doubt, our Company and all other parties involved in the preparation
of this document acknowledge that each applicant and 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).
HOW TO APPLY FOR HONG KONG OFFER SHARES
– 608 –


--- page 619 ---
4. MINIMUM APPLICATION AMOUNT AND PERMITTED NUMBERS
Your application through the White Form eIPO service or the CCASS EIPO service
must be for a minimum of 1,000 Hong Kong Offer Shares and in one of the numbers set out
in the following table. You are required to pay the amount next to the number you select.
Wise Living Technology Co., Ltd (ʮ̡)
(HK$4.20 per Hong Kong Offer Share)
NUMBER OF HONG KONG OFFER SHARES THAT MAY BE APPLIED FOR AND PAYMENTS
No. of Hong
Kong Offer
Shares
applied for
Amount
payable on
application
No. of Hong
Kong Offer
Shares
applied for
Amount
payable on
application
No. of Hong
Kong Offer
Shares
applied for
Amount
payable on
application
No. of Hong
Kong Offer
Shares
applied for
Amount
payable on
application
HK$ HK$ HK$ HK$
1,000 4,242.36 20,000 84,847.15 100,000 424,235.70 800,000 3,393,885.60
2,000 8,484.71 25,000 106,058.93 150,000 636,353.56 900,000 3,818,121.30
3,000 12,727.07 30,000 127,270.71 200,000 848,471.40 1,000,000 4,242,357.00
4,000 16,969.43 35,000 148,482.50 250,000 1,060,589.26 1,500,000 6,363,535.50
5,000 21,211.79 40,000 169,694.28 300,000 1,272,707.10 2,000,000 8,484,714.00
6,000 25,454.14 45,000 190,906.06 350,000 1,484,824.96 2,500,000 10,605,892.50
7,000 29,696.49 50,000 212,117.86 400,000 1,696,942.80 3,000,000 12,727,071.00
8,000 33,938.86 60,000 254,541.42 450,000 1,909,060.66 3,780,000
(1) 16,036,109.45
9,000 38,181.22 70,000 296,964.99 500,000 2,121,178.50
10,000 42,423.56 80,000 339,388.55 600,000 2,545,414.20
15,000 63,635.35 90,000 381,812.14 700,000 2,969,649.90
(1) Maximum number of Hong Kong Offer Shares you may apply for.
No application for any other number of the Hong Kong Offer Shares will be considered
and any such application is liable to be rejected.
5. APPLYING THROUGH WHITE FORM eIPO SERVICE
General
Individuals who meet the criteria as described in “– 2. Who Can Apply” in this section
above, may apply through the White Form eIPO service for the Hong Kong Offer Shares to
be allotted and registered in their own names through the designated website at
www.eipo.com.hk .
Detailed instructions for application through the White Form eIPO service are on the
designated website. If you do not follow the instructions, your application may be rejected and
may not be submitted to our Company. If you apply through the designated website, you
authorise the White Form eIPO Service Provider to apply on the terms and conditions in this
prospectus, as supplemented and amended by the terms and conditions of the White Form
eIPO service.
HOW TO APPLY FOR HONG KONG OFFER SHARES
– 609 –


--- page 620 ---
Time for submitting applications under the White Form eIPO service
You may submit your application through the White Form eIPO service or on the
designated website www.eipo.com.hk (24 hours daily, except on the last application day) from
9:00 a.m. on Wednesday, 28 June 2023 until 11:30 a.m. on Monday, 3 July 2023 and the latest
time for completing full payment of application monies in respect of such applications will be
12:00 noon on Monday, 3 July 2023 or such later time under “– 10. Effect of Bad Weather
and/or Extreme Conditions on the Opening of the Applications Lists” in this section.
No Multiple Applications
If you apply by means of the White Form eIPO service, once you complete payment in
respect of any electronic application instruction given by you or for your benefit through the
White Form eIPO 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 White Form eIPO 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.
If you are suspected of submitting more than one application through the White Form
eIPO service or by any other means, all of your applications are liable to be rejected.
Section 40 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance
For the avoidance of doubt, our Company and all other parties involved in the preparation
of this prospectus acknowledge that each applicant who gives or causes to give electronic
application instructions is a person who may be entitled to compensation under Section 40 of
the Companies (Winding Up and Miscellaneous Provisions) Ordinance (as applied by Section
342E of the Companies (Winding Up and Miscellaneous Provisions) Ordinance).
6. APPLYING THROUGH 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 money due on application and payment of
refunds under their participant agreements with HKSCC and the General Rules of CCASS and
the CCASS Operational Procedures.
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 at https://ip.ccass.com (using the procedures in HKSCC’s “An
Operating Guide for Investor Participants” in effect from time to time).
HOW TO APPLY FOR HONG KONG OFFER SHARES
– 610 –


--- page 621 ---
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 authorised HKSCC and/or HKSCC Nominees to transfer the
details of your application to our Company, the Sole Sponsor, the Sponsor-OC, the Overall
Coordinator, the Sole Global Coordinator and our H Share Registrar.
Applying through CCASS EIPO service
Where you have given electronic application instructions to apply for the Hong Kong
Offer Shares 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 of this prospectus;
(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;
 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 instructions 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 authorised to give those instructions as their agent;
HOW TO APPLY FOR HONG KONG OFFER SHARES
–6 1 1–


--- page 622 ---
 confirm that you understand that our Company, our Directors, the Overall
Coordinator and the Sole Global Coordinator will rely on your declarations and
representations in deciding whether or not to make any allotment of any of the
Hong Kong Offer Shares to you and that you may be prosecuted if you make
a false declaration;
 authorise our Company to place HKSCC Nominees’ name on our 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 prospectus and agree to be bound by them;
 confirm that you have received and/or read a copy of this prospectus and have
relied only on the information and representations in this prospectus in causing
the application to be made, save as set out in any supplement to this
prospectus;
 agree that none of our Company, the Overall Coordinator, the Sole Global
Coordinator, the Sole Sponsor, the Sponsor-OC, the Underwriters, the Capital
Market Intermediaries, their respective directors, officers, employees, partners,
agents, advisers and any other parties involved in the Global Offering, is or
will be liable for any information and representations not contained in this
prospectus (and any supplement to it);
 agree to disclose your personal data to our Company, our H Share Registrar,
the receiving banks, the Sole Sponsor, the Sponsor-OC, the Overall
Coordinator, the Sole Global Coordinator, the Underwriters, the Capital
Market Intermediaries and/or its respective advisers and agents;
 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 us and to become binding when you give the instructions and such
collateral contract to be in consideration of our 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 prospectus. However, HKSCC Nominees
HOW TO APPLY FOR HONG KONG OFFER SHARES
– 612 –


--- page 623 ---
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 prospectus under section 40 of the Companies (Winding Up and
Miscellaneous Provisions) Ordinance (as applied by Section 342E of the
Companies (Winding Up and Miscellaneous Provisions) Ordinance) gives a
public notice under that section which excludes or limits that person’s
responsibility for this prospectus;
 agree that once HKSCC Nominees’ application is accepted, neither that
application nor your electronic application instructions can be revoked, and
that acceptance of that application will be evidenced by our Company’s
announcement of the results of the Hong Kong Public Offering;
 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 our Company, for itself and for the benefit of each Shareholder (and
so that our 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 our Shareholders, with each CCASS Participant giving electronic
application instructions ) to observe and comply with the Companies
Ordinance, the Special Regulations on Listing Overseas, the Companies
(Winding Up and Miscellaneous Provisions) Ordinance and the Articles; and
 agree with our Company, for itself and for the benefit of each of the
Shareholder and each director, supervisor, manager and other senior officer of
our Company (and so that our Company will be deemed by its acceptance in
whole or in part of this application to have agreed, for itself and on behalf of
each of the Shareholder and each director, supervisor, manager and other senior
office of our Company, with each CCASS Participant giving electronic
application instructions ):
(a) to refer all differences and claims arising from the Articles of Association
or any rights or obligations conferred or imposed by the PRC Company
Law or other relevant laws and administrative regulations concerning the
affairs of our Company to arbitration in accordance with the Articles of
Association;
(b) that any award made in such arbitration shall be final and conclusive; and
(c) that the arbitration tribunal may conduct hearings in open sessions and
publish its award;
HOW TO APPLY FOR HONG KONG OFFER SHARES
– 613 –


--- page 624 ---
 agree with our Company (for our Company itself and for the benefit of each
shareholder of our Company) that the H Shares are freely transferable by their
holders;
 authorise our Company to enter into a contract on its behalf with each director
and officer of our Company whereby each such director and officer undertakes
to observe and comply with his obligations to shareholders stipulated in the
Articles of Association; and
 agree that your application, any acceptance of it and the resulting contract will
be governed by the Laws of Hong Kong.
Effect of giving electronic application instructions to HKSCC via CCASS EIPO service
By applying through 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 our Company or any other person in respect of the things
mentioned below:
 instructed and authorised HKSCC to cause HKSCC Nominees (acting as nominee
for the relevant CCASS Participants) to apply for the Hong Kong Offer Shares on
your behalf;
 instructed and authorised HKSCC to arrange payment of the maximum Offer Price,
brokerage, SFC transaction levy, AFRC transaction levy and Stock Exchange trading
fee by debiting your designated bank account and, in the case of a wholly or partially
unsuccessful application and/or if the final Offer Price is less than the maximum
Offer Price per Offer Share initially paid on application, refund of the application
monies (including brokerage, SFC transaction levy, AFRC transaction levy and
Stock Exchange trading fee) by crediting your designated bank account; and
 instructed and authorised HKSCC to cause HKSCC Nominees to do on your behalf
all the things stated in this prospectus.
Time for inputting electronic application instructions
(1)
CCASS Clearing/Custodian Participants can input electronic application instructions at
the following times on the following dates:
Wednesday, 28 June 2023 – 9:00 a.m. to 8:30 p.m.
Thursday, 29 June 2023 – 8:00 a.m. to 8:30 p.m.
Friday, 30 June 2023 – 8:00 a.m. to 8:30 p.m.
Monday, 3 July 2023 – 8:00 a.m. to 12:00 noon
CCASS Investor Participants can input electronic application instructions from 9:00
a.m. on Wednesday, 28 June 2023 until 12:00 noon on Monday, 3 July 2023 (24 hours daily,
except on Monday, 3 July 2023, the last application day).
HOW TO APPLY FOR HONG KONG OFFER SHARES
– 614 –


--- page 625 ---
The latest time for inputting your electronic application instructions will be 12:00 noon
on Monday, 3 July 2023, the last application day or such later time as described in “– 10. Effect
of Bad Weather and/or Extreme Conditions on the Opening of the Application Lists” in this
section below.
Note:
(1) The 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.
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.
Personal data
The following Personal Information Collection Statement applies to any personal data
held by our Company, the H Share Registrar, the receiving banks, the Sole Sponsor, the
Sponsor-OC, the Overall Coordinator, the Sole Global Coordinator, the Underwriters, the
Capital Market Intermediaries and/or any of their respective advisers and agents about you in
the same way as it applies to personal data about applicants other than HKSCC Nominees. By
applying through CCASS EIPO service or the White Form 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 applicant for, and holder of, the
Hong Kong Offer Shares, of the policies and practices of our Company and its H 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 our Company or its agents and the H 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 H 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 our Company or its H 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 our Company and
the H Share Registrar immediately of any inaccuracies in the personal data supplied.
HOW TO APPLY FOR HONG KONG OFFER SHARES
– 615 –


--- page 626 ---
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 or e-Refund payment instruction,
where applicable, verification of compliance with the terms and application
procedures set out in this prospectus 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 our
Company’s H Shares including, where applicable, HKSCC Nominees;
 maintaining or updating our Company’s Register of Members;
 verifying identities of the holders of our Company’s H Shares;
 establishing benefit entitlements of holders of our Company’s H Shares, such as
dividends, rights issues, bonus issues, etc.;
 distributing communications from our Company and its subsidiaries;
 compiling statistical information and profiles of the holder of our Company’s H
Shares;
 disclosing relevant information to facilitate claims on entitlements; and
 any other incidental or associated purposes relating to the above and/or to enable our
Company and the H Share Registrar to discharge their obligations to holders of our
Company’s H Shares and/or regulators and/or any other purposes to which the
securities’ holders may from time to time agree.
Transfer of personal data
Personal data held by our Company and its H Share Registrar relating to the holders of
the Hong Kong Offer Shares will be kept confidential but our Company and its H 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:
 our Company’s appointed agents such as financial advisers, receiving bankers and
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;
HOW TO APPLY FOR HONG KONG OFFER SHARES
– 616 –


--- page 627 ---
 any agents, contractors or third-party service providers who offer administrative,
telecommunications, computer, payment or other services to our Company or the H
Share Registrar in connection with their respective business operation;
 the 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
Our Company and the H 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 (Chapter 486 of the
Laws of Hong Kong).
Access to and correction of personal data
Holders of the Hong Kong Offer Shares have the right to ascertain whether our Company
or the H Share Registrar hold their personal data, to obtain a copy of that data, and to correct
any data that is inaccurate. Our Company and the H 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 our Company, at our Company’s registered address
disclosed in “Corporate Information” in this prospectus or as notified from time to time, for the
attention of the secretary, or our Company’s H Share Registrar for the attention of the privacy
compliance officer.
7. W ARNING FOR ELECTRONIC APPLICATIONS
The subscription of the Hong Kong Offer Shares by giving electronic application
instructions to HKSCC is only a facility provided to CCASS Participants. Similarly, the
application for Hong Kong Offer Shares through the White Form eIPO service is also only a
facility provided by the White Form eIPO 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 application day in making your electronic applications. Our Company, our
Directors, the Sole Sponsor, the Sponsor-OC, the Overall Coordinator, the Sole Global
Coordinator, the Joint Bookrunners, the Joint Lead Managers, the Co-Managers, the
Underwriters and the Capital Market Intermediaries take no responsibility for such applications
and provide no assurance that any CCASS Participant or person applying through the White
Form eIPO service will be allotted any Hong Kong Offer Shares.
HOW TO APPLY FOR HONG KONG OFFER SHARES
– 617 –


--- page 628 ---
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 Monday, 3 July
2023, or such later time as described in “– 10. Effect of Bad Weather and/or Extreme
Conditions on the Opening of the Application Lists” in this section.
8. HOW MANY APPLICATIONS CAN YOU MAKE
Multiple applications for the Hong Kong Offer Shares are not allowed except by
nominees.
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 White
Form eIPO service is made for your benefit (including the part of the application made by
HKSCC Nominees acting on electronic application instructions ), and the number of Hong
Kong Offer Shares applied 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 behalf.
For the avoidance of doubt, giving an electronic application instruction under the White
Form eIPO 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 benefit to HKSCC will be deemed
to be an actual application for the purposes of considering whether multiple applications have
been made.
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).
HOW TO APPLY FOR HONG KONG OFFER SHARES
– 618 –


--- page 629 ---
9. HOW MUCH ARE THE HONG KONG OFFER SHARES
The maximum Offer Price is HK$4.20 per Offer Share. You must also pay brokerage of
1.0%, SFC transaction levy of 0.0027%, AFRC transaction levy of 0.00015% and Stock
Exchange trading fee of 0.00565%. This means that for one board lot of 1,000 Hong Kong
Offer Shares, you will pay HK$4,242.36.
You must pay the maximum Offer Price, brokerage, SFC transaction levy, AFRC
transaction levy and the Stock Exchange trading fee in full upon application for the Hong Kong
Offer Shares.
You may submit an application through the White Form eIPO service or the CCASS
EIPO service in respect of a minimum of 1,000 Hong Kong Offer Shares. Each application or
electronic application instruction in respect of more than 1,000 Hong Kong Offer Shares
must be in one of the numbers set out in “– 4. Minimum Application Amount and Permitted
Numbers” in this section, or as otherwise specified on the designated website at
www.eipo.com.hk .
If your application is successful, brokerage will be paid to the Exchange Participants, and
the SFC transaction levy, AFRC transaction levy and the Stock Exchange trading fee are paid
to the Stock Exchange (in the case of the SFC transaction levy and AFRC transaction levy,
collected by the Stock Exchange on behalf of the SFC and AFRC, respectively).
For further details on the Offer Price, see “Structure of the Global Offering – Price
Determination of the Global Offering” in this prospectus.
10. EFFECT OF BAD WEATHER AND/OR EXTREME CONDITIONS ON THE
OPENING OF THE APPLICATION LISTS
The application lists will not open if there is:
 a tropical cyclone warning signal number 8 or above;
 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 Monday, 3 July 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 Monday, 3 July 2023 or if there is/are a
tropical cyclone warning signal number 8 or above, a “black” rainstorm warning signal and/or
Extreme Conditions in force in Hong Kong that may affect the dates mentioned in “Expected
Timetable” in this prospectus, an announcement will be made in such event.
HOW TO APPLY FOR HONG KONG OFFER SHARES
– 619 –


--- page 630 ---
11. PUBLICATION OF RESULTS
Our Company expects to announce the final Offer Price, the level of indication of interest
in the International Offering, the level of applications in the Hong Kong Public Offering and
the basis of allocation of the Hong Kong Offer Shares on Friday, 7 July 2023 on our website
(http://www.hjkj.cn ) and the Stock Exchange’s website ( www.hkexnews.hk ).
The results of allocations and the Hong Kong identity card/passport/Hong Kong business
registration numbers of successful applicants under the Hong Kong Public Offering will be
available at the times and date and in the manner specified below:
 in the announcement to be posted on our website ( http://www.hjkj.cn ) and the
Stock Exchange’s website ( www.hkexnews.hk ) by no later than 8:00 a.m. on Friday,
7 July 2023;
 from the designated result of allocations website at www.iporesults.com.hk
(alternatively: English https://www.eipo.com.hk/en/Allotment ; Chinese
https://www.eipo.com.hk/zh-hk/Allotment ) with a “search by ID” function on a
24-hour basis from 8:00 a.m. on Friday, 7 July 2023 to 12:00 midnight on Thursday,
13 July 2023; and
 from the allocation results telephone enquiry line by calling +852 2862 8555
between 9:00 a.m. and 6:00 p.m. on Friday, 7 July 2023, Monday, 10 July 2023,
Tuesday, 11 July 2023 and Wednesday, 12 July 2023.
If our Company accepts your offer to purchase (in whole or in part), which it may do by
announcing the basis of allocations and/or making available the results of allocations publicly,
there will be a binding contract under which you will be required to purchase the Hong Kong
Offer Shares if the conditions of the Global Offering are satisfied and the Global Offering is
not otherwise terminated. See “Structure of the Global Offering” in this prospectus for further
details.
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.
HOW TO APPLY FOR HONG KONG OFFER SHARES
– 620 –


--- page 631 ---
12. CIRCUMSTANCES IN WHICH YOU WILL NOT BE ALLOTTED HONG KONG
OFFER SHARES
You should note the following situations in which the Hong Kong Offer Shares will not
be allotted to you:
(i) If your application is revoked:
By applying through the CCASS EIPO service or to White Form eIPO 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 our Company.
Your application or the application made by HKSCC Nominees on your behalf may only
be revoked on or before such fifth day if a person responsible for this prospectus under section
40 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (as applied by
section 342E of the Companies (Winding Up and Miscellaneous Provisions) Ordinance) gives
a public notice under that section on or before the fifth day after the time of the opening of the
application lists (excluding any days which is a Saturday, Sunday or public holiday in Hong
Kong) which excludes or limits that person’s responsibility for this prospectus.
If any supplement to this prospectus 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 our Company or our agents exercise their discretion to reject your application:
Our Company, the Overall Coordinator, the Sole Global Coordinator, the White Form
eIPO 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.
HOW TO APPLY FOR HONG KONG OFFER SHARES
– 621 –


--- page 632 ---
(iii) If the allotment of Hong Kong Offer Shares is void:
The allotment of Hong Kong Offer Shares will be void if the Listing Committee 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;
 your electronic application instructions through the White Form eIPO service are
not completed in accordance with the instructions, terms and conditions on the
designated website;
 your payment is not made correctly;
 the Underwriting Agreements do not become unconditional or are terminated;
 our Company, the Overall Coordinator or the Sole Global Coordinator believe(s)
that by accepting your application, it or they would violate applicable securities or
other laws, rules or regulations; or
 you apply for more than 50% Hong Kong Offer Shares initially offered under the
Hong Kong Public Offering.
13. REFUND OF APPLICATION MONIES
If an application is rejected, not accepted or accepted in part only, or if the Offer Price
as finally determined is less than the maximum Offer Price of HK$4.20 per Offer Share
(excluding brokerage, SFC transaction levy, AFRC transaction levy and the Stock Exchange
trading fee thereon), or if the conditions of the Hong Kong Public Offering are not fulfilled in
accordance with “Structure of the Global Offering – Conditions of the Global Offering” in this
prospectus or if any application is revoked, the application monies, or the appropriate portion
thereof, together with the related brokerage, SFC transaction levy, AFRC transaction levy and
the Stock Exchange trading fee, will be refunded, without interest or the cheque or banker’s
cashier order will not be cleared.
Any refund of your application monies will be made on or before Friday, 7 July 2023.
HOW TO APPLY FOR HONG KONG OFFER SHARES
– 622 –


--- page 633 ---
14. DESPATCH/COLLECTION OF SHARE CERTIFICATES AND REFUND MONIES
You will receive one share certificate for all Hong Kong Offer Shares allotted to you
under the Hong Kong Public Offering (except pursuant to applications made by electronic
application instructions to HKSCC via 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 H Shares. No receipt will
be issued for sums paid on application.
Subject to arrangement on despatch/collection of share certificates and refund monies as
mentioned below, any refund cheques and share certificates are expected to be posted on or
before Friday, 7 July 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).
H Share certificates will only become valid at 8:00 a.m. on Monday, 10 July 2023
provided that the Global Offering has become unconditional and the right of termination
described in “Underwriting” in this prospectus has not been exercised. Investors who trade
shares prior to the receipt of H Share certificates or the H Share certificates becoming valid do
so at their own risk.
Personal Collection
(i) If you apply through the White Form eIPO service
If you apply for 1,000,000 Hong Kong Offer Shares or more and your application is
wholly or partially successful, you may collect your H Share certificate(s) and/or refund
cheque(s) (where applicable) from the H Share Registrar, Computershare Hong Kong Investor
Services Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East,
Wan Chai, Hong Kong, from 9:00 a.m. to 1:00 p.m. on Friday, 7 July 2023, or such other date
as notified by our Company as the date of despatch/collection of H Share certificates/e-Refund
payment instructions/refund cheques.
If you do not collect your H Share certificate(s) and/or refund cheque(s) (where
applicable) personally within the time specified for collection, 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, your H Share certificate(s)
and/or refund cheque(s) (where applicable) will be sent to the address specified in your
application instructions on or before Friday, 7 July 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-Refund payment instructions.
If you apply and pay the application monies from multiple bank accounts, any refund monies
will be despatched to the address as specified in your application instructions in the form of
refund cheque(s) by ordinary post at your own risk.
HOW TO APPLY FOR HONG KONG OFFER SHARES
– 623 –


--- page 634 ---
(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 Friday, 7 July 2023, or, on any other date determined
by HKSCC or HKSCC Nominees.
 Our Company expects to publish the application results of CCASS Participants (and
where the CCASS Participant is a broker or custodian, our Company will include
information relating to the relevant beneficial owner), your Hong Kong identity card
number/passport number or other identification code (Hong Kong business
registration number for corporations) and the basis of allotment of the Hong Kong
Public Offering in the manner specified in “11. Publication of Results” above on
Friday, 7 July 2023. You should check the announcement published by our Company
and report any discrepancies to HKSCC before 5:00 p.m. on Friday, 7 July 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 allotted to you and the amount of refund monies (if any) payable to you with
that broker or custodian.
 If you have applied as a CCASS Investor Participant, you can also check the number
of Hong Kong Offer Shares allotted to you and the amount of refund monies (if any)
payable to you via the CCASS Phone System and the CCASS Internet System (under
the procedures contained in HKSCC’s “An Operating Guide for Investor
Participants” in effect from time to time) on Friday, 7 July 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 and/or difference between the Offer Price and the
maximum Offer Price per Offer Share initially paid on application (including
brokerage, SFC transaction levy, AFRC transaction levy and the Stock Exchange
trading fee but without interest) will be credited to your designated bank account or
the designated bank account of your broker or custodian on Friday, 7 July 2023.
HOW TO APPLY FOR HONG KONG OFFER SHARES
– 624 –


--- page 635 ---
15. ADMISSION OF THE H SHARES INTO CCASS
If the Stock Exchange grants the listing of, and permission to deal in, the H Shares and
we comply with the stock admission requirements of HKSCC, the H Shares will be accepted
as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect
from the date of commencement of dealings in the H Shares or any other date HKSCC chooses.
Settlement of transactions between Exchange Participants (as defined in the Listing Rules) is
required to take place in CCASS on the second 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 adviser for
details of the settlement arrangement as such arrangements may affect their rights and interests.
All necessary arrangements have been made enabling the H Shares to be admitted into
CCASS.
HOW TO APPLY FOR HONG KONG OFFER SHARES
– 625 –


--- page 636 ---
The following is the text of a report set out on pages I-1 to I-2, received from the
Company’ s reporting accountant, PricewaterhouseCoopers, Certified Public Accountants,
Hong Kong, for the purpose of incorporation in this prospectus. It is prepared and addressed
to the directors of the Company and to the Sole Sponsor pursuant to the requirements of Hong
Kong Standard on Investment Circular Reporting Engagements 200, Accountants’ Reports on
Historical Financial Information in Investment Circulars issued by the Hong Kong Institute of
Certified Public Accountants.
ACCOUNTANT’S REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE
DIRECTORS OF WISE LIVING TECHNOLOGY CO., LTD AND GUOTAI JUNAN
CAPITAL LIMITED
Introduction
We report on the historical financial information of Wise Living Technology Co., Ltd (the
“Company”) and its subsidiaries (together, the “Group”) set out on pages I-3 to I-85, which
comprises the consolidated statements of financial position as at 31 December 2020, 2021 and
2022, the company statements of financial position as at 31 December 2020, 2021 and 2022,
and the consolidated statements of comprehensive income, the consolidated statements of
changes in equity and the consolidated statements of cash flows for each of the years ended 31
December 2020, 2021 and 2022 (the “Track Record Period”) and a summary of significant
accounting policies and other explanatory information (together, the “Historical Financial
Information”). The Historical Financial Information set out on pages I-3 to I-85 forms an
integral part of this report, which has been prepared for inclusion in the prospectus of the
Company dated 28 June 2023 (the “Prospectus”) in connection with the initial listing of shares
of the Company on the Main Board of The Stock Exchange of Hong Kong Limited.
Directors’ responsibility for the Historical Financial Information
The directors of the Company are responsible for the preparation of Historical Financial
Information that gives a true and fair view in accordance with the basis of preparation set out
in Note 2.1 to the Historical Financial Information, and for such internal control as the
directors determine is necessary to enable the preparation of Historical Financial Information
that is free from material misstatement, whether due to fraud or error.
Reporting accountant’s responsibility
Our responsibility is to express an opinion on the Historical Financial Information and to
report our opinion to you. We conducted our work in accordance with Hong Kong Standard on
Investment Circular Reporting Engagements 200, Accountants’ Reports on Historical Financial
Information in Investment Circulars issued by the Hong Kong Institute of Certified Public
Accountants (“HKICPA”). This standard requires that we comply with ethical standards and
plan and perform our work to obtain reasonable assurance about whether the Historical
Financial Information is free from material misstatement.
PricewaterhouseCoopers, 22/F Prince’s Building, Central, Hong Kong SAR, China
T: +852 2289 8888, F: +852 2810 9888, www.pwchk.com
APPENDIX I ACCOUNTANT’S REPORT
– I-1 –


--- page 637 ---
Our work involved performing procedures to obtain evidence about the amounts and
disclosures in the Historical Financial Information. The procedures selected depend on the
reporting accountant’s judgement, including the assessment of risks of material misstatement
of the Historical Financial Information, whether due to fraud or error. In making those risk
assessments, the reporting accountant considers internal control relevant to the entity’s
preparation of Historical Financial Information that gives a true and fair view in accordance
with the basis of preparation set out in Note 2.1 to the Historical Financial Information in order
to design procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. Our work also
included evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by the directors, as well as evaluating the overall presentation of
the Historical Financial Information.
We believe that the evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Opinion
In our opinion, the Historical Financial Information gives, for the purposes of the
accountant’s report, a true and fair view of the financial position of the Company as at 31
December 2020, 2021 and 2022, and the consolidated financial position of the Group as at 31
December 2020, 2021 and 2022 and of its consolidated financial performance and its
consolidated cash flows for the Track Record Period in accordance with the basis of
preparation set out in Note 2.1 to the Historical Financial Information.
Report on matters under the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited (the “Listing Rules”) and the Companies (Winding Up
and Miscellaneous Provisions) Ordinance
Adjustments
In preparing the Historical Financial Information, no adjustments to the Underlying
Financial Statements as defined on page I-3 have been made.
Dividends
We refer to Note 33 to the Historical Financial Information which states that no dividends
have been paid or declared by the Company in respect of the Track Record Period.
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong
28 June 2023
APPENDIX I ACCOUNTANT’S REPORT
– I-2 –


--- page 638 ---
I. HISTORICAL FINANCIAL INFORMATION OF THE GROUP
Preparation of Historical Financial Information
Set out below is the Historical Financial Information which forms an integral part of this
accountant’s report.
The financial statements of the Group for the years ended 31 December 2020, 2021 and
2022 (the “Track Record Period”), on which the Historical Financial Information is based, were
audited by PricewaterhouseCoopers in accordance with International Standards on Auditing
issued by the International Auditing and Assurance Standards Board (the “Underlying
Financial Statements”).
The Historical Financial Information is presented in Renminbi (“RMB”) and all values
are rounded to the nearest thousand of RMB (“RMB’000”) except when otherwise indicated.
APPENDIX I ACCOUNTANT’S REPORT
– I-3 –


--- page 639 ---
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Y ear ended 31 December
Note 2020 2021 2022
RMB’000 RMB’000 RMB’000
Revenue 5 1,376,321 1,290,635 1,443,732
Cost of sales 8 (1,084,931) (976,969) (1,146,851)
Gross profit 291,390 313,666 296,881
Administrative expenses 8 (124,951) (141,306) (139,589)
(Provision)/reversal of impairment losses on financial
assets and contract assets 3.1(b) (13,548) 995 23,118
Other income 6 48,384 73,584 53,742
Other losses – net 7 (157) (19) (3,603)
Operating profit 201,118 246,920 230,549
Finance income 10 26,393 29,354 26,314
Finance costs 10 (92,866) (81,503) (84,065)
Finance costs – net 10 (66,473) (52,149) (57,751)
Share of profit of associates accounted for using the
equity method 13 9,282 11,960 13,538
Profit before income tax 143,927 206,731 186,336
Income tax expense 11 (45,611) (35,671) (45,961)
Profit and total comprehensive income for the year 98,316 171,060 140,375
Profit and total comprehensive income attributable
to:
– Owners of the Company 66,830 110,696 96,431
– Non-controlling interests 31,486 60,364 43,944
98,316 171,060 140,375
Earnings per share (expressed in RMB per share)
– Basic and diluted 12 0.30 0.49 0.43
APPENDIX I ACCOUNTANT’S REPORT
– I-4 –


--- page 640 ---
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at 31 December
Note 2020 2021 2022
RMB’000 RMB’000 RMB’000
ASSETS
Non-current assets
Property, plant and equipment 14 164,800 156,521 155,929
Investment properties 15 274,500 272,500 267,200
Right-of-use assets 16 34,171 29,890 28,381
Intangible assets 17 3,169,936 3,190,673 3,340,965
Investments accounted for using
the equity method 13 72,713 84,824 94,966
Trade receivables 19 68,964 81,867 88,158
Prepayments and other receivables 20 304,209 238,119 41,865
Contract assets 5(b) 44,137 58,671 14,610
Deferred income tax assets 32(a) 41,117 49,140 53,674
4,174,547 4,162,205 4,085,748
Current assets
Inventories 21 32,900 38,178 48,926
Trade receivables 19 364,744 337,726 477,986
Prepayments and other receivables 20 324,544 215,510 153,127
Financial assets at fair value
through profit or loss 22 11,041 17,139 –
Restricted cash 23 34,848 76,688 100,374
Cash and cash equivalents 23 91,826 136,185 378,068
859,903 821,426 1,158,481
Total assets 5,034,450 4,983,631 5,244,229
EQUITY AND LIABILITIES
Equity attributable to owners of
the Company
Share capital 24 226,000 226,000 226,000
Other reserves 25 162,739 186,008 200,114
Retained earnings 26 131,767 218,791 301,003
520,506 630,799 727,117
Non-controlling interests 37 92,179 151,597 195,445
Total equity 612,685 782,396 922,562
APPENDIX I ACCOUNTANT’S REPORT
– I-5 –


--- page 641 ---
As at 31 December
Note 2020 2021 2022
RMB’000 RMB’000 RMB’000
LIABILITIES
Non-current liabilities
Borrowings 28 371,973 597,762 634,464
Other payables 27 67,004 32,631 7,386
Contract liabilities 29 1,506,471 1,628,637 1,821,454
Lease liabilities 31 22,215 18,387 18,677
Deferred income 30 54,831 85,125 83,459
Deferred income tax liabilities 32(b) 40,322 30,167 20,331
Provision 34 15,382 20,210 25,593
2,078,198 2,412,919 2,611,364
Current liabilities
Borrowings 28 936,663 463,515 246,750
Trade and other payables 27 965,506 816,102 976,277
Contract liabilities 29 409,505 462,888 440,546
Lease liabilities 31 1,342 1,588 1,005
Current income tax liabilities 30,551 44,223 45,725
2,343,567 1,788,316 1,710,303
Total liabilities 4,421,765 4,201,235 4,321,667
Total equity and liabilities 5,034,450 4,983,631 5,244,229
APPENDIX I ACCOUNTANT’S REPORT
– I-6 –


--- page 642 ---
STATEMENTS OF FINANCIAL POSITION OF THE COMPANY
As at 31 December
Note 2020 2021 2022
RMB’000 RMB’000 RMB’000
ASSETS
Non-current assets
Property, plant and equipment 845 702 376
Intangible assets 106 38 8
Right-of-use assets 121 60 34
Investment in subsidiaries 39(a) 151,000 151,000 151,000
Prepayments and other receivables 39(b) – 3,728 3,728
Deferred income tax assets 920 2,108 2,108
152,992 157,636 157,254
Current assets
Amounts due from subsidiaries 39(c) 482,984 481,466 514,466
Prepayments and other receivables 39(b) 167,837 62,211 39,282
Cash and cash equivalents 39(d) 2,922 12,773 40,402
653,743 556,450 594,150
Total assets 806,735 714,086 751,404
EQUITY
Share capital 24 226,000 226,000 226,000
Other reserves 39(e) 5,962 15,563 15,563
Retained earnings 39(f) 4,331 90,739 75,977
236,293 332,302 317,540
LIABILITIES
Non-current liabilities
Borrowings 39(g) – – 58,500
Lease liabilities 67 4 37
67 4 58,537
Current liabilities
Borrowings 39(g) 100,000 100,000 111,500
Trade and other payables 39(h) 5,735 9,228 6,340
Amounts due to subsidiaries 39(c) 463,514 271,423 256,818
Current income tax liabilities 1,069 1,069 661
Lease liabilities 57 60 8
570,375 381,780 375,327
Total liabilities 570,442 381,784 433,864
Total equity and liabilities 806,735 714,086 751,404
APPENDIX I ACCOUNTANT’S REPORT
– I-7 –


--- page 643 ---
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Attributable to owners of the Company
Note
Share
capital
Other
reserves
Retained
earnings Total
Non-
controlling
interests
Total
equity
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
(Note 24) (Note 25) (Note 26)
Balance at 1 January 2020 226,000 146,141 81,481 453,622 60,639 514,261
Comprehensive income
Profit for the year – – 66,830 66,830 31,486 98,316
Total comprehensive income for
the year – – 66,830 66,830 31,486 98,316
Transactions with owners
Appropriation to statutory reserves 25 – 16,544 (16,544) – – –
Deregistration of subsidiaries – (1) – (1) – (1)
Others 13 – 55 – 55 54 109
Total transactions with owners – 16,598 (16,544) 54 54 108
Balance at 31 December 2020 226,000 162,739 131,767 520,506 92,179 612,685
Balance at 1 January 2021 226,000 162,739 131,767 520,506 92,179 612,685
Comprehensive income
Profit for the year – – 110,696 110,696 60,364 171,060
Total comprehensive income for
the year – – 110,696 110,696 60,364 171,060
Transactions with owners
Appropriation to statutory reserves 25 – 23,672 (23,672) – – –
Transactions with non-controlling
interests – (480) – (480) (1,020) (1,500)
Others 13 – 77 – 77 74 151
Total transactions with owners – 23,269 (23,672) (403) (946) (1,349)
Balance at 31 December 2021 226,000 186,008 218,791 630,799 151,597 782,396
APPENDIX I ACCOUNTANT’S REPORT
– I-8 –


--- page 644 ---
Attributable to owners of the Company
Note
Share
capital
Other
reserves
Retained
earnings Total
Non-
controlling
interests
Total
equity
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
(Note 24) (Note 25) (Note 26)
Balance at 1 January 2022 226,000 186,008 218,791 630,799 151,597 782,396
Comprehensive income
Profit for the year – – 96,431 96,431 43,944 140,375
Total comprehensive income for
the year – – 96,431 96,431 43,944 140,375
Transactions with owners
Appropriation to statutory reserves 25 – 14,219 (14,219) – – –
Deregistration of subsidiaries – (13) – (13) – (13)
Others 13 – (100) – (100) (96) (196)
Total transactions with owners – 14,106 (14,219) (113) (96) (209)
Balance at 31 December 2022 226,000 200,114 301,003 727,117 195,445 922,562
APPENDIX I ACCOUNTANT’S REPORT
– I-9 –


--- page 645 ---
CONSOLIDATED STATEMENTS OF CASH FLOWS
Y ear ended 31 December
Note 2020 2021 2022
RMB’000 RMB’000 RMB’000
Cash flows from operating activities
Cash generated from operations 35(a) 481,403 537,350 677,803
Income tax paid (38,861) (37,323) (59,964)
Net cash generated from operating activities 442,542 500,027 617,839
Cash flows from investing activities
Purchases of property, plant and equipment (57,606) (4,751) (15,228)
Disposal of property, plant and equipment 3,765 21 819
Proceeds from finance lease of plant and equipment
to a related party – 4,197 4,197
Purchases of intangible assets (212,966) (300,333) (273,685)
Disposal of intangible assets – 5,000 15,552
(Increase)/decrease in restricted cash for deposit of
capital expenditure – (38,826) 38,826
Dividends received from associates 13 3,679 – 3,200
Disposal of right-of-use-assets 35,280 – –
Proceeds from financing arrangements with a third
party (including repayments of principal and
interest) 30,984 73,407 30,982
Purchase of financial assets at fair value through
profit or loss 3.3(a) (743,929) (77,000) (10,000)
Disposal of financial assets at fair value through
profit or loss 3.3(a) 748,138 71,320 27,285
Loans provided to a related party 38(c) (150,000) – –
Loans repaid by a related party 38(c) – 110,000 40,000
Interest received from a related party 38(c) – 11,918 498
Government grants received in relation to purchase
of intangible assets 30 – 44,500 17,000
Interest received on bank deposits 2,519 1,822 2,696
Net cash used in investing activities (340,136) (98,725) (117,858)
APPENDIX I ACCOUNTANT’S REPORT
– I-10 –


--- page 646 ---
Y ear ended 31 December
Note 2020 2021 2022
RMB’000 RMB’000 RMB’000
Cash flows from financing activities
Payments for listing expenses (2,917) (9,599) (20,777)
Proceeds from borrowings 35(c) 995,200 501,000 846,014
Repayment of borrowings 35(c) (889,549) (748,359) (976,577)
Installment payment for purchase of equipment 35(c) (48,000) – –
Payments for lease liabilities 31, 35(c) (5,078) (4,020) (3,375)
Installment payment for acquisition of intangible
assets 35(c) (36,752) (14,408) (19,067)
Dividends paid 35(c), 37 (13,290) – –
Refunds of guarantee deposits for borrowings 23,900 – –
Restricted cash for guarantee deposits paid for bank
borrowings – – (11,100)
Repayment of loans from government 35(c) – (2,000) (6,500)
Interest paid on lease liabilities 31, 35(c) (1,218) (1,465) (1,386)
Interest paid on installment payable for acquisition
of intangible assets 35(c) (2,338) (5,087) (3,090)
Interest paid of installment payable for purchase of
equipment 35(c) (1,657) – –
Interest paid on borrowings (85,056) (73,005) (62,240)
Net cash used in financing activities (66,755) (356,943) (258,098)
Net increase in cash and cash equivalents 35,651 44,359 241,883
Cash and cash equivalents at beginning of the year 56,175 91,826 136,185
Cash and cash equivalents at end of the year 23 91,826 136,185 378,068
APPENDIX I ACCOUNTANT’S REPORT
– I-11 –


--- page 647 ---
II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION
1 GENERAL INFORMATION, HISTORY OF THE GROUP AND DETAILS OF SUBSIDIARIES
1.1 General information
The Company was established in the People’s Republic of China (the “PRC”) on 3 September 2010. The
address of its registered office is Room 202, 2/F, No. 15 of Shuangliang Road, Ligang Street, Jiangyin City, Jiangsu
Province, the PRC.
The Company is an investment holding company. The Company and its subsidiaries (together, the “Group”)
are principally engaged in the heat supply (including provision and distribution of heat and pipeline connection
services), engineering construction services, design services and energy management services in the PRC.
The Company is controlled by Jiangsu Shuangliang Technology Company Limited (ʮ̡)
(“Shuangliang Technology”) and Jiangsu Lichuang New Energy Company Limited (ʮ̡)
(“Jiangsu Lichuang”), both of which are held by Mr. Miao Shuangda ( ᐷᕐɽ΋͛), Mr. Miao Wenbin ( ᐷ˖੸΋͛),
Mr. Jiang Rongfang ( Ϫ࿲˙΋͛), Mr. Ma Peilin (΋͛), Mr. Ma Fulin (΋͛), Mr. Miao Zhiqiang ( ᐷ
қ੶΋͛), Mr. Miao Heida ( ᐷලɽ΋͛) and Ms. Miao Shuya ( ᐷബૹɾɻ), the individual shareholders of the
holding companies, as of the date of this Historical Financial Information and during the Track Record Period.
1.2 History of the Group
The Company was established on 3 September 2010 in the PRC as a limited liability company with registered
capital of RMB50,000,000 under the name of Jiangsu Shuangliang Energy Management Contract Co., Ltd. ( Ϫᘽᕐ
ʮ̡) by Shuangliang Eco-Energy System Company Limited (ʮ̡)
(“Shuangliang Eco-Energy”), a company listed in the Shanghai Stock Exchange.
On 1 September 2014, the Company was renamed as Shuangliang Eco-Energy System (Jiangsu) Co., Ltd ( ᕐ
Ԅືঐӻ୕(Ϫᘽ)ʮ̡).
On 16 September 2015, Shuangliang Eco-Energy transferred its entire equity interest in the Company to
Shuangliang Technology.
On 17 November 2015, the Company received capital injection of RMB100,000,000 from Shuangliang
Technology and RMB76,000,000 from Jiangsu Lichuang and ten individual shareholders (the “Capital Injection”).
After the Capital Injection, Shuangliang Technology, Jiangsu Lichuang and the ten individual shareholders held
66.38%, 22.58% and 11.04% equity interests in the Company, respectively.
On 3 December 2015, the Company was renamed as Wise Living Technology Co., Ltd (ʮ̡).
On 18 December 2015, the Company was converted from a limited liability company into a joint stock
company with limited liability with registered capital of RMB226,000,000.
In July 2016, the Company obtained approval from The National Equities Exchange And Quotations Co., Ltd
(the “NEEQ”) for its shares to be listed on the NEEQ (stock code: 839023). The Company commenced trading of its
shares on the NEEQ on 17 August 2016. The Company voluntarily delisted from the NEEQ in April 2018.
APPENDIX I ACCOUNTANT’S REPORT
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1.3 Subsidiaries
The Company has direct and indirect interests in the following subsidiaries:
Name of companies
Place and date of
incorporation
Principal activities
and place of
operation
Registered and paid
up capital
Effective interest held
Note
As at 31 December At the date
of this
report2020 2021 2022
Directly held by the
Company
Wise Living Energy
Technology Company
Limited (ҦϞ
ʮ̡) (“Wise Living
Energy”)
PRC, 29 November
2016
Investment holding,
the PRC
Registered and paid
up capital of
RMB150,000,000
100% 100% 100% 100% (i), (ii)
Wise Living Times (Beijing)
Technology Company
Limited (˾(̏ԯ)
ʮ̡)
PRC, 15 December
2016
Technical services,
the PRC
Registered and paid
up capital of
RMB1,000,000
100% 100% 100% 100% (i), (ii)
Indirectly held by the
Company
Shanxi Shuangliang
Renewable Energy
Industry Group Company
Limited ( ʆГᕐԄΎ͛ঐ
ʮ̡)
(“Shanxi Shuangliang
Renewable Energy”)
PRC, 15 February
2006
Investment holding,
design and
maintenance
services, the PRC
Registered and paid
up capital of
RMB30,000,000
51% 51% 51% 51% (i), (ii)
Taiyuan City Renewable
Energy Heat Supply
Company Limited (̹
ʮ̡)
(“Taiyuan Renewable
Energy”)
PRC, 22 May 2009 Heat supply,
construction
services and rental
services, the PRC
Registered and paid
up capital of
RMB200,000,000
51% 51% 51% 51% (ii), (vi)
Lvliang City Renewable
Energy Heat Supply
Company Limited ( ѐ૑̹
ʮ̡)
PRC, 23 September
2013
Heat supply, the PRC Registered and paid
up capital of
RMB5,000,000
31% 46% 46% 46% (i), (ii), (x)
Datong City Renewable
Energy Heating Company
Limited ( ɽΝ̹Ύ͛ঐ๕
ʮ̡)
PRC, 25 September
2009
Heat supply and
construction
services, the PRC
Registered and paid
up capital of
RMB5,000,000
36% 36% 36% 36% (i), (ii),
(xi)
Shanxi Transformation and
Comprehensive Reform
Demonstration Zone Heat
Supply Company Limited
(ͪᇍਜ
ʮ̡) (“Shanxi
Demonstration Zone Heat
Supply”)
PRC, 19 September
2018
Heat supply, the PRC Registered and paid
up capital of
RMB100,000,000
51% 51% 51% 51% (ii), (vii)
Shanxi Smart Life Property
Service Company Limited
(ࠢ
ʮ̡)
PRC, 9 November
2016
Property management
services, the PRC
Registered capital of
RMB1,000,000 and
paid up capital of
nil
51% 51% 51% 51% (i), (ii)
APPENDIX I ACCOUNTANT’S REPORT
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Name of companies
Place and date of
incorporation
Principal activities
and place of
operation
Registered and paid
up capital
Effective interest held
Note
As at 31 December At the date
of this
report2020 2021 2022
Indirectly held by the
Company
Shuozhou City Renewable
Energy Thermal Company
Limited (ψ̹Ύ͛ঐ๕
ʮ̡)
(“Shuozhou Renewable
Energy”)
PRC, 23 May 2011 Heat supply, the PRC Registered and paid
up capital of
RMB150,000,000
51% 51% 51% 51% (ii), (vii)
Shanxi Shuangliang Carbon
Trading Management
Company Limited ( ʆГᕐ
ʮ̡)
PRC, 6 May 2016 Carbon asset
operation and
management
services, the PRC
Registered capital of
RMB10,000,000 and
paid up capital of
nil
51% 51% 51% 51% (i), (ii)
Shanxi Shuangliang New
Energy Thermoelectric
Engineering Design
Company Limited ( ʆГᕐ
Ϟ
ʮ̡) (“Shanxi
Shuangliang New
Energy”)
PRC, 6 June 2016 Design services, the
PRC
Registered capital of
RMB8,000,000 and
paid up capital of
nil
51% 51% 51% 51% (ii), (vi)
Gansu Shuangliang Energy
System Investment
Company Limited ( ͚ഠᕐ
ʮ̡)
(“Gansu Shuangliang”)
PRC, 27 February
2013
Investment holding,
the PRC
Registered and paid
up capital of
RMB10,000,000
80% 80% 80% 80% (i), (ii)
Lanzhou New Area
Shuangliang Thermal
Power Company Limited
(ʮ
̡) (“Lanzhou
Shuangliang”)
PRC, 31 July 2013 Heat supply, the PRC Registered and paid
up capital of
RMB20,000,000
80% 80% 80% 80% (ii), (viii)
Gansu Shuangliang Smart
Energy Management
Company Limited ( ͚ഠᕐ
ʮ̡)
(“Gansu Smart Energy”)
PRC, 6 July 2016 Energy management
services, the PRC
Registered and paid
up capital of
RMB10,000,000
80% 80% 80% 80% (i), (ii)
Lanzhou Wise Living
Thermal Engineering
Company Limited ( ᚆψᅆ
ʮ̡)
PRC, 27 August
2018
Construction and
installation
services, the PRC
Registered capital of
RMB10,000,000 and
paid up capital of
nil
80% 80% N/A N/A (i), (ii),
(iv)
Hulunbuir Shuangliang
Energy System Company
Limited (ԎဧᕐԄঐ
ʮ̡)
(“Hulunbuir
Shuangliang”)
PRC, 11 March
2013
Heat supply, the PRC Registered and paid
up capital of
RMB10,000,000
85% 85% 85% 85% (ii), (ix)
Zhengzhou Wise Living
Thermal Power Company
Limited (ᆠɢϞ
ʮ̡) (“Zhengzhou
Wise Living”)
PRC, 17 November
2018
Heat supply, the PRC Registered capital of
RMB30,000,000 and
paid up capital of
nil
100% 100% 100% 100% (i), (ii)
APPENDIX I ACCOUNTANT’S REPORT
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Name of companies
Place and date of
incorporation
Principal activities
and place of
operation
Registered and paid
up capital
Effective interest held
Note
As at 31 December At the date
of this
report2020 2021 2022
Indirectly held by
the Company
Inner Mongolia Wise Living
Tianlang Clean Energy
Company Limited ( ʫႆ̚
ʮ
̡)
PRC, 28 June 2018 Heat supply,
engineering design,
construction,
installation and
maintenance
services, the PRC
Registered and paid
up capital of
RMB10,000,000
67% 78% 78% 78% (i), (ii),
(xii)
Hohhot Wise Living Clean
Energy Company Limited
(૶ᆎঐ๕Ϟ
ʮ̡)
PRC, 17 May 2019 Heat supply, the PRC Registered capital of
RMB10,000,000 and
paid up capital of
nil
85% N/A N/A N/A (i), (ii),
(iii)
Wise Living Energy
Technology (Gansu)
Limited (Ҧ(͚
ഠ)ʮ̡) (“Wise
Living Energy (Gansu)”)
PRC, 31 December
2020
Energy management
services, the PRC
Registered capital of
RMB10,000,000 and
paid up capital of
nil
100% 100% N/A N/A (i), (ii), (v)
Wise Living Energy
(Baotou) Limited (ঐ
๕(̍᎘)ʮ̡)
PRC, 26 November
2020
Heat supply, the PRC Registered capital of
RMB10,000,000 and
paid up capital of
nil
100% 100% 100% 100% (i), (ii)
Wise Living Tech-Thermal
Power (Zhengzhou)
Limited (Ҧᆠɢ(ቍ
ψ)ʮ̡)
PRC, 10 December
2020
Heat supply, the PRC Registered capital of
RMB50,000,000 and
paid up capital of
RMB40,000,000.
80% 80% 80% 80% (i), (ii)
Taixin Renewable Energy
Heating (Shanxi)
Company Limited ( ˄ᢊΎ
͛ঐ๕Զᆠ(ʆГ)ʮ
̡)
PRC, 23 March
2022
Heat supply, the PRC Registered capital of
RMB50,000,000 and
paid up capital of
nil
N/A N/A 51% 51% (i), (ii)
Shanxi Xixian Shuangliang
Low Carbon
Environmental Clean
Energy Company Limited
(ڭ
ʮ̡)
PRC, 12 October
2022
Heat supply, the PRC Registered capital of
RMB8,000,000 and
paid up capital of
nil
N/A N/A 51% 51% (i), (ii)
Notes:
(i) No audited financial statements have been prepared for the subsidiary for the years ended 31 December 2020,
2021 and 2022, as the entity was not subject to any statutory audit requirements under the relevant rules and
regulations in the jurisdiction of incorporation.
(ii) The English names of the subsidiaries represent management’s best effort in translating their Chinese names
as they do not have official English names.
(iii) This subsidiary was deregistered on 2 August 2021.
(iv) This subsidiary was deregistered on 27 May 2022.
(v) This subsidiary was deregistered on 22 June 2022.
(vi) The entity was audited by Shanxi Ruiming Certified Public Accountants Co., Ltd. in 2020 and 2021, and was
audited by Shanxi Qianyuan Certified Public Accountants (Co., Ltd.) in 2022.
APPENDIX I ACCOUNTANT’S REPORT
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--- page 651 ---
(vii) The entity was audited by Shanxi Qianyuan Certified Public Accountants (Co., Ltd.) in 2020 and 2022, and
was audited by Shanxi Ruiming Certified Public Accountants Co., Ltd. in 2021.
(viii) The entity was audited by Gansu Rongzhi Certified Public Accountants (General Partnership) in 2020 and
2021.
(ix) The entity was audited by Inner Mongolia Junye Certified Public Accountants (General Partnership) in 2020
and 2021, and was audited by Inner Mongolia Zhongluhuachen Certified Public Accountants (Co.,Ltd.) in
2022.
(x) On 2 February 2021, Taiyuan Renewable Energy acquired an additional 30% equity interest in Lvliang City
Renewable Energy Heat Supply Company Limited. The entity is 90% owned by Taiyuan Renewable Energy.
(xi) The entity is 70% owned by Taiyuan Renewable Energy.
(xii) On 17 March 2021, the Group acquired an additional 10.89% equity interest in Inner Mongolia Wise Living
Tianlang Clean Energy Company Limited.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This note provides a list of significant accounting policies adopted in the preparation of the Historical
Financial Information. These policies have been consistently applied to all the years presented, unless otherwise
stated. The Historical Financial Information is for the Group consisting of the Company and its subsidiaries.
2.1 Basis of preparation
The Historical Financial Information of the Group has been prepared in accordance with International
Financial Reporting Standards (“IFRSs”) and related interpretations issued by the International Accounting Standards
Board (the “IASB”).
The Historical Financial Information has been prepared under the historical cost convention, as modified by
the revaluation of financial assets at fair value through profit or loss and investment properties, which are carried at
fair value.
The preparation of Historical Financial Information in conformity with IFRSs requires the use of certain
critical accounting estimates. It also requires management to exercise its judgement in the process of applying the
Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the Historical Financial Information are disclosed in Note 4.
As at 31 December 2022, the Group had net current liabilities of RMB551,822,000. The net current liabilities
included contract liabilities amounted to RMB440,546,000 which represented the advance receipts from customers
in relation to heat supply and pipeline connection fees. Such contract liabilities will normally be recognised as
revenue in subsequent years and will not involve cash outflow in the future. Meanwhile, the Group’s total borrowings
as at 31 December 2022 amounted to RMB881,214,000 of which RMB246,750,000 are classified as current
liabilities, while its cash and cash equivalents amounted to RMB378,068,000 as at the same date.
Management closely monitors the Group’s financial performance and liquidity position. The cash inflow
generated from the Group’s operating activities for each of the three years ended 31 December 2020, 2021 and 2022
amounted to RMB442,542,000, RMB500,027,000 and RMB617,839,000, respectively. The Group also planned its
capital expenditures activities in a conservative manner to avoid an excessively high liquidity risk exposure. In
addition, management proactively managed the financing structure of the Group and was able to renew the short-term
borrowings and raise new borrowings during the Track Record Period as necessary. Although the Group failed to
comply with certain financial covenants of certain long-term bank borrowings during the Track Record Period, it
successfully obtained waivers from strict compliance with the financial covenants from the relevant banks (Note
28(e)).
APPENDIX I ACCOUNTANT’S REPORT
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--- page 652 ---
As at 31 December 2022, the Group had unused banking facilities amounting to RMB824 million, of which
RMB60 million is available to the Group up to June 2023, RMB125 million is available to the Group up to July 2023
and could be extended to July 2024, RMB489.5 million is available to the Group up to April 2024, and the remaining
RMB149.5 million is available to the Group up to December 2030.
The directors of the Company (the “Directors”) have reviewed the Group’s cash flow projections for a period
of not less than twelve months from the balance sheet date, made due enquiries with management and considered the
bases and assumptions of the projections. The Directors are of the opinion that, taking into account the Group’s
projected financial performance and operating cash inflows, the capital expenditures plans, the continuous
availability of existing banking facilities, the Group will have sufficient financial resources to support its operations
and to meet its financial obligations as and when they fall due in at least the coming twelve months from 31 December
2022. Accordingly, the Historical Financial Information has been prepared on a going concern basis.
(a) New standards or amendments adopted by the Group
The Group has applied those new and amended standards effective for the financial period beginning
on 1 January 2022 consistently throughout the Track Record Period.
(b) New standards or amendments not yet adopted by the Group
Up to the date of this Historical Financial Information, the following issued new standards or
amendments are not yet effective and have not been early adopted by the Group:
Effective for the
accounting periods
beginning on or after
IFRS 17 Insurance contracts January 1, 2023
IAS 1 and IFRS Practice
Statement 2 (Amendments)
Disclosure of accounting policies January 1, 2023
IAS 8 (Amendments) Definition of accounting estimates January 1, 2023
IAS 12 (Amendments) Deferred tax related to assets and
liabilities arising from a single
transaction
January 1, 2023
IFRS 16 (Amendments) Lease liability in a sale and leaseback January 1, 2024
IAS 1 (Amendments) Classification of liabilities as current
or non-current
January 1, 2024
IAS 1 (Amendments) Non-current liabilities with covenants January 1, 2024
IFRS 10 and IAS 28
(Amendments)
Sale or contribution of assets between
an investor and its associate or joint
venture
To be determined
The Group has already commenced an assessment of the impact of these new or amended standards.
According to the preliminary assessment made by the Directors, no significant impact on the financial
performance and position of the Group is expected when they become effective.
2.2 Principles of consolidation and equity accounting
(a) Subsidiaries
Subsidiaries are entities (including structured entities) 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 to direct the activities of 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.
APPENDIX I ACCOUNTANT’S REPORT
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--- page 653 ---
Intercompany transactions, balances and unrealised gains on transactions between the group companies
are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment
of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the
consolidated statements of comprehensive income, statements of changes in equity and statements of financial
position, respectively.
(b) Associates
Associates are all entities over which the Group has significant influence but not control or joint control.
This is generally the case where the Group holds between 20% and 50% of the voting rights. Investments in
associates are accounted for using the equity method of accounting, after initially being recognised at cost.
(c) Equity method
Under the equity method of accounting, the investments are initially recognised at cost and adjusted
thereafter to recognise the Group’s share of the post-acquisition profits or losses of the investee in profit or
loss, and the Group’s share of movements in other comprehensive income (“OCI”) of the investee in OCI.
Dividends received or receivable from associates are recognised as a reduction in the carrying amount of the
investment.
When the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the
entity, including any other unsecured long-term receivables, the Group does not recognise further losses,
unless it has incurred obligations or made payments on behalf of such entity.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the
Group’s interest in these entities. Unrealised losses are also eliminated unless the transaction provides
evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees have
been changed where necessary to ensure consistency with the policies adopted by the Group.
The carrying amount of equity-accounted investments is tested for impairment in accordance with the
policy described in Note 2.11.
(d) Changes in ownership interests
The Group treats transactions with non-controlling interests that do not result in a loss of control as
transactions with equity owners of the Group. A change in ownership interest results in an adjustment between
the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the
subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any
consideration paid or received is recognised in a separate reserve within equity attributable to owners of the
Group.
When the Group ceases to consolidate or equity account for an investment because of a loss of control
or significant influence, any retained interest in the entity is remeasured to its fair value with the change in
carrying amount recognised in profit or loss. This fair value becomes the initial carrying amount for the
purposes of subsequently accounting for the retained interest as an associate or financial asset. In addition, any
amounts previously recognised in OCI in respect of that entity are accounted for as if the Group had directly
disposed of the related assets or liabilities. This may mean that amounts previously recognised in OCI are
reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable
IFRSs.
If the ownership interest in an associate is reduced but significant influence is retained, only a
proportionate share of the amounts previously recognised in OCI are reclassified to profit or loss where
appropriate.
APPENDIX I ACCOUNTANT’S REPORT
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2.3 Business combination
The acquisition method of accounting is used to account for all business combinations, regardless of whether
equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary
comprised the:
 fair values of the assets transferred,
 liabilities incurred to the former owners of the acquired business,
 equity interests issued by the Group,
 fair value of any asset or liability resulting from a contingent consideration arrangement, and
 fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are,
with limited exceptions, measured initially at their fair values at the acquisition date. The Group recognises any
non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the
non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets.
Acquisition-related costs are expensed as incurred.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquired
entity and the acquisition-date fair value of any previous equity interest in the acquired entity over the fair
value of the identifiable net assets acquired is recorded as goodwill. If those amounts are less than the fair
value of the net identifiable assets of the business acquired, the difference is recognised directly in profit or
loss as a bargain purchase.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a
financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or
loss.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s
previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains
or losses arising from such remeasurement are recognised in profit or loss.
2.4 Separate financial statements
Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable costs
of investment. The results of subsidiaries are accounted for by the Company on the basis of dividend received and
receivable.
Impairment testing of the investments in subsidiaries is required upon receiving a dividend from these
investments if the dividend exceeds the total comprehensive income of the subsidiary in the period the dividend is
declared or if the carrying amount of the investment in the separate financial statements exceeds the carrying amount
in the consolidated financial statements of the investee’s net assets including goodwill.
2.5 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker (the “CODM”). The CODM, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the executive directors of the Company that make
strategic decisions.
2.6 Foreign currency translation
(a) Functional and presentation currency
Items included in the Historical Financial Information of each of the Group’s entities are measured using
the currency of the primary economic environment in which the entity operates (the “functional currency”).
Since the assets and operations of the Group are located in the PRC, the Historical Financial Information are
presented in RMB, which is the Company’s functional and the Group’s presentation currency.
APPENDIX I ACCOUNTANT’S REPORT
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--- page 655 ---
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains
and losses resulting from the settlement of such transactions and from the translation at year-end exchange
rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.
Foreign exchange gains and losses are presented in the consolidated statements of comprehensive
income on a net basis within ‘other gains/(losses) – net’.
2.7 Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation, net of accumulated
impairment losses, if any. Historical cost includes expenditures that is directly attributable to the acquisition of the
items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate,
only when it is probable that future economic benefits associated with the item will flow to the Group and the cost
of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and
maintenance are charged to profit or loss during the financial period in which they are incurred.
Depreciation is calculated using the straight-line method to allocate their costs to their residual values, over
their estimated useful lives or, in the case of leasehold improvements, the shorter lease term as follows:
Useful lives
Buildings 30 years
Pipeline and heating equipment 20 years
Machinery and equipment 5-20 years
Transportation equipment 5 years
Office and electronic equipment 3 years
Leasehold improvements Estimated useful lives or remaining
lease terms, whichever is shorter
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each
reporting period.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying
amount is greater than its estimated recoverable amount.
Gains and losses on disposal are determined by comparing the proceeds with the carrying amount and are
recognised within ‘other gains/(losses) – net’ in the consolidated statements of comprehensive income.
Construction in progress represents machinery and equipment under construction, which is stated at cost less
any impairment losses, and is not depreciated. Construction in progress is reclassified to the appropriate category of
property, plant and equipment when completed and ready for use.
2.8 Investment properties
Investment properties, principally office buildings, are held for long-term rental yields and are not occupied
by the Group. Investment property is initially measured at cost, including related transaction costs and where
applicable borrowing costs. Subsequently, they are carried at fair value. Changes in fair values are presented in profit
or loss as part of ‘other gains/(losses) – net’.
2.9 Intangible assets
(a) Goodwill
Goodwill is measured as described in Note 2.3. Goodwill on acquisitions of subsidiaries is included in
intangible assets. Goodwill is not amortised but it is tested for impairment annually, or more frequently if
events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated
impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill
relating to the entity sold.
APPENDIX I ACCOUNTANT’S REPORT
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--- page 656 ---
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is
made to those cash-generating units or groups of cash-generating units that are expected to benefit from the
business combination in which the goodwill arose. The units or groups of units are identified at the lowest level
at which goodwill is monitored for internal management purposes, being the operating segments.
(b) Software
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and
bring to use the specific software. These costs are amortised using the straight-line method over their estimated
useful lives. Costs associated with maintenance of software programmes are recognised as expenses as
incurred.
(c) Operating concessions
The detailed accounting policy of operating concessions is depicted in Note 2.10.
(d) Amortisation methods and periods
The Group amortises intangible assets with a limited useful life using the straight-line method over the
following periods:
Useful lives
Operating concessions 25-30 years
Software 2-5 years
The useful lives of the operating concessions are estimated based on the length of the concession period
as stipulated in each of the concession agreements.
In addition, for certain software purchased for the purpose of monitoring the heat supply infrastructure,
as such software can be used for the whole concession period without any major updates as expected, the
software is amortised over the expected useful life of 30 years, being the concession period of the relevant
concession project.
(e) Research and development expenditure
Research expenditures are recognised as expenses as incurred. Costs incurred on development projects
(relating to the design and testing of new and improved products) are recognised as intangible assets when the
following criteria are met:
 it is technically feasible to complete the intangible asset so that it will be available for use;
 management intends to complete the intangible asset and use or sell it;
 there is an ability to use or sell the intangible asset;
 it can be demonstrated how the intangible asset will generate probable future economic benefits;
 adequate technical, financial and other resources to complete the development and to use or sell
the intangible asset are available; and
 the expenditure attributable to the intangible asset during its development can be reliably
measured.
Other development expenditures that do not meet these criteria are recognised as expenses as incurred.
Development cost previously recognised as an expense is not recognised as an asset in a subsequent period.
Capitalised development costs are recorded as intangible assets and amortised from the point at which the
assets are ready for use on a straight-line basis over their estimated useful lives.
APPENDIX I ACCOUNTANT’S REPORT
– I-21 –


--- page 657 ---
2.10 Service concession arrangements
The Group has entered into a number of service concession arrangements with governmental authorities (the
“Grantors”). The service concession arrangements consist of build-operate-transfer arrangements under which the
Group carries out construction works of the heat supply facilities for the Grantors and receives in return a right to
operate the service projects concerned for a specified period of time (the “Operation Period”) in accordance with the
pre-established conditions set by the Grantors, and the heat supply facilities should be transferred to the Grantors at
the end of the Operation Period.
Under these service concession arrangements:
 the Grantors control or regulate the services the Group must provide with the infrastructure, to whom
it must provide them, and at what price; and
 the Grantors control, through ownership, beneficial entitlement or otherwise, any significant residual
interest in the infrastructure at the end of the terms of the arrangements.
(a) Consideration given by the Grantors
The Group provides construction services to the Grantors, in exchange for a right to provide heating
service in the concession areas. The Group recognises contract assets as an intangible asset during construction
period for its accumulated right to charge public users of the heating service, which is not an unconditional
right to receive cash because the amounts are contingent on the extent that the public users use the services.
The borrowing costs incurred in financing the construction are capitalised in contract assets classified under
intangible assets during the construction period. The intangible asset is amortised on a straight-line basis over
the Operation Period when it becomes available for use, that is, at the point in time when the operator exercises
its right under the license to charge public users.
Revenue relating to the operating concession is accounted for in accordance with Note 2.27 “Revenue
recognition” below. Costs for operating the services are expensed in the period in which they are incurred.
(b) Construction services
The fair value of the construction services under the concession arrangement is calculated as the
estimated total construction cost plus a profit margin. The profit margins are assessed by the Directors with
reference to the report issued by independent valuer, based on the prevailing market rate applicable to similar
construction services at the date of the service concession arrangement. Revenue relating to the construction
services is accounted for in accordance with Note 2.27 “Revenue recognition” below.
(c) Contractual obligations to maintain or restore the infrastructure
The Group has contractual obligations which it must fulfil as a condition of its licences, that is (i) to
maintain the heat supply facilities it operates to a specified level of service quality; and (ii) to restore the heat
supply facilities to a specified condition before they are handed over to the Grantors at the end of the Operation
Period. These contractual obligations to maintain and restore the heat supply facilities, except for upgrade
element, are recognised and measured in accordance with Note 2.26 “Provision” below.
2.11 Impairment of non-financial assets
Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for
impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other
assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may
not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds
its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value
in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash flows which are largely independent of the cash inflows from other assets or groups of assets
(cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible
reversal of the impairment at the end of each reporting period.
APPENDIX I ACCOUNTANT’S REPORT
– I-22 –


--- page 658 ---
2.12 Financial assets
2.12.1 Classification
The Group classifies its financial assets in the following measurement categories:
 those to be measured subsequently at fair value (either through OCI, or through profit or loss),
and
 those to be measured at amortised cost.
The classification depends on the Group’s business model for managing the financial assets and the
contractual terms of the cash flows.
For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For
investments in equity instruments, this will depend on whether the Group has made an irrevocable election at
the time of initial recognition to account for the equity investment at fair value through OCI.
The Group reclassifies debt investments when and only when its business model for managing those
assets changes.
2.12.2 Recognition and derecognition
Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the
Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash
flows from the financial assets have expired or have been transferred and the Group has transferred
substantially all the risks and rewards of ownership.
2.12.3 Measurement
At initial recognition, the Group 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 that are directly attributable to the acquisition
of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are
expensed in profit or loss.
Debt instruments
Subsequent measurement of debt instruments depends on the Group’s business model for managing the
asset and the cash flow characteristics of the asset. There are three measurement categories into which the
Group classifies its debt instruments:
 Amortised cost: Assets that are held for collection of contractual cash flows where those cash
flows represent solely payments of principal and interest are measured at amortised cost. Interest
income from these financial assets is included in finance income using the effective interest rate
method. Any gain or loss arising on derecognition is recognised directly in profit or loss and
presented in ‘other gains/(losses) – net’ together with foreign exchange gains and losses.
Impairment losses are presented as separate line item in the consolidated statements of
comprehensive income.
 Fair value through OCI: Assets that are held for collection of contractual cash flows and for
selling the financial assets, where the assets’ cash flows represent solely payments of principal
and interest, are measured at fair value through OCI. Movements in the carrying amount are taken
through OCI, except for the recognition of impairment gains or losses, interest revenue and
foreign exchange gains and losses which are recognised in profit or loss. When the financial asset
is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from
equity to the consolidated statements of comprehensive income and recognised in ‘other
gains/(losses) – net’. Interest income from these financial assets is included in finance income
using the effective interest rate method. Foreign exchange gains and losses are presented in ‘other
gains/(losses) – net’ and impairment expenses are presented as separate line item in the
consolidated statements of comprehensive income.
APPENDIX I ACCOUNTANT’S REPORT
– I-23 –


--- page 659 ---
 Fair value through profit or loss: Assets that do not meet the criteria for amortised cost or
financial assets at fair value through OCI are measured at fair value through profit or loss. A gain
or loss on a debt investment that is subsequently measured at fair value through profit or loss and
is not part of a hedging relationship is recognised in profit or loss and presented in ‘other
gains/(losses) – net’ in the period in which it arises.
Equity instruments
The Group subsequently measures all equity investments at fair value. Where the Group’s management
has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent
reclassification of fair value gains and losses to profit or loss. Dividends from such investments continue to
be recognised in ‘other income’ when the Group’s right to receive payments is established.
Changes in the fair value of financial assets at fair value through profit or loss are recognised in ‘other
gains/(losses) – net’ as applicable. Impairment losses (and reversal of impairment losses) on equity
investments measured at financial assets at fair value through OCI are not reported separately from other
changes in fair value.
2.13 Impairment of financial assets
The Group has the following types of financial assets subject to expected credit loss model:
– trade receivables;
– contract assets;
– other receivables and deposits; and
– cash and cash equivalents and restricted cash.
The Group assesses on a forward looking basis the expected credit losses associated with its financial assets
carried at amortised cost. The impairment methodology applied depends on whether there has been a significant
increase in credit risk. Note 3.1(b) details how the Group determines whether there has been a significant increase
in credit risk.
For trade receivables and contract assets, the Group applies the simplified approach permitted by IFRS 9,
which requires expected lifetime losses to be recognised from initial recognition of the receivables.
For other receivables and deposits, impairment is measured as either 12-month expected credit losses or
lifetime expected credit loss, depending on whether there has been a significant increase in credit risk since initial
recognition. If a significant increase in credit risk of a receivable has occurred since initial recognition, impairment
is measured as lifetime expected credit losses.
While cash and cash equivalents and restricted cash are also subject to the impairment requirements of IFRS
9, the identified impairment loss was immaterial.
2.14 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount is reported in the statements of financial position
where the Group currently has a legally enforceable right to offset the recognised amounts, and there is an intention
to settle on a net basis or realise the assets and settle the liabilities simultaneously.
2.15 Contract assets and contract liabilities
Upon entering into a contract with a customer, the Group obtains rights to receive consideration from the
customer and assumes performance obligations to transfer goods or provide services to the customer. The
combination of those rights and performance obligations gives rise to a net asset or a net liability depending on the
relationship between the remaining rights and performance obligations. The contract is an asset and recognised as
contract assets if the measure of the remaining rights exceeds the measure of the remaining performance obligations.
Conversely, the contract is a liability and recognised as contract liabilities if the measure of the remaining
performance obligations exceeds the measure of the remaining rights.
APPENDIX I ACCOUNTANT’S REPORT
– I-24 –


--- page 660 ---
Revenue arising from the provision and distribution of heat is recognised on a straight-line basis over the
scheduled period and cash received in advance were recognised as contract liabilities.
Revenue arising from pipeline connection fees is recognised on a straight-line basis over the Operation Period
and cash received in advance were recognised as contract liabilities.
2.16 Inventories
Inventories are stated at the lower of cost and net realisable value. Costs are assigned to individual items of
inventory on the basis of weighted average costs. Costs of purchased inventory are determined after deducting rebates
and discounts. It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course
of business less the estimated costs of completion and the estimated costs necessary to make the sale.
2.17 Trade and other receivables
Trade receivables are amounts due from customers for services provided in the ordinary course of business.
If collection of trade and other receivables is expected in one year or less (or in the normal operating cycle if longer),
they are classified as current assets. If not, they are presented as non-current assets.
Trade receivables are recognised initially at the amount of consideration that is unconditional unless they
contain significant financing components, when they are recognised at fair value. The Group holds the trade and other
receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at
amortised cost using the effective interest method, less allowance for impairment.
2.18 Cash and cash equivalents
For the purpose of presentation in the consolidated statements of cash flows, cash and cash equivalents include
cash on hand, deposits held at call with banks, and other short-term, highly liquid investments with original maturities
of three months or less.
2.19 Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax,
from the proceeds.
2.20 Government grants
Grants from the government are recognised at their fair value where there is a reasonable assurance that the
grant will be received and the Group will comply with all attached conditions.
Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to
match them with the costs that they are intended to compensate.
Government grants relating to the purchase of property, plant and equipment are included in non-current
liabilities as deferred income and are credited to profit or loss on a straight-line basis over the expected useful lives
of the related assets.
When there is a benefit of a government loan that is granted at a below-market interest rate, the benefit is
treated as a government grant.
2.21 Trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of financial
period which are unpaid. Trade payables and other payables are presented as current liabilities unless payment is not
due within 12 months after the reporting date. They are recognised initially at fair value and subsequently measured
at amortised cost using the effective interest method.
2.22 Borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are
subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the
redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest
method.
APPENDIX I ACCOUNTANT’S REPORT
– I-25 –


--- page 661 ---
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loans to the extent
that it is probable that some or all of the facilities will be drawn down. In this case, the fees are deferred until the
draw down occurs. To the extent there is no evidence that it is probable that some or all of the facilities will be drawn
down, the fees are capitalised as a prepayment for liquidity services and amortised over the period of the facilities
to which they relate.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement
of the liabilities for at least 12 months after the reporting period.
2.23 Borrowing costs
General and specific borrowing costs that are directly attributable to the acquisition, construction or production
of a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for
its intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready
for their intended use or sale.
Investment income earned on the temporary investment relating to specific borrowings pending their
expenditures on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
Other borrowing costs are expensed in the period in which they are incurred.
2.24 Current and deferred income tax
The income tax expense or credit for the period is the tax payable on the current period’s taxable income based
on the applicable income tax rate for each jurisdiction, adjusted by changes in deferred income tax assets and
liabilities attributable to temporary differences and to unused tax losses.
(a) Current income tax
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted
at the end of the reporting period in the countries where the Company and its subsidiaries operate and generate
taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in
which applicable tax regulation is subject to interpretation and considers whether it is probable that a taxation
authority will accept an uncertain tax treatment. The Group measures its tax balances either based on the most
likely amount or the expected value, depending on which method provides a better prediction of the resolution
of the uncertainty.
(b) Deferred income tax
Deferred income tax is provided in full, using the liability method, on temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial
statements. However, deferred income tax liabilities are not recognised if they arise from the initial recognition
of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or
liability in a transaction other than a business combination that at the time of the transaction neither accounting
profit or loss nor taxable ones are affected. Deferred income tax is determined using tax rates (and laws) that
have been enacted or substantially enacted by the end of the reporting period and are expected to apply when
the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised only if it is probable that future taxable amounts will be
available to utilise those temporary differences and losses.
The deferred income tax liability in relation to investment property that is measured at fair value is
determined assuming the property will be recovered entirely through sale.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset
current income tax assets and liabilities and when the deferred income tax balances related to the same taxation
authority. Current income tax assets and tax liabilities are offset where the entity has a legally enforceable right
to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Current and deferred income tax is recognised in profit or loss, except to the extent that it relates to
items recognised in OCI or directly in equity. In this case, the tax is also recognised in OCI or directly in
equity, respectively.
APPENDIX I ACCOUNTANT’S REPORT
– I-26 –


--- page 662 ---
2.25 Employee benefits
(a) Short-term obligations
Liabilities for wages and salaries, including non-monetary benefits and accumulated sick leave that are
expected to be settled wholly within 12 months after the end of the period in which the employees render the
related service are recognised in respect of employees’ services up to the end of the reporting period and are
measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as
current employee benefit obligations in the consolidated statements of financial position.
(b) Employment obligations
Pension obligations
The Group only operates defined contribution pension plans. In accordance with the rules and
regulations in the PRC, the PRC based employees of the Group participate in various defined contribution
retirement benefit plans and other employee social security plans, including pension, medical, other welfare
benefits, organised by the relevant municipal and provincial governments in the PRC under which the Group
and the PRC based employees are required to make monthly contributions to these plans calculated as a
percentage of the employees’ salaries. The municipal and provincial governments undertake to assume the
retirement benefit obligations of all existing and future retired PRC based employees’ payable under the plans
described above. Other than the monthly contributions, the Group has no further obligation for the payment
of retirement and other post-retirement benefits of its employees. The assets of these plans are held separately
from those of the Group in independently administrated funds managed by the governments.
The Group’s contributions to the defined contribution retirement scheme are expensed as incurred.
Termination benefits
Termination benefits are payable when employment is terminated by the Group before the normal
retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The
Group recognises termination benefits at the earlier of the following dates: (a) when the Group can no longer
withdraw the offer of those benefits; and (b) when the entity recognises costs for a restructuring that is within
the scope of IAS 37 and involves the payment of termination benefits. In the case of an offer made to
encourage voluntary redundancy, the termination benefits are measured based on the number of employees
expected to accept the offer. Benefits falling due more than 12 months after the end of the reporting period
are discounted to their present value.
Employee leave entitlements
Employee entitlements to annual leave are recognised when they accrue to employees. A provision is
made for the estimated liability for annual leave as a result of services rendered by employees up to the
reporting date.
Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.
2.26 Provision
Provisions for legal claims and make good obligations are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle
the obligation and the amount can be reliably estimated. Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement
is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of
an outflow with respect to any one item included in the same class of obligations may be small.
Provisions are measured at the present value of management’s best estimate of the expenditures required to
settle the present obligation at the end of the reporting period. The discount rate used to determine the present value
is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the
liability. The increase in the provision due to the passage of time is recognised as interest expense.
APPENDIX I ACCOUNTANT’S REPORT
– I-27 –


--- page 663 ---
The operator of an operating concession normally has contractual obligations it must fulfil as a condition of
its license (i) to maintain the infrastructure to a specified level of service quality; and (ii) to restore the infrastructure
to a specified condition before it is handed over to the Grantor at the end of the service arrangement. These
contractual obligations to maintain or restore the infrastructure, except for any upgrade element, shall be recognised
in the consolidated statements of financial position and measured in accordance with IAS 37 at the best estimate of
the expenditures that will be required to settle the contractual obligations.
2.27 Revenue recognition
Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts
collected on behalf of third parties. The Group recognises revenue when it transfers control over a product or service
to a customer. This may be at a point in time or over time.
The Group satisfies a performance obligation and recognises revenue over time, if one of the following criteria
is met:
 when the customer simultaneously receives and consumes the benefits provided by the Group’s
performance as the Group performs;
 when the Group’s performance creates or enhances an asset that the customer controls as the asset is
created or enhanced; or
 when the Group’s performance does not create an asset with an alternate use to the Group and the Group
has an enforceable right to payment for performance completed to date.
If none of the above conditions are met, the Group recognises revenue at a point in time at which the
performance obligation is satisfied for the sale of that good or service when control has been passed.
If control of the product or service is transferred over time, revenue is recognised over the period of the
contract by measuring the progress towards complete satisfaction of that performance obligation.
When the contract contains a financing component which provides the customer 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 the separate financing
transaction between the Group and the customer at contract inception.
When another party is involved in providing goods or services to a customer, the Group determines whether
the nature of its promise is a performance obligation to provide the specified goods or services itself (i.e. the Group
is a principal) or to arrange for those goods or services to be provided by the other party (i.e. the Group is an agent).
The Group is a principal if it controls the specified good or service before that good or service is transferred to a
customer. The Group is an agent if its performance obligation is to arrange for the provision of the specified good
or service by another party. In this case, the Group does not control the specified good or service provided by another
party before that good or service is transferred to the customer.
When the Group acts as a principal, it recognises revenue in the gross amount of consideration to which it
expects to be entitled in exchange for the specified good or service transferred. When the Group acts as an agent, it
recognises revenue in the amount of any fees or commission to which it expects to be entitled in the exchange for
arranging for the specified goods or services to be provided by the other party.
(a) Provision and distribution of heat (including price subsidies from government)
Revenue from the provision and distribution of heat is recognised on a straight-line basis over the period
when heat is provided to customers because the customers simultaneously receive and consume the benefits
provided by the Group. The revenue is measured by reference to the proportion of the number of days of
provision of heat to the total number of days of the scheduled period as regulated by the local government.
In certain region, the Group provides heat and charges users at prices substantially lower than those in
certain nearby regions and the local government of that region gives price subsidies to the Group. The Group
has assessed that such price subsidies, as determined by the relevant concession agreement and a specific
formula pursuant to a notice issued to the Group by the local government, are in substance compensations for
the Group’s revenue due to the lower heat rates and the Group has contractual rights to receive such price
subsidies in a recurring rather than an incidental manner. Therefore, the price subsidies receivable from the
local government of that region are recognised as revenue over the scheduled period where there is a
reasonable assurance that the price subsidies will be received.
APPENDIX I ACCOUNTANT’S REPORT
– I-28 –


--- page 664 ---
(b) Engineering construction services
Revenue from engineering construction services is recognised over time by measuring the progress
towards complete satisfaction of the services. The progress towards complete satisfaction of the performance
obligation is measured based on the Group’s efforts or inputs to the satisfaction of the performance obligations,
by reference to the costs incurred up to the end of the reporting period as a percentage of total estimated costs
for each contract.
(c) Pipeline connection fees
The Group receives pipeline connection fees from customers for building the main heat pipelines and
connect with the customers’ residential households. The pipeline connection fees received from customers is
non-refundable and is to facilitate the future service of provision of heat. Revenue from pipeline connection
fees is recognised on a straight-line basis over the applicable Operation Period.
(d) Heat transmission services
Revenue from the provision of the heat transmission service is recognised at the point in time when
control of heat is transferred to the customers.
(e) Sale of goods
The Group sells heat exchange facilities, meters and other heat supply related equipment to its
customers. Revenue from sale of goods is recognised at the point in time when the control of the product is
transferred to the customer which generally coincides with delivery and acceptance of the goods sold.
(f) Energy management services
The Group provides energy management services to a corporate customer by helping it to save energy
for its heat supply facilities. Revenue from energy management services is recognised over the period when
the service is rendered.
(g) Designing services
Revenue from designing services rendered, including designing, consulting and feasibility studies with
respect to the heat supply projects, is recognised at the point in time when the customers are satisfied with the
designing results delivered by the Group.
2.28 Earnings per share
(a) Basic earnings per share
Basic earnings per share is calculated by dividing:
 the profit attributable to owners of the Company, excluding any costs of servicing equity other
than ordinary shares
 by the weighted average number of ordinary shares outstanding during the financial year, adjusted
for bonus elements in ordinary shares issued during the year and excluding treasury shares, (if
any).
(b) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to
take into account:
 the after-income tax effect of interest and other financing costs associated with dilutive potential
ordinary shares, and
 the weighted average number of additional ordinary shares that would have been outstanding
assuming the conversion of all dilutive potential ordinary shares.
APPENDIX I ACCOUNTANT’S REPORT
– I-29 –


--- page 665 ---
2.29 Interest income
Interest income from financial assets at fair value through profit or loss is included in the gains on these assets,
see Note 7 below.
Interest income on financial assets at amortised cost calculated using the effective interest method is
recognised in profit or loss as finance income, see Note 10 below.
Interest income is presented as finance income where it is earned from financial assets that are held for cash
management purposes, see Note 10 below.
Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial
asset except for financial assets that subsequently become credit-impaired. For credit-impaired financial assets the
effective interest rate is applied to the net carrying amount of the financial asset (after deduction of the loss
allowance).
2.30 Leases
The Group as the lessee
The Group leases various land and properties for its operations. Rental contracts are typically made for
fixed periods of 1 to 15 years. Lease terms are negotiated on an individual basis and contain a wide range of
different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not
be used as security for borrowing purposes.
Leases are recognised as right-of-use asset and a corresponding liability at the date at which the leased
asset is available for use by the Group.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities
include the net present value of the following lease payments:
 fixed payments (including in-substance fixed payments), less any lease incentives receivable;
 variable lease payment that are based on an index or a rate;
 amounts expected to be payable by the lessee under residual value guarantees;
 the exercise price of a purchase option if the lessee is reasonably certain to exercise that option;
and
 payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that
option.
The lease payments are discounted using the interest rate implicit in the lease, if that rate can be
determined, or the Group’s incremental borrowing rate.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit
or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of
the liability for each period.
Right-of-use assets are measured at cost comprising the following:
 the amount of the initial measurement of lease liability;
 any lease payments made at or before the commencement date less any lease incentives received;
 any initial direct costs; and
 restoration costs.
Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term
on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset
is depreciated over the underlying asset’s useful life.
APPENDIX I ACCOUNTANT’S REPORT
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--- page 666 ---
Payments associated with short-term leases and leases of low-value assets are recognised on a
straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months
or less.
The Group as the lessor
Rental income from operating leases where the Group is a lessor is recognised in other income on a
straight-line basis over the lease term. The respective leased assets are included in the consolidated statements
of financial position based on their nature.
Finance leases, which effectively transfer to the lessee substantially all the risks and rewards of
ownership of the asset, are recognised at the inception of the lease term at the fair value of the leased asset
or, if lower, at the present value of the minimum lease payments. Lease receipts are apportioned between the
finance income and reduction of the leased asset so as to achieve a constant rate of interest on the remaining
balance of the asset. Finance income is charged directly to profit or loss.
2.31 Dividend
Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at
the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting
period.
2.32 Financial guarantee contracts
Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The
liability is initially measured at fair value and subsequently at the higher of
 the amount determined in accordance with the expected credit loss model under IFRS 9, ‘Financial
Instruments’, and
 the amount initially recognised less, where appropriate, the cumulative amount of income recognised in
accordance with the principles of IFRS 15 Revenue from Contracts with Customers.
The fair value of financial guarantees is determined as the present value of the difference in net cash flows
between the contractual payments under the debt instrument and the payments that would be required without the
guarantee, or the estimated amount that would be payable to a third party for assuming the obligations.
3 FINANCIAL RISK MANAGEMENT
3.1 Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The
Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to
minimise potential adverse effects on the Group’s financial performance.
Risk management is carried out by the senior management of the Group.
(a) Market risk
(i) Foreign exchange risk
The principal activities of the Group are operated in the PRC. The exposure to foreign exchange
risk is insignificant given the business activities of the Group are all denominated in RMB.
(ii) Cash flow and fair value interest rate risk
The Group’s interest rate risk primarily arises from interest-bearing cash and cash equivalents,
restricted cash, borrowings and lease liabilities. Cash and cash equivalents and borrowings issued at
variable rates expose the Group to cash flow interest-rate risk. Borrowings and lease liabilities issued
at fixed rates expose the Group to fair value interest-rate risk.
APPENDIX I ACCOUNTANT’S REPORT
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The Group closely monitors the trend of interest rate and its impact on the Group’s interest rate
risk exposure. The Group currently has not used any interest rate swap arrangements for managing the
interest rate risk.
As at 31 December 2020, 2021 and 2022, borrowings of the Group which were bearing at floating
rates amounted to RMB286,118,000, RMB271,923,000 and RMB437,575,000, respectively. As at 31
December 2020, 2021 and 2022, should the interest rate be increased/decreased by 50 basis points with
all other factors remain unchanged, the finance costs of the Group would increase/decrease by
approximately RMB1,431,000, RMB1,360,000 and RMB2,188,000, respectively.
(b) Credit risk
The Group is exposed to credit risk in relation to its cash and cash equivalents, restricted cash, wealth
management products, trade receivables (including lease receivables), contract assets and other receivables.
(i) Risk management
For cash and cash equivalents, restricted cash and wealth management products, management
manages the credit risk by placing deposits or investments in state-owned financial institutions in the
PRC, or reputable banks and financial institutions in the PRC having high credit quality.
The customers of the Group include individual customers, government customers and corporate
customers. For individual customers, the Group has no significant concentrations of credit risk. For
government customers, the Group assessed that the related credit risk is low. For corporate customers,
the Group assessed the credit quality of the counterparties by taking into account their financial position,
repayment history and other factors. The Group also has other monitoring procedures to ensure that
follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverability of
these receivables to ensure that appropriate impairment losses are recognised for those irrecoverable
amounts.
The carrying amounts of trade receivables, other receivables and deposits, restricted cash, cash
and cash equivalents and wealth management products represent the Group’s maximum exposure to
credit risk in relation to financial assets.
The maximum exposure arising from the provision of financial guarantee to the borrowing of an
associate amounted to approximately RMB7,200,000 and RMB7,200,000 as at 31 December 2020 and
2021, respectively. Such borrowing had not been overdue or underperforming. Based on the results of
management’s credit risk assessment, the corresponding expected credit loss provision was not material
and therefore no financial guarantee liability had been recognised in the Group’s consolidated
statements of financial position. Such borrowing was fully repaid by the associate during the year ended
31 December 2022.
(ii) Impairment of financial assets
While cash and cash equivalents, restricted cash, notes receivable and wealth management
products are also subject to the impairment requirements of IFRS 9, the identified expected credit loss
was immaterial as management considers that the counter-parties are reputable banks and financial
institutions with high credit ratings. The Group has not incurred significant loss from non-performance
by these parties in the past and management does not expect so in the future. Therefore, expected credit
loss rate is assessed to be close to zero and no provision was made.
The Group also has the following three types of financial assets that are subject to the expected
credit loss model:
 Trade receivables (excluding notes receivable)
 Contract assets
 Other receivables
APPENDIX I ACCOUNTANT’S REPORT
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--- page 668 ---
Trade receivables (excluding notes receivable) and contract assets
The Group applies the IFRS 9 simplified approach to measure the expected credit losses (“ECL”),
which uses a lifetime expected loss provision for all trade receivables and contract assets. The historical
loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors
affecting the ability of the customers to settle the receivables. The Group has identified the Consumer
Price Index, Producer Price Index and the unemployment rate of China where the Group operates to be
the most relevant factors, and accordingly adjusts the historical loss rates based on the expected changes
in these factors.
To measure the ECL, trade receivables and contract assets have been grouped based on shared
credit risk characteristics and aging. The Group also made individual assessment on the recoverability
of its receivables for certain customer based on historical settlement record.
Set out below is the information about credit risk exposure on the Group’s trade receivables
(excluding notes receivable) and contract assets using provision matrix:
Non-government customers (excluding energy management services)-assessed based on grouping
Within
1 year
1t o
2 years
2t o
3 years
Over
3 years Total
Trade receivables
At 31 December 2020
Expected loss rate 2.80% 10.34% 24.22% 82.16%
Gross carrying amount (RMB’000) 159,928 52,753 6,094 6,620 225,395
Loss allowance provision
(RMB’000) 4,478 5,457 1,476 5,439 16,850
At 31 December 2021
Expected loss rate 3.26% 11.05% 36.72% 96.52%
Gross carrying amount (RMB’000) 162,056 57,024 12,341 10,261 241,682
Loss allowance provision
(RMB’000) 5,279 6,299 4,531 9,904 26,013
At 31 December 2022
Expected loss rate 3.92% 13.02% 36.77% 97.62%
Gross carrying amount (RMB’000) 276,160 51,665 15,359 14,718 357,902
Loss allowance provision
(RMB’000) 10,835 6,729 5,647 14,368 37,579
Non-government customers (excluding energy management services)-assessed individually
Trade receivables
At 31 December 2022
Expected loss rate 100.00%
Gross carrying amount (RMB’000) 9,838
Loss allowance provision
(RMB’000) 9,838
The Group individually assessed the recoverability of the balance with certain non-government
customers as at 31 December 2022 as significant increase in credit risk were identified.
APPENDIX I ACCOUNTANT’S REPORT
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--- page 669 ---
Government customer in relation to price subsidy
Trade receivables
At 31 December 2020
Expected loss rate 0.18%
Gross carrying amount (RMB’000) 156,476
Loss allowance provision (RMB’000) 276
At 31 December 2021
Expected loss rate 0.17%
Gross carrying amount (RMB’000) 122,260
Loss allowance provision (RMB’000) 203
At 31 December 2022
Expected loss rate 0.15%
Gross carrying amount (RMB’000) 156,228
Loss allowance provision (RMB’000) 228
Energy management services customer
The Group assesses the relevant trade receivables individually.
Trade receivables
At 31 December 2020
Expected loss rate 58.78%
Gross carrying amount – trade receivables (RMB’000) 15,184
Gross carrying amount – lease receivables (RMB’000) 152,106
Loss allowance provision (RMB’000) 98,327
At 31 December 2021
Expected loss rate 51.74%
Gross carrying amount – trade receivables (RMB’000) 17,793
Gross carrying amount – lease receivables (RMB’000) 151,843
Loss allowance provision (RMB’000) 87,769
At 31 December 2022
Expected loss rate 32.35%
Gross carrying amount – trade receivables (RMB’000) 1,612
Gross carrying amount – lease receivables (RMB’000) 131,095
Loss allowance provision (RMB’000) 42,936
Government customer in relation to construction services
Contract assets
At 31 December 2020
Expected loss rate 0.41%
Gross carrying amount (RMB’000) 44,319
Loss allowance provision (RMB’000) 182
At 31 December 2021
Expected loss rate 0.55%
Gross carrying amount (RMB’000) 58,994
Loss allowance provision (RMB’000) 323
At 31 December 2022
Expected loss rate 0.44%
Gross carrying amount (RMB’000) 14,674
Loss allowance provision (RMB’000) 64
APPENDIX I ACCOUNTANT’S REPORT
– I-34 –


--- page 670 ---
The loss allowance provision for trade receivables and contract assets as at 31 December 2020,
2021 and 2022 reconciles to the opening loss allowance as follows:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
At the beginning of the year 102,229 115,635 114,308
Provision/(reversal) of loss allowance
recognised in profit or loss 13,406 (1,327) (23,663)
At the end of the year 115,635 114,308 90,645
During the Track Record Period, the provision/reversal of loss allowances were recognised in
profit or loss in “Provision/reversal of impairment losses on financial assets and contract assets” in
relation to the impaired trade receivables and contract assets.
Trade receivables and contract assets are written off where there is no reasonable expectation of
recovery. Indicators that there is no reasonable expectation of recovery, amongst others, include the
failure of a debtor to engage in a repayment plan with the Group.
Other receivables
The Group considers the probability of default upon initial recognition of asset and whether there
has been a significant increase in credit risk on an ongoing basis throughout each reporting period. To
assess whether there is a significant increase in credit risk the Group compares the risk of a default
occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition.
It considers available reasonable and supportive forwarding-looking information. Especially the
following indicators are incorporated.
 actual or expected significant adverse changes in business, financial or economic
conditions that are expected to cause a significant change to the debtor’s ability to meet its
obligations;
 actual or expected significant changes in the operating results of the debtor;
 significant changes in the expected performance and behaviour of the debtor, including
changes in the payment status of the debtors.
The Group accounts for its credit risk by appropriately providing for expected credit losses on a
timely basis. In calculating the expected credit loss rates, the Group considers historical loss rates for
each category of receivables and adjusts for forward looking macroeconomic data.
The nature of other receivables and deposits (excluding prepayments) are set out in Note 20.
Management considered these receivables and deposits to be of low credit risk and thus the loss
allowance provision recognised was limited to 12 months expected losses.
APPENDIX I ACCOUNTANT’S REPORT
– I-35 –


--- page 671 ---
The loss allowance provision for other receivables and deposits (excluding prepayments) as at 31
December 2020, 2021 and 2022 reconciles to the opening loss allowance for that provision as follows:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
At the beginning of the year 4,000 4,142 4,474
Provision for loss allowance recognised in
profit or loss 142 332 545
At the end of the year 4,142 4,474 5,019
(c) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the
availability of funding through an adequate amount of committed credit facilities to meet obligations when
due.
Management monitors rolling forecasts of the Group’s liquidity reserve and cash and cash equivalents
on the basis of expected cash flows. The Group expects to fund the future cash flow needs through internally
generated cash flows from operations and available banking facilities.
The table below analyses the Group’s financial liabilities into relevant maturity grouping based on the
remaining period at the reporting date to the earliest date the lenders can demand for repayment. The amounts
disclosed in the table are the contractual undiscounted cash flows.
Less than
1 year or
on demand
Between 1
and 2 years
Between 2
and 5 years
Over
5 years Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
As at 31 December 2020
Lease liabilities 2,795 5,056 9,175 13,775 30,801
Borrowings 969,663 26,769 177,651 177,436 1,351,519
Trade and other payables
excluding non-financial
liabilities 916,417 37,462 29,243 5,900 989,022
Guarantee (Note 38 (g)) 7,200––– 7,200
Total 1,896,075 69,287 216,069 197,111 2,378,542
As at 31 December 2021
Lease liabilities 2,818 3,442 8,582 10,925 25,767
Borrowings 497,228 350,610 188,272 111,534 1,147,644
Trade and other payables
excluding non-financial
liabilities 765,589 26,293 4,425 4,425 800,732
Guarantee (Note 38 (g)) 7,200––– 7,200
Total 1,272,835 380,345 201,279 126,884 1,981,343
APPENDIX I ACCOUNTANT’S REPORT
– I-36 –


--- page 672 ---
Less than
1 year or
on demand
Between 1
and 2 years
Between 2
and 5 years
Over
5 years Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
As at 31 December 2022
Lease liabilities 2,212 3,358 9,777 9,895 25,242
Borrowings 283,829 82,573 468,003 193,182 1,027,587
Trade and other payables
excluding non-financial
liabilities 912,562 1,475 4,425 2,950 921,412
Total 1,198,603 87,406 482,205 206,027 1,974,241
The table above includes a term loan amounting to RMB193,000,000, RMB179,000,000, and nil as at
31 December 2020, 2021 and 2022 which is classified as repayable on demand because of the breach of certain
covenants or financial undertakings stipulated in the relevant loan agreement. The table below summarises the
maturity analysis of such term loan based on the original scheduled repayment dates set out in the loan
agreement. The amounts in the table below include interest payments computed using implicit interest rate. In
March 2022, the Group obtained from the lending bank a letter of waiver from strict compliance with the
relevant financial covenants. Taking into account the Group’s financial position, the Directors do not consider
that it is probable that the bank will exercise its discretion to demand immediate repayment. The Directors
believe that such term loan will be repaid in accordance with the original scheduled repayment dates set out
in the loan agreement.
Less than
1 year
Between 1
and 2 years
Between 2
and 5 years
Over
5 years Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
As at 31 December 2020
Bank borrowings 23,305 22,610 77,941 120,575 244,431
As at 31 December 2021
Bank borrowings 22,610 24,396 82,427 91,693 221,126
As at 31 December 2022
Bank borrowings N/A N/A N/A N/A N/A
3.2 Capital management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going
concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to
shareholders, issue new shares or sell assets to reduce debt or draw down more borrowings as and when necessary.
The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by
total capital. Net debt is calculated as total debts less cash and cash equivalents. Total capital is calculated as ‘equity’
as shown in the consolidated statements of financial position.
APPENDIX I ACCOUNTANT’S REPORT
– I-37 –


--- page 673 ---
The gearing ratio as at 31 December 2020, 2021 and 2022 were as follows:
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Borrowings 1,308,636 1,061,277 881,214
Lease liabilities 23,557 19,975 19,682
Loans from government 28,724 28,067 22,498
Amounts advanced from a related party 700 700 700
Less: Cash and cash equivalents (91,826) (136,185) (378,068)
Net debt 1,269,791 973,834 546,026
Total equity 612,685 782,396 922,562
Gearing ratio 207% 124% 59%
The gearing ratio decreased from 207% in 2020 to 59% in 2022 because of the Group’s increasing operating
cash inflows during the Track Record Period which were utilised to repay the Group’s borrowings, as well as the
gradual increase in owners’ equity resulted from the Group’s profitable operations during the Track Record Period.
3.3 Fair value estimation
(a) Financial assets
The Group made judgements and estimates in determining the fair values of the financial instruments
that are recognised and measured at fair value in the financial statements. To provide an indication about the
reliability of the inputs used in determining fair value, the Group has classified its financial instruments into
the three levels prescribed under the accounting standards.
The Group’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at
the end of the reporting period.
Level 1: The fair value of financial instruments traded in active markets is based on quoted market
prices at the end of the reporting period. The quoted market price used for financial assets held by the Group
is the current bid price. These instruments are included in level 1.
Level 2: The fair value of financial instruments that are not traded in an active market is determined
using valuation techniques which maximise the use of observable market data and rely as little as possible on
entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the
instrument is included in level 2.
Level 3: If one or more of the significant inputs is not based on observable market data, the instrument
is included in level 3.
As at 31 December 2020, 2021 and 2022, the Group had no level 1 and level 2 financial instruments.
There were no transfers among levels 1, 2 and 3 for recurring fair value measurements of the financial
instruments during the Track Record Period.
APPENDIX I ACCOUNTANT’S REPORT
– I-38 –


--- page 674 ---
The following table presents the changes in level 3 financial instruments during the Track Record
Period.
Financial assets at fair value through profit or
loss
Wealth management products
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
At beginning of the year 14,043 11,041 17,139
Additions 743,929 77,000 10,000
Gains recognised in profit
or loss 1,207 418 146
Disposals (748,138) (71,320) (27,285)
At end of the year 11,041 17,139 –
Includes unrealised gains recognised in profit or
loss attributable to balances held at the end of
the reporting period 41 100 –
The Group adopts various techniques to determine the fair value of the Group’s level 3 financial
instruments.
The unobservable inputs are expected return rates. The higher the expected return rates, the higher the
fair value. The expected annual return rates of the investments in wealth management products with floating
rates range from 2.10% to 3.88% per annum during the Track Record Period. As at 31 December 2020, 2021
and 2022, if the expected annual return rates had been 50 basis points higher/lower with all other variables
were held constant, the fair value of the investments in wealth management products would have been
approximately RMB55,000, RMB86,000 and nil higher/lower, respectively. The impact from discounted rate
was immaterial due to the reason that the maturity of the wealth management products was short.
The carrying amounts of the Group’s financial assets and liabilities, including cash and cash equivalents,
restricted cash, trade receivables and other receivables and deposits (excluding prepayments), borrowings,
trade and other payables (excluding non-financial liabilities) and lease liabilities approximated their fair values
due to their short maturities or their interest rates are considered as close to the current market rates.
(b) Non-financial assets
Please refer to Note 15 for the fair value estimation of the investment properties of the Group.
4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of financial statements requires the use of accounting estimates which, by definition, will
seldom equal the actual results. Management also needs to exercise judgement in applying the Group’s accounting
policies.
Estimates and judgements are continually evaluated. They are based on historical experience and other factors,
including expectations of future events that may have a financial impact on the entity and that are believed to be
reasonable under the circumstances.
(a) Service concession arrangements
In determining whether the heat supply facilities fall into the scope of International Financial Reporting
Interpretations Committee 12 (the “IFRIC 12”) “Service Concession Arrangements”, the Group applied judgements,
including (i) whether the Grantors control or regulate the services the Group must provide with the infrastructure,
to whom it must provide them, and at what price; (ii) whether the Grantors control, through ownership, beneficial
entitlement or otherwise, any significant residual interest in the infrastructure asset at the end of the terms of the
arrangements.
APPENDIX I ACCOUNTANT’S REPORT
– I-39 –


--- page 675 ---
According to the relevant service concession agreements, competitive modes, such as public biddings, are
adopted at the expiry of the service concession arrangements to re-select the concession grantee and the Group has
preferential rights to renew its concession rights if the Group provides to the Grantors the same offer as other
potential competitors. In the opinion of the Directors, the Group is not able to control the renewal of the concession
agreements as an open tender is required by law and the result of such open tender is uncertain. Thus, the Directors
exercise significant judgement and account for the Group’s infrastructure under IFRIC12 “Service Concession
Arrangements” rather than under IAS 16 “Property, Plant and Equipment”.
The fair value of the construction service under the concession arrangements is calculated as the estimated
total construction cost plus a profit margin which ranged from 14.60% to 16.35% during the Track Record Period.
The profit margin was determined by the management with reference to the report issued by independent valuer,
based on the prevailing market rates applicable to similar construction services. Revenue relating to construction
services is accounted for in accordance with the accounting policy in Note 2.27.
(b) Impairment assessment of intangible assets
The carrying value of intangible assets are reviewed for impairment annually or when events or changes in
circumstances indicate the carrying amounts may not be recoverable in accordance with the accounting policy as
disclosed in Note 2.11 above. The recoverable amount for impairment assessment is the higher of its fair value less
costs of disposal and value-in-use. The determination of recoverable amount involves significant estimates.
Estimating the value-in-use requires the Group to make estimates for future cash flows and to determine appropriate
discount rates and other assumptions as disclosed in Note 17. A change in such estimates will result in an adjustment
to the estimated impairment provision.
(c) Useful lives of the property, plant and equipment
The Group depreciates the property, plant and equipment in accordance with the accounting policies as set out
in Note 2.7. The estimated useful lives reflect the Director’s estimates of the periods that the Group intends to derive
future economic benefits from the use of these assets.
(d) Expected credit loss for receivables
The Group makes allowances on receivables based on assumptions about risk of default and expected loss
rates. The Group used judgement in making these assumptions and selecting the inputs to the impairment calculation,
based on the Group’s past history, existing market conditions as well as forward looking estimates at the end of each
reporting period.
Where the expectation is different from the original estimate, such difference will impact the carrying amount
of trade and other receivables, and the impairment losses in the periods in which such estimate has been changed.
For details of the key assumptions and inputs used, see Note 3.1(b) above.
(e) Current tax and deferred income tax
The Group is subject to income taxes in the PRC. Significant judgement is required in determining the
provision for income taxes. There are some transactions and calculations for which the ultimate tax determination is
uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues
based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different
from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets
and liabilities in the period in which such determination is made.
Deferred income tax assets and liabilities are determined using tax rates that are expected to apply when the
related deferred income tax assets are realised or the deferred income tax liabilities are settled. The expected
applicable tax rate is determined based on the enacted tax laws and regulations and the actual situation of the Group.
The management of the Group will revise the expectation where the applicable tax rate is different from the original
expectation.
Deferred income tax assets relating to temporary differences and tax losses are recognised when management
expects it is probable that future taxable profits will be available to offset against the temporary differences and tax
losses. When the expectations are different from the original estimates, such differences will impact the recognition
of deferred income tax assets in the period in which such estimates have been changed.
APPENDIX I ACCOUNTANT’S REPORT
– I-40 –


--- page 676 ---
(f) Revenue recognition of price subsidies from local government
The Group recognises price subsidies from local government as revenue for the provision of heat over the
scheduled period as described in Note 2.27(a).
Significant judgments are required in management’s estimation of the amount of price subsidies receivable
from local government at each reporting date during the relevant heat service period from October to April. These
include but not limited to the estimation of total eligible costs and total heat service area, which are variables used
in determining the amount of price subsidies, based on the latest information available to management and the results
of historical assessments conducted by the relevant government authorities to determine the final price subsidies.
Management regularly reviews and revises the estimated amount of price subsidies when circumstances
change. The final amount of price subsidies confirmed by local government may differ from management’s
estimation. Any increases or decreases in the estimated amount of price subsidies may result in adjustments to
revenue recognised in the period in which the circumstances that give rise to the revision becomes known to
management.
5 REVENUE AND SEGMENT INFORMATION
(a) Revenue from contract with customers
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Revenue from contract with customers:
– Provision and distribution of heat 907,848 960,942 1,015,218
– Consideration from customers 739,940 778,442 853,542
– Price subsidies from local government 167,908 182,500 161,676
– Engineering construction services 362,050 229,147 301,567
– Pipeline connection fees 65,429 74,211 83,725
– Heat transmission services 16,961 14,533 5,521
– Sale of goods 16,344 5,756 23,581
– Energy management services 4,157 3,972 3,002
– Designing services 1,658 518 6,585
– Others 1,874 1,556 4,533
1,376,321 1,290,635 1,443,732
Timing of revenue recognition:
– At a point in time 36,837 22,363 38,570
– Over time 1,339,484 1,268,272 1,405,162
1,376,321 1,290,635 1,443,732
Management has determined the operating segments based on the reports reviewed by the CODM.
The Group is principally engaged in the heat supply and related services in the PRC. The CODM reviews the
operating results of the business as one operating segment to make decisions about resources to be allocated.
Therefore, the CODM regards that there is only one segment and review the consolidated financial information
accordingly.
The major operating entities of the Group are domiciled in the PRC. All of the Group’s revenue are derived
in the PRC.
As at 31 December 2020, 2021 and 2022, all of the non-current assets were located in the PRC or arisen from
transactions as conducted in the PRC.
APPENDIX I ACCOUNTANT’S REPORT
– I-41 –


--- page 677 ---
Revenue from customers contributing over 10% of the Group’s total revenue is as follows:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Customer 1 399,864 201,099 206,491
(b) Assets related to contracts with customers
(i) Unsatisfied long-term service contract
The following table shows unsatisfied performance obligations resulting from fixed-price long-term
energy management services contracts:
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Aggregate amount of the transaction price
allocated to long-term energy
management services contracts that are
partially or fully unsatisfied
– within one year 3,972 3,488 2,480
– over one year 31,774 28,286 26,292
35,746 31,774 28,772
(ii) Contract assets
The Group has recognised the following assets related to contracts with a government customer:
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Non-current assets recognised for costs
incurred to fulfil contracts 44,319 58,994 14,674
Loss allowance (182) (323) (64)
44,137 58,671 14,610
Contract assets were recognised as the Group provided engineering construction services during the
Track Record Period, which were pending certification by the related government customer. When certification
has been completed and the Group obtains the right to receive the unconditional consideration, the contract
assets will be recognised as account receivables.
APPENDIX I ACCOUNTANT’S REPORT
– I-42 –


--- page 678 ---
6 OTHER INCOME
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Government grants (a) 32,518 58,722 37,472
Rental income 15,866 14,862 16,270
48,384 73,584 53,742
Note:
(a) The government grants received are mainly relating to the Group’s heat service operations, for the
purpose of subsidising the Group’s purchases or constructions of heat service facilities or subsidising
for the Group’s losses on certain heat service projects. These government grants are non-recurring in
nature and they were determined by the local government on an incidental basis. There are no unfulfilled
conditions or other contingencies attaching to these government grants.
7 OTHER LOSSES – NET
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Fair value losses of investment properties
(Note 15) (6,300) (2,000) (5,300)
Gains on disposal and deregistration of
subsidiaries 72 4 39
Gains on investments in wealth management
products, net 1,207 418 146
Gains/(losses) on disposal of property, plant and
equipment, net 3,443 (119) 242
Gains on disposal of intangible assets – 462 1,086
Others 1,421 1,216 184
(157) (19) (3,603)
8 EXPENSES BY NATURE
Expenses included in cost of sales and administrative expenses are analysed below:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Costs for purchases of heat 380,312 376,447 400,948
Construction costs of engineering construction
services 315,481 198,908 261,767
Amortisation of intangible assets (Note 17) 166,050 184,282 194,934
Materials consumed 79,657 90,423 129,994
Employee benefit expenses (Note 9) 77,424 89,962 91,617
Utility costs 72,361 74,920 71,142
APPENDIX I ACCOUNTANT’S REPORT
– I-43 –


--- page 679 ---
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Maintenance expenses 16,488 13,246 19,229
Depreciation of property, plant and equipment
(Note 14) 11,510 12,763 15,230
Cost of goods sold 13,294 1,944 12,555
Entertainment expenses 11,012 12,497 10,672
Impairment of intangible assets (Note 17) – – 9,398
Other taxes and surcharges 7,298 5,901 6,468
Travelling expenses 7,920 6,652 5,795
Depreciation of right-of-use assets (Note 16) 3,113 4,780 4,615
Listing expenses – 299 3,597
Consulting and professional service fees 4,366 6,466 2,848
Short-term lease expenses (Note 31) 1,209 2,022 2,220
Office expenses 1,988 1,730 1,640
Auditors’ remuneration 891 1,320 858
Others 39,508 33,713 40,913
1,209,882 1,118,275 1,286,440
9 EMPLOYEE BENEFIT EXPENSES (INCLUDING DIRECTORS’ EMOLUMENTS)
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Wages and bonuses 68,587 72,935 73,060
Pension costs – defined contribution plans 696 6,081 6,889
Other post-employment benefits 4,949 5,915 5,689
Other social security costs 3,192 5,031 5,979
77,424 89,962 91,617
(a) Pensions – defined contribution plans
No forfeited contributions were available and utilised by the Group to reduce its future pension contributions
for the years ended 31 December 2020, 2021 and 2022.
According to the policies issued by the Ministry of Human Resources and Social Security and local municipal
departments of the PRC, social security contributions relief policies were implemented by the local authorities in
response to the adverse financial impact to the society caused by the Corona-virus Disease 2019. As such, the social
security related expenses were partially reduced or exempted during the year ended 31 December 2020.
APPENDIX I ACCOUNTANT’S REPORT
– I-44 –


--- page 680 ---
(b) Five highest paid individuals
For the years ended 31 December 2020, 2021 and 2022, the five individuals whose emoluments were the
highest in the Group included 3 directors, 3 directors and 1 supervisor, 4 directors respectively, whose emoluments
are reflected in the analysis shown in Note 9(c), while the emoluments payable to the remaining 2, 1 and 1 highest
paid individuals respectively are as follows:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Basic salaries, housing allowances, other
allowances and benefits in kind 576 – –
Contribution to pension scheme 3 – –
Discretionary bonuses 1,037 2,200 950
1,616 2,200 950
The emoluments fell within the following bands:
Y ear ended 31 December
2020 2021 2022
Emolument bands (HKD)
Nil – 1,000,000 1 – –
1,000,001 – 2,000,000 1 – 1
2,000,001 – 3,000,000 – 1 –
(c) Directors’ emoluments
Y ear ended 31 December 2020 Fees Salary
Discretionary
bonuses
Allowance
and benefits
in kind Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Executive directors
Li Baoshan ( ҽᘒʆ) – 514 1,750 15 2,279
Geng Ming ( অჼ) (note (i)) – 580 1,750 39 2,369
Luo Wei ( ᖯਃ) – 170 600 37 807
Non-executive directors
Miao Wenbin ( ᐷ˖੸) (note (iv)) –– – ––
Ma Fulin (؍)note (iv)) –– – ––
Supervisors
Ma Pelin (؍–––––)
Liu Zhigang (࡝156 380 10 546
Chen Zhen (ࣈ)note (iii)) –– – ––
– 1,420 4,480 101 6,001
APPENDIX I ACCOUNTANT’S REPORT
– I-45 –


--- page 681 ---
Y ear ended 31 December 2021 Fees Salary
Discretionary
bonuses
Allowance
and benefits
in kind Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Executive directors
Li Baoshan ( ҽᘒʆ) – 502 2,700 36 3,238
Geng Ming ( অჼ) – 577 2,200 77 2,854
Luo Wei ( ᖯਃ) – 169 600 74 843
Hu Xirong (፼࿲) (note (v)) –4 4 4 3 59 2
Non-executive directors
Miao Wenbin ( ᐷ˖੸)– – – – –
Ma Fulin (؍–––––)
Supervisors
Ma Pelin (؍–––––)
Liu Zhigang (࡝156 716 72 944
Chen Zhen (ࣈ–––––)
1,448 6,259 264 7,971
Y ear ended 31 December 2022 Fees Salary
Discretionary
bonuses
Allowance
and benefits
in kind Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Executive directors
Li Baoshan ( ҽᘒʆ) – 514 2,162 38 2,714
Geng Ming ( অჼ) – 584 1,660 97 2,341
Luo Wei ( ᖯਃ) – 177 600 96 873
Hu Xirong (፼࿲) – 341 312 30 683
Non-executive directors
Miao Wenbin ( ᐷ˖੸)– – – – –
Ma Fulin (؍–––––)
Supervisors
Ma Pelin (؍–––––)
Liu Zhigang (࡝252 240 76 568
Chen Zhen (ࣈ–––––)
1,868 4,974 337 7,179
(i) Mr. Geng Ming ( অჼ) is the chairman of the board of the Company during the Track Record Period.
(ii) No directors waived any emoluments and no emoluments were paid by the Group to any directors as an
inducement to join or upon joining the Group or as a compensation for loss of office during the Track
Record Period.
(iii) Mr. Chen Zhen (ࣈwere appointed as a supervisor in April 2020.
(iv) Mr. Miao Wenbin ( ᐷ˖੸) and Mr. Ma Fulin (؍were appointed as non-executive directors in
April 2020.
(v) Mr. Hu Xirong (፼࿲) was appointed as an executive director in November 2021.
(vi) Independent non-executive directors have not been appointed during the Track Record Period.
APPENDIX I ACCOUNTANT’S REPORT
– I-46 –


--- page 682 ---
(d) Directors’ retirement benefits
No retirement benefits were paid to or receivable by any directors in respect of their services in connection
with the management of the affairs of the Company or its subsidiary undertakings during the Track Record Period.
(e) Directors’ termination benefits
No termination benefits were paid to the directors as compensation for the early termination of appointment
during the Track Record Period.
(f) Consideration provided to or receivable by third parties for making available directors’ services
No consideration was provided to or receivable by any third party for making available directors’ services
during the Track Record Period.
(g) Information about loans, quasi-loans and other dealings in favour of directors, controlled bodies
corporate by and connected entities with such directors
No loans, quasi-loans or other dealings were entered into by the Company in favour of any directors, controlled
bodies corporate by and connected entities with such directors during the Track Record Period.
(h) Directors’ material interests in transactions, arrangements or contracts
Save as disclosed in Note 38, no significant transactions, arrangements and contracts in relation to the Group’s
business to which the Group was a party and in which a director of the Company had a material interest, whether
directly or indirectly, subsisted at the end of the Track Record Period or at any time during the Track Record Period.
10 FINANCE INCOME AND COSTS
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Finance income:
Interest income derived from bank deposits 2,519 1,822 2,696
Interest income from financing arrangements
(Note 20(a)) 17,462 13,659 10,877
Interest income from finance lease to a related
party (Note 38(c)) 1,320 1,468 1,334
Interest income from lease receivables 692 4,813 10,983
Interest income from loans to a related party
(Note 38(c)) 4,400 7,592 424
26,393 29,354 26,314
Finance costs:
Interest expenses on borrowings (85,659) (72,686) (62,858)
Interest expenses on lease liabilities (1,218) (1,465) (1,386)
Interest expenses on installment payable for
acquisition of intangible assets (2,338) (5,087) (3,090)
Interest expenses on installment payable for
purchase of equipment (1,657) – –
Interest expenses on loans from government (1,342) (1,343) (931)
Unwinding of provision (652) (922) (1,156)
Loss from modification of lease receivables (a) – – (14,644)
(92,866) (81,503) (84,065)
Finance costs – net (66,473) (52,149) (57,751)
APPENDIX I ACCOUNTANT’S REPORT
– I-47 –


--- page 683 ---
(a) In February 2022, the Group signed an addendum to a supplemental agreement containing payment
schedule with its energy management services customer (which is based in Gansu Province, the PRC and
principally engaged in the business of power generation) to modify the contract terms including
extension of the payment terms from 10 years to 14 years and also change the calculation method for
the annual repayment amount, resulting a modification loss of RMB14,644,000 recognised immediately.
11 INCOME TAX EXPENSE
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Current income tax
– PRC corporate income tax 47,095 53,858 60,337
Deferred income tax
(Note 32) (1,484) (18,187) (14,376)
45,611 35,671 45,961
Tax on the Group’s profit differs from the theoretical amount that would arise using the standard tax rate
applicable to the profit of the Group as follows:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Profit before income tax 143,927 206,731 186,336
Tax calculated at 25% 35,982 51,683 46,584
Tax effects of:
– Preferential income tax rates applicable
to certain subsidiaries (18,966) (23,211) (25,434)
– Share of profit of associates accounted
for using the equity method (1,284) (1,726) (2,124)
– Super deduction for research and
development expenditures (510) (786) (1,309)
– Expenses not deductible for taxation
purposes 3,954 2,972 2,063
– Temporary differences not recognised
for deferred income tax assets (182) (108) (147)
– Tax losses not recognised for deferred
income tax assets 26,630 6,858 26,614
– Utilisation of previously unrecognised tax
losses – (10) (276)
– Income not subject to tax (13) (1) (10)
45,611 35,671 45,961
(a) PRC corporate income tax (“CIT”)
CIT provision was made on the estimated assessable profits of entities within the Group incorporated in the
PRC and was calculated in accordance with the relevant regulations of the PRC after considering the available tax
benefits from refunds and allowance. The general PRC CIT rate is 25% during the Track Record Period.
APPENDIX I ACCOUNTANT’S REPORT
– I-48 –


--- page 684 ---
Taiyuan Renewable Energy was approved as a high and new technology enterprise in 2018 and was subject to
a preferential CIT rate of 15% from 2018 to 2020 according to the relevant CIT laws. In December 2021, Taiyuan
Renewable Energy was approved for the renewal as a high and new technology enterprise for three years from 2021
to 2023, and a preferential CIT rate of 15% has been applied. In September 2019, Shanxi Shuangliang New Energy
was qualified as a high and new technology enterprise and entitled to enjoy a preferential CIT rate of 15% from 2019
to 2021 and was approved for the renewal as a high and new technology enterprise in 2022. The applicable income
tax rate is 15% for the years from 2022 to 2024. In December 2020, Shanxi Demonstration Zone Heat Supply was
qualified as a high and new technology enterprise and entitled to enjoy a preferential CIT rate of 15% from 2020 to
2022.
Lanzhou Shuangliang and Hulunbuir Shuangliang were subjected to a preferential CIT rate of 15% from 2020
to 2021 according to the relevant CIT laws since they are enterprises established and operated in the western region
of the PRC. In October 2022 and December 2022, Lanzhou Shuangliang and Hulunbuir Shuangliang were approved
as high and new technology enterprises respectively and were subjected to preferential CIT rate of 15% from 2022
to 2024 according to the relevant CIT laws.
In addition, according to the relevant tax circulars issued by the PRC tax authorities, Gansu Smart Energy is
entitled to other tax concessions and is exempt from CIT for three years, followed by a 50% reduction of the
applicable tax rates for the next three years, commencing from the year of the first revenue obtained from the energy
management services since 2017. Gansu Smart Energy was exempt from CIT in 2017, 2018 and 2019 and entitled
to a preferential CIT rate of 12.5% in 2020, 2021 and 2022.
12 EARNINGS PER SHARE
(a) Basic
The basic earnings per share is calculated by dividing the profit attributable to the owners of the Company by
the weighted average number of ordinary shares in issue during the Track Record Period.
Y ear ended 31 December
2020 2021 2022
Profit attributable to the owners of the Company
(RMB’000) 66,830 110,696 96,431
Weighted average number of ordinary shares in
issue (thousands) 226,000 226,000 226,000
Basic earnings per share (RMB per share) 0.30 0.49 0.43
(b) Diluted
Diluted earnings per share is the same as basic earnings per share as there were no potential dilutive ordinary
shares outstanding as at 31 December 2020, 2021 and 2022, respectively.
13 INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Balance at beginning of the year 67,001 72,713 84,824
Dividends (3,679) – (3,200)
Share of net profit 9,282 11,960 13,538
Share of other comprehensive income/(loss) 109 151 (196)
Balance at the end of the year 72,713 84,824 94,966
APPENDIX I ACCOUNTANT’S REPORT
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--- page 685 ---
Set out below is a list of the associates of the Group as at 31 December 2020, 2021 and 2022. The investments
in associates only consist of ordinary shares. Their countries of incorporation are also their principal place of
business, and the Group’s proportion of ownership interest is the same as the proportion of voting rights held by the
Group. Other than a financial guarantee amounting to RMB7,200,000 provided by the Group to Sinopec New Star
(as defined below) as at 31 December 2020 and 2021 in respect of its bank borrowings, there were no commitments
and contingent liabilities relating to the Group’s interests in the associates as at 31 December 2020, 2021 and 2022.
Name
Place of
incorporation
Percentage of ownership
interest attributable
to the Group
Principal
activities
Date of
incorporation
As at 31 December
2020 2021 2022
Sinopec New Star Shuangliang
Geothermal Thermal Power
Company Limited (ᕐ
ʮ̡)
(“Sinopec New Star”) (a)
Shanxi Province,
the PRC
40% 40% 40% Heat supply 17 September
2014
Shaanxi Gas Group New Energy
Development Company Limited
(ʮ
̡) (b)
Shaanxi
Province, the
PRC
10% 10% 10% Heat supply 21 March 2013
(a) In 2014, the Group invested 40% equity interest in Sinopec New Star for a cash consideration of
RMB24,000,000 and obtained significant influence through its board representatives.
(b) In 2018, the Group invested 10% equity interest in Shaanxi Gas Group New Energy Development
Company Limited at a cash consideration of RMB34,041,000 and obtained significant influence through
is board representatives.
The Group has interests in the above two individually immaterial associates which are accounted for using the
equity method.
As at and for the year ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Aggregate carrying amount of individually
immaterial associates 72,713 84,824 94,966
Aggregate amounts of the Group’s share of:
Profit from continuing operations 9,282 11,960 13,538
Dividends 3,679 – 3,200
Other comprehensive income/(loss) 109 151 (196)
APPENDIX I ACCOUNTANT’S REPORT
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--- page 686 ---
14 PROPERTY, PLANT AND EQUIPMENT
Buildings
Pipeline
and heating
equipment
Machinery
and
equipment
Transportation
equipment
Office and
electronic
equipment
Leasehold
improvements
Construction
in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2020
Cost 105,779 34,886 38,087 26,268 12,366 402 15,865 233,653
Accumulated depreciation (11,313) (8,232) (8,891) (19,448) (9,237) (92) – (57,213)
Net book amount 94,466 26,654 29,196 6,820 3,129 310 15,865 176,440
Y ear ended 31 December
2020
Opening net book amount 94,466 26,654 29,196 6,820 3,129 310 15,865 176,440
Additions 7,175 – 3,465 1,110 2,758 890 11,034 26,432
Disposals – (26,240) (218) (75) (29) – – (26,562)
Depreciation (4,436) (414) (2,878) (1,905) (1,721) (156) – (11,510)
Closing net book amount 97,205 - 29,565 5,950 4,137 1,044 26,899 164,800
At 31 December 2020
Cost 112,954 – 40,895 26,712 14,874 1,291 26,899 223,625
Accumulated depreciation (15,749) – (11,330) (20,762) (10,737) (247) – (58,825)
Net book amount 97,205 – 29,565 5,950 4,137 1,044 26,899 164,800
Y ear ended 31 December
2021
Opening net book amount 97,205 – 29,565 5,950 4,137 1,044 26,899 164,800
Transfer – – 26,899 – – – (26,899) –
Additions – – 1,539 1,018 1,590 477 – 4,624
Disposals – – (3) (136) (1) – – (140)
Depreciation (4,638) – (3,989) (1,824) (1,872) (440) – (12,763)
Closing net book amount 92,567 – 54,011 5,008 3,854 1,081 – 156,521
At 31 December 2021
Cost 112,954 – 69,267 25,834 16,437 1,768 – 226,260
Accumulated depreciation (20,387) – (15,256) (20,826) (12,583) (687) – (69,739)
Net book amount 92,567 – 54,011 5,008 3,854 1,081 – 156,521
Y ear ended 31 December
2022
Opening net book amount 92,567 – 54,011 5,008 3,854 1,081 – 156,521
Additions – – 11,694 2,155 995 371 – 15,215
Disposals – – (467) (110) – – – (577)
Depreciation (4,639) – (6,777) (1,504) (1,727) (583) – (15,230)
Closing net book amount 87,928 – 58,461 5,549 3,122 869 – 155,929
At 31 December 2022
Cost 112,954 – 79,531 26,830 17,432 2,140 – 238,887
Accumulated depreciation (25,026) – (21,070) (21,281) (14,310) (1,271) – (82,958)
Net book amount 87,928 – 58,461 5,549 3,122 869 – 155,929
APPENDIX I ACCOUNTANT’S REPORT
– I-51 –


--- page 687 ---
Depreciation charge was expensed in the consolidated statements of comprehensive income as follows:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Cost of sales 2,254 1,958 2,837
Administrative expenses 9,256 10,805 12,393
11,510 12,763 15,230
As at 31 December 2020, 2021 and 2022, the carrying amount of the buildings of which the property ownership
certificates had not been obtained or property ownership transfer procedures had not been completed were
RMB28,108,000, RMB26,455,000 and RMB24,802,000, respectively.
The Directors are of the view that the Group is entitled to the lawful and valid occupancy and uses of these
buildings and the related ownership certificates will be obtained in due course. The Directors are also of the opinion
that the uses of these buildings without the ownership certificates for the Group’s business operations for the time
being will not expose the Group to any significant penalties or unfavourable consequences.
15 INVESTMENT PROPERTIES
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Balance at beginning of the year 280,800 274,500 272,500
Net losses from fair value adjustment (6,300) (2,000) (5,300)
Balance at the end of the year 274,500 272,500 267,200
Amounts recognised in profit or loss for investment properties
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Rental income from operating leases 15,866 14,862 15,149
Fair value losses (6,300) (2,000) (5,300)
(a) The Group had no contractual obligations for future repairs and maintenance as at 31 December 2020, 2021
and 2022.
(b) As at 31 December 2020, 2021 and 2022, the Group had not obtained the ownership certificates of certain
investment properties with a total carrying amount of RMB79,000,000, RMB77,000,000 and RMB74,000,000,
respectively.
The Directors are of the view that the Group is entitled to the lawful and valid occupancy and uses of these
investment properties and the related ownership certificates will be obtained in due course. The Directors are
also of the opinion that the uses of these investment properties without the ownership certificates for the
Group’s business operations for the time being will not expose the Group to any significant penalties or
unfavourable consequences.
APPENDIX I ACCOUNTANT’S REPORT
– I-52 –


--- page 688 ---
(c) Fair value hierarchy
The investment properties of the Group are measured at fair value and are classified as level 3 under the
prescribed accounting standards. There were no transfers among levels 1, 2 and 3 for recurring fair value
measurements during the Track Record Period.
(d) Valuation process
With the assistance of valuation performed by a third-party independent valuer by using income approach, the
Directors assessed the fair value of the investment properties as at 31 December 2020, 2021 and 2022.
(e) Valuation techniques
Income approach took into account the current rents of the property interests and the reversionary potentials
of the tenancies. The rate of return/capitalisation rate are then applied respectively to derive the market value of the
investment properties.
Direct market comparison made reference to unit rates as available in the relevant market, comparable
properties in close proximity have been selected and adjustments have been made to account for the different factors
such as location and building age.
(f) Information about fair value measurements using significant unobservable inputs (level 3)
Description Unobservable inputs
Range of unobservable inputs
As at 31 December
2020 2021 2022
Investment properties – the PRC The rate of return/
capitalisation rate
5.5% to 6.75% 5.5% to 6.75% 5.5% to 6.75%
Monthly rental
(RMB/sq.m./month)
32.31 to 101.59 32.04 to 99.16 32.49 to 96.24
Relationship of unobservable inputs to fair value:
 The higher the rate of return/capitalisation rate, the lower the fair value;
 The higher the monthly rental, the higher the fair value.
16 RIGHT-OF-USE ASSETS
Office
premises
Land use
rights Total
RMB’000 RMB’000 RMB’000
At 1 January 2020
Cost 5,154 10,876 16,030
Accumulated depreciation (1,786) (2,093) (3,879)
Net book amount 3,368 8,783 12,151
Y ear ended 31 December 2020
Opening net book amount 3,368 8,783 12,151
Acquisition of new lease contracts 25,133 - 25,133
Depreciation (2,889) (224) (3,113)
Closing net book amount 25,612 8,559 34,171
APPENDIX I ACCOUNTANT’S REPORT
– I-53 –


--- page 689 ---
Office
premises
Land use
rights Total
RMB’000 RMB’000 RMB’000
At 31 December 2020
Cost 29,451 10,876 40,327
Accumulated depreciation (3,839) (2,317) (6,156)
Net book amount 25,612 8,559 34,171
Y ear ended 31 December 2021
Opening net book amount 25,612 8,559 34,171
Acquisition of new lease contracts 1,180 – 1,180
Early termination of lease contracts (681) – (681)
Depreciation (4,556) (224) (4,780)
Closing net book amount 21,555 8,335 29,890
At 31 December 2021
Cost 28,487 10,876 39,363
Accumulated depreciation (6,932) (2,541) (9,473)
Net book amount 21,555 8,335 29,890
Y ear ended 31 December 2022
Opening net book amount 21,555 8,335 29,890
Acquisition of new lease contracts 3,322 – 3,322
Early termination of lease contracts (216) – (216)
Depreciation (4,391) (224) (4,615)
Closing net book amount 20,270 8,111 28,381
At 31 December 2022
Cost 27,207 10,876 38,083
Accumulated depreciation (6,937) (2,765) (9,702)
Net book amount 20,270 8,111 28,381
Depreciation charge was expensed in the consolidated statements of comprehensive income as follows:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Cost of sales 172 172 –
Administrative expenses 2,941 4,608 4,615
3,113 4,780 4,615
APPENDIX I ACCOUNTANT’S REPORT
– I-54 –


--- page 690 ---
17 INTANGIBLE ASSETS
Goodwill
Operating
concessions Software Total
RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2020
Cost 9,047 3,744,350 18,548 3,771,945
Accumulated amortisation – (781,021) (3,608) (784,629)
Accumulated impairment – (111,113) – (111,113)
Net book amount 9,047 2,852,216 14,940 2,876,203
Y ear ended 31 December 2020
Opening net book amount 9,047 2,852,216 14,940 2,876,203
Additions – 458,969 814 459,783
Amortisation – (164,396) (1,654) (166,050)
Closing net book amount 9,047 3,146,789 14,100 3,169,936
At 31 December 2020
Cost 9,047 4,203,319 19,362 4,231,728
Accumulated amortisation – (945,417) (5,262) (950,679)
Accumulated impairment – (111,113) – (111,113)
Net book amount 9,047 3,146,789 14,100 3,169,936
Y ear ended 31 December 2021
Opening net book amount 9,047 3,146,789 14,100 3,169,936
Additions – 208,132 1,235 209,367
Disposals – (4,348) – (4,348)
Amortisation – (183,008) (1,274) (184,282)
Closing net book amount 9,047 3,167,565 14,061 3,190,673
At 31 December 2021
Cost 9,047 4,407,103 20,597 4,436,747
Accumulated amortisation – (1,128,425) (6,536) (1,134,961)
Accumulated impairment – (111,113) – (111,113)
Net book amount 9,047 3,167,565 14,061 3,190,673
Y ear ended 31 December 2022
Opening net book amount 9,047 3,167,565 14,061 3,190,673
Additions – 359,084 180 359,264
Disposals – (4,640) – (4,640)
Amortisation – (193,770) (1,164) (194,934)
Impairment – (9,398) – (9,398)
Closing net book amount 9,047 3,318,841 13,077 3,340,965
APPENDIX I ACCOUNTANT’S REPORT
– I-55 –


--- page 691 ---
Goodwill
Operating
concessions Software Total
RMB’000 RMB’000 RMB’000 RMB’000
At 31 December 2022
Cost 9,047 4,758,772 20,777 4,788,596
Accumulated amortisation – (1,319,420) (7,700) (1,327,120)
Accumulated impairment – (120,511) – (120,511)
Net book amount 9,047 3,318,841 13,077 3,340,965
(a) In 2012, Taiyuan Renewable Energy, a subsidiary of the Group, entered into a concession arrangement with
Taiyuan local government (the “Grantor”) to provide heat supply and related services to an area in Taiyuan City
(the “Taiyuan Concession Area”). In 2016, the Grantor planned to build more underground pipes and set up
additional backup systems in relation to the heat supply services in certain area within the Taiyuan Concession
Area (the “Subject Area”) which required Taiyuan Renewable Energy to incur substantial capital expenditures
for such development. After due consideration and taking into account the impact of the aforesaid incurrence
of substantial capital expenditures on its profitability, Taiyuan Renewable Energy decided not to make such
further investment and applied to the Grantor for an early exit from servicing the Subject Area. The application
of early exit was approved by the Grantor in 2017 and in the same year, all the heat supply facilities built on
the Subject Area were operated by a third party (the “New Operator”) since August 2017 at the Grantor’s
instructions. At the end of August 2017, the carrying value of the related operating concession amounted to
approximately RMB71,437,000 (with original cost and accumulated amortisation of RMB81,903,000 and
RMB10,466,000, respectively). Considering the Group can no longer generate any future economic benefits
from the related operating concession, the Group had accelerated the amortisation for the related operating
concession and the carrying value of which became zero after such accelerated amortisation took place.
Taiyuan Renewable Energy has been negotiating with the Grantor for a formal transfer of all the heat supply
facilities built on the Subject Area and its consideration thereto. Up to the date of this Historical Financial
Information, however, no agreement has been reached between Taiyuan Renewable Energy and the Grantor or the
New Operator and the amount of consideration, if any, that may be recovered by Taiyuan Renewable Energy is still
uncertain. In addition, the legal rights and obligations associated with the heat supply facilities under the concession
arrangement still remain with Taiyuan Renewable Energy considering the fact that there is no legally binding
agreement in place which governs the formal transfer of the related heat supply facilities.
(b) Impairment tests for goodwill related to Taiyuan Renewable Energy
Goodwill acquired in a business combination is allocated to the CGU that is expected to benefit from that
business combination. Taiyuan Renewable Energy’s business was transferred to and undertaken by the Group since
10 October 2010. The Directors consider Taiyuan Renewable Energy as a separate CGU and the goodwill is allocated
to this CGU.
The recoverable amount of the CGU related to Taiyuan Renewable Energy is determined based on value-in-use
calculations. The calculation uses pre-tax cash flow projections based on financial forecasts prepared by management
covering a five-year period. Cash flows beyond the five-year periods are extrapolated using the estimated growth
rates stated below.
The following table sets out the key assumptions for the CGU that have goodwill allocated to it:
As at 31 December
2020 2021 2022
Net profit margin (%) 26.40% 26.50% 27.10%
Revenue growth rate (%) 6%-10% 6%-10% 3%-4%
Terminal growth rate (%) 3.00% 3.00% 3.00%
Pre-tax discount rate (%) 13.52% 13.50% 13.36%
APPENDIX I ACCOUNTANT’S REPORT
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The revenue growth rate is mainly related to the actual heat service area served by the CGU under the relevant
concession agreements. Taking into consideration the increase in actual heat service area of the relevant concessions
of the CGU during the Track Record Period and the future expansion plan for the heat service business of the Group
under concession rights, the Directors expected that the CGU had a steady growth in actual heat service area of
6%-10% in 2020 and 2021, and 3%-4% in 2022.
Having considered China’s long-term inflation rate being stable at around 3% during the Track Record Period,
the Directors expected the terminal growth rate of the CGU to be 3% and did not adjust their expectation during the
Track Record Period.
Based on the result of the goodwill impairment test performed by the Directors, the estimated recoverable
amount exceeded the carrying amount by approximately RMB130,719,000, RMB142,544,000 and RMB149,291,000
as at 31 December 2020, 2021 and 2022, respectively. Accordingly, no impairment provision was required to be made
during the Track Record Period. The Directors have performed a sensitivity analysis on the key assumptions used in
impairment test of goodwill. Any reasonably possible change in the key assumptions on which the recoverable
amount is based would not cause the carrying amount of the CGU to exceed its recoverable amount.
If the net profit margin used in the value-in-use calculation had decreased by 10% from management’s estimate
as at 31 December 2020, 2021 and 2022, the headroom would have decreased to approximately RMB69,515,000,
RMB72,451,000 and RMB86,281,000, respectively.
If the revenue growth rate used in the value-in-use calculation had decreased by 10% from management’s
estimate as at 31 December 2020, 2021 and 2022, the headroom would have decreased to approximately
RMB114,812,000, RMB123,573,000 and RMB139,806,000, respectively.
If the terminal growth rate used in the value-in-use calculation had decreased by 10% from management’s
estimate as at 31 December 2020, 2021 and 2022, the headroom would have decreased to approximately
RMB115,416,000, RMB125,217,000 and RMB132,787,000, respectively.
If the pre-tax discount rate used in the value-in-use calculation had increased by 10% from management’s
estimate as at 31 December 2020, 2021 and 2022, the headroom would have decreased to approximately
RMB56,748,000, RMB65,972,000 and RMB77,668,000, respectively.
(c) Impairment tests for intangible assets related to Shuozhou Renewable Energy
With assistance of an independent valuer, the Directors assessed the impairment of the operating concession
assets of Shuozhou Renewable Energy and recognised an impairment provision of RMB111,113,000 before the Track
Record Period and recognised a further impairment provision of RMB9,398,000 during the year ended 31 December
2022 (years ended 31 December 2020 and 2021: Nil).
The recoverable amount of the CGU related to Shuozhou Renewable Energy is determined based on
value-in-use calculations. The calculation uses pre-tax cash flow projections based on financial forecasts prepared by
management covering the remaining service concession period since the date of assessment.
The following table sets out the key assumptions for the impairment assessment:
As at 31 December
2020 2021 2022
Net profit margin (%) -3.1%-17.4% -1.7%-22.1% -7.2%-17.3%
Revenue growth rate (%) 2%-3% 2%-3% 2%-3%
Pre-tax discount rate (%) 14.35% 13.99% 13.63%
The revenue growth rate is mainly related to the actual heat service area served by the CGU under the
Shuozhou Concession Agreement. Taking into consideration the increase in actual heat service area of the relevant
concessions of the CGU during the Track Record Period and the future expansion plan of the CGU, the Directors
expected that the CGU had a steady growth in actual heat service area of 2%-3% during the Track Record Period.
APPENDIX I ACCOUNTANT’S REPORT
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The Directors of the Company consider that no further impairment charge in 2020 and 2021 was required after
performing the impairment assessment. As at 31 December 2020 and 2021, the recoverable amount of the CGU
related to Shuozhou Renewable Energy approximated its carrying amount. Therefore, the Directors consider that any
reasonably possible changes in the key assumptions as indicated below will result in further impairment charge to
be recognised.
If the net profit margin used in the value-in-use calculation had decreased by 5% from management’s estimate
as at 31 December 2020, 2021 and 2022, the Group would have had to recognise a further impairment against the
carrying amount of intangible assets of approximately RMB5,822,000, RMB8,023,000 and RMB16,726,000,
respectively.
If the revenue growth rate used in the value-in-use calculation had decreased by 5% from management’s
estimate as at 31 December 2020, 2021 and 2022, the Group would have had to recognise a further impairment
against the carrying amount of intangible assets of approximately RMB7,381,000, RMB8,891,000 and
RMB5,059,000, respectively.
If the pre-tax discount rate used in the value-in-use calculation had increased by 2% from management’s
estimate as at 31 December 2020, 2021 and 2022, the Group would have had to recognise a further impairment
against the carrying amount of intangible assets of approximately RMB10,622,000, RMB12,397,000 and
RMB10,989,000, respectively.
(d) Amortisation charge was expensed in the consolidated statements of comprehensive income as follows:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Cost of sales 164,862 183,484 194,283
Administrative expenses 1,188 798 651
166,050 184,282 194,934
(e) As at 31 December 2020, 2021 and 2022, intangible assets with carrying amount of approximately
RMB103,281,000, RMB98,657,000 and RMB771,097,000, respectively, were pledged as collateral for the
bank and other borrowings of the Group (Notes 28(a) and 28(c)).
18 FINANCIAL INSTRUMENTS BY CATEGORY
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Financial assets
Financial assets at fair value through
profit or loss 11,041 17,139 –
Financial assets at amortised cost
Cash and cash equivalents 91,826 136,185 378,068
Restricted cash 34,848 76,688 100,374
Trade receivables 433,708 419,593 566,144
Other receivables and deposits 372,342 194,131 101,232
932,724 826,597 1,145,818
943,765 843,736 1,145,818
APPENDIX I ACCOUNTANT’S REPORT
– I-58 –


--- page 694 ---
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Financial liabilities
Liabilities at amortised cost:
Borrowings 1,308,636 1,061,277 881,214
Lease liabilities 23,557 19,975 19,682
Trade and other payables excluding non-
financial liabilities 978,336 795,131 918,900
2,310,529 1,876,383 1,819,796
19 TRADE RECEIV ABLES
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Included in current assets
Trade receivables (a)
– Related parties (Note 38(d)) 11,443 8,252 10,090
– Third parties 385,612 373,483 515,490
397,055 381,735 525,580
Notes receivables – – 50
Lease receivables 24,251 35,106 21,346
Less: allowance for impairment of trade
receivables and lease receivables (56,562) (79,115) (68,990)
364,744 337,726 477,986
Included in non-current assets
Lease receivables 127,855 116,737 109,749
Less: allowance for impairment of lease
receivables (58,891) (34,870) (21,591)
68,964 81,867 88,158
Total trade receivables 433,708 419,593 566,144
(a) The Group normally provides no credit period to its customers. The following is an aging analysis of trade
receivables (excluding notes receivables and lease receivables) from the date of sales:
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Within 1 year 318,786 288,269 434,000
1 to 2 years 59,186 60,780 52,158
2 to 3 years 11,044 17,381 24,704
Over 3 years 8,039 15,305 14,718
397,055 381,735 525,580
APPENDIX I ACCOUNTANT’S REPORT
– I-59 –


--- page 695 ---
(b) The Group’s trade receivables, notes receivables and lease receivables were denominated in RMB.
(c) The Group applies the simplified approach to provide for expected credit losses prescribed by IFRS 9.
Information about the impairment of trade receivables and lease receivables and the Group’s exposure to credit
risk can be found in Note 3.1(b).
(d) As at 31 December 2020, 2021 and 2022, trade receivables with carrying amount of approximately
RMB109,539,000, RMB111,592,000 and RMB121,028,000, respectively, were pledged as collaterals for the
bank borrowings of the Group (Note 28(a)).
20 PREPAYMENTS AND OTHER RECEIV ABLES
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Included in current assets
Other receivables and deposits
– Amounts due from a related party (Note 38(e)) 154,400 40,074 –
– Deposits 11,610 8,542 8,798
– Consideration receivable from disposal of
intangible assets 10,564 10,564 1,482
– Receivable of financing arrangements with a
third party (a) 52,412 54,724 59,072
– Others 9,732 10,091 11,013
238,718 123,995 80,365
Less: allowance for impairment of other receivables
and deposits (3,500) (4,085) (4,754)
235,218 119,910 75,611
Deductible value-added tax 54,946 53,070 19,736
Prepayments to suppliers 16,028 18,292 16,304
Prepayments for income tax 5,590 2,727 3,856
Prepaid listing expenses 12,762 21,511 37,620
89,326 95,600 77,516
324,544 215,510 153,127
Included in non-current assets
Receivable of financing arrangements with a third
party (a) 106,980 46,207 –
Receivable of finance lease of plant and equipment
to a related party (Note 38 (d)) 30,786 28,403 25,886
Less: allowance for impairment of other receivables
and deposits (642) (389) (265)
137,124 74,221 25,621
APPENDIX I ACCOUNTANT’S REPORT
– I-60 –


--- page 696 ---
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Prepayments to related parties
(Note 38(d)) 79 3,747 3,819
Deductible value-added tax 155,639 145,315 –
Prepayments for intangible assets 11,367 14,836 12,425
167,085 163,898 16,244
304,209 238,119 41,865
Total prepayments and other receivables 628,753 453,629 194,992
(a) On 4 December 2018, the Group entered into a series of arrangements with a third party, pursuant to
which the third party undertook sales and buyback arrangements with the Group for certain heat supply
infrastructure. The total consideration payable to the third party by the Group for the sales and buyback
arrangements was RMB176,000,000, of which RMB120,000,000 was paid in 2018 and RMB56,000,000
was paid in 2019. The third party agreed to purchase back the infrastructure at a total consideration of
RMB244,100,000 over five years. According to the payment schedule, RMB48,820,000 will be paid
each year during a five-year operating period. The repurchase price included the effect of the time value
of money which is more than the original sale price of the heat supply infrastructure. Therefore, the
arrangement is accounted for as a financing arrangement as provided by the Group to the third party.
During the years ended 31 December 2020, 2021 and 2022, the Group recognised finance income from
the aforesaid receivables of RMB17,462,000, RMB13,659,000 and RMB10,877,000, respectively (Note
10).
(b) Movements in the provision for impairment of other receivables and deposits during the Track Record
Period are disclosed in Note 3.1(b).
(c) The Group’s other receivables and deposits were denominated in RMB.
21 INVENTORIES
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
At cost:
Raw materials and consumables 32,851 38,178 48,926
Work in progress 49 – –
32,900 38,178 48,926
The costs of inventories recognised in profit or loss for the years ended 31 December 2020, 2021 and 2022
were RMB92,951,000, RMB92,367,000 and RMB142,549,000, respectively.
APPENDIX I ACCOUNTANT’S REPORT
– I-61 –


--- page 697 ---
22 FINANCIAL ASSETS AT FAIR V ALUE THROUGH PROFIT OR LOSS
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Wealth management products 11,041 17,139 –
As at 31 December 2020 and 2021, financial assets at fair value through profit or loss represented the
investments in wealth management products issued by banks in the PRC with expected investment return rates ranged
from 2.10% to 3.88% per annum. The financial assets at fair value through profit or loss were all denominated in
RMB. For the fair value estimation, please refer to Note 3.3 for details.
As at 31 December 2020 and 2021, all wealth management products were maturing within one year.
As at 31 December 2020, 2021 and 2022, the Group’s financial assets at fair value through profit or loss of
RMB11,000,000, RMB17,000,000 and nil, respectively, were pledged for notes payables (Note 27(b)).
23 CASH AND CASH EQUIV ALENTS
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Cash at banks 126,502 212,786 478,421
Cash on hand 172 87 21
126,674 212,873 478,442
Less: restricted cash (a) (34,848) (76,688) (100,374)
Cash and cash equivalents 91,826 136,185 378,068
(a) The Group’s restricted cash were deposits placed with the banks for the issuance of bank acceptance
notes and as deposits of capital expenditures and borrowings. As at 31 December 2020, 2021 and 2022,
restricted cash for the issuance of bank’s acceptance notes amounted to approximately RMB34,848,000,
RMB37,862,000 and RMB89,274,000, respectively. As at 31 December 2021, restricted cash for deposit
of capital expenditures amounted to approximately RMB38,826,000. As at 31 December 2022, restricted
cash as guarantee deposits of bank borrowings amounted to RMB11,100,000.
(b) The Group’s cash and cash equivalents and restricted cash were denominated in RMB.
24 SHARE CAPITAL
The Company
Number of
ordinary shares Total
RMB’000
As at 1 January 2020, 31 December 2020, 2021
and 2022 226,000,000 226,000
APPENDIX I ACCOUNTANT’S REPORT
– I-62 –


--- page 698 ---
25 OTHER RESERVES
Capital
reserves
Statutory
reserves
(Note (a))
Revaluation
surplus
Other
reserves Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Balance at
1 January 2020 5,726 122,069 18,562 (216) 146,141
Appropriation to statutory
reserves – 16,544 – – 16,544
Others – – – 54 54
Balance at
31 December 2020 5,726 138,613 18,562 (162) 162,739
Balance at
1 January 2021 5,726 138,613 18,562 (162) 162,739
Appropriation to statutory
reserves – 23,672 – – 23,672
Transactions with
non-controlling interests – – – (480) (480)
Others – – – 77 77
Balance at
31 December 2021 5,726 162,285 18,562 (565) 186,008
Balance at
1 January 2022 5,726 162,285 18,562 (565) 186,008
Appropriation to statutory
reserves – 14,219 – – 14,219
Deregistration of
subsidiaries – (13) – – (13)
Others – – – (100) (100)
Balance at
31 December 2022 5,726 176,491 18,562 (665) 200,114
(a) In accordance with the relevant laws and regulations of the PRC, the Company and the PRC subsidiaries
of the Group should make appropriation of not less than 10% of its net income after taxes to legal
reserve. Further appropriation is optional when the accumulated statutory reserve is 50% or more of its
registered capital. Upon approval from the respective board of directors of the group entities, the
statutory reserves can be used to offset accumulated losses of the Company and the PRC subsidiaries
of the Group.
26 RETAINED EARNINGS
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
At the beginning of the year 81,481 131,767 218,791
Profit for the year 66,830 110,696 96,431
Appropriation to statutory reserves (16,544) (23,672) (14,219)
At the end of the year 131,767 218,791 301,003
APPENDIX I ACCOUNTANT’S REPORT
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--- page 699 ---
27 TRADE AND OTHER PAYABLES
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Included in current liabilities
Trade payables
– Third parties 261,666 259,455 333,259
Notes payables (b) 73,241 57,802 109,738
Amounts due to related parties (Notes 38(d) and
38(e)(ii)) 50,279 43,195 31,566
Payables for acquisition of intangible assets 407,349 270,678 299,269
Payables for acquisition of property,
plant and equipment 4,357 4,230 4,217
Employee benefits payables 24,804 28,286 25,218
Other taxes payables 28,527 24,599 37,080
Interest payables 808 489 1,107
Employee reimbursement payables 843 717 2,465
Dividends payables to non-controlling interests 40,778 40,778 40,778
Loans from government (d) 28,724 28,067 22,498
Refundable pipeline connection fees 17,811 14,175 2,941
Installment payable for acquisition of intangible
assets 14,408 34,373 40,551
Others 11,911 9,258 25,590
965,506 816,102 976,277
Included in non-current liabilities
Other payables
– A third party (installment payable for
acquisition of intangible assets) 67,004 32,631 7,386
Total trade and other payables 1,032,510 848,733 983,663
(a) The following is an aging analysis of trade payables presented based on the goods/services receipt dates:
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Within 1 year 203,639 183,213 224,470
1 to 2 years 28,750 22,777 34,074
2 to 3 years 12,555 25,687 22,761
Over 3 years 16,722 27,778 51,954
261,666 259,455 333,259
(b) As at 31 December 2020 and 2021, the Group’s notes payables of RMB73,241,000 and RMB57,802,000
were secured by restricted cash (Note 23(a)) and financial assets at fair value through profit or loss
(Note 22). As at 31 December 2022, the Group’s notes payables of RMB89,274,000 were secured by
restricted cash (Note 23(a)).
(c) The Group’s trade and other payables were denominated in RMB.
APPENDIX I ACCOUNTANT’S REPORT
– I-64 –


--- page 700 ---
(d) In August 2012 and July 2013, the Group entered into agreements with Shanxi Provincial Government
Investment Asset Management Centre (“Shanxi Government Investment Centre”). According to the
agreements, Shanxi Government Investment Centre provided to the Group interest free loans amounted
to RMB27,500,000 with a term of seven years to support its construction of heating projects in Shanxi
province. Such advances of RMB23,000,000 enjoyed interest-free period from 2012 to 2019 and
advances of RMB4,500,000 enjoyed interest-free period from 2013 to 2020. Subsequent to the
interest-free periods, interest would be calculated at 4.9% per annum according to the benchmark loan
interest rate.
28 BORROWINGS
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Included in non-current liabilities:
Other borrowings
– secured and unguaranteed (c) 53,000 49,500 –
– unsecured (Note 38(f)) 556,518 300,854 –
Bank borrowings
– secured and guaranteed (a) – – 408,139
– unsecured – – 59,500
– unsecured and guaranteed (b) 286,118 271,923 203,075
895,636 622,277 670,714
Less: current portion of non-current liabilities (523,663) (24,515) (36,250)
371,973 597,762 634,464
Included in current liabilities:
Bank borrowings
– secured and guaranteed (a) 223,000 209,000 100,000
– unsecured and guaranteed (b) 190,000 230,000 100,000
– secured and unguaranteed (c) – – 10,500
Current portion of non-current liabilities 523,663 24,515 36,250
936,663 463,515 246,750
Total borrowings 1,308,636 1,061,277 881,214
As at 31 December 2020, 2021 and 2022, the Group’s borrowings were repayable as follows:
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Within 1 year or on demand 936,663 463,515 246,750
Between 1 and 2 years 22,582 326,857 50,564
Between 2 and 5 years 174,269 168,957 408,011
Over 5 years 175,122 101,948 175,889
1,308,636 1,061,277 881,214
APPENDIX I ACCOUNTANT’S REPORT
– I-65 –


--- page 701 ---
(a) As at 31 December 2020, 2021 and 2022, the bank borrowings of Taiyuan Renewable Energy amounting
to RMB30,000,000, RMB30,000,000 and nil, respectively, were guaranteed by Shanxi Shuangliang and
secured by Taiyuan Renewable Energy’s concession right. In addition, the bank borrowings of
Hulunbuir Shuangliang amounting to RMB193,000,000, RMB179,000,000 and RMB158,000,000,
respectively, were guaranteed by the Company and secured by certain trade receivables (Note 19(d)).
As at 31 December 2022, the bank borrowing of Lanzhou Shuangliang amounting to RMB174,625,000
was guaranteed by the Company and Gansu Shuangliang and secured by certain intangible assets (Note
17(e)). In addition, the bank borrowings of Shuozhou Renewable Energy amounting to
RMB175,000,000 was guaranteed by Taiyuan Renewable Energy, the Company, Shuangliang Group
Company Limited (“Shuangliang Group Co.”) and Mr. Miao Wenbin and secured by price subsidy
receivables and certain intangible assets (Note 17(e)). The guarantees provided by Shuangliang Group
Co. and Mr. Miao Wenbin will be released upon the Listing. Furthermore, the bank borrowings of Wise
Living Tech-Thermal Power (Zhengzhou) Limited amounting to RMB514,000 were guaranteed by the
Company and secured by certain trade receivables (Note 19(d)).
(b) As at 31 December 2020, bank borrowings amounting to RMB100,000,000, RMB286,118,000 and
RMB90,000,000 were guaranteed by Jiangyin Hengchuang Technology Company Limited, Shuangliang
Group Co. and Shuangliang Technology, respectively.
As at 31 December 2021, bank borrowings amounting to RMB100,000,000, RMB271,923,000 and
RMB130,000,000 were guaranteed by Jiangyin Hengchuang Technology Company Limited,
Shuangliang Group Co. and Shuangliang Technology, respectively.
As at 31 December 2022, bank borrowings amounting to RMB203,075,000 and RMB100,000,000 were
guaranteed by Shuangliang Group Co. and Gansu Shuangliang, respectively. The guarantee provided by
Shuangliang Group Co. will be released upon the Listing.
(c) As at 31 December 2020, 2021 and 2022, the other borrowing of Lanzhou Shuangliang amounting to
RMB53,000,000, RMB49,500,000 and nil, respectively, were secured by certain intangible assets (Note
17(e)). In June 2022, the Group has entered into an agreement with the lender and the lender’s related
party, pursuant to which the Group has settled the borrowings of RMB49,500,000 through the offset
with the Group’s accounts receivable due from the lender’s related party of the same amount (Note
35(b)).
As at 31 December 2022, the bank borrowings of the Company amounting to RMB10,500,000 were
secured by restricted cash of Zhengzhou Wise Living of RMB11,100,000 (Note 23(a)).
(d) As at 31 December 2020, 2021 and 2022, the Group had aggregate credit facilities of approximately
RMB1,308,636,000, RMB1,061,277,000 and RMB1,707,520,000, respectively. Unused facilities as at
the same date amounted to nil, nil and RMB823,986,000, respectively.
(e) Certain of the Group’s bank borrowings are subject to the fulfilment of covenants relating to certain debt
servicing financial indicators. As at 31 December 2019, certain bank loan was classified as current
liability in the consolidated statements of financial position as the Group did not comply with certain
financial covenants. In March 2020, the Group obtained from the lending bank a letter of waiver from
strict compliance with the relevant financial covenants and was applied during the Track Record Period.
Accordingly, the Group reclassified the loan amounting to RMB286,118,000, RMB271,923,000,
RMB203,075,000 as at 31 December 2020, 2021 and 2022 respectively as non-current liability
according to its original payment schedule as set out in the loan contract.
As at 31 December 2020 and 2021, certain bank loan amounting to RMB193,000,000 and
RMB179,000,000 was classified as current liability in the consolidated statements of financial position
as the Group did not comply with certain financial covenants in 2019. In March 2022, the Group
obtained from the lending bank a letter of waiver from strict compliance with the relevant financial
covenants and the Group was complied with those financial covenants during the Track Record Period.
Accordingly, the Group reclassified the loan amounting to RMB158,000,000 as at 31 December 2022
as non-current liability according to its original payment schedule as set out in the loan contract.
Maturity analysis of the above two term loans based on original scheduled repayment dates is set out
in Note 3.1(c).
APPENDIX I ACCOUNTANT’S REPORT
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--- page 702 ---
(f) The annual weighted average effective interest rates of borrowings as at 31 December 2020, 2021 and
2022 were as follows:
As at 31 December
2020 2021 2022
Borrowings 6.03% 5.67% 5.09%
The carrying amounts of the borrowings approximated their fair values as their interest rates are
considered as close to the current market rates.
The Group’s borrowings were all denominated in RMB.
29 CONTRACT LIABILITIES
The Group recognised the following revenue-related contract liabilities:
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Included in current liabilities
Provision and distribution of heat 334,067 381,208 345,139
Pipeline connection fees 73,863 80,159 95,032
Sale of goods 350 420 348
Others 1,225 1,101 27
409,505 462,888 440,546
Included in non-current liabilities
Pipeline connection fees 1,506,471 1,628,637 1,821,454
1,915,976 2,091,525 2,262,000
(a) Revenue recognised in relation to contract liabilities
The following table shows the revenue recognised during the Track Record Period relating to carried-forward
contract liabilities.
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Revenue recognised that was included in the
contract liabilities balance at the beginning
of the year
Provision and distribution of heat 293,822 334,067 381,208
Pipeline connection fees 63,468 73,863 80,159
Sale of goods 350 350 420
Others 831 1,225 1,101
358,471 409,505 462,888
APPENDIX I ACCOUNTANT’S REPORT
– I-67 –


--- page 703 ---
(b) Unsatisfied performance obligations
The Group has elected the expedient of not disclosing the remaining performance obligations for the provision
and distribution of heat and sale of goods, which the performance obligation is part of a contract that has an original
expected duration of one year or less.
The transaction price allocated to the remaining performance obligations (unsatisfied or partially unsatisfied)
excluding the performance obligation which is part of a contract that has an original expected duration of one year
or less as at 31 December 2020, 2021 and 2022, relating to the pipeline connection fees, is set out below:
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Within 1 year 73,863 80,159 95,032
Over 1 year 1,506,471 1,628,637 1,821,454
1,580,334 1,708,796 1,916,486
30 DEFERRED INCOME
The Group’s deferred income represents government grants relating to the purchase of property, plant and
equipment received from governmental authorities. The movement of deferred income is set out below:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
At the beginning of the year 68,765 54,831 85,125
Additions – 44,500 17,000
Recognised in profit or loss (13,934) (14,206) (18,666)
At the end of the year 54,831 85,125 83,459
31 LEASE LIABILITIES
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Current 1,342 1,588 1,005
Non-current 22,215 18,387 18,677
23,557 19,975 19,682
APPENDIX I ACCOUNTANT’S REPORT
– I-68 –


--- page 704 ---
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Interest expense (included in finance costs-net) 1,218 1,465 1,386
Expense relating to short-term leases 1,209 2,022 2,220
Cash outflow for short-term leases 1,209 2,022 2,220
Cash outflow for lease payments (including
interests) 6,296 5,485 4,761
Cash outflow for short-term leases and lease
payments 7,505 7,507 6,981
The Group leases pipeline, heat supply equipment and office premises and these lease liabilities were measured
at net present value of the minimum lease payments during the lease terms that are not yet paid. There was no
extension option clause in the lease agreements.
32 DEFERRED INCOME TAX
(a) Deferred income tax assets
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
To be recovered within 12 months 2,968 3,836 3,108
To be recovered after more than 12 months 140,526 162,372 176,755
Total deferred income tax assets 143,494 166,208 179,863
Offsetting against deferred income
tax liabilities (102,377) (117,068) (126,189)
Net deferred income tax assets 41,117 49,140 53,674
APPENDIX I ACCOUNTANT’S REPORT
– I-69 –


--- page 705 ---
The movement in deferred income tax assets is as follows:
Loss
allowance of
financial assets
Deferred
income
Tax
losses
Temporary
differences relating
to depreciation of
property, plant and
equipment and
amortisation of
intangible assets
Temporary
differences
relating to
recognition of
pipeline
connection fees
Lease
liabilities Others Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
As at 1 January 2020 15,577 14,037 29,974 211 64,345 590 2,817 127,551
Credited/(charged) to
profit or loss 1,922 (3,024) 12 84 16,527 (282) 704 15,943
As at 31 December 2020 17,499 11,013 29,986 295 80,872 308 3,521 143,494
As at 1 January 2021 17,499 11,013 29,986 295 80,872 308 3,521 143,494
Credited/(charged) to
profit or loss 56 5,569 (4,644) 71 19,255 474 1,942 22,723
Early termination of lease
contracts – – – – – (9) – (9)
As at 31 December 2021 17,555 16,582 25,342 366 100,127 773 5,463 166,208
As at 1 January 2022 17,555 16,582 25,342 366 100,127 773 5,463 166,208
(Charged)/credited to profit or
loss (3,216) (1,384) (960) 89 18,398 (38) 772 13,661
Early termination of lease
contracts – – – – – (6) – (6)
As at 31 December 2022 14,339 15,198 24,382 455 118,525 729 6,235 179,863
For the years ended 31 December 2020, 2021 and 2022, the Group did not recognise deferred income tax assets
of approximately RMB26,630,000, RMB6,858,000 and RMB26,614,000 in respect of losses amounting to
approximately RMB105,190,000, RMB27,433,000 and RMB106,458,000 that can be carried forward against future
taxable income. Tax losses of group companies operated in the PRC could be carried forward for a maximum of five
years. These tax losses will expire up from 2024 to 2027. As at 31 December 2020, 2021 and 2022, no deferred
income tax assets had been recognised in respect of the unused tax losses amounting to RMB264,689,000,
RMB269,884,000 and RMB362,120,000 respectively, due to the unpredictability of future profit streams of the
relevant subsidiaries of the Company. The tax losses of certain PRC group entities that had not been recognised as
deferred income tax assets can be carried forward against future taxable income will expire in the following years:
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
2021 22,197 – –
2022 13,113 13,113 –
2023 54,547 54,547 54,547
2024 69,642 69,642 69,639
2025 105,190 105,149 105,146
2026 – 27,433 26,330
2027 – – 106,458
264,689 269,884 362,120
APPENDIX I ACCOUNTANT’S REPORT
– I-70 –


--- page 706 ---
(b) Deferred income tax liabilities
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
To be settled within 12 months 4,346 4,346 4,346
To be settled after more than 12 months 138,353 142,889 142,174
Total deferred income tax liabilities 142,699 147,235 146,520
Offsetting against deferred income tax assets (102,377) (117,068) (126,189)
Net deferred income tax liabilities 40,322 30,167 20,331
The movement in deferred income tax liabilities is as follows:
Fair value
losses of
investment
properties
Temporary
differences
on assets
recognised
under
IFRIC 12
Temporary
differences
relating to
energy
management
services Others Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
As at 1 January 2020 10,863 110,608 6,356 413 128,240
(Credited)/charged to
profit or loss (945) 13,825 1,662 (83) 14,459
As at 31 December 2020 9,918 124,433 8,018 330 142,699
As at 1 January 2021 9,918 124,433 8,018 330 142,699
(Credited)/charged to
profit or loss (300) 2,811 1,554 471 4,536
As at 31 December 2021 9,618 127,244 9,572 801 147,235
As at 1 January 2022 9,618 127,244 9,572 801 147,235
(Credited)/charged to
profit or loss (795) 1,300 (419) (801) (715)
As at 31 December 2022 8,823 128,544 9,153 – 146,520
33 DIVIDENDS
No dividend has been paid or declared by the Company during the Track Record Period.
APPENDIX I ACCOUNTANT’S REPORT
– I-71 –


--- page 707 ---
34 PROVISION
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Provision for maintenance of service concession
facilities 15,382 20,210 25,593
Pursuant to the service concession agreements entered into by the Group, the Group has the contractual
obligations to maintain the facilities it operates to specified level of service quality and/or to restore the plants to
specified conditions before the facilities are handed over to the Grantors at the end of the service concession periods.
These contractual obligations to maintain or restore the facilities, except for any upgrade elements, are recognised
and measured at the best estimate of the expenditures that would be required to settle the present obligations at each
of the reporting dates.
35 CASH FLOW INFORMATION
(a) Reconciliation of profit before income tax to cash generated from operations:
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Profit before income tax 143,927 206,731 186,336
Adjustments for:
Interest income (Note 10) (26,393) (29,354) (26,314)
Interest expense (Note 10) 92,866 81,503 84,065
Gains on investments in wealth management
products, net (Note 7) (1,207) (418) (146)
Fair value losses of investment properties (Note 7) 6,300 2,000 5,300
Depreciation of property, plant and equipment
(Note 14) 11,510 12,763 15,230
Depreciation of right-of-use assets (Note 16) 3,113 4,780 4,615
Amortisation of intangible assets (Note 17) 166,050 184,282 194,934
Share of net profit of associates accounted for
using the equity method (Note 13) (9,282) (11,960) (13,538)
(Gains)/losses on disposal of property, plant and
equipment (Note 7) (3,443) 119 (242)
Gains on early termination of certain lease
contracts – (733) (19)
Gains on disposal of intangible assets (Note 7) – (462) (1,086)
Provision/(reversal) of impairment losses on
financial assets and contract assets 13,548 (995) (23,118)
Impairment of intangible assets (Note 17) – – 9,398
Gains on disposal and deregistration of subsidiaries
(Note 7) (72) (4) (39)
Amortisation of government grants related to assets
(Note 30) (13,934) (14,206) (18,666)
Profit from operating concessions construction
services (46,569) (29,248) (34,527)
Operating cash flows before changes in working
capital 336,414 404,798 382,183
APPENDIX I ACCOUNTANT’S REPORT
– I-72 –


--- page 708 ---
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Changes in working capital:
Restricted cash for issuance of bank’s acceptance
notes 54,699 (3,014) (51,412)
Inventories 11,275 (5,278) (10,748)
Contract assets (10,278) (14,534) 44,061
Trade and other receivables (28,709) (8,795) 15,907
Trade and other payables (44,769) (11,376) 127,337
Contract liabilities 162,771 175,549 170,475
Cash generated from operations 481,403 537,350 677,803
(b) Non-cash transactions
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Acquisition of new lease contracts 25,133 1,180 3,322
Revenue from operating concessions construction
services 349,356 208,133 271,010
Offset accounts receivable with borrowings
(Note 28(c)) – – 49,500
Offset accounts receivable with payable for
acquisition of intangible assets – 23,848 17,089
Disposal of property, plant and equipment
through finance lease 26,240 – –
Accounts receivable settled through property,
plant and equipment 7,175 – –
Modification of lease receivable − − 14,644
(c) Net liabilities from financing activities reconciliation
This section sets out an analysis of net liabilities from financing activities and the movements in the liabilities
from financing activities for each of the periods presented.
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Cash and cash equivalents 91,826 136,185 378,068
Lease liabilities (23,557) (19,975) (19,682)
Dividend payable (40,778) (40,778) (40,778)
Installment payable for acquisition of intangible
assets (81,412) (67,004) (47,937)
Borrowings and interest payables (1,309,444) (1,061,766) (882,321)
Amounts advanced from a related party (700) (700) (700)
Loans from government (28,724) (28,067) (22,498)
Net liabilities from financing activities (1,392,789) (1,082,105) (635,848)
APPENDIX I ACCOUNTANT’S REPORT
– I-73 –


--- page 709 ---
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Cash and cash equivalents 91,826 136,185 378,068
Gross debt – fixed interest rates (1,198,497) (946,367) (576,341)
Gross debt – variable interest rates (286,118) (271,923) (437,575)
Net liabilities from financing activities (1,392,789) (1,082,105) (635,848)
Liabilities from financing activities
Cash and cash
equivalents
Lease
liabilities
Dividend
payable
Other
payables
Borrowings
and interest
payables
Amounts
advanced
from a
related
party
Loans from
government Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Net liabilities as at
1 January 2020 56,175 (3,502) (54,068) (58,700) (1,203,190) (700) (27,382) (1,291,367)
Cash flows 35,651 6,296 13,290 88,747 (20,595) – – 123,389
Acquisition of new lease
contracts – (25,133) – – – – – (25,133)
Acquisition of intangible
assets – – – (109,612) – – – (109,612)
Early payment for equipments – – – 491 – – – 491
Interest expenses – (1,218) – (2,338) (85,659) – (1,342) (90,557)
Net liabilities as at
31 December 2020 91,826 (23,557) (40,778) (81,412) (1,309,444) (700) (28,724) (1,392,789)
Net liabilities as at
1 January 2021 91,826 (23,557) (40,778) (81,412) (1,309,444) (700) (28,724) (1,392,789)
Cash flows 44,359 5,485 – 19,495 320,364 – 2,000 391,703
Acquisition of new lease
contracts – (1,180) – – – – – (1,180)
Early termination of lease
contracts – 742 – – – – – 742
Interest expenses – (1,465) – (5,087) (72,686) – (1,343) (80,581)
Net liabilities as at
31 December 2021 136,185 (19,975) (40,778) (67,004) (1,061,766) (700) (28,067) (1,082,105)
Net liabilities as at
1 January 2022 136,185 (19,975) (40,778) (67,004) (1,061,766) (700) (28,067) (1,082,105)
Cash flows 241,883 4,761 – 22,157 192,803 – 6,500 468,104
Acquisition of new lease
contracts – (3,322) – – – – – (3,322)
Accounts receivable settled
through borrowings – – – – 49,500 – – 49,500
Early termination of lease
contracts – 240 – – – – – 240
Interest expenses – (1,386) – (3,090) (62,858) – (931) (68,265)
Net liabilities as at
31 December 2022 378,068 (19,682) (40,778) (47,937) (882,321) (700) (22,498) (635,848)
APPENDIX I ACCOUNTANT’S REPORT
– I-74 –


--- page 710 ---
36 COMMITMENTS
(a) Commitments relating to short-term leases
The future aggregate minimum lease payments under non-cancellable short-term leases contracted for but not
recognised as liabilities at each reporting date are as follows:
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
No later than 1 year 94 955 177
(b) Capital commitments
The Group’s capital expenditures contracted for but not yet incurred at each reporting date is as follows:
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Intangible assets 68,990 111,294 57,963
37 NON-CONTROLLING INTERESTS
Set out below is summarised financial information for each subsidiary that has non-controlling interests
(“NCI”) which are material to the Group. The amounts disclosed for each subsidiary are before inter-company
eliminations.
Shanxi Shuangliang Renewable Energy
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Summarised statement of financial position
Current assets 369,458 415,124 907,683
Current liabilities (1,265,636) (1,155,530) (1,515,260)
Net current liabilities (896,178) (740,406) (607,577)
Non-current assets 2,135,683 2,137,923 2,019,690
Non-current liabilities (1,099,232) (1,158,731) (1,109,504)
Net non-current assets 1,036,451 979,192 910,186
Net assets 140,273 238,786 302,609
Accumulated NCI 68,065 117,041 148,302
APPENDIX I ACCOUNTANT’S REPORT
– I-75 –


--- page 711 ---
Gansu Shuangliang
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Summarised statement of financial position
Current assets 120,644 196,264 237,918
Current liabilities (587,151) (661,606) (745,565)
Net current liabilities (466,507) (465,342) (507,647)
Non-current assets 1,108,906 1,162,849 1,236,147
Non-current liabilities (692,172) (735,479) (746,314)
Net non-current assets 416,734 427,370 489,833
Net liabilities (49,773) (37,972) (17,814)
Accumulated NCI (9,955) (7,594) (3,560)
Hulunbuir Shuangliang
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Summarised statement of financial position
Current assets 473,562 291,451 361,195
Current liabilities (141,320) (160,312) (131,952)
Net current assets 332,242 131,139 229,243
Non-current assets 759,569 733,927 696,362
Non-current liabilities (888,398) (596,675) (591,822)
Net non-current (liabilities)/assets (128,829) 137,252 104,540
Net assets 203,413 268,391 333,783
Accumulated NCI 30,512 40,259 50,067
APPENDIX I ACCOUNTANT’S REPORT
– I-76 –


--- page 712 ---
Shanxi Shuangliang Renewable Energy
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Summarised statement of
comprehensive income
Revenue 887,958 782,677 838,113
Total comprehensive income 46,748 99,797 63,994
Profit allocated to NCI 22,906 48,901 31,357
Dividends paid to NCI 1,290 – –
Dividends declared to NCI – – –
Gansu Shuangliang
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Summarised statement of
comprehensive income
Revenue 240,647 265,135 347,339
Total comprehensive income 7,548 11,801 20,170
Profit allocated to NCI 1,510 2,360 4,034
Dividends paid to NCI – – –
Dividends declared to NCI – – –
Hulunbuir Shuangliang
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Summarised statement of
comprehensive income
Revenue 247,716 239,825 247,993
Total comprehensive income 48,427 64,978 65,393
Profit allocated to NCI 7,264 9,747 9,809
Dividends paid to NCI 12,000 – –
Dividends declared to NCI – – –
APPENDIX I ACCOUNTANT’S REPORT
– I-77 –


--- page 713 ---
Shanxi Shuangliang Renewable Energy
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Summarised cash flows
Cash flows from operating activities 261,535 214,546 402,511
Cash flows used in investing activities (176,728) (185,653) (95,843)
Cash flows used in financing activities (63,653) (18,407) (146,782)
Net increase in cash and cash equivalents 21,154 10,486 159,886
Gansu Shuangliang
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Summarised cash flows
Cash flows from operating activities 86,421 123,529 208,005
Cash flows used in investing activities (24,441) (71,826) (92,158)
Cash flows used in financing activities (64,917) (17,390) (52,239)
Net (decrease)/increase in cash and cash
equivalents (2,937) 34,313 63,608
Hulunbuir Shuangliang
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Summarised cash flows
Cash flows from operating activities 76,573 122,282 41,466
Cash flows (used in)/generated from investing
activities (23,309) (13,177) 10,515
Cash flows used in financing activities (39,749) (119,182) (8,966)
Net increase/(decrease) in cash and cash
equivalents 13,515 (10,077) 43,015
APPENDIX I ACCOUNTANT’S REPORT
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--- page 714 ---
38 RELATED PARTY TRANSACTIONS
(a) Names and relationships with related parties
Below is the summary of the Group’s key related parties during the Track Record Period:
Name of the related party Relationship with the Group
Mr. Miao Shuangda Significant shareholder
Shuangliang Group Co. Controlled by the significant shareholder
Shuangliang Technology Parent company
Sinopec New Star Associate
Beijing Zhongchuang Financial Leasing
Company Limited (“Beijing
Zhongchuang”)
An associate of parent company
Shuangliang Eco-Energy Controlled by the significant shareholder
Jiangyin International Grand Hotel
Company Limited (“Jiangyin Hotel”)
Controlled by the significant shareholder
Jiangsu Shuangliang Boiler Company
Limited (“Shuangliang Boiler”)
Under the common control of parent company
Jiangsu Shuangliang Spandex Company
Limited (“Shuangliang Spandex”)
Under the common control of parent company
Jiangsu Shuangliang New Energy
Equipment Company Limited
(“Shuangliang New Energy Equipment”)
Controlled by the significant shareholder
Zhejiang Shuangliang Shangda
environmental protection Company
Limited (“Zhejiang Shuangliang
Shangda”)
Controlled by the significant shareholder
Jiangsu Shuangliang Energy-Saving Eco
Engineering Technique Company
Limited (“Shuangliang Eco
Engineering”)
Controlled by the significant shareholder
Wuxi Hundun Energy Technology Co.,
Ltd. (“Wuxi Hundun”)
Controlled by the significant shareholder
(b) Key management compensation
The key management of the Group are the directors of the Company. The compensation paid or payable to key
management is disclosed in Note 9.
(c) Transactions with related parties
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Sales of goods or services to
Shuangliang New Energy Equipment 13,920 – –
Sinopec New Star 2,825 2,468 3,375
Purchases of plant and equipment from
Shuangliang Boiler 419 2,205 2,177
Shuangliang New Energy Equipment 11,244 – –
Shuangliang Eco-Energy 19,029 11,891 13,913
Wuxi Hundun 308 644 268
Shuangliang Eco Engineering 6,201 – –
Sinopec New Star – 464 891
APPENDIX I ACCOUNTANT’S REPORT
– I-79 –


--- page 715 ---
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Purchases of services from
Jiangyin Hotel 641 642 1,107
Shuangliang Spandex – – 10
Leasing arrangements
Finance lease of plant and equipment to Sinopec
New Star 30,786 – –
Interest income from finance lease to Sinopec
New Star 1,320 1,468 1,334
Finance lease from Sinopec New Star 11,031 – –
Interest expense on finance lease from Sinopec
New Star 643 592 538
Lease from Jiangyin Hotel 181 – –
Interest expense on lease from Jiangyin Hotel 11 6 2
Financing arrangements
Loans provided to Beijing Zhongchuang 150,000 – –
Loans repaid by Beijing Zhongchuang – 110,000 40,000
Interest received from Beijing Zhongchuang – 11,918 498
Interest income from loans to Beijing
Zhongchuang 4,400 7,592 424
Interest paid to Beijing Zhongchuang 46,746 29,405 10,937
Interest expenses to Beijing Zhongchuang 47,233 29,668 10,187
Borrowings from Beijing Zhongchuang 450,000 11,000 –
(d) Outstanding balances arising from sales/purchases of goods and services – trade
The following balances are outstanding as at 31 December 2020, 2021 and 2022 in relation to transactions with
related parties:
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Trade receivables for sales of goods or services
Shuangliang New Energy Equipment 5,048 2,608 2,608
Shuangliang Eco-Energy – 7 –
Sinopec New Star 6,395 5,637 7,482
11,443 8,252 10,090
Receivable of finance lease of plant and
equipment to a related party
Sinopec New Star 30,786 28,403 25,886
APPENDIX I ACCOUNTANT’S REPORT
– I-80 –


--- page 716 ---
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Prepayments for purchase of goods or services
Shuangliang Eco-Energy 24 3,379 3,376
Shuangliang Boiler 55 – 75
Wuxi Hundun – 368 368
79 3,747 3,819
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Contract liabilities for services
Sinopec New Star 530 – –
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Trade and other payables for purchase of goods
or services
Shuangliang Eco-Energy 13,741 11,933 3,648
Shuangliang Boiler 73 731 37
Zhejiang Shuangliang Shangda 8 8 8
Jiangyin Hotel 84 140 210
Shuangliang Eco Engineering 20,421 17,526 17,526
Shuangliang New Energy Equipment 13,412 9,705 6,705
Sinopec New Star 1,608 2,130 2,585
Wuxi Hundun 232 322 147
49,579 42,495 30,866
Payable for finance lease of plant and equipment
from a related party
Sinopec New Star 10,199 9,317 8,380
The balances of receivables and payables with trade nature are all denominated in RMB, unsecured, interest
free and settled in accordance with agreed terms with related parties.
(e) Amounts due from/advance from related parties – non-trade
(i) Amounts due from a related party
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Amounts due from a related party
Beijing Zhongchuang 154,400 40,074 –
APPENDIX I ACCOUNTANT’S REPORT
– I-81 –


--- page 717 ---
As at 31 December 2020 and 2021, the balance with borrowing nature was unsecured and bore interest
at a rate of 6% per annum.
(ii) Amounts advanced from a related party
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Amounts advanced from a related party
Sinopec New Star 700 700 700
Amounts advanced from a related party are denominated in RMB, unsecured, interest free and repayable
on demand. The amounts advanced from a related party will be settled upon the Listing.
(f) Borrowings – non-trade
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Other borrowings
Beijing Zhongchuang 556,518 300,854 –
The Group obtained financing from Beijing Zhongchuang which matured in December 2022, and bore interests
at fixed rate of 6.3% to 6.9% per annum.
(g) Guarantees
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Guarantees provided by related parties in respect
of the borrowings of the Group
Shuangliang Group Co. 286,118 271,923 378,075
Shuangliang Technology 90,000 130,000 –
Mr. Miao Wenbin – – 175,000
376,118 401,923 553,075
The guarantees provided by related parties will be released upon the Listing.
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Guarantee provided to a related party in respect
of the borrowings of an associate
Sinopec New Star 7,200 7,200 –
The guarantee provided to Sinopec New Star was released in 2022 upon the repayment of the loan.
APPENDIX I ACCOUNTANT’S REPORT
– I-82 –


--- page 718 ---
39 NOTES TO THE STATEMENTS OF FINANCIAL POSITION OF THE COMPANY
(a) Investments in subsidiaries
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Equity investments, at cost
Wise Living Epoch (Beijing) Technology
Company Limited 1,000 1,000 1,000
Wise Living Energy 150,000 150,000 150,000
151,000 151,000 151,000
(b) Prepayments and other receivables
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Included in current assets
Other receivables and deposits
– Amounts due from a related party 154,400 40,074 –
– Deposits 57 57 57
– Others 149 193 171
154,606 40,324 228
Less: allowance for impairment of other
receivables and deposits (223) (59) (2)
154,383 40,265 226
Deductible value-added tax 692 435 1,406
Prepayments to suppliers – – 30
Prepaid listing expenses 12,762 21,511 37,620
13,454 21,946 39,056
167,837 62,211 39,282
Included in non-current assets
Prepayments to related parties – 3,728 3,728
Total prepayments and other receivables 167,837 65,939 43,010
(c) Amounts due from/to subsidiaries
All amounts due from and due to subsidiaries are denominated in RMB, unsecured, interest free and repayable
on demand.
APPENDIX I ACCOUNTANT’S REPORT
– I-83 –


--- page 719 ---
(d) Cash and cash equivalents
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Cash at banks 2,922 12,773 40,402
(e) Other reserves
Capital
reserves
Statutory
reserves Total
RMB’000 RMB’000 RMB’000
Balance at 1 January 2020 and 31 December
2020 5,726 236 5,962
Balance at 1 January 2021 5,726 236 5,962
Appropriation to statutory reserves – 9,601 9,601
Balance at 31 December 2021 and 2022 5,726 9,837 15,563
(f) Retained earnings
Y ear ended 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
At the beginning of the year 7,710 4,331 90,739
(Loss)/profit for the year (3,379) 96,009 (14,762)
Appropriation to statutory reserves – (9,601) –
At the end of the year 4,331 90,739 75,977
(g) Borrowings
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Included in non-current liabilities:
Bank borrowings
– unsecured – – 59,500
Less: current portion of non-current liabilities – – (1,000)
– – 58,500
APPENDIX I ACCOUNTANT’S REPORT
– I-84 –


--- page 720 ---
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Included in current liabilities:
Bank borrowings
– unsecured and guaranteed (Note 28(b)) 100,000 100,000 100,000
– secured and unguaranteed (Note 28(c)) – – 10,500
Current portion of non-current liabilities – – 1,000
100,000 100,000 111,500
Total borrowings 100,000 100,000 170,000
(h) Trade and other payables
As at 31 December
2020 2021 2022
RMB’000 RMB’000 RMB’000
Amounts due to related parties 157 151 247
Employee benefits payables 4,462 7,645 5,400
Other taxes payables 1,035 1,277 111
Others 81 155 582
5,735 9,228 6,340
40 CONTINGENCIES
The Group did not have any material contingent liabilities as at 31 December 2020, 2021 and 2022.
41 SUBSEQUENT EVENTS
The Group does not have any significant subsequent events after 31 December 2022 and up to the date of this
report which may result in adjustment or addition disclosure in this Historical Financial Information.
III. SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by the Company or any of the
companies now comprising the Group in respect of any period subsequent to 31 December
2022 and up to the date of this report.
APPENDIX I ACCOUNTANT’S REPORT
– I-85 –


--- page 721 ---
The information set out in this Appendix II does not form part of the accountant’ s report
from PricewaterhouseCoopers, Certified Public Accountants, the reporting accountant of our
Company, as set out in Appendix I to this prospectus, and is included herein for illustrative
purposes only. The unaudited pro forma financial information should be read in conjunction
with “Financial information” in this prospectus and the “accountant’ s report” in Appendix I
to this prospectus.
A. UNAUDITED PRO FORMA STATEMENT OF ADJUSTED CONSOLIDATED NET
TANGIBLE LIABILITIES
The following is the unaudited pro forma statement of adjusted consolidated net tangible
liabilities of the Group attributable to owners of the Company (the “Unaudited Pro Forma
Financial Information”) which has been prepared in accordance with Rule 4.29 of the Listing
Rules and on the basis of the notes set out below for the purpose to illustrate the effect of the
Global Offering on the consolidated net tangible liabilities of the Group attributable to owners
of the Company as at 31 December 2022 as if the Global Offering had taken place on 31
December 2022, assuming the Over-allotment Option is not exercised.
The Unaudited Pro Forma Financial Information is prepared based on the consolidated net
assets of the Group attributable to owners of the Company as at 31 December 2022 as set out
in the Accountant’s Report of the Group, the text of which is set out in “Accountant’s Report”
in Appendix I to this prospectus, after incorporating the unaudited pro forma adjustments
described in the accompanying notes below.
The Unaudited Pro Forma Financial Information has been prepared by the Directors for
illustrative purposes only, based on the judgements and assumptions of the Directors, and
because of its hypothetical nature, it may not give a true picture of the consolidated net tangible
liabilities of the Group attributable to owners of the Company had the Global Offering been
completed as at 31 December 2022 or at any future dates following the Global Offering.
Audited
consolidated net
tangible liabilities
of the Group
attributable to
owners of the
Company as at
31 December 2022
Estimated net
proceeds from the
Global Offering
Unaudited pro
forma adjusted
consolidated net
tangible liabilities
of the Group
attributable to
owners of the
Company as at
31 December 2022
Unaudited pro forma adjusted
consolidated net tangible
liabilities of the Group
attributable to owners of the
Company per Share
RMB’000 RMB’000 RMB’000 RMB HK$
Note 1 Note 2 Note 3
Based on an Offer Price of
HK$3.00 per Share (1,552,917) 131,006 (1,421,911) (4.71) (5.17)
Based on an Offer Price of
HK$4.20 per Share (1,552,917) 209,855 (1,343,062) (4.45) (4.89)
APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION
– II-1 –


--- page 722 ---
Notes:
1. The audited consolidated net tangible liabilities of the Group attributable to owners of the Company as at
31 December 2022 is extracted from the Accountant’s Report set out in Appendix I to this prospectus, which
is based on the audited consolidated net assets of the Group attributable to owners of the Company as at
31 December 2022 of approximately RMB727,117,000 with adjustment for the intangible assets attributable
to owners of the Company as at 31 December 2022 of approximately RMB2,280,034,000 (being the audited
consolidated intangible assets of the Group as at 31 December 2022 of approximately RMB3,340,965,000 with
adjustment for the intangible assets attributable to non-controlling interests as at 31 December 2022 of
approximately RMB1,060,931,000).
2. The estimated net proceeds from the Global Offering are based on 75,600,000 Offer Shares and the indicative
Offer Prices of HK$3.00 per Offer Share and HK$4.20 per Offer Share, being the low end and high end of the
indicative Offer Price range, respectively, after deduction of the underwriting fees and other related expenses
(excluding listing expenses of approximately RMB280,000, nil, RMB299,000, RMB3,597,000 which have
been accounted for in the consolidated statements of comprehensive income of the Group during the years
ended 31 December 2019, 2020, 2021 and 2022), without taking into account any Shares which may be allotted
and issued upon the exercise of the Over-allotment Option, or any Shares which may be allotted and issued
or repurchased by the Company pursuant to the general mandates.
3. The unaudited pro forma adjusted consolidated net tangible liabilities of the Group attributable to owners of
the Company per Share is arrived at after the adjustments referred to in the preceding paragraphs and on the
basis that 301,600,000 Shares were in issue assuming the Global Offering had taken place on 31 December
2022, without taking into account any Shares which may be allotted and issued upon the exercise of the
Over-allotment Option, or any Shares which may be allotted and issued or repurchased by the Company
pursuant to the general mandates.
4. For the purpose of this unaudited pro forma adjusted consolidated net tangible liabilities, the amounts stated
in Renminbi are converted into Hong Kong dollars at a rate of RMB1.00 to HK$1.0987. No representation is
made that Renminbi amounts have been, could have been or may be converted to Hong Kong dollars, or vice
versa, at that rate.
5. No adjustment has been made to reflect any trading results or other transactions of the Group entered into
subsequent to 31 December 2022.
6. The property interests valued in the property valuation report as set out in Appendix IV to this prospectus
represented the investment properties of the Group, which were initially measured at cost and subsequently
carried at fair value, hence no depreciation charge on investment properties was recorded by the Group during
the Track Record Period. Therefore, it would not give rise to a disclosure requirement under note 6 to
paragraph 21 of Appendix 1A to the Listing Rules.
APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION
– II-2 –


--- page 723 ---
The following is the text of a report received from PricewaterhouseCoopers, Certified
Public Accountants, Hong Kong, for the purpose of incorporation in this prospectus.
INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE
COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION
To the Directors of Wise Living Technology Co., Ltd
We have completed our assurance engagement to report on the compilation of unaudited
pro forma financial information of Wise Living Technology Co., Ltd (the “Company”) and its
subsidiaries (collectively the “Group”) by the directors of the Company (the “Directors”) for
illustrative purposes only. The unaudited pro forma financial information consists of the
unaudited pro forma statement of adjusted consolidated net tangible liabilities of the Group as
at 31 December 2022, and related notes (the “Unaudited Pro Forma Financial Information”) as
set out on pages II-1 to II-2 of the Company’s prospectus dated 28 June 2023, in connection
with the proposed initial public offering of the shares of the Company (the “Prospectus”). The
applicable criteria on the basis of which the Directors have compiled the Unaudited Pro Forma
Financial Information are described on pages II-1 to II-2 of the Prospectus.
The Unaudited Pro Forma Financial Information has been compiled by the Directors to
illustrate the impact of the proposed initial public offering on the Group’s financial position as
at 31 December 2022 as if the proposed initial public offering 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 information for the year ended
31 December 2022, on which an accountant’s report has been published.
Directors’ Responsibility for the Unaudited Pro Forma Financial Information
The Directors are responsible for compiling the Unaudited 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 (“AG 7”) issued by the Hong Kong Institute of Certified Public
Accountants (“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 behaviour.
PricewaterhouseCoopers, 22/F Prince’s Building, Central, Hong Kong SAR, China
T: +852 2289 8888, F: +852 2810 9888, www.pwchk.com
APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION
– II-3 –


--- page 724 ---
Our firm applies Hong Kong Standard on Quality Control (HKSQC) 1, Quality Control
for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and
Related Services Engagements , issued by the HKICPA and accordingly, maintains a
comprehensive system of quality control including documented policies and procedures
regarding compliance with ethical requirements, professional standards and applicable legal
and regulatory requirements.
Reporting Accountant’s Responsibilities
Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the
Listing Rules, on the Unaudited 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 Unaudited 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 accountant plans and performs procedures to obtain reasonable assurance
about whether the Directors have compiled the Unaudited Pro Forma Financial Information in
accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the
HKICPA.
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 Unaudited 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 Unaudited Pro Forma
Financial Information.
The purpose of unaudited pro forma financial information included in a prospectus is
solely to illustrate the impact of a significant event or transaction on unadjusted financial
information of the entity as if the event had occurred or 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 proposed initial public offering at 31 December 2022
would have been as presented.
A reasonable assurance engagement to report on whether the unaudited 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 unaudited pro forma financial information provide a reasonable basis
for presenting the significant effects directly attributable to the event or transaction, and to
obtain sufficient appropriate evidence about whether:
 The related pro forma adjustments give appropriate effect to those criteria; and
 The unaudited pro forma financial information reflects the proper application of
those adjustments to the unadjusted financial information.
APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION
– II-4 –


--- page 725 ---
The procedures selected depend on the reporting accountant’s judgement, having regard
to the reporting accountant’s understanding of the nature of the company, the event or
transaction in respect of which the unaudited pro forma financial information has been
compiled, and other relevant engagement circumstances.
The engagement also involves evaluating the overall presentation of the unaudited pro
forma financial information.
We believe that the evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Our work has not been carried out in accordance with auditing standards or other
standards and practices generally accepted in the United States of America or auditing
standards of the Public Company Accounting Oversight Board (United States) or standards and
practices of any professional body in any other overseas jurisdiction and accordingly should
not be relied upon as if it had been carried out in accordance with those standards and practices.
Opinion
In our opinion:
(a) the Unaudited Pro Forma Financial Information has been properly compiled by the
Directors on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma
Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing
Rules.
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong, 28 June 2023
APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION
– II-5 –


--- page 726 ---
PRC TAXATION
Dividend Tax
Individual Investors
In accordance with the Individual Income Tax Law of the People’ s Republic of China
which was last amended on 31 August 2018 and implemented on 1 January 2019, and the
Regulations on the Implementation of the Individual Income Tax Law of the People’ s Republic
of China which was last amended on 18 December 2018 and implemented on 1 January 2019,
dividends paid by Chinese companies to individuals are subject to individual income tax at a
rate of 20%.
In accordance with the Notice of the Ministry of Finance and the State Taxation
Administration on Certain Policy Issues Concerning Individual Income Tax , dividends and
bonuses received by foreign individuals from foreign-invested enterprises are temporarily
exempted from individual income tax. In accordance with the Notice of the State Council
Forwarded to the National Development and Reform Commission and Other Departments
Concerning Several Opinions on Intensifying Reform of the Income Distribution System ,
exempting dividend income received by foreign individuals from foreign-invested enterprises
from individual income tax and other tax incentives are removed. In practice, in accordance
with the Notice on Issues Concerning the Collection and Administration of Individual Income
Tax upon the Abolition of Guoshuifa [1993] Document No. 045 promulgated and implemented
by the State Taxation Administration on 28th June 2011, dividends paid by H-share issuers to
individual non-China-domiciled H-share holders shall be subject to the Chinese individual
income tax at a rate determined by applicable tax treaties or tax arrangements between China
and the jurisdiction in which the shareholder resides. These rates range from 5% to 20% and
are generally withheld at a 10% rate, and that no application is needed. In the case where the
dividend withholding tax rate of 10% does not apply, it shall be handled according to the
following provisions: (1) Where an individual who receives dividends and bonuses is a resident
of a treaty country with a tax rate lower than 10%, the withholding agent may refund the excess
amount of tax withheld in accordance with the provisions of the Measures for the
Administration of Tax Convention Treatment for Non-resident Taxpayers . (2) Where an
individual who receives dividends and bonuses is a resident of a treaty country with a tax rate
higher than 10% but lower than 20%, the withholding agent shall withhold individual income
tax according to the actual rate as agreed when paying the dividends and bonuses, and that no
application is needed. (3) Where an individual who receives dividends and bonuses is a
resident of a country that does not have a tax treaty with China, the withholding agent shall
withhold individual income tax at a rate of 20% when paying the dividends and bonuses.
APPENDIX III TAXATION AND FOREIGN EXCHANGE
– III-1 –


--- page 727 ---
Corporate Investors
In accordance with the Enterprise Income Tax Law of the People’ s Republic of China
which was last amended on 29 December 2018 and implemented on the same day, and the
Regulations on the Implementation of the Enterprise Income Tax Law of the People’ s Republic
of China which came into effect on 23 April 2019, where a non-resident enterprise that does
not have any establishment or place of business within China or that has an establishment or
place of business in China but whose China-sourced income is not effectively connected with
such establishment or place of business, it is generally required to pay a 10% enterprise income
tax for the China-sourced income (including dividends and bonuses received by Chinese
resident enterprises from shares issued in Hong Kong). Where the aforementioned income tax
is payable by non-resident enterprises, it shall be withheld at the source, and with the payer as
the withholding agent. The tax shall be deducted from the sum to be paid or due by the
withholding agent at the time when each payment is made or due.
It has further been clarified in the Notice on Issues Concerning Withholding Enterprise
Income Tax on Dividends Paid by Chinese Resident Enterprises to H-share Holders which are
Overseas Non-resident Enterprises (Guoshuihan No. [2008] 897) promulgated by the State
Taxation Administration on 6 November 2008 that, when paying dividends for 2008 and
beyond, Chinese resident enterprises must withhold enterprise income tax at a rate of 10% on
dividends paid to H-share holders which are overseas non-resident enterprises. Non-resident
corporate shareholders entitled to a reduction in tax rate under a tax treaty or arrangement may
apply to the competent tax authorities to recover the excess amount of tax withheld. The Reply
on Issues Concerning the Collection of Enterprise Income Tax on B Shares and Other Stock
Dividends Received by Non-resident Enterprises (Guoshuihan [2009] No. 394) promulgated by
the State Taxation Administration on 24 July 2009 has further pointed out that Chinese resident
enterprises publicly offering or listing shares (A shares, B shares and overseas stocks) in China
and abroad shall, when paying dividends for 2008 and beyond to non-resident corporate
shareholders, withhold and pay enterprise income tax at a unified rate of 10% on their behalf.
Non-resident corporate shareholders entitled to tax convention treatment shall comply with
relevant provisions of the tax agreement. In accordance with the Arrangement between the
Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of
Double Taxation on income and the Prevention of Fiscal Evasion with respect to Taxes on
Income signed by the Chinese government and Hong Kong on 21 August 2006, the Chinese
government may levy taxes on dividends payable by Chinese companies to Hong Kong
residents. If the beneficiary is one that directly owns at least 25% of the shares of the company
that is paying the dividends, it shall be 5% of the total dividends; in any other cases, it shall
be 10% of the total dividends.
In addition, in accordance with the Notice of the State Taxation Administration on Issues
Concerning the Implementation of Dividend Clauses in Tax Treaties which was promulgated
and came into force on 20 February 2009, when a Chinese resident company pays dividends
to tax residents of a counterparty to the tax treaty, such tax residents of the counterparty may
pay taxes on the dividends received according to the rate under the tax treaty and shall meet
the following conditions: (1) the tax resident who receives the dividends shall be a company
under the tax treaty; (2) the owner’s equity and voting rights of the Chinese resident company
directly owned by the tax resident shall reach the stipulated percentage; and (3) at any time
during the 12 months prior to payment of the dividends, equity of the Chinese resident
company directly owned by the tax resident shall reach the proportion stipulated in the tax
treaty.
APPENDIX III TAXATION AND FOREIGN EXCHANGE
– III-2 –


--- page 728 ---
In addition, in accordance with the Administrative Measures on Preferential Treatment
Entitled by Non-residents Taxpayers which was promulgated by the State Taxation
Administration on 14 October 2019 and came into force on 1 January 2020, non-resident
taxpayers who are eligible for any preferential treatment under any agreement are entitled to
automatically enjoy such preferential treatment at the time of making the tax declaration, or
enjoy preferential treatment on their own through the withholding agent at the time of making
the withholding declaration, and shall be subject to subsequent management by the competent
tax authorities. As for non-resident enterprises that receive dividends from a Chinese resident
enterprise (as defined by the Chinese tax law), they shall submit relevant reports and
information relating to their first tax return, or relevant reports and information of their first
withholding declaration for the corresponding tax year through the withholding agent. In the
event that all the conditions for preferential treatment are met and the information reported
remains unchanged, non-resident taxpayers shall be entitled to exemption from the re-
submission of relevant information to the same competent tax authorities with respect to the
same preferential treatment within three calendar years from the year when the reports and
information are submitted.
Capital Gains Tax
Individual Investors
In accordance with the Notice on Continuing the Temporary Exemption of Individual
Income Tax on Individuals’ Income from the Transfer of Shares promulgated by the Ministry
of Finance and the State Taxation Administration on 20 March 1998, starting from 1 January
1997, temporary exemption of individual income tax on individuals’ income from the transfer
of shares of listed companies will be continued. In the newly-amended Individual Income Tax
Law and its implementation regulations, it has not been clearly stipulated by the State Taxation
Administration whether individuals’ income from the transfer of shares of listed companies
will continue to be exempted from taxation or not.
On 31 December 2009, the Ministry of Finance, the State Taxation Administration and the
China Securities Regulatory Commission jointly issued the Notice on Issues Concerning the
Levy of Individual Income Tax on Individuals’ Income from the Transfer of Restricted Shares
of Listed Companies , stipulating that individuals’ income from the transfer of shares of listed
companies that are obtained from the public issuance of listed companies and the transfer
market on relevant domestic stock exchanges will continue to be exempted from individual
income tax. However, starting from 1 January 2010, individuals’ income from the transfer of
restricted shares will be subject to individual income tax as “income from the transfer of
property” and a 20% proportional tax rate shall apply. Up to now, it has not been clearly
provided for in relevant regulations whether individual income tax will be levied with respect
to the transfer of shares of Chinese resident enterprises listed on overseas stock exchanges by
non-Chinese-resident individuals. As far as the Company is aware, in practice, the Chinese tax
authorities have not yet imposed income tax on the transfer of shares of Chinese resident
enterprises listed on overseas stock exchanges by non-Chinese resident individuals.
APPENDIX III TAXATION AND FOREIGN EXCHANGE
– III-3 –


--- page 729 ---
Corporate Investors
In accordance with the Enterprise Income Tax Law and its implementation regulations,
where a non-resident enterprise that does not have any establishment or place of business
within China or that has an establishment or place of business in China but whose
China-sourced income is not effectively connected with such establishment or place of
business, it is generally required to pay a 10% enterprise income tax for the China-sourced
income (including proceeds from the sale of equity in Chinese resident companies). Where the
aforementioned income tax is payable by non-resident enterprises, it shall be withheld at the
source, and with the payer as the withholding agent. The tax shall be deducted from the sum
to be paid or due by the withholding agent at the time when each payment is made or due.
Inheritance Tax
In accordance with the Chinese laws, as of now, no inheritance tax has been levied in
China.
Enterprise Income Tax
In accordance with the Enterprise Income Tax Law of the People’ s Republic of China
which was last amended on 29 December 2018 and implemented on the same day, and the
Regulations on the Implementation of the Enterprise Income Tax Law of the People’ s Republic
of China which came into effect on 23 April 2019, enterprises that are set up according to law
inside China or in accordance with laws of foreign countries (regions) but with actual
management institutions inside China are resident enterprises. Resident enterprises shall pay
enterprise income tax on their income derived from China and abroad. The enterprise income
tax rate is 25%. Preferential treatments in respect of enterprise income tax shall be granted to
industries and projects that are specifically supported and encouraged by the State. Eligible
small-scale enterprises with low profitability are subject to enterprise income tax at a reduced
rate of 20%. High and new technology enterprises that are specifically supported by the State
are subject to enterprise income tax at a reduced rate of 15%. In accordance with the
Administrative Measures for the Accreditation of High and New Technology Enterprises which
was promulgated on 29 January 2016 and came into force on 1 January 2016, high and new
technology enterprises may apply for preferential tax treatments in accordance with the
Enterprise Income Tax Law , the Tax Collection Administration Law of the People’ s Republic
of China which came into effect on 24 April 2015 and the Regulations for the Implementation
of the Tax Collection Administration Law of the People’ s Republic of China which came into
effect on 6 February 2016.
APPENDIX III TAXATION AND FOREIGN EXCHANGE
– III-4 –


--- page 730 ---
Value-added Tax
In accordance with the Provisional Regulations of the People’ s Republic of China on
V alue-added Tax promulgated by the State Council on 13 December 1993 and last amended on
19 November 2017 (hereinafter referred to as the “V AT Regulations”), and the Rules for the
Implementation of the Provisional Regulations of the People’ s Republic of China on
V alue-added Tax promulgated by the Ministry of Finance on 25 December 1993 and last
amended on 28 October 2011, companies engaging in the sale of goods or provision of
processing, repair, maintenance and other labour services, the sale of services, intangible assets
and immovable properties and the import of goods in China are value-added tax payers who
shall pay value-added tax. Except as otherwise provided in the VAT Regulations , the
value-added tax rate for the sale of goods, provision of labour services, leasing of tangible
movable properties or import of goods is 17%.
In accordance with the Notice on the Overall Implementation of the Pilot Programme of
Replacing Business Tax with V alue-added Tax jointly promulgated by the Ministry of Finance
and the State Taxation Administration on 23 March 2016, starting from 1 May 2016, the trial
programme of replacing business tax with value-added tax will be fully promoted nationwide.
According to measures for the implementation of the trial programme and other specific
normative documents, taxpayers who have taxable behaviours must pay value-added tax at
varying rates of 17%, 11%, 6% to 0%.
In accordance with the Announcement on Policies Relating to the Intensification of
V alue-added Tax Reform which was promulgated by the Ministry of Finance, the State Taxation
Administration and the General Administration of Customs on 20 March 2019 and came into
effect on 1 April 2019, where general value-added tax payers are engaging in value-added
taxable sales or imported goods and that the value-added tax was originally levied at a 16%
rate, the tax rate is adjusted to 13%; where the value-added tax was originally levied at a 10%
rate, the tax rate is adjusted to 9%.
In accordance with the Provisional Regulations of the People’s Republic of China on
Value-Added Tax rolled out by the State Council in 2017, the Notice Concerning the
Continuation of Preferential Policies on Value-added Tax, Real Estate Tax and Urban Land Use
Tax for Heat Service Enterprises issued by the Ministry of Finance and the State Taxation
Administration in 2019 and Announcement on Extension of the Implementation Period of
Certain Preferential Tax Policies issued by the Ministry of Finance and the State Taxation
Administration in 2021, heating fee income collected from individual residents by heat service
enterprises in northeast China, north China and northwest China is exempted from value-added
tax, the preferential tax policy shall be extended to the end of the heating period in 2023. The
NDRC, the Ministry of Finance and other departments issued the Opinions on Further
Encouraging and Guiding the Entry of Private Capital into the Urban Water Supply, Gas, Heat
Supply, Sewage and Waste Treatment Industries in 2016 which has also highlighted the
continued implementation of tax reduction and exemption policies for heat service enterprises.
APPENDIX III TAXATION AND FOREIGN EXCHANGE
– III-5 –


--- page 731 ---
Land Use Tax
In accordance with the Provisional Regulations of the People’ s Republic of China on
Urban Land Use Tax promulgated by the State Council on 27 September 1988 and amended on
2 March 2019, companies and individuals using land within the boundary of cities, county
towns, established townships, and industrial and mining areas are urban land use tax payers
who shall pay land use tax. The annual amount of land use tax per square metre is as follows:
(1) from RMB1.5 to RMB30 for large cities; (2) from RMB1.2 to RMB24 for medium-sized
cities; (3) from RMB0.9 to RMB18 for small cities; (4) from RMB0.6 to RMB12 for county
towns, established townships and industrial and mining areas.
Tax Treaties
Non-Chinese-resident investors who reside in a country that have already signed a double
taxation agreement with China or who reside in Hong Kong or Macau may enjoy withholding
tax concessions on dividends received from Chinese companies. Currently, China has signed
agreements or arrangements to avoid double taxation with a number of countries and regions,
including Hong Kong, Macau, Australia, Canada, France, Germany, Japan, Malaysia, the
Netherlands, Singapore, the United Kingdom and the United States. Non-Chinese-resident
companies that are entitled to preferential tax rates in accordance with relevant agreements or
arrangements are required to apply to the Chinese tax authorities for the refund of withholding
tax paid in excess of the agreed tax rate, and that the repayments are subject to approval by the
Chinese tax authorities.
HONG KONG TAXATION
Tax on dividends
Under the current practices of the Inland Revenue Department of Hong Kong, no tax is
payable in Hong Kong in respect of dividends paid by us.
Capital gains and profit tax
No tax is imposed in Hong Kong in respect of capital gains from the sales of H Shares.
However, trading gains from the sales of H Shares by persons carrying on a trade, profession
or business in Hong Kong, where such gains are derived from or arise in Hong Kong from such
trade, profession or business will be subject to Hong Kong profits tax, which is currently
imposed at the maximum rate of 16.5% on corporations and at the maximum rate of 15% on
unincorporated businesses. Certain categories of taxpayers (for example, financial institutions,
insurance companies and securities dealers) are likely to be regarded as deriving trading gains
rather than capital gains unless these taxpayers can prove that the investment securities are held
for long-term investment purposes. Trading gains from sales of H Shares effected on the Stock
Exchange will be considered to be derived from or arise in Hong Kong. Liability for Hong
Kong profits tax would thus arise in respect of trading gains from sales of H Shares effected
on the Stock Exchange realised by persons carrying on a business of trading or dealing in
securities in Hong Kong.
APPENDIX III TAXATION AND FOREIGN EXCHANGE
– III-6 –


--- page 732 ---
Stamp duty
Hong Kong stamp duty, currently charged at the ad valorem rate of 0.13% on the higher
of the consideration for, or the market value of the H Shares, will be payable by the purchaser
on every purchase and by the seller on every sale of Hong Kong securities, including H Shares
(in other words, a total of 0.26% is currently payable on a typical sale and purchase transaction
involving H Shares). In addition, a fixed duty of HK$5.00 is currently payable on any
instrument of transfer of H Shares. Where one of the parties is a resident outside Hong Kong
and does not pay the ad valorem duty due by it, the duty not paid will be assessed on the
instrument of transfer (if any) and will be payable by the transferee. If stamp duty is not paid
on or before the due date, a penalty of up to ten times the duty payable may be imposed.
Estate duty
The Revenue (Abolition of Estate Duty) Ordinance 2005 came into effect on 11 February
2006 in Hong Kong, pursuant to which no Hong Kong estate duty is payable, and no estate duty
clearance papers are needed for the application of a grant of representation in respect of holders
of H Shares whose deaths occur on or after 11 February 2006.
FOREIGN EXCHANGE CONTROLS OF THE PRC
Renminbi, the legal tender of China, is currently subject to foreign exchange controls and
cannot be fully convertible into foreign currencies. Authorised by the People’s Bank of China,
the State Administration of Foreign Exchange (“SAFE”) has the power to perform the function
of managing all matters relating to foreign exchange, including the implementation of
regulations governing foreign exchange control.
On 29 January 1996, the State Council promulgated the Regulations of the People’ s
Republic of China on the Administration of Foreign Exchange (hereinafter referred to as the
“Foreign Exchange Control Regulations”) which came into effect on 1 April 1996. In the
Foreign Exchange Control Regulations , all international payments and transfers were
classified into current account and capital account. Most items under the current account were
not required to be approved by the SAFE, whereas those under the capital account were still
subject to the approval of the SAFE. The Foreign Exchange Control Regulations were
subsequently amended on 14 January 1997 and 5 August 2008. It is stipulated in the
newly-amended Foreign Exchange Control Regulations that the State would not impose any
restriction on international payments and transfers under the current account.
On 20 June 1996, the People’s Bank of China promulgated the Administrative Regulations
on the Settlement and Sale of and Payment in Foreign Exchange which came into effect on 1
July 1996. The foregoing abolished the remaining restrictions on foreign exchange for current
accounts, but still retained restrictions on foreign exchange transactions for capital accounts.
APPENDIX III TAXATION AND FOREIGN EXCHANGE
– III-7 –


--- page 733 ---
In accordance with Announcement on Improving Reform of the Renminbi Exchange Rate
Forming Mechanism which was issued by the People’s Bank of China on 21 July 2005 and
came into effect on the same day, starting from 21 July 2005, China began to implement a
floating exchange rate system which is being adjusted and managed with reference to a basket
of currencies on the basis of market supply and demand. The renminbi exchange rates were no
longer pegged to the US dollar alone. After the market closes on each working day, the People’s
Bank of China announced the closing price of the exchange rate of the US dollar and other
trading currencies against the renminbi in the interbank foreign exchange market for the
current day as the central parity of the currency against the renminbi for the next working day.
Starting from 4 January 2006, with the aim of improving the formation of the central
parity rate of renminbi, the People’s Bank of China introduced inquiry transactions in the
interbank spot foreign exchange market while retaining the matching approach. In addition, a
market maker system was introduced by the People’s Bank of China in the interbank foreign
exchange market to provide liquidity to the foreign exchange market. On 1 July 2014, the
People’s Bank of China further improved the marketised renminbi exchange rate forming
mechanism. The China Foreign Exchange Trading Centre was authorised by the People’s Bank
of China to make price inquiries to market makers in the interbank foreign exchange market
before the opening of the inter-bank foreign exchange market on each day, and calculate the
central parity of renminbi against the US dollar using the quoted prices of market makers as
samples. After removing the highest and lowest quotes, the remaining quotes were weighted
and averaged to obtain the central parity of renminbi against the US dollar for the current day,
and a public announcement on the central parity of renminbi against the US dollar and other
trading currencies for the current day would be made at 9:15 am on each working day. On 11
August 2015, the People’s Bank of China announced that it would improve quotation for the
central parity of renminbi against the US dollar. Before the opening of the interbank foreign
exchange market on each day, quoted prices were provided by market makers to the China
Central Foreign Exchange Trading Centre with reference to the closing exchange rates in the
interbank foreign exchange market on the previous day, taking into comprehensive
consideration of foreign exchange supply and demand as well as changes in the international
exchange rate of major currencies.
On 5 August 2008, the State Council promulgated the amended Foreign Exchange
Management Regulations which has made major changes to the foreign exchange regulatory
system in China. First of all, it adopted a balanced treatment of inflows and outflows of foreign
exchange funds, whereby overseas foreign exchange receipts may be transferred back to China
or deposited outside the country, and that foreign exchanges and foreign exchange settlement
funds under capital accounts may only be used for purposes approved by relevant competent
authorities and foreign exchange administrations. Second, it improved the renminbi exchange
rate forming mechanism that is based on market supply and demand. Third, it strengthened the
monitoring of cross-border foreign exchange capital flows. The State may, in the event of the
occurrence or likelihood of a series imbalance in the incomes and expenditures relating to
cross-border transactions, or in the event of the occurrence or likelihood of a serious crisis,
take necessary safeguards or control measures. Fourth, it strengthened the supervision and
management of foreign exchange transactions and granted extensive powers to the SAFE to
enhance its supervision and management capabilities.
APPENDIX III TAXATION AND FOREIGN EXCHANGE
– III-8 –


--- page 734 ---
In accordance with relevant Chinese laws and regulations, when Chinese enterprises
(including foreign-invested enterprises) are in need of foreign exchange in conducting current
account transactions, payments may be made through a foreign exchange account in the
designated foreign exchange bank without the approval of the SAFE, but valid transaction
receipts and vouchers must be provided. Foreign-invested enterprises that need to distribute
profits to shareholders in foreign exchange as well as Chinese enterprises (such as the
Company) that need to pay dividends to shareholders in foreign exchange in accordance with
relevant regulations may, according to the resolution of their board of directors or general
meetings of shareholders on profit distribution, make payments from a foreign exchange
account in the designated foreign exchange bank, or make exchanges and payments at the
designated foreign exchange bank.
On 23 October 2014, the State Council promulgated the Decision of the State Council on
Cancelling and Adjusting a Batch of Projects for Administrative Review and Approval and
Other Matters (Guofa [2014] No. 50). It was decided that the review and approval of the SAFE
and its branch offices on the transfer-in and settlement of proceeds raised overseas under
overseas listed foreign shares would be cancelled.
On 26 December 2014, the SAFE issued the Notice of the State Administration of Foreign
Exchange on Issues Relating to Foreign Exchange Administration of Overseas Listings .
According to the notice, a domestic company shall, within 15 working days from the end of the
overseas listing and issuance, handle the overseas listing registration with a branch of the
SAFE in the place where it is registered. Proceeds from the overseas listing may be transferred
back to corresponding special domestic accounts or deposited into special overseas accounts,
and the use of funds shall be consistent with relevant contents contained in the prospectus and
other publicly disclosed documents.
On 13 February 2015, the SAFE issued the Notice of the State Administration of Foreign
Exchange on Further Simplifying and Improving Policies on the Foreign Exchange
Administration of Direct Investment (Huifa [2015] No. 13) which came into effect on 1 June
2015, cancelling confirmation of foreign exchange registration under domestic direct
investment and confirmation of foreign exchange registration under overseas direct investment.
Instead, banks shall directly examine and handle foreign exchange registration under domestic
direct investment and foreign exchange registration under overseas direct investment, and the
SAFE and its branch offices shall indirectly regulate the foreign exchange registration of direct
investment through banks.
In accordance with the Notice of the State Administration of Foreign Exchange on
Reforming and Regulating the Administrative Policies for the Settlement of Capital Accounts
issued by the SAFE on 9 June 2016, the settlement of foreign exchange receipts under the
capital account (including funds recovered from overseas listing) that are subject to
discretionary settlement as already specified by relevant policies may be handled at banks
according to the actual business needs of domestic institutions. The proportion of discretionary
settlement of foreign exchange receipts under the capital account for domestic institutions is
temporarily determined as 100%. The SAFE may, based on the balance of payments, make
adjustment to the aforesaid proportion when appropriate.
APPENDIX III TAXATION AND FOREIGN EXCHANGE
– III-9 –


--- page 735 ---
On 26 January 2017, the SAFE promulgated the Notice of the State Administration of
Foreign Exchange on Further Promoting the Reform of Foreign Exchange Administration and
Improving the Examination of Authenticity and Compliance (Huifa [2017] No. 3), further
expanding the settlement scope of domestic foreign exchange loans to allow settlement of
domestic foreign exchange loans for exports under trade in goods; allowing funds under
onshore guarantees for offshore indebtedness to be transferred back and used domestically;
allowing overseas institutions in pilot free trade zones to have their foreign exchange settled
through domestic foreign exchange accounts; and implementing a full-calibre management of
domestic and foreign currencies for the overseas lending business. In the overseas lending
business of a domestic institution, the sum of the balance of overseas loans denominated in
domestic currency and the balance of overseas loans denominated in foreign currencies shall
not exceed 30% of its owner’s equity in the audited financial statements for the previous year.
On 23 October 2019, the SAFE promulgated the Notice by the State Administration of
Foreign Exchange of Further Facilitating Cross-border Trade and Investment (Huifa [2019]
No. 28), on the basis that investment-oriented foreign-invested enterprises may carry out
domestic equity investment with capital funds in accordance with laws and regulations,
allowing foreign-invested enterprises which is not investment-oriented to carry out domestic
equity investment with capital funds in accordance with laws, under the premise of not
violating the current Special Administrative Measures (Negative List) for the Access of Foreign
Investment and the authenticity and compliance of the invested project.
APPENDIX III TAXATION AND FOREIGN EXCHANGE
– III-10 –


--- page 736 ---
The following is the text of a letter , a valuation summary and valuation certificates
prepared for the purpose of incorporation in this prospectus received from Vincorn Consulting
and Appraisal Limited, an independent valuer , in connection with its valuation of the property
interests with property activities held by our Group. Terms defined in this appendix applies to
this appendix only.
Vincorn Consulting and Appraisal Limited
Units 1602-4, 16/F
FWD Financial Centre
No. 308 Des V oeux Road Central
Hong Kong
The Board of Directors
Wise Living Technology Co., Ltd
Room 202, 2/F
No. 15 Shuangliang Road
Ligang Street
Jiangyin City, Jiangsu Province
The PRC
28 June 2023
Dear Sirs,
INSTRUCTION AND V ALUATION DATE
We refer to your instructions for us to assess the Market Values of the property interests
with property activities located in The People’s Republic of China (“The PRC”) held by Wise
Living Technology Co., Ltd (the “Company”) and its subsidiaries (hereinafter together referred
to as the “Group”) for the purposes of public disclosure. We confirm that we have carried out
inspection, made relevant enquiries and searches and obtained such further information as we
consider necessary in order to provide you with our opinion of the Market Values of the
property interests as at 31 March 2023 (the “Valuation Date”).
V ALUATION STANDARDS
The valuation has been prepared in accordance with the HKIS Valuation Standards 2020
published by The Hong Kong Institute of Surveyors effective from 31 December 2020 with
reference to the International Valuation Standards published by the International Valuation
Standards Council effective from 31 January 2022; and the requirements set out in the Chapter
5 and Practice Note 12 of the Rules Governing the Listing of Securities on The Stock Exchange
of Hong Kong Limited.
APPENDIX IV PROPERTY V ALUATION REPORT
– IV-1 –


--- page 737 ---
V ALUATION BASIS
Our valuation has been undertaken on the basis of Market Value. Market Value is defined
as “the estimated amount for which an asset or liability should exchange on the valuation date
between a willing buyer and a willing seller in an arm’s length transaction, after proper
marketing and where the parties had each acted knowledgeably, prudently and without
compulsion”.
V ALUATION ASSUMPTIONS
Our valuation has been made on the assumption that the seller sells the property interests
in the market without the benefit of a deferred term contract, leaseback, joint venture,
management agreement or any similar arrangement, which could serve to affect the values of
the property interests.
No allowances have been made for any charges, mortgages or amounts owing on the
property interests, nor for any expenses or taxations which may be incurred in effecting a sale.
Unless otherwise stated, it is assumed that the property interests are free from encumbrances,
restrictions and outgoings of an onerous nature, which could affect the values of the property
interests.
As the property interests are held under long term land use rights, we have assumed that
the owner has free and uninterrupted rights to use the property interests for the whole of the
unexpired term of the land use rights.
V ALUATION METHODOLOGY
When valuing the property interests, we have adopted Market Approach and Income
Capitalisation Approach.
Market Approach is universally considered as the most accepted valuation approach for
valuing most forms of property. This involves the analysis of recent market evidence of similar
properties to compare with the subject under valuation. Each comparable is analysed on the
basis of its unit rate; each attribute of the comparables is then compared with the subject and
where there are any differences, the unit rate is adjusted in order to arrive at the appropriate
unit rate for the subject. This is done by making percentage adjustments to the unit rate for
various factors, such as time, location, building age, building quality and so on.
Income Capitalisation Approach is a valuation approach commonly adopted for income
producing properties such as offices, shops and arcades. It estimates the capital value of a
property by capitalising rental income on a fully leased basis having regard to the current
passing rental income from existing tenancy and the potential reversionary rental income at
market level.
APPENDIX IV PROPERTY V ALUATION REPORT
– IV-2 –


--- page 738 ---
LAND TENURE AND TITLE INVESTIGATION
We have been provided with copies of documents in relation to the titles of the property
interests. However, we have not scrutinised the original documents to verify ownership or to
verify any amendments, which may not appear on the copies handed to us. We have relied to
a considerable extent on information provided by the Group.
We have relied on the advices given by The PRC legal adviser of the Group, LLinks Law
Offices, regarding the titles of the property interests in The PRC. We do not accept liability for
any interpretation that we have placed on such information, which is more properly placed
within the sphere of the legal adviser.
All legal documents disclosed in this letter, the valuation summary and the valuation
certificates are for reference only. No responsibility is assumed for any legal matters
concerning the legal titles to the property interests set out in this letter, the valuation summary
and the valuation certificates.
INFORMATION SOURCES
We have relied to a considerable extent on information provided by the Group and the
legal adviser, in respect of the titles of the property interests in The PRC. We have also
accepted advice given to us on matters such as identification of the properties, particulars of
occupancy, areas and all other relevant matters. Dimensions, measurements and areas included
in the valuation are based on information contained in the documents provided to us and are,
therefore, only approximations.
We have also been advised by the Group that no material factors or information have been
omitted or withheld from information supplied and consider that we have been provided with
sufficient information to reach an informed view. We believe that the assumptions used in
preparing our valuation are reasonable and have had no reason to doubt the truth and accuracy
of information provided to us by the Group which is material to the valuation.
INSPECTION AND INVESTIGATIONS
The properties were inspected externally and internally. Although not all areas were
accessible for viewing at the time of inspection, we have endeavoured to inspect all areas of
the properties. Investigations were carried out as necessary. Our investigations have been
conducted independently and without influence from any third party in any manner.
We have not tested any services of the properties and are therefore unable to report on
their present conditions. We have not undertaken any structural surveys of the properties and
are therefore unable to comment on the structural conditions. We have not carried out any
investigations on site to determine the suitability of the ground conditions for any future
developments. Our valuation is prepared on the assumption that these aspects are satisfactory
and that no extraordinary expenses or delays will be required.
APPENDIX IV PROPERTY V ALUATION REPORT
– IV-3 –


--- page 739 ---
We have not carried out any on-site measurements to verify the correctness of the areas
in respect of the properties but have assumed that the areas shown on the documents or deduced
from the plans are correct. All documents and plans have been used as reference only and all
dimensions, measurements and areas are therefore approximations.
CURRENCY
Unless otherwise stated, all monetary figures stated in this report are in Renminbi
(“RMB”).
The valuation summary and the valuation certificates are attached hereto.
Yours faithfully,
For and on behalf of
Vincorn Consulting and Appraisal Limited
Vincent Cheung
BSc(Hons) MBA FRICS MHKIS RPS(GP)
MCIREA MHKSI MISCM MHIREA FHKIoD
RICS Registered V aluer
Registered Real Estate Appraiser & Agent PRC
Managing Director
Note: Vincent Cheung is a fellow of the Royal Institution of Chartered Surveyors, a member of the Hong Kong
Institute of Surveyors, a Registered Professional Surveyor (General Practice) under the Surveyors Registration
Ordinance (Cap. 417) in Hong Kong, a member of China Institute of Real Estate Appraisers and Agents, a
member of Hong Kong Securities and Investment Institute, a member of Institute of Shopping Centre
Management, a member of Hong Kong Institute of Real Estate Administrators, a fellow of the Hong Kong
Institute of Directors, a Registered Valuer of the Royal Institution of Chartered Surveyors and a Registered
Real Estate Appraiser and Agent People’s Republic of China. He is suitably qualified to carry out the valuation
and has over 25 years of experience in the valuation of fixed and intangible assets of this magnitude and nature
in the subject region.
APPENDIX IV PROPERTY V ALUATION REPORT
– IV-4 –


--- page 740 ---
V ALUATION SUMMARY
Property Interests Held by the Group for Investment in The PRC
No. Property
Market Value as at
31 March 2023
Interest
Attributable to
the Group
Market Value as at
31 March 2023
Attributable to
the Group
1 Level 4 to Level 7,
Ao’lin Central
Square Block A
(Also known as
Shantou Complex)
Located at south to
Beizhang Village,
north to Jinyang
Street, west to Tiyu
Road and east to
Hangxiao Area,
Xiaodian District,
Taiyuan, Shanxi
Province, The PRC
No Commercial Value 51% No Commercial Value
2 A Production
Workshop and
Portion of a
R&D Building
Located at No. 168
Wuchengnan Road,
Tanghuaiyuan Area,
Taiyuan
Comprehensive
Reform
Demonstration
Zone, Xiaodian
District, Taiyuan,
Shanxi Province,
The PRC
RMB191,650,000 51% RMB97,741,500
Total: RMB191,650,000 RMB97,741,500
APPENDIX IV PROPERTY V ALUATION REPORT
– IV-5 –


--- page 741 ---
V ALUATION CERTIFICATE
Property Interests Held by the Group for Investment in The PRC
No. Property Description and Tenure
Occupancy
Particulars
Market Value
as at 31 March
2023
1 Level 4 to Level 7,
Ao’lin Central
Square Block A
(Also known as
Shantou Complex)
Located at south to
Beizhang Village,
north to Jinyang
Street, west to
Tiyu Road and
east to Hangxiao
Area, Xiaodian
District, Taiyuan,
Shanxi Province,
The PRC
The property comprises four
office levels of a 20-storey office
building plus two basement
floors, namely Ao’lin Central
Square Block A. It was
completed in about 2012.
As per the information provided
by the Group, the property has a
total gross floor area (“GFA”) of
approximately 4,405.86 square
metres (“sq.m.”). The GFA
breakdown of the property is
listed as below:–
As per the
information provided
by the Group, a
portion of the
property with a total
GFA of approximately
3,291.25 sq.m. was
subject to tenancies
for various terms with
the latest expiry on
14 September 2024 at
a total monthly rent
of approximately
RMB270,426,
exclusive of
management fees and
other outgoings, while
the remaining portion
was vacant.
No Commercial
Value
51% Interest
Attributable to the
Group:
No Commercial
Value
Portion GFA
(sq.m.)
Level 4 1,082.64
Level 5 1,114.61
Level 6 & Level 7 2,208.61
4,405.86
The land use rights of the
property were granted for a term
expiring on 6 July 2050 for
commercial and finance uses.
Notes:
1. The property was inspected by Ines Wang MSc Real Estate on 20 January 2023.
2. The valuation and this certificate were prepared by Vincent Cheung BSc (Hons) MBA FRICS MHKIS RPS (GP)
MCIREA MHKSI MISCM MHIREA FHKIoD RICS Registered V aluer Registered Real Estate Appraiser & Agent
PRC and Kit Cheung BSc (Hons) MRICS MHKIS RPS (GP) MHIREA MCIREA RICS Registered V aluer
Registered Real Estate Appraiser PRC.
3. Pursuant to a State-owned Land Use Rights Certificate, Bing Zheng Di Guo Yong (2010) Di No. 00272 dated
12 October 2010 and issued by the People’s Government of Taiyuan, the land use rights of the subject site with
a site area of 15,044.20 sq.m. were granted toʮ̡ for a term expiring on 6 July
2050 for commercial and finance uses.
4. Pursuant to a Construction Land Use Planning Permit, Bing Gui Gao Xin Xu Zi [2011] Di No. 0004 dated 20
June 2011 and issued by Urban and Rural Planning Bureau of High-tech Industrial Development Zone,
Taiyuan, the proposed land use of the subject site was approved.
APPENDIX IV PROPERTY V ALUATION REPORT
– IV-6 –


--- page 742 ---
5. Pursuant to a Construction Project Planning Permit, Bing Gui Gao Xin Jian Zi [2011] Di No. 0061 dated 17
October 2011 and issued by Urban and Rural Planning Bureau of High-tech Industrial Development Zone, the
proposed development of the subject building was approved.
6. Pursuant to a Construction Project Work Commencement Permit, Bing Gao Xin Jian Shi Zi [2011] Di No. 253
dated 18 January 2012 and issued by Urban and Rural Planning Bureau of High-tech Industrial Development
Zone, the commencement of the construction of the subject building was approved.
7. Pursuant to a Sale and Purchase Agreement, SXSL-QT-027 dated 19 March 2014 and entered into between
ʮ̡ andʮ̡, the property was sold to̹Ύ͛ঐ๕Զᆠ
ʮ̡ at a consideration of RMB66,616,603.20.
8. The general description and market information of the property are summarised below:
Location : The property is located at south to Beizhang Village, north to Jinyang
Street, west to Tiyu Road and east to Hangxiao Area, Xiaodian District,
Taiyuan, Shanxi Province, The PRC.
Transportation : Taiyuan Wusu International Airport, Taiyuan South Railway Station and
Jinyang Street Station of Taiyuan Metro Line No. 2 are located
approximately 9.6 kilometres, 4.6 kilometres and 0.8 kilometres away
from the property respectively.
Nature of Surrounding Area : The subject area is a predominately commercial area in Xiaodian
District.
9. As advised by the Group, the property is yet to be granted with a proper title certificate of building ownership
rights. In the course of our valuation, we have attributed no commercial value to the property. The reference
value of the property, assuming that it has been granted with a proper title certificate of building ownership
rights and it can be freely transferred, as at the Valuation Date was circa RMB73,100,000.
10. We have been provided with a legal opinion regarding the property by Llinks Law Offices, which contains,
inter alia, the following:
(a) There are no major dispute and dissension in relation to the real estate title of the property and̹
ʮ̡ can use and voluntarily handle the property; and
(b) When the developer has obtained the proper title certificate for the building ownership rights of the
whole development, there is no material legal impediment forʮ̡ to obtain
a proper title certificate for the building ownership rights of the property.
APPENDIX IV PROPERTY V ALUATION REPORT
– IV-7 –


--- page 743 ---
V ALUATION CERTIFICATE
Property Interests Held by the Group for Investment in The PRC
No. Property Description and Tenure
Occupancy
Particulars
Market Value
as at 31 March
2023
2 A Production
Workshop and
Portion of a
R&D Building
Located at No. 168
Wuchengnan Road,
Tanghuaiyuan
Area,
Taiyuan
Comprehensive
Reform
Demonstration
Zone, Xiaodian
District, Taiyuan,
Shanxi Province,
The PRC
The property comprises a land
parcel with a site area of
approximately 20,877.73 sq.m., a
portion of Level 1, Level 6,
Level 8, Level 9, Level 10 and
the whole of Level 3, Level 5
and Level 11 of a 12-storey R&D
building, excluding a basement
floor, and a 6-storey production
workshop, excluding a basement
floor. It was completed in about
2016.
As per the information provided
by the Group, the property has a
total GFA of approximately
34,367.74 sq.m.. The GFA
breakdown of the property is
listed as below: –
As per the
information provided
by the Group, a
portion of the
property with a total
GFA of approximately
26,548.83 sq.m. was
subject to tenancies
for various terms with
the latest expiry on
15 April 2031 at a
total monthly rent of
approximately
RMB954,234,
exclusive of
management fees and
other outgoings, while
the remaining portion
was vacant.
RMB191,650,000
(RENMINBI ONE
HUNDRED
NINETY ONE
MILLION SIX
HUNDRED AND
FIFTY
THOUSAND)
51% Interest
Attributable to the
Group:
RMB97,741,500
(RENMINBI
NINETY SEVEN
MILLION SEVEN
HUNDRED
FORTY ONE
THOUSAND AND
FIVE HUNDRED)
Uses GFA
(sq.m.)
R&D Building 9,295.96
Production
Workshop 25,071.78
34,367.74
The land use rights of the
property were granted for a term
expiring on 8 September 2060
for industrial uses.
Notes:
1. The property was inspected by Ines Wang MSc Real Estate on 20 January 2023.
2. The valuation and this certificate were prepared by Vincent Cheung BSc(Hons) MBA FRICS MHKIS RPS(GP)
MCIREA MHKSI MISCM MHIREA FHKIoD RICS Registered V aluer Registered Real Estate Appraiser & Agent
PRC and Kit Cheung BSc(Hons) MRICS MHKIS RPS(GP) MHIREA MCIREA RICS Registered V aluer
Registered Real Estate Appraiser PRC.
3. Pursuant to a Real Estate Title Certificate, Jin (2020) Tai Yuan Shi Bu Dong Chan Quan Di No. 0158294, dated
4 December 2020 and issued by Taiyuan Natural Resources and Planning Bureau, the land use rights of the
property with a site area of 20,877.73 sq.m. and building ownership rights of the whole of Level 1 to Level
12 of the R&D Building of the property with a total GFA of 19,178.56 sq.m. were granted to̹Ύ͛ঐ
ʮ̡ for a term expiring on 8 September 2060 for industrial uses.
APPENDIX IV PROPERTY V ALUATION REPORT
– IV-8 –


--- page 744 ---
4. Pursuant to a Real Estate Title Certificate, Jin (2020) Tai Yuan Shi Bu Dong Chan Quan Di No. 0158290, dated
4 December 2020 and issued by Taiyuan Natural Resources and Planning Bureau, the land use rights of the
property with a site area of 20,877.73 sq.m. and building ownership rights of the whole of Level 1 to Level
6 of the Production Workshop of the property with a GFA of 25,071.78 sq.m. were granted to̹Ύ͛ঐ
ʮ̡ for a term expiring on 8 September 2060 for industrial uses.
5. The general description and market information of the property are summarised below:
Location : The property is located at No. 168 Wuchengnan Road, Tanghuaiyuan
Area, Taiyuan Comprehensive Reform Demonstration Zone, Xiaodian
District, Taiyuan, Shanxi Province, The PRC.
Transportation : Taiyuan Wusu International Airport, Taiyuan South Railway Station and
Dianzi West Street Station of Taiyuan Metro Line No. 2 are located
approximately 6.0 kilometres, 9.0 kilometres and 2.8 kilometres away
from the property respectively.
Nature of Surrounding Area : The subject area is a newly developed urban area in Taiyuan
Comprehensive Reform Demonstration Zone, Xiaodian District. The
neighbourhood of the property is dominated by various newly built
industrial, commercial and high-tech R&D developments.
6. We have been provided with a legal opinion regarding the property by Llinks Law Offices, which contains,
inter alia, the following:
ʮ̡ has obtained the state-owned land use rights and building ownership rights of
the property in accordance with laws and is the legal holder of the state-owned land use rights and building
ownership rights of the whole development, which the property situated in.
APPENDIX IV PROPERTY V ALUATION REPORT
– IV-9 –


--- page 745 ---
This Appendix contains a summary of laws and regulations on companies and securities
in the PRC, certain major differences between the PRC Company Law and Companies
(Winding Up and Miscellaneous Provisions) Ordinance and the Companies Ordinance as well
as the additional regulatory provisions of the Stock Exchange on joint stock limited companies
of the PRC. The principal objective of this summary is to provide potential investors with an
overview of the principal laws and regulations applicable to us. This summary is with no
intention to include all the information which may be important to the potential investors. For
discussion of laws and regulations specifically governing the business of our Company, see
“Regulatory overview” in this prospectus.
THE PRC LEGAL SYSTEM
China’s Legal System
China’s legal system is based on the Constitution of the People’s Republic of China
(hereinafter referred to as the “Constitution”), comprising written laws, administrative
regulations, local regulations, autonomous regulations, separate regulations, rules of
departments under the State Council, regulations of local governments as well as international
treaties with the Chinese government as a signatory. A court precedent does not constitute a
binding precedent, but may be used as a judicial reference and guidance.
In accordance with the Constitution of the People’ s Republic of China and the Legislative
Law of the People’ s Republic of China , the National People’s Congress (NPC) and the Standing
Committee of the NPC (hereinafter referred to as the “Standing Committee”) are authorised to
enact and amend basic laws governing the State organs, civil affairs, criminal offences and
other matters. The Standing Committee enacts and amends laws (other than the ones to be
enacted by the NPC), and when the NPC is not in session, partially supplements and amends
laws enacted by the NPC, but not in contradiction to the basic principles of such laws. The
Standing Committee is authorised to interpret, enact and amend laws other than the ones to be
enacted by the NPC.
The State Council is the highest administrative organ in China and has the power to
formulate administrative regulations in accordance with the Constitution and laws.
The people’s congresses and their respective standing committees of the provinces,
autonomous regions and municipalities may, in light of the specific conditions and actual needs
of their respective administrative areas, formulate local regulations, provided that such
regulations do not contradict with the Constitution, the laws and the administrative regulations.
The people’s congresses and their respective standing committees of the comparatively larger
cities may, in light of the specific local conditions and actual needs, formulate local
regulations, and they shall submit the regulations to the standing committees of the people’s
congresses of the provinces or autonomous regions for approval before implementation. The
standing committees of the people’s congresses of the provinces or autonomous regions shall
examine the legality of such local regulations which are submitted for approval, and shall
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
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--- page 746 ---
approve them within four months if they do not contradict the Constitution, the laws, the
administrative regulations, and the local regulations of their respective provinces or
autonomous regions. When the standing committee of the people’s congress of a province or
autonomous region examines the local regulations of a comparatively larger city submitted for
approval, it shall make a decision to deal with the matter if it finds that the said regulations
contradict the rules of the people’s government of the province or autonomous region. A
“comparatively larger city” herein refers to a city where the provincial or autonomous regional
people’s governments are located, a city where special economic zones are located, or a city
approved as such by the State Council.
The ministries and commissions of the State Council, the People’s Bank of China, the
National Audit Office as well as the organs endowed with administrative functions directly
under the State Council may, in accordance with the laws as well as the administrative
regulations, decisions and orders of the State Council and within the limits of their power,
formulate departmental rules. Matters governed by the rules of departments shall be those for
the enforcement of the laws or the administrative regulations, decisions and orders of the State
Council. The people’s governments of the provinces, autonomous regions and municipalities
and the comparatively larger cities may, in accordance with relevant laws and administrative
regulations and the local regulations of their respective provinces, autonomous regions or
municipalities, formulate rules.
In accordance with the Constitution, the power to interpret the law is vested in the
Standing Committee. In accordance with the resolution of the Standing Committee of the NPC
on strengthening legal interpretation work adopted on 10 June 1981, the Supreme People’s
Court has the power to interpret issues involving the specific application of laws and decrees
in trials. The State Council and its ministries and commissions also have the power to interpret
the administrative regulations and departmental rules that are promulgated by them. At the
regional level, the power to interpret local laws, regulations and administrative rules is vested
in the local legislative and administrative bodies that have promulgated such laws, regulations
and rules.
China’s Judicial System
In accordance with the Chinese Constitution and the Organic Law of the People’ s Courts
of the People’ s Republic of China , China’s judicial system consists of the Supreme People’s
Court, local people’s courts at all levels, and specialised people’s courts. Local people’s courts
at all levels are divided into grassroots-level people’s courts, intermediate-level people’s
courts, and higher-level people’s courts. Grassroots-level people’s courts are further divided
into civil, criminal and administrative trial courts. The classification of intermediate-level
people’s courts is similar to that of grassroots-level people’s courts, and is further divided into
other special departments, such as intellectual property trial courts.
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LEGAL AND REGULATORY PROVISIONS
– V-2 –


--- page 747 ---
People’s courts at lower levels are subject to the supervision of people’s courts at higher
levels. The people’s procuratorates also have the power to exercise legal supervision over civil
proceedings in the people’s courts at the same level and below. The Supreme People’s Court
is the highest judicial body in China, supervising all actions of the people’s courts. A system
of the court of second instance being the court of last instance is adopted at the people’s courts.
The parties concerned may appeal the judgement or ruling of the people’s court of the first
instance to the people’s court at the next higher level. The second-instance judgement or ruling
made by the people’s court at the next higher level is the final judgement or ruling and is
legally binding. The first-instance judgement or ruling of the Supreme People’s Court is also
the final judgement or ruling. If the Supreme People’s Court or the people’s court at a higher
level finds that any judgement or ruling made by the people’s court at a lower level is wrong,
or the president of the people’s court finds that the judgement or ruling is wrong, the case may
be retried according to the trial supervision procedures.
The Civil Procedure Law of the People’ s Republic of China (hereinafter referred to as the
“Civil Procedure Law”), which was promulgated on 9 April 1991 and came into effect on
1 January 2022 after the last amendment was made on 24 December 2021, has stipulated the
conditions for filing a civil lawsuit, the jurisdiction of a people’s court, the procedures to be
followed in civil proceedings, and the enforcement procedures for civil judgements or rulings.
All parties involved in civil proceedings in China must abide by the Civil Procedure Law.
Usually, a civil proceeding is heard by the people’s court where the defendant’s residence is
located. Parties to a contract or other disputes over property rights may choose the jurisdiction
in which the civil lawsuit is filed through written agreements, provided that the selected
jurisdiction must be the place of residence of the plaintiff or the defendant, the place where the
contract is signed, the place where the contract is performed, the place of the litigation, or the
place where the subject matter of the litigation is actually connected with the dispute, and that
the provisions of the Civil Procedure Law on subject matter jurisdiction and exclusive
jurisdiction must not be violated.
Foreigners or foreign enterprises generally have the same litigation rights and obligations
as Chinese citizens or legal persons. If the judicial system of a foreign country imposes
restrictions on the litigation rights of any Chinese citizen and enterprise, the Chinese courts
may impose reciprocal restrictions on the citizens and enterprises of that foreign country in
China. If any party to a civil lawsuit refuses to abide by a judgement or ruling made by the
people’s court, or a decision made by an arbitral tribunal in China, the aggrieved party may
apply to the people’s court for the enforcement of the relevant judgement, ruling or decision.
The right to apply for enforcement has a time limit of two years. If a person fails to execute
a court decision within the specified time limit, the court may enforce the judgement at the
request of the counterparty concerned.
If a party applies to the people’s court for the enforcement of an effective judgement or
ruling of the people’s court against a party that is not in China or whose property is not in
China, the party may apply to the court of a foreign country with appropriate jurisdiction for
recognition and enforcement of the judgement or ruling. If China concludes or accedes to any
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-3 –


--- page 748 ---
international treaty with that foreign country on mutual recognition and implementation, or if
the judgement or ruling of the people’s court is in accordance with the results of the court’s
review that is conducted based on the principle of reciprocity, the foreign judgement or ruling
may also be recognised and enforced by the people’s court in accordance with the Chinese
implementation procedures, unless the people’s court deems that the recognition or
enforcement of that judgement or ruling would result in a violation of China’s basic legal
principles, sovereignty or security, or an inconsistency with social and public interests.
Company Law, Trial Administrative Measures of Overseas Securities Offering and
Listing by Domestic Companies, Guidelines for Articles of Association of Listed
Companies
The Company Law of the People’ s Republic of China (hereinafter referred to as the
“Company Law”) was adopted by the Fifth Session of the Standing Committee of the Eighth
National People’s Congress on 29 December 1993 and entered into force on 1 July 1994. The
Company Law was last amended on 26 October 2018 and became effective on the same day.
The Trial Measures for the Administration on Overseas Securities Offering and Listing by
Domestic Companies (the Announcement of China Securities Regulatory Commission [2023]
No. 43) ((ึʮѓ[2023]43
໮)) promulgated by the CSRC on 17 February 2023 incorporated, directly and indirectly, all
overseas offering and listing activities by domestic companies into the regulatory scope, and
formulated a negative list to clarify forbidden circumstances when domestic companies
launching an offering and listing overseas. The Measures shifted the method to governing the
overseas offering and listing by domestic companies from permission management to filing
management, and further stipulated the scope, contents, and procedures of the filing. The Trial
Measures for the Administration on Overseas Securities Offering and Listing by Domestic
Companies entered into force on 31 March 2023 and the Special Regulations and the
Mandatory Clauses expired on the same date.
The China Securities Regulatory Commission issued the Guidelines for the Application
of Regulatory Rules – Overseas Issuance and Listing Category No. 1 on 17 February 2023,
which stipulates that domestic enterprises that make direct overseas offering and listing shall
comply with the provisions of Article 6 of the Provisional Measures for Administration,
formulate their articles of association and standardize their corporate governance by reference
to the Guidelines for Articles of Association of Listed Companies and other relevant provisions
of the CSRC on corporate governance.
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-4 –


--- page 749 ---
General Provisions
A “joint stock limited company” (hereinafter referred to as “company”) is a corporate
legal person incorporated under the Company Law, and its registered capital is divided into
shares of equal face value. The liability of a shareholder is limited to the extent of the value
of shares the shareholder holds, and the liability of a company is limited to the extent of the
total amount of assets the company owns.
A company must abide by laws and professional ethics in conducting business activities.
A company may invest in other limited companies and joint stock limited liability companies.
The liability of a company to an enterprise so invested in is limited to the extent of the amount
of investment made. Unless otherwise provided for in any law, a company shall not become a
capital contributor which shall be jointly and severally liable for the indebtedness of such
enterprise.
Incorporation
A company may be established by way of sponsorship or public offering. The
incorporation of a company may be initiated by two to 200 sponsors, but at least half of the
sponsors are required to have a residence in China. A company established by way of
sponsorship refers to a company whose registered capital is all subscribed for by the sponsors.
If a company is established by way of public offering, unless otherwise specified, the number
of shares subscribed for by the sponsors must not be less than 35% of the total number of shares
of the company, and the remaining shares may be offered to members of the public or to certain
persons.
The Company Law stipulates that, for a company established by way of sponsorship, the
registered capital of which shall be the total amount of share capital subscribed for by all its
sponsors as registered with the registration authority. No shares shall be offered to any other
person until the sponsors have fully paid up the shares subscribed for. Where laws,
administrative regulations and the decisions of the State Council stipulate the actual paid
registered capital and another amount on the minimum registered capital of joint stock limited
company, such stipulations shall prevail.
Sponsors shall convene the inaugural general meeting within 30 days after the
subscription monies for the share issue are fully paid, and must make a notice to all the
subscribers or a public announcement of the date of the meeting 15 days in advance. The
meeting may only be held when attended by shareholders holding more than 50% of the total
issued shares of the company. Matters to be dealt with at the meeting include the adoption of
the draft articles of association proposed by the sponsors and the election of members of the
company’s board of directors and supervisory board. Any resolution of the general meeting
must be approved by more than half of the voting rights held by subscribers present at the
meeting.
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-5 –


--- page 750 ---
The board of directors must apply to the registration authority for registration of the
company within 30 days after the conclusion of the inaugural general meeting. Upon the
approval of the administration for industry and commerce and the issuance of a business
licence, the company is formally established and a legal personality is obtained.
Sponsors of a joint stock limited company shall be liable for the following: (1) jointly and
severally liable for payment of all expenses and debts incurred by the establishment of the
company in case of the failure of establishment; (2) jointly and severally liable for the
repayment of the subscription monies to the subscribers together with interests calculated
based on the banking deposit rates for the same period in case of the failure of establishment;
(3) compensation to the company in case of any damage to the company arising from the
default of the sponsors during the establishment; and (4) repayment liability for any unpaid
capital after the establishment.
According to the Provisional Regulations on the Administration of Stock Issuance and
Trading promulgated by the State Council on 22 April 1993 (only applicable to stock issuance
and trading and the related activities carried out within the territory of the People’s Republic
of China), if a company is established by way of public offering, sponsors of the company shall
be jointly and severally liable for the accuracy of the contents of the document and shall ensure
that the document does not contain any misleading statements or omit any material
information.
Share Capital
If a joint stock limited company is established by way of sponsorship, the sponsors shall
fully subscribe for the shares in writing and pay the corresponding share capital in accordance
with the articles of association. If the capital is contributed by any means other than cash, the
sponsors shall undergo relevant formalities for the transfer of property rights according to law.
Chinese companies have not imposed any restrictions on the percentage of shareholding in the
company for individual shareholders. If a sponsor makes a capital contribution in any form
other than cash, such contribution must be valued and verified and converted into shares.
A company may issue registered shares or unregistered shares. However, shares issued to
sponsors or legal persons must be shares that are registered to the names of the sponsors or
legal persons concerned. Such shares shall not be registered in other names or names of their
representatives.
No registration of changes in the register of shareholders shall be made within 20 days
of the convening of a general meeting of shareholders or within five days prior to the date set
for the allocation of share dividends.
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-6 –


--- page 751 ---
Increase of Share Capital
In accordance with the Company Law, if a company intends to increase capital by issuing
new shares, it must be approved at the general meeting of shareholders. In addition to the
aforementioned conditions that are stipulated in the Company Law and are subject to the
approval of the general meeting of shareholders, the securities law has provided for the
following conditions for a company to issue new shares publicly: (1) having a sound and
well-functioning organisational structure; (2) having sustainable operation ability; (3) non-
qualified audit reports issued by the auditor for the company’s financial accounting documents
for the last three years; (4) the issuer and its controlling shareholders, de facto controller do
not have criminal record during the past three years for corruption, bribery, encroachment of
assets, misappropriation of assets or disruption of socialist market economy order; (5) any
other conditions stipulated by the securities regulatory and administrative authority of the State
Council with the approval of the State Council. The issuance of new shares by a listed company
is subject to the conditions stipulated by the securities regulatory and administrative authority
of the State Council with the approval of the State Council. After the issued new shares have
been fully paid up, a company must register the change with the relevant administration for
industry and commerce and make a corresponding announcement.
Reduction of Share Capital
Subject to the minimum registered capital requirement, a company may reduce its
registered capital in accordance with the following procedures stipulated by the PRC Company
Law:
 The company must prepare a balance sheet and an inventory list of assets;
 any reduction of registered capital must be approved by shareholders at the general
meeting;
 once the resolution approving the reduction of capital has been passed, the company
must notify its creditors of the reduction of capital within ten days of the date of the
resolution, and publish an announcement on the matter in a newspaper within 30
days of the date of such resolution;
 creditors of the company may require the company to repay its debts or provide a
guarantee for such debts within the statutory time limit; and
 the company must apply to the relevant administration for industry and commerce
for registration of the reduction of registered capital.
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-7 –


--- page 752 ---
Repurchase of Shares
A company may not repurchase its own shares except in any of the following
circumstances:
 reducing its registered capital;
 awarding the shares to its employees as incentives;
 for the purpose of maintaining corporate value and shareholders’ equity;
 merging with another company that holds shares in the company;
 use of shares for conversion of convertible corporate bonds issued by listed
companies;
 any shareholder requesting the company to repurchase his/her shares due to his/her
objection to any resolution in respect of the merge or division of the company
adopted at the general meeting of shareholders; or
 any other circumstances permitted by the laws and administrative regulations.
The amount of shares of a company repurchased for awarding to employees shall not
exceed 10% of the total number of shares in issue. Funds used for repurchase such shares shall
be paid out of the after-tax profits of the company, and the shares so repurchased shall be
transferred to the employees of the company within three year.
Transfer of Shares
Shares may be transferred in accordance with relevant laws and regulations. The transfer
of shares by shareholders shall be conducted at a stock exchange established according to law
or in other ways as stipulated by the State Council. Registered shares may be transferred by
endorsement or by other means as required by applicable laws and regulations.
Sponsors of a company shall not transfer their shares within one year from the date of
incorporation of the company. Shares issued by a company prior to the public offering shall not
be transferred within one year from the date of listing of the company’s shares on the stock
exchange. Directors, supervisors and senior executives of a company shall not annually
transfer more than 25% of the total shares of the company they hold during their tenure, and
shall not transfer any of their respective shares of the company within one year from the date
of listing.
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-8 –


--- page 753 ---
Shareholders
In accordance with the Company Law, the rights of shareholders include:
 the right to transfer their shares in accordance with applicable laws and
administrative regulations and the articles of association;
 the right to attend or appoint a proxy to attend general meetings of shareholders and
to vote thereat in respect of the number of shares held;
 the right to inspect the articles of association, register of shareholders, short-term
bond records, minutes of general meetings of shareholders, resolutions of the board
of directors, resolutions of the supervisory board as well as financial and accounting
reports of the company, and to make recommendations or queries about the business
operations of the company;
 in the event that a resolution approved by the general meeting of shareholders or the
board of directors violates any laws or regulations, or infringes on the legitimate
rights and interests of shareholders, the right to file a lawsuit with the people’s court
to stop the illegal infringement activities;
 in the event of the termination of the company, the right to obtain the surplus assets
of the company in accordance with the number of shares held; the right to require
other shareholders who abuse their shareholders’ rights to make damages;
 the right to receive dividends in proportion to the number of shares held; and
 any other shareholders’ rights as stipulated in the articles of association.
The obligations of shareholders include:
 to comply with the articles of association;
 to pay subscription monies for the shares subscribed for;
 to be liable for the company’s debts and liabilities to the extent of the subscription
monies that they agree to pay for the shares subscribed for;
 not to abuse the shareholders’ rights to impair the interests of the company or other
shareholders of the company; not to abuse the company’s independent status as a
legal person and limited liability company to impair the interests of creditors of the
company; and
 any other obligations as stipulated in the articles of association.
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-9 –


--- page 754 ---
General Meetings of Shareholders
The general meeting of shareholders is the organ of authority that a company exercises
its functions and powers in accordance with the Company Law. The general meeting of
shareholders exercises the following powers:
 to decide on the company’s operational policies and investment plans;
 to elect and replace directors and supervisors who are not employee representatives;
 to decide on matters relating to the remuneration of directors and supervisors;
 to examine and approve reports of the supervisory board and supervisors;
 to examine and approve the company’s profit distribution plans and loss recovery
plans;
 to decide on the increase or reduction of the company’s registered capital;
 to decide on the issuance of debentures by the company;
 to decide on the merger, division, dissolution, liquidation and other matters of the
company;
 to amend the articles of association; and
 any other functions and powers as stipulated in the articles of association.
The general meeting must be held once a year. An extraordinary general meeting shall be
held within two months of the occurrence of any one of the following events:
 where the number of directors is less than the number stipulated in the Company
Law or two-thirds of the number specified by the articles of association;
 where the unrecovered losses of the company amount to one-third of the total
amount of its paid-in share capital;
 where shareholder(s), individually or in aggregate, holding 10% or more of the
company’s shares so request(s);
 wherever the board of directors deems necessary;
 wherever the supervisory board so requests;
 any other matters as stipulated in the articles of association.
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-10 –


--- page 755 ---
The general meeting of shareholders shall be convened by the board of directors and
presided over by the chairman. In accordance with the Company Law, when convening a
general meeting of shareholders, a notice of the time, place and agenda of the meeting shall be
made to shareholders 20 days before the meeting; in the case of convening an extraordinary
general meeting, a notice shall be made to shareholders 15 days before the meeting. In case of
issuing bearer shares, the time, place and agenda of the meeting shall be announced 30 days
before the meeting.
Shareholder(s), individually or in aggregate, holding more than 3% of a company’s
shares, may make a provisional proposal and submit it to the board of directors in writing 10
days before the general meeting; the board of directors shall notify the other shareholders
within two days after receiving the proposal, and submit the provisional proposal to
shareholders for consideration at the general meeting. The content of the provisional proposal
shall fall within the scope of the general meeting of shareholders, and shall contain explicit
subjects for discussion and specific matters for resolution.
Motions proposed at the general meeting of shareholders shall be passed by more than
half of the voting rights held by shareholders (including their proxies) present at the meeting,
but motions with respect to the merger, division, reduction of registered capital, issuance of
debentures or short-term bonds, change of corporate form or amendment of the articles of
association by the company shall be passed by more than two-thirds of the voting rights held
by shareholders (including their proxies) attending the general meeting. Shareholders may
appoint proxies to attend the general meeting. The proxies shall submit to the company a power
of attorney issued by the shareholders and exercise the right to vote within the scope of the
authorisation.
Directors
A company shall have a board of directors comprising 5 to 19 members. The term of
office of directors shall be stipulated in the articles of association, but each term shall not
exceed three years. Directors shall be eligible for re-election.
The board of directors shall convene a meeting at least twice a year. The notice of the
meeting shall be sent to all directors and supervisors at least ten days before the meeting.
The board of directors exercises the following functions and powers in accordance with
the Company Law:
 to convene general meetings of shareholders and report on its work to shareholders
in the meetings;
 to implement resolutions passed by shareholders in general meetings;
 to determine the company’s business plans and investment proposals;
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-11 –


--- page 756 ---
 to formulate the company’s preliminary and final annual budgets;
 to formulate the company’s profit distribution plans and loss recovery proposals;
 to formulate proposals for the increase or reduction of the company’s registered
capital and for the issuance of the company’s debentures or other securities and
listing; to formulate plans for the merger, division or dissolution of the company;
 to determine the company’s internal management structure;
 to appoint or remove the company’s general manager and, based on the
recommendations of the general manager, to appoint or remove the company’s vice
president and financial director and to decide on their remuneration;
 to formulate the company’s basic management system; and
 any other functions and powers as stipulated in the articles of association.
Meetings of the board of directors may only be held when more than half of the directors
are present. Resolutions of the board of directors must be approved by more than half of the
directors. If any director is unable to attend a board meeting, he/she may appoint another
director to attend the meeting on his/her behalf by a power of attorney which specifies the
scope of authorisation.
If a resolution of the board of directors violates any laws or administrative regulations,
or the articles of association, thereby causing the company to incur serious losses, the directors
that took part in such resolution shall be liable to the company for compensation. However, if
a director is proved to have expressed his/her objection to the resolution at the time of voting
and the objection is recorded in the minutes of the meeting, such director may be released from
such liability.
In accordance with the Company Law, the following persons may not be allowed to serve
as directors of a company:
 a person who has no or limited capacity for civil conduct;
 a person who was sentenced to criminal punishment for embezzlement, bribery,
seizure of property or misappropriation of property or for sabotage of the socialist
market economic order, where less than five years have elapsed after the expiration
of the period of execution; or a person who was deprived of his political rights for
the commission of a crime, where less than five years have elapsed after the
expiration of the period of execution;
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-12 –


--- page 757 ---
 a person who, being a director or the head or manager of a company or enterprise
that went into bankruptcy and liquidation, was personally liable for the bankruptcy
of the said company or enterprise, where less than three years have elapsed from the
day when the winding-up and liquidation of the company or enterprise is completed;
 a person who, being the legal representative of a company or an enterprise whose
business licence was revoked or was ordered to be closed down due to violation of
law, was personally liable for the above, where less than three years have elapsed
from the day when the business licence of the company or enterprise is revoked; or
 a person who fails to liquidate a relatively large amount of personal debts when they
are due.
The board of directors shall appoint one chairman whose appointment shall be approved
by more than half of the directors. The chairman shall exercise the following duties and powers
(including but not limited to):
 to preside over general meetings of shareholders;
 to inspect the implementation of resolutions of the board of directors.
In accordance with the articles of association, the legal representative of a company may
be the chairman, executive director or manager. In accordance with the Guidelines for Articles
of Association of Listed Companies, the directors, supervisors, managers and other senior staff
of a company are subject to the duty of fiduciary care and diligence. These individuals must
faithfully perform their duties, protect the interests of the company, and never use their position
to seek personal gain.
Supervisors
A joint stock limited company shall have a supervisory board, which shall be composed
of not less than three members. The supervisory board shall include representatives of
shareholders, and representatives of the staff and workers of the company in an appropriate
proportion. The proportion shall be specified in the articles of association, but in no case shall
be less than one-third of the supervisors appointed. The representatives of the staff and workers
on the supervisory board shall be democratically elected through the conference of the
representatives of the staff and workers, or the general meeting of the staff and workers, or
through other forms.
Directors and senior executives of a company shall not concurrently serve as supervisors.
The supervisory board shall exercise the following functions and powers:
 to examine the financial affairs of the company;
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
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--- page 758 ---
 to supervise the performance of duties by directors and senior executives and to
recommend the removal of directors and senior executives that are found to have
violated the laws, administrative regulations, articles of association or any of the
resolutions of the general meeting; to demand directors or senior executives to
rectify any of their acts that is found to have impaired the interests of the company;
 to propose the convening of extraordinary general meetings of shareholders and, to
convene and preside over the general meeting when the board of directors fails to
perform such duties;
 to make motions to the general meeting of shareholders;
 to file lawsuits against directors or senior executives; and
 any other functions and powers as stipulated in the articles of association.
The aforementioned circumstances in which a person is not eligible to serve as directors
shall also be applicable to supervisors after necessary modifications have been made.
Managers and Senior Executives
A company shall have a manager who shall be appointed or removed by the board of
directors. The manager shall be accountable to the board of directors and shall exercise the
following functions and powers:
 to preside over the production, operation and management work of the company, and
organise the implementation of resolutions of the board of directors;
 to organise and implement the company’s annual business and investment plans;
 to develop proposals for establishing the internal management structure of the
company;
 to formulate the company’s basic management system;
 to formulate the company’s internal rules;
 to appoint and remove the deputy manager and any financial controller, and to
appoint or remove other executives (other than those that shall be appointed or
removed by the board of directors);
 to attend meetings of the board of directors as non-voting attendees; and
 any other powers conferred by the board of directors or the articles of association.
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-14 –


--- page 759 ---
In accordance with the Company Law, other senior executives of a company shall include
financial controller, secretary to the board of directors and other executive staff as stipulated
in the articles of association. The aforementioned circumstances in which a person is not
eligible to serve as directors shall also be applicable to managers and senior staff after
necessary modifications have been made. The articles of association of a company are binding
on the shareholders, directors, supervisors, managers and other senior executives of the
company. These individuals have the right to exercise their rights, apply for arbitration and
institute proceedings in accordance with the articles of association.
Duties and Responsibilities of Directors, Supervisors, Managers and Senior Executives
In accordance with the Company Law, directors, supervisors, managers and other senior
executives of a company shall abide by relevant laws, regulations and the company’s articles
of association, faithfully perform their duties and safeguard the interests of the company.
Directors, supervisors, managers and senior executives of a company shall also assume the
duty of confidentiality to the company and shall not disclose any secret information of the
company, unless it is permitted by relevant laws and regulations or shareholders.
Any director, supervisor, manager and other senior staff members shall be personally
liable to the company for any losses incurred due to the violation of any laws, regulations or
articles of association of the company in the course of performing their duties.
Directors and senior executives may not:
 misappropriate company funds;
 divert company funds into an account held in their own names or in the name of any
other individual;
 loan company funds to other people or give company assets as security for the debt
of any other individual without the approval of the general meeting of shareholders
or the board of directors in violation of the articles of association;
 execute any contract or engage in any transaction with the company in violation of
the articles of association or without the approval of the general meeting of
shareholders;
 use the conveniences of his/her position to seek business opportunities that shall
belong to the company for himself/herself or for other people and engage in the
same business as the company in which he serves either for his own account or for
any other person’s account without the approval of the general meeting of
shareholders;
 accept and possess the commissions paid by others for transactions conducted with
the company;
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-15 –


--- page 760 ---
 disclose the company’s confidential information without authorisation; or
 engage in other activities in violation of his/her fiduciary duties. Any income of
directors and senior executives that has been earned from the violation of provisions
of the preceding paragraph shall be owned by the company.
Financial and Accounting Affairs
A company shall establish a financial and accounting system in accordance with the laws,
administrative regulations and provisions of the department in charge of financial affairs under
the State Council. The company shall prepare financial reports at the end of each fiscal year
and the reports shall be audited by accountants according to law.
A company shall provide financial statements at least 20 days prior to the annual general
meeting for inspection by shareholders. Companies established by way of public offerings must
publish their financial statements.
When a company distributes its annual after-tax profits, it shall allocate 10% of its
after-tax profits into the company’s statutory common reserve fund (unless in the case when the
amount of the common reserve fund reaches 50% of the company’s registered capital). After
making its allocation to the statutory common reserve fund from the company’s after-tax
profits, the company may, with the approval of the general meeting of shareholders by
resolution, make allocations to the discretionary common reserve fund from its after-tax profits
again. Where the statutory surplus common reserve fund is insufficient to make up the
company’s losses in the previous fiscal year, the company shall apply its annual profits to
making up its losses prior to allocating such profits to the statutory surplus common reserve
fund in accordance with the provisions of the preceding paragraph.
Unless otherwise stipulated in the articles of association, after making up its losses and
making allocations to the statutory surplus common reserve fund, a joint stock limited
company shall distribute the remaining profits to its shareholders according to the proportion
of the shares held by each shareholder.
The capital common reserve fund of a joint stock limited company shall consist of the
premium of shares (that is, the nominal value of the company’s share issuance) and other
income that should be included in the capital common reserve fund as according to the
provisions of the department in charge of financial affairs under the State Council.
The common reserve fund of a company should be used to make up the company’s losses
in previous years so as to enhance the company’s productivity, expand its business and increase
its registered capital, but the capital common reserve fund shall not be used to make up the
company’s losses. When the statutory common reserve fund is converted into its capital, the
remaining amount of the statutory common reserve fund shall not be less than 25% of the
registered capital of the company before the conversion.
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-16 –


--- page 761 ---
Appointment and Removal of Accounting Firms
The Company shall engage an accounting firm that conforms to the provisions of the
Securities Law to provide such services as the audit of financial statements, the verification of
net assets and other relevant consultancy services. The term of engagement is one year and may
be extended.
In appointing or removing an accounting firm that acts as its auditing company, the
company must, in accordance with the provisions of the articles of association, obtain the
approval of the general meeting of shareholders or the board of directors by resolution.
When the general meeting of shareholders or the board of directors of a company takes
a vote on the removal of an accounting firm that acts as the company’s auditing firm, the
accounting firm shall be allowed to state its opinions.
The company shall provide accurate and complete accounting books and records,
financial and accounting reports, and other accounting documents to the accounting firm
engaged by the company, and may not withhold or conceal any such accounting records from
the accounting firm or make any of their misrepresentation to the accounting firm.
Profit Distribution
In accordance with the Chinese Company Law, the company shall not contribute profits
before making up for losses and making contribution to the statutory capital reserve.
Amendments to the Articles of Association
Any amendments to the articles of association of a company must be conducted in
accordance with the procedures set out in the articles of association. Where any amendment to
the Articles of Association that has been adopted under a resolution of the general meeting is
subject to approval by the competent authorities, such amendment shall be reported submitted
to the competent authorities for approval, changes of registration shall be filed with the
company registration authority.
Dissolution and Liquidation
Shareholders holding 10% or more of all shareholder voting rights may petition the
people’s court to dissolve the company if serious difficulties arise in the operation and
management of a company and its continued existence would cause a material loss to the
interests of the shareholders, and the difficulties cannot be resolved through other means.
In accordance with the Company Law, a company may be dissolved under any of the
following circumstances:
(1) the term of operation as stipulated by the articles of association of the company
expires or other reasons for dissolution as stipulated by the articles of association
occur;
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-17 –


--- page 762 ---
(2) the general meeting of shareholders resolves to dissolve the company;
(3) dissolution is necessary as a result of the merger or division of the company;
(4) the business licence is revoked or the company is ordered to be closed down or
revoked according to law;
(5) shareholders holding more than 10% of all shareholder voting rights may petition
the people’s court to dissolve the company if serious difficulties arise in the
operation and management of a company and its continued existence would cause a
material loss to the interests of the shareholders, and the difficulties cannot be
resolved through other means, and such petition is approved by the people’s court.
Where a company is dissolved under the circumstances of items (1), (2), (4) and (5) as
referred to above, a liquidation team shall be formed within 15 days from the date of
dissolution. The members of the liquidation team shall be composed of directors or members
determined by the general meeting of shareholders.
If a liquidation team has not been established within the specified time limit, creditors of
the company may apply to the people’s court for such establishment. The liquidation team shall
inform creditors of the company of its establishment within ten days from the date of its
establishment, and make an announcement in newspaper within 60 days from the aforesaid
date. The creditors shall file a claim with the liquidation team in respect of the company’s
unpaid debts due within 30 days from the date of receipt of the notice or within 45 days from
the date of the announcement for those who have not received the notice.
During liquidation, the liquidation team shall exercise the following functions and
powers:
 to check up on the company’s assets, and separately formulate a balance sheet and
an inventory of assets;
 to notify creditors by notice or announcement;
 to dispose of and liquidate the company’s unfinished business;
 to pay off outstanding taxes and the taxes that arise in the course of liquidation;
 to clear up claims and debts;
 to dispose of, after paying off the debts of the company, its remaining property; and
 to participate in civil proceedings on behalf of the company.
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
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--- page 763 ---
The remaining assets of a company, after paying off the liquidation expenses, the wages,
labour insurance premiums, and statutory compensation for the staff and workers, the
outstanding taxes and the company’s debts, shall be distributed in proportion to the shares held.
A company may not engage in business activities not relating to liquidation. Where the
liquidation team finds that assets of the company are insufficient to pay off the company’s
debts, it must immediately apply to the people’s court for declaration of bankruptcy according
to law. After the people’s court has ruled to declare the company bankrupt, the liquidation team
shall turn all liquidation-related matters over to the court.
After the completion of liquidation, the liquidation team shall formulate a liquidation
report and submit the report to the general meeting of shareholders or to the relevant regulatory
department for confirmation. Thereafter, it shall submit the liquidation report to the company
registration authority to deregister the company and make an announcement of the matter.
Members of the liquidation team shall be devoted to their duties and comply with relevant
laws.
Any member of the liquidation team who has caused any losses to the company or its
creditors, by reason of any intentional or gross negligence, shall be liable for compensation.
Overseas Listing
Shares of a company may only be listed overseas after filing with the CSRC, and the
listing must be arranged in accordance with the procedures stipulated by the State Council.
Loss of H-Share Share Certificates
If a registered H-share share certificate is stolen or lost, holder of the share may apply to
the people’s court to declare the share invalid in accordance with relevant provisions of the
civil procedure law. After the declaration is made, the shareholder may apply to the company
for reissue of the share.
Merger and Division
A company may undergo a merger by way of absorption, or formation of a new entity. If
a merger by absorption is adopted, the company to be absorbed must be dissolved; if the merger
takes the form of creating a new company, parties to the merger shall be dissolved.
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-19 –


--- page 764 ---
Securities Laws and Regulations and Regulatory Systems
China has promulgated a number of regulations concerning the issuance and trading of
shares and the disclosure of information. In October 1992, the State Council established the
Securities Commission and the CSRC. The Securities Commission was responsible for
coordinating the drafting of securities regulations, formulating securities-related policies,
planning securities market developments, guiding, coordinating and supervising all securities-
related institutions in China, and managing the CSRC. The CSRC was the regulatory arm of
the Securities Commission, responsible for drafting regulatory requirements for the securities
market, supervising securities companies, regulating the public offering of securities by
Chinese companies at home and abroad, overseeing the trading of securities, compiling
securities-related statistical data, and conducting relevant research and analysis. In April 1998,
the State Council combined two departments, thereby reforming the CSRC.
On 25 December 1995, the State Council promulgated and implemented the Regulations
of the State Council on Domestically-Listed Foreign Capital Shares of Joint Stock Limited
Companies . The regulations were mainly related to issues on issuance, subscription, trading,
declaration of dividends and other distributions for domestically-listed foreign capital shares,
issues concerning the disclosure of information on domestically-listed foreign capital shares by
joint stock limited companies and so forth.
The Securities Law came into effect on 1 July 1999 and was amended on 28 August 2004,
27 October 2005, 29 June 2013, 31 August 2014 and 28 December 2019, respectively. The
Securities Law was the first national securities law in China, which is divided into 14 chapters
and 226 articles, governing matters including the issuance and trading of securities, the
acquisition of listed companies as well as the obligations and responsibilities of stock
exchanges, securities firms and the securities regulatory authority under the State Council. The
Securities Law comprehensively regulates activities of the Chinese securities market. Article
224 of the Securities Law stipulates that any direct or indirect issuance of securities overseas
or any listing of securities overseas for trading by domestic enterprises shall comply with the
relevant provisions of the State Council. At present, the issuance and trading of shares issued
overseas (including H shares) are mainly regulated by the rules and regulations promulgated
by the State Council and the CSRC.
Arbitration and Enforcement of Arbitral Awards
On 31 August 1994, the Standing Committee passed the Arbitration Law of the People’ s
Republic of China (“Arbitration Law”), which came into force on 1 September 1995 and was
amended on 27 August 2009 and 1 September 2017. In accordance with the Arbitration Law ,
arbitration commissions may formulate provisional arbitration rules according to the
Arbitration Law and the Civil Procedure Law of the People’ s Republic of China prior to the
promulgation of arbitration regulations by China Arbitration Association. If the parties
concerned use arbitration as a means of resolving a dispute through an agreement, the people’s
court will decline to accept the case unless the arbitration agreement is deemed null and void.
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-20 –


--- page 765 ---
In accordance with the Arbitration Law and the Civil Procedure Law , an arbitral award
is final and binding on both parties to the arbitration. If a party to the arbitration fails to
perform the arbitral award, the other party may apply to the people’s court for enforcement. If
any procedure stipulated by law is improper, or the arbitral tribunal is not properly constituted,
or the arbitral award exceeds the scope of the arbitration agreement or the jurisdiction of the
arbitration commission, the people’s court may decline to enforce the arbitral award made by
the arbitration commission.
A party seeking to enforce an arbitral award made by a Chinese arbitral tribunal against
a party who is not in China or whose property is not in China may apply to a foreign court that
has jurisdiction over the case. Similarly, arbitral awards made by foreign arbitration
institutions may also be recognised and enforced by Chinese courts in accordance with the
principle of reciprocity or international treaties signed or recognised by China. China ratified
the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York
Convention ”) which was adopted on 10 June 1958, in accordance with the resolution passed by
the Standing Committee on 2 December 1986. The New York Convention stipulates that all
arbitral awards made by members of the New York Convention must be recognised and enforced
by all other members of the New York Convention , but in some cases, member states have the
right to refuse enforcement, including enforcement of an arbitral award that is deemed to
conflict with the public policy of the country in which the application for enforcement of the
arbitration is filed. The Standing Committee also made a declaration when China ratified the
New York Convention: (i) China applies the convention only on the basis of reciprocity to the
recognition and enforcement of arbitral awards made in the territory of another contracting
state, and (ii) China only applies the convention on the disputes arising from contractual and
non-contractual commercial legal relationship identified by the law of China.
Hong Kong and the Supreme People’s Court of China have reached an arrangement on the
mutual enforcement of arbitral awards. On 9 November 2020, the Supreme People’s Court of
China passed the Supplementary Arrangements of Supreme People’s Court on Reciprocal
Enforcement of Arbitration Awards between the Mainland and the Hong Kong Special
Administrative Region , and the arrangement entered into force on 27 November 2020. Under
the arrangement, awards made pursuant to the Arbitration Law by the arbitral authorities in
China may be enforced in Hong Kong. Hong Kong arbitral awards may also be enforced in
China.
Shanghai-Hong Kong Stock Connect
On 10 April 2014, CSRC and Hong Kong Securities and Futures Commission (“HKSFC”)
issued the Joint Announcement of China Securities Regulatory Commission and Hong Kong
Securities and Futures Commission – Principles that Should be Followed when the Pilot
Programme that Links the Stock Markets in Shanghai and Hong Kong is Expected to be
Implemented and approved in principle the launch of the pilot programme that links the stock
markets in Shanghai and Hong Kong (“Shanghai-Hong Kong Stock Connect”) by the Shanghai
Stock Exchange (“SSE”), the Stock Exchange, China Securities Depository and Clearing Co.,
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-21 –


--- page 766 ---
Ltd. (“CSDC”) and HKSCC. Shanghai-Hong Kong Stock Connect comprises the two portions
of Northbound Trading Link and Southbound Trading Link. Southbound Trading Link refers to
the entrustment of China securities houses by China investors to trade stocks listed on the
Stock Exchange within a stipulated range via filing by the securities trading service company
established by the SSE with the Stock Exchange. During the initial period of the pilot
programme, the stocks of Southbound Trading Link consist of constituent stocks of the Stock
Exchange Hang Seng Composite Large Cap Index and the Hang Seng Composite MidCap
Index as well as stocks of A+H stock companies concurrently listed on the Stock Exchange and
the SSE. The total limit of Southbound Trading Link is RMB250 billion and the daily limit is
RMB10.5 billion. During the initial period of the pilot programme, it is required by HKSFC
that China investors participating in Southbound Trading Link are only limited to institutional
investors and individual investors with a securities account and capital account balance of not
less than RMB500,000. On 10 November 2014, CSRC and HKSFC issued a Joint
Announcement, approving the official launch of Shanghai-Hong Kong Stock Connect by SSE,
the Stock Exchange, CSDCC and HKSCC. Pursuant to the Joint Announcement, trading of
stocks under Shanghai-Hong Kong Stock Connect will commence on 17 November 2014. On
30 September 2016, CSRC issued the Filing Provision on the Placement of Shares by Hong
Kong Listed Companies with Domestic Original Shareholders under Southbound Trading Link
which came into effect on the same day. The act of the placement of shares by Hong Kong
listed companies with domestic original shareholders under Southbound Trading Link shall be
filed with CSRC. Hong Kong listed companies shall file the application materials and approved
documents with CSRC after obtaining approval from the Stock Exchange for their share
placement applications. CSRC will carry out supervision based on the approved opinion and
conclusion of the Hong Kong side.
SUMMARY OF MATERIAL DIFFERENCES BETWEEN HONG KONG AND PRC
COMPANY LA W
The Hong Kong law applicable to a company incorporated in Hong Kong is based on the
Companies (Winding Up and Miscellaneous Provisions) Ordinance and the Companies
Ordinance and is supplemented by common law and the rules of equity that are applicable to
Hong Kong. As a joint stock limited company established in the PRC that is seeking a listing
of shares on the Stock Exchange, we are governed by the Company Law and all other rules and
regulations promulgated pursuant to the Company Law.
Set out below is a summary of certain material differences between Hong Kong company
law applicable to a company incorporated in Hong Kong and the Company Law applicable to
a joint stock limited company incorporated and existing under the Company Law. This
summary is, however, not intended to be an exhaustive comparison.
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-22 –


--- page 767 ---
Corporate Existence
Under Hong Kong company law, a company with share capital, is incorporated by the
Registrar of Companies in Hong Kong which issues a certificate of incorporation to the
company upon its incorporation and the company will acquire an independent corporate
existence. A company may be incorporated as a public company or a private company. Pursuant
to the Companies Ordinance, the articles of association of a private company incorporated in
Hong Kong shall contain certain pre-emptive provisions. A public company’s articles of
association do not contain such pre-emptive provisions.
Under the Company Law, a joint stock limited company may be incorporated by
promotion or public subscription.
Hong Kong law does not prescribe any minimum capital requirement for a Hong Kong
company.
Share Capital
The Hong Kong company law does not provide for authorised share capital. The share
capital of a Hong Kong company would be its issued share capital. The full proceeds of a share
issue will be credited to share capital and becomes a company’s share capital. The directors of
a Hong Kong company may, with the prior approval of the shareholders if required, issue new
shares of the company. The Company Law does not provide for authorised share capital, either.
Our registered capital is the amount of our issued share capital. Any increase in our registered
capital must be approved by our shareholders’ general meeting and file with the relevant PRC
governmental and regulatory authorities.
Under the Company Law, the shares may be subscribed for in the form of money or
non-monetary assets (other than assets not entitled to be used as capital contributions under
relevant laws and administrative regulations). For non-monetary assets to be used as capital
contributions, appraisals and verification must be carried out to ensure no overvaluation or
undervaluation of the assets. There is no such restriction on a Hong Kong company under Hong
Kong Law.
Restrictions on Shareholding and Transfer of Shares
Generally, overseas listed shares, which are denominated in RMB and subscribed for in
a currency other than RMB, may only be subscribed for, and traded by, investors from Hong
Kong, Macau and Taiwan or any country and territory outside the PRC, or qualified domestic
institutional investors as allowed under Tentative Regulatory Measures for Qualified Domestic
Institutional Investors Investing in Overseas Securities (ྤ̮ᗇՎҳ༟
). If the H shares are eligible securities under the Southbound Trading Link,
they are also subscribed for and traded by PRC investors in accordance with the rules and limits
of Shanghai-Hong Kong Stock Connect or Shenzhen-Hong Kong Stock Connect.
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-23 –


--- page 768 ---
Under the Company Law, a promoter of a joint stock limited company is not allowed to
transfer the shares it holds for a period of one year after the date of establishment of the
company. Shares in issue prior to our public offering cannot be transferred within one year
from the listing date of the shares on a stock exchange. Shares in a joint stock limited liability
company held by its directors, supervisors and managers and transferred each year during their
term of office shall not exceed 25% of the total shares they held in the company, and the shares
they held in the company cannot be transferred within one year from the listing date of the
shares, and cannot be transferred within half a year after the said personnel has left office. The
articles of association may set other restrictive requirements on the transfer of the company’s
shares held by its directors, supervisors and officers. There are no such restrictions on
shareholdings and transfers of shares under Hong Kong law apart from the six-month lockup
on the company’s issue of shares and the 12-month lockup on controlling shareholders’
disposal of shares, as illustrated by the undertakings given by our Company and our controlling
shareholder to the Stock Exchange.
Financial Assistance for Acquisition of Shares
The Company Law does not prohibit or restrict a joint stock limited company or its
subsidiaries from providing financial assistance for the purpose of an acquisition of its own or
its holding company’s shares. However, the Guidelines for Articles of Association of Listed
Companies contain certain restrictions on a company and its subsidiaries on providing such
financial assistance similar to those under the Hong Kong company law.
Variation of Class Rights
The Company Law has no special provision relating to variation of class rights. However,
the Company Law states that the State Council can promulgate regulations relating to other
kinds of shares.
Under the Companies Ordinance, no rights attached to any class of shares can be varied
except:
(i) If there are provisions in the articles of association relating to the variation of those
rights, then in accordance with those provisions;
(ii) If there are not relevant provisions in the articles of associations, then (1) with the
consent in writing of at least three fourths of the total voting rights of holders of the
shares in the class in question, or (2) with the approval of a special resolution of the
holders of the relevant class at a separate meeting.
Directors, Senior Management and Supervisors
The Company Law, unlike Hong Kong company law, does not contain any requirements
relating to the declaration of directors’ interests in material contracts, restrictions on directors’
authority in making major dispositions, restrictions on companies providing certain benefits to
directors and guarantees in respects of directors’ liability and prohibitions against
compensation for loss of office without shareholders’ approval.
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-24 –


--- page 769 ---
Board of Supervisors
Under the Company Law, a joint stock limited company’s directors and managers are
subject to the supervision of a supervisors committee. There is no mandatory requirement for
the establishment of a board of supervisors for a company incorporated in Hong Kong. The
Guidelines for Articles of Association of Listed Companies stipulate that supervisors shall
comply with laws, administrative regulations and the Articles of Association, and shall bear the
obligations of loyalty and diligence to the Company. They shall not take any bribe or other
illegal gains by taking advantage of their authority, nor shall they misappropriate company
property.
Derivative Action by Minority Shareholders
Hong Kong law permits minority shareholders to initiate a derivative action on behalf of
all shareholders against directors who have committed a breach of their fiduciary duties to the
company if the directors control a majority of votes at a general meeting, thereby effectively
preventing a company from suing the directors in breach of their duties in its own name. The
Company Law provides shareholders of a joint stock limited company with the right so that in
the event where the directors and senior management violate their fiduciary obligations to a
company, the shareholders individually or jointly holding over 1% of the shares in the company
for more than 180 consecutive days may request in writing the board of supervisors to initiate
proceedings in the people’s court. In the event that the board of supervisors violates their
fiduciary obligations to a company, the above said shareholders may send written request to the
board of directors to initiate proceedings in the people’s court. Upon receipt of such written
request from the shareholders, if the board of supervisors or the board of directors refuses to
initiate such proceedings, or has not initiated proceedings within 30 days upon receipt of the
request, or if under urgent situations, failure of initiating immediate proceeding may cause
irremediable damages to the company, the above said shareholders shall, for the benefit of the
company’s interests, have the right to initiate proceedings directly to the court in their own
name.
The Guidelines for Articles of Association of Listed Companies provide further remedies
against the directors, supervisors and senior management who breach their duties to the
company. In addition, as a condition to the listing of shares on the Stock Exchange, each
director and supervisor of a joint stock limited company is required to give an undertaking in
favour of the company acting as agent for the shareholders. This allows minority shareholders
to take action against directors and supervisors in default.
Protection of Minorities
Under Hong Kong law, the company may be wound up by the court if the court considers
that it is just and equitable to do so, in addition, a shareholder who complains that the affairs
of a company incorporated in Hong Kong are conducted in a manner unfairly prejudicial to his
interests may petition to the court to make an appropriate order regulating the affairs of the
company. Furthermore, under certain circumstances, the Financial Secretary of Hong Kong
may appoint inspectors who are given extensive statutory powers to investigate the affairs of
a company incorporated in Hong Kong. The PRC law does not contain similar safeguards.
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-25 –


--- page 770 ---
Chinese Company Law stipulates that the controlling shareholders and actual controllers
of a company shall not use their affiliated relationships to harm the interests of the company.
Those who violate regulations and cause losses to the company shall be liable for
compensation.
Notice of Shareholders’ Meetings
Under the Company Law, notice of a shareholder’s annual general meeting must be given
not less than 20 days before the meeting. According to the Official Reply of the State Council
on Adjusting the Provisions Governing Matters Including the Application of the Notice Period
for the Convening of Shareholders’ General Meetings by Companies Listed Overseas ( ਷ਕ
ҭᔧ) promulgated by
the State Council on 17 October 2019, the notice period for a shareholders’ meeting, the
shareholder proposal right, and the procedures for convening a shareholders’ meeting, for those
joint stock companies established within the territory of China but listed outside the territory
of China, should be governed by the PRC Company Law. For a company incorporated in Hong
Kong, the notice period for an annual general meeting is at least 21 days and in any other case,
at least 14 days for a limited company and at least 7 days for an unlimited company.
Quorum for Shareholders’ Meetings
Under Hong Kong law, the quorum for a general meeting must be at least two members
unless the articles of association of the company otherwise provide. For companies with only
one member, the quorum must be one member. The Company Law does not specify any quorum
requirement for a shareholders’ general meeting,
Voting
Under Hong Kong law, an ordinary resolution is passed by a simple majority of votes cast
by members present in person or by proxy at a general meeting and a special resolution is
passed by a majority of not less than three-fourths of votes cast by members present in person
or by proxy at a general meeting. Under the Company Law, the passing of any resolution
requires affirmative votes of shareholders representing more than half of the voting rights
represented by the shareholders who attend the general meeting except in cases of proposed
amendments to a company’s articles of association, increase or decrease of registered capital,
merger, division or dissolution, or change of corporation form, which require affirmative votes
of shareholders representing more than two-thirds of the voting rights represented by the
shareholders who attend the general meeting.
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-26 –


--- page 771 ---
Financial Assistance
Under the Company Law, a joint stock limited company is required to make available at
the company for inspection by shareholders its financial report 20 days before its shareholders’
annual general meeting. In addition, a joint stock limited company of which the shares are
publicly offered must publish its financial report. The Companies Ordinance requires a
company incorporated in Hong Kong to send to every shareholder a copy of its balance sheet,
auditors’ report and directors’ report, which are to be presented before the company in its
annual general meeting, not less than 21 days before such meeting. A joint stock limited
liability company is required under the PRC law to prepare its financial statements in
accordance with the PRC GAAP.
Information on Directors and Shareholders
The Company Law gives shareholders the right to inspect the company’s articles of
association, minutes of the shareholders’ general meetings and financial and accounting
reports. Under the Articles of Association, shareholders have the right to inspect and copy (at
reasonable charges) certain information on shareholders and on directors which is similar to the
shareholders’ rights of Hong Kong companies under Hong Kong law.
Receiving Agent
Under the Company Law and Hong Kong law, dividends once declared are debts payable
to shareholders. The limitation period for debt recovery action under Hong Kong law is six
years, while under the PRC law this limitation period is two years now and would be extended
to three years according to PRC Civil Code (Պ), promulgated on
28 May 2020 and to become effective on 1 January 2021.
Corporate Reorganisation
Corporate reorganisation involving a company incorporated in Hong Kong may be
effected in a number of ways, such as a transfer of the whole or part of the business or property
of the company in the course of voluntary winding up to another company pursuant to Section
237 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance or a compromise
or arrangement between the company and its creditors or between the company and its
members pursuant to Section 673 and Section 674 of the Companies Ordinance, which requires
the sanction of the court. Under PRC law, merger, division, dissolution or change to the status
of a joint stock limited liability company has to be approved by shareholders in general
meeting.
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-27 –


--- page 772 ---
Dispute Arbitration
In Hong Kong, disputes between shareholders on the one hand, and a company
incorporated in Hong Kong or its directors on the other, may be resolved through legal
proceedings in the courts. The Guidelines for Articles of Association of Listed Companies
stipulate that any shareholder may bring a lawsuit against another shareholder, a director, a
supervisor, a manager or any other senior executive, any shareholder may bring a lawsuit
against The Company, and The Company may bring a lawsuit against any shareholder, director,
supervisor, manager or any other executive.
Mandatory Deductions
Under the Company Law, a joint stock limited liability company is required to make
transfers equivalent to certain prescribed percentages of its after tax profit to the statutory
common reserve fund. There are no corresponding provisions under Hong Kong law.
Remedies of the Company
Under the Company Law, if a director, supervisor or manager in carrying out his duties
infringes any law, administrative regulation or the articles of association of a company, which
results in damage to the company, that director, supervisor or manager should be responsible
to the company for such damages. In addition, the Listing Rules require listed companies’
articles of association to provide for remedies of the company similar to those available under
Hong Kong law (including rescission of the relevant contract and recovery of profits from a
director, supervisor or senior management).
Dividends
The company has the power in certain circumstances to withhold, and pay to the relevant
tax authorities, any tax payable under PRC law on any dividends or other distributions payable
to a shareholder. Under Hong Kong law, the limitation period for an action to recover a debt
(including the recovery of dividends) is six years, whereas under PRC laws, the relevant
limitation period is two years now or three years beginning from 1 January 2021. The company
must not exercise its powers to forfeit any unclaimed dividend in respect of shares until after
the expiry of the applicable limitation period.
Fiduciary Duties
In Hong Kong, there is the common law concept of the fiduciary duty of directors. In
accordance with the Chinese Company Law, directors, supervisors and senior executives shall
bear fiduciary duties towards the company.
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-28 –


--- page 773 ---
Closure of Register of Shareholders
The Companies Ordinance requires that the register of shareholders of a company must
not generally be closed for the registration of transfers of shares for more than 30 days
(extendable to 60 days in certain circumstances) in a year, whereas, as required by the
Company Law, share transfers shall not be registered within 30 days before the date of a
shareholders’ meeting or within five days before the base date set for the purpose of
distribution of dividends.
Any person wishing to have detailed advice on PRC law or the laws of any jurisdiction
is recommended to seek independent legal advice.
APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
– V-29 –


--- page 774 ---
This appendix contains a summary of the principal provisions of the Articles of
Association, which was adopted by our Shareholders in the general meeting held on 12 June
2023. The principal objective of this appendix is to provide an overview of the Articles of
Association. As the information contained below is a summary form, it does not contain all the
data that may be important.
DIRECTORS AND OTHER SENIOR EXECUTIVE OFFICERS
Power to Allot and Issue Shares
There is no provision in the Articles of Association empowering the Board of Directors
to allot or issue shares.
In order to allot or issue Shares, the Board of Directors is responsible for formulating a
proposal for approval by Shareholders in a general meeting by way of a special resolution. Any
such allotment or issuance shall be conducted in accordance with the procedures stipulated by
the relevant laws and administrative regulations.
Provision of Financial Assistance for the Purchase of the Shares of the Company or any
of Subsidiaries
Neither the Company nor any of its subsidiaries (including its affiliated enterprises) shall,
by means of donation, advancement, guarantee, compensation, loan or other means, provide
any financial aids to any person purchasing or intending to purchase shares in the Company.
Remuneration
The remuneration of Directors and Supervisor shall be approved by the Shareholders in
the general meeting. The remuneration of other member of senior management of the Company
shall be approved by the board of directors.
Retirement, Appointment and Removal
No one shall be a director, supervisor, general manager or other member of senior
management of the Company if falling under any of the following circumstances:
(i) being without civil capacity or having limited civil capacity;
(ii) having been penalised or sentenced due to an offence of corruption, bribery,
encroachment on property, misappropriation of property or disruption of the
socialist market economy order, or having been deprived of political rights due to
the committing of any crime, and in each case, five years not having elapsed since
the completion of the relevant penalty, sentence or deprivation;
APPENDIX VI SUMMARY OF ARTICLES OF ASSOCIATION
– VI-1 –


--- page 775 ---
(iii) having been a director, factory director or manager of a company or enterprise which
had been bankrupt and liquidated due to improper operation and management
whereby such person was personally liable for the bankruptcy of such company or
enterprise, and three years not having elapsed since the date of completion of the
liquidation of the company or enterprise;
(iv) having been the legal representative of a company or enterprise whose business
licence was revoked due to violation of laws whereby such person was personally
liable, and three years not having elapsed since the date of revocation of the business
licence of the company or enterprise;
(v) being a debtor personally liable for a relatively large debt which has not been paid
as it fell due;
(vi) having been banned from entering the securities market by the CSRC and the period
has not elapsed;
(vii) the circumstances specified by the laws, administrative regulations, the listing rules
of the place where the Shares of the Company are listed or relevant laws and
regulations of the place where the Shares of the Company are listed.
Any election, appointment or employment by the Company of any Directors, supervisors
or members of senior management in violation of the preceding paragraph shall be invalid.
Any Director, supervisor or member of senior management who falls under the
circumstances as set out in clause (i) of this Article shall be removed from office by the
Company.
The validity of an act carried out by a director and member of senior management of the
Company on its behalf, against a bona fide third party, shall not be affected by any
non-compliance in his office, election or qualification. The Company shall have a board of
directors, consisting of 9 Directors, and shall have one chairman. The independent
non-executive Directors shall account for at least one-third of the number of independent
non-executive Directors, and at least one of them shall be a Certified Professional Accountant.
Directors shall be elected at the general meeting and a director’s term of office shall be
three years. The term of office of a Director may be renewed upon re-election when it expires.
The chairman of Board of Directors shall be elected and removed by a simple majority of all
Directors, and term of office thereof shall be three years, and may be renewed upon re-election
when it expires. It is unnecessary for Directors to hold Shares of the Company.
The Articles of Association do not contain any provision in relation to the retirement age
of Directors.
APPENDIX VI SUMMARY OF ARTICLES OF ASSOCIATION
– VI-2 –


--- page 776 ---
Generally, a proposal for candidates for Directors will be submitted by the Board of
Directors at the general meeting. The Shareholders and the board of supervisors of the
Company may nominate candidates for Directors in accordance with the Articles of
Association. The notice period for delivery of the written notice to nominate a person as
Director and a written notice by that person of his willingness to be nominated shall be at least
seven days, which shall commence from the next date after issuance by the Company of the
meeting notice in respect of the election, and end no later than seven days prior to the date
when the meeting is held.
Borrowing Powers
The Articles of Association do not contain any special provisions in respect of the manner
in which borrowing powers may be exercised by the Directors nor contain any special
provisions in respect of the manner in which such power may be raised, other than: (a)
provisions giving the Directors the power to formulate proposals for the issuance of debentures
by the Company; and (b) provisions providing that the issuance of debentures must be
approved by the Shareholders of the Company in a general meeting by special resolutions.
Duties
Directors shall comply with laws, administrative regulations, and the Articles of
Association, with the following duties of loyalty to the Company:
(i) Directors shall not abuse their authority by receiving any bribe or other illegal
income, and shall not embezzle any of the Company property;
(ii) Directors shall not misappropriate the Company’s funds;
(iii) Directors shall not deposit company assets into accounts held in their own names or
in the name of any other individual;
(iv) Directors shall not, in violation of the Articles of Association, lend Company funds
to other people or provide guarantee for other people with Company assets without
the consent of the shareholders’ general meeting or the board of directors;
(v) Directors shall not enter into contracts or trade with the Company either in violation
of the Articles of Association or without the consent of the shareholders’ general
meeting;
(vi) Without the consent of the shareholders’ general meeting, any director shall not take
advantage of his/her position to seek business opportunities that should belong to the
Company for himself/herself or for any other person, or operate business of the same
kind for himself/herself or for any other person;
(vii) Directors shall not accept commissions for transactions with the Company as their
own;
APPENDIX VI SUMMARY OF ARTICLES OF ASSOCIATION
– VI-3 –


--- page 777 ---
(viii) Directors shall not disclose Company’s secrets without authorisation;
(ix) Directors shall not make use of their related-party relationship to damage the
Company’s interests; and
(x) Directors shall have other duties of loyalty specified by laws, administrative
regulations, departmental rules and the Articles of Association. Any income
obtained by a director in violation of this article shall belong to the Company; if
losses are caused to the Company, the director shall be liable for compensation.
Each of the Company’s Directors, supervisors and members of senior management shall
be obligated, in the exercise of his powers or performance of his duties, to exercise the care,
diligence and skill that a reasonably prudent person would exercise under similar
circumstances.
Directors shall comply with laws, administrative regulations, and the Articles of
Association, with the following duties of diligence to the Company:
(i) Directors shall be prudent, serious and diligent in exercising the authority conferred
by the Company to ensure that the business activities of the Company comply with
the country’s laws, administrative regulations and various economic policy
requirements, and that the business activities do not go beyond the scope of business
activities specified in the Company’s business license;
(ii) Directors shall treat all shareholders equally;
(iii) Directors shall keep abreast of the Company’s business management status;
(iv) Directors shall sign written statements confirming periodic reports of the Company,
and ensure that the information disclosed by the Company is true, accurate, and
complete;
(v) Directors shall provide accurate information and materials to the board of
supervisors, and shall not interfere with the performance of duties by the board of
supervisors or individual supervisors; and
(vi) Directors shall have other diligence duties prescribed by laws, administrative
regulations, departmental rules and the Articles of Association.
APPENDIX VI SUMMARY OF ARTICLES OF ASSOCIATION
– VI-4 –


--- page 778 ---
Directors, supervisors and members of senior management of the Company shall not
direct the following persons or organisations (“Relevant Persons”) to engage in activities
prohibited for Directors, supervisors and members of senior management of the Company:
(i) spouses or underage children of Directors, supervisors and members of senior
management of the Company;
(ii) trustors of Directors, supervisors and members of senior management of the
Company or of such persons as described in clause (i) of this Article;
(iii) partners of Directors, supervisors and members of senior management of the
Company or of such persons as described in clauses (i) or (ii) of this Article;
(iv) company over which a director, supervisor and member of senior management of the
Company has de facto single control or joint control with such persons as described
in clauses (i), (ii) or (iii) above or other Directors, supervisors and members of
senior management of the Company; and
(v) Directors, supervisors and members of senior management of the controlled
company referred to in clause (iv) above.
The fiduciary duty of a director, supervisor and member of senior management of the
Company may not necessarily cease upon the conclusion of his term of office, their obligations
to keep confidential the business secrets of the Company shall survive since the conclusion of
his term of office. The duration of the other obligations and duties shall be determined in
accordance with the principle of fairness, depending upon the time of length between the
occurrence of the relevant event and the time when he leaves the office, and the circumstances
and terms under which his relationship with the Company is ended.
ALTERATIONS TO CONSTITUTIONAL DOCUMENTS
Where any amendment to the Articles of Association that has been adopted under a
resolution of the general meeting is subject to approval by the competent authorities, such
amendment shall be reported submitted to the competent authorities for approval; where any
amendment involves the Company’s registration items, the Company’s registration shall be
amended in accordance with the law.
QUORUM FOR MEETINGS
No quorum is required to be present at any general meetings of the Company.
APPENDIX VI SUMMARY OF ARTICLES OF ASSOCIATION
– VI-5 –


--- page 779 ---
SPECIAL RESOLUTIONS – MAJORITY REQUIRED
Resolutions of the general meeting shall be divided into ordinary resolutions and special
resolutions.
An ordinary resolution must be passed by votes representing a simple majority of the
voting rights represented by the Shareholders (including proxies) present at the meeting.
A special resolution must be passed by votes representing more than two-third of the
voting rights represented by the Shareholders (including proxies) present at the meeting.
VOTING RIGHTS OF THE PROXIES OF THE SHAREHOLDER (GENERAL RIGHT
ON A POLL AND RIGHT TO DEMAND A POLL)
A shareholder (including proxy) when voting at a general meeting may exercise voting
rights in accordance with the number of Shares carrying the right to vote. Each Share shall have
one voting right.
On a poll taken at a meeting, a shareholder (including a proxy) entitled to two or more
votes is not required to cast all his votes for or against any proposal on all his votes.
The shares held by the Company itself have no voting right and shall not included in the
total voting shares held by the shareholders attending the general meeting.
REQUIREMENTS FOR ANNUAL GENERAL MEETINGS
General meetings include annual general meetings and extraordinary general meetings.
The general meeting shall be convened by the Board of Directors. The annual general meeting
shall be held once every year within six months after the end of the previous accounting year.
ACCOUNTS AND AUDIT
Financial and Accounting System
The Company shall establish its financial and accounting systems in accordance with The
Accounting Law of the People’s Republic of China and other laws, administrative regulations,
the Accounting Standards of China formulated by the competent authorities of finance under
the State Council. The Board of Directors of the Company shall present to the Shareholders,
at every annual general meeting, such financial reports as are required to be prepared by the
Company in accordance with the relevant laws, administrative regulations, regulatory
documents promulgated by local government and competent governmental authorities and the
listing rules of the place where the Shares of the Company are listed.
APPENDIX VI SUMMARY OF ARTICLES OF ASSOCIATION
– VI-6 –


--- page 780 ---
The Company’s financial reports shall be maintained at the Company for Shareholders’
inspection twenty-one days before the date of the annual general meeting. Each Shareholder
shall be entitled to obtain a copy of the financial reports referred to in the Articles of
Association. Unless otherwise specified herein, the Company shall, at least 21 days before the
date of the annual general meeting, deliver to each holder of overseas-listed foreign Shares by
prepaid mail at the address registered in the register of Shareholders, the aforesaid reports,
together with reports of the Board of Directors and the balance sheet (including each document
required to be attached to the balance sheet as provided by laws), the income statement or the
statement of revenues and expenditures or the financial summary report. Subject to the laws,
administrative regulations, departmental rules, regulatory documents and the relevant
requirements of the securities regulatory authority at the place where the Shares of the
Company are listed, the Company may do by way of announcement (including publication on
the website of the Company and/or on newspapers).
The financial statements of the Company shall be prepared in accordance with accounting
standards and regulations of China.
Any interim results or financial information published or disclosed by the Company shall
be prepared in accordance with accounting standards and regulations of China.
The Company shall publish the financial reports twice every accounting year, that is, the
interim financial report within 60 days after the end of the first six months of an accounting
year, and the annual financial report within 120 days after the end of the accounting year. The
regulations of the securities regulatory authority at the place where the Shares of the Company
are listed or the listing rules of the place where the Shares of the Company are listed shall apply
if it is otherwise specified therein.
The Company shall not establish accounting book other than those required by law. No
assets of the Company shall be deposited in any account opened in the name of any individual.
Appointment and Removal of Accountants
The company shall engage an independent accounting firm that complies with laws,
regulations, and normative documents, as well as the listing rules of the company’s stock
listing location, to audit the company’s annual financial report and other financial reports. The
term of the accounting firm engaged by the Company is one year; the accounting firm may be
re-engaged upon expiration of the term.
The audit fee to the accounting firm shall be decided by the shareholders’ general
meeting.
Where the Company dismisses or does not re-engage an accounting firm, it shall notify
the accounting firm 30 days in advance. The accounting firm may state its views when the
general meeting votes on the dismissal of the accounting firm. Where an accounting firm
resigns, it shall explain to the shareholders’ general meeting whether there exists any improper
circumstance in the Company.
APPENDIX VI SUMMARY OF ARTICLES OF ASSOCIATION
– VI-7 –


--- page 781 ---
NOTICE OF MEETING AND BUSINESS TO BE CONDUCTED THEREAT
General meetings include annual general meetings and extraordinary general meetings.
The general meeting shall be convened by the Board of Directors. The annual general meeting
shall be held once every year within six months after the end of the previous accounting year.
The Board of Directors shall hold an extraordinary general meeting within two months under
any of the following circumstances:
(i) the number of Directors is less than that prescribed by the Company Law or less than
the two-third of the amount required by the Articles of Association;
(ii) the uncovered losses are in excess of one-third of the Company’s total paid-in share
capital;
(iii) Shareholders individually or together holding more than 10% of the Company’s
issued voting Shares request to hold an extraordinary general meeting;
(iv) the Board of Directors considers it necessary or the board of supervisors proposes
to hold such a meeting;
(v) such other circumstances as provided for by laws, regulations, the listing rules of
place where the Shares of the Company are listed and the Articles of Association.
When convening an annual general meeting, a notice of the time, place and agenda of the
meeting shall be made to the Shareholders 20 days before the meeting (excluding the date on
which the notice is issued and the meeting is held). In case of convening an extraordinary
general meeting, a notice shall be made to the Shareholders 15 days before the meeting. The
notice of meeting in connection with the issuance of bearer’s shares stating the time, place and
agenda of the meeting shall be announced 30 days before the meeting.
When the Company convenes the general meeting, the Board of Directors, the board of
supervisors and the Shareholders, individually or in aggregate, holding more than 3% of Shares
of the Company shall have the right to propose proposals. The contents of the proposal shall
fall within the terms of reference of the general meeting and have specified subjects and
specific resolutions, in further compliance with the laws and regulations and the Articles of
Association.
The notice of a shareholders’ general meeting shall be made in writing and include the
following details:
(i) the time, venue and period of the meeting;
(ii) matters and proposals submitted to be deliberated at the meeting;
APPENDIX VI SUMMARY OF ARTICLES OF ASSOCIATION
– VI-8 –


--- page 782 ---
(iii) a prominent written statement that all common shareholders (including holders of
preference shares with resumed voting rights) are entitled to attend the shareholders’
general meeting and may appoint a proxy in writing to attend and vote at the
meeting. The proxy is not required to be a shareholder of the Company necessarily;
(iv) Other matters required by laws, regulations, normative documents, and the listing
rules of the company’s stock listing location.
The notice of the general meeting shall be delivered to the Shareholders (with or without
voting rights at the general meeting) personally or by prepaid mail at the address of the
recipient subject to those recorded in the register of Shareholders, or subject to compliance
with the applicable laws and regulations and the listing rules of the place where the Shares of
the Company are listed, be published at the Company’s website and the website designated by
the Stock Exchange. If an announcement shall be made to the Shareholders of overseas-listed
foreign Shares pursuant to the Articles of Association, the relevant announcement shall be
published in the manner required by the Hong Kong Listing Rules. The notice of the general
meeting to the holders of domestic Shares may also be made by way of announcement.
The term “announcement” referred to in the preceding paragraph shall be published in
media that meet the conditions specified by the China Securities Regulatory Commission. After
the publication of such announcement, all holders of domestic Shares shall be deemed to have
received the relevant notice of the general meeting.
Where the Shareholders holding, individually or together, more than 10% of the Shares
of the Company request the convening of an extraordinary general meeting, the following
procedures shall be followed:
(i) the Shareholders holding, individually or together, more than 10% of the voting
Shares of the Company may sign one or more copies of written requests in the same
form requesting the Board of Directors to convene an extraordinary general meeting,
and stating the matters to be considered at the meeting. The Board of Directors shall
within ten days of receipt of the said written request give the written feedback
opinion on approval or disapproval for convening an extraordinary general meeting.
The aforesaid number of Shares held shall be calculated as of the date when the
Shareholders make the written request.
(ii) If the Board of Directors approves convening an extraordinary general meeting, it
will within five days of adopting the resolution of the Board of Directors issue the
notice of convening the meeting, and any changes in the original request in the
notice shall be subject to the consent of relevant Shareholders.
(iii) If the Board of Directors disagrees to convene an extraordinary general meeting, or
does not give feedback within 10 days upon receipt of the request, Shareholders
individually or together holding more than 10% of the Shares of the Company are
entitled to request the board of supervisors in writing to convene the meeting.
APPENDIX VI SUMMARY OF ARTICLES OF ASSOCIATION
– VI-9 –


--- page 783 ---
(iv) If the board of supervisors agrees to convene an extraordinary general meeting, it
shall issue a notice convening the meeting within 5 days upon receipt of the request,
and any changes in the original request in the notice shall be subject to the consent
of relevant Shareholders.
(v) If the board of supervisors does not issue the notice of meeting within the prescribed
period, it shall be deemed as the board of supervisors not convening and not holding
the general meeting. Shareholders individually or together holding more than 10%
of the Shares of the Company for more than 90 consecutive days may themselves
convene such a meeting in a manner as similar as possible to the manner in which
general meeting are convened by the Board of Directors within four months of
receipt of the request by the Board of Directors.
The following matters shall be resolved by an ordinary resolution at a general meeting:
(i) work reports of the Board of Directors and the board of supervisors;
(ii) profit distribution plans and plans to cover losses to be formulated by the Board of
Directors;
(iii) election, removal of members of Board of Directors and non-employee
representative supervisors, their remuneration and manner of payment;
(iv) annual budgets and final accounts, balance sheet, income statement, and other
financial statements of the Company;
(v) appointment, dismissal, remuneration, and payment methods of accounting firms;
and
(vi) other matters other than those which are required by laws, administrative
regulations, the listing rules of the place where the Shares of the Company are listed
or the Articles of Association to be adopted by special resolution.
The following matters shall be resolved by special resolutions at the general meeting:
(i) the increase or reduction in share capital and the issue of Shares of any class,
warrants and other similar securities by the Company;
(ii) the division, merger, dissolution, liquidation, including voluntary liquidation, or
change in the form of the Company;
(iii) the amendments to the Articles of Association;
(iv) purchases and sales of significant assets within a year exceeding 30% of the
Company’s total assets as audited in the latest period;
APPENDIX VI SUMMARY OF ARTICLES OF ASSOCIATION
– VI-10 –


--- page 784 ---
(v) other matters that are passed by ordinary resolutions at the general meeting to be of
material effect on the Company, which are required to be passed by special
resolutions;
(vi) other matters required to be passed by a special resolution in accordance with the
laws, administrative regulations, Articles of Association and listing rules of the
place where the Shares of the Company are listed.
TRANSFER OF SHARES
According to laws, administrative regulations, and relevant regulations of securities
regulatory agencies, shares in the Company may be transferred in accordance with the law. The
shares in the Company held by the Company’s promoters shall not be transferred within one
year from the date of establishment of the Company. The shares that have been issued before
the Company publicly offers shares shall not be transferred within one year from the date when
the shares in the Company get listed and traded in the stock exchange concerned. The directors,
supervisors and senior executives of the Company shall declare to the Company the shares
(including the preferred shares) in the Company they hold and the changes thereof. During the
term of office, the shares transferred by any of the aforesaid persons each year shall not exceed
25% of the total shares of the same type in the Company he/she holds. The shares in the
Company held by any of the aforesaid persons shall not be transferred within one year from
the date when the shares in the Company get listed and traded in the stock exchange concerned.
Any of the above said persons shall not transfer the shares in the Company held by him/her
within six months after his/her departure. If there are other provisions on the transfer
restrictions of overseas listed shares in the relevant regulations of the securities regulatory
authority in the place where the company’s shares are listed, such provisions shall prevail.
POWER OF THE COMPANY TO PURCHASE ITS OWN SHARES
The company’s repurchase of its shares should be carried out in accordance with laws,
regulations, and securities regulatory authorities.
POWER OF ANY SUBSIDIARIES OF THE COMPANY TO OWN SHARES IN ITS
PARENT COMPANY
The Articles of Association contains no restrictions preventing any subsidiaries of the
Company from holding the Shares.
DIVIDENDS AND OTHER METHODS OF DISTRIBUTION
The Company will give full consideration to the interests of Shareholders and make the
implementation of a reasonable profit distribution policy each year according to operating
conditions and market environment. The Company may distribute dividends in cash or by way
of Shares. Where the statutory reserve fund of the Company is not sufficient to cover the
Company’s loss for the previous year, the profits for the current year shall be used to cover
APPENDIX VI SUMMARY OF ARTICLES OF ASSOCIATION
– VI-11 –


--- page 785 ---
such loss before allocation is made to the statutory reserve fund pursuant to the previous
paragraph. After allocation to the statutory reserve fund has been made from the after-tax
profits of the Company, allocation may be made to discretionary reserve fund if a resolution
is adopted at the general meeting. If the general meeting or the Board of Directors, in violation
of the previous paragraph, distributes profits to Shareholders before covering losses of the
Company and making allocation to the Company’s statutory reserve fund, the profits so
distributed must be returned by the Shareholders to the Company.
The Shares of the Company held by the Company may not be applied to profit
distribution.
PROXIES
Any Shareholder who is entitled to attend and vote at a general meeting shall be entitled
to appoint one or more persons (whether such person is a shareholder or not) as his proxy to
attend and vote on his behalf. If the shareholder is a company, they may appoint a
representative to attend and vote, and if the shareholder of the company has already appointed
a representative to attend, they shall be deemed to have personally attended. A proxy so
appointed shall be entitled to exercise the following rights according to the authorisations from
that Shareholder:
(i) the Shareholder’s right to speak at the meeting;
(ii) the right to demand or join in demand for a poll; and
(iii) unless otherwise prescribed by applicable listing rules or other securities laws and
regulations, the right to vote by hands or on a poll, but a proxy of a shareholder who
has appointed more than one proxy may only vote on a poll.
If the Shareholder is a recognised clearing house (or its proxy), it may, as it thinks fit,
appoint one or more persons as its proxies to attend and vote at any general meeting or creditor
meetings. However, if more than one person is appointed, the instrument of proxy shall specify
the number and class of the Shares relating to each such proxy. The proxy may be signed by
the authorised person of the recognised clearing house. Such person so appointed may attend
the meeting and exercise the rights on behalf of the recognised clearing house (or its proxy)
(not requiring presence of the shareholding voucher, notarised authorisation and/or further
evidences to prove the duly authorisation) as if such person is an individual shareholder of the
Company, and enjoy the same legal rights as other shareholders, including the right to speak
and vote.
If the Shareholder shall appoint his proxy in writing, such instrument appointing the
proxy shall be signed by the appointing Shareholder or the proxy who is authorised in writing,
or if the appointing Shareholder is a legal entity, either affixed with legal person seal or signed
by a Director, or the duly authorised proxy.
APPENDIX VI SUMMARY OF ARTICLES OF ASSOCIATION
– VI-12 –


--- page 786 ---
Proxy forms shall be lodged at the domicile of the Company or other places specified in
the notice of meeting 24 hours before the relevant meeting for voting according to the proxy
from, or 24 hours before the designated time of voting. Where the proxy form is signed by a
person under a proxy statement on behalf of the appointer, the proxy statement or other
authorisation documents authorised to be signed shall be notarised. The notarised proxy
statement or other authorisation documents shall, together with the proxy form, be maintained
at the domicile of the Company or other places specified in the notice of meeting. Where the
appointer is a legal person, its legal representative or such person as is authorised by resolution
of the Board of Directors or other governing body may attend general meetings of the Company
as a representative of the appointer.
Any form issued to a Shareholder by the Board of Directors for appointing a proxy of the
Shareholder shall allow the Shareholder to freely instruct the proxy to cast vote in favour of
or against, and instruct separately about each resolution dealing with the businesses to be
considered at the meeting. Such proxy statement shall contain a statement that in absence of
instructions by the Shareholders, his proxy may vote as he thinks fit. A vote given by a proxy
in accordance with the terms of the proxy statement shall be valid, notwithstanding the death
or loss of capacity of the appointer or revocation of the proxy or the authority under which the
proxy statement was executed, or the transfer of the Shares in respect of which the proxy is
given, provided that the Company did not receive any written notice in respect of any such
matters prior to the commencement of the relevant meeting.
INSPECTION OF REGISTER OF SHAREHOLDERS AND OTHER RIGHTS OF
SHAREHOLDERS
The Company shall maintain a register of Shareholders. The Company may, in accordance
with an understanding and agreement between the securities regulatory authority under the
State Council and overseas securities regulatory authority, keep outside the PRC the original
register of Shareholders of overseas-listed foreign Shares and appoint overseas agent(s) for
management. The Company shall keep in Hong Kong the original register of Shareholders of
the holders of the Shares listed and traded on Stock Exchange in register of Shareholders of
overseas-listed foreign Shares, and maintain the duplicate thereof at the Company’s domicile;
the appointed overseas agent(s) shall ensure at all times the consistency between the original
and the duplicate of the register of Shareholders of overseas-listed foreign Shares.
If there is any inconsistency between the original and the duplicate of the register of
Shareholders of overseas-listed foreign Shares, the original version shall prevail.
If there are provisions in the Hong Kong Listing Rules regarding the suspension of share
transfer registration procedures before the shareholders’ meeting or the benchmark date for the
company’s decision to distribute dividends, such provisions shall prevail. If there are no
specific regulations, the company’s board of directors shall decide to suspend the registration
procedures for share transfer.
Where the Company holds a shareholders’ general meeting, distributes dividends,
undergoes liquidation or engages in other activities requiring the identification of the
shareholders, the date of registration of shares shall be determined by the board of directors or
the convener of the shareholders’ general meeting. The shareholders who appear on the register
of shareholders after the close of trading on the date of record are entitled to the corresponding
rights and interests as shareholders.
RIGHTS OF MINORITY SHAREHOLDERS IN RELATION TO FRAUD OR
OPPRESSION
The controlling shareholders and actual controllers of the Company shall not take
advantage of their associated relationship to damage the Company’s interests. Any loss caused
to the Company as a result of such violation shall be compensated.
APPENDIX VI SUMMARY OF ARTICLES OF ASSOCIATION
– VI-13 –


--- page 787 ---
The controlling shareholders and actual controllers of the Company are obliged to act in
good faith to the Company and the general public company shareholders. The controlling
shareholders shall exercise their rights as capital contributors in strict accordance with the law
and shall not impair the lawful rights and interests of the Company or of the general public
company shareholders by means of the distribution of profits, reorganisation of assets, external
investment, misappropriation of assets, loan, or guaranty, nor shall he make use of his
controlling position to impair the interests of the Company or of the general public company
shareholders.
PROCEDURE ON LIQUIDATION
The Company may be dissolved and go into liquidation in accordance with the laws in any
of the following circumstances:
(i) where the operation period provided herein expires or where any cause for
dissolution provided herein occurs;
(ii) where the general meeting has adopted a resolution for dissolution;
(iii) where dissolution is required due to merger or division of the Company;
(iv) where the business licence of the Company is revoked, or the Company is ordered
to close down or cancelled in accordance with the laws;
(v) where the Company suffers from significant difficulties in operation and
management, its continuous existence may cause material losses to Shareholders’
interests, and such difficulties cannot be dealt with in other ways, the Shareholders
holding 10% or more of votes of all Shareholders of the Company may file an
application to the People’s Court to dissolve the Company.
In the circumstance as set out in the clause (i) of the preceding article, the Company may
continue to exist by amending the Articles of Association. Where the Company is dissolved
pursuant to the clauses (i), (ii), (iv) and (v) of the preceding article, a liquidation team shall
be established within 15 days, and members thereof shall be determined by the general meeting
by ordinary resolution.
In case no liquidation team is established within the specified period to carry out
liquidation, the creditors may file an application to the People’s Court to designate relevant
persons to form a liquidation team to carry out liquidation. The People’s Court shall accept
such application, and timely organise the liquidation team to carry out liquidation.
The liquidation team shall notify the creditors within 10 days of, and make
announcements in the newspapers within 60 days, of the date of its establishment. A creditor
shall, within 30 days of receipt of the notice, or in the case of failure to receive the notice,
within 45 days of the date of the announcement, claim its rights to the liquidation team.
APPENDIX VI SUMMARY OF ARTICLES OF ASSOCIATION
– VI-14 –


--- page 788 ---
During the liquidation period, the liquidation team shall exercise the following functions
and powers;
(i) to liquidate the Company’s assets and prepare a balance sheet and an inventory of
assets respectively;
(ii) to notify or make announcement to the creditors;
(iii) to deal with and liquidate any outstanding businesses of the Company;
(iv) to pay all outstanding taxes and taxes arising from the liquidation;
(v) to settle creditor’s rights and debts;
(vi) to deal with the remaining assets after the Company’s debts have been paid;
(vii) to represent the Company in any civil proceedings.
After it has liquidated the Company’s assets and prepared the balance sheet and an
inventory of assets, the liquidation team shall formulate a liquidation plan and present it to the
general meeting or to a people’s court for confirmation. If, liquidation occurs due to dissolution
of the Company, and after liquidation of the Company’s assets and preparation of a balance
sheet and an inventory of assets, the liquidation team discovers that the Company’s assets are
insufficient to pay the Company’s debts in full, the liquidation team shall immediately file an
application to the People’s Court for declaration of bankruptcy. After the Company is declared
bankrupt pursuant to the adjudication of the People’s Court, the liquidation team shall transfer
all matters relating to the liquidation to the People’s Court.
After the Company’s liquidation is completed, the liquidation group shall make a
liquidation report, which shall be submitted to the shareholders’ general meeting or the
people’s court for confirmation and to the company registration authority to apply for company
deregistration. The liquidation group shall make a public announcement on the winding-up of
the Company.
OTHER PROVISIONS MATERIAL TO THE COMPANY OR ITS SHAREHOLDERS
General Provisions
The Company is a joint stock limited company of perpetual existence.
The Company may invest in other limited liability companies and joint stock limited
companies and undertake liabilities for the invested company as limited to the capital
contribution made by it. Unless otherwise provided by laws and administrative regulations, the
Company shall not become an investor that is jointly and severally liable for the liabilities
owed by the invested company.
APPENDIX VI SUMMARY OF ARTICLES OF ASSOCIATION
– VI-15 –


--- page 789 ---
From the date on which the Articles of Association come into effect, they shall constitute
a legally binding document regulating the Company’s organisation and activities, and the rights
and obligations as between the Company and its Shareholders and among the Shareholders and
are binding on the Company, Shareholders, Directors, supervisors and members of senior
management.
The Articles of Association are binding on the Company and its Shareholders, Directors,
supervisors and members of senior management, and the above-mentioned persons shall be
entitled to make claims on matters relating to the Company in accordance with the Articles of
Association. Pursuant to the Articles of Association, a shareholder can sue the Company, the
Company can sue its Shareholders, a shareholder can sue another Shareholder or other
Shareholders, and a shareholder can sue Directors, supervisors and members of senior
management of the Company. The term “sue” as mentioned in the preceding paragraph shall
include the initiation of proceedings in a court or application to an arbitration organisation for
arbitration.
Shares and Transfers
The Company may increase its capital by the following methods:
(i) a public offering of shares;
(ii) a private placement of shares;
(iii) offering of bonus shares to existing shareholders;
(iv) the conversion of reserve funds into shares; and
(v) any other methods provided for in law and administrative regulations and approved
by the China Securities Regulatory Commission.
The Company’s increase of capital by issuing new Shares shall be carried out in
accordance with the procedures specified in relevant PRC laws and administrative regulations
and listing rules of the place where the Company is listed, after having been approved in
accordance with the Articles of Association.
The Company may reduce its registered capital. In doing so, it shall act according to the
Company Law, listing rules of the place where the Shares of the Company are listed, other
relevant regulations and the Articles of Association. Where the Company is to reduce its
registered capital, it must prepare a balance sheet and an inventory of assets. The reduced
registered capital of the Company may not be less than the statutory minimum limit.
APPENDIX VI SUMMARY OF ARTICLES OF ASSOCIATION
– VI-16 –


--- page 790 ---
According to laws, administrative regulations, and relevant regulations of securities
regulatory agencies, shares in the Company may be transferred in accordance with the law. The
shares in the Company held by the Company’s promoters shall not be transferred within one
year from the date of establishment of the Company. The shares that have been issued before
the Company publicly offers shares shall not be transferred within one year from the date when
the shares in the Company get listed and traded in the stock exchange concerned. The directors,
supervisors and senior executives of the Company shall declare to the Company the shares
(including the preferred shares) in the Company they hold and the changes thereof. During the
term of office, the shares transferred by any of the aforesaid persons each year shall not exceed
25% of the total shares of the same type in the Company he/she holds. The shares in the
Company held by any of the aforesaid persons shall not be transferred within one year from
the date when the shares in the Company get listed and traded in the stock exchange concerned.
Any of the above said persons shall not transfer the shares in the Company held by him/her
within six months after his/her departure. If there are other provisions on the transfer
restrictions of overseas listed shares in the relevant regulations of the securities regulatory
authority in the place where the company’s shares are listed, such provisions shall prevail.
Shareholders
A shareholder of the Company is a person who lawfully holds Shares of the Company and
whose name is entered in the register of Shareholders.
A shareholder shall enjoy the relevant rights and assume the relevant obligations in
accordance with the class and number of Shares held. Shareholders holding the same class of
Shares shall be entitled to the same rights and assume the same obligations. Shareholders of
each class of Shares of the Company shall have the same rights in any distributions made in
dividends or other forms.
The ordinary shareholders of the Company shall have the following rights:
(i) to be entitled to dividends and other forms of distribution in proportion to the
number of Shares held;
(ii) to propose, convene and preside over, to attend or appoint a proxy to attend general
meetings and to exercise the corresponding speaking and voting rights in accordance
with laws (unless individual shareholders are required to waive their voting rights
on a certain resolution matter in accordance with applicable laws and regulations or
Hong Kong listing rules);
(iii) to supervise and manage the business activities of the Company and to put forward
proposals or raise inquiries;
(iv) to transfer, donate, or pledge Shares held by them in accordance with the laws,
administrative regulations, relevant regulations of the securities regulatory authority
of the place where the Shares of the Company are listed and provisions of the
Articles of Association;
APPENDIX VI SUMMARY OF ARTICLES OF ASSOCIATION
– VI-17 –


--- page 791 ---
(v) the right to consult the Articles of Association, the register of shareholders,
corporate bond stubs, minutes of shareholders’ general meetings, board of directors’
resolutions, board of supervisors’ resolutions and financial accounting reports;
(vi) upon termination or liquidation of the Company, to participate in the distribution of
remaining assets of the Company in accordance with the number of Shares held;
(vii) with respect to Shareholders who vote against any resolution adopted at the general
meeting on the merger or division of the Company, to require the Company to
acquire the Shares held by them;
(viii) other rights conferred by laws, administrative regulations, departmental rules, the
listing rules of the place where the Shares of the Company are listed and the Articles
of Association.
Where a shareholder demands to consult the relevant information or obtain any of the
aforesaid materials, he/it shall submit to the Company written documents proving the class and
number of shares he/it holds, and the Company shall provide the relevant information or
materials as demanded by the shareholder after verifying the shareholder’s identity. The
Company shall not, merely as a result of failure by any direct or indirect interested persons to
disclose to the Company of its interests, exercise any power to freeze or otherwise damage any
of their rights attached to the Shares held by them.
Any Shareholder who is registered in, or any person who requests to have his name
entered in, the register of Shareholders may (if his share certificate (the “original share
certificate”) is lost) apply to the Company for replacement of the share certificate in respect
of such Shares (the “Relevant Shares”). If a holder of the domestic Shares loses his share
certificate and applies for replacement, it shall be dealt with in accordance with relevant
provisions of the Company Law. If a holder of overseas-listed foreign Shares loses his share
certificate and applies for replacement, it may be dealt with in accordance with the relevant
laws, the rules of the stock exchange or other relevant regulations of the place where the
original register of Shareholders of overseas-listed foreign Shares is maintained.
If there are provisions in the Hong Kong Listing Rules regarding the suspension of share
transfer registration procedures before the shareholders’ meeting or the benchmark date for the
company’s decision to distribute dividends, such provisions shall prevail. If there are no
specific regulations, the company’s board of directors shall decide to suspend the registration
procedures for share transfer.
The Board of Directors
The Board of Directors shall be accountable to the general meeting, and shall exercise the
following powers:
(i) to convene the general meeting and to report on its work to the general meeting;
(ii) to implement the resolutions adopted by the general meeting;
(iii) to determine the Company’s business plans and investment plans;
(iv) to formulate the Company’s plans for annual financial budgets and final accounts;
(v) to formulate the Company’s profit distribution plans and plans to cover losses;
APPENDIX VI SUMMARY OF ARTICLES OF ASSOCIATION
– VI-18 –


--- page 792 ---
(vi) to formulate the plans for the increase or reduction of the Company’s registered
capital and the plans for the issuance of the Company’s bonds;
(vii) to draft the plans for merger, division, dissolution or change of the corporate form
of the Company;
(viii) to decide on the establishment of the Company’s internal management organisations;
(ix) to appoint or remove the Company’s general manager, and, according to the
nomination of the general manager, to appoint or remove the Company’s deputy
general manager, chief financial officer and other members of senior management,
and decide on their remuneration;
(x) to formulate the Company’s basic management system;
(xi) to formulate the plans for the amendment to the Articles of Association;
(xii) to exercise any other powers granted by the laws, regulations, the listing rules of the
place where the Shares of the Company are listed, the general meeting and the
Articles of Association.
Other than the Board of Directors’ resolutions in respect of the matters specified in
clauses (vi), (vii) and (xi) of this Article which shall be passed by the affirmative votes of more
than two-third of all Directors, the Board of Directors’ resolutions in respect of all other
matters may be passed by the affirmative votes of a simple majority of all the Directors. The
Board of Directors shall perform duties in accordance with the laws, administrative
regulations, the listing rules of the place where the Shares of the company are listed, the
Articles of Association and the resolutions of the general meeting. Matters beyond the scope
of authorisation of the general meeting shall be submitted to the general meeting for
consideration.
Resolutions made by the Board of Directors on the related party transactions of the
Company must be signed by independent non-executive Directors before they become
effective.
Meetings of the Board of Directors are divided into regular meetings and interim
meetings. Regular meetings shall be held at least two times each year, and convened by the
chairman of the Board of Directors. A notice shall be given no less than 10 days in the case
of regular meetings, or no less than 5 days in the case of interim meetings, before the proposed
date of the meeting; with the consent of all Directors of the Company, the above-mentioned
notice period may be waived. If an interim meeting of the Board of Directors is required to be
held as soon as possible under emergencies, a meeting notice may be given at any time by
telephone or other oral means, however, the convener shall make explanations at the meeting.
APPENDIX VI SUMMARY OF ARTICLES OF ASSOCIATION
– VI-19 –


--- page 793 ---
Meetings of the Board of Directors shall be held only if more than half of the Directors
(including the Directors appointed to attend the meeting on behalf pursuant to the provisions
of the Articles of Association) are present. The Directors shall attend in person the meetings
of the Board of Directors. Where any Director is unable to attend the meeting for reason, he/she
may, by issuing a written proxy statement, entrust another Director to attend the meeting on
his/her behalf, with the scope of authorisation to be stated therein. The Directors who attend
the meeting on behalf shall exercise the rights as Directors within the scope of authorisation.
Failure by a director to attend a meeting of the Board of Directors or to authorise a
representative to attend the meeting on his/her behalf shall be deemed waiver of the voting
right at such meeting. Each Director shall have one vote. Any resolutions of the Board of
Directors must be subject to adoption by a simple majority of all Directors unless otherwise
specified herein.
Independent Non-executive Directors
Independent non-executive Directors mean such Directors as serve no other positions in
the Company other than Directors, members of special committee of the Board of Directors or
chairman and have no relationship with the Company and Substantial Shareholders which may
affect their independent and objective judgement. Independent non-executive Directors shall
account for at least one-third of the number of members of the Board of Directors, and be no
less than three. At least one of the independent non-executive Directors of the Company shall
have suitable professional qualification or have suitable accounting or relevant financial
management expertise, and there shall be at least one independent non-executive Director who
generally resides in Hong Kong.
Secretary to the Board of Directors
The Company shall have a secretary to the Board of Directors. The secretary to the Board
of Directors shall be a member of senior management of the Company. The secretary to the
Board of Directors shall be a natural person who has essential expertise and experience, to be
employed or dismissed by the Board of Directors.
Board of supervisors
The Company shall have a board of supervisors.
The board of supervisors shall consist of 3 supervisors, and one of whom shall act as the
chairman of the board of supervisors. Each supervisor shall serve for a term of three years,
renewable upon re-election.
The appointment or removal of the chairman of the board of supervisors requires approval
by votes by two-third or more of the members of the board of supervisors. The Directors and
members of senior management of the Company shall not act concurrently as supervisors.
APPENDIX VI SUMMARY OF ARTICLES OF ASSOCIATION
– VI-20 –


--- page 794 ---
The board of supervisors shall be accountable to the general meeting, and shall exercise
the following powers in accordance with the law:
(i) to review the Company’s financial affairs;
(ii) to supervise the acts of the Directors and members of senior management in
performing duties of the Company, propose for removal of any Director or member
of senior management in violation of any laws, administrative regulations, listing
rules of the place where the Shares of the Company are listed, the Articles of
Association or the resolutions of the general meeting;
(iii) to demand any Director and member of senior management who acts in a manner
which is harmful to the Company’s interests to rectify such behaviour;
(iv) to check the financial information, such as the financial reports, reports of
operations and profit distribution plans to be submitted by the Board of Directors to
the general meeting, and to authorise in the Company’s name, public certified
accountants and licensed auditors to assist in the re-examination of such
information, should any doubt arise in respect thereof;
(v) to propose to convene an extraordinary general meeting, and to convene and preside
over the general meeting where the Board of Directors fails to perform his duty to
do so;
(vi) to submit proposals to the general meeting;
(vii) to conduct investigation if they find the operation of the Company unusual; and may
engage professionals such as accountants and lawyers to assist if necessary. The
Company shall bear the expenses incurred;
(viii) to represent the Company and its Directors in negotiation with or in instituting legal
proceedings against its Directors and members of senior management in accordance
with the laws and the Article of Association; and
(ix) such other powers as provided by the laws and regulations as well as the Articles of
Association.
General Manager of the Company
The Company shall have one general manager, who shall be appointed or dismissed by the
Board of Directors. The general manager of the Company shall be accountable to the Board of
Directors and shall exercise the following powers:
(i) to be in charge of the Company’s operation and management, organise the
implementation of the resolutions of the Board meeting and report its work to the
Board of Directors;
APPENDIX VI SUMMARY OF ARTICLES OF ASSOCIATION
– VI-21 –


--- page 795 ---
(ii) to organise the implementation of the Company’s annual operation plans and
investment plans;
(iii) to draft plans for the establishment of the Company’s internal management
organisations;
(iv) to draft the Company’s basic management system;
(v) to formulate the basic rules and regulations of the Company;
(vi) to determine to appoint or dismiss the senior deputy general manager, deputy
general manager and chief financial officer of the Company;
(vii) to determine to appoint or dismiss the management officers other than those required
to be appointed or dismissed by the Board of Directors;
(viii) other powers granted by the Articles of Association and the Board of Directors.
Common Reserve Fund
The common reserve fund of the Company shall be used to cover Company’s losses,
expand its production and operation, or be converted to the Company’s increased capital. The
common reserve fund of the Company shall be used to:
(i) cover losses, and the capital reserve fund shall not be used to cover losses.
(ii) be converted into the increased capital. Where the statutory reserve fund is to be
converted into capital by capitalisation, the retained reserve fund may not fall below
25% of the registered capital of the Company before such conversion.
(iii) expand production and operation of the Company.
APPENDIX VI SUMMARY OF ARTICLES OF ASSOCIATION
– VI-22 –


--- page 796 ---
FURTHER INFORMATION ABOUT OUR COMPANY
Incorporation
Our Company was established in the PRC as a company with limited liability on
3 September 2010 under the name of Jiangsu Shuangliang Contract Energy Management
Company Limited* (ʮ̡). On 25 August 2014, the then sole
shareholder resolved, among other things, that our Company shall be renamed as Shuangliang
Energy Saving System (Jiangsu) Company Limited* ( ᕐԄືঐӻ୕(Ϫᘽ)ʮ̡), which
became effective on 1 September 2014. Subsequently, on 17 November 2015, the then sole
shareholder resolved that our Company be renamed as Wise Living Technology Co., Ltd* ( ᅆ
ʮ̡), which became effective on 3 December 2015.
On 18 December 2015, it was resolved that our Company shall be converted from a
company with limited liability into a joint stock company with limited liability and be renamed
as Wise Living Technology Co., Ltd* (ʮ̡), which is the current name of
our Company. Upon registration of relevant government authorities in the PRC, the conversion
was legally completed on 29 December 2015. The registered office and headquarter in the PRC
is Room 202, 2/F, No. 15 Shuangliang Road, Ligang Street, Jiangyin, Jiangsu Province, the
PRC.
On 20 May 2022, our Company was registered as a non-Hong Kong company under Part
16 of the Companies Ordinance, and has established a place of business in Hong Kong at Unit
B, 17/F, United Centre, 95 Queensway, Admiralty, Hong Kong. Mr. Tso Ping Cheong Brian ( ૎
΋͛) has been appointed as the authorised representatives of our Company under the
Companies Ordinance for the acceptance of service of process and notices on behalf of our
Company in Hong Kong. The address for service of process on our Company in Hong Kong
is the same as our principal place of business in Hong Kong as set out above.
As we are established in the PRC, our corporate structure and Articles of Association are
subject to the relevant laws and regulations of the PRC. A summary of the relevant provisions
of our Articles of Association is set out in Appendix VI to this prospectus. A summary of
certain relevant aspects of the laws and regulations of the PRC are set out in Appendix V to
this prospectus.
Changes in Share Capital
At our establishment, our initial registered capital was RMB50 million and Shuangliang
Eco-Energy was the sole shareholder of our Company. On 16 September 2015, Shuangliang
Eco-Energy entered into a share transfer agreement with Shuangliang Technology in which it
was agreed that the then entire registered capital of our Company would be transferred to
Shuangliang Technology. Such transfer was completed and settled on 22 October 2015.
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-1 –


--- page 797 ---
On 17 November 2015, Shuangliang Technology resolved, amongst others, to increase the
registered capital of our Company from RMB50 million to RMB226 million, with additional
amount of RMB100 million contributed by Shuangliang Technology and the remaining RMB76
million subscribed by Jiangsu Lichuang and ten individual shareholders. For details, see
“History, development and corporate structure – Corporate history of our Company” in this
prospectus.
Immediately upon completion of the Global Offering, the registered capital of our
Company is expected to increase to RMB301,600,000 consisting of 226,000,000 Domestic
Shares and 75,600,000 H Shares with nominal value of RMB1.0 each, without taking into
account any H Shares which may be issued pursuant to the Over-allotment Option.
Save as disclosed in “History, development and corporate structure – Corporate history of
our Company” in this prospectus, there has been no alterations in our share capital within two
years immediately preceding the date of this prospectus.
Subsidiaries of our Company
The list of subsidiaries of our Company as at 31 December 2022 is set out in the
accountant’s report as set out in Appendix I to this prospectus. Save for the subsidiaries
mentioned in the accountant’s report as set out in Appendix I to this prospectus, our Company
has no other subsidiaries. There has been no alteration in the share capital of any of our
subsidiaries within the two years immediately preceding the date of this prospectus.
Resolutions of our Shareholders
Pursuant to the Shareholders’ resolutions passed on 26 May 2022, our Shareholders
resolved that, among other things:
(a) The Global Offering, the Listing and the Over-allotment Option have been approved
and the number of H shares in issue shall represent not less than 25% of the total
share capital after the Global Offering (assuming the Over-allotment Option is not
exercised). The final issuance size for this issuance will be determined by our Board
as authorised by the general meeting of our Company or persons as authorised by
our Board in accordance with the legal requirements, regulatory approval and
market situation;
(b) After the completion of the Global Offering, the Articles of Association with effect
on the Listing Date will be adopted; and
(c) Our Board and its authorised persons will be authorised to deal with matters in
relation to the Global Offering and the Listing.
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-2 –


--- page 798 ---
Restriction on Share Repurchase
For details, see “Summary of Articles of Association – Power of the Company to purchase
its own Shares” as set out in Appendix VI to this prospectus.
FURTHER INFORMATION ABOUT OUR BUSINESS
Summary of Material Contracts
We have entered into the following contracts (not being contracts entered into in the
ordinary course of business) within two years immediately preceding the date of this
prospectus that are or may be material:
(a) Deed of Indemnity;
(b) Hong Kong Underwriting Agreement; and
(c) a cornerstone investment agreement dated 27 June 2023 entered into among Wise
Living Technology Co., Ltd (ʮ̡), Jiang Gang International
Investment Company Limited (ʮ̡), Guotai Junan Capital
Limited (ʮ̡) and Guotai Junan Securities (Hong Kong) Limited
(਷इёτᗇՎ(ಥ)ʮ̡), pursuant to which Jiang Gang International
Investment Company Limited (ʮ̡) has agreed to, subject to
certain conditions, subscribe for a certain number of the Offer Shares (rounded down
to the nearest whole board lot of 1,000 H Shares) at the Offer Price that may be
purchased for an aggregate amount of RMB50.0 million (inclusive of the brokerage
fee, SFC transaction levy, AFRC transaction levy and Stock Exchange trading fee).
Intellectual Property Rights
As at the Latest Practicable Date, we have registered the following intellectual property
rights which are, in our Directors’ opinion, material to our Group’s business.
Trademarks
As at the Latest Practicable Date, we have registered the following trademarks, which are
material to our business:
No. Trademark
Place of
registration
Registered
owner Class
Registration
number Effective period
1.
 PRC Our Company 35 19004329 28 February 2017 to
27 February 2027
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-3 –


--- page 799 ---
No. Trademark
Place of
registration
Registered
owner Class
Registration
number Effective period
2.
 PRC Our Company 16 40862594 28 June 2020 to
27 June 2030
3.
 PRC Our Company 9 40855235 28 June 2020 to
27 June 2030
4.
 PRC Our Company 42 40845457 21 June 2020 to
20 June 2030
5.
 PRC Our Company 16 40851882 21 April 2020 to
20 April 2030
6.
 PRC Shanxi
Shuangliang
Renewable
Energy
11 7439909 14 January 2021 to
13 January 2031
7.
Hong Kong Our Company 16 305057974 17 September 2019
to 16 September
2029
8.
Hong Kong Our Company 16 305057992 17 September 2019
to 16 September
2029
Patents
As at the Latest Practicable Date, we had registered the following patents in the PRC that
are material to our business:
No. Patent Patent holder Patent number Patent type
Effective
period
1. A solar photothermal
continuous heating system
without auxiliary heat*
(ɓ၇˄ජঐΈᆠೌႾᆠஹ
ᚃԶᆠӻ୕)
Our Company ZL202022765405.8 Utility model 10 years from
26 November
2020
2. An inlet and outlet structure
of underground heat
exchange station* ( ɓ၇ή
ɨ౬ᆠ१ආ̈ɹഐ࿴)
Hulunbuir
Shuangliang
ZL202123178572.3 Utility model 10 years from
16 December
2021
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-4 –


--- page 800 ---
No. Patent Patent holder Patent number Patent type
Effective
period
3. A heat exchange station
pumpless dosing system*
(̋ᖹӻ୕)
Hulunbuir
Shuangliang
ZL202121072780.2 Utility model 10 years from
18 May 2021
4. A heat exchange station
adjustable drainage ditch
debris filter device*
(ɓ၇౬ᆠ१̙ሜືર˥๖
ཀᓩༀໄ)
Hulunbuir
Shuangliang
ZL202121072966.8 Utility model 10 years from
18 May 2021
5. A heat exchange station
power cabinet control
terminal* ( ɓ၇౬ᆠ१ਗ
ɢᓞછՓ୞၌)
Hulunbuir
Shuangliang
ZL202121072967.2 Utility model 10 years from
18 May 2021
6. Pipeline comprehensive
emergency drill
simulator* (ܢ
စᇖᅼᏝኜ)
Hulunbuir
Shuangliang
ZL202121073048.7 Utility model 10 years from
18 May 2021
7. Multifunctional
replenishment tank for
heat exchange station*
(౬ᆠ१ε̌ঐ໾˥ᇌ)
Hulunbuir
Shuangliang
ZL202120397725.4 Utility model 10 years from
23 February
2021
8. Double power supply water
immersion visual alarm
device for heat exchange
station* ( ౬ᆠ१ᕐཥ๕ऍ
˥̙ൖʷజᙆༀໄ)
Hulunbuir
Shuangliang
ZL202120350509.4 Utility model 10 years from
8 February
2021
9. Uninterruptible power
supply system for control
cabinet of heat exchange
station* ( ౬ᆠ१છՓᓞʔ
ගᓙԶཥӻ୕)
Hulunbuir
Shuangliang
ZL202120350510.7 Utility model 10 years from
8 February
2021
10. An energy-saving central
heating control device*
(ɓ၇ືঐණʕԶᆠછՓༀ
ໄ)
Lanzhou
Shuangliang
ZL202120509495.6 Utility model 10 years from
10 March
2021
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-5 –


--- page 801 ---
No. Patent Patent holder Patent number Patent type
Effective
period
11. A kind of thermal insulation
pipeline for central
heating* ( ɓ၇ණʕԶᆠ͜
๝၍༸)
Lanzhou
Shuangliang
ZL202120509533.8 Utility model 10 years from
10 March
2021
12. A central heating device that
can utilise waste heat*
(ණʕԶ
ᆠༀໄ)
Lanzhou
Shuangliang
ZL202120510433.7 Utility model 10 years from
10 March
2021
13. A kind of equipment for
comprehensive utilisation
of waste heat of coal
slag* ( ɓ၇๩ಮቱᆠၝΥ
л͜ண௪)
Lanzhou
Shuangliang
ZL202120510734.X Utility model 10 years from
10 March
2021
14. A waste heat utilisation
device for flue gas
pipeline* ( ɓ၇๧ं၍༸
ቱᆠл͜ༀໄ)
Lanzhou
Shuangliang
ZL202120510766.X Utility model 10 years from
10 March
2021
15. A heating device for central
heating* (ණʕԶ
՟าༀໄ)
Lanzhou
Shuangliang
ZL202120530012.0 Utility model 10 years from
12 March
2021
16. A distillation device for
waste heat utilisation*
(ႋᕞༀໄ)
Lanzhou
Shuangliang
ZL202120527592.8 Utility model 10 years from
12 March
2021
17. An energy-saving and
environmentally friendly
central heating device*
(ණʕԶᆠ
ༀໄ)
Lanzhou
Shuangliang
ZL202120528433.X Utility model 10 years from
12 March
2021
18. an industrial heat
exchanger* ( ɓ၇ʈุ͜౬
ᆠኜ)
Lanzhou
Shuangliang
ZL202120509480.X Utility model 10 years from
10 March
2021
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-6 –


--- page 802 ---
No. Patent Patent holder Patent number Patent type
Effective
period
19. A regenerative industrial
waste heat recovery
equipment* ( ɓ၇ႅᆠό
ʈุቱᆠΫϗண௪)
Lanzhou
Shuangliang
ZL202120509380.7 Utility model 10 years from
10 March
2021
20. A central heating
desulfurisation and dust
removal device* ( ɓ၇ණ
ʕԶᆠ୭ିৰྡྷༀໄ)
Lanzhou
Shuangliang
ZL202120509792.0 Utility model 10 years from
10 March
2021
21. A multi-module assembly
heat extraction device*
(ɓ၇εᅼ෯ଡ଼ༀ՟ᆠண௪)
Lanzhou
Shuangliang
ZL202120826930.8 Utility model 10 years from
21 April
2021
22. Low temperature flue gas
waste heat recovery and
utilisation technology* ( Э
๝๧ंቱᆠΫϗл͜Ҧஔ)
Lanzhou
Shuangliang
ZL202120831040.6 Utility model 10 years from
21 April
2021
23. A starting pole piece
processing and positioning
device* (฽˪̋ʈ
Зༀໄ)
Lanzhou
Shuangliang
ZL202120831360.1 Utility model 10 years from
22 April
2021
24. Fully sealed free expansion
high temperature pellet
conveying device* ( Ό੗
፩৔
ༀໄ)
Lanzhou
Shuangliang
ZL202120838465.X Utility model 10 years from
22 April
2021
25. Compound heat supply
system utilising condensed
waste heat recovered from
main and auxiliary
machines of thermal
power plant* ( ᆠཥᅀΫϗ
˴eႾዚиኑᄻᆠልΥό
Զᆠӻ୕)
Taiyuan Renewable
Energy
ZL201110211919.1 Invention 20 years from
27 July 2011
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-7 –


--- page 803 ---
No. Patent Patent holder Patent number Patent type
Effective
period
26. Steam water heat supply
system utilising condensed
waste heat recovered from
main and auxiliary
machines of thermal
power plant* ( ᆠཥᅀΫϗ
˴eႾዚиኑᄻᆠӛ˥ό
Զᆠӻ୕)
Taiyuan Renewable
Energy
ZL201110211920.4 Invention 20 years from
27 July 2011
27. Heat supply system utilising
water with residual heat
recovered from absorption
heat pumps of thermal
power plant* ( ᆠཥᅀΫϗ
ቱᆠ˥˥όԶ
ᆠӻ୕)
Taiyuan Renewable
Energy
ZL201110211962.8 Invention 20 years from
27 July 2011
28. Heat supply system utilising
series circulating water of
thermal power plant* ( ᆠ
ཥᅀృᐑ˥ЕᑌόԶᆠӻ
୕)
Taiyuan Renewable
Energy
ZL201110198908.4 Invention 20 years from
16 July 2011
29. Dual water heat supply
system utilising condensed
waste heat recovered from
auxiliary machines of
thermal power plant* ( ᆠ
ٙ
ᕐ˥˥όԶᆠӻ୕)
Taiyuan Renewable
Energy
ZL201110198911.6 Invention 20 years from
16 July 2011
30. A shared heat metering
management system*
(ඎ၍ଣӻ୕)
Taiyuan Renewable
Energy
ZL201820237104.8 Utility Model 10 years from
10 February
2018
31. An automated and
unattended heat exchange
station control system /H11569
(ς౬ᆠ
१છՓӻ୕)
Taiyuan Renewable
Energy
ZL201820224646.1 Utility Model 10 years from
8 February
2018
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-8 –


--- page 804 ---
No. Patent Patent holder Patent number Patent type
Effective
period
32. A water supply system
utilising temperature-
modulated and pressure-
modulated spring water*
(˥Զ˥
ӻ୕)
Taiyuan Renewable
Energy
ZL201820126808.8 Utility Model 10 years from
25 January
2018
33. An unattended containerised
gas boiler unit*
(ණༀᇌό
ዷंᒢᘟዚଡ଼)
Taiyuan Renewable
Energy
ZL201820120621.7 Utility model 10 years from
24 January
2018
34. An unattended heat
exchange station*
(ς౬ᆠ१)
Taiyuan Renewable
Energy
ZL201820109259.3 Utility model 10 years from
23 January
2018
35. An intelligent skid-mounted
heat exchange unit*
(ɓ၇ᅪༀό౽ঐ౬ᆠዚଡ଼)
Taiyuan Renewable
Energy
ZL201820109276.7 Utility model 10 years from
23 January
2018
36. An intelligent water
replenishment unit*
(ɓ၇౽ঐ໾˥ዚଡ଼)
Taiyuan Renewable
Energy
ZL201820109676.8 Utility model 10 years from
23 January
2018
37. A dust collecting equipment
for factory building*
(ৰྡྷண௪)
Taiyuan Renewable
Energy
ZL201920254471.3 Utility model 10 years from
28 February
2019
38. Integrated automatic
constant pressure water
supply unit* ( ණϓόІਗ
Ꮐ໾˥ዚଡ଼)
Shanxi
Shuangliang
New Energy
ZL202121737500.5 Utility model 10 years from
29 July 2021
39. A comprehensive utilisation
system of mid-deep
geothermal heat and solar
energy* ( ɓ၇ʕଉᄴήᆠ
ঐe˄ජঐၝΥл͜ӻ୕)
Shanxi
Shuangliang
New Energy
ZL202121737569.8 Utility model 10 years from
29 July 2021
40. An intelligent energy
storage electrode boiler
hot water heating system*
(ɓ၇౽ঐႅঐόཥ฽ᒢᘟ
ᆠ˥Զᆠӻ୕)
Shanxi
Shuangliang
New Energy
ZL202121737681.1 Utility model 10 years from
29 July 2021
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-9 –


--- page 805 ---
No. Patent Patent holder Patent number Patent type
Effective
period
41. A novel well bore structure
and well completion
method for geothermal
well* ( ɓ၇ήᆠમᙺʜʜ
ɹᏨ಻છՓༀໄ)
Shanxi
Shuangliang
New Energy
ZL201920423145.0 Utility model 10 years from
1 April 2019
42. A split type skid-mounted
heat exchange unit* ( ɓ၇
ʱ᜗όᅪༀό౬ᆠዚଡ଼)
Shanxi
Shuangliang
New Energy
ZL201920423161.X Utility model 10 years from
1 April 2019
43. Central heating pipe network
return water pressurisation
unit* ( ණʕԶᆠ၍ၣΫ˥
̋Ꮐዚଡ଼)
Shanxi
Shuangliang
New Energy
ZL201920272153.X Utility model 10 years from
5 March
2019
44. A skid-mounted mixed water
heating unit* ( ɓ၇ᅪༀό
૿˥Զᆠዚଡ଼)
Shanxi
Shuangliang
New Energy
ZL201920272164.8 Utility model 10 years from
5 March
2019
45. Combined heating system of
geothermal and central
heating* ( ήᆠձණʕԶᆠ
ᑌΥԶᆠӻ୕)
Shanxi
Shuangliang
New Energy
ZL201920270286.3 Utility model 10 years from
4 March
2019
46. An integrated skid-mounted
heat exchange unit* ( ɓ၇
ණϓόᅪༀό౬ᆠዚଡ଼)
Shanxi
Shuangliang
New Energy
ZL201920423157.3 Utility model 10 years from
1 April 2019
47. An integrated system for
recycling cooling water
waste heat without
improving back pressure
of million-level
generator* ( ɓ၇ʔ౤৷ϵ
ۍ
ණϓӻ୕)
Zhengzhou Wise
Living
ZL201920578918.2 Utility model 10 years from
26 April
2019
48. A new type of heating
device that reduces energy
consumption* (ۨ
ЭঐঃԶᆠༀໄ)
Shanxi
Demonstration
Zone Heat
Supply
ZL202121623342.0 Utility model 10 years from
16 July 2021
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-10 –


--- page 806 ---
No. Patent Patent holder Patent number Patent type
Effective
period
49. Multi-IoT triple heat
exchange station* (ᑌ
ၣɧᑌԶ౬ᆠ१)
Shanxi
Demonstration
Zone Heat
Supply
ZL202121623345.4 Utility model 10 years from
16 July 2021
50. A heat storage and heat
release integrated
automatic control system*
(ᆠɓ᜗όІਗ
છՓӻ୕)
Shanxi
Demonstration
Zone Heat
Supply
ZL202121623901.8 Utility model 10 years from
16 July 2021
51. An infrared radiation
heating system for a
large-space workshop*
(࢛
Զาӻ୕)
Shanxi
Demonstration
Zone Heat
Supply
ZL202121623902.2 Utility model 10 years from
16 July 2021
52. A diversion device for dust
collector cloth bag* ( ɓ၇
ༀໄ)
Shanxi
Demonstration
Zone Heat
Supply
ZL202022118432.6 Utility model 10 years from
24 September
2020
53. An arrangement structure of
thermodynamic unit with
maintenance support*
(ᆠɢዚ
ଡ଼бໄഐ࿴)
Shanxi
Demonstration
Zone Heat
Supply
ZL202022294620.4 Utility model 10 years from
15 October
2020
54. A horizontal water pump
base* (ࢭֵݿ)
Shanxi
Demonstration
Zone Heat
Supply
ZL202022118417.1 Utility model 10 years from
24 September
2020
55. Wellhead monitoring and
control device for
single-well circulation
geothermal well* ( ఊʜృ
ᐑήᆠʜʜɹ္಻છՓༀ
ໄ)
Shanxi
Demonstration
Zone Heat
Supply
ZL202020789711.2 Utility model 10 years from
13 May 2020
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-11 –


--- page 807 ---
No. Patent Patent holder Patent number Patent type
Effective
period
56. Medium-deep geothermal
single-well circulating
heating system* ( ʕଉᄴ
ήᆠఊʜృᐑԶᆠӻ୕)
Shanxi
Demonstration
Zone Heat
Supply
ZL202020789694.2 Utility model 10 years from
13 May 2020
57. Medium deep geothermal
single well circulating
heating unit* ( ʕଉᄴήᆠ
ఊʜృᐑԶᆠዚଡ଼)
Shanxi
Demonstration
Zone Heat
Supply
ZL202020791107.3 Utility model 10 years from
13 May 2020
58. Single well circulation
geothermal heating
system* ( ఊʜృᐑήᆠԶ
ᆠӻ୕)
Shanxi
Demonstration
Zone Heat
Supply
ZL201920269475.9 Utility model 10 years from
4 March
2019
59. A heating system for
cascade utilisation of
geothermal heat* ( ɓ၇ή
ᆠ૒ॴл͜Զᆠӻ୕)
Shanxi
Demonstration
Zone Heat
Supply
ZL201920254952.4 Utility model 10 years from
28 February
2019
60. A heat storage and supply
device for greenhouses*
(ᎷԶ
ᆠༀໄ)
Taiyuan Renewable
Energy
ZL202221034979.0 Utility model 10 years from
30 April
2022
61. An indoor constant
temperature variable flow
system* (๝ᜊ
ඎԶᆠӻ୕)
Taiyuan Renewable
Energy
ZL202221057157.4 Utility model 10 years from
5 May 2022
62. A combined solar and
geothermal energy heating
supplementary heating
system* ( ɓ၇˄ජঐձή
ᆠঐᑌΥԶᆠ໾ᆠӻ୕)
Taiyuan Renewable
Energy
ZL202221353385.6 Utility model 10 years from
31 May 2022
63. A combined industrial waste
and geothermal heating
system* ( ɓ၇ʈุቱᆠձ
ήᆠᑌΥԶᆠӻ୕)
Taiyuan Renewable
Energy
ZL202221719334.0 Utility model 10 years from
4 July 2022
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-12 –


--- page 808 ---
No. Patent Patent holder Patent number Patent type
Effective
period
64. A geothermal heating
system* ( ɓ၇ήᆠԶᆠӻ
୕)
Shuangliang
Eco-Energy,
Taiyuan
Renewable
Energy
ZL202222023443.5 Utility model 10 years from
1 August
2022
65. An ammonia supplementing
device for heat supply and
exchange* ( ɓ၇Զᆠ౬ᆠ
ኜ͜໾ऄༀໄ)
Shanxi
Shuangliang
New Energy
ZL202221516004.1 Utility model 10 years from
15 June 2022
66. A carbon dioxide heat pump
heating system* ( ɓ၇ɚ
Զᆠӻ୕)
Shanxi
Shuangliang
New Energy
ZL202221353393.0 Utility model 10 years from
31 May 2022
67. A biomass gas steam cycle
power generation and
heating system* ( ɓ၇͛
ሯዷंႋӛృᐑ೯ཥԶ
ᆠӻ୕)
Shanxi
Shuangliang
New Energy
ZL202221052917.2 Utility model 10 years from
5 May 2022
68. A heating system based on
geothermal and electric
storage heating* ( ɓ၇ਿ
Զᆠӻ
୕)
Shanxi
Demonstration
Zone Heat
Supply
ZL202221034978.6 Utility model 10 years from
30 April
2022
69. A new type of crushing drill
with double-row tapered
teeth* (ᕐર፿Җ
ॎຟ኉᝝᎘)
Shanxi
Demonstration
Zone Heat
Supply
ZL2022213737957.7 Utility model 10 years from
2 June 2022
70. An underground well wall
cleaning device* ( ɓ၇ή
ༀໄ)
Shanxi
Demonstration
Zone Heat
Supply
ZL202221490987.6 Utility model 10 years from
14 June 2022
71. An ultra-long gravity heat
pipe heating device* ( ɓ
ɢᆠ၍Զᆠༀໄ)
Shanxi
Demonstration
Zone Heat
Supply
ZL202221506896.7 Utility model 10 years from
15 June 2022
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-13 –


--- page 809 ---
No. Patent Patent holder Patent number Patent type
Effective
period
72. A waste-to-energy device
based on the operation of
geothermal new energy*
(ήᆠอঐ๕༶ᔷ
չѫ೯ཥༀໄ)
Shanxi
Demonstration
Zone Heat
Supply
ZL202221737705.8 Utility model 10 years from
5 July 2022
As at the Latest Practicable Date, our Group had applied for registration of the following
patents, which are material to the business operation of our Group:
No. Patent
Name of
applicant Patent type
Application
number
Application
date
1. Underwater alarm device
with visualisation function
powered by double power
sources for heat exchange
stations* ( ౬ᆠ१ᕐཥ๕ऍ
˥̙ൖʷజᙆༀໄ)
Hulunbuir
Shuangliang
Invention 2021101832024 8 February
2021
2. Comprehensive emergency
drill simulator for
pipelines* (ܢ
စᇖᅼᏝኜ)
Hulunbuir
Shuangliang
Invention 2021105416795 18 May 2021
3. A storage and heating device
for greenhouses* ( ɓ၇͜
ᎷԶᆠༀໄ)
Taiyuan
Renewable
Energy
Utility model 2022210349790 30 April 2022
4. An indoor heating system of
constant temperature and
variable heat flow* ( ɓ၇
ඎԶᆠӻ୕)
Taiyuan
Renewable
Energy
Utility model 2022210571574 5 May 2022
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-14 –


--- page 810 ---
Software copyrights
As at the Latest Practicable Date, we had registered the following software copyrights in
the PRC which are material to our business:
No. Name of copyright Owner
Registration
number Publication date
1. Renewable energy pressure-
modulated water supply
system control software
V1.0* ( Ύ͛ঐ๕㛬ᏀԶ˥
ӻ୕છՓழ᜗V1.0)
Taiyuan Renewable
Energy
2018SR220859 25 September 2016
2. Renewable energy
intelligent frequency
conversion water
replenishment control
system V1.0*
(Ύ͛ঐ๕౽ঐᜊ᎖໾˥છ
Փӻ୕V1.0)
Taiyuan Renewable
Energy
2018SR220709 20 November 2016
3. Geothermal station
geothermal cascade
utilisation control system
V1.0* ( ήᆠ१ήᆠ૒ॴл
͜છՓӻ୕V1.0)
Shanxi Shuangliang
New Energy
2019SR0326970 12 February 2019
4. Unattended heat exchange
station control system
V .10* (ς౬ᆠ१છ
Փӻ୕V1.0)
Shanxi Shuangliang
New Energy
2019SR0323492 12 February 2019
5. Single-well circulating
geothermal heat supply
control system V1.0*
(ఊʜృᐑήᆠԶᆠછՓӻ
୕V1.0)
Shanxi Shuangliang
New Energy
2019SR0323245 12 February 2019
6. Geothermal well wellhead
monitoring system V1.0*
(ήᆠʜʜɹ္છӻ୕
V1.0)
Shanxi Shuangliang
New Energy
2019SR0323560 12 February 2019
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-15 –


--- page 811 ---
No. Name of copyright Owner
Registration
number Publication date
7. Temperature-modulated and
pressure-modulated spring
water control system
V1.0* (˥Զ
˥છՓӻ୕V1.0)
Shanxi Shuangliang
New Energy
2019SR0323495 12 February 2019
8. Heat station dual network
time and district partition
energy-saving control
system V1.0*
(ʱਜືঐ
છՓӻ୕V1.0)
Shanxi Shuangliang
New Energy
2018SR185908 1 December 2017
9. Shuangliang intelligent
heating digital platform
V1.0* ( ᕐԄ౽ঐԶᆠᅰο
̨̻V1.0)
Lanzhou
Shuangliang
2020SR1852011 14 October 2019
10. Shuangliang smart heating
production monitoring
software V1.0* ( ᕐԄ౽ᅆ
Զᆠ͛ପ္છழ΁V1.0)
Lanzhou
Shuangliang
2020SR1852012 2 June 2019
11. Shuangliang smart heating
simulation analysis
system V1.0* ( ᕐԄ౽ᅆ
ӻ୕V1.0)
Lanzhou
Shuangliang
2020SR1852014 23 August 2019
12. Shuangliang smart heating
pipe network GIS
software V1.0* ( ᕐԄ౽ᅆ
Զᆠ၍ၣGISழ΁V1.0)
Lanzhou
Shuangliang
2020SR1852015 22 August 2019
13. Shuangliang smart heating
APP V1.0* ( ᕐԄ౽ᅆԶᆠ
APP V1.0)
Lanzhou
Shuangliang
2020SR1852013 12 September 2019
14. Shuangliang intelligent
heating customer service
platform V1.0* ( ᕐԄ౽ঐ
̨̻V1.0)
Lanzhou
Shuangliang
2020SR1847398 22 October 2019
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-16 –


--- page 812 ---
No. Name of copyright Owner
Registration
number Publication date
15. Shuangliang smart heating
command and dispatch
software V1.0* ( ᕐԄ౽ᅆ
ழ΁V1.0)
Lanzhou
Shuangliang
2020SR1847397 25 March 2019
16. Shuangliang smart heating
client monitoring system
V1.0* ( ᕐԄ౽ᅆԶᆠ˒၌
္છӻ୕V1.0)
Lanzhou
Shuangliang
2020SR1847378 3 September 2019
17. Shuangliang smart heating
cloud platform software
V1.0* ( ᕐԄ౽ᅆԶᆠථ̻
̨ழ΁V1.0)
Lanzhou
Shuangliang
2020SR1847379 20 March 2019
18. Solar photothermal
continuous heating
control system without
auxiliary heat V1.0*
(˄ජঐΈᆠೌႾᆠஹᚃԶ
ᆠછՓӻ୕V1.0)
Shanxi
Demonstration
Zone Heat Supply
2020SR0325781 20 February 2019
19. Single-well heat exchange
and energy storage
control system for
medium and deep
geothermal heat V1.0*
(ʕଉᄴήᆠঐఊʜ౬ᆠᎷ
ঐછՓӻ୕V1.0)
Shanxi
Demonstration
Zone Heat Supply
2020SR0321737 12 June 2019
20. Geothermal station cold and
heat dual supply control
system V1.0* ( ήᆠ१и
ᆠᕐԶછՓӻ୕V1.0)
Shanxi
Demonstration
Zone Heat Supply
2020SR0321781 15 December 2019
21. Ground source heat pump
chain control energy-
saving system V1.0*
(ஹᕁછՓືঐӻ
୕V1.0)
Shanxi
Demonstration
Zone Heat Supply
2020SR0321733 23 April 2019
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-17 –


--- page 813 ---
No. Name of copyright Owner
Registration
number Publication date
22. Single-well heat exchange
unit control system for
mid-deep geothermal heat
V1.0* ( ʕଉᄴήᆠঐఊʜ
౬ᆠዚଡ଼છՓӻ୕V1.0)
Shanxi
Demonstration
Zone Heat Supply
2020SR0321773 30 October 2019
23. Mid-deep geothermal heat
energy-saving heating
control system V1.0* ( ʕ
ଉᄴήᆠঐືঐԶᆠછՓ
ӻ୕V1.0)
Shanxi
Demonstration
Zone Heat Supply
2020SR0321741 30 July 2019
24. Mid-deep geothermal
heating control system
V1.0* ( ʕଉᄴήᆠ໾ᆠછ
Փӻ୕V1.0)
Shanxi
Demonstration
Zone Heat Supply
2020SR0321777 5 November 2019
25. Geothermal station
automatic control system
V1.0* ( ήᆠ१ΌІਗછՓ
ӻ୕V1.0)
Shanxi
Demonstration
Zone Heat Supply
2022SR0530552 2 March 2022
26. Wisdom Hulunbuir
Shuangliang Wechat
mini-program V1.0*
(ʃ
೻ҏV1.0)
Hulunbuir
Shuangliang
2023SR0509204 8 June 2022
27. Hulunbuir Shuangliang
balance adjustment
APPV1.0* (ԎဧᕐԄ
̻ፅሜ༆APPV1.0)
Hulunbuir
Shuangliang
2023SR0472747 Not yet published
Domain names
As at the Latest Practicable Date, we had registered the following Internet domain names
in the PRC:
No. Domain name Registrant Date of registration Expiry date
1. hjkj.cn Our Company 12 February 2012 12 February 2024
2. hjkj.net Our Company 23 March 2021 23 March 2024
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-18 –


--- page 814 ---
No. Domain name Registrant Date of registration Expiry date
3. huijukeji.com Our Company 17 March 2021 17 March 2024
4. huijukeji.com.cn Our Company 4 April 2021 4 April 2024
5. wiseliving.com.cn Our Company 13 June 2022 13 June 2024
6. huijukeji.cn Shanxi Shuangliang
Renewable Energy
2 November 2015 2 November 2024
7. sxslcyjt.cn Shanxi Shuangliang
Renewable Energy
20 July 2012 20 July 2026
8. hlbesl.cn Hulunbuir Shuangliang 6 April 2022 6 April 2024
FURTHER INFORMATION ABOUT OUR DIRECTORS, SUPERVISORS, STAFF,
MANAGEMENT AND SUBSTANTIAL SHAREHOLDERS
Interests and short positions of our Directors, supervisors and the chief executive in the
shares, underlying shares or debentures of our Company and our associated corporations
Immediately following the completion of the Global Offering and without taking into
account any Shares which may be issued pursuant to the exercise of the Over-allotment Option,
the interests or short positions of our Directors and the chief executive of our Company in the
shares, underlying shares and debentures of our Company or its 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
and short positions which they were 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 into 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 as set out in Appendix 10 to the Listing Rules, to
be notified to our Company and the Stock Exchange, will be as follows:
Name of
Director/supervisor/
chief executive
Long/short
position Nature of interest
Number of
Shares
Approximate
percentage of
shareholding in
our Company
Approximate
percentage of
shareholding in
the Domestic
Shares of
our Company
Mr. Geng Ming
(অჼ΋͛) Long Beneficial 2,000,000 0.66% 0.88%
Mr. Li Baoshan
(ҽᘒʆ΋͛) Long Beneficial 6,000,000 1.99% 2.66%
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-19 –


--- page 815 ---
Further, our non-executive Directors, namely Mr. Miao Wenbin ( ᐷ˖੸΋͛) and Mr. Ma
Fulin (΋͛), and our supervisor, namely Mr. Ma Peilin (΋͛), together with
other five individuals, are the respective legal and beneficial owners of the entire issued share
capital of Shuangliang Technology and Jiangsu Lichuang, which in turn jointly hold
201,000,000 domestic Shares, representing approximately 66.66% of the issued share capital
of our Company upon the completion of the Global Offering (taking no account of any shares
which may be allocated and issued pursuant to the exercise of Over-allotment Option) within
the meaning of Part XV of the SFO.
Save as disclosed herein and in “History, development and corporate structure” and
“Directors, supervisors and senior management” in this prospectus and Note 9 to the
accountant’s report as set out in Appendix I to this prospectus, none of our Directors,
supervisors or their associates was engaged in any dealings with our Group during the two
years preceding the date of this prospectus. Up to the Latest Practicable Date, none of our
Directors or supervisors or their respective spouses and children under 18 years of age had
been granted by our Company or had exercised any rights to subscribe for shares or debentures
of our Company or any of its associated corporations.
Disclosure of interests of substantial Shareholders
For information on the persons who will, immediately following the completion of the
Global Offering, have interests or short positions in our Shares or underlying Shares which
would be required to be disclosed to us and the Stock Exchange under the provisions of
Divisions 2 and 3 of Part XV of the SFO, see “Substantial Shareholders” in this prospectus.
Interests of substantial shareholders in non wholly-owned subsidiaries of our Company
Our subsidiary
Registered
capital
Party with 10% or
more equity interest
(other than members of
the Group)
Approximate
percentage of
shareholding
(%)
Gansu Shuangliang RMB10 million  Lanzhou Haohai
Trading Company
Limited*
(ʮ
̡)
 20%
Hulunbuir Shuangliang RMB10 million  Hulunbuir Dongsheng
Energy Investment
Company Limited*
(ʺঐ๕
ʮ̡)
 15%
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-20 –


--- page 816 ---
Our subsidiary
Registered
capital
Party with 10% or
more equity interest
(other than members of
the Group)
Approximate
percentage of
shareholding
(%)
Shanxi Shuangliang
Renewable Energy
RMB30 million  Shanxi Zhenye New
Energy Company
Limited*
(ࠢ
ʮ̡)
 25.22%
Inner Mongolia
Wise Living
RMB10 million  Inner Mongolia
Environmental
Governance
Construction Company
Limited* ( ʫႆ̚ᐑྤ
ʮ̡)
 22.11%
Lvliang Renewable
Energy
RMB5 million  Mr. Xue Ming ( ᑡთ΋
͛)
 10%
Datong Renewable
Energy
RMB5 million  Mr. Zhang Quan
(ੵᛆ΋͛)
 15%
M r . L i W e n ( ҽ˖΋͛)  10%
Tech-Thermal
(Zhengzhou)
RMB50 million  Zhengzhou Qindu
Thermal Power
Limited* ( ቍψ⑗ேᆠ
ʮ̡)
 20%
Service contracts
Pursuant to Rules 19A.54 and 19A.55 of the Listing Rules, we have entered into a
contract with each of our Directors and supervisors in respect of, among other things,
compliance of relevant laws and regulations, observation of the Articles of Association and
provisions on arbitration.
Save as disclosed above, we have not entered, and do not propose to enter, into any
service contracts with any of our Directors or supervisors in their respective capacities as
Directors/supervisors (other than contracts expiring or determinable by the employer within
one year without the payment of compensation (other than statutory compensation)).
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-21 –


--- page 817 ---
Directors’ and supervisors’ remuneration
Save as disclosed in “Directors, supervisors and senior management – Remuneration
policy and emolument of our Directors, supervisors and senior management” in this prospectus
and Note 9 to the accountant’s report as set out in Appendix I to this prospectus, no Director
or supervisor received other remuneration or benefits in kind from our Company in respect of
each of the three financial years ended 31 December 2022.
Disclaimers
(a) Save as disclosed in “History, development and corporate structure” in this prospectus,
none of our Directors or supervisors and any of the parties listed in the paragraph headed
“Qualification of experts” of this Appendix is interested in our promotion, or in any assets
which, within the two years immediately preceding the date of this prospectus, have been
acquired or disposed of by or leased to us, or are proposed to be acquired or disposed of
by or leased to us;
(b) none of our Directors or supervisors is materially interested in any contract or
arrangement subsisting at the date of this prospectus which is significant in relation to our
business;
(c) save as disclosed in “Directors, supervisors and senior management” and “Substantial
Shareholders” in this prospectus, none of our Directors or supervisors is a director or
employee that has an interest or short position in the shares and underlying shares of our
Company which would fall to be disclosed to us under the provisions of Divisions 2 and
3 of Part XV of the SFO; and
(d) none of the equity and debt securities (if any) of our Company is listed or dealt with on
any other stock exchange or any other authorised trading facility such as the Securities
Trading Automated Quotation System (Іਗజᄆӻ୕) in the PRC, nor is any
listing or permission to deal being or proposed to be sought.
OTHER INFORMATION
Deed of Indemnity
Our Controlling Shareholders have entered into the Deed of Indemnity with and in favour
of our Company (for itself and as trustee for each of its subsidiaries as stated therein) (being
the contract referred to in paragraph (a) of “Further information about our business – Summary
of material contracts” in this Appendix) to provide indemnities on a joint and several basis in
respect of, among other matters, taxation or taxation claims resulting from income, profits or
gains earned, accrued or received as well as any property claim or estate duty to which any
member of our Group may be subject on or before the Listing Date and any expenses, costs,
fines, penalties or other liabilities which any member of our Group may suffer.
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-22 –


--- page 818 ---
In addition, our Controlling Shareholders have also given indemnities to our Company
against all fines, penalties, claims costs, charges, liabilities, damages, expenses and losses (to
the extent that provision, reserve or allowance has not been made for such fines, penalties,
claims, costs, charges, liabilities, damages, expenses or losses in the accounts of our Group)
as may be suffered by any member of our Group as a result of any compliance incidents during
the Track Record Period as required by applicable laws and regulations in the PRC.
Estate duty
Our Directors have been advised that no material liability for estate duty is likely to fall
on our Company or any of our subsidiaries.
Litigation
During the Track Record Period and up to the Latest Practicable Date, save as disclosed
in “Business – Litigation” in this prospectus, our Company was not involved in any litigation,
arbitration, administrative proceedings of material importance which could have a material
adverse effect on our financial condition or results of operations, and, so far as we are aware,
no litigation, arbitration, administrative proceedings of material importance is pending or
threatened against us.
Sole Sponsor
The Sole Sponsor has made an application on our behalf to the Listing Committee for the
listing of, and permission to deal in, our H Shares. All necessary arrangements have been made
to enable the securities to be admitted into CCASS.
The Sole Sponsor is independent from our Company under Rule 3A.07 of the Listing
Rules.
A fee of HK$9,060,000 is payable by our Company to the Sole Sponsor to act as a sponsor
to our Company in connection with the Listing.
Preliminary expenses
We have not incurred any material preliminary expense.
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-23 –


--- page 819 ---
Qualification of experts
The qualifications of the experts who have given opinions in this prospectus are as
follows:
Name Qualification
Guotai Junan Capital Limited Licensed to carry out type 6 (advising on corporate
finance) regulated activity under
the SFO
PricewaterhouseCoopers Certified Public Accountants under the
Professional Accountants 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)
Llinks Law Offices Legal advisers as to PRC law
Frost & Sullivan (Beijing) Inc.,
Shanghai Branch Co.
Industry consultant
Vincorn Consulting and Appraisal
Limited
Property valuer
Consents of experts
Each of the experts referred to “Qualification of experts” in this Appendix has given and
has not withdrawn their respective written consents to the issue of this prospectus with the
inclusion of their reports and/or opinions and/or the references to their names included herein
in the form and context in which they are respectively included.
Interests of experts in our Company
None of the experts referred to “Qualification of experts” in this Appendix has any equity
interests in our Company or any of our subsidiaries or the right (whether legally enforceable
or not) to subscribe for or to nominate persons to subscribe for securities in our Company or
any of our subsidiaries.
Compliance adviser
Our Company has appointed Guotai Junan Capital Limited to act as our compliance
adviser upon the Listing in compliance with Rule 3A.19 of the Listing Rules.
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-24 –


--- page 820 ---
Taxation of holders of H Shares
The sale, purchase and transfer of H Shares are subject to Hong Kong stamp duty. The
current rate charged on each of the seller and purchaser is HK$1.3 for every HK$1,000 (or part
thereof) of the consideration or, if higher, the fair value of the H Shares being sold or
transferred. For more details, see “Taxation and foreign exchange – Hong Kong taxation” as
set out in Appendix III to this prospectus.
No material adverse change
Save as disclosed in “Summary – Recent developments and no material adverse change”
and “Financial information – No material adverse change and recent developments” in this
prospectus, our Directors have confirmed, after performing all the due diligence work which
our Directors consider appropriate, that, as at the date of this prospectus, there has been no
other material adverse change in our financial position or prospects since 31 December 2022
and there has been no other event since 31 December 2022 which would have material adverse
effect on the information presented in the accountant’s report as set out in Appendix I to this
prospectus.
Binding effect
This prospectus shall have the effect, if any application is made pursuant hereto, 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.
Miscellaneous
(a) Save as disclosed in “Share capital” and “Structure of the Global Offering” in this
prospectus,
(i) within the two years preceding the date of this prospectus: (i) we have not issued nor
agreed to issue any share or loan capital fully or partly paid either for cash or for
a consideration other than cash; and (ii) no commissions, discounts, brokerage fee
or other special terms have been granted in connection with the issue or sale of any
capital of our Group;
(ii) no share or loan capital of our Group is under option or is agreed conditionally or
unconditionally to be put under option;
(iii) our Company has not issued nor agreed to issue any founder shares, management
shares or deferred shares;
(iv) there are no arrangements under which future dividends are waived or agreed to be
waived;
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-25 –


--- page 821 ---
(v) there are no procedures for the exercise of any right of pre-emption or transferability
of subscription rights; and
(vi) our Company has no outstanding convertible debt securities or debentures;
(b) save as disclosed in “Financial information – Contingent liabilities” in this prospectus,
there are no contracts for hire or hire purchase of plant to or by us for a period of over
one year which are substantial in relation to our business;
(c) our Directors confirm that there have been no interruptions in our business which may
have or have had a significant effect on our financial position in the 12 months preceding
the date of this prospectus;
(d) there are no restrictions affecting the remittance of profits or repatriation of capital by us
into Hong Kong from outside Hong Kong;
(e) no part of the equity or debt securities of our Company, if any, is currently listed on or
traded on any stock exchange or trading system, and no such listing or permission to list
on any stock exchange other than the Stock Exchange is currently being or agreed to be
sought; and
(f) our Company currently does not intend to apply for the status of a Sino-foreign
investment joint stock limited liability company and does not expect to be subject to the
Law of the PRC on Sino-foreign Equity Joint Ventures.
Our Company has adopted a code of conduct regarding Directors’ and supervisors’
securities transactions on terms as required under the Model Code for Securities Transactions
by Directors of Listed Issuers as set out in Appendix 10 to the Hong Kong Listing Rules with
effect from the Listing Date.
Bilingual prospectus
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).
Promoters
The promoters of our Company are all of the then 12 shareholders of our Company before
our conversion into a joint stock company, the names of which are set out in the Articles of
Association. Save as disclosed in “History, development and corporate structure” in this
prospectus, 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 the promoters in connection with the Global Offering and the related
transactions described in this prospectus.
APPENDIX VII STATUTORY AND GENERAL INFORMATION
– VII-26 –


--- page 822 ---
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:
(a) a copy of the GREEN Application Form;
(b) the written consents referred to in “Other information – Consents of experts” as set
out in Appendix VII to this prospectus; and
(c) a copy of each of the material contracts referred to in “Further information about our
business – Summary of material contracts” as set out in Appendix VII to this
prospectus.
DOCUMENTS ON DISPLAY
Copies of the following documents will be published on the website of the Stock
Exchange at www.hkexnews.hk and our Company’s website at www.hjkj.cn up to and
including the date which is 14 days from the date of this prospectus:
(a) the Articles of Association;
(b) the accountant’s report from PricewaterhouseCoopers in relation to the historical
financial information of our Company, the text of which is set out in Appendix I to
this prospectus;
(c) the audited consolidated financial statements of our Group for the three years ended
31 December 2022;
(d) the report from PricewaterhouseCoopers in relation to unaudited pro forma financial
information, the text of which is set out in Appendix II to this prospectus;
(e) the material contracts referred to in “Further information about our business –
Summary of material contracts” as set out in Appendix VII to this prospectus;
(f) the service contracts with Directors and supervisors referred to in “Further
information about our Directors, supervisors, staff, management and substantial
Shareholders – Service contracts” as set out in Appendix VII to this prospectus;
(g) the written consents referred to in “Other information – Consents of experts” as set
out in Appendix VII to this prospectus;
(h) the legal opinions prepared by Llinks Law Offices, our legal advisers as to PRC law,
in respect of certain aspects of our Group;
APPENDIX VIII DOCUMENTS DELIVERED TO THE REGISTRAR OF
COMPANIES AND A V AILABLE ON DISPLAY
– VIII-1 –


--- page 823 ---
(i) the PRC Company Law, the Securities Law of the PRC (جthe
Trial Administrative Measures of Overseas Securities Offering and Listing by
Domestic Companies together with their unofficial English translations;
(j) the industry report issued by Frost & Sullivan, the summary of which is set forth in
“Industry overview” in this prospectus; and
(k) the letter, summary of values and valuation certificates relating to our property
interests prepared by Vincorn Consulting and Appraisal Limited, the texts of which
are set out in Appendix IV to this prospectus.
APPENDIX VIII DOCUMENTS DELIVERED TO THE REGISTRAR OF
COMPANIES AND A V AILABLE ON DISPLAY
– VIII-2 –


--- page 824 ---
慧居科技股份有限公司
Wise Living T echnology Co., Ltd
