tsun yip holdings prospectus
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If you are in any doubt about any contents of this prospectus, you should obtain independent professionaladvice.
Tsun Yip Holdings Limited進 業 控 股 有 限 公 司
(Incorporated in the Cayman Islands with limited liability)
LISTING ON THE GROWTH ENTERPRISE MARKET OFTHE STOCK EXCHANGE OF HONG KONG LIMITED
BY WAY OF PLACING OF SHARES
Number of Placing Shares : 24,800,000 SharesPlacing Price : HK$1.28 per Placing Share
(payable in full on applicationplus brokerage of 1%,Stock Exchange trading fee of 0.005%and SFC transaction levy of 0.004%)
Nominal value : HK$0.01 per ShareStock code : 8356
Sponsor
Sole Bookrunner and Lead Manager
Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong SecuritiesClearing Company Limited take no responsibility for the contents of this prospectus, make no representation as toits accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from orin 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 the section headed “Documentsdelivered to the Registrar of Companies and available for inspection” in Appendix VI to this prospectus, has beenregistered by the Registrar of Companies in Hong Kong as required by section 342C of the Companies Ordinance.The Securities and Futures Commission and the Registrar of Companies in Hong Kong take no responsibility as tothe contents of this prospectus or any other documents referred to above.
Prior to making an investment decision, prospective investors should carefully consider all the information set outin this prospectus, including the risk factors set out in the section headed “Risk factors” in this prospectus.
Prospective investors of the Placing Shares should note that the Sponsor and the Lead Manager (for itself and onbehalf of the Underwriters), acting jointly, are entitled to terminate the obligations of the Underwriters under theUnderwriting Agreement, by notice in writing to the Company given by the Sponsor and the Lead Manager (for itselfand on behalf of the Underwriters), upon the occurrence of any of the events set forth under the sub-paragraph headed“Grounds for termination” under the paragraph headed “Underwriting arrangements” in the section headed“Underwriting” in this prospectus at any time prior to 8:00 a.m. (Hong Kong time) on the Listing Date.
IMPORTANT
App1A(1)
App1A(15)(3)(c)ThirdSchedule 9
App1A(15)(3)(c)
R14.04
S342C
20 August 2010
GEM has been positioned as a market designed to accommodate companies to which a higher
investment risk may be attached than other companies listed on the Stock Exchange. Prospective
investors should be aware of the potential risks of investing in such companies and should make the
decision to invest only after due and careful consideration. The greater risk profile and other
characteristics of GEM mean that it is a market more suited to professional and other sophisticated
investors.
Given the emerging nature of companies listed on GEM, there is a risk that securities traded on
GEM may be more susceptible to high market volatility than securities traded on the Main Board of
the Stock Exchange and no assurance is given that there will be a liquid market in the securities traded
on GEM.
CHARACTERISTICS OF GEM
— i —
R14.05
The Company will make an announcement on the Exchange Website if there is any change to the
following expected timetable.
2010
(Note 1)
Commencement of Placing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Friday, 20 August
Announcement of the level of indication of interest in the Placing
to be published on the Exchange Website on or about . . . . . . . . . . . . . . . . . . . .Friday, 27 August
Allotment of Placing Shares to placees on or about . . . . . . . . . . . . . . . . . . . . . . .Friday, 27 August
Deposit of certificates for the Placing Shares into CCASS (Note 2) . . . . . . . . . . . .Friday, 27 August
Dealings in the Shares on GEM to commence on (Note 3) . . . . . . . . . . . . . . . . . .Monday, 30 August
Notes:
1. In this prospectus, all times and dates refer to Hong Kong local times and dates.
2. The Share certificates are expected to be issued in the name of HKSCC Nominees Limited or in the name of the placee(s)
or their agent(s) as designated by the Underwriters. Share certificates for the Placing Shares to be distributed via CCASS
will be deposited into CCASS on or about 27 August 2010 for credit to the respective CCASS participant’s stock accounts
designated by the Underwriters, the placees or their agents, as the case may be. The Company will not issue any
temporary documents of title.
3. All Share certificates will only become valid certificates of title when the Placing has become unconditional in all
respects and the Underwriting Agreement has not been terminated in accordance with its term prior to 8:00 a.m. on the
Listing Date.
Details of the structure of the Placing, including the conditions thereto, are set out in the section
headed “Structure and conditions of the Placing” in this prospectus.
EXPECTED TIMETABLE
— ii —
App1A(15)(3)(k)
ThirdSchedule 8
App1A(22)
App1A(15)(3)(g)
You should rely only on the information contained in this prospectus to make your investment
decision.
The Company, the Sponsor, the Lead Manager and the Underwriters 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 the Company, the Sponsor, the Lead Manager, the Underwriters, any
of their respective directors or affiliates of any of them or any other person or parties involved in
the Placing.
The contents on the website at http://www.tsunyip.hk, which is the website of the Company, do
not form part of this prospectus.
Page
CHARACTERISTICS OF GEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
EXPECTED TIMETABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING . . . . . . . . . . . . . . . . 34
DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
PARTIES INVOLVED IN THE PLACING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
CORPORATE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
INDUSTRY OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS . . . . . . 54
ENVIRONMENTAL PROTECTION LAWS AND REGULATIONS. . . . . . . . . . . . . . . . . . . . 68
HISTORY AND DEVELOPMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
CONTENTS
— iii —
Page
BUSINESS
Business overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Competitive strengths . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Licences/registration held by the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Awards and accreditation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Contracts completed and contracts in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Inventory control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Quality assurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Safety policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Property interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Relationship with MHCC/MHWE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Litigation and claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Environmental matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Intellectual property rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
CONNECTED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
FUTURE PLANS AND USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
DIRECTORS, SENIOR MANAGEMENT, BOARD COMMITTEES AND STAFF . . . . . . . 127
CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS . . . . . . . . . 135
SHARE CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
STRUCTURE AND CONDITIONS OF THE PLACING . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
CONTENTS
— iv —
Page
APPENDICES
I Accountants’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
II Unaudited pro forma financial information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
III Property valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
IV Summary of the constitution of the Company
and Cayman Islands company law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-1
V Statutory and general information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1
VI Documents delivered to the Registrar of Companies
and available for inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1
CONTENTS
— v —
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 whole document before you decide to invest in the Placing Shares.
There are risks associated with any investment. Some of the particular risks in investing in the
Placing Shares are set out in the section headed “Risk factors” of this prospectus. You should read
that section carefully before you decide to invest in the Placing Shares.
BUSINESS OVERVIEW
The Group is principally engaged in the provision of waterworks engineering services, road
works and drainage services and site formation works for the public sector in Hong Kong. Waterworks,
roads and drainage works and site formation works fall within a broader engineering discipline known
as civil engineering.
During the Track Record Period, the Group generated a substantial part of its revenue from
carrying out waterworks engineering services and road works and drainage services in the capacity of
a subcontractor. For each of the two years ended 31 March 2009 and 2010, revenue generated from
contracts in which the Group acted as a subcontractor represented approximately 73.9% and
approximately 88.5% of the Group’s total revenue respectively. Revenue generated from the Group
providing services in the capacity of a main contractor accounted for a lesser part of the Group’s total
revenue, representing approximately 26.1% and approximately 11.5% of the Group’s total revenue
during the Track Record Period.
The Group as a subcontractor
The Group, as a subcontractor, has provided waterworks engineering services and road works and
drainage services to certain main contractors during the Track Record Period. In the capacity of a
subcontractor, the Group had completed six contracts during the Track Record Period and had three
contracts in progress as at the Latest Practicable Date.
The main contractors to which the Group provided services during the Track Record Period
included MHCC/MHWE (who has been the Group’s largest customer since the year ended 31 March
2008), Kwan On Construction Company Limited, Penta-Ocean-Peako Joint Venture, Victory
Trenchless Engineering Company Limited and Chit Cheung Construction Company Limited (formerly
known as Ching Chit Cheung Construction Company Limited). MHCC/MHWE was the largest
customer of the Group during the Track Record Period. For the year ended 31 March 2009, revenue
derived from MHWE amounted to HK$2.5 million, representing approximately 2.9% of the Group’s
total revenue. No revenue was derived from MHWE for the year ended 31 March 2010. For each of
the years ended 31 March 2009 and 2010, revenue derived from MHCC amounted to approximately
HK$57.8 million and approximately HK$131.4 million respectively, representing approximately
65.9% and approximately 88.3% of the Group’s total revenue in the respective year.
Details of the Group’s completed contracts and contracts in progress are set out in the paragraph
headed “Contracts completed and contracts in progress” under the section headed “Business” in this
prospectus.
SUMMARY
— 1 —
ThirdSchedule 3
The Group as a main contractor
The Group, as a main contractor, has provided waterworks engineering services to WSD during
the Track Record Period. In the capacity of a main contractor, the Group had completed two
waterworks contracts during the Track Record Period and had two waterworks contracts in progress
as at the Latest Practicable Date.
Services provided by the Group
Waterworks engineering services. These services include construction and maintenance of water
mains, service reservoirs, impounding reservoirs, pumping stations, water tanks, treatment works,
watercourses for distribution systems and other related construction works. These services may also
involve related civil construction works which include excavation, stabilisation, foundations
strengthening, reinstatement of carriageways, footways and expressways. For projects that are carried
out on existing traffic roads, the contractor may also be required to make arrangements on traffic
diversion and control.
Road works and drainage services. These services include construction of interchange,
carriageway, walkway, footpath, access road, covered footbridge, link bridge, drainage channel and
the associated lighting, drainage, landscaping, utilities diversion and electrical and mechanical works.
Site formation works. These services generally involve demolition of existing buildings and
structures, excavation to the design formation level and reduction and stabilisation of existing slopes.
LICENCES AND REGISTRATION REQUIREMENTS
The Group as a subcontractor
Members of the Group are required to be registered under the Primary Register of the
Registration Scheme introduced by the Provisional Construction Industry Co-ordination Board
(臨時建造業統籌委員會), whose work was taken over by the Construction Industry Council
(建造業議會) in February 2007, in order to act as a subcontractor for capital works contracts and
maintenance contracts of the Government with tenders to be invited on or after 15 August 2004.
TYW and TY Civil were admitted to the List of Registered Subcontractors for participating in
civil engineering works, road works and drainage services and waterworks under the Registration
Scheme in October 2006 and November 2008 respectively.
Save for the aforesaid registration requirement, TYW and TY Civil, undertaking Government
contracts as a subcontractor, are not required to comply with the licencing requirements set forth in
the ETWB Handbook and not subject to the restrictions on contract value and number of contracts
applicable to main contractors as described below.
SUMMARY
— 2 —
The Group as a main contractor
Members of the Group are required to comply with the licencing requirements set forth in the
ETWB Handbook in order to tender for Government projects in the capacity of a main contractor.
The following table summarises the details of the licences held by TYW as an approved
contractor as at the Latest Practicable Date:
Governmentdepartments/organisation
Month andyear of firstrelevantregistrationwith theGovernmentdepartments/organisation
Member ofthe Groupwhich heldthe licence/approval
Level/category ofregistration held as at theLatest Practicable Date
Status as atthe LatestPracticableDate
Current value ofproject whichthe Group iseligible toundertakeunder therelevant licence
WBDB May 2009 TYW Approved Contractors for PublicWorks — Waterworks Category(Group B)
Confirmed Contract value upto HK$75 million
WBDB March 2009 TYW Approved Contractors for PublicWorks — Roads and DrainageCategory (Group B)
Confirmed Contract value upto HK$75 million
WBDB March 2009 TYW Approved Contractors for PublicWorks — Site FormationCategory (Group B)
Probationary Contract value upto HK$75 million
Waterworks. Being a licenced contractor with confirmed status under Group B of the
“Waterworks” category since May 2009, TYW is eligible for the award of any number of Government
contracts, save for maintenance contracts which are grouped by the Government as subject to
restrictions, under this category provided that the contract value of each individual contract does not
exceed HK$75 million and TYW fulfills the minimum employed capital and working capital
requirements. According to the technical circular of WBDB, any approved contractor, acting as a main
contractor, may not be awarded with more than two such waterworks maintenance contracts at any
time. Save as disclosed above, there is no other limitation or restriction on the number of contracts
which TYW is eligible for award under this category.
Roads and drainage. Being a licenced contractor with confirmed status under Group B of the
“Roads and Drainage” category since March 2009, TYW is eligible for the award of any number of
Government contracts, save for maintenance contracts which are grouped by the Government as
subject to restrictions, under this category provided that the contract value of each individual contract
does not exceed HK$75 million and TYW fulfills the minimum employed capital and working capital
requirements. According to the technical circular of WBDB, any approved contractor under this
category, acting as a main contractor, may be subject to similar restriction or limitation on the number
of maintenance contracts as those applicable to an approved contractor under the “Waterworks”
category.
SUMMARY
— 3 —
Site formation. Being a licenced contractor with probationary status under Group B of the “SiteFormation” category since March 2009, TYW is eligible to tender for such number of Governmentcontracts under this category provided that the total value of Group B works does not exceed HK$75million and TYW fulfills the minimum employed capital and working capital requirements. Accordingto the technical circular of WBDB, any approved contractor under this category, acting as a maincontractor, may be subject to similar restriction or limitation on the number of maintenance contractsas those applicable to an approved contractor under the “Waterworks” category.
During the Track Record Period, the Group primarily focused on provision of waterworksengineering services. The Group intends to continue its focus on waterworks engineering services inthe future. Nevertheless, the Directors do not consider that the aforesaid limitation on the number ofwaterworks maintenance contracts which may be awarded to a contractor has any significant adverseimpact on the Group. On one hand, the Group, if undertakes waterworks maintenance contracts in thecapacity of a subcontractor, is not subject to the aforesaid limitation. On the other hand, the Groupmay choose to undertake other waterworks contracts instead of waterworks maintenance contracts inthe event that the limitation on the number of waterworks maintenance contract has been reached bythe Group.
In order to be eligible to tender for Government contracts in the capacity of a main contractorunder these three categories with individual contract value over HK$75 million, TYW will be requiredto satisfy the financial criteria, technical and management personnel criteria for application forpromotion to Group C in the above categories. Details of the requirements are set out in the sectionheaded “Licencing and other requirements for Government projects” in this prospectus.
AWARDS AND ACCREDITATION
In recognition of the Group’s outstanding performance and quality of works, the Group has
received the following awards or certificate from different departments of the Government and a
professional accreditation organisation:
Year of grant Description Organisation
2010* Certificate for compliance with the requirements of
ISO9001:2008 quality management system standard
for construction of civil engineering works (site
formation, waterworks, roads and drainage)
Accredited
Certification
International Limited
2009 Bronze prize in the renovation and maintenance
works — Subcontractors in WSD Contract No.
21/WSD/06 under the Construction Industry Safety
Award Scheme
Labour Department of
the Government
2007 Merit award in recognition of the performance of
TYW’s construction site in WSD Contract No.
2/WSD/05 during the period from 1 January 2007
to 31 December 2007 under the Considerate
Contractors Site Award Scheme
Development Bureau of
the Government
* TYW was first accredited with ISO compliance certification in 2001. Further ISO accreditations were obtained by the
Group in 2003, 2006 and 2009.
SUMMARY
— 4 —
In addition, the Group has been receiving letters from WBDB in respect of its performance
ratings which are derived from the performance scores given in all the reports written on its
performance in Government works contracts in the preceding 12 reporting periods. Based on the
aforesaid letters from WBDB, the Directors and the Sponsor are of the view that the Group has
achieved outstanding performance ratings during the Track Record Period.
COMPETITIVE STRENGTHS
With an operating history of over 20 years, the Directors believe that the Group, with its
experienced management team and extensive experience in implementation of waterworks projects,
has established a reputation in the waterworks engineering industry in Hong Kong. In particular, the
Directors believe that the Group possesses the following competitive strengths:
• Established operating history and track record
• Well-positioning to capture the emerging business opportunities
• Consistently high quality of services
• Well-established relationships with main contractors
• Good relationships with subcontractors
• Experienced management team
RISK FACTORS
Risks relating to the business of the Group
• The Group’s revenue during the Track Record Period was generated substantially from
carrying out waterworks engineering contracts and roads and drainage services contracts in
the capacity of a subcontractor
• The Group relies heavily on MHCC/MHWE, the Group’s largest customer during the Track
Record Period
• The Group determines the tender price based on the estimated time and costs involved in
a project which may deviate from the actual time and costs incurred
• The Group acted as a subcontractor in most of the contracts undertaken during the Track
Record Period. Revenue generated from contracts in which the Group acted as
subcontractor represented approximately 73.9% and approximately 88.5% of the Group’s
total revenue respectively. The Group may continue to act in such capacity in the future.
If the Group is unable to recover subcontracting fees from the relevant main contractor, the
operating results of the Group could be adversely affected
SUMMARY
— 5 —
• Failure to meet schedule requirements of contracts may result in liquidated damages
imposed on the Group
• The Group is relying on certain principal subcontractors to implement the contracts
• The Group’s success significantly depends on the key management and its ability to attract
and retain additional technical and management staff
• The Group’s business is labour-intensive
• The Group’s cash flows may fluctuate
• The Group’s business is project-based. Fee collection and profit margin depend on the terms
of individual work contract and may not be regular
• The Group’s operations are subject to construction risk
Risks relating to the industry in which the Group operates
• The Group’s business is subject to obtaining a number of licences and approvals
• The Group’s operations are restricted to Hong Kong
• The Group’s operations are subject to due compliance with a number of environmental
protection laws, regulations and requirements
• The Group’s business could be materially and adversely affected by the Government’s level
of spending on infrastructure and civil engineering projects
• The Group’s business could be adversely affected by the Government’s allocation of its
2010-2011 budget on waterworks
• The Group’s business could be affected by adverse weather conditions
• Work contracts with WSD are subject to termination for convenience by WSD
Risks relating to the Placing
• The Sponsor and the Underwriters are entitled to terminate the Underwriting Agreement
• There has been no prior public market for the Shares and the liquidity, market price and
trading volume of the Shares may be volatile
• Investors in the Placing may experience dilution if the Company issues additional Shares
in the future
SUMMARY
— 6 —
• No guarantee that dividends will be declared in the future
• Granting options under the Share Option Scheme may affect the Group’s results of
operations and dilute Shareholders’ percentage of ownership
Risks relating to this prospectus
• Certain statistics and facts in this prospectus are extracted from various official
Government sources which have not been independently verified
• Forward-looking statements contained in this prospectus may not be accurate
BUSINESS OBJECTIVE AND STRATEGIES
Being a licenced contractor on the Contractor List under the categories of “Waterworks”, “Roads
and Drainage” and “Site Formation”, the Group is eligible, in the capacity of a main contractor, to
tender for projects of these three categories in the public sector in Hong Kong. Over years of
participation in waterworks engineering services, the Group has built up its reputation in the
waterworks engineering industry and maintained good relationship with other main contractors. The
Group aims at leveraging its competitive edge in the waterworks engineering industry to become one
of the leading waterworks engineering services providers to the public sector in Hong Kong which
commits to strive for excellence in service quality and timeliness. With established operating history
and track record in the waterworks engineering industry and an enhanced reputation through the
Listing, the Group intends to focus on the provision of waterworks engineering services and undertake
more waterworks contracts in the capacity of a main contractor in the near future.
At present, the Group has not yet fulfilled the requirements for applying for promotion to Group
C under the category of “Waterworks” on probationary status. The Company does not intend to apply
for promotion to Group C under the respective categories of “Waterworks”, “Roads and Drainage” and
“Site Formation” within 12 months from the Listing Date.
The Group will continue to foster its reputation and increase its market share in the waterworks
engineering industry by pursuing the following strategies:
Expansion of business scale
The Group’s business requires significant capital. At the early stage of a project, the Group will
be required to purchase construction materials, acquire equipment and machinery and recruit project
management and technical personnel required for undertaking the project. In addition, the Group is
required to comply with the minimum employed capital and working capital requirements for retention
on the Contractor List (details of which are set out in the section headed “Licencing and other
requirements for Government projects” in this prospectus) to carry out Government contracts. The
then levels of employed capital and working capital of the Group pose limitations on the number and
size of Government contracts undertaken by the Group as a main contractor. As such, the Group’s
expansion has been historically constrained by the availability of financial resources and manpower
of the Group. With the proceeds from the Placing, the Group will have additional funds to inject into
SUMMARY
— 7 —
TYW for enhancing TYW’s employed capital and working capital and fulfill the hardware and staffing
requirements for undertaking additional contract works. Going forward, the Directors intend to
participate more actively in the tendering process for Government’s contracts with a view to obtaining
more waterworks contracts in the capacity of a main contractor from the Government, in which the
Group has already established a proven track record, to scale up the Group’s business.
Further enhancement in work quality
The Directors believe that the Group’s success depends considerably on its ability to deliver
works of high quality in a timely manner. The Group has received outstanding performance ratings for
the quality of its works from WBDB during the Track Record Period. The Directors consider that
maintaining work quality is of utmost importance to the Group’s ongoing development in the
waterworks engineering sector and the Group’s tendering of Government contracts in the future. In
order to uphold the work quality of the Group, the Directors plan to recruit additional personnel for
quality assurance of the Group.
Strengthening of safety team
The Directors consider that enhancing the Group’s project safety and upholding the Group’s
work quality are equally important. A sound safety system lowers the risk of accidents and improves
work efficiency. It is the Group’s responsibility to provide a safe and healthy working environment
for the benefit of its staff, its subcontractors and the general public. In order to enhance the Group’s
safety system, the Directors plan to recruit additional personnel to strengthen the safety team of the
Group.
FUTURE PROSPECTS
The Directors believe the Group’s proven track record in delivering works of high quality in a
timely manner has placed the Group in an advantageous position to seize the growth opportunities in
the civil engineering sector, particularly in waterworks, roads and drainage and site formation areas,
in Hong Kong. Not only will the replacement and rehabilitation program launched by WSD (details
of which are set out in the section headed “Industry overview” in this prospectus) continue to open
up numerous waterworks opportunities to the Group, the infrastructure and development projects
being currently implemented or to be implemented by the Government, which the Directors believe
would inevitably involve waterworks, roads and drainage works or site formation works at some stage,
will also create tremendous business opportunities to the Group in the coming years.
REASONS FOR THE LISTING
The Directors believe that the listing of the Shares on GEM will enhance the Group’s profile. The
Placing will also strengthen the Group’s capital base and provide the Group with additional working
capital to implement the future plans set out in the paragraphs headed “Business objective and
strategies” and “Implementation plan” in the section headed “Future plans and use of proceeds” in this
prospectus respectively.
SUMMARY
— 8 —
IMPLEMENTATION PLAN
The Directors have drawn up an implementation plan for the period up to 31 March 2013 with
a view to achieve the business objective along with the strategies as described above. Details of the
implementation plan are set out in the paragraph headed “Implementation plan” in the section headed
“Future plans and use of proceeds” in this prospectus.
USE OF PROCEEDS
The net proceeds from the Placing, after deducting the underwriting fees and estimated expenses
payable by the Company in connection thereto, are estimated to be approximately HK$21.0 million
based on the Placing Price of HK$1.28. The Directors intend to apply the aforesaid net proceeds in
the following manner:
For thesix months
ending30 September
2010
For thesix months
ending31 March
2011
For thesix months
ending30 September
2011
For thesix months
ending31 March
2012
For thesix months
ending30 September
2012
For thesix months
ending31 March
2013 Totalapproximately
HK$ millionapproximately
HK$ millionapproximately
HK$ millionapproximately
HK$ millionapproximately
HK$ millionapproximately
HK$ millionapproximately
HK$ million
Expansion of businessscale• Acquisition of
equipment andmachinery 2.00 2.50 2.00 — — — 6.50*
• Recruitment ofadditional staff 0.50 0.50 1.00 1.00 — — 3.00#
Further enhancementin work quality• Recruitment of
additionalqualityassurance staff — 0.20 0.20 0.20 0.20 0.20 1.00
Strengthening ofsafety team• Recruitment of
safety staff — 0.28 0.28 0.28 0.28 0.28 1.40
Repayment ofShareholder’s loan 4.04 — — — — — 4.04
Repayment of financeleases 0.73 0.97 0.54 0.34 0.31 0.17 3.06
7.27 4.45 4.02 1.82 0.79 0.65 19.00
SUMMARY
— 9 —
* Out of HK$6.5 million, HK$4.0 million will be applied to the prospective projects, details of which are disclosed in
the sub-paragraph headed “For the six months ending 31 March 2011” under the paragraph headed “Implementation
plan” under the section headed “Future plans and use of proceeds” in this prospectus.
# Out of HK$3.0 million, HK$2.0 million will be applied to the prospective projects, details of which are disclosed in
the sub-paragraph headed “For the six months ending 31 March 2011” under the paragraph headed “Implementation
plan” under the section headed “Future plans and use of proceeds” in this prospectus.
The balance of approximately HK$2.0 million will be used for general working capital of the
Group.
Based on current estimations by the Directors, the net proceeds from the Placing will be
sufficient to finance the Group’s business plan as scheduled up to 31 March 2013. In particular,
approximately HK$6.5 million and approximately HK$3.0 million of the net proceeds will be used to
acquire equipment and machinery and recruit additional staff respectively to undertake waterwork
contracts (including the New Project and the prospective projects) by the Group as a main contractor
to enable the Group to scale up its business. In the event that the Group fails to obtain the prospective
projects but is successfully awarded with other waterworks contract(s) from WSD, the Directors will
apply the net proceeds originally allocated to the prospective projects to such waterworks contract(s).
To the extent that the net proceeds from the Placing are not immediately required for the above
purposes, the Directors currently intend that such proceeds will be placed on short-term deposits with
licenced banks and/or financial institutions in Hong Kong.
RELATIONSHIP WITH MHCC/MHWE
Background
MHCC and MHWE are both wholly-owned subsidiaries of Ming Hing Waterworks, a company
with its issued shares listed on the Main Board of the Stock Exchange. Ming Hing Waterworks,
through its subsidiaries, is principally engaged in the provision of maintenance and construction works
on civil engineering contracts including waterworks engineering, road works and drainage and slope
upgrading services in Hong Kong.
Business relationship
The business relationship between the Group and MHWE started in 2001 with a waterworks
project in the North District in the New Territories, whereby TYW acted as a subcontractor to MHWE.
TYW’s engagement in respect of the aforesaid waterworks project was initiated by Mr. Kan who
approached MHWE after Mr. Kan becoming aware of the relevant Government contract being awarded
to MHWE. Since the inception of business relationship with MHWE as described above,
MHCC/MHWE, as a main contractor, had subcontracted a few contracts from WSD to the Group for
implementation. In respect of the eight contracts completed by the Group during the Track Record
Period, two contracts were obtained from MHCC/MHWE, and in respect of the five contracts in
progress as at the Latest Practicable Date, three contracts were obtained from MHCC/MHWE. For the
year ended 31 March 2009, revenue derived from MHWE amounted to approximately HK$2.5 million,
representing approximately 2.9% of the Group’s total revenue. No revenue was derived from MHWE
for the year ended 31 March 2010. For each of the two years ended 31 March 2009 and 2010, revenue
SUMMARY
— 10 —
derived from MHCC amounted to approximately HK$57.8 million and approximately HK$131.4
million respectively, representing approximately 65.9% and 88.3% of the Group’s total revenue in the
respective year. MHCC/MHWE has been the Group’s largest customer since the year ended 31 March
2008.
The Group had commenced obtaining interest-bearing advances from MHCC in 2007 in respect
of a water mains replacement and rehabilitation project (contract numbered 21/WSD/06)
subcontracted by MHCC. Apart from the above contract, the Group has also received advance from
MHCC in respect of another water mains replacement and rehabilitation project (contract numbered
18/WSD/08) subcontracted by MHCC. Based on the disclosure in the annual report of Ming Hing
Waterworks for the year ended 31 March 2010, the Directors believe that Ming Hing Waterworks has
also made advances to its other principal subcontractors apart from the Group.
As at 31 March 2009 and 2010, advances from MHCC/MHWE amounted to approximately
HK$8.2 million and approximately HK$9.0 million respectively, and the maximum balances of
advances during the aforesaid two years were approximately HK$14.0 million and approximately
HK$11.2 million respectively. Among the balances outstanding as at 31 March 2009 and 2010,
approximately HK$8.2 million and approximately HK$3.5 million respectively carried interest at
HIBOR (being 0.11%) plus 4%. The aforesaid advances will normally be fully set off against certified
payments payable by the main contractors to the Group upon completion of the relevant contracts.
The terms of the aforesaid contracts, including the advances, were arrived at between the Group
and MHCC/MHWE after arm’s length negotiation. The Directors consider that if advances were not
made by MHCC/MHWE to the Group for implementation of the aforesaid contracts, the Group could
have sought alternative financing methods such as obtaining loans from Mr. Kan, the Controlling
Shareholder, bringing in new shareholder(s) to the Group or obtaining external borrowings.
Given that the interest rate charged by MHCC/MHWE is comparable to the interest rates charged
by a licenced bank in Hong Kong on the loans previously granted to the Group (being 1% per annum
over the best lending rate of such bank of 5% for the HK$4.0 million non-revolving loan and a flat
rate of 3.75% per annum (subject to the right of such bank to renegotiate in the event that its best
lending rate, being 5%, changes between the date of the relevant facility letter and the date of
drawdown) for the HK$2.0 million non-revolving loan respectively), the advances from
MHCC/MHWE do not require any asset pledge or security from the Group or guarantee from the
Controlling Shareholders and the obtaining of the advances would enhance the liquidity of the Group,
the Directors consider it beneficial to the Group to obtain such advances for the purpose of recruiting
additional workers and acquiring the equipment and machinery and/or materials necessary to carry out
the contract works for which MHCC/MHWE was the main contractor. Furthermore, as it is indicated
in the annual report of Ming Hing Waterworks for the year ended 31 March 2010 that Ming Hing
Waterworks has made advances to its other principal subcontractors, and the Group also has past
experience in receiving advances from another independent main contractor and making advances to
subcontractors of the Group, the Directors believe it is not uncommon for a main contractor to make
advances to subcontractors.
MHCC/MHWE had purchased construction materials for the Group’s use in carrying out
waterworks engineering services as its subcontractor pursuant to the terms of the contracts entered
SUMMARY
— 11 —
into between MHCC/MHWE and the Group during the Track Record Period. For each of the two years
ended 31 March 2009 and 2010, purchase of construction materials by MHCC/MHWE for the Group
amounted to approximately HK$16.1 million and approximately HK$29.8 million respectively. Details
of the projects for which the above construction materials were purchased are disclosed in the
sub-paragraph headed “Procurement of materials and equipment” in the paragraph headed
“Operations” in the section headed “Business” in this prospectus. As there was another independent
main contractor which had purchased construction materials for the Group and the Group also has past
experience in purchasing construction materials for its subcontractors, the Directors believe that it is
not uncommon for a main contractor to purchase materials for its subcontractor.
The terms of the contracts entered into between the Group and MHCC/MHWE in respect of
provision of waterworks engineering services by the Group as a subcontractor to MHCC/MHWE were
arrived at after arm’s length negotiation, having taken into consideration the nature, size, capital
requirement and complexity of the relevant projects, between the Group and MHCC/MHWE. The
Directors are of the view that the terms of the relevant contracts (including the purchase of
construction materials by and advances from MHCC/MHWE) were on normal commercial terms and
the relevant contracts were entered into in the ordinary and usual course of business of the Group.
Reliance on MHCC/MHWE
For each of the two financial years ended 31 March 2009 and 2010, MHCC/MHWE was the
largest customer of the Group, contributing approximately 68.8% and approximately 88.3% to the
Group’s total turnover. The Directors consider the Group’s reliance on MHCC/MHWE during the
Track Record Period is attributable to a combination of factors including (i) the length of the subject
contracts; and (ii) the then financial resources and capacity of the Group. Due to the volume and
complexity of works involved, civil engineering contracts (including waterworks contracts) generally
cover a term of two years or more. As shown in the paragraph headed “Contracts completed and
contracts in progress” under the section headed “Business” in this prospectus, most of the works
contracts undertaken by the Group have a term of over two years. For this reason, certain subcontracts
obtained by the Group from MHCC/MHWE prior to the Track Record Period remain to be in progress
within the Track Record Period. Furthermore, the Group had, during the Track Record Period, devoted
a considerable amount of financial resources and manpower on the implementation of contracts
numbered 21/WSD/06 and 18/WSD/08, and the Group therefore had not taken on other large-scale
projects.
The Directors believe that the reliance on MHCC/MHWE will be gradually reduced after the
Listing. On one hand, it is the Group’s business objective to undertake more work contracts in the
capacity of a main contractor in the future and the Directors intend to more actively participate in the
tendering process for Government contracts. As set out in the section headed “Future plans and use
of proceeds” in this prospectus, the Directors expect to obtain two more waterworks contracts directly
from WSD next year and have allocated an aggregate of HK$6.0 million out of the net proceeds from
the Placing to acquire the necessary equipment and machinery and recruit the required staff for the
aforesaid two projects. The Group’s effort in obtaining contracts directly from WSD is evidenced by
the Group’s successful bid for a replacement and rehabilitation works contracts of approximately
HK$74.7 million in contract value in May 2010. In anticipation of the completion of contract
numbered 21/WSD/06 by early next year, the Group has been closely monitoring the tender notices
SUMMARY
— 12 —
and will participate in the tendering process if suitable opportunities arise. The Group has been
pursuing business opportunities with main contractors other than MHCC/MHWE. In July 2010, the
Group received a letter confirming acceptance of its quotation submitted in June 2010 from a main
contractor in respect of a waterworks contract with estimated contract value of approximately HK$4.4
million. As at the Latest Practicable Date, the Group and such main contractor were still in the process
of finalising the terms of the relevant waterworks contract. The Group also submitted a quotation to
another main contractor in respect of waterworks with estimated contract value of approximately
HK$52.4 million in July 2010. The latter quotation relates to waterworks which form part of a
Highways Department (路政署) project. As at the Latest Practicable Date, the Directors were not able
to estimate whether the Group would be awarded the subcontract works for such project. Both of the
aforesaid main contractors are not associated with Ming Hing Waterworks or its subsidiaries. It is the
intention of the Group to continue to actively seek business opportunities with main contractors other
than MHCC/MHWE. In view of the above, the Directors believe the Group’s reliance on
MHCC/MHWE after Listing will be significantly reduced from the current level.
Recent development of Ming Hing Waterworks
As disclosed in a circular of Ming Hing Waterworks dated 12 May 2010 (the “MH Circular”),
its indirect wholly-owned subsidiary entered into an agreement relating to an acquisition of interest
in a mining business. The directors of Ming Hing Waterworks consider that it is beneficial for its
group to diversify its existing business portfolio in view of the deteriorating financial performance of
its waterworks engineering business. In particular, the directors of Ming Hing Waterworks explained
that the decline in its profit was primarily attributable to the drop in gross profit margin as a result
of increasing construction material and labour costs. It is also disclosed in the MH Circular that, apart
from expanding the business scope to engage in mining business, Ming Hing Waterworks intends to
continue with the waterworks engineering business depending on the then business environment and
prospects.
Although MHCC/MHWE was the largest customer of the Group during the Track Record Period,
the Directors and the Sponsor do not consider the diversification of Ming Hing Waterworks into
mining business will pose significant adverse impact on the business and prospects of the Group. The
Group has worked with a number of main contractors, some of which have business relationships with
the Group for more than five years. During the Track Record Period, the Group worked with four main
contractors apart from MHCC/MHWE. In the event that Ming Hing Waterworks scales down or
discontinues its waterworks engineering business, the Directors are optimistic that the Group will be
able to obtain contracts from other main contractors or directly obtain contracts from WSD based on
the Group’s established operating history and track record. From an industry perspective, the Directors
believe that the waterworks industry will continue to present numerous waterworks opportunities to
the Group in view of the replacement and rehabilitation programme and other public sector projects.
Furthermore, TYW has consistently achieved outstanding performance ratings for the quality of its
works from WBDB, which will increase the Group’s competitiveness in tendering for Government
contracts as a main contractor.
The Directors note from the latest published financial reports of Ming Hing Waterworks that
gross profit margin and net profit margin of Ming Hing Waterworks have been generally showing a
declining trend. The Directors also note that the directors of Ming Hing Waterworks attributed the
SUMMARY
— 13 —
decline of the gross profit of Ming Hing Waterworks to rising raw material and labour costs. The
Directors are not in a position to comment on the deteriorating financial performance of Ming Hing
Waterworks due to the insufficiency of public information. However, based on the Group’s past
business dealings with Ming Hing Waterworks, the Directors believe that the relatively low gross
profit margin and net profit margin of Ming Hing Waterworks may be explained by the fact that Ming
Hing Waterworks has subcontracted some of its contracts to subcontractors.
In respect of the contracts the Group obtained from MHCC/MHWE, MHCC/MHWE entered into
a main contract with WSD and then entered into a subcontract with the Group pursuant to which it
subcontracted the overall management and implementation of the entire contract works to the Group.
In return, MHCC/MHWE would charge the Group a contract fee representing a fixed percentage of the
total contract value and a nominal handling fee for purchase of construction materials on behalf of the
Group. As the certified payment for the interim works would be made to MHCC/MHWE by WSD,
MHCC/MHWE would then make payment to the Group after deduction of the aforesaid contract fee,
handling fee and if applicable, costs of purchase of construction materials and other reimbursements.
Given that the fee receivable by MHCC/MHWE on the contracts granted to the Group largely comprise
the contract fee which represents a fixed percentage of the total contract value, the gross profit margin
of such contracts to MHCC/MHWE would be close to the aforesaid fixed percentage.
The Group, as the party implementing the contracts, has more control over the costs of service
through actively managing and implementing the project. The better the Group controlled its costs of
service and minimized its execution risks, the higher the gross profit margin would be for the Group.
Based on the Directors’ understanding, the Group’s gross profit margins for the contracts obtained
from MHCC/MHWE are significantly higher than MHCC/MHWE’s gross profit margins for the same
contracts. Therefore, despite the Directors generally share the view that the cost of construction
materials and labour have been rising in the past few years, the management of the Group has been
successfully maintaining its gross profit margin by carefully evaluating the cost requirement before
submitting a tender, actively managing the projects and closely monitoring the costs involved in
provision of service. Going forward, the management of the Group will continue to put considerable
efforts in maintaining its gross profit margin.
The Sponsor has reviewed the terms of the subcontracts entered into between the Group and
MHCC/MHWE and the financial information in respect of such subcontracts provided by the Group.
The Sponsor notes that the Group’s gross profit margins during the Track Record Period were
significantly higher than the percentage of the contract fee charged by MHCC/MHWE to the Group
for the same subcontracts. Based on the information available to the Sponsor, the Sponsor considers
that the Directors’ belief in relation to the Group’s higher profit margin than Ming Hing Waterworks
is reasonable.
Director’s interest in Ming Hing Waterworks
As at the Latest Practicable Date, Mr. Chia, an executive Director, was interested in less than
1.0% in the issued share capital of Ming Hing Waterworks. Mr. Chia has not held and does not
presently hold any position in or otherwise was not involved and is not presently involved in the daily
operations of Ming Hing Waterworks or any of its subsidiaries or associated companies. Mr. Chia
SUMMARY
— 14 —
holds his interests in Ming Hing Waterworks for investment purpose. Save as disclosed above, none
of the Directors or their associates had any shareholding interest in Ming Hing Waterworks as at the
Latest Practicable Date. Based on the above, Ming Hing Waterworks, including its subsidiaries and
associated companies, are not connected persons of the Company under the GEM Listing Rules.
SUMMARY OF FINANCIAL INFORMATION
The following tables set forth a summary of the combined financial information of the Group for
the two years ended 31 March 2009 and 2010, which is extracted from the Accountants’ Report set out
in Appendix I to this prospectus. The following summary should be read in conjunction with the
financial statements set out in the Accountants’ Report, including the notes thereto, set out in
Appendix I to this prospectus.
Combined statement of comprehensive income
Year ended 31 March
2009 2010
HK$’000 HK$’000
Revenue 87,696 148,844
Cost of service (70,617) (121,872)
Gross profit 17,079 26,972
Other income 2,539 811
Administrative expenses (5,431) (6,753)
Profit from operations 14,187 21,030
Finance costs (455) (634)
Profit before income tax 13,732 20,396
Income tax (2,327) (3,558)
Profit and total comprehensive income for the year 11,405 16,838
SUMMARY
— 15 —
Selected combined statement of financial position data
As at 31 March
2009 2010
HK$’000 HK$’000
Assets
Non-current assets 8,697 13,308
Current assets 45,196 48,389
Total assets 53,893 61,697
Liabilities
Current liabilities 27,497 36,873
Non-current liabilities 2,324 2,484
Total liabilities 29,821 39,357
Total equity 24,072 22,340
Selected combined statement of cash flows data
Year ended 31 March
2009 2010
HK$’000 HK$’000
Net cash generated from operating activities 4,124 27,169
Net cash used in investing activities (390) (5,242)
Net cash used in financing activities (3,834) (10,018)
Net (decrease)/increase in cash and cash equivalents (100) 11,909
Cash and cash equivalents at the beginning of year (1,479) (1,579)
Cash and cash equivalents at the end of year (1,579) 10,330
SUMMARY
— 16 —
Dividend distribution
The Group did not declare any dividends for the year ended 31 March 2009. For the year ended
31 March 2010, TYW and TY Civil declared and paid dividends of HK$245,000 and HK$9,700,000
respectively to Mr. Kan and TYC declared dividends of approximately HK$8,625,000 to Mr. Kan
which was set off against the amount due from Mr. Kan. TY Civil also declared and paid a final
dividend of HK$4,000,000 to Mr. Kan in April 2010.
Despite the aforesaid dividends, if otherwise not declared and paid, would provide additional
capital for the Group to undertake more contract works, the Directors consider that it is commercially
justified to declare and pay the aforesaid dividends to Mr. Kan for the following reasons: (i) the
aforesaid dividends were declared to Mr. Kan, the then sole shareholder of TYW and TY Civil, to
reward his past investments in and support and contribution to the Group; (ii) the level of distribution
is appropriate as a sufficient portion of the net profits attributable to the Shareholders has been
retained to support the Group’s ongoing operations and compliance with the employed capital and
working capital requirements as required by WBDB for retention on the Contractor List; (iii) the
Group could utilise a combination of retained profits and borrowings to finance the Group’s working
capital needs rather than solely relying on retained profits; (iv) the Group’s gearing ratios, calculated
as a percentage of the aggregate of the amount of total bank borrowings and obligations under finance
lease and advance received from customers to total assets (31 March 2009: 29.6%; 31 March 2010:
29.1%) and the Group’s finance costs (for the year ended 31 March 2009: approximately HK$455,000;
for the year ended 31 March 2010: approximately HK$634,000) during the Track Record Period were
at reasonable levels respectively; and (v) the Shareholders will be entitled to the future profits of the
Group after the Listing. The Directors also consider that it was in the interest of the Company and the
Shareholders as a whole to declare and pay the aforesaid dividends to Mr. Kan as rewards for his past
contribution and encouragement for his continued support to the Group’s business.
STATISTICS OF THE PLACING
Placing Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .HK$1.28
Market capitalisation (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . approximately HK$127.0 million
Unaudited pro forma net tangible asset value per Share (Note 2) . . . . . . . . . . . . . . HK cents 39.7
Notes:
1. The market capitalisation is calculated on the basis of 99,200,000 Shares in issue immediately after completion of the
Placing and the Capitalisation Issue.
2. The unaudited pro forma adjusted net tangible asset value per Share has been arrived at after the adjustments referred
to in the paragraph headed “Unaudited pro forma adjusted net tangible assets” under the section headed “Unaudited pro
forma financial information” in Appendix II to this prospectus and on the basis of 99,200,000 Shares in issue at the
Placing Price of HK$1.28 per Share immediately following completion of the Placing and the Capitalisation Issue but
without taking into account any Shares which may be issued upon the exercise of any options which may be granted under
the Share Option Scheme.
SUMMARY
— 17 —
R11.23(6)
In this prospectus, unless the context otherwise requires, the following expressions shall have the
following meanings:
“Accountants’ Report” the accountants’ report as set out in Appendix I to this
prospectus
“Announcement PostingAgreement”
the agreement dated 1 June 2010 entered into between the
Company and HKLC in relation to the provision of
announcement posting service by HKLC to the Company as
more particularly described in the section headed “Connected
transactions” in this prospectus
“Articles” or “Articles ofAssociation”
the articles of association of the Company adopted on
11 August 2010 and as amended from time to time, a summary
of which is set out in Appendix IV to this prospectus
“associate(s)” has the meaning ascribed to it under the GEM Listing Rules
“Board” the board of Directors
“Business Day” a day (other than a Saturday or Sunday or public holiday) on
which licenced banks in Hong Kong are generally open for
normal banking business
“BVI” the British Virgin Islands
“Capitalisation Issue” the issue of 74,399,000 Shares upon capitalisation of a certain
sum standing to the credit of the share premium account of the
Company referred to in the sub-paragraph headed “Written
resolutions of all Shareholders passed on 11 August 2010”
under the paragraph headed “Further information about the
Company and its subsidiaries” in Appendix V to this
prospectus
“CAR/TPL Insurance” the contractor all risk or third party liability insurances
“CCASS” the Central Clearing and Settlement System established and
operated by HKSCC
“Chuwei” Chuwei (BVI) Limited, a Substantial Shareholder and a
company incorporated in the BVI which is wholly and
beneficially owned by Mr. Cheng
“Companies Law” the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated
and revised) of the Cayman Islands
“Companies Ordinance” the Companies Ordinance (Chapter 32 of the Laws of Hong
Kong), as amended, supplemented or otherwise modified from
time to time
DEFINITIONS
— 18 —
“Company” Tsun Yip Holdings Limited (進業控股有限公司), a company
incorporated in the Cayman Islands with limited liability on
15 March 2010
“connected person(s)” has the meaning ascribed to it under the GEM Listing Rules
“Contractor List” the list of approved contractors for public works (認可公共工程承建商名冊) maintained by WBDB
“Controlling Shareholder(s)” has the meaning ascribed to it under the GEM Listing Rules
and, in the context of this prospectus, means the controlling
shareholders of the Company, namely Shunleetat and Mr. Kan
“Director(s)” director(s) of the Company
“ETWB” Environment, Transport and Works Bureau of the Government
(環境運輸及工務局), formerly a policy bureau of the
Government, the duties of which are now taken over by
Environment Bureau, Transport and Housing Bureau and
WBDB following the reorganisation of the Policy Bureau and
Government Secretariat
“ETWB Handbook” Contractor Management Handbook (Revision B) July 2005
(承建商管理手冊 — 修訂版B) issued by ETWB
“Exchange Website” http://www.hkexnews.hk, being an Internet website operated
by the Stock Exchange
“GEM” the Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules” the Rules Governing the Listing of Securities on GEM
“Government” the Government of Hong Kong
“Government Gazette” the official publication of the Government for, among other
things, statutory notices for public tenders
“Group” the Company and its subsidiaries or, where the context
otherwise requires, in respect of the period before the
Company became the holding company of its present
subsidiaries, such subsidiaries or the businesses which have
since been acquired or carried on by them
“HK” or “Hong Kong” the Hong Kong Special Administrative Region of the PRC
“HKFRSs” Hong Kong Financial Reporting Standards (including Hong
Kong Accounting Standards and Interpretations) issued by
HKICPA
DEFINITIONS
— 19 —
“HKICPA” Hong Kong Institute of Certified Public Accountants
“HKLC” Hong Kong Listco Limited, a company incorporated in Hong
Kong which is wholly and beneficially owned by Mr. Chia
“HKSCC” Hong Kong Securities Clearing Company Limited
“HKSCC Nominees” HKSCC Nominees Limited, a wholly-owned subsidiary of
HKSCC
“HSBC” The Hongkong and Shanghai Banking Corporation Limited
“Independent Third Party(ies)” a person(s) or company(ies) which is/are independent of and
not connected with any member of the Group, the directors,
the chief executives, the substantial shareholders (as defined
in the GEM Listing Rules) of the Company and its
subsidiaries and their respective associates
“ISO” International Organization for Standardization
“Latest Practicable Date” 13 August 2010, being the latest practicable date prior to the
printing of this prospectus for ascertaining certain
information contained in this prospectus
“Lead Manager” CIMB Securities (HK) Limited, a licenced corporation under
the SFO permitted to engage in type 1 (dealing in securities),
type 4 (advising on securities) and type 6 (advising on
corporate finance) regulated activities, being the sole
bookrunner and the lead manager of the Placing under the
SFO
“Lease Agreement” the agreement dated 1 May 2009 entered into between TYW
(as tenant) and HKLC (as landlord) (as amended by a
supplemental agreement dated 7 May 2010 made by the same
parties) in relation to the office premises situated at Rooms 1
& 3, 7/F, Anton Building, 1 Anton Street, Wanchai, Hong
Kong
“Listing” the listing of the Shares on GEM
“Listing Date” the date on which the trading of the Shares first commences
on GEM
“Listing Division” the listing division of the Stock Exchange
“Lotawater” Lotawater (BVI) Limited, a company incorporated in the BVI
which is wholly and beneficially owned by Mr. Chia
“Macau” the Macau Special Administrative Region of the PRC
DEFINITIONS
— 20 —
“MHCC” Ming Hing Civil Contractors Limited, a wholly-owned
subsidiary of Ming Hing Waterworks, which is an
Independent Third Party
“MHWE” Ming Hing Waterworks Engineering Company Limited, a
wholly-owned subsidiary of Ming Hing Waterworks, which is
an Independent Third Party
“Ming Hing Waterworks” Ming Hing Waterworks Holdings Limited (stock code: 402), a
company incorporated in the Cayman Islands with limited
liability and whose issued shares are listed on the Main Board
of the Stock Exchange, which is an Independent Third Party
“Mr. Cheng” Mr. Cheng Ka Ming, Martin (鄭家銘), an executive Director
and a Substantial Shareholder
“Mr. Chia” Mr. Chia Thien Loong, Eric John (謝天龍), an executive
Director
“Mr. Fung” Mr. Fung Chung Kin (馮中健), an executive Director and a
Substantial Shareholder
“Mr. Kan” Mr. Kan Kwok Cheung (簡國祥), the founder of the Group,
the chairman of the Board, an executive Director and a
Controlling Shareholder
“New Project” the waterworks contract numbered 9/WSD/09 relating to
replacement and rehabilitation of water mains in Sai Kung
awarded by WSD to the Group in May 2010 with a term of 911
days commencing from 28 May 2010 and ending on 23
November 2012
“Optima Capital” or “Sponsor” Optima Capital Limited, a licenced corporation under the SFO
permitted to engage in type 1 (dealings in securities), type 4
(advising on securities) and type 6 (advising on corporate
finance) regulated activities under the SFO
“Placing” the conditional placing of the Placing Shares by the
Underwriters on behalf of the Company at the Placing Price as
described in the section headed “Structure and conditions of
the Placing” in this prospectus
“Placing Price” the price per Placing Share (exclusive of brokerage, Stock
Exchange trading fee and SFC transaction levy) of HK$1.28
“Placing Shares” the 24,800,000 new Shares being offered at the Placing Price
for subscription under the Placing subject to the terms and
conditions as described in the section headed “Structure and
conditions of the Placing” in this prospectus
DEFINITIONS
— 21 —
“PRC” or “China” the People’s Republic of China which, for the purpose of this
prospectus, shall exclude Hong Kong, Macau and Taiwan
“Purplelight” Purplelight (BVI) Limited, a Substantial Shareholder and a
company incorporated in the BVI which is wholly and
beneficially owned by Mr. Fung
“Registration Scheme” Voluntary Subcontractor Registration Scheme (非强制性分包商註冊制度)
“Reorganisation” the corporate reorganisation of the Group effected in
preparation for the Listing as described under the
sub-paragraph headed “Reorganisation” in the paragraph
headed “Further information about the Company and its
subsidiaries” in Appendix V to this prospectus
“SFC” the Securities and Futures Commission in Hong Kong
“SFO” the Securities and Futures Ordinance (Chapter 571 of the
Laws of Hong Kong) as amended or otherwise modified from
time to time
“Share(s)” share(s) of HK$0.01 each in the share capital of the Company
“Shareholder(s)” holder(s) of the Share(s)
“Share Option Scheme” the share option scheme of the Company adopted on 11
August 2010, a summary of the principal terms of which is set
out in the sub-paragraph headed “Share Option Scheme”
under the paragraph headed “Further information about
Directors, management, staff and experts” in Appendix V to
this prospectus
“Shunleetat” Shunleetat (BVI) Limited, a Controlling Shareholder and a
company incorporated in the BVI which is wholly and
beneficially owned by Mr. Kan
“Specialist List” the list of approved suppliers of materials and specialist
contractors for public works (認可公共工程物料供應商及專門承造商名冊) maintained by WBDB
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“subsidiary(ies)” has the meaning ascribed to it in section 2 of the Companies
Ordinance
DEFINITIONS
— 22 —
“Substantial Shareholder(s)” has the meaning ascribed to it under the GEM Listing Rules
and, in the context of this prospectus, means the substantial
shareholders of the Company, namely Chuwei and Mr. Cheng,
and Purplelight and Mr. Fung
“Takeovers Code” the Hong Kong Code on Takeovers and Mergers
“Track Record Period” the period comprising the two financial years ended 31 March
2009 and 2010
“TYC” Tsun Yip Construction Co., a sole proprietorship through
which Mr. Kan started to carry on the Group’s business in
1989
“TY Civil” Tsun Yip Civil Construction Company Limited, a company
incorporated in Hong Kong with limited liability on 16 June
2000 and an indirect wholly-owned subsidiary of the
Company
“TYW” Tsun Yip Waterworks Construction Company Limited, a
company incorporated in Hong Kong with limited liability on
6 February 1996 and an indirect wholly-owned subsidiary of
the Company
“TYW (BVI)” TYW (BVI) Limited, a company incorporated in the BVI with
limited liability on 2 July 2009 and a wholly-owned
subsidiary of the Company
“Underwriters” the underwriters of the Placing listed in the paragraph headed
“Underwriters” in the section headed “Underwriting” in this
prospectus
“Underwriting Agreement” the conditional underwriting agreement relating to the Placing
dated 20 August 2010 and entered into between the Company,
the executive Directors, Shunleetat, Chuwei, Purplelight,
Lotawater, the Sponsor, the Lead Manager and the
Underwriters, particulars of which are set forth in the section
headed “Underwriting” in this prospectus
“WBDB” Works Branch Development Bureau (發展局工務科) of the
Government
“WSD” Water Supplies Department of the Government (水務署)
“HK$” or “HK dollar(s)” and
“HK cents”
Hong Kong dollar(s) and cent(s), respectively, the lawful
currency of Hong Kong
DEFINITIONS
— 23 —
“km” kilometre
“m” metre
“m2” or “sq.m.” square metre
“m3” cubic metre
“mcm” million cubic metre
“sq.ft.” square feet
“%” per cent.
DEFINITIONS
— 24 —
Prospective investors should carefully consider and evaluate the following risk factors and all
other information contained in this prospectus before deciding to invest in the Shares. If any of the
following risk factors and uncertainties develops into actual events, the business, financial
conditions or results of operations could be materially and adversely affected. In such case, the
trading price of the Shares could decline due to any of these risk factors and uncertainties.
RISKS RELATING TO THE BUSINESS OF THE GROUP
The Group’s revenue during the Track Record Period was generated substantially from carryingout waterworks engineering contracts and roads and drainage services contracts in the capacityof a subcontractor
During the Track Record Period, the Group generated a substantial part of its revenue from
carrying out waterworks engineering contracts and roads and drainage services contracts in the
capacity as a subcontractor. For each of the years ended 31 March 2009 and 2010, revenue generated
from contracts in which the Group acted as subcontractor represented approximately 73.9% and
approximately 88.5% of the Group’s total revenue respectively. The aforesaid revenue was attributable
to five and two main contractors respectively. In the event that the Group fails to secure such work
contracts from the main contractors in future, the Group’s business, results of operations and
profitability may be adversely affected.
In addition, the Group had obtained advances from MHCC/MHWE and another independent main
contractor during the Track Record Period for implementation of projects, as a subcontractor, obtained
from them respectively. The advance from such independent main contractor was unsecured and
non-interest bearing. In the event that the Group fails to obtain advances from such independent main
contractor or other main contractors so that the Group is required to obtain bank financing for project
implementation, or the terms of the advances (if made to the Group) are less favourable than the
existing terms, or the advances (if made to the Group) are not sufficient to cover the cash flows
required for project implementation so that the Group is required to obtain bank financing to fund the
shortfall, the Group may incur additional finance costs which in turn may adversely affect the Group’s
profitability, financial position and liquidity.
The Group relies heavily on MHCC/MHWE, the Group’s largest customer during the TrackRecord Period
During the Track Record Period, the customer base of the Group was highly concentrated.
Revenue generated from subcontract works granted by a main contractor, MHCC/MHWE, which has
established business relationship with the Group since 2001, represented approximately 68.8% and
approximately 88.3% of the Group’s total revenue respectively. All of these subcontract works the
Group obtained from MHCC/MHWE was granted by WSD to MHCC/MHWE. As the revenue
generated from subcontract works granted by MHCC/MHWE accounted for a significant share of the
Group’s revenue during the Track Record Period, the Group’s relatively high profit margin during the
Track Record Period was due to the contracts with MHCC/MHWE. There is no assurance that the
Group will be able to maintain its relationship with MHCC/MHWE and to continue to secure work
contracts from them in the future. Furthermore, the holding company of MHCC/MHWE, Ming Hing
Waterworks, recently announced its diversification into mining business. There is no assurance that
RISK FACTORS
— 25 —
R14.22(1)
Ming Hing Waterworks or its subsidiaries will not scale down or discontinue its waterworks
engineering business in the future. In the event that the Group fails to secure work contracts from
MHCC/MHWE due to their scaling down or discontinuation of waterworks engineering business or
other reasons and the Group fails to secure work contracts from other customers to replace such loss
of business, the Group’s business, results of operations and profitability may be adversely affected.
In addition, the Group had obtained advances from MHCC/MHWE which were unsecured and
interest-bearing for implementation of the projects the Group obtained from MHCC/MHWE during the
Track Record Period. In the event that the Group fails to obtain advances from MHCC/MHWE so that
the Group is required to obtain bank financing for project implementation, or the terms of the advances
are less favourable than the existing terms, or the advances offered by MHCC/MHWE are not
sufficient to cover the cash flows required for project implementation so that the Group is required
to obtain certain bank financing to fund the shortfall, the Group may incur additional finance costs
which in turn may adversely affect the Group’s profitability, financial condition and liquidity.
The Group determines the tender price based on the estimated time and costs involved in aproject which may deviate from the actual time and costs involved
Contracts are normally awarded through competitive tendering process. The Group needs to
estimate the time and costs in order to determine the tender price. There is no assurance that the actual
execution time and costs would not exceed the Group’s estimation during the actual implementation
of the project.
The actual time taken and cost involved in completing contracts undertaken by the Group may
be adversely affected by many factors, including shortage or cost escalation of materials and labour,
adverse weather conditions, additional variations to the construction plans requested by the customers,
disputes with subcontractors, accidents, changes in the Government’s priorities and unforeseen
problems and circumstances. Any of these adverse factors can give rise to delays in completion of
works or cost overruns or even unilateral termination of projects by the clients, which in turn may
adversely affect the Group’s financial condition, profitability or liquidity.
The Group acted as a subcontractor in most of the contracts undertaken during the Track RecordPeriod. Revenue generated from contracts in which the Group acted as subcontractorrepresented approximately 73.9% and approximately 88.5% of the Group’s total revenuerespectively. The Group may continue to act in such capacity in the future. If the Group is unableto recover subcontracting fees from the relevant main contractor, the operating results of theGroup could be adversely affected
During the Track Record Period, all of the Group’s revenue was generated from providing civil
engineering services to the public sector. In particular, approximately 73.9% and approximately 88.5%
of the Group’s total revenue was derived from projects under which the Group was engaged as a
subcontractor during the Track Record Period. The Group is therefore exposed to credit risk of main
contractors in projects under which the Group acts as subcontractor. In the event that the main contract
is terminated due to the fault or negligence of the main contractor, the main contractor may not be able
to receive payment from the Government and may thus default payment to the Group. Payment from
the main contractors to the Group may also be affected by the progress of the project, the financial
RISK FACTORS
— 26 —
position of the main contractors and the creditworthiness of the main contractors. Furthermore, there
is no assurance that the main contractors would honour payment to the Group after having received
contract payments from the Government. In the event of any delay and/or default in payment by the
main contractors, the business, the results of operations, profitability and liquidity of the Group may
be adversely affected.
Failure to meet schedule requirements of contracts may result in liquidated damages imposed onthe Group
Substantially all of the Group’s work contracts are subject to specific completion schedule
requirements with liquidated damages charged to the Group if the Group does not meet the schedules.
Liquidated damages are typically levied at a rate provided in the relevant contract for each day of
delay. Any failure to meet the schedule requirements of the work contracts could cause the Group to
pay significant liquidated damages, which could adversely affect our liquidity and cash flows and have
a material adverse effect on our business, financial condition, results of operations, reputation and
prospects.
The Group is relying on certain principal subcontractors to implement the contracts
For the two financial years ended 31 March 2009 and 2010, the Group’s subcontracting costs
amounted to approximately HK$24.6 million and approximately HK$40.1 million respectively,
representing approximately 34.9% and approximately 32.9% of the total costs of service respectively.
During the same period, the Group’s largest subcontractor accounted for approximately 35.8% and
approximately 22.1% of the Group’s total subcontracting costs and the Group’s five largest
subcontractors accounted for approximately 71.3% and approximately 48.1% of the Group’s total
subcontracting costs respectively. There is no assurance that those major subcontractors will be able
to continue to provide services to the Group at fees acceptable to the Group or the Group can maintain
its relationship with them in the future. In the event that any of the major subcontractors is unable to
provide the required services to the Group or the costs for them to provide those required services
increase substantially, the Group’s business, result of operations, profitability and liquidity may be
adversely affected.
The Group’s success significantly depends on the key management and its ability to attract andretain additional technical and management staff
The Directors believe that the success of the Group is, to a significant extent, attributable to the
managerial skills and experience of certain key members of the management, in particular, the
executive Directors, namely Mr. Kan, who is the founder of the Group and the chairman of the Board,
has over 20 years of experience in the field of civil engineering services in Hong Kong; Mr. Fung, who
is an executive Director, has more than 25 years of experience in civil engineering or construction;
Mr. Cheng, who is an executive Director, has more than 29 years of experience in the construction
industry; Mr. Chia, who is an executive Director, has more than 14 years of experience in corporate
finance, management and investment; Mr. Leung Hon Chung, who is a contracts manager of the
Group, has more than 30 years of experience in project management for civil engineering projects; and
Mr. Lau Wai Chun, Jacky, who is a project manager of the Group, has more than 28 years of experience
in supervision of construction work. Further information about their experiences is set out in the
RISK FACTORS
— 27 —
section headed “Directors, senior management, board committees and staff” in this prospectus. Should
any of these executive Directors or key personnel of the Group cease to be involved in the management
of the Group in the future and the Group fails to recruit suitable replacements, there could be an
adverse impact on the business, results of operation and profitability of the Group.
The Group’s business is labour-intensive
Provision of waterworks engineering services, road works and drainage services and site
formation works are basically labour intensive works. As at 31 March 2009, 31 March 2010 and the
Latest Practicable Date, the total number of full-time direct workers employed by the Group was 54,
92 and 96 respectively. Successful implementation of contract works significantly depend on the
availability of workers and their experiences and skills. During the Track Record Period, the Group
and its subcontractors have not encountered any difficulties in recruiting labour to work on the
Group’s projects. However, there is no assurance that the supply of skilled labour and average labour
costs will remain stable. In the event that the Group or its subcontractors fail to retain the existing
labour and/or recruit sufficient skilled labour in a timely manner to cope with the demand of the
Group’s existing or future projects and/or there is a significant increase in the costs of labour, the
Group may not be able to complete the projects on schedule and within budget and the Group’s
operations and profitability may be adversely affected.
The Group’s cash flows may fluctuate
As far as a single contract is concerned in which the Group acts as main contractor, net cash
outflows are normally incurred at the early stage of carrying out the contract works when the Group
is required to acquire equipment and machinery and recruit additional workers required without any
advances from the customer. Progress payments will only be received after commencement of works
and after the works and payments are certified by the Group’s customers. Accordingly, the cash flows
for a particular contract may turn from net outflow at the early stage gradually into accumulative net
inflow as the works progress.
The Group’s business is project-based. Fee collection and profit margin depend on the terms of
the work contract and may not be regular
The Group’s business is project-based. Fee collection and profit margin significantly depend on
various factors, such as the proposed expenditure of the customers, the terms of the work contracts,
the length of the contract period, the efficiency of implementation of the contract works and the
general market conditions. As a result, the income flow of the business of the Group may not be
entirely regular and may be subject to various factors beyond the control of the Directors. In light of
the foregoing, there can be no assurance that the profitability of a project can be maintained or
estimated at any level. Furthermore, the fee collection by the Group, and the profit margin and time
for profit recognition depend on the terms of the work contracts and may also not be regular. If the
fee collection pattern significantly deviates from the estimation of the Directors, the financial position
and liquidity of the Group could be adversely affected.
RISK FACTORS
— 28 —
The Group’s operations are subject to construction risk
The Group’s business has been primarily focused on provision of waterworks engineering
services. In the course of providing the aforesaid services, the Group is often required to excavate the
underground water mains to carry out replacement and rehabilitation works. If any underground cables
or active water mains are damaged in the course of excavation, it may cause electric shocks or water
leakages. The aforesaid unforeseen circumstances may pose risks on the workers or affect the Group’s
work progress. The Group may also be liable for damages claimed by the worker or customer, which
may have adverse impact on the Group’s cash flow, reputation and profitability.
RISKS RELATING TO THE INDUSTRY IN WHICH THE GROUP OPERATES
The Group’s business is subject to obtaining a number of licences and approvals
A contractor has to be included in the “List of Approved Contractors for Public Works” or the
“List of Approved Suppliers of Materials and Specialist Contractors for Public Works” under one or
more of the work categories maintained by WBDB so as to be eligible to tender for projects in the
public sector in Hong Kong. To become listed as an approved contractor, the contractor has to apply
for inclusion in the list of the particular work categories and/or group. Despite the admission of a
contractor to the list, the Government reserves the right to remove any contractor from the list or take
other regulatory actions against a contractor such as suspension, downgrading in status or demotion
to a lower level group, in respect of all or any of the work categories, if the contractor’s performance
or tendering record is found to be unsatisfactory or the contractor is unable to meet the relevant
financial, technical and management criteria for retention on the list.
In the event of a withdrawal, revocation or downgrading of any of the Group’s licences in any
work category, the business, the prospects and operation of the Group could be adversely affected.
The Group’s operations are restricted to Hong Kong
The licences currently held by the Group only permit the Group to carry on its business in Hong
Kong under the relevant work categories stipulated by WBDB. In the event that the Group intends to
engage in provision of waterworks engineering services, road works and drainage services and site
formation works in jurisdictions other than Hong Kong, the Group may be required to apply for
specific licences in such jurisdictions. There is no assurance that the Group will be able to obtain
business in other jurisdictions even if it desires to do so.
The Group’s operations are subject to due compliance with a number of environmentalprotection laws, regulations and requirements
The Group is required to comply with a number of environmental protection laws, regulations
and requirements in Hong Kong including but not limited to the Air Pollution Control Ordinance
(Chapter 311 of the Laws of Hong Kong), the Noise Control Ordinance (Chapter 400 of the Laws of
Hong Kong), the Water Pollution Control Ordinance (Chapter 358 of the Laws of Hong Kong), the
Waste Disposal Ordinance (Chapter 354 of the Laws of Hong Kong) and the Environmental Impact
Assessment Ordinance (Chapter 499 of the Laws of Hong Kong). In the event that the Group’s
RISK FACTORS
— 29 —
R14.22(2)
operations fail to meet the applicable environmental protection laws, regulations and requirements, the
Group may be subject to fines or required to make remedial measures which may in turn have an
adverse effect on the operations and financial conditions of the Group. In addition, there is no
assurance that the environmental protection laws, regulations and requirements will not be changed in
the future. Should there be any change to the environmental protection laws, regulations and
regulations applicable to the Group, the Group may incur additional cost in complying with the new
law(s), regulation(s) and requirement(s), which in turn may adversely affect the profitability of the
Group.
The Group’s business could be materially and adversely affected by the Government’s level ofspending on infrastructure and civil engineering projects
During the Track Record Period, all of the Group’s revenue was generated from providing civil
engineering services. Some infrastructure projects are non-recurring in nature, and the level of the
Government’s spending budget may change from year to year. Accordingly, any change or significant
delay in the level of spending on public works by the Government may affect the business and
operating results of the Group. In the event that the Government reduces its level of spending on
public works and the Group fails to secure business from the private sector or to diversify its business
into the private sector, the business and profitability of the Group could be adversely affected.
The Group’s business could be affected by the Government’s allocation of its 2010-2011 budgeton waterworks
Based on the 2010-2011 budget of the Government, the estimated total amount of capital to be
spent on waterworks by WSD is approximately HK$5,944 million for the fiscal year of 2010/2011.
There is no publicly available information as to how such budgeted amount will be allocated to
waterworks projects, with contract values fall under the respective groups of waterworks, namely
Groups A, Group B and Group C. In the event that all or substantially all of the aforesaid budget is
allocated to contracts which are only available for tender by Group C contractors, the Group will not
be eligible to tender for such contracts as a main contractor, and the Group’s business and results of
operations may be adversely affected.
The Group’s business could be affected by adverse weather conditions
Most of the Group’s projects are undertaken outdoor. Therefore, the business of the Group may
be interrupted or otherwise affected by adverse weather conditions. Rain storms, tropical cyclones and
continuous rain may cause difficulties to the Group in completing its projects. Any delay in
completion of projects could adversely affect the operating results of the Group.
Work contracts with WSD are subject to termination for convenience by WSD
It is a standard special condition contained in the work contracts between WSD and a contractor
that WSD is, in addition to any other power enabling it to terminate the relevant contract, entitled to
terminate a work contract at any time by notice in writing to the contractor (“right to terminate forconvenience”) and the termination shall take effect on a date specified in the notice but without
RISK FACTORS
— 30 —
R14.22(3)
prejudice to the claims of either party in respect of any antecedent breach thereof. According to the
guidance of a technical circular issued by ETWB dated 21 July 2004, it is a policy of the Government
that the right to terminate for convenience shall only be exercised in very exceptional and justified
circumstances. During the Track Record Period, no work contract of the Group with WSD has been
terminated pursuant to the exercise of the right to terminate for convenience and no subcontract to
which the Group is a party has been terminated in the foregoing circumstances. However, there is no
assurance that WSD will not exercise such right to terminate for convenience. In the event that WSD
exercises such right to terminate a work contract which affects the Group (whether as main contractor
or subcontractor), the Group’s work plan and financial position may be adversely affected.
RISKS RELATING TO THE PLACING
The Sponsor and the Underwriters are entitled to terminate the Underwriting Agreement
Prospective investors of the Placing Shares should note that the Sponsor and the Underwriters
are entitled to terminate their obligations under the Underwriting Agreement by the Lead Manager
(acting on its behalf and the other Underwriters) giving notice in writing to the Company upon the
occurrence of any of the events stated in the sub-paragraph headed “Grounds for termination” under
the paragraph headed “Underwriting arrangements” under the section headed “Underwriting” in this
prospectus at any time prior to 8:00 a.m. (Hong Kong time) on the Listing Date. Such events include,
without limitation, any acts of God, war, military action, riot, public disorder, civil commotion,
economic sanctions, fire, flood, explosion, terrorism, strike or lock-out.
There has been no prior public market for the Shares and the liquidity, market price and tradingvolume of the Shares may be volatile
The Shares have not been traded in any open market before completion of the Placing. The actual
market price of the Shares may deviate from the Placing Price, and the Placing Price shall therefore
not be treated as an indicator of the price of the Shares to be traded on GEM in the future. As the
trading volume of the Shares will not be guaranteed by the Group upon Listing, the trading market of
the Shares may not be active enough for the investors to cash in its investments in the Shares in the
market. Upon Listing, the trading volume and market price of the Shares may be affected by numerous
factors, including but not limited to the income, profitability and cash flow of the Group,
implementation or proposal of investment plans, change of senior management, merges and
acquisitions and economic conditions. All of the aforesaid may result in fluctuations in the market
price and/or trading volume of the Shares. There is no assurance as regards the market price and
trading volume of the Shares after Listing.
Investors in the Placing may experience dilution if the Company issues additional Shares in thefuture
Additional funds may be required in the future to finance the expansion of the business and
operations of the Group. If additional funds are raised through the issuance of new equity or
equity-linked securities of the Company other than on a pro rata basis to existing Shareholders, the
percentage ownership of the Shareholders in the Company may be diluted.
RISK FACTORS
— 31 —
No guarantee that dividends will be declared in the future
The Group did not declare any dividends for the year ended 31 March 2009. For the year ended
31 March 2010, TYW and TY Civil declared and paid dividends of HK$245,000 and HK$9,700,000
respectively to Mr. Kan and TYC declared dividends of approximately HK$8,625,000 to Mr. Kan
which was set off by the amount due from Mr. Kan. Save for the final dividend of HK$4,000,000
declared by TY Civil to Mr. Kan in April 2010, no further dividend will be declared or paid prior to
Listing. The dividend distribution record during the Track Record Period and the final dividend
declared and paid subsequent to the Track Record Period but prior to Listing may not be used as a
reference or basis to determine the level of dividends that may be declared and paid by the Company
to the Shareholders in the future after Listing. There is no assurance that the Group will declare
dividends in amount similar to or exceeding historical dividends declared or at all. The declaration,
payment and amount of any future dividends are subject to the discretion of the Board depending on,
among other things, the Group’s earnings, financial condition and cash requirements and the
provisions governing the declaration and distribution as contained in the Articles of Association,
applicable laws and other relevant factors.
Granting options under the Share Option Scheme may affect the Group’s results of operations
and dilute Shareholders’ percentage of ownership
The Company may grant share options under the Share Option Scheme in the future. The fair
value of the options at the date on which they are granted with reference to the valuer’s valuation will
be charged as share-based compensation, which may materially and adversely affect the Group’s
results of operations. Issuance of Shares for the purpose of satisfying any award made under the Share
Option Scheme will also increase the number of Shares in issue after such issuance and thus may result
in the dilution to the percentage of ownership of the Shareholders and the net asset value per Share.
No options had been granted pursuant to the Share Option Scheme as at the Latest Practicable Date.
A summary of the terms of the Share Option Scheme is set out in the paragraph headed “Share Option
Scheme” in Appendix V to this prospectus.
RISKS RELATING TO THIS PROSPECTUS
Certain statistics and facts in this prospectus are extracted from various official Government
sources which have not been independently verified
Certain statistics and facts set out in the section headed “Industry overview” in this prospectus
have been extracted from various official Government sources. The Directors have taken reasonable
care in extracting and reproducing such information and have no reason to believe that such
information is false or misleading in any material respects or that any fact has been omitted that would
render such information false or misleading in any material respects, but the Company has not carried
out any independent verification on these statistics and facts. Accordingly, no representation is given
as to the completeness or accuracy of these statistics and facts. Due to different methods or other
factors, the statistics, information, analysis and facts extracted from various official Government
sources contained in this prospectus may be inaccurate and should not be unduly relied upon.
RISK FACTORS
— 32 —
Forward-looking statements contained in this prospectus may not be accurate
This prospectus contains certain forward-looking statements relating to the plans, objectives,
expectations and intentions of the Directors. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual results, performance or
achievements of the Group to be materially different from the anticipated results, performance or
achievements of the Group expressed or implied by these forward-looking statements in this
prospectus. Such forward-looking statements are based on assumptions as to the present and future
business strategies of the Group and the environment in which the Group will operate in the future.
The actual results, performance or achievements of the Group may differ materially from those
discussed in this prospectus.
RISK FACTORS
— 33 —
DIRECTORS’ RESPONSIBILITY FOR THE CONTENTS OF THIS PROSPECTUS
This prospectus, for which the Directors collectively and individually accept full responsibility,
includes particulars given in compliance with the GEM Listing Rules for the purpose of giving
information with regard to the Group. The 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.
Printed copies of this prospectus are available, for information purposes only, at the offices of
the following parties involved in the Placing during normal office hours from 9:00 a.m. to 5:00 p.m.
from 20 August 2010 up to and including 25 August 2010:
Optima Capital Limited
Suite 1501, 15th Floor
Jardine House
1 Connaught Place
Central
Hong Kong
CIMB Securities (HK) Limited
25th Floor, Central Tower
28 Queen’s Road Central
Hong Kong
K.K.M. Securities Limited
8th Floor, Fung House
19-20 Connaught Road Central
Hong Kong
I-Access Investors Limited
Unit 2001, 20th Floor
100 Queen’s Road Central
Hong Kong
Sinomax Securities Limited
Room 1601, Far East Finance Centre
16 Harcourt Road
Admiralty
Hong Kong
Gransing Securities Co., Limited
Room 804-806, Far East Consortium Building
121 Des Voeux Road Central
Hong Kong
INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING
— 34 —
App1A(2)R14.23
PLACING SHARES ARE FULLY UNDERWRITTEN
This prospectus is published solely in connection with the Placing, which is sponsored by Optima
Capital and managed by the Lead Manager and is fully underwritten by the Underwriters (subject to
the terms and conditions of the Underwriting Agreement). For further information about the
Underwriters and the underwriting arrangement, please refer to the section headed “Underwriting” in
this prospectus.
RESTRICTIONS ON SALE OF PLACING SHARES
Each person acquiring the Placing Shares will be required to confirm and is deemed by his
acquisition of the Placing Shares to have confirmed that he is aware of the restrictions on offers of
the Placing Shares described in this prospectus and that he is not acquiring, and has not been offered,
any Placing Shares in circumstances that contravene any such restrictions.
No action has been taken in any jurisdiction other than Hong Kong to permit any of the offering
of the Placing Shares or the distribution of this prospectus. Accordingly, this prospectus may not be
used for the purposes 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.
The Placing is made solely on the basis of the information contained and the representations
made in this prospectus. No person is authorised in connection with the Placing to give any
information or to make any representation not contained in this prospectus, and any information or
representation not contained herein must not be relied upon as having been authorised by the
Company, the Sponsor, the Lead Manager, the Underwriters, any of their respective directors or
affiliates of any of them or any other person and party involved in the Placing. The contents as shown
in the website of the Company of http://www.tsunyip.hk do not form part of this prospectus.
APPLICATION FOR LISTING ON GEM
The Company has applied to the Listing Division for the listing of, and permission to deal in,
the Shares in issue and to be issued as mentioned in this prospectus on GEM. No part of the Company’s
share capital or loan capital is listed or dealt in on any other stock exchange. As at the Latest
Practicable Date, the Company was not seeking or proposing to seek a listing of, or permission to deal
in, any part of its share or loan capital on any other stock exchange.
Pursuant to Rule 11.23(7) of the GEM Listing Rules, at least 25% of the total issued share capital
of the Company must at all times be held by the public. A total of 24,800,000 Placing Shares,
representing 25% of the Company’s issued share capital as enlarged by the allotment and issue of the
Placing Shares will be in the hands of the public immediately following the completion of the Placing
and the Capitalisation Issue and upon Listing. Only securities registered on the branch register of
members of the Company kept in Hong Kong may be traded on GEM unless the Stock Exchange
otherwise agrees.
INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING
— 35 —
App1A(11)
PROFESSIONAL TAX ADVICE RECOMMENDED
Potential investors for the Placing Shares are recommended to consult their advisers if they are
in doubt as to the taxation implications of the subscription for, holding, purchase, disposal of or
dealing in the Shares or exercising their rights thereunder.
The Company, the Directors, the Sponsor, the Lead Manager, the Underwriters, any of their
respective directors, agents or advisers or any other person involved in the Placing do not accept
responsibility for any tax effects on or liabilities resulting from the subscription for, purchase,
holding, disposing of, dealing in, or the exercise of any rights in relation to the Placing Shares.
STAMP DUTY
All the Placing Shares will be registered on the branch register of members of the Company in
Hong Kong. Dealings in the Shares registered on the Company’s branch register of members
maintained in Hong Kong will be subject to Hong Kong stamp duty.
STRUCTURE AND CONDITIONS OF THE PLACING
Details of the structure of the Placing, including its conditions, are set out in the section headed
“Structure and conditions of the Placing” in this prospectus.
SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS
Subject to the granting of the approval for the listing of, and permission to deal in, the Shares
on GEM and the compliance with the stock admission requirements of HKSCC, the Shares will be
accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect
from the Listing Date or any other date as determined by HKSCC.
Settlement of transactions between participants of the Stock Exchange is required to take place
in CCASS on the second Business Day after any trading day. Investors should seek the advice of their
stockbrokers or other professional advisers for details of those settlement arrangements and how such
arrangements will affect their rights and interests.
All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational
Procedures in effect from time to time. All necessary arrangements have been made for the Shares to
be admitted into CCASS.
COMMENCEMENT OF DEALINGS IN THE SHARES
Dealings in the Shares on GEM are expected to commence at 9:30 a.m. on Monday, 30 August
2010. Shares will be traded in board lots of 2,000 Shares each. The GEM stock code for the Shares
is 8356.
INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING
— 36 —
App1A(14)(2)R14.08(7)(b)
App1A(14)(3)
Name Address Nationality
Executive Directors
Mr. Kan Kwok Cheung (簡國祥) Flat B, 21/F., Tower 8The PalazzoNo. 28 Lok King StreetShatinNew TerritoriesHong Kong
Chinese
Mr. Cheng Ka Ming, Martin (鄭家銘) Flat A, 2/F., Block 9Beverly Villas, 16 La Salle RoadKowloon TongKowloonHong Kong
Chinese
Mr. Fung Chung Kin (馮中健) Flat A, 1/F., Block 7Pristine Villa, 18 Pak Lok PathShatinNew TerritoriesHong Kong
Chinese
Mr. Chia Thien Loong, Eric John (謝天龍) Flat H, 37/F., Nerine Cove23 Hang Fu Street, Tuen MunNew TerritoriesHong Kong
Chinese
Independent non-executive Directors
Mr. Lim Hung Chun (林洪進) Flat 3, 5/F, Shing Wing HouseYue Shing Court, ShatinNew TerritoriesHong Kong
Chinese
Mr. Lo Ho Chor (盧浩初) Flat H, 10/FTower 1Island Resort28 Siu Sai Wan RoadHong Kong
Chinese
Mr. Sung Lee Kwok (宋利國) Flat H, 16/FKwun Fung MansionLei King Wan51 Tai Hong StreetHong Kong
Chinese
DIRECTORS
— 37 —
App1A.(41)R24.05(2b)ThirdSchedule 6
Sponsor Optima Capital Limited
Suite 1501, 15th Floor
Jardine House
1 Connaught Place
Central
Hong Kong
Lead Manager CIMB Securities (HK) Limited
25th Floor, Central Tower
28 Queen’s Road Central
Hong Kong
Underwriters K.K.M. Securities Limited
8th Floor, Fung House
19-20 Connaught Road Central
Hong Kong
I-Access Investors Limited
Unit 2001, 20th Floor
100 Queen’s Road Central
Hong Kong
Sinomax Securities Limited
Room 1601, Far East Finance Centre
16 Harcourt Road
Admiralty
Hong Kong
Gransing Securities Co., Limited
Room 804-806, Far East Consortium Building
121 Des Voeux Road Central
Hong Kong
Legal advisers to the Company As to Hong Kong laws:
Michael Li & Co.
14th Floor, Printing House
6 Duddell Street
Central
Hong Kong
As to Cayman Islands laws:
Conyers Dill & Pearman
Cricket Square
Hutchins Drive
Grand Cayman KY1-1111
Cayman Islands
PARTIES INVOLVED IN THE PLACING
— 38 —
App1A(3)R11.09
App1A(15)(3)(h)
Legal advisers to the Sponsor andthe Underwriters
As to Hong Kong laws:
Leung & Lau
13th Floor, Public Bank Centre
120 Des Voeus Road Central
Central
Hong Kong
Auditor and reporting accountants BDO Limited
Certified Public Accountants
25th Floor, Wing On Centre
111 Connaught Road Central
Hong Kong
Property valuer Vigers Appraisal and Consulting Limited
10/F The Grande Building
398 Kwun Tong Road
Kowloon
Hong Kong
Registered office Cricket Square
Hutchins Drive
PO Box 2681
Grand Cayman, KY1-1111
Cayman Islands
Head office and principal place ofbusiness in Hong Kong
Flat 314, 3/F.
Fuk Shing Commercial Building
28 On Lok Mun Street, Fanling
New Territories
Company website http://www.tsunyip.hk*
* The contents of this website do not form part of this prospectus
Company Secretary Mr. Tam Tsang Ngai, FCCA, CPA
Authorised representatives(for the purpose of the GEMListing Rules and for the purposeof Part XI of the CompaniesOrdinance)
Mr. Fung Chung Kin
Flat A, 1/F., Block 7
Pristine Villa, 18 Pak Lok Path, Shatin
New Territories
Hong Kong
Mr. Chia Thien Loong, Eric John
Flat H, 37/F., Nerine Cove
23 Hang Fu Street, Tuen Mun
New Territories
Hong Kong
PARTIES INVOLVED IN THE PLACING
— 39 —
App1A(4)ThirdSchedule 18
App1A(43)
App1A(6)
R11.07(4)R24.05(2)(a)
Compliance adviser Optima Capital Limited
Suite 1501, 15th Floor
Jardine House
1 Connaught Place
Central
Hong Kong
Compliance officer Mr. Chia Thien Loong, Eric John
Audit committee Mr. Lim Hung Chun (Chairman)
Mr. Lo Ho Chor
Mr. Sung Lee Kwok
Remuneration committee Mr. Kan Kwok Cheung (Chairman)
Mr. Lo Ho Chor
Mr. Sung Lee Kwok
Nomination committee Mr. Kan Kwok Cheung (Chairman)
Mr. Lo Ho Chor
Mr. Lim Hung Chun
Principal share registrar andtransfer office in the CaymanIslands
Codan Trust Company (Cayman) Limited
Cricket Square
Hutchins Drive
PO Box 2681
Grand Cayman, KY1-1111
Cayman Islands
Branch share registrar and transferoffice in Hong Kong
Tricor Investor Services Limited
26/F, Tesbury Centre
28 Queen’s Road East, Wanchai
Hong Kong
Principal bankers The Hongkong and Shanghai Banking Corporation Limited
1 Queen’s Road Central, Central
Hong Kong
Hang Seng Bank Limited
83 Des Voeux Road Central
Hong Kong
Bank of China (Hong Kong) Limited
52/F, Bank of China Tower
1 Garden Road, Hong Kong
CORPORATE INFORMATION
— 40 —
R11.09
R11.08R24.05(3)
The information presented in this section has been derived from various official Government
sources. The Directors believe that the sources of this information are appropriate sources for such
information and have taken reasonable care in extracting and reproducing such information. The
Directors have no reason to believe that such information is false or misleading in any material
respects or that any fact has been omitted that would render such information false or misleading
in any material respects. The information has not been independently verified by the Company, the
Sponsor, the Lead Manager, the Underwriters, their respective advisers or affiliates or any other
party involved in the Placing and no representation is given as to its accuracy, and accordingly,
the information contained herein should not be unduly relied upon.
OVERVIEW OF WATER SUPPLY IN HONG KONG
Water shortage used to be a serious problem in Hong Kong before 1980s because of geographical
constraints, unreliable rainfall pattern and continuous increase in demand for safe drinking fresh water
due to rapid growth of population. Local demand for fresh water could not be satisfied by collection
of runoff from rain and the limited supply of fresh water from Shenzhen Reservoir in the PRC.
People’s livelihood and development of the Hong Kong economy were severely affected by the water
rationing imposed from time to time.
In 1989, the Government reached an agreement with the government of Guangdong Province of
the PRC on a regular supply of fresh water from Dongjiang (or the East River) to Hong Kong. Over
the years, the system for supplying fresh water from Guangdong Province to Hong Kong has
undergone continuous expansion with the annual import volume increasing substantially after a series
of agreements.
The new Dongjiang Water Supply Agreement was signed on 11 December 2008 (the “2008
Dongjiang Agreement”). The ultimate annual supply rate is fixed at 1,100 mcm, and such rate is
guaranteed through to 2030. It provides a flexible long term supply of water to Hong Kong that will
precisely meet the city’s needs. By giving a one-month notice, Hong Kong can stipulate the amount
of water to be imported from Dongjiang for the subsequent month after taking into account its existing
storage held in reservoirs and short term weather patterns and forecasts. It enables WSD to better
control storage levels in reservoirs, minimising waste and ensuring optimal pumping costs. Under the
2008 Dongjiang Agreement, the annual costs to be paid by Hong Kong for the Dongjiang water has
been fixed at HK$2,959 million for 2009, HK$3,146 million for 2010 and HK$3,344 million for 2011.
These costs have taken into account the substantial appreciation in China’s RMB against the Hong
Kong dollar and escalating rates of inflation that have been recorded since 2006.
INDUSTRY OVERVIEW
— 41 —
At present, approximately 70% to 80% of Hong Kong’s water supply is piped into Hong Kong
from Dongjiang, the PRC. The remaining 20% to 30% of Hong Kong’s water supply comes from a
network of domestic rainwater catchments that are located across the city’s extensive country parks
and rural areas of Hong Kong. The charts below illustrate the annual quantity of water supply from
2004 to 2008 and the fresh water consumption in 2008 by sectors.
Annual Quantity of Water Supply
2004 2005 2006 2007 20080
1,000
900
800
700
600
500
400
300
200
100
955 968 963 951 956
Local supply of waterImported water fromDongjiang
mcm
Source: Annual report of WSD 2008/09
Fresh Water Consumption by sector in 2008
Use for services andtrading industries
25.2%
Industrial use6.2%
Free supply4.7%
Use for construction& shipping industries
1.2% Flushing use8.5%
Domestic use54.2%
Source: Annual report of WSD 2008/09
Except for annual shutdown period, the daily water supply rate from Dongjiang roughly equals
to Hong Kong’s daily water consumption rate. The daily surplus of imported water, if any, will be
stored in fresh water impounding reservoirs.
INDUSTRY OVERVIEW
— 42 —
WATER SUPPLY SYSTEMS IN HONG KONG
The provision of an adequate water supply is supported by a reliable water supply network in
Hong Kong. WSD is responsible for designing, constructing, operating and maintaining reliable and
efficient fresh water and sea water supply and distribution systems to meet the round-the-clock
demand of water in Hong Kong.
According to WSD, as at 31 March 2009, Hong Kong’s water supply system included 17
impounding reservoirs, 21 water treatment works, 149 fresh water pumping stations, 29 salt water
pumping stations, seven combined fresh and salt water pumping stations, 166 fresh water and 46 salt
water service reservoirs, approximately 6,267km and 1,613km of fresh water mains and sea water
mains respectively, approximately 120km of catchwater, and approximately 199km of water tunnel.
Fresh water supply system
The water is pumped and, in some cases it flows by gravity, after leaving the treatment works
to the service reservoirs which are located at various places and elevations throughout the territory,
each serving a particular area.
Water from the service reservoirs is distributed to customers by gravity via extensive networks
of water mains. The pressure in the system is generally sufficient to provide a direct supply to six or
seven storeys above street level. Upper floors of tall buildings are supplied from their own roof tanks,
filled by their own pumping systems. For higher level areas, such as mid-level developments on Hong
Kong Island, it is necessary for the water to be pumped in stages to service reservoirs situated at
different suitable levels. For remote village areas, the pressure in distribution network system is
normally sufficient to provide a direct supply to three storeys above ground level.
The distribution system serves to transfer water from one location to another by means of
mechanical pumping or by gravity. Most of the pumping equipment is electrically powered.
INDUSTRY OVERVIEW
— 43 —
The following diagram illustrates a typical fresh water supply system in Hong Kong:
Source: The website of WSD - www.wsd.gov.hk, February 2009
Seawater supply system
Since the late 1950’s, WSD has supplied seawater, primarily for flushing, in Government and
Government-aided high density development schemes. At present, seawater is already available for
toilet flushing in metropolitan areas and most of the new towns, covering about 80% of the population
in Hong Kong. The extensive use of seawater has helped to reduce the demand on fresh water for
flushing. During 2009, an average of 742,000 cubic metres per day of seawater was supplied for
flushing purposes, conserving an equivalent amount of potable water.
INDUSTRY OVERVIEW
— 44 —
The following diagram illustrates a typical sea water supply system in Hong Kong:
Source: The website of WSD — www.wsd.com.gov.hk, January 2010
WATERWORKS ENGINEERING SERVICES
The Government is solely responsible for maintaining a reliable water supply and distribution
system in Hong Kong. WSD carries out design and supervision of construction of waterworks projects
which include catchwater, tunnels, reservoirs, water treatment works, access roads, pumping stations
and pipeworks. Specialist works such as laying of submarine pipeline, dam construction and major
water supply projects are usually undertaken by consulting engineers. WSD also monitors water
storage, operation and maintenance of catchwater, intakes, impounding reservoirs, pumping stations,
water treatment works, service reservoirs, trunk and distribution mains to ensure a reliable water
supply to the customers. In this regard, WSD from time to time grants term contracts in respect of
maintenance of water supply systems to approved contractors.
For the provision of water supply services and maintenance of the relevant facilities, WSD
divides Hong Kong into several districts and in each district, the maintenance of waterworks
installations is covered by the relevant term contract. The maintenance contracts offered by WSD are
usually for a term of three years. Works orders given by WSD during the term of the contract will
usually cover the maintenance of waterworks installations, such as catchwaters, water mains, pumping
stations, service reservoirs, treatment works, watercourses and all the associated construction works
in the district. The awarded contractor is also required to manage the maintenance works of
waterworks installations on behalf of WSD in emergency situations.
INDUSTRY OVERVIEW
— 45 —
Contractors tendering for Government projects in the capacity of a main contractor are required
to comply with the licencing requirements stipulated by WBDB. Upon fulfillment of the licencing
requirements, the contractor will be admitted to different category and different group on the
Contractor List based on its financial, technical and management personnel capabilities. There are
specific limits for contractors in each group on the value of contracts for which they are normally
eligible to tender. As at the Latest Practicable Date, the tender limits were HK$30 million for Group
A contractors, HK$75 million for Group B contractors and any value exceeding HK$75 million for
Group C contractors. In general, contractors undertaking Government projects in the capacity of a
subcontractor are not required to satisfy the relevant licencing requirements that are applicable to
main contractors. Please refer to the section headed “Licencing and other requirements for
Government projects” in this prospectus for details of the licencing requirements.
According to WBDB, the number of approved contractors listed on the Contractor List under the
category “Waterworks” as at 31 July 2010 was as follows:
Group WaterworksConfirmed Probationary
A 2 22B 4 7C 20 15
For number of approved contractors listed on the Contractor List under the categories, “Roads
and Drainage” and “Site Formation”, please refer to the paragraph headed “Contractor List” under the
section headed “Licencing and other requirements for Government contracts” in this prospectus.
Based on the information contained in the above table, there were only four contractors with
confirmed status and seven contractors with probationary status in Group B under the category of
“Waterworks” as at 31 July 2010. TYW is one of the confirmed contractors in Group B under the
category of “Waterworks”.
Based on the active WSD capital works contract list of July 2010 as extracted from WSD’s
website on 21 July 2010, there were 34 contractors (including joint ventures formed by approved
contractors) undertaking a total of 67 contracts of various contract values requiring different licences,
with 13 of which are due to complete in 2010 and the remaining 54 contracts are due to complete
during 2011 to 2014.
INDUSTRY OVERVIEW
— 46 —
Set out below is the status of the aforesaid 34 contractors:
Contractor List Confirmed ProbationaryNumber of
contractors
Group A 1 1 2 (Note 2)
Group B 2 2 4 (Note 3)
Group C 10 6 16 (Note 4)
Subtotal 22
Specialist List 7
Joint ventures (Note 1) 3
Building/construction related licence 2
Total number of contractors on the active
WSD capital works contract list 34
Notes:
1. The joint venture partners are registered contractors on the Contractor List.
2. One of the Group A contractors is also on the Specialist List.
3. One of the Group B contractors is also on the Specialist List.
4. Eight of the Group C contractors are also on the Specialist List.
Out of the aforesaid 67 contracts, 16 of which with contract value below HK$30 million and 10
of which with contract value between HK$30 million and HK$75 million. Group C contractors are
normally not allowed to tender for contracts in Groups A and B unless the relevant department
considers that there may be an inadequate number of tenderers as a result of the restriction. Group B
contractors, however, are allowed to tender for contracts in Group A. In addition, Group A and Group
B probationary contractors are subject to the restriction that the aggregate value of works undertaken
by them in their respective categories shall not exceed HK$30 million and HK$75 million respectively
whilst Group A and Group B confirmed contractors are not subject to the aforesaid restriction. Taking
into account that there are 10 contracts with contract value between HK$30 million and HK$75 million
and considering that there are only four contractors out of 11 contractors with Group B licence on the
Contractor List currently undertaking waterworks contracts as main contractors, the Directors
consider that the competition among Group B contractors is not particularly keen.
Among the aforesaid 34 contractors, seven of them have been awarded four or more contracts by
WSD. Among the aforesaid seven active players, three of them are subsidiaries of companies listed
in Hong Kong.
INDUSTRY OVERVIEW
— 47 —
Based on the 2010-11 budget of the Government, the estimated total amount of capital to be spent
on waterworks by WSD is approximately HK$5,944 million for the fiscal year of 2010/2011. In
addition, there are 19 waterworks related projects under planning and 22 projects under design with
a total contractual value of approximately HK$6,081 million and approximately HK$6,550 million
respectively.
REPLACEMENT AND REHABILITATION OF WATER MAINS
The supply of fresh and salt water in Hong Kong is provided through a network of approximately
7,800km of water mains. Most of these water mains are underground. A substantial portion of the
water mains was laid more than 30 years ago as part of the development of urban areas and new towns.
These water mains are approaching the end of their service life and have become increasingly difficult
and costly to maintain.
Having taken into account the future savings in maintenance costs, the loss of water and social
implications of leakages and main bursts, WSD commissioned an underground asset management plan
to develop a comprehensive and cost-effective asset management plan for the water supply network.
As a result, the Government implemented a programme to replace and rehabilitate approximately
3,000km of water mains (which comprises fresh water mains, salt water mains and raw water mains)
in Hong Kong at different stages within a period of 15 years for the purpose of preventing further
deterioration in the water supply infrastructure in Hong Kong. In this connection, the Government
estimated that the total cost for replacement and rehabilitation of the aged water mains would be
approximately HK$22.8 billion and the entire programme would be completed by 2015.
The implementation plan of the replacement and rehabilitation program as disclosed on the
website of WSD is summarised as follows:
Stage 1
Phase 1:
• Works comprise replacement and rehabilitation of about 350km of water mains throughout
the territory.
• Advance works comprising replacement of about 33km of water mains commenced in
December 2000 and were completed in February 2006.
• Main works (remaining works) commenced in June 2003 for completion in December 2008.
Phase 2:
• Works comprise replacement and rehabilitation of about 250km of water mains throughout
the territory.
• Advance works in Sha Tin and Tai Wai comprising replacement and rehabilitation of about
9km of water mains commenced in September 2005 and were completed by end of 2007.
INDUSTRY OVERVIEW
— 48 —
• Main works (remaining works) commenced in August 2006 for completion in March 2010.
Stage 2
• Works comprise replacement and rehabilitation of about 750km of water mains throughout
the territory.
• Works commenced in January 2007 for completion in 2011.
Stage 3
• Works comprise replacement and rehabilitation of about 800km of water mains throughout
the territory.
• Investigation and detailed design for the project has commenced in October 2006.
• Works commenced in September 2008 for completion in 2013.
Stage 4
• Works comprise replacement and rehabilitation of about 850km of water mains throughout
the territory.
• Investigation and detailed design for the project commenced in September 2008.
• Works have been scheduled to commence in early 2011 for completion in 2015.
INDUSTRY OVERVIEW
— 49 —
The chart below illustrates the progress of works in respect of different stages:
Percentage of completion of replacement and rehabilitation works
at different stages as at June 2010
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
All Stages Stage 1phase 1
Stage 1phase 2
Stage 2 Stage 3 Stage 4
Completed Uncompleted
Source: Reproduced from the Replacement and Rehabilitation Programme of
Water Mains published by WSD
Benefit from the works of the replacement and rehabilitation programme of water mains
Ageing water mains are approaching the end of their service life and have become increasingly
difficult and costly to maintain. Upon completion of the replacement and rehabilitation programme
which has been scheduled to be in 2015, the maintenance cost of these water mains is expected to be
reduced. To replace and rehabilitate these water mains is, therefore, cost effective. As the condition
of the water supply network will be strengthened upon completion of these replacement and
rehabilitation works, the anticipated number of pipe failures per year will be decreased from the level
of 24,970 in 2000 to 15,000 in 2015. The disturbances due to disruption of traffic, loss of trade,
inconvenience to general public and the disruption of water supply to consumers arising from water
main leaks and bursts is expected to be minimized. Moreover, the loss of water through leakage and
bursting of water mains is also expected to be reduced.
INDUSTRY OVERVIEW
— 50 —
The chart below illustrates the historical annual figures of number of pipe burst and pipe leak
in Hong Kong from 2000 to 2009.
Numbers of pipe bursts and leaks
21,693 20,936
23,65119,199
17,393
24,0003,500
4,000
2,479
2,211
1,885
2,064
1,8121,585 1,639
1,816
1,321
14,65712,472
13,360 13,820
4,000
9,000
14,000
1,000
1,500
2,000
2,500
3,000 19,000
00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09
No. of pipe burst
No. of pipe leak
No.
ofpi
pebu
rst
No.
ofpi
pele
ak
Year
Source: Reproduced from the Replacement and Rehabilitation Programme of Water Mains published by WSD
The Government will commission a review to appraise the condition of the remaining water
mains which are not subject to the current replacement and rehabilitation programme. Subject to the
review findings, the Government may extend the programme beyond 2015 to cover the remaining
distribution network of water mains.
ALTERNATIVE WATER SUPPLY AND WATER RESOURCES PROTECTION
Hong Kong is constantly looking for alternative sources of water to supplement its domestic
supplies. Sea water is a key alternative and is an importance source of flushing water. Currently, about
80% of Hong Kong’s population uses salt water for flushing purposes. WSD will undertake a
programme of capital works for system improvements and extensions to the salt water supply system
for flushing. Major projects include new salt water supply systems to service Pok Fu Lam, Yuen Long
and Tin Shui Wai. The aforesaid projects involve construction of service reservoir, pumping stations
and associated main laying in Pok Fu Lam and construction of salt water service reservoir, main laying
and associated work in Yuen Long and Tin Shui Wai. Contracts in respect of the above projects have
been awarded by WSD. A ring main system will be implemented for Cheung Sha Wan and the salt
water supply system in Wan Chai will be upgraded. No details of the ring main system for Cheung Sha
Wan is currently available on the website of WSD. The upgrading of the salt water supply system in
Wan Chai was scheduled for tendering in late 2009.
WSD also plans to strengthen the current practice of protecting local water resources. Apart from
conducting study to assess the water pollution risks and impacts, WSD will start a capital works
project by 2011 to improve the existing catchwater system for safe and effective collection of surface
water.
INDUSTRY OVERVIEW
— 51 —
TENDERING FOR PUBLIC SECTOR PROJECTS
Contracts in the public sector in Hong Kong are normally awarded through open and competitive
tendering procedures with a view to obtaining the best value for money. Tenders may be invited in the
following ways:
(i) Open tendering
Tender invitations are published in the Government Gazette and, if necessary, in the local
press, on the internet and in selected overseas journals. All interested contractors/suppliers are
free to submit tenders.
(ii) Selective tendering
Tender invitations are published in the Government Gazette or are sent by letter to all
contractors/suppliers on the relevant approved lists of qualified contractors/suppliers established
by WBDB for the purpose of selective tendering.
(iii) Prequalified tendering
Tender invitations are sent to those prequalified contractors approved by the Permanent
Secretary for Financial Services and the Treasury. Invitations to apply for prequalification may
take the form of open tendering or selective tendering and the respective procedures will apply.
(iv) Single and restricted tendering
Tender invitations are sent to only one or a limited number of contractors/suppliers
approved by the Permanent Secretary for Financial Services and the Treasury or the Director of
Government Logistics. This tendering method is only used when circumstances do not permit
open tendering, for example, on grounds of extreme urgency or security, for proprietary products
or for reasons of compatibility.
Services are procured by the individual works departments concerned under the general
supervision of WBDB. WSD is the principal Government authority that is responsible for procuring
waterworks services for the public sector. In general, procuring departments are required to provide
in the tender documents all the necessary information to assist the bidders to prepare their tenders,
including standard contract forms covering the general aspects of tender and contract requirements,
special conditions of contract, detailed price schedules, additional information and instructions
applicable to a particular contract. The procuring department is responsible for evaluating the tenders
to determine whether they meet the conditions and specifications laid down in the tender document.
Tenders are generally evaluated by the formula approach or the marking scheme approach. These
two methods basically involve a systematic evaluation of the tenderers’ experience, past performance
record and particular technical ability. The formula approach is applied for general work projects,
INDUSTRY OVERVIEW
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while the marking scheme approach is generally used for non-recurring and relatively complicated
projects which require evaluation on particular ability and past experience on the contractor candidate.
Both approaches take into consideration the quality of work of the tenderers in addition to their
financial bids. Therefore, the winning bid is not necessarily awarded to the lowest bid.
Public sector projects are sometimes contracted out by the main contractors to subcontractors and
such subcontracts may also be awarded by way of tenders or upon private invitation. The selection
criteria and process for subcontracting are determined by the main contractors.
TENDERING FOR PRIVATE SECTOR PROJECTS
In the private sector, tenders are usually by invitation and the contracts are awarded at the
discretion of the clients. Contractors for the private sector are in general not required to satisfy the
licencing requirements that are applicable to the undertaking of contract works as a main contractor
for the public sector. However, based on the Directors’ best knowledge, information and belief, for
substantial projects implemented by established organisations, invitations are usually given to selected
contractors or specialist contractors which are licenced by the Government under the respective
categories. In addition to the competitiveness of the price quoted by the contractors, the job
experience and track record of the contractors are also the determining factors in winning a contract.
In selecting subcontractors, the main contractors, either for private or public projects, may adopt
similar selection processes. It is therefore important to establish good relationships with customers
and main contractors as well as a good reputation in the market.
INDUSTRY OVERVIEW
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INTRODUCTION
WBDB is responsible for ensuring the effective planning, management and implementation of
public sector infrastructure development and works programmes in a safe, timely and cost-effective
manner and to maintain high quality and standards. It has maintained the Contractor List and the
Specialist List to monitor the eligibility of a contractor to tender for Government contracts. In order
to be eligible, a contractor must be included in at least one of the aforesaid lists.
Members of the Group, to be eligible for providing civil engineering services to the Government
in the capacity of a main contractor, are required to comply with the licencing requirements set forth
in the ETWB Handbook.
Subcontractors undertaking contracts in the public sector for main contractors are not required
to satisfy the relevant licencing requirements under the ETWB Handbook that are applicable to the
main contractors. However, pursuant to a technical circular issued by WBDB on 14 June 2004, all
capital works contracts and maintenance contracts of the Government with tenders to be invited on or
after 15 August 2004 require the contractors to employ subcontractors (whether nominated,
specialised or domestic) that are registered for the respective trades under the Primary Register of the
Registration Scheme introduced by the Provisional Construction Industry Co-ordination Board
(臨時建造業統籌委員會) whose work was taken over by the Construction Industry Council
(建造業議會) in February 2007.
CONTRACTOR LIST
The Contractor List comprises contractors who are approved for carrying out public works in one
or more of the five work categories of building and civil engineering works classified by WBDB. The
following table sets forth the five work categories and the respective managing departments of the
Government:
Category Managing department
Buildings Architectural Services Department (建築署)
Port Works Civil Engineering and Development Department
(土木工程拓展署)
Roads and Drainage Highways Department (路政署)
Site Formation Civil Engineering and Development Department
(土木工程拓展署)
Waterworks WSD
The managing department for a work category is the department most closely connected with that
particular type of work and is responsible for servicing and monitoring the performance of all
contractors within that category.
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According to the ETWB Handbook, contractors within each of the above five categories are
further divided into Groups A, B and C respectively according to the value of contracts for which they
are normally eligible to tender. The tender limits for contractors in each group are periodically
adjusted and are currently set as to HK$30 million for Group A contractors, HK$75 million for Group
B contractors and any value exceeding HK$75 million for Group C contractors. In addition, Group C
contractors are generally not allowed to tender for contracts in Groups A and B unless the responsible
Government department considers that there may be an inadequate number of tenderers as a result of
the restriction.
A contractor’s status in a particular group will either be probationary or confirmed. Contractors
are limited in the number and value of contracts for which they are eligible to tender according to their
status in their respective group and category. Admission into a certain group and category will be
subject to certain financial criteria and the appropriate technical and management capabilities. A
probationary contractor may, subject to a minimum probationary period of 24 months, apply for a
confirmed status when it has satisfactorily completed works appropriate to its probationary status in
accordance with the criteria for confirmation. Except in the most exceptional circumstances, a
contractor will be admitted initially on probation to the appropriate group and category. Confirmation
will also be subject to the contractor being able to meet the financial criteria applicable to confirmed
status, having the appropriate technical and management capabilities and in all other ways being
considered suitable for confirmation. A confirmed contractor may apply for promotion to a higher
group in a particular category if it is able to meet the financial criteria applicable to the higher group
and it has the appropriate technical and management capabilities, with a satisfactory record of
performance. Other than in the most exceptional circumstances, a contractor applying for promotion
will first be admitted on probation to the next higher group and the rules applicable to probationary
contractors in that particular group will apply.
According to WBDB, a contractor is required to maintain certain minimum levels of employed
and working capital applicable to the appropriate group and status by submitting (i) the original or
certified true copy of their latest audited accounts and latest yearly management accounts in case the
contractor is a Group C contractor on the Contractor List; (ii) certified statements of outstanding
workload; (iii) supplementary information including but not limited to a statement giving details of
significant events which occurred after the year end date of the latest audited financial statements
which would affect the contractor’s financial position; a statement giving details of any off-balance
sheet liabilities, including contingent liabilities, if not covered in the audited financial statements; a
statement listing current or outstanding contracts in hand with total and outstanding contract sums,
contract period and time required to complete the outstanding portion of the contract; bank letters or
agreements on existing banking facilities such asterm loans and overdraft; and (iv) answer all
reasonable enquiries from WBDB. The financial criteria for admission to and retention on the
Contractor List as at the Latest Practicable Date are set forth below:
LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS
— 55 —
Group/Status Minimum employed capital# Minimum working capital*
Group A - probationary HK$1,800,000 HK$1,800,000 or 15% on
annualised outstanding works,
whichever is higher
Group A - confirmed HK$3,400,000 HK$3,400,000 or 15% on
annualised outstanding works,
whichever is higher
Group B - probationary HK$4,200,000 HK$4,200,000 or 10% on
annualised outstanding works,
whichever is higher
Group B - confirmed HK$8,600,000 HK$8,600,000 or 10% on
annualised outstanding works,
whichever is higher
Group C - probationary HK$12,600,000 plus
HK$2,000,000 for every
HK$100 million of annualised
outstanding works or part
thereof above $800 million
HK$12,600,000 or 8% on the
first HK$800 million of
annualised outstanding works
and 10% on remainder,
whichever is higher
Group C - confirmed HK$16,000,000 plus
HK$2,000,000 for every
HK$100 million of annualised
outstanding works or part
thereof above HK$800 million
HK$16,000,000 or 8% on the
first HK$800 million of
annualised outstanding works
and 10% on remainder,
whichever is higher
# Employed capital represents shareholders’ equity with adjustments made by WBDB
* Working capital represents net current assets with adjustments made by WBDB
LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS
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According to WBDB, the minimum technical and management criteria for admission,
confirmation and promotion of contractors for the Contractor List as at the Latest Practicable Date are
set forth below:
Group/Status Roads and Drainage Site Formation Waterworks
Entry on
probation to
Group A
1) Satisfactory completion
of Government roads and
drainage works, within
the past five years, to a
total value of not less
than 50% of the Group A
limit. Experience as a
subcontractor may count.
Private sector experience
may also be accredited.
There are no Group A
contractors for the Site
Formation category.
1) Possession of adequate
waterworks construction
experience either acquired
as contractor or
subcontractor for
Government contracts.
2) Mainlaying experience is
a pre-requisite.
3) Normally expected to
have undertaken works of
a waterworks nature with
a total value of over
HK$10 million in the past
ten years.
Confirmation
to Group A
1) Satisfactory completion
of at least one
Government roads and
drainage contract of value
over 50% of the Group A
limit after inclusion in
Group A on probation.
Experience as a
subcontractor may count.
There are no Group A
contractors for the Site
Formation category.
1) Satisfactory completion
of at least one mainlaying
contract in the
waterworks category of
value over 75% of the
Group A limit or two or
more mainlaying
contracts in the
waterworks category with
a total value of not less
than HK$20 million, after
inclusion in Group A on
probation.
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— 57 —
Group/Status Roads and Drainage Site Formation Waterworks
Entry on
probation to
Group B
A. Direct entry
1) Satisfactory completion
of Government roads and
drainage works, within
the past five years, to a
total value of not less
than the Group B limit.
Experience as a
subcontractor may count.
Private sector experience
may also be accredited.
1) Satisfactory completion,
within the past 5 years,
one contract or contracts
involving total earthworks
quantity not less than
100,000 m3, of which one
contract would involve
earthworks quantity not
less than 50,000 m3 in
one or more of the
following:
i) bulk excavation
and filling
(excluding
quarrying and
maintenance of
spoil dumps);
ii) sanitary landfill;
iii) slope stabilization.
2) Experience as a
subcontractor may be
accredited.
A. Direct entry
1) Possession of waterworks
construction experience
either acquired as
contractor or
subcontractor for private
sector contracts, or as
subcontractor for
Government contracts.
2) Mainlaying experience is
a pre-requisite.
3) Satisfactory completion
of three or more contracts
of a waterworks nature of
totally not less than
HK$75 million in value
in the past ten years. If in
the capacity of a
subcontractor, the
applicant must prove to
have a major involvement
in the works.
B. By promotion
1) Satisfactory completion
of at least one
Government roads and
drainage contract of value
not less than 75% of the
Group A limit after
confirmation in Group A.
Experience as a
subcontractor may count.
B. By promotion
1) Satisfactory completion
of three or more contracts
in the waterworks
category of totally not
less than HK$25 million
in value after
confirmation in Group A.
2) Private sector experience
may be accepted to
supplement public sector
experience.
LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS
— 58 —
Group/Status Roads and Drainage Site Formation Waterworks
Confirmation
to Group B
1) Satisfactory completion
of at least one
Government roads and
drainage contract of value
not less than 75% of the
Group B limit after
inclusion in Group B on
probation. Experience as
a subcontractor may
count.
1) Satisfactory completion
of at least one
Government Site
Formation contract within
the past 5 years of value
not less than 50% of the
Group B limit, or one
Government contract with
earthworks quantity not
less than 200,000 m3
since inclusion.
Experience as a
subcontractor is not
accredited.
1) Satisfactory completion
of at least one contract in
the waterworks category
of value over 75% of the
Group B limit or an
aggregate value of work
of at least HK$50 million
with at least one contract
in Group B value, after
admission to Group B on
probation.
Entry on
probation to
Group C
A. Direct entry
1) Satisfactory completion in
the past 10 years of a
sufficient number of
roads and drainage
contracts of a total value
not less than two times
the probationary Group C
limit. The value of each
contract shall be over
75% of the Group B
limit. Experience as a
subcontractor is not
accredited.
A. Direct Entry
1) Satisfactory completion in
the past 5 years of at
least two contracts in the
works category, each of
value over 75% of the
Group B limit.
Experience as a
subcontractor is not
accredited.
A. Direct entry
1) Possession of waterworks
construction experience
either acquired as
contractor or
subcontractor for private
sector contracts, or as
subcontractor for
Government contracts.
2) Mainlaying experience is
a pre-requisite.
3) Satisfactory completion
of four or more contracts
of at least two different
types of work totally
valued at not less than
HK$180 million with at
least one contract of
Group C value in the past
10 years. If in the
capacity of a
subcontractor, the
applicant must prove to
have a major involvement
in the works.
LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS
— 59 —
Group/Status Roads and Drainage Site Formation Waterworks
B. By promotion
1) Satisfactory completion
of at least one
Government roads and
drainage contract of value
not less than 75% of the
Group B limit after
confirmation to Group B.
Experience as a principal
subcontractor is not
accredited.
B. By Promotion
1) Satisfactory completion
of at least one
Government Group B site
formation contract within
the past 5 years, after
confirmation to Group B,
of value not less than
75% of the Group B
limit, or one Government
contract involving
earthworks quantity not
less than 300,000 m3.
Experience as a
subcontractor is not
accredited.
2) Private sector experience
may be accepted to
supplement public sector
experience.
B. By Promotion
1) Satisfactory completion
of three or more contracts
in the waterworks
category of at least two
different types of work
totally valued at not less
than HK$60 million with
at least one contract of
Group B value, after
confirmation to Group B.
2) Private sector experience
may be accepted to
supplement public sector
experience.
Confirmation
to Group C
1) Satisfactory completion
of at least one
Government roads and
drainage contract of value
over HK$90 million.
Experience as a
subcontractor is not
accredited.
1) Satisfactory completion
of at least one
Government Group C site
formation contract within
the past 5 years of value
over $90 million.
Experience as a
subcontractor is not
accredited.
1) Satisfactory completion
of two Group C contracts
in the waterworks
category of two different
types of work totally
valued of not less than
HK$120 million after
admission to Group C on
probation.
According to WBDB, the minimum number and qualifications of full time management and
technical personnel to be employed by a contractor for the Contractor List before admission, retention,
confirmation or promotion as at the Latest Practicable Date are set forth below:
Group/Status Roads and Drainage, Waterworks (Note 1)
Group A (probationary or
confirmed)
Top management (Notes 2, 3 and 4)
At least one member of the resident top management shall
have a minimum of one year local experience in managing a
construction firm obtained in the past three years.
LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS
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Technical staff (Notes 3 and 4)
At least one person with one or more of the following
qualifications:
(i) Higher Certificate in Civil Engineering from a Hong
Kong polytechnic, a Hong Kong recognised training
institution or equivalent and one year local working
experience in the relevant category of works; or
(ii) Ordinary Certificate in Civil Engineering from a Hong
Kong polytechnic, a Hong Kong recognised training
institution or equivalent and two years local working
experience in the relevant category of works; or
(iii) at least ten years local working experience in the
relevant category of works.
Group/Status Roads and Drainage, Site Formation, Waterworks
Group B (probationary or
confirmed)
Top management (Notes 2, 3 and 4)
At least one member of the resident top management shall
have a minimum of three years local experience in managing
a construction firm obtained in the past five years.
Technical staff (Notes 3 and 4)
At least one person with the following qualifications:
(i) Higher Certificate in Civil Engineering from a Hong
Kong polytechnic, a Hong Kong recognised training
institution or equivalent and two years local working
experience in the relevant category of works; or
(ii) Ordinary Certificate in Civil Engineering from a Hong
Kong polytechnic, a Hong Kong recognised training
institution or equivalent and three years local working
experience in the relevant category of works.
LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS
— 61 —
Group C (probationary or
confirmed)
Top management (Notes 2, 3 and 4)
At least one member of the resident top management shall
have a minimum of five years local experience in managing a
construction firm obtained in the past eight years.
Technical staff (Notes 3 and 4)
At least two persons with a relevant degree from a Hong Kong
university or equivalent with at least five years post-graduate
local working experience in the relevant category of works.
Notes:
1. There are no Group A contractors for the Site Formation category.
2. Top management shall be the president, chairman, director, managing director, executive director, or general
manager etc.
3. The top management and the technical staff must be two individual persons.
4. For admission, retention, confirmation or promotion in more than one category, the contractor is required to
employ one top management with qualifications and experience appropriate to the highest group only instead of
one for each category. However, he is required to employ a minimum of one experienced technical staff for each
category regardless of the number specified in the above table. The experience and qualifications of the technical
staff shall be as specified for the appropriate group and category in the above table.
According to WBDB, the number of approved contractors listed on the Contractor List for each
work category as at 31 July 2010 was as follows:
Group Waterworks Roads and Drainage Site Formation
Confirmed Probationary Confirmed Probationary Confirmed Probationary
A 2 22 10 33 0 0
B 4 7 17 34 3 42
C 20 15 38 18 21 16
SPECIALIST LIST
The Specialist List comprises suppliers of materials/specialist contractors who are approved for
carrying out public works in one or more of the 49 categories of specialist works classified by WBDB.
Some contractors within a category are further divided into classes according to the types of works
within that particular category and groups according to the value of contracts for which they are
normally eligible to tender. Group tender limits are applicable to eight categories of works and are
periodically adjusted. The admission, retention, confirmation and probation criteria for the Specialist
List are also subject to financial, technical and management criteria similar to those under the
Contractor List, except that the length of probationary period for each category (if any) varies. As at
the Latest Practicable Date, no member of the Group has been admitted to the Specialist List.
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CONTRACTORS’ PERFORMANCE INDEX SYSTEM
A contractors’ performance index system (the “Contractors’ Performance Index System”) was
established by the ETWB in 2000 to provide a ready indication of contractors’ performance standard
for reference by the project office and relevant tender board in tender evaluation. The evaluation of
contractors’ performance is based on the reports written on the contractors’ performance in
Government works contracts in accordance with the ETWB Handbook. The contractors’ performance
reports are normally due on the last day of February, May, August and November. The 3-month periods
in between the aforesaid due dates are referred to as the reporting periods.
Under the Contractors’ Performance Index System, the performance of a contractor is
represented by a performance rating which is derived from the performance scores given in all the
reports written on the performance of the contractors in Government works contracts in the preceding
12 reporting periods. The performance score of a contractor’s performance report is determined by the
percentage of the scores attained by the contractor over the maximum scores in 11 different attributes,
including but not limited to workmanship, progress, site safety, environmental pollution control,
organisation, general obligations, industry awareness, resources and attitude to claims. A weighting
shall be assigned to each contract according to the original contract sum based on the scale set out in
the Contractor’s Performance Index System. The performance rating of a contractor is the weighted
average of the aforesaid performance scores of all the reports on the performance of the contractor in
the preceding 12 reporting periods. WBDB will then generate the performance rating of each
contractor on the Contractor List on the first working day of February, May, August and November.
The performance ratings are not publicly viewable. Instead, each contractor on the Contractor
List will be advised of its performance rating in the form of a letter by post. The aforesaid letter from
WBDB sets out the highest, lowest, median and average ratings of contractors rated under each
specific group of the relevant categories during the reporting period. Pursuant to the Technical
Circular (Works) No. 3/2007 issued by the ETWB on 12 March 2007, the performance rating of a
contractor is based on a scale of 0 to 100 and there is no passing mark defined in the Contractors’
Performance Index System. However, if a contractor’s current performance rating falls below 40, or
if there is an obvious and consistent downward trend, a closer examination of the contractor’s past
performance should be carried out and full justification must be provided before its tender is
recommended for acceptance.
PRIMARY REGISTER OF THE REGISTRATION SCHEME
The purpose of the Registration Scheme is to build up a pool of capable and responsible
subcontractors with specialised skills and strong professional ethics and provide a platform for the
launching of new improvement initiatives through collaboration with training institutions,
professional bodies and tertiary institutions. The Registration Scheme will be overseen by a
management committee made up of representatives nominated by major client organisations and
contractors trade associations formed under auspices of the Construction Industry Council
(建造業議會). This committee assumes the responsibility for enforcing the registration rules and
LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS
— 63 —
procedures, screening and approving applications for registration, as well as instigating regulatory
actions under justifiable circumstances. As at the Latest Practicable Date, there were a total 792
subcontractors registered for “general civil works” including but not limited to “road drainage and
sewer” and “others (water mains)” under the Registration Scheme.
During the Track Record Period, the Group was in full compliance with the requirement of
engaging subcontractors that are registered for the respective trades under the Primary Register of the
Registration Scheme for implementation of Government contracts.
GENERAL
The Contractor List, the Specialist List and the associated regulatory regime are put in place to
ensure that certain standards of financial capability, technical expertise, management and safety are
maintained by the contractors carrying out Government works. If doubts arise about the ability of a
contractor to meet the minimum standards generally or for a particular class of contracts, it may not
be allowed to tender for any new work until it can demonstrate that it can meet the required standard.
The Secretary of WBDB reserves the right to remove any contractor from the Contractor List
and/or the Specialist List or take other regulating action against a contractor such as suspension, or
where applicable, downgrading to probationary status or demotion to a lower group, in respect of all
or any of the works categories the contractor is in. Before deciding on such action, a contractor will
be given adequate warning of the action proposed and advised of the reasons for it and given the
opportunity to present their views of the matter. Circumstances which may lead to the taking of
regulating actions include, but not limited to:
(i) unsatisfactory performance;
(ii) failure to submit a valid competitive tender for a period of three years;
(iii) failure to submit accounts or meet the financial criteria within the prescribed time;
(iv) failure to answer queries or provide information relevant to the listing status of a contractor
on the Contractor List and/or the Specialist List within the prescribed time;
(v) misconduct or suspected misconduct;
(vi) winding-up, bankruptcy or other financial problems;
(vii) poor site safety record;
(viii) failure or refusal to implement an accepted tender;
(ix) poor environmental performance;
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(x) court convictions, such as contravention of site safety legislation and Employment
Ordinance and employment of illegal workers;
(xi) failure to employ the minimum number of full time management and technical personnel;
(xii) violation of laws;
(xiii) poor integrity of its employees, agents and subcontractors in relation to any public works
contract unless the misconduct is not within the control of the contractor;
(xiv) public interest;
(xv) public safety and public health;
(xvi) serious or suspected serious poor performance or other serious causes in any public or
private sector works contract; and
(xvii) failure to comply with any of the rules for administration of the Contractor List or the
Specialist List giving rise to reasonable suspicions as to the capacity or integrity of the
contractor.
As advised by the Directors, none of the members of the Group (including TYC) has been subject
to any regulatory action from WBDB.
A project may occasionally involve several types of works which are inter-related to one another
but are classified under different work categories. In that case a contractor may be required to be listed
on the Contractor List and/or the Specialist List with approved status in all the relevant work
categories. TYW has been admitted to the Contractor List.
Waterworks projects sometimes involve civil works which are associated with roads and drainage
and site formation. Work categories which are generally relevant in respect of the undertaking of
waterworks projects from the Government are as follows:
Waterworks
As a requirement for undertaking waterworks projects in the public sector as a main contractor,
a contractor is required to be listed in the Contractor List under the category of “Waterworks”
maintained by WBDB. In general, WSD is responsible for servicing and monitoring the performance
of all contractors within such category. Waterworks contracts usually come from WSD. Being a
licenced contractor with confirmed status under Group B of the “Waterworks” category since May
2009, TYW is eligible for the award of any number of Government contracts, save for maintenance
contracts which are grouped by the Government as subject to restrictions, under this category provided
that the contract value of each individual contract does not exceed HK$75 million and TYW fulfills
the minimum employed capital and working capital requirements. According to the technical circular
LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS
— 65 —
of WBDB, any approved contractor, acting as a main contractor, may not be awarded with more than
two such waterworks maintenance contracts at any time. Save as disclosed above, there is no other
limitation or restriction on the number of contracts which TYW is eligible for award under this
category.
Roads and drainage
As a requirement for undertaking public works projects in relation to roads and drainage as a
main contractor, a contractor is required to be listed in the Contractor List under the category of
“Roads and Drainage” maintained by WBDB, and the Highways Department (路政署) of the
Government is generally responsible for servicing and monitoring the performance of all contractors
within such category. Being a licenced contractor with confirmed status under Group B of the “Roads
and Drainage” category since March 2009, TYW is eligible for the award of any number of
Government contracts, save for maintenance contracts which are grouped by the Government as
subject to restrictions, under this category provided that the contract value of each individual contract
does not exceed HK$75 million and TYW fulfills the minimum employed capital and working capital
requirements. According to the technical circular of WBDB, any approved contractor under this
category, acting as a main contractor, may be subject to similar restriction or limitation on the number
of maintenance contracts as those applicable to an approved contractor under the “Waterworks”
category.
Site formation
As a reqirement for undertaking works projects in relation to site formation as a main contractor,
a contractor must be listed in the Contractor List under the category of “Site Formation” maintained
by WBDB and the Civil Engineering and Development Department (土木工程拓展署) is mainly
responsible for servicing and monitoring the performance of all contractors within that category.
Being a licenced contractor with probationary status under Group B of the “Site Formation” category
since March 2009, TYW is eligible to tender for such number of Government contracts under this
category provided that the total value of Group B works does not exceed HK$75 million and TYW
fulfills the minimum employed capital and working capital requirements. According to the technical
circular of WBDB, any approved contractor under this category, acting as a main contractor, may be
subject to similar restriction or limitation on the number of maintenance contracts as those applicable
to an approved contractor under the “Waterworks” category.
COMPLIANCE WITH THE RELEVANT REQUIREMENTS
The Directors confirmed, and the Company’s legal advisers as to Hong Kong laws concurred, that
each of TYW and TY Civil has obtained all relevant permits/licences/registrations for their operations.
In addition, TYW has complied with the minimum number and qualifications of full time management
and technical personnel for retention on the Contractor List; and TYW is able to meet the financial
criteria for its retention on the Contractor List and for acceptance of a tender during the Track Record
Period and up to the Latest Practicable Date, and has secured sufficient amount of minimum working
capital and employed capital in accordance with the requirements under the ETWB Handbook during
the Track Record Period and up to the Latest Practicable Date.
LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS
— 66 —
In order to ensure the ongoing compliance with the applicable requirements by the relevant
members of the Group, the Directors will check the latest requirements from time to time stipulated
by WBDB, the Construction Industry Council and the Government respectively for the Group’s
business operations and take appropriate steps, if required, to comply with the latest requirements.
Apart from preparation of financial statements on a yearly basis for submission to WBDB to
demonstrate that TYW has sufficient employed capital and working capital for retention on the
Contractor List, the chief financial officer of the Group will also assess its level of employed capital
and working capital every time prior to the submission of a tender for new project.
LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS
— 67 —
Air Pollution Control Ordinance (Chapter 311 of the Laws of Hong Kong)
The Air Pollution Control Ordinance is the principal legislation in Hong Kong for controlling
emission of air pollutants and noxious odour from industry, commercial operations and construction
work. Subsidiary regulations of the Air Pollution Control Ordinance impose control on air pollutant
emissions from certain operations through the issue of licences and permits.
A contractor shall observe and comply with the Air Pollution Control Ordinance and its
subsidiary regulations, including but not limited to the Air Pollution Control (Construction Dust)
Regulation (Chapter 311R of the Laws of Hong Kong). The contractor responsible for a work site shall
carry out the works in such a manner so as to minimise dust impacts on the surrounding environment.
Noise Control Ordinance (Chapter 400 of the Laws of Hong Kong)
The Noise Control Ordinance controls, among other situations, any person in any domestic
premises or public place making noise causing annoyance to any other person and the noise from
construction sites. A contractor shall comply with the Noise Control Ordinance and its subsidiary
regulations in carrying out its works. For engineering works that are to be carried out during the
restricted hours and for percussive piling at all times, construction noise permits are required from the
Noise Control Authority in advance.
Under the Noise Control Ordinance, works that produce noises and the use of powered
mechanical equipment in populated areas are not allowed between 7 p.m. and 7 a.m. or at any time
on general holidays, unless prior approval has been granted by the Environmental Protection
Department through the construction noise permit system. Usage of certain equipment is also subject
to restrictions. Hand-held percussive breakers and air compressors must comply with noise emissions
standards and be issued with a noise emission label from the Environmental Protection Department.
Percussive pile-driving is allowed on weekdays only with prior approval, in the form of a construction
noise permit from the Environmental Protection Department.
Water Pollution Control Ordinance (Chapter 358 of the Laws of Hong Kong)
The Water Pollution Control Ordinance provides the main statutory framework for the
declaration of water control zones to cover the whole of Hong Kong and the establishment of water
quality objectives. The objectives describe the water quality that should be achieved and maintained
in order to promote the conservation and best use of the waters of Hong Kong in the public interest.
Within each water control zone, all discharges or deposits are controlled by a licencing system. The
Director of Environmental Protection is the Authority responsible for licencing and controlling these
discharges.
Waste Disposal Ordinance (Chapter 354 of the Laws of Hong Kong)
The Waste Disposal Ordinance controls the production, storage, collection, treatment, recycling,
recycling and disposal of wastes. At present, livestock waste and chemical waste are subject to
specific controls whilst deposition of waste in public places or on Government land or on private
premises without the consent of the owner or occupier is prohibited.
ENVIRONMENTAL PROTECTION LAWS AND REGULATIONS
— 68 —
A contractor shall observe and comply with the Waste Disposal Ordinance and its subsidiary
regulations, including but not limited to the Waste Disposal (Charges for Disposal of Construction
Waste) Regulation (Chapter 354N of the Laws of Hong Kong). Under the Waste Disposal (Charges for
Disposal of Construction Waste) Regulation, a main contractor who undertakes construction work with
a value of HK$1 million or above will be required to establish a billing account in respect of that
particular contract with the Environmental Protection Department to pay any disposal charges payable
in respect of the construction waste generated from construction work undertaken under that contract.
Environmental Impact Assessment Ordinance (Chapter 499 of the Laws of Hong Kong)
The Environmental Impact Assessment Ordinance is to avoid, minimise and control the adverse
environmental impacts from designated projects as specified in Schedules 2 and 3 to the
Environmental Impact Assessment Ordinance (for example, public utility facilities, certain large-scale
industrial activities, community facilities, etc.) through the application of the environmental impact
assessment process and the environmental permit system prior to their construction and operation (and
decommissioning, if applicable), unless exempted.
In order to ensure the ongoing compliance with the applicable environmental protection
requirements by the relevant members of the Group, the Directors have appointed Mr. Lau Wai Chun,
Jacky as the head of environmental compliance. Mr. Lau will check the latest requirements from time
to time stipulated by the Government in this respect and take appropriate steps, if required, to comply
with the latest requirements.
During the Track Record Period and up to the Latest Practicable Date, based on the litigation
search conducted at the instruction of the Company and the opinion of the legal advisers to the
Company as to Hong Kong laws, none of the members of the Group was involved in any litigations
and/or legal proceedings which were related to committing an offence by any member of the Group
under any of the aforesaid environmental protection laws and regulations. The Directors confirmed
that there were no events or circumstances which have led to or are likely to lead to the Group being
sued by the Government for committing an offence under the aforesaid environmental protection laws
and regulations applicable in Hong Kong during the Track Record Period and up to the Latest
Practicable Date.
ENVIRONMENTAL PROTECTION LAWS AND REGULATIONS
— 69 —
HISTORY AND DEVELOPMENT
In 1989, Mr. Kan, the founder of the Group, started the Group’s business in the provision of civil
engineering services in Hong Kong through TYC, a sole proprietorship. Separate books and records
were maintained by TYC since its date of incorporation and throughout the Track Record Period. No
audited financial statements have been prepared for TYC since its date of incorporation as there is no
statutory requirement for the preparation of audited financial statements for unlimited company. BDO
Limited (“BDO”), the reporting accountants of the Group, however, have performed independent audit
procedures in accordance with the Hong Kong Standards of Auditing issued by the HKICPA on the
unaudited management accounts of TYC for the Track Record Period. BDO considers that TYC has
maintained separate books and records throughout the Track Record Period and its assets and
liabilities were properly segregated from Mr. Kan’s personal assets and liabilities, in particular, bank
account in the name of TYC has been maintained for business purposes only and sufficient
management and control systems have been in place on TYC’s daily operations. Besides, other than
Mr. Kan, some directors of the Group have also been involved in TYC’s daily operations during the
Track Record Period to ensure that the assets and liabilities of TYC were solely used for its business
purposes. After conducting businesses through TYC for a few years, Mr. Kan recognised the prospects
of the civil engineering services industry in Hong Kong and decided to set up a limited company for
the purpose of tendering for public projects.
In February 1996, TYW was formed by Mr. Kan and an Independent Third Party as a limited
company to carry out civil engineering works and to apply for admission to the Contractor List in
order to tender for public projects as a main contractor. At that time, Mr. Kan beneficially owned 90%
of the issued share capital of TYW.
TYW was admitted as a Group A contractor (on probation) under the categories of “Waterworks”
and “Roads and Drainage” in the Contractor List in January 1997 and April 1997 respectively and as
a Group B contractor (on probation) under the category of “Site Formation” in the Contractor List in
July 1997. Soon after its admission to the Contractor List, TYW was awarded its first public
waterworks contract as a main contractor by WSD in connection with the reprovisioning of Mainland
West Laboratory in Tuen Mun, the New Territories.
In March 1998, TYW was awarded, as a main contractor, by the then Territory Development
Department of the Government, its first contract in connection with the site formation work for Yuen
Long Combined Wholesale Food Market. In the same year, TYW, as a main contractor, was also
awarded its first drainage works contract by the Drainage Services Department of the Government in
connection with the improvement works to low-flow interceptor on Siu Hong Road, the New
Territories.
Since then, TYW, in the capacity as a main contractor or a subcontractor, has been involved in
various civil engineering works in the public sector in Hong Kong and has undertaken more than 30
projects relating to waterworks, roads and drainage works and site formation works up to the Latest
Practicable Date. The established reputation for timely delivery and work quality had brought TYW
opportunities to work with a number of main contractors. Please refer to the paragraph headed
“Contracts completed and contracts in progress” in the section headed “Business” in this prospectus
for some of the main contractors which the Group has worked with.
HISTORY AND DEVELOPMENT
— 70 —
App1A(29)(1),(2)ThirdSchedule 21
In June 2000, TY Civil was formed for holding motor vehicles for the Group’s use.
In August 2000, TYW obtained its confirmed status in Group A under the category of “Roads and
Drainage” and in Group B under the category of “Site Formation”.
From 1996 to 2001, TYW had allotted and issued additional shares to Mr. Kan so that the
shareholding of Mr. Kan in TYW increased to 98.89% in 2001.
In December 2002, TYW also obtained its confirmed status in Group A under the category of
“Waterworks”.
Since its incorporation, TYW had primarily focused on undertaking waterworks projects and
roads and drainage projects. With a view to concentrating its resources in the waterworks and roads
and drainage projects, TYW requested for its removal from the category of “Site Formation” on the
Contractor List in March 2003 and such removal took effect in April 2003.
TYW was admitted to Group B on probation under the categories of “Roads and Drainage” and
“Waterworks” in December 2003 and in June 2004 respectively.
On 13 June 2005, Mr. Kan’s wife, Ms. Lam Shun Kiu, Rosita, acquired the remaining 110,000
shares of TYW at a total consideration of HK$110,000 and on 28 September 2009, Mr. Kan acquired
such 110,000 shares of TYW from his wife at a total consideration of HK$110,000 so that Mr. Kan
became the sole legal and beneficial owner of TYW.
In October 2006, TYW was admitted to the List of Registered Subcontractors for participating
in civil engineering works, road works and drainage services and waterworks engineering services
maintained by the Provisional Construction Industry Co-ordination Board, whose work was taken over
by the Construction Industry Council (建造業議會) in February 2007, under the Registration Scheme,
the purpose of which is to build up a pool of capable and responsible subcontractors with specialized
skills and strong professional ethics and provide a platform for launching of new improvement
initiatives through collaboration with training institutions, professional bodies and tertiary
institutions. In November 2008, TY Civil was admitted to the List of Registered Subcontractors for
participating in civil engineering works, waterworks engineering services and road works and
drainage services.
In October 2001, TYW was accredited with ISO 9002:1994 by the Hong Kong Quality Assurance
Agency which certified that the quality assurance system of TYW complied with the relevant
requirements applicable to construction of civil engineering works (site formation). In June 2003,
TYW was accredited with the ISO 9001:2000 by the Hong Kong Quality Assurance Agency which
certified that the quality management system of TYW complied with the relevant requirements
applicable to construction of civil engineering works (site formation, waterworks, roads and
drainage). The ISO9001:2000 certificate was renewed by Accredited Certification International
Limited in May 2006 and February 2009, certifying that TYW’s quality management system complied
HISTORY AND DEVELOPMENT
— 71 —
with the standards applicable to construction of civil engineering works (site formation, waterworks,
roads and drainage). TYW was further accredited with ISO 9001:2008, certifying that its quality
management system complied with the standards applicable to construction of civil engineering works
(site formation, waterworks, roads and drainage) in February 2010.
TYW obtained its confirmed status in Group B under the category of “Roads and Drainage” and
“Waterworks” in March 2009 and May 2009 respectively. TYW was re-admitted as a Group B
contractor (on probation) under the category of “Site Formation” on the Contractor List in March
2009.
The following historical timeline diagram illustrates the progression of TYW’s category status
on the Contractor List:
* TYW requested for its removal from this category in March 2003 and was re-admitted into this category on probationary
status.
Prior to 1 April 2009, TYW was responsible for bidding and signing civil engineering contracts
with clients and subcontracting all the contract works to TYC for implementation. TYW has been
responsible for bidding and signing as it is the holder of the relevant licences for various civil
engineering services, while TYC was responsible for execution of the projects as it was the practice
of the Group since its foundation by Mr. Kan in 1989 and it was considered that the continuance of
such subcontracting arrangement and segregating the licence holder from the project executor was in
the interest of the Group. 90% of contract income received by TYW would be distributed to TYC as
subcontracting costs. For the financial year ended 31 March 2009, TYW had subcontracted all its
contract works to TYC and provided 90% of income from contracts to TYC as subcontracting costs
which amounted to HK$78,926,387. As a result of the aforesaid segregation, the Group enjoyed a tax
saving of approximately HK$193,000 for the year ended 31 March 2009.
Although TYC has been a significant member of the Group in terms of revenue and profits
contribution in previous years, it is not a limited company and so the Directors consider that it may
not be suitable for seeking a listing on the Stock Exchange. In order to prepare for the Listing, with
HISTORY AND DEVELOPMENT
— 72 —
effect from 1 April 2009, as part of the Reorganisation, TYW acquired part of the business carried out
under the name of TYC together with related assets (including, among others, chattels, accounts
receivables, cash, goodwill and documents in connection with the business) and assumed certain
liabilities of TYC from Mr. Kan at a consideration of HK$7,157,311.72, which was offset against an
equivalent amount of the debts due from Mr. Kan to TYW, and TY Civil acquired the remaining part
of business carried out under the name of TYC from Mr. Kan at a consideration of HK$1,467,756.22,
which was offset against an equivalent amount of debt due from Mr. Kan to TY Civil. Since then, TYC
has become inactive and ceased to be part of the Group. At present, the Group’s businesses are carried
out through TYW and TY Civil respectively with TYW responsible for signing and implementing civil
engineering contracts as a main contractor while TY Civil responsible for signing and implementing
civil engineering contracts as a subcontractor.
The Company was incorporated in the Cayman Islands as an exempted company with limited
liability on 15 March 2010 and became the holding company of the subsidiaries now comprising the
Group pursuant to the Reorganisation. Details of the Reorganisation are set out in the sub-paragraph
headed “Reorganisation” under the paragraph headed “Further information about the Company and its
subsidiaries” in Appendix V to this prospectus.
On 26 April 2010, TYW (BVI) acquired the entire issued share capital of TY Civil and TYW
(other than the 133,000 shares of TYW which were already owned by TYW (BVI) at the time of such
acquisition) from Mr. Kan in consideration of the allotment and issue of a total of 9,999 ordinary
shares of TYW (BVI) of US$1 each (each a “TYW (BVI) Share”), all credited as fully paid up, to
Shunleetat.
In recognition of Mr. Cheng, Mr. Fung and Mr. Chia’s extensive experience in the civil
engineering industry and/or financial industry, past and future contributions to the business
development of the Group, and their confidence in the future prospects of the Group, Mr. Kan, after
arm’s length negotiations with Mr. Cheng, Mr. Fung and Mr. Chia, entered into share sale and purchase
agreements on 26 April 2010 whereby Shunleetat transferred (i) 1,750 TYW (BVI) Shares to Chuwei
which is wholly and beneficially owned by Mr. Cheng, at a consideration of HK$3,656,682.83, which
was offset against an equivalent amount of loan due from Mr. Kan to Mr. Cheng outstanding as at the
date of transfer; (ii) 1,250 TYW (BVI) Shares to Lotawater which is wholly and beneficially owned
by Mr. Chia at a consideration of HK$2,611,916.31, which was offset against an equivalent amount
of loan due from Mr. Kan to Mr. Chia outstanding as at the date of transfer; and (iii) 1,500 TYW (BVI)
Shares to Purplelight which is wholly and beneficially owned by Mr. Fung at a consideration of
HK$3,134,299.57, which was offset against an equivalent amount of loan due from Mr. Kan to Mr.
Fung outstanding as at the date of transfer.
The average subscription price per TYW (BVI) Share paid by each of the three subscribers is
approximately HK$2,089.53, and the effective subscription price per Share paid by each of them is
approximately HK$0.2809. The Board considers that the equity investment in the Group by each of
Mr. Cheng, Mr. Fung and Mr. Chia would be beneficial to the development and operations of the
Group, and the terms and conditions (including consideration received by Mr. Kan) for their equity
investment was arrived at after arms’ length commercial negotiations between Mr. Kan on the one
hand and Mr. Cheng, Mr. Fung and Mr. Chia on the other. The TYW (BVI) Shares transferred to
Chuwei, Lotawater and Purplelight are not subject to any lock-up arrangements while pursuant to the
HISTORY AND DEVELOPMENT
— 73 —
App1A(5)
terms of the Underwriting Agreement, the Shares beneficially held by Mr. Kan, Mr. Cheng, Mr. Fung
and Mr. Chia at the time of Listing will be subject to a lock-up period which will commence on the
Latest Practicable Date and ending six months from the Listing Date. Mr. Kan and Shunleetat, being
the Controlling Shareholders, will be subject to another six months lock-up period commencing
immediately after the expiry of first six months lock-up period as required under Rule 13.16A(1) of
the GEM Listing Rules. Details of their undertakings are disclosed in the paragraph headed
“Undertakings” under the section headed “Underwriting” in this prospectus.
Currently, the Group is the main contractor of one contract awarded by WSD involving
construction of water tank, pump house and water main laying and one water mains replacement and
rehabilitation works contract. The Group is also the principal subcontractor of two water mains
replacement and rehabilitation works contracts awarded by WSD and one term contract for waterworks
District W-New Territories. As at the Latest Practicable Date, the aggregate contract sum of the
contracts in which the Group was involved as a main contractor or a subcontractor was over HK$672
million. During the past 20 years, the Group has established solid business relationships with a number
of major civil engineering contractors in Hong Kong. In parallel, TYW has gained promotion in two
categories, namely “Waterworks” and “Roads and Drainage”, on the Contractor List to its current
status. Details of the contracts completed and the contracts in progress as at the Latest Practicable
Date are set out in the paragraph headed “Contracts completed and contracts in progress” under the
section headed “Business” in this prospectus.
SHAREHOLDING STRUCTURE OF THE COMPANY
The following diagram illustrates the shareholding structure of the Company immediately after
the Reorganisation and before completion of the Placing and the Capitalisation Issue:
100% 100%100% 100%
55% 17.5% 15% 12.5%
100% 100%
100%
Lotawater(BVI)
Purplelight(BVI)
Shunleetat(BVI)
Chuwei(BVI)
The Company(Cayman Islands)Investment holding
Mr. Kan Mr. Cheng Mr. Fung Mr. Chia
TYW
(Hong Kong)
Provision of waterworks and
laying of water pipes
TY Civil(Hong Kong)
Holding of motor vehicles,provision of waterworks and
laying of water pipes
TYW (BVI)(BVI)
Investment holding
HISTORY AND DEVELOPMENT
— 74 —
R11.13(1)R11.13(2)
The following diagram illustrates the shareholding structure of the Company immediately
following completion of the Placing and the Capitalisation Issue:
25.0% 41.25%
100% 100%
13.125% 11.25% 9.375%
100% 100%
100% 100%
100%
Mr. Kan
Lotawater(BVI)
Purplelight(BVI)
Shunleetat(BVI)
Mr. Cheng
Chuwei(BVI)
Public Shareholders
The Company(Cayman Islands)Investment holding
Mr. Fung Mr. Chia
TYW
(Hong Kong)
Provision of waterworks and
laying of water pipes
TY Civil(Hong Kong)
Holding of motor vehicles,provision of waterworks and
laying of water pipes
TYW (BVI)(BVI)
Investment holding
HISTORY AND DEVELOPMENT
— 75 —
BUSINESS OVERVIEW
The Group is principally engaged in the provision of waterworks engineering services, road
works and drainage services and site formation works for the public sector in Hong Kong. Waterworks,
roads and drainage works and site formation works fall within a broader engineering discipline known
as civil engineering.
During the Track Record Period, the Group generated a substantial part of its revenue from
carrying out waterworks engineering services and road works and drainage services in the capacity of
a subcontractor. For each of the two years ended 31 March 2009 and 2010, revenue generated from
contracts in which the Group acted as a subcontractor represented approximately 73.9% and
approximately 88.5% of the Group’s total revenue respectively. Revenue generated from the Group
providing services in the capacity of a main contractor only accounted for a lesser part of the Group’s
total revenue, representing approximately 26.1% and approximately 11.5% of the Group’s total
revenue during the Track Record Period.
Waterworks engineering services
Waterworks engineering services include construction and maintenance of water mains, service
reservoirs, impounding reservoirs, pumping stations, water tanks, treatment works, watercourses for
distribution systems and other related construction works. These services may also involve related
civil construction works which include excavation, stabilisation, foundations strengthening,
reinstatement of carriageways, footways and expressways. For projects that are carried out on existing
trafficked roads, the contractor may also be required to make arrangements on traffic diversion and
control.
Road works and drainage services
Road works and drainage services include construction of interchange, carriageway, walkway,
footpath, access road, covered footbridge, link bridge, drainage channel and the associated lighting,
drainage, landscaping, utilities diversion and electrical and mechanical works.
Site formation works
Site formation works generally involve demolition of existing structures, excavation to the
design formation level and reduction and stabilisation of existing slopes.
BUSINESS
— 76 —
R11.06App1A(28)(1)(A)
COMPETITIVE STRENGTHS
With an operating history of over 20 years, the Directors believe that the Group, with its
experienced management team and extensive experience in implementation of waterworks projects,
has established a reputation in the waterworks engineering industry in Hong Kong. In particular, the
Directors believe that the Group possesses the following competitive strengths:
Established operating history and track record
As disclosed in the section headed “History and development” in this prospectus, the Group has
been involved in various construction and maintenance works, both as subcontractor and main
contractor, on civil engineering contracts including waterworks engineering, roads and drainage works
and site formation works in Hong Kong since TYW was admitted into the Contractor List in 1997.
Prior to such admission, in July 1996, the Group participated in WSD’s contract as a subcontractor in
connection with the improvement of fresh water and salt water supply to Tuen Mun Western Areas —
Phase 1, which involved mainlaying from Tuen Mun fresh water pumping station to Siu Lang Shui
(contract numbered 9/WSD/95). Subsequently, the Group was able to secure a nine-month contract
from WSD as the main contractor in connection with the reprovisioning of Mainland West Laboratory
in Tuen Mun, the New Territories in September 1997 (contract numbered 3/WSD/97). Over the years,
the Group has been able to secure contracts as main contractor or subcontractor for the construction
or maintenance of various waterworks infrastructure and undertaking various waterworks engineering
services in different WSD’s operational regions, including Fanling, Sheung Shui and Ping Che, Yuen
Long and Kam Tin, Tuen Mun and Tai Po. The Directors believe that the Group has built up its
reputation through its established operating history, which benefits the Group in tendering future
contracts.
Well-positioning to capture the emerging business opportunities
Approximately 45% of the underground water mains in Hong Kong were laid 30 years ago. Those
ageing water mains are approaching the end of their service life and have become increasingly
difficult and costly to maintain. In view of these, the Government had launched the water mains
replacement and rehabilitation programme in 2000 to replace and rehabilitate approximately 3,000 km
of water mains. Under the water mains replacement and rehabilitation programme, the condition of the
water supply network will be strengthened upon completion of the works in 2015 and the number of
pipe failures is expected to decrease accordingly. The Group, as a subcontractor, has secured work
contracts for replacement and rehabilitation of water mains in Fanling, Sheung Shui and Ping Che
(contract numbered 5/WSD/06), in Hong Kong Island South and outlying islands (contract numbered
18/WSD/08) and in Tai Po and Fanling (contract numbered 21/WSD/06). In September 2007 and May
2010, the Group, as a main contractor, has secured work contracts for replacement and rehabilitation
of water mains in Ngan Tam Mei (contract numbered 13/WSD/06) and Sai Kung (contract numbered
9/WSD/09) respectively. During the Track Record Period and up to the Latest Practicable Date, the
Group had participated in a total of five replacement and rehabilitation work(s) contracts and another
five waterworks contracts involving, among other things, construction of service reservoirs, sewer,
rising mains, water tanks and pumping stations.
BUSINESS
— 77 —
The Government will commission a review to appraise the condition of the remaining water
mains which are not subject to the current replacement and rehabilitation programme and, subject to
the review findings, may extend the program beyond 2015 to cover the remaining distribution network
of water mains. WSD also plans to implement new salt water supply systems and upgrade certain
existing systems to enhance the use of salt water for flushing purpose. In addition, WSD plans to start
a capital works project by 2010 to improve the existing catchwater system for safe and effective
collection for surface water.
Taking into account the Group’s experience in the industry with the licencing requirements for
the aforesaid Government’s projects, the Directors consider that the Group is well-positioned to
capture the emerging business opportunities and will benefit from the implementation of the
replacement and rehabilitation programme and other capital works by WSD. Despite the fact that as
at 31 July 2010 there were 11 Group B and 35 Group C contractors in the “Waterworks” Contractor
List, the Directors believe that the Group can benefit from its proven track record of participation in
the replacement and rehabilitation works contracts and various other waterworks contracts, its
outstanding performance ratings for the quality of its works received from WBDB during the Track
Record Period and its experienced management team as described below could provide an edge to
capture the emerging business opportunities.
Consistently high quality of services
The Group has adopted a set of stringent quality assurance measures to ensure the quality of its
civil engineering work. In recognition of the quality assurance procedures in place, the quality
management system of TYW was accredited with the ISO9002: 1994 certificate and the ISO9001:2000
certificate in 2001 and 2003 respectively. The ISO9001: 2000 certificate was renewed in May 2006
and February 2009. TYW further obtained ISO9001:2008 accreditation in February 2010. In addition,
TYW has consistently achieved outstanding performance ratings in respect of the projects undertaken
by it issued by WBDB. Details of the contractors’ performance index system and the assessment
criteria of the performance ratings are disclosed in the paragraph headed “Contractors’ performance
index system” under the section headed “Licencing and other requirements for Government projects”
in this prospectus. The Group can benefit from such performance ratings as such rating is a factor
taken into account by the Government in the evaluation process of tenders.
Well-established relationships with main contractors
The Group has worked with a number of main contractors since the commencement of its civil
engineering business. The Directors believe that the Group, through its delivery of timely services and
quality works, has established solid business relationships with the main contractors. Some of the
main contractors have business relationships with the Group for more than five years. The Directors
consider the recurring businesses from those main contractors have contributed to the success of the
Group. In particular, the Group may undertake projects with contract value over HK$75 million
(which is the maximum contract value which the Group is eligible to undertake as a Group B main
contractor on the Contractor List) in the capacity of a subcontractor.
BUSINESS
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Good relationships with subcontractors
Some of the Group’s projects are undertaken by the Group’s subcontractors. The Directors
believe that successful completion of projects, to a certain extent, depends on the work quality and
efficiency of the subcontractors. The Group, throughout its established operating history and
recognition in the industry, has maintained over 40 subcontractors on the Group’s list of approved
subcontractors, around nine of which have been working with the Group for at least four years. The
Directors consider that such subcontractors can facilitate the timely completion of projects of the
Group. Such business relationships are crucial to the day-to-day business operations and the future
business development of the Group.
Experienced management team
Mr. Kan, the chairman of the Board, founder of the Group and an executive Director, has over
20 years’ experience in handling civil engineering projects of various types. His experience in
handling civil engineering projects was gained from his employment in other construction companies
and the management of the Group’s business. He is responsible for the overall business planning and
corporate strategy of the Group. Mr. Cheng, the vice-chairman of the Board and an executive Director,
has over 29 years’ experience in the construction industry and is responsible for the business
management and corporate development of the Group. Mr. Fung, the chief executive officer of the
Group and an executive Director, has over 25 years’ experience in civil engineering construction and
is responsible for overseeing the overall project management and the daily operation of the Group. Mr.
Chia, an executive Director, has more than 14 years’ experience in corporate finance, management and
investment and is responsible for overseeing the financial aspects of the Group. In addition to these
executive Directors who have been in charge of the business development of the Group over the years,
the Group also has a professional management team with members having strong academic
background and industry experience.
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LICENCES/REGISTRATION HELD BY THE GROUP
The following table summarises the details of the licences/registration held by members of the
Group as an approved contractor as at the Latest Practicable Date:
Governmentdepartments/organisation
Month andyear of firstrelevantregistrationwith theGovernmentdepartments/organisation
Member ofthe Groupwhich heldthe licence/approval
Level/category ofregistration held asat the LatestPracticable Date
Status as atthe LatestPracticableDate
Value of projectwhich the Groupis eligible toundertakeunder therelevant licence/registration
As a subcontractor
Construction IndustryCouncil (建造業議會)
October 2006November 2008
TYWTY Civil
Registered under thePrimary Register ofthe RegistrationScheme forparticipating in,among others, generalcivil works
Not applicable(Note 1)
Not applicable(Note 1)
As a main contractor
WBDB May 2009 TYW Approved Contractorsfor Public Works —Waterworks Category(Group B)
Confirmed(Notes 2and 3)
Current contractvalue up toHK$75 million
WBDB March 2009 TYW Approved Contractorsfor Public Works —Roads and DrainageCategory (Group B)
Confirmed(Notes 2and 4)
Current contractvalue up toHK$75 million
WBDB March 2009 TYW Approved Contractorsfor Public Works —Site FormationCategory (Group B)
Probationary(Notes 2and 5)
Current contractvalue up toHK$75 million
Notes:
1. The List of Registered Subcontractors is maintained by Construction Industry Council (建造業議會) as part of the
Registration Scheme. The purpose of the aforesaid scheme is to build up a pool of capable and responsible
subcontractors with specialised skills and strong professional ethics and provide a platform for the launching of
new improvement initiatives through collaboration with training institutions, professional bodies and tertiary
institutions.
2. The financial criteria for retention on the Contractor List for respective categories (on confirmed and probationary
status) are established by WBDB. Such financial criteria primarily concern the levels of employed capital and
working capital of a contractor. To ascertain that the required financial criteria and requirements are met, the
Group is required to:
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(i) submit the original or a certified true copy of their latest audited accounts;
(ii) submit certified statements of outstanding workload;
(iii) provide supplementary information; and
(iv) answer all reasonable enquiries from WBDB.
Apart from the aforesaid financial criteria, the Group is also required to employ a minimum number of full time
management and technical personnel with the required qualifications as stipulated in the Contractor Management
Handbook (Revision B) July 2005 (承建商管理手冊—修訂版B) in order to be retained on the Contractor List (on
confirmed and probationary status).
3. As at the Latest Practicable Date, the minimum management and technical personnel criteria for the “Waterworks”
category were fulfilled by two executive Directors, namely Mr. Kan and Mr. Fung.
4. As at the Latest Practicable Date, the minimum management and technical personnel criteria for the “Roads and
Drainage” category were fulfilled by Mr. Kan, an executive Director and Mr. Leung Hon Chung, a senior
management of the Group.
5. As at the Latest Practicable Date, the minimum management and technical personnel criteria for the “Site
Formation” category were fulfilled by Mr. Kan, an executive Director and Mr. Lau Wai Chun, Jacky, a senior
management of the Group.
As at the Latest Practicable Date, the Group has not undertaken a Government contract of such value or with such
earth works quantity to satisfy the requirement for promotion to confirmed status and has therefore remained as
an approved contractor in Group B on probation. According to the Government licencing criteria, there is no time
limit as to how long an approved contractor must apply for promotion to confirmed status in any categories of the
contractor list. TYW is still in probationary status as TYW has so far been focusing on the waterworks engineering
sector and has not yet actively pursued business in the site formation sector.
The Directors confirm that each member of the Group has been granted all the required licences
and approval for carrying on its business activities and confirm that such required licences and
approvals were valid and subsisting as at the Latest Practicable Date.
AWARDS AND ACCREDITATION
In recognition of the Group’s outstanding performance and quality of works, the Group has
received the following awards or certificate from different departments of the Government and a
professional accreditation organisation:
Year of grant Description Organisation
2010* Certificate for compliance with the requirements of
ISO9001:2008 quality management system standard
for construction of civil engineering works (site
formation, waterworks, roads and drainage)
Accredited
Certification
International Limited
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Year of grant Description Organisation
2009 Bronze prize in the renovation and maintenance
works — Subcontractors in WSD Contract No.
21/WSD/06 under the Construction Industry Safety
Award Scheme
Labour Department of
the Government
2007 Merit award in recognition of the performance of
TYW’s construction site in WSD Contract No.
2/WSD/05 during the period from 1 January 2007
to 31 December 2007 under the Considerate
Contractors Site Award Scheme
Works Bureau of the
Government
* TYW was first accredited with ISO compliance certification in 2001. Further ISO accreditations were obtained by the
Group in 2003, 2006 and 2009.
In addition, the Group has been receiving letters from WBDB in respect of its performance
ratings which are derived from the performance scores given in all the reports written on the Group’s
performance in Government works contracts in the preceding 12 reporting periods. Based on the
aforesaid letters from WBDB, the Directors and the Sponsor are of the view that the Group has
achieved outstanding performance ratings during the Track Record Period.
CONTRACTS COMPLETED AND CONTRACTS IN PROGRESS
The waterworks contracts undertaken by the Group principally involve construction of water
tank, pump house and main laying, works for replacement and rehabilitation of water mains, and
maintenance works.
Works contracts involving construction of water tank, pump house and main laying are work
contracts with estimated quantities of work. The scope of work, together with the estimated contract
value, are specifically stated in the contractual documents.
Replacement and rehabilitation of water mains are contract works under the water mains
replacement and rehabilitation programme (please refer to the paragraph headed “Replacement and
rehabilitation of water mains” under the section headed “Industry overview” in this prospectus). The
replacement and rehabilitation programme covers certain extent of urban areas and new development
districts, it is therefore difficult for the Government to ascertain specifically the amount of pipes to
be replaced and rehabilitated in its preliminary assessment. The contractual documents of works for
replacement and rehabilitation normally include the scope of work and the estimated contract values,
but all works shall not be carried out without a work order. The work orders will specifically set out
the particulars of the works required and the expected completion time of such work orders. The
aggregate sum of work orders during the contract term may sometimes be larger than the initial
estimated contract values due to additional works requirements identified subsequent to
commencement of work. On the other hand, the aggregate sum of work orders during the contract term
may sometimes be smaller than the initial estimated contract values due to reduction in works after
commencement of works. In this respect, the estimated contract values specified on the contractual
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documents only act as an indication and the Group’s actual amount of work, revenue and profit
recognised during the contract term could be different from the estimated contract values depending
on the work orders received. In addition, variation orders may sometimes be given to vary the works
prescribed in prior work orders issued. Variation orders may reduce or increase the amount of works
previously prescribed.
As at the Latest Practicable Date, the Group, as a main contractor, had been awarded with two
replacement and rehabilitation works contracts (contracts numbered 13/WSD/06 and 9/WSD/09)
covering an aggregate sum of approximately 28.1km of water mains, representing approximately 0.9%
of total length of water mains under the replacement and rehabilitation programme, and as a
subcontractor, had been contracted to undertake three replacement and rehabilitation works contracts
(contracts numbered 5/WSD/06, 21/WSD/06 and 18/WSD/08) covering an aggregate sum of 155.9km
of water mains, representing approximately 5.2% of total length of water mains under the replacement
and rehabilitation programme.
Contracts involving maintenance works normally do not include a clear extent on the works
required to be performed and also do not have estimated contract values stated on the contractual
documents. Details of the work required to be performed will be set forth in each of the works order
received during the term of the maintenance contracts. Maintenance contracts normally have a set of
general charging rates for different types of works.
During the Track Record Period, the Group had undertaken a number of work contracts with most
of them being waterworks contracts. The three waterworks contracts which contributed most to the
Group’s revenue during the Track Record Period were the contracts in connection with replacement
and rehabilitation of water mains in Tai Po and Fanling (contract numbered 21/WSD/06) in which the
Group acts as subcontractor, replacement and rehabilitation of water mains in Ngau Tam Mei (contract
numbered 13/WSD/06) in which the Group acts as main contractor and replacement and rehabilitation
of water mains in Hong Kong Island South and outlying islands (contract numbered 18/WSD/08) in
which the Group acts as subcontractor. For each of the two financial years ended 31 March 2010, the
aforesaid three contracts generated approximately 80.6% and approximately 84.5% respectively of the
Group’s total revenue. Despite the Group undertook most of the waterwork contracts in the capacity
of a subcontractor during the Track Record Period, it is the Group’s business objective to undertake
more waterworks contracts in the capacity of a main contractor in the near future. Details of the
Group’s strategies and implementation plan in connection with the aforesaid objective are set out in
the paragraphs headed “Business objective and strategies” and “Implementation plan” respectively
under the section headed “Future plans and use of proceeds” in this prospectus.
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Contracts completed
Set out below are the details of the contracts completed by the Group during the Track Record
Period and up to the Latest Practicable Date:
Contractnumber Types of contract Client/Main contractor Particulars of the contract
Contract periodunder maincontract
Time ofcompletion
(Note 1)
The Group as a subcontractor (Note 4)
1/WSD/05(K) Waterworks engineeringservices
MHCC/MHWE Term contract for waterworksDistrict K — Kowloon
1/9/2005 -31/8/2008
15/08/2008
Totalcontract
valueHK$204,968,222.05
Totalamount of
workscertified(Note 2)
HK$201,267,793.51
3/WSD/01 Waterworks engineeringservices
MHCC/MHWE Water supply to Wu Kau Tang,Kau Tam Tso and Lai Chi Wo,North District
15/11/2001 -26/08/2004(Note 3)
12/08/2008
5/WSD/06 Waterworks engineeringservices
Kwan On Construction Co Ltd Replacement and rehabilitationof water mains, stage 1, phase2 — mains in Fanling, SheungShui and Ping Che
1/12/2006 -01/2010
17/10/2008
ST/2005/02 Roadworks and drainageservices
Penta-Ocean-Peako JointVentrue
Sha Tin New Town, Stage IIroad works at Area 34 and 52in Shui Chuen O and Area 56Ain Kau To
03/2006 -02/2009
3/11/2008
DC/2005/02 Roadworks and drainageservices
Victory Trenchless EngineeringCompany Limited
Construction of sewer, risingmains and pumping stations atKam Tin, Nam Sang Wai andAu Tau in Yuen Long
29/12/2005 -30/6/2010
10/02/2010
YL 56/03 Roadworks and drainageservices
Chit Cheung ConstructionCo Ltd
Main drainage channels forYuen Long and Kam Tin-ShanHa Tsuen to Lam Hau Tseunsection
2/9/2003 -31/3/2009
31/3/2009
The Group as a main contractor
2/WSD/05 Waterworks engineeringservices
Original contract value:HK$28,830,598.00
WSD Water supply to Sha TinDevelopment Area 56A —construction of Kau To highlevel fresh water servicereservoir and Kau To freshwater pumping station
8/5/2006 -1/1/2009
2/12/2008
13/WSD/06 Waterworks engineeringservices
Original contract value:HK$26,188,628.49
WSD Replacement and rehabilitationof water mains stage 2 —mains in Ngau Tam Mei
17/9/2007 -15/11/2009
31/8/2009
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Contracts in progress as at the Latest Practicable Date
Set out below are the details of the Group’s contracts in progress as at the Latest Practicable
Date:
Contractnumber Types of contract
Client/Maincontractor
Particulars ofthe contract
Contractperiodunder maincontract
Percentageof workcertified
(Note 5)
The Group as a subcontractor (Note 4)
21/WSD/06 Waterworks
engineering services
MHCC/MHWE Replacement and
rehabilitation of water mains
stage 2 — mains in Tai Po
and Fanling
8/8/2007 -
5/1/2011
Totalcontract
valueHK$672,012,837.86
Totalamount of
workscertified(Note 2)
HK$260,328,301.47
66%
18/WSD/08 Waterworks
engineering services
MHCC/MHWE Replacement and
rehabilitation of water mains
stage 3 — mains on Hong
Kong Island South and
outlying islands
18/3/2009 -
13/9/2013
21%
1/WSD/09(W) Waterworks
engineering services
MHCC/MHWE Term contract for
Waterworks District W-New
Territories
1/9/2009 -
31/8/2012
N/A
(Note 6)
The Group as a main contractor
3/WSD/09 Waterworks
engineering services
Original contract
value:
HK$9,503,898.47
WSD Water supply to
Ta Tit Yan, Tai Po —
Construction of water tank,
pump house and mainlaying
26/6/2009 -
10/10/2010 � 97%
9/WSD/09 Waterworks
engineering services
Original contract
value:
HK$74,708,939.38
WSD Replacement and
rehabilitation of water mains
stage 3 - mains in Sai Kung
28/5/2010 -
23/11/2012
2.3%
Remark: As mentioned in the sub-paragraph headed “Contracts completed and contracts in progress” in this section, due to
the nature of certain works contracts (i.e. contract works for replacement and rehabilitation), the contract values
specified on those contractual documents only act as an indication and the Group’s actual amount of work, revenue
and profit recognised during the contract term could be varied from the estimated contract values depending on the
work orders received.
Notes:
1. Time of completion is determined with reference to, in the case of main contract works, the certificate of completion
received from the engineer appointed by WSD, and in the case of subcontract works, the statement of final accounts
received from the main contractor or last completion certificate received from the main contractor.
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In the case of contract numbered ST/2005/02, time of completion is determined with reference to a letter issued by the
Group to the main contractor confirming completion and hand-over of works.
2. Amount of works certified is based on the certificates of payment received from WSD or the main contractor (as the case
may be).
3. The statement of final accounts between the main contractor and WSD was not finalised until 11 August 2008 as there
was disagreement of amount in variation orders between the main contractor and WSD. Details of the disagreement were
not disclosed by such main contractor to the Company.
4. In respect of the contracts that the Group act as the subcontractor, the Directors confirm that the main contractors are
Independent Third Parties.
5. The percentage of work certified is based on the certificates issued by the Group’s client on the respective projects. It
represents the amount of works certified as a percentage of the original contract value. For details of contract
certification and payment, please refer to the sub-paragraph headed “Application for payment and certification” under
the paragraph headed “Operations” in this section.
6. This is a term contract for maintenance works. As this type of contract neither has a clear specification on the works
required to be performed nor contract value stated on its contractual document, therefore percentage of work certified
is not applicable. The amount set out in application for payment is calculated based on the amount of work completed
in the period pursuant to terms of the works order received and the agreed rates for the relevant works. Details of the
maintenance works contract are disclosed in the paragraph headed “Contracts completed and contracts in progress” in
this section.
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The following maps illustrate the locations of (i) contracts completed by the Group during the
Track Record Period and up to the Latest Practicable Date; and (ii) the Group’s contracts in progress
as at the Latest Practicable Date:
(i) Locations of contracts completed during the Track Record Period and up to the Latest Practicable
Date
Note: Marks on the map are for indication of the approximate locations of contracts completed during the Track Record Period
and up to the Latest Practicable Date.
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(ii) Locations of contracts in progress as at the Latest Practicable Date
Note: Marks on the map are for indication of the approximate locations of contracts in progress as at the Latest Practicable
Date.
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OPERATIONS
The Group is primarily engaged in the provision of civil engineering works for the public sector,
the main contracts of which are generally awarded through open tendering procedures. In general, the
Group’s operation initially involves preparation and submission of tender document (as regards tender
from the Government) or quotation (as regards subcontracting work). After a contract is awarded to
the Group, the Group commences procurement of materials, project implementation, selection of
subcontractor (if required) and implementation of quality assurance and quality control procedures.
When the contract work is completed to a certain stage, such work is inspected and, if satisfactory,
certified by the engineer appointed for the project. Thereafter, the Group may apply for contract
payments.
The general operational procedures are largely identical for both the Group’s role as a main
contractor and subcontractor. The following diagram illustrates the general operational procedures
undertaken by the Group for its business:
Identificationof projects
Preparation oftender document
or quotation
Submission oftender document
or quotation
Award ofcontract by
client
Preparationstage
Projectimplementationby direct labour
of the Group
Manpowerallocation
Procurement ofrequired
materials andequipment
Quality assurance
Selection ofsubcontractors
If subcontractor is not engaged
If subcontractor is engaged
Projectimplementationby subcontractors
Assignment ofwork to
appointedsubcontractors
Certification andapplicationfor contractpayments
Inspection
Preparation ofmaster program
Procurement ofrequired
materials andequipment
Implementationstage
Maintenancestage
Formation ofproject
managementteam
Release ofpayment by
client
Release ofpayment to
subcontractor(if any)
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Identification of projects
Projects are generally identified by the Group by reviewing Government Gazette, on which
tender invitations from different Government departments are published. The tender notice includes
a brief description of the works required, the expected commencement date and contract period, the
contact details of the office from which forms of tender and further particulars of the project may be
obtained and the closing time and date of the tender. The Group is also informed of projects subject
to tender by receiving invitation letter(s) directly from the Government department concerned.
The majority of the contracts undertaken by the Group during the Track Record Period were
subcontracted by main contractors. The Group is normally approached by the main contractors and
requested to provide an indication of its interest in the subject projects after obtaining the preliminary
specifications from the main contractors. If the main contractors are satisfied with the Group’s
preliminary specifications and quotation, subcontracting agreement will be entered into between the
main contractors and the Group. There would not be any contractual relationship between the Group
and the relevant Government department in respect of the public sector projects in which the Group
acts as a subcontractor. For each of the two financial years ended 31 March 2009 and 2010, revenue
generated from contracts in which the Group acted as a subcontractor represented approximately
73.9% and approximately 88.5% of the Group’s total revenue respectively. The remaining
approximately 26.1% and approximately 11.5% of the Group’s total revenue was generated from
contracts obtained from WSD in which the Group acted as the main contractor. The aforesaid revenue
from contracts in which the Group acted as subcontractor was attributable to five and two main
contractors respectively. The Group has established business relationship with these main contractors
for three to over ten years. In particular, the Group began undertaking projects as a subcontractor for
MHCC/MHWE, the Group’s largest main contractor, in 2001. For the year ended 31 March 2009,
revenue derived from MHWE amounted to HK$2.5 million, representing approximately 2.9% of the
Group’s total revenue. No revenue was derived from MHWE for the year ended 31 March 2010. For
each of the two years ended 31 March 2009 and 2010, revenue derived from MHCC amounted to
approximately HK$57.8 million and approximately HK$131.4 million respectively, representing
approximately 65.9% and approximately 88.3% of the Group’s total revenue in the respective year.
For the year ended 31 March 2009, over 99.9% of the Group’s total revenue was attributable to
five customers, whilst for the year ended 31 March 2010, the Group’s total revenue was attributable
to three customers.
Mr. Chia, an executive Director, had shareholding interest in Ming Hing Waterworks as at the
Latest Practicable Date. Details of Directors’ interests are set out in the paragraph headed “Competing
interests” in the section headed “Controlling Shareholders and Substantial Shareholders” in this
prospectus.
Save for Mr. Chia’s shareholding interest in Ming Hing Waterworks, none of the Directors, their
associates or any Shareholder had any shareholding interest in Ming Hing Waterworks or the Group’s
five largest suppliers, customers and subcontractors as at the Latest Practicable Date.
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App1A(28)(1)(b)(iii),(iv)
As the Group mainly undertook waterworks projects in public sector during the Track Record
Period in the capacity of either a main contractor or subcontractor, the following table summarises the
rights, obligations and risks of a main contractor and a subcontractor in a typical public sector
waterworks project:
Main contractor Subcontractor
Rights (i) To receive payment from WSDdirectly; and
(ii) no advances can be drawnfrom WSD.
(i) To receive payment from themain contractor;
(ii) advance from main contractormay be obtained, subject toparties’ negotiation andagreement; and
(iii) may rely on the insurancepolicies taken out by the maincontractor.
Obligations (i) To implement the workcontract according to the termsset out in the contract enteredwith WSD;
(ii) shall effect and maintainemployees’ compensation andemployer’s common lawliability insurance in respect ofany accident or injury to anyworkman or other person inthe employment of thecontractor in connection withthe main contractor works orthe subcontractor occurring asa result of or in connectionwith the execution of thesubcontractor works;
(iii) shall effect and maintainCAR/TPL Insurances asrequired under the maincontract; and
(iv) shall take out its owninsurance for its own plant andequipment at its discretion.
(i) To implement the workcontract according to the termsset out in the contract enteredinto with the main contractor;
(ii) shall bear the initial loss underany excess clause (i.e. thedeductible) under theCAR/TPL Insurances and anyuninsured losses in the eventof a claim under the CAR/TPLInsurances which relate to thesubcontract works; and
(iii) shall take out its owninsurance for its own plant andequipment at its discretion.
Risks Minimal credit risk in receivingpayment from WSD.
Higher credit risk in the event ofdelay and/or default in payment bythe main contractor.
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The gross profit margin of a typical public sector waterworks project, such as a replacement and
rehabilitation of water mains project, may fluctuate throughout the term of a contract as the amount
of work and associated costs usually vary from time to time depending on the work orders received.
During the Track Record Period, the Group has undertaken replacement and rehabilitation of water
mains projects in the capacity of a main contractor (contract numbered 13/WSD/06) and a
subcontractor (contract numbered 21/WSD/06). The gross profit margins of contracts numbered
13/WSD/06 and 21/WSD/06 for the year ended 31 March 2009 were both significantly higher than
those for the year ended 31 March 2010. When comparing the gross profit margins between the
aforesaid two contracts in the two years ended 31 March 2009 and 2010, the gross profit margin of
contract numbered 13/WSD/06 was slightly lower than that of contract numbered 21/WSD/06 in the
year ended 31 March 2009 whilst the gross profit margin of contract numbered 13/WSD/06 was lower,
to a greater extent, than that of contract numbered 21/WSD/06 in the year ended 31 March 2010.
Preparation of tender document or quotation
The Group will commence preliminary work for the preparation of tender documents (in the case
of Government contracts) or quotations (in the case of subcontracted works) after obtaining the
specifications from the Government department concerned or the main contractor.
For preparing tender documents in the case of Government contracts, the preliminary work
begins with understanding the specifications and requirements of the project and involves a visit to
the site at which the project is to be undertaken. The Directors consider the site visit to be a crucial
step in preparing the tender document as it enables the Group to better assess the complexity of works
involved and determine which method to adopt for carrying out the work in an efficient and
cost-effective manner. After the site visit, the quantity surveyors of the Group will conduct a detailed
analysis on the technical and financial aspects of the project, taking into consideration the expected
amount and complexity of works to be involved, the estimated amount and prices of the required
materials, the technical skills required, the expected time of delivery, the involvement of
subcontractor(s) and other factors that may affect the Group’s obligations.
Market information and data relevant to the Group’s business and, in particular, preparation of
tenders such as price trend of construction materials, wage trend and the Group’s tender record are
maintained and updated regularly by the Group to facilitate the preparation of competitive tenders.
After conducting the aforesaid analysis, the Group’s quantity surveyor will prepare a preliminary
pricing list, insert the preliminary prices for each item in the bill of quantity and will then submit them
to the Group’s contract manager for review. The contract manager will scrutinize the preliminary
pricing list and bill of quantity, make adjustments (if necessary) based on his experience and recent
market information and then submit and discuss with Mr. Kan, the chairman of the Board and an
executive Director, and Mr. Fung, an executive Director, for their final review and approval.
For preparing quotations in the case of subcontracted works, the Group will carry out procedures
similar to those set out above to arrive at the quotations for submission to or negotiation with the main
contractors.
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Submission of tender document or quotation
In the case of Government contracts, apart from ascertaining the bill of quantity is in compliance
with the specifications of the project subject to tender, Mr. Kan and Mr. Fung will, based on their
experience and market knowledge, consider whether the tender is competitive in terms of pricing
whilst certain level of profitability can be achieved during their review of the tender documents. Upon
finalising the bill of quantity and other documents required for submission, the Group will submit the
tender documents to the relevant Government department.
In the case of subcontracted works, submission of formal quotation may or may not be required.
In the event that a formal quotation is required, the Group will prepare the quotations in the similar
way as those for preparing the tender documents as set out above and submit documentation to the
main contractor.
Formation of project management team
Once a contract is awarded, a project management team will be formed which generally
comprises the project manager, a foreman and a number of workers chosen by the project manager. In
choosing the members of the project management team, the project manager usually takes into account
of the nature, technical requirement and timing of delivery of the project, the available manpower of
the Group, the need for recruitment of additional workers and the skills of the workers. The project
management team will have monthly meeting with the engineer appointed for the project to review
working progress and conduct daily inspection to enhance the quality assurance.
In the case that the Group being a subcontractor, depending on the terms of the subcontracting
agreement, the main contractor may designate some of its staff to provide the necessary on-site
support to the Group on implementation of the contract work in order to ensure a smooth operation
and have a better communication with the engineer appointed for the project. The Group will
reimburse the relevant costs on a dollar-to-dollar basis to the main contractor after reviewing and
assessing the validity and accuracy of the relevant costs as shown on the schedule prepared by the
main contractor. The costs of on-site support from the main contractors paid by the Group for each
of the two financial years ended 31 March 2010 were approximately HK$2.3 million and
approximately HK$7.0 million respectively.
Procurement of materials and equipment
During the Track Record Period, the Group was principally focused on waterworks projects and
roads and drainage projects. The principal construction materials used by the Group include various
kinds of pipes (including mild steel pipes, ductile iron pipes and polyethylene pipes), fittings, steel
bars, concrete and asphalt, which are sourced from a number of suppliers.
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For each of the contracts undertaken by the Group, a master program setting out the particulars
on the implementation of such project and a project quality plan setting out the specifications, the
timing of delivery, the construction materials and manpower required will be prepared. The Group will
place the purchase orders (as and when required under the relevant main contract where the Group is
a subcontractor, through the relevant main contractor) with the suppliers on the Group’s approved list
for the required materials and equipment according to the project quality plan. Under normal
circumstances, purchase orders will be placed whenever necessary. In addition to the required amount
of inventory, the site agent will, based on his past experience in similar projects, order extra amount
of inventory as buffer to cater for unforeseen circumstances, such as receipt of additional work orders
by the Group. The Group will regularly review the inventory balance to ensure that a sufficient level
of inventory is maintained for carrying out contract works and contingencies.
During the Track Record Period, there were over 140 suppliers on the Group’s approved list of
suppliers. Factors considered by the Group before admitting a supplier on its approved list include
product quality, timeliness of delivery, job references and reputation in the industry. The Group
reviews its approved list of suppliers on an annual basis to ensure that the Group is maintaining a
diversified base of reliable suppliers which offer competitive prices.
During the Track Record Period, the Group’s largest construction materials supplier (in respect
of construction materials for which the Group directly placed purchase orders) accounted for
approximately 3.8% and approximately 2.8% of the Group’s total purchases and the Group’s five
largest construction materials suppliers (in respect of construction materials for which the Group
directly placed purchase orders) accounted for approximately 9.8% and approximately 6.0% of the
Group’s total purchases respectively. All of the five largest suppliers are Independent Third Parties.
None of the Directors or their associates or any Shareholder holding more than 5% of the Company’s
issued share capital had any interests in the five largest suppliers as at the Latest Practicable Date.
During the Track Record Period, the Group had not experienced any significant disruption in the
supply of materials by its suppliers.
The Group has established business relationship with its top five suppliers during Track Record
Period from one to nine years. No long term contract had been entered into between the Group and
the suppliers. The normal credit period granted to the Group is 30 days.
For contracts undertaken by the Group as a subcontractor, if the subcontracts entered into
between the Group and the main contractor so provides, the main contractor may be responsible for
purchasing the required materials for the Group’s use to carry out the subcontracted works concerned.
For the year ended 31 March 2009, total purchases of construction materials by the Group
amounted to approximately HK$20.5 million, which comprised (i) purchases of construction materials
made by the Group directly with suppliers of approximately HK$4.2 million; (ii) purchase of
construction materials by an independent main contractor for the Group’s use in carrying out
waterworks engineering services as a subcontractor in respect of a water mains replacement and
rehabilitation project (contract numbered 5/WSD/06) of approximately HK$0.2 million; and (iii)
purchase of construction materials by MHCC/MHWE for the Group’s use in carrying out waterworks
engineering services as a subcontractor to MHCC/MHWE in respect of a water mains replacement and
rehabilitation project (contract numbered 21/WSD/06) of approximately HK$16.1 million.
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App1A(28)(1)(b)(i),(ii)
App1A(28)(1)(b)(v)
Pursuant to the terms of the subcontracts entered into between MHCC/MHWE and the Group,
MHCC/MHWE, upon the written request of the subcontractor (i.e. the Group), would be responsible
for purchasing the required materials for the Group’s use and is entitled to deduct the corresponding
costs of construction materials from the payments to the Group in respect of works completed. For the
year ended 31 March 2010, total purchases of construction materials by the Group amounted to
approximately HK$32.4 million, which comprised (i) purchases of construction materials made by the
Group directly with suppliers of approximately HK$2.6 million; and (ii) purchase of construction
materials by MHCC/MHWE for the Group’s use in carrying out waterworks engineering services as
a subcontractor to MHCC/MHWE in respect of the project as referred to the aforesaid water mains
replacement and rehabilitation project (contract numbered 21/WSD/06) and another water mains
replacement and rehabilitation project (contract numbered 18/WSD/08) of approximately HK$29.8
million.
Similar to the subcontract entered into between MHCC/MHWE and the Group relating to
contract numbered 21/WSD/06, the subcontracts in respect of contract numbered 18/WSD/08 and
contract numbered 1/WSD/09(W) provide that MHCC/MHWE, upon the written request of the
subcontractor (i.e. the Group), would be responsible for purchasing the required materials for the
Group’s use and is entitled to deduct the corresponding costs of construction materials from the
payments to the Group in respect of works completed.
As the ”buy-sell” relationship for construction materials was established between MHCC/MHWE
and the construction materials suppliers concerned and MHCC/MHWE was responsible for making
payments to such suppliers, the Group has not included the suppliers from which MHCC/MHWE
purchased the construction materials as suppliers of the Group in its books and records. Similarly, the
Group had not included the suppliers from which the aforesaid independent main contractor purchased
the construction materials as suppliers of the Group in its books and records. Construction materials
purchased through the independent main contractor according to the subcontracting contract signed
with such main contractor were accounted for as inventory of the Group. This accounting treatment
is the same as that if the Group purchased these materials by itself. The Group settled the cost of
construction materials purchased through the independent main contractor on a monthly basis by
offsetting an equivalent sum against the progress billing to such main contractor.
Project implementation
The project management team, headed by a project manager, is responsible for all aspects of the
project including preparation of the master program and project quality plan, manpower management,
resources allocation, budget monitoring and overall project execution and administration. The project
manager who is normally stationed at the site is responsible for site supervision and monitoring work
progress. Meetings between the client and the project manager are held regularly to review work
progress, to resolve issues identified during implementation of the project and to revise the work
program if variation orders are received.
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Subcontracting arrangements
The contract period of the contracts awarded to the Group in the past varied from nine months
to approximately 66 months and such contracts may involve works that require other expertise such
as mechanical and electrical works and landscaping and plantation works. Depending on the Group’s
manpower availability, the expertise required, the level of complexity of work involved, cost
effectiveness and licencing requirements, the Group may appoint subcontractors to carry out certain
parts of a contract. To ensure the overall quality of work on a project, the Group has maintained a list
of approved subcontractors, the selection of which are based on a set of criteria as set out in the
Group’s internal quality procedure including previous job references, reputation in the industry, price
competitiveness, quality of work and skill sets of workers. During the Track Record Period, there were
more than 40 subcontractors on the Group’s list of approved subcontractors. The list of approved
subcontractors is reviewed and updated on an annual basis based on the performance assessment of
each subcontractor by the Group.
In determining the appointment of a subcontractor, the Group will take into consideration the
manpower allocated to the project by the subcontractor, the subcontractor’s quality of work, the
subcontractor’s timeliness of delivery of work in the past, the management control of the
subcontractor and the price competitiveness of quotation. The Group will enter into a subcontract
agreement with the subcontractor appointed, which terms will require the subcontractor to observe all
the requirements and provisions of the relevant main contract entered into between the Group and its
client. Except for situations where subcontract rates and specifications of subcontracted works are
particularly stated in the subcontract agreement, all other material terms including payment,
supervision and terms of measure of contract works follow those contained in the relevant main
contract. In situations where subcontractors do not have sufficient funds to recruit additional workers
or acquire the materials necessary to carry out their works, the main contractor may make advances
to the subcontractors for such purposes. It is not uncommon in the civil engineering industry or
construction industry in general for the main contractor to make advances to subcontractors as initial
start-up capital for undertaking contract works. During the Track Record Period, the Group as a main
contractor has made advances, which were non-interest bearing, to its subcontractors. As at 31 March
2009 and 2010, the balance of the advances made by the Group to its subcontractors amounted to nil
and approximately HK$2.3 million respectively.
During the Track Record Period, the Group’s subcontracting costs amounted to approximately
HK$24.6 million and approximately HK$40.1 million respectively, representing approximately 34.9%
and approximately 32.9% of the total costs of service respectively. During the same period, the
Group’s largest subcontractor accounted for approximately 35.8% and approximately 22.1% of the
Group’s total subcontracting costs and the Group’s five largest subcontractors accounted for
approximately 71.3% and approximately 48.1% of the Group’s total subcontracting costs respectively.
All of the five largest subcontractors are Independent Third Parties. None of the Directors or their
associates or any Shareholder holding more than 5% of the Company’s issued share capital had any
interests in the five largest subcontractors as at the Latest Practicable Date.
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App1A(28)(1)(b)(v)
During the Track Record Period, there were over 40 subcontractors on the Group’s list of
approved subcontractors, nine of which had been working with the Group for at least four years.
During the Track Record Period and up to the Latest Practicable Date, the Group had not experienced
any incidents whereby the Group’s subcontractors have caused delay in completing the required
services which resulted in any material adverse impact on the Group’s operations or financial position.
Inspection
During the course of work, the site agent or other team members assigned by him will conduct
inspection on all works completed on a regular basis to ensure that the works performed by the Group
comply with the requirements as set out in the relevant contract. Under normal circumstances, a
further inspection will be conducted together with the engineer’s representative before application for
interim payment.
Application for payment and certification
In the case of the Group being a main contractor, the Group is entitled to apply for interim
payment for the work in progress per month according to the terms of the work contract. Under normal
circumstances, the Group will apply for monthly interim payment pursuant to the terms of the work
contract by submitting to the engineer appointed for the project a statement of account, showing the
value of the work completed in the period, the value of the materials used for the project and any other
sums to which the Group considers to be due to it under the relevant contract, together with other
supporting documents as may be required by the engineer appointed for the project for payment of
interim works. The engineer appointed for the project will issue a certificate of payment by no later
than 21 days of the date of receipt of such notice if, in his/her opinion, the works were satisfactorily
completed upon the relevant time frame in accordance with the relevant contract. The payment of
interim works will be received within 21 days after the receipt of the certificate of payment. As
described above, such application for payment and certification will be conducted monthly until the
entire project is completed. Similar to the monthly interim payment, the final payment shall be made
to the Group within 21 days of the issue of the completion certificate by the engineer appointed for
the project. The maintenance period, as specified on the form of tender, shall commence on the day
following the date of completion stated in the completion certificate and last for about a year. During
the maintenance period or within 14 days after its expiry, the engineer appointed for the project may
by notice in writing require the Group to carry out any work of repair or rectification, or make good
any defect, imperfection, shrinkage, settlement or other faults identified within the maintenance
period. The Directors are of the view that costs of repair or rectification were immaterial during the
Track Record Period.
In the case of the Group being a subcontractor, the procedures for application for payment and
certification are similar to those in the case of the Group being a main contractor, except that the
Group will submit the relevant documents to the main contractor instead of the engineer appointed for
the project. The main contractor, upon receipt of payment from the relevant Government departments,
will first deduct, if any, the contract fee, handling fee, cost of purchase of construction materials
(where applicable) and other reimbursements payable by the Group, before making payment to the
Group.
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INVENTORY CONTROL
The primary objective of the inventory control is to maintain a sufficient level of inventory for
carrying out the projects without delay and contingencies. The Group’s inventory level is monitored
on an ongoing basis. The project management committee regularly reviews the level of inventory to
ensure that there is sufficient inventory for utilisation by the projects. Generally speaking, the amount
of construction materials to be ordered is assessed by the site agent on a project-by-project basis
depending on the work orders (if any) and specific requirements of each project. The time required
for delivery of materials by the suppliers and the expected commencement date of site work will also
be taken into consideration when determining the size of order. In addition, the Group may increase
the inventory of certain materials required for a project in advance if the project management
committee foresees that the prices of those materials will rise in the near future.
QUALITY ASSURANCE
The Group has adopted a series of quality assurance measures to ensure the quality of its work.
In recognition of the quality assurance procedures in place, the quality management system of TYW
has been certified that it complies with the requirements of ISO9001:2000 quality management system
standard applicable to construction of civil engineering works (site formation, waterworks, roads and
drainage). The ISO certificate would be renewed once every three years and ISO surveillance visit
would be conducted once every six months. The current ISO 9001:2008 certificate will expire on
2 June 2012.
Each project is implemented according to its project quality plan, which is designed to ensure
that the specifications, timing of delivery, quality of construction materials and manpower required for
a project are met. The project manager reviews the aforesaid aspects of a project against the
requirements set out in the project quality plan from time to time and makes modifications and
rectifications whenever necessary.
Prior to making an application for certification of completion, daily inspection will be conducted
by the site agent or foreman to ensure that the work completed conforms to the specifications and
requirements set out in the contract. In particular, the site agent or foreman will inspect the
workmanship of the work completed and prepare an as-constructed drawing. As at the Latest
Practicable Date, there were 12 personnel responsible for quality assurance in the Group and Mr. Lau
Wai Chun, Jacky is the head of quality assurance of the Group. Details of his qualifications and
industry experiences are disclosed in the section headed “Directors, senior management, board
committees and staff” in this prospectus.
During the Track Record Period, TYW achieved outstanding performance ratings in respect of
the projects undertaken by it and did not receive any poor performance ratings from ETWB. According
to the letters received from WBDB dated 1 February 2010 and 3 May 2010 respectively, the respective
performance ratings for the fourth quarter of 2009 and the first quarter of 2010 of TYW were the same
as the respective highest rating given by WBDB to a total of ten Group B contractors under the
category of “Waterworks” during the relevant period. As the letters from WBDB do not specify the
number of contractors achieving the highest rating, the Directors could not rule out the possibility that
there might be other contractors getting the same rating as TYW did during the relevant period.
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Nevertheless, based on the letters from WBDB during the Track Record Period, the Directors and the
Sponsor are of the view that the Group has achieved outstanding performance ratings during the Track
Record Period. Given part of the evaluation process of tenders is based on a formula, a material
component of which is a tenderer’s performance rating, TYW’s recent outstanding performance ratings
are beneficial to its bidding of tenders. Details of the Contractors’ Performance Index System and the
assessment criteria of the performance ratings are disclosed in the section headed “Licencing and other
requirements for Government projects” in this prospectus.
SAFETY POLICY
The Group has implemented a stringent set of safety policies in order to provide a safe and
healthy working environment to its employees. Each worker at site is provided with an induction
training on the safety policies of the Group. Depending on the scope of work at each site, the safety
officer will provide a safety briefing regularly to highlight major safety issues to the workers. The
safety officer, site agent and the Group’s client will carry out weekly on-site inspection to identify
existing and potential safety issues, and thereafter the site agent will be responsible for implementing
appropriate safety precautions or rectification measures in respect of the issues identified. In addition,
safety reminders and warnings are posted at prominent areas at the sites.
According to the Occupational Safety and Health Statistics issued by the Government, the
number of industrial accidents in the construction industry in Hong Kong were 3,033 in 2008 and
2,755 in 2009 respectively. For each of the financial years ended 31 March 2009 and 2010, the Group
recorded one and two accident(s) respectively, which is not significant as compared to the aforesaid
number of industrial accidents. Such three industrial accidents involved personal injuries of labours
and no casualties were recorded. The injured persons in two of the accidents were the employees of
the Group’s subcontractors and as the Group was neither the main contractor of the projects nor direct
employer of the injured persons in such two accidents, injury claims were made by the relevant injured
persons to their respective main contractors of the projects. In respect of the one accident occurred
where the Group was the main contractor of the project, the injured person was a direct employee of
the Group. The aforesaid accident happened on 21 January 2010 in which a plant and equipment
operator slipped off from a truck while he was off-loading the raw materials on the truck. The injured
employee sustained left ankle fracture in the accident. As the Group had taken out and maintained
employees’ compensation insurance policy, the Group, subject to the terms and conditions of the
relevant policy, should be insured against the claim made by the injured employee for his injury
subtained within the insurance period commencing from 26 June 2009 and terminating upon,
whichever is earlier, (i) 6 January 2011 or (ii) the practical completion of the project and during the
maintenance period of 12 months immediately following the aforesaid period, with the maximum
indemnity of HK$200 million per single event. As at the Latest Practicable Date, the Group has not
resolved the case with the injured employee of the Group yet and no injury claim has been received
by the Group from such injured employee. Although the injured employee has the right to lodge a
claim against the Group for compensation or other remedies, the Board considers the risk exposure of
the Group in this regard is minimal, given the Group has insurance with a maximum indemnity of
HK$200 million covering such potential liabilities.
In order to minimise the occurrence of industrial accidents and improve the Group’s safety
policies, the Group will keep on conducting safety trainings to uphold the safety awareness of the
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labour. The Group, since August 2008, has engaged external safety firm or auditor to carry out review
or audit on the Group’s safety aspects on a half-yearly basis. Sequence Management Consultants
Limited is an independent consultancy firm specialising in providing site safety inspection and safety
audit services to engineering and construction company in Hong Kong. Mr. Choi Kwok Kin Paul is
a registered safety auditor under the Factories and Industrial Undertakings (Safety Management)
Regulation (Chapter 59AF, the Laws of Hong Kong). Mr. Choi Kwok Kin Paul held various safety
supervisory or safety managerial positions in several corporate entities from 1993 to 2007. He has
been a registered safety officer and a registered safety auditor under the Labour Department of Hong
Kong since 1997 and 2000 respectively. He has been providing external safety audit and safety review
services since 2008. During the Track Record Period, the aggregate fee paid to the safety auditor or
the consultancy firm amounted to HK$55,000. The scope of safety audit generally included assessment
of safety policy, safety organization, safety rules, personal protective programme, occupational health
assurance programme and other safety aspects of the Group. During the Track Record Period, no
material safety issues were identified by the safety auditor. In the latest safety report, the safety
auditor, Mr. Choi Kwok Kin Paul, had made certain recommendations to the Group including, among
other things, revisions of safety plan and emergency plan and arrangement of emergency drill. The
follow-up actions in response of the above recommendations have been completed by the Group as at
the Latest Practicable Date.
The following tables set out the key recommendations made by the safety auditor, Mr. Choi
Kwok Kin Paul, in the latest safety reports and the follow-up actions undertaken by the Group in
response thereto:
TYW
AspectRecommendationsand findings Responsible person
Follow-up actionsundertaken/implementation results
Safety policy No commitment was
stated in the safety policy
that safety and health are
the prime responsibilities
of the management at all
levels, from the most
senior executives down to
the front line supervisory
staff.
Project Manager/
Safety Officer
Safety policy has been
revised to include the
required information.
Organisational
structure
Qualified safety staff to
assist the line
organization on
implementing the safety
management system was
insufficient.
Project Manager Adequate qualified safety
staff has been appointed
to assist the line
organization for
implementation of the
safety management
system.
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AspectRecommendationsand findings Responsible person
Follow-up actionsundertaken/implementation results
Safety training Safety training plan was
not set up to cope with
the training needs.
Project Manager/
Safety Officer
Training plan has been
established to cope with
the training needs.
In-house safety rules
and regulations
“In-house safety rules”
was not an item of
site-specific induction
training.
Safety Officer Training material of the
site-specific induction
training has been revised
to include in-house safety
rules.
Programme for
inspection of
hazardous conditions
Project safety plan did
not mention about any
inspection programme by
the senior management at
regular intervals.
Safety Officer The project safety plan
has been revised to
include inspection
programme.
Personal protective
programme
The safety plan did not
mention about the
identification of the
residual risks after
reasonably practicable
engineering and
administrative controls
have been applied.
Project Manager/
Safety Officer
The safety plan has been
revised accordingly.
Accident/Incident
investigation
Safety plan did not
specify the line
supervisor/line
management’s
involvement in the
accident/incident
investigation.
Project Manager/
Safety Officer
The safety plan has been
revised to stipulate the
line supervisor/line
management’s
involvement in the
accident/incident
investigation.
Emergency
preparedness
Damage of electrical
cable, lifting appliance
turn over, damage of
town gas pipes, leakages
of chemicals had not been
identified as emergency
situations.
Project Manager/
Safety Officer
Emergency situations
including damage of
electrical cable, lifting
appliance turn over,
damage of town gas
pipes, leakages of
chemicals have been
stipulated in the safety
plan.
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AspectRecommendationsand findings Responsible person
Follow-up actionsundertaken/implementation results
Evaluation selection
and control of
sub-contractors
There was not any
pre-work meeting held
with subcontractors to
discuss the safety and
health aspects.
Project Manager/
Site Agents/
Safety Officer
Pre-work meeting have
been held with
subcontractors to discuss
the safety and health
aspects.
Safety committee Safety committee meeting
minutes was not brought
to all employees’
knowledge at regular
intervals.
Safety Officer Safety committee meeting
minutes have been
displayed on the safety
bulletin boards.
Job hazard analysis Chemical hazard,
dangerous substance and
road work was not
included in the list of
foreseeable hazard.
Safety Officer Chemical hazard,
dangerous substance and
road work have been
included in the safety
plan as foreseeable
hazards.
Promotion of safety
and health awareness
The progress/status of
Considerate Contractors
Site Awards (公德地盤)
was not reported/
discussed in the site
safety and environmental
meeting.
Project Manager/
Safety Officer
The progress/status of
safety promotional
competition has been
reported/discussed in the
site safety and
environmental meeting.
Occupational health
assurance programme
The noise assessment/
requirement was not
mentioned in the safety
plans.
Safety Officer The noise assessment/
requirement has been
included in the safety
plan.
Process control
programme
Record was not
documented for the
appointment of banksman
to control the moving of
vehicles or equipment in
areas where the safety of
public may be endangered
was not documented.
Site Agent/Safety
Officer
Appointment of banksman
has been properly
documented.
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TY Civil
AspectRecommendationsand findings Responsible person
Follow-up actionsundertaken/implementation results
Safety policy Safety plan mentioned
that the safety policy will
be reviewed in safety
committee meeting.
However, the safety plan
had not stated the details
and specific period for
reviewing the safety
policy.
Project Manager/
Safety Committee
Safety plan has been
revised to include the
required details.
Organisational
structure
The lines of
communication and
responsibility were not
defined clearly.
Safety Officer Safety organisation chart
has been revised to
include the required
details.
Safety training Training plan could not
be provided during the
audit. The training plan
should specify the course
titles, aims, time required
for training, trainer and
target trades.
Project Manager/
Safety Officer
Training plan has been
prepared accordingly.
In-house safety rules
and regulations
“In-house safety rules”
was not an item of
site-specific induction
training.
Project Manager/
Safety Officer
Training materials of
site-specific induction
training have been
revised to include
in-house safety rules.
Programme for
inspection of
hazardous conditions
Analysis of the results
and trends of safety
inspection had not been
analyzed to identify the
repeated items; and had
not been stated in the
corporate safety plan.
Project Manager/
Safety Officer
Review and revise Safety
Plan for the analysis of
results and trends of
repeated sub-standard
items.
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AspectRecommendationsand findings Responsible person
Follow-up actionsundertaken/implementation results
Accident/Incident
investigation
TY Civil was
recommended to mention
a time frame for
reviewing the accident
/incident investigation
procedure such as one or
two years and to review
the investigation
procedure under the
condition of corporate
safety and health
committee meeting.
Project Manager/
Safety Committees/
Safety Officer
Safety plan for accident/
incident investigation
procedure review has
been revised accordingly
and discussed and
reviewed at safety
committee meeting.
Emergency
preparedness
Safety plan defined the
duties of the emergency
team members. However,
emergency plans for two
of the contracts
undertaken by TY Civil
had not defined the duties
of emergency team
members clearly.
Project Manager/
Safety Officer
Safety Plan has been
revised to clearly define
the duties of emergency
team members.
Evaluation selection
and control of
subcontractors
No monitoring system
was shown in the safety
plan to ensure that the
equipment, plants, tools
and materials provided by
subcontractors comply
with statutory and
contractual requirements.
Project Manager/
Safety Officer
Safety plan has been
revised to include the
required information.
Safety committee Safety plan addressed the
distribution of minutes of
corporate safety
committee meeting.
However, this minute
could not be observed on
the safety bulletin board
during the time of audit.
Project Manager/
Safety Officer
Safety committee meeting
minutes have been
displayed on bulletin
boards at relevant work
sites.
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AspectRecommendationsand findings Responsible person
Follow-up actionsundertaken/implementation results
Job hazard analysis There was noarrangement to distributethe risk assessment reportto the relevantsubcontractors andparties. TY Civil wasadvised that the riskassessment report shouldbe discussed in the sitesafety and environmentalmeeting.
Project Manager/Safety Officer/Site Agent/Sub-Agents
Risk assessment reportshave been discussed insite safety andenvironmental meetingsand corporate safetycommittee meeting.
Promotion of safetyand health awareness
TY Civil was advised toparticipate in thequarterly award ofConsiderate ContractorsSite Awards (公德地盤).The progress of suchawards should also bereported in the minutes ofsite safety andenvironmental meeting.
Project Manager/Site Agents/Safety Officer
Participated in theConsiderate ContractorSite Awards (公德地盤);progress has beendiscussed in site safetyand environmentalmeeting.
Occupational healthassurance programme
Physical observationrevealed that noisewarning signs and noiselabels could not beobserved on all aircompressors andexcavators in two of thework sites.
Project Manager/Safety Officer
Noise warning signs/labels have beendisplayed on all aircompressors andexcavators in the relevantwork sites.
Process controlprogramme
Documentary audit ontwo of the projectsrevealed that projectsafety plan had notmentioned non-standardlifting operation. Also,such method statementand safe workingprocedure had not beenproduced for specificlifting operations duringaudit.
Project Manager/Safety Officer
Safety procedures havebeen produced forspecific lifting operations.
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The above follow-up actions have been implemented by the Group and reviewed by the Group’s
safety officer, Mr. Lau Wai Chun, Jacky, who is satisfied with the implemented follow-up actions. The
aforesaid follow-up actions will be reviewed by the safety auditor in the next safety audit which is
expected to be conducted in September 2010. The Group intends to engage Mr. Choi Kwok Kin Paul
to conduct the next safety review or audit for the Group.
COMPETITION
During the Track Record Period, the Group primarily focused on providing waterworks
engineering services for the public sector in Hong Kong. The Directors consider the competition in
the aforesaid sector is less intense as compared with that in other types of civil engineering works such
as building construction. Based on the information available from WBDB’s website as at 31 July 2010,
there were a total of 11 approved contractors listed on the Contractors List under the category of
“Waterworks” for Group B, as compared to a total of 46 approved contractors listed on the Contractor
List under the category of “Buildings” for Group B.
Some evaluations of tenders are based on a formula approach, in which a tenderer’s performance
rating is taken into account to a significant extent. As disclosed in the paragraph headed “Quality
assurance” in this section, TYW achieved outstanding performance ratings for the quality of its works
from WBDB during the Track Record Period. The Directors believe that TYW’s recent outstanding
performance ratings enhance its competitiveness in tendering a project.
The Directors also consider that the requirements on the financial, technical and management
aspects of a contractor for inclusion on the Contractor List provide effective barriers to entry for
international and local contractors who are not currently on the approved list from entering the sector
as a main contractor. Details of the licencing requirements for a contractor to be eligible to tender for
work contracts of the Government are set out in the section headed “Licencing and other requirements
for Government projects” in this prospectus.
PROPERTY INTERESTS
Property interests leased by the Group in Hong Kong
(i) Offices
The Group’s head office and principal place of business in Hong Kong is located at Unit 14, 3/F.,
Fuk Shing Commercial Building, 28 On Lok Mun Street, Fanling, New Territories, Hong Kong with
a saleable area of approximately 129.91 sq.m..
Apart from the Group’s head office and principal place of business in Hong Kong, the Group has
leased one office unit with a saleable area of approximately 79.35 sq.m. at Unit 3, 3/F., Fuk Shing
Commercial Building, 28 On Lok Mun Street, Fanling, New Territories, Hong Kong for general office
use, one unit with a saleable area of approximately 62.563 sq.m. at G/F., 86 San Uk Ka, Tai Po, New
Territories, Hong Kong for office use and two rooms in a unit with an aggregate total saleable area
of approximately 14.49 sq.m. at Rooms 1 and 3, 7/F., Anton Building, 1 Anton Street, Wanchai, Hong
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Kong for office use. The aforesaid office premises located at Wanchai are sub-leased from HKLC,
which is wholly owned by Mr. Chia, an executive Director. Particulars of the Lease Agreement entered
into between the Group and HKLC are set out in the section headed “Connected transactions” in this
prospectus.
(ii) Director’s quarter
The Group has leased a residential unit as its Director’s quarter at Flat B, 21/F., Tower 8, The
Palazzo, No. 28 Lok King Street, Shatin, New Territories, Hong Kong with a gross floor area of
approximately 170.48 sq.m..
Details of the lease agreement in respect of aforesaid leased properties are set out in Appendix
III to this prospectus. As at the Latest Practicable Date, the Group did not own any property interests.
Property valuation
Vigers Appraisal and Consulting Limited, an independent property valuer, has valued the
property interests of the Group as at 31 May 2010, which have no commercial value. Details of the
valuation and the text of the letter, summary of values and valuation certificate from Vigers Appraisal
and Consulting Limited are set out in Appendix III to this prospectus.
INSURANCE
It is a practice in the Hong Kong construction industry, as well as a contractual term between the
relevant main contractor and a client, that the main contractor of a project will take out and maintain
employees’ compensation insurance and contractor’s all risks insurance for the entire project. The
coverage of such insurance policies includes all works performed by the main contractor and all its
subcontractors. The Directors confirm that the Group has taken out and maintained all its necessary
and required insurance policies in respect of employees’ compensation and contractors’ all risks for
the projects in which members of the Group act as main contractors. When acting as a subcontractor,
the relevant member of the Group will not take out separate insurance policies but will rely on the
insurance policies taken out and maintained by the relevant main contractor. The reliance of the Group
on the main contractors’ insurance policies is explicitly provided for in the relevant subcontracting
agreements.
During the Track Record Period, insurance cost for projects amounted to approximately HK$0.32
million and approximately HK$0.29 million respectively. The Directors confirm that the Group has
obtained adequate insurance coverage for the operation of its business.
RELATIONSHIP WITH MHCC/MHWE
Background
MHCC and MHWE are both wholly-owned subsidiaries of Ming Hing Waterworks, a company
with its issued shares listed on the Main Board of the Stock Exchange. Ming Hing Waterworks,
through its subsidiaries, is principally engaged in the provision of maintenance and construction works
on civil engineering contracts including waterworks engineering, road works and drainage and slope
upgrading services in Hong Kong.
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Business relationship
The business relationship between the Group and MHWE started in 2001 with a waterworks
project in the North District in the New Territories, whereby TYW acted as a subcontractor to MHWE.
TYW’s engagement in respect of the aforesaid waterworks project was initiated by Mr. Kan who
approached MHWE after Mr. Kan becoming aware of the relevant Government contract being awarded
to MHWE. Since the inception of business relationship with MHWE as described above,
MHCC/MHWE, as a main contractor, had subcontracted a few contracts from WSD to the Group for
implementation. In respect of the eight contracts completed by the Group during the Track Record
Period, two contracts were obtained from MHCC/MHWE, and in respect of the five contracts in
progress as at the Latest Practicable Date, three contracts were obtained from MHCC/MHWE. For the
year ended 31 March 2009, revenue derived from MHWE amounted to approximately HK$2.5 million,
representing approximately 2.9% of the Group’s total revenue. No revenue was derived from MHWE
for the year ended 31 March 2010. For each of the two years ended 31 March 2009 and 2010, revenue
derived from MHCC amounted to approximately HK$57.8 million and approximately HK$131.4
million respectively, representing approximately 65.9% and approximately 88.3% of the Group’s total
revenue in the respective year. MHCC/MHWE has been the Group’s largest customer since the year
ended 31 March 2008.
The Group had commenced obtaining interest-bearing advances from MHCC in 2007 in respect
of a water mains replacement and rehabilitation project (contract numbered 21/WSD/06)
subcontracted by MHCC. Apart from the above contract, the Group has also received advance from
MHCC in respect of another water mains replacement and rehabilitation project (contract numbered
18/WSD/08) subcontracted by MHCC. Based on the disclosure in the annual report of Ming Hing
Waterworks for the year ended 31 March 2010, the Directors believe that Ming Hing Waterworks has
also made advances to its other principal subcontractors apart from the Group.
As at 31 March 2009 and 2010, advances from MHCC/MHWE amounted to approximately
HK$8.2 million and approximately HK$9.0 million respectively, and the maximum balances of
advances during the aforesaid two years were approximately HK$14.0 million and approximately
HK$11.2 million respectively. Among the balances outstanding as at 31 March 2009 and 2010,
approximately HK$8.2 million and approximately HK$3.5 million respectively carried interest at
HIBOR (being 0.11%) plus 4%. The aforesaid advances will normally be fully set off against certified
payments payable by the main contractors to the Group upon completion of the relevant contracts.
The terms of the aforesaid contracts, including the advances, were arrived at between the Group
and MHCC/MHWE after arm’s length negotiation. The Directors consider that if advances were not
made by MHCC/MHWE to the Group for implementation of the aforesaid contracts, the Group could
have sought alternative financing methods such as obtaining loans from Mr. Kan, the Controlling
Shareholder, bringing in new shareholder(s) to the Group or obtaining external borrowings.
Given that the interest rate charged by MHCC/MHWE is comparable to the interest rates charged
by a licenced bank in Hong Kong on the loans previsously granted to the Group (being 1% per annum
over the best lending rate of such bank of 5% for the HK$4.0 million non-revolving loan and a flat
rate of 3.75% per annum (subject to the right of such bank to renegotiate in the event that its best
lending rate, being 5%, changes between the date of the relevant facility letter and the date of
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drawdown) for the HK$2.0 million non-revolving loan respectively), the advances from
MHCC/MHWE do not require any asset pledge or security from the Group or guarantee from the
Controlling Shareholders and obtaining the advances would enhance the liquidity of the Group, the
Directors consider it beneficial to the Group to obtain such advances for the purpose of recruiting
additional workers and acquiring the equipment and machinery and/or materials necessary to carry out
the contract works for which MHWE/MHCC was the main contractor. Furthermore, as it is indicated
in the annual report of Ming Hing Waterworks for the year ended 31 March 2010 that Ming Hing
Waterworks has made advances to its other principal subcontractors, and the Group also has past
experience in receiving advances from another independent main contractor and making advances to
subcontractors of the Group, the Directors believe it is not uncommon for a main contractor to make
advances to subcontractors.
MHCC/MHWE had purchased construction materials for the Group’s use in carrying out
waterworks engineering services as its subcontractor pursuant to the terms of the contracts entered
into between MHCC/MHWE and the Group during the Track Record Period. For each the two years
ended 31 March 2009 and 2010, purchase of construction materials by MHCC/MHWE for the Group
amounted to approximately HK$16.1 million and approximately HK$29.8 million respectively. Details
of the projects for which the above construction materials were purchased are disclosed in the
sub-paragraph headed “Procurement of materials and equipment” in this section. As there was another
independent main contractor which had purchased construction materials for the Group and the Group
also has past experience in purchasing construction materials for its subcontractors, the Directors
believe that it is not uncommon for a main contractor to purchase materials for its subcontractor.
The terms of the contracts entered into between the Group and MHCC/MHWE in respect of
provision of waterworks engineering services by the Group as a subcontractor to MHCC/MHWE were
arrived at after arm’s length negotiation, having taken into consideration the nature, size, capital
requirement and complexity of the relevant projects, between the Group and MHCC/MHWE. The
Directors are of the view that the terms of the relevant contracts (including the purchase of
construction materials by and advances from MHCC/MHWE) were on normal commercial terms and
the relevant contracts were entered into in the ordinary and usual course of business of the Group.
Reliance on MHCC/MHWE
For each of the two financial years ended 31 March 2009 and 2010, MHCC/MHWE was the
largest customer of the Group, contributing approximately 68.8% and approximately 88.3% to the
Group’s total turnover. The Directors consider the Group’s reliance on MHCC/MHWE during the
Track Record Period is attributable to a combination of factors including (i) the length of the subject
contracts; and (ii) the then financial resources and capacity of the Group. Due to the volume and
complexity of works involved, civil engineering contracts (including waterworks contracts) generally
cover a term of two years or more. As shown in the paragraph headed “Contracts completed and
contracts in progress” under this section, most of the works contracts undertaken by the Group have
a term of over two years. For this reason, certain subcontracts obtained by the Group from
MHCC/MHWE prior to the Track Record Period remain to be in progress within the Track Record
Period. Furthermore, the Group had, during the Track Record Period, devoted a considerable amount
of financial resources and manpower on the implementation of contracts numbered 21/WSD/06 and
18/WSD/08, and the Group therefore had not taken on other large-scale projects.
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The Directors believe that the reliance on MHCC/MHWE will be gradually reduced after the
Listing. On one hand, it is the Group’s business objective to undertake more work contracts in the
capacity of a main contractor in the future and the Directors intend to more actively participate in the
tendering process for Government contracts. As set out in the section headed “Future plans and use
of proceeds” in this prospectus, the Directors expect to obtain two more waterworks contracts directly
from WSD next year and have allocated an aggregate of HK$6.0 million out of the net proceeds from
the Placing to acquire the necessary equipment and machinery and recruit the required staff for the
aforesaid two projects. The Group’s effort in obtaining contracts directly from WSD is evidenced by
the Group’s successful bid for a replacement and rehabilitation works contracts of approximately
HK$74.7 million in contract value in May 2010. In anticipation of the completion of contract
numbered 21/WSD/06 by early next year, the Group has been closely monitoring the tender notices
and will participate in the tendering process if suitable opportunities arise. The Group has been
pursuing business opportunities with main contractors other than MHCC/MHWE. In July 2010, the
Group received a letter confirming acceptance of its quotation submitted in June 2010 from a main
contractor in respect of a waterworks contract with estimated contract value of approximately HK$4.4
million. As at the Latest Practicable Date, the Group and such main contractor were still in the process
of finalising the terms of the relevant waterworks contract. The Group also submitted a quotation to
another main contractor in respect of waterworks with estimated contract value of approximately
HK$52.4 million in July 2010. The latter quotation relates to waterworks which form part of a
Highways Department (路政署) project. As at the Latest Practicable Date, the Directors were not able
to estimate whether the Group would be awarded the sub-contractor works for such project. Both of
the aforesaid main contractors are not associated with Ming Hing Waterworks or its subsidiaries. It is
the intention of the Group to continue to actively seek business opportunities with main contractors
other than MHCC/MHWE. In view of the above, the Directors believe the Group’s reliance on
MHCC/MHWE after Listing will be significantly reduced from the current level.
Recent development of Ming Hing Waterworks
As disclosed in the MH Circular, an indirect wholly-owned subsidiary of Ming Hing Waterworks
entered into an agreement relating to an acquisition of interest in a mining business. The directors of
Ming Hing Waterworks consider that it is beneficial for its group to diversify its existing business
portfolio in view of the deteriorating financial performance of its waterworks engineering business.
In particular, the directors of Ming Hing Waterworks explained that the decline in its profit was
primarily attributable to the drop in gross profit margin as a result of increasing construction material
and labour costs. It is also disclosed in the MH Circular that, apart from expanding the business scope
to engage in mining business, Ming Hing Waterworks intends to continue with the waterworks
engineering business depending on the then business environment and prospects.
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Although MHCC/MHWE was the largest customer of the Group during the Track Record Period,
the Directors and the Sponsor do not consider the diversification of Ming Hing Waterworks into
mining business will pose significant adverse impact on the business and prospects of the Group. The
Group has worked with a number of main contractors, some of which have business relationships with
the Group for more than five years. During the Track Record Period, the Group worked with four main
contractors apart from MHCC/MHWE. In the event that Ming Hing Waterworks scales down or
discontinues its waterworks engineering business, the Directors are optimistic that the Group could
obtain contracts from other main contractors or directly obtain contracts from WSD based on the
Group’s established operating history and track record. From an industry perspective, the Directors
believe that the waterworks industry will continue to present numerous waterworks opportunities to
the Group in view of the replacement and rehabilitation programme and other public sector projects.
Furthermore, TYW has consistently achieved outstanding performance ratings for the quality of its
works from WBDB, which will increase the Group’s competitiveness in tendering for Government
contracts as a main contractor.
The Directors note from the latest published financial reports of Ming Hing Waterworks that the
gross profit margin and net profit margin of Ming Hing Waterworks have been generally showing a
declining trend. The Directors also note that the directors of Ming Hing Waterworks attributed the
decline of the gross profit of Ming Hing Waterworks to rising raw material and labour costs. The
Directors are not in a position to comment on the deteriorating financial performance of Ming Hing
Waterworks due to the insufficiency of public information. However, based on the Group’s past
business dealings with Ming Hing Waterworks, the Directors believe that the relatively low gross
profit margin and net profit margin of Ming Hing Waterworks may be explained by the fact that Ming
Hing Waterworks has subcontracted some of its contracts to subcontractors.
In respect of the contracts the Group obtained from MHCC/MHWE, MHCC/MHWE entered into
a main contract with WSD and then entered into a subcontract with the Group pursuant to which it
subcontracted the overall management and implementation of the entire contract works to the Group.
In return, MHCC/MHWE would charge the Group a contract fee representing a fixed percentage of the
total contract value and a nominal handling fee for purchase of construction materials on behalf of the
Group. As the certified payment for the interim works would be made to MHCC/MHWE by WSD,
MHCC/MHWE would then make payment to the Group after deduction of the aforesaid contract fee,
handling fee and if applicable, costs of purchase of construction materials and other reimbursements.
Given that the fee receivable by MHCC/MHWE on the contracts granted to the Group largely comprise
the contract fee which represents a fixed percentage of the total contract value, the gross profit margin
of such contracts to MHCC/MHWE would be close to the aforesaid fixed percentage.
The Group, as the party implementing the contracts, has more control over the costs of service
through actively managing and implementing the project. The better the Group controlled its costs of
service and minimized its execution risks, the higher the gross profit margin would be for the Group.
Based on the Directors’ understanding, the Group’s gross profit margins for the contracts obtained
from MHCC/MHWE are significantly higher than MHCC/MHWE’s gross profit margins for the same
contracts. Therefore, despite the Directors generally share the view that the cost of construction
materials and labour have been rising in the past few years, the management of the Group has been
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successfully maintaining its gross profit margin by carefully evaluating the cost requirement before
submitting a tender, actively managing the projects and closely monitoring the costs involved in
provision of service. Going forward, the management of the Group will continue to put considerable
effort in maintaining its gross profit margin.
The Sponsor has reviewed the terms of the subcontracts entered into between the Group and
MHCC/MHWE and the financial information in respect of such subcontracts provided by the Group.
The Sponsor notes that the Group’s gross profit margins during the Track Record Period were
significantly higher than the percentage of the contract fee charged by MHCC/MHWE to the Group
for the same subcontracts. Based on the information available to the Sponsor, the Sponsor considers
that the Directors’ belief in relation to the Group’s higher profit margin than Ming Hing Waterworks
is reasonable.
Director’s interest in Ming Hing Waterworks
As at the Latest Practicable Date, Mr. Chia, an executive Director, was interested in less than
1.0% in the issued share capital of Ming Hing Waterworks. Mr. Chia has not held and does not
presently hold any position in or otherwise was not involved and is not presently involved in the daily
operations of Ming Hing Waterworks or any of its subsidiaries or associated companies. Mr. Chia
holds his interests in Ming Hing Waterworks for investment purpose. Save as disclosed above, none
of the Directors or their associates had any shareholding interest in Ming Hing Waterworks as at the
Latest Practicable Date. Based on the above, Ming Hing Waterworks, including its subsidiaries and
associated companies, are not connected persons of the Company under the GEM Listing Rules.
LITIGATION AND CLAIM
As at the Latest Practicable Date, save as disclosed in the sub-paragraph headed “Litigation” in
the paragraph headed “Other information” in Appendix V to this prospectus, the Group was not
engaged in any litigation or arbitration of material importance and no litigation or claim of material
importance was known to the Directors to be pending or threatened by or against the Group.
ENVIRONMENTAL MATTERS
The Group is committed to enhancing and improving technology and services to fulfill its
responsibilities to both the community and environment. In delivering civil engineering services, the
Group aims to ensure that all services are delivered to a high quality and conducted in an
environmentally responsible manner. In particular, the Group has put in place an environmental
management policy and prepared and implemented a waste management plan to encourage on-site
sorting of construction and demolition materials and minimise generation of waste and disposal of
waste during the course of work in compliance with the requirements of ETWB.
For waterworks projects, the Group is required to submit an environmental management plan to
the engineer appointed by WSD which sets out the steps or measures to be taken by the Group to
monitor the Group’s works that are carried out in the interests of environmental protection. The Group
will designate certain staff to be responsible for monitoring the ongoing compliance with the
environmental management plan and reporting to the site manager regarding non-compliance of
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environmental management issues. Mr. Lau Wai Chun, Jacky is designated by the Group as the head
of environmental compliance. Details of his qualification and industry experiences are disclosed in the
section headed “Directors, senior management, board committees and staff” in this prospectus.
Designated staff shall attend environmental protection courses given by recognised organisations. The
assigned person or the environmental supervisor shall provide on-site training to the workers and
ensure the Group’s continued compliance with the environmental management plan.
In addition, the Group has continuously observed the laws and regulations in relation to
environmental protection in Hong Kong including Air Pollution Control Ordinance, Noise Control
Ordinance, Water Pollution Control Ordinance, Waste Disposal Ordinance and Environmental Impact
Assessment Ordinance, details of which are set out in the section headed “Environmental protection
laws and regulations” in this prospectus. Prior to the commencement of work, the Group will assess
the implications and requirements of the aforesaid ordinances and apply for the necessary permits (if
any) to conduct its work. The breach of the aforesaid environmental protection ordinances may lead
to penalty or fine by the relevant government authorities or even termination of works. During the
Track Record Period, the Group was in full compliance with the applicable environmental laws and
regulations. During the Track Record Period, the annual cost of compliance with applicable
environmental laws and regulations were approximately HK$25,000 and approximately HK$47,000
respectively which was mainly attributable to the cost of waste disposal. The Group expects such cost
going forward would be around the same range as in the Track Record Period.
INTELLECTUAL PROPERTY RIGHTS
As at the Latest Practicable Date, the Group was the registered proprietor and beneficial owner
of three trademarks registered in Hong Kong. Particulars of such registered trademarks are set out in
the sub-paragraph headed “Intellectual property rights of the Group” under the paragraph headed
“Further information about the business” in Appendix V to this prospectus.
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EXEMPTED CONTINUING CONNECTED TRANSACTIONS
The transactions set out below have been carried out by the Group with each of Mr. Kan and
HKLC during the Track Record Period, and some of them are expected to continue following the
Listing.
Nature of transactions
Lease Agreement
Pursuant to the Lease Agreement, HKLC agreed to lease to TYW the office premises situated at
Rooms no.1 and 3, 7/F., Anton Building, 1 Anton Street, Wanchai, Hong Kong at a monthly rent of
HK$4,000. The Lease Agreement has a term of 30 months from 1 May 2009 to 31 October 2011. The
aforesaid office premises were leased by HKLC from Super Pizza Holdings Limited. HKLC is a
company incorporated in Hong Kong and is wholly and beneficially owned by Mr. Chia, an executive
Director; and Super Pizza Holdings Limited is a company incorporated in Hong Kong and is owned
as to 50% by Mr. Chia, who is also the sole director of both HKLC and Super Pizza Holdings Limited.
For the two years ended 31 March 2009 and 2010, the actual rental expenses paid to HKLC by
the Group in respect of the office premises amounted to nil and approximately HK$44,000
respectively. The Group made a prepayment of HK$76,000 for the remaining term of the Lease
Agreement to HKLC during the year ended 31 March 2010.
Vigers Appraisal and Consulting Limited, an independent valuer, is of the view that the lease
arrangement under the Lease Agreement reflects a fair and reasonable market rental for such type of
property in the area.
Announcement Posting Agreement
On 1 June 2010, the Company entered into an agreement with HKLC pursuant to which HKLC
will provide the Company with the service of dissemination of announcements including hosting and
posting of announcements, press releases or other documents as required by the GEM Listing Rules
on the website(s) of the Group at a monthly service fee of HK$750 for a term of one year commencing
from 1 July 2010. The Company considers it more cost effective to engage a professional firm to take
up this announcement posting obligation after Listing.
Personal guarantees provided by Mr. Kan
Pursuant to the terms of the finance leases in respect of certain motor vehicles and rental
arrangements in respect of certain photocopying machines of the Group, Mr. Kan has provided
personal guarantees in respect of the payment obligations of the Group under the aforesaid finance
leases and rental arrangements.
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Pursuant to the terms of the facility letters dated 13 May 2009 (as supplemented by a letter dated
2 June 2010) and 3 November 2009 (as supplemented by a letter dated 2 June 2010) in respect of a
HK$4.0 million non-revolving loan and a HK$2.0 million non-revolving loan (together the “Loans”),
the facility letter dated 2 July 2009 in respect of HK$6.0 million banking facilities (the “GeneralFacilities”) and the facility letter dated 13 May 2009 (as supplemented by a letter dated 2 June 2010)
in respect of a HK$0.2 million banking facility on corporate credit cards (the “Credit Card Facility”)
issued by HSBC, Mr. Kan has provided personal guarantees in respect of the payment obligations of
the Group under the aforesaid facility letters. As at the Latest Practicable Date, the Group has repaid
the sums due to HSBC under the Loan, the General Facilities and the Credit Card Facility in full. A
substantial portion of the monies for repayment to HSBC was lent to the Group by Mr. Kan, pursuant
to a loan agreement dated 9 July 2010 entered into between the Group and Mr. Kan (under which Mr.
Kan lent a sum of HK$4,040,000 to the Group). Mr. Kan in turn obtained the sum of HK$4,040,000
from Mr. Chia by way of a loan arrangement with Mr. Chia. Hence, part of the proceeds from the
Placing will be used for repayment of debts due to Mr. Kan, who will in turn repay to Mr. Chia. The
loan advanced by Mr. Kan to the Group will be settled shortly after the Listing. However, the aforesaid
personal guarantees provided by Mr. Kan are expected to be released after the expiry of the retention
period as determined by HSBC, which is normally six months after full repayment of the relevant
facilities in accordance with the internal policy of HSBC.
The personal guarantees from Mr. Kan in respect of the finance leases of certain motor vehicles,
rental arrangements of certain photocopying machines, the Loans, the General Facilities and the Credit
Card Facility as disclosed are provided at nil consideration, and the Group has not provided any
security over the assets of the Group in respect of Mr. Kan’s personal guarantees. Given that the Group
has committed a technical breach under certain finance lease documents for the motor vehicles, Mr.
Kan (as guarantor of the Group) could be liable for immediate repayment of all outstanding sum due
under the relevant finance lease documents (including payment of all arrears of rent and all
outstanding rent which would be payable during or in respect of the unexpired term of the original
period of the finance lease). However, the Group shall be under no obligations to indemnify Mr. Kan
as a result of the aforesaid matters. For details of the technical breach, please refer to the
sub-paragraph headed “Litigation” under the paragraph headed “Other information” in Appendix V to
this prospectus.
The personal guarantees provided by Mr. Kan in respect of the aforesaid finance leases and rental
arrangements are intended to continue after the Listing while the personal guarantees provided by Mr.
Kan in respect of the Loans, the General Facilities and the Credit Card Facility are expected to
continue for not more than 6 months after Listing. Further details of the aforesaid personal guarantees
are disclosed in the sub-paragraph headed “Financial independence” in the section headed
“Controlling Shareholders and Substantial Shareholders” in this prospectus.
Shareholder’s loan from Mr. Kan and Mr. Chia
In addition to the personal guarantees, the Group has owed a sum of HK$4,040,000 to Mr. Kan
since 9 July 2010. The Group borrowed such sum from Mr. Kan for the purpose of repaying all the
outstanding liabilities due to HSBC as disclosed above. Such shareholder’s loan to the Group is
non-interest bearing, and is due on the earlier of (i) the third Business Day after which the Company
receives the net proceeds from the Placing and (ii) the date falling six months from 9 July 2010. Due
CONNECTED TRANSACTIONS
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to Mr. Kan’s inability to provide sufficient funds to the Group for repayment of debts to HSBC within
a relatively short period of time, Mr. Kan borrowed HK$4,040,000 from Mr. Chia on the same day in
order to provide the necessary funding to the Group. Mr. Kan’s loan with Mr. Chia bears interest at
the rate of 5% per annum, and is due on the earlier of (i) the third Business Day after the Company
receives the net proceeds from the Placing; and (ii) the date falling six months from 9 July 2010. The
Group intends to apply part of the proceeds from the Placing to repay the loan due to Mr. Kan, who
will in turn apply such funds to repay his debts owing to Mr. Chia. As such, the shareholder’s loan
owing to Mr. Kan will be settled shortly after Listing, and the Board considers that there will not be
undue financial reliance of the Group on Mr. Kan after Listing.
GEM Listing Rules Implication
Lease Agreement and Announcement Posting Agreement
HKLC, being an associate of Mr. Chia, is a connected person (within the meaning of Chapter 20
of the GEM Listing Rules) of the Company. Accordingly, transactions contemplated under the Lease
Agreement and the Announcement Posting Agreement constitute continuing connected transactions for
the Company.
Given that the annual rental payable under the Lease Agreement and the annual service fee
payable under the Announcement Posting Agreement referred to above are both less than
HK$1,000,000 and none of the percentage ratios, on an annual basis, equals or exceeds 5%, and that
the Lease Agreement and the Announcement Posting Agreement were entered into in the ordinary and
usual course of business of the Group, the transactions under the aforesaid agreements are exempt
continuing connected transactions of the Company pursuant to Rule 20.33(3)(c) of the GEM Listing
Rules, which are exempt from reporting, annual review, announcement and independent shareholders’
approval requirements under Chapter 20 of the GEM Listing Rules.
The Directors (including the independent non-executive Directors) and the Sponsor have
confirmed that the Lease Agreement and the Announcement Posting Agreement were entered into in
the ordinary and normal course of the Group’s business and the terms thereof (including the respective
annual caps) are on normal commercial terms which are fair and reasonable and in the interests of the
Company and Shareholders as a whole.
Personal guarantees by Mr. Kan
Mr. Kan, being a Controlling Shareholder, is a connected person of the Company. Accordingly,
the provision of the aforesaid personal guarantees by Mr. Kan constitutes financial assistance to the
Company under Chapter 20 of the GEM Listing Rules. Given that such financial assistance was
provided by Mr. Kan for the benefit of the Group on normal commercial terms (or better to the Group)
and no security over the assets of the Group was granted in respect of such financial assistance, the
provision of the aforesaid personal guarantees is an exempt connected transaction for the Company
pursuant to Rule 20.65(4) of the GEM Listing Rules, which is exempt from reporting, announcement
and independent shareholders’ approval requirements under Chapter 20 of the GEM Listing Rules.
CONNECTED TRANSACTIONS
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Shareholder’s loan from Mr. Kan and Mr. Chia
Mr. Kan, being the executive Director and Controlling Shareholder, and Mr. Chia, being an
executive Director, are connected persons of the Company. Accordingly, the provision of aforesaid
shareholder’s loan by Mr. Kan which is in turn financed by Mr. Chia constitutes financial assistance
to the Company under Chapter 20 of the GEM Listing Rules. Given that such financial assistance was
provided by Mr. Kan and Mr. Chia for the benefit of the Group on normal commercial terms (or better
to the Group) and no security over the assets of the Group was granted in respect of such financial
assistance, the provision of the aforesaid shareholder’s loan is an exempt connected transaction for the
Company pursuant to Rule 20.65(4) of the GEM Listing Rules, which is exempt from reporting,
announcement and independent shareholders’ approval requirements under Chapter 20 of the GEM
Listing Rules.
CONNECTED TRANSACTIONS
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BUSINESS OBJECTIVE AND STRATEGIES
Being a licenced contractor on the Contractor List under the categories of “Waterworks”, “Roads
and Drainage” and “Site Formation”, the Group is eligible, in the capacity of a main contractor, to
tender for projects of these three categories in the public sector in Hong Kong. Over years of
participation in waterworks engineering services, the Group has built up its reputation in the
waterworks engineering industry and maintained good relationship with other main contractors. The
Group aims at leveraging its competitive edge in the waterworks engineering industry to become one
of the leading waterworks engineering services providers to the public sector in Hong Kong which
commits to strive for excellence in service quality and timeliness. With established operating history
and track record in the waterworks engineering industry and an enhanced reputation through the
Listing, the Group intends to focus on the provision of waterworks engineering services and undertake
more waterworks contracts in the capacity of a main contractor in the near future.
At present, the Group has not yet fulfilled the requirements for applying for promotion to Group
C under the category of “Waterworks” on probationary status. The Company does not intend to apply
for promotion to Group C under the respective categories of “Waterworks”, “Roads and Drainage” and
“Site Formation” within 12 months from the Listing Date.
The Group will continue to foster its reputation and increase its market share in the waterworks
engineering industry by pursuing the following strategies:
Expansion of business scale
The Group’s business requires significant capital. At the early stage of a project, the Group will
be required to purchase construction materials, acquire equipment and machinery and recruit project
management and technical personnel required for undertaking the project. In addition, the Group is
required to comply with the minimum employed capital and working capital requirements for retention
on the Contractor List (details of which are set out in the section headed “Licencing and other
requirements for Government projects” in this prospectus) to carry out Government contracts. The
then levels of employed capital and working capital of the Group pose limitations on the number and
size of Government contracts undertaken by the Group as a main contractor. As such, the Group’s
expansion has been historically constrained by the availability of financial resources and manpower
of the Group. With the proceeds from the Placing, the Group will have additional funds to inject into
TYW for enhancing TYW’s employed capital and working capital and fulfill the hardware and staffing
requirements for undertaking additional contract works. Going forward, the Directors intend to
participate more actively in the tendering process for Government’s projects with a view to obtaining
more waterworks contracts in the capacity of a main contractor from the Government, in which the
Group has already established a proven track record, to scale up the Group’s business.
Further enhancement in work quality
The Directors believe that the Group’s success depends considerably on its ability to deliver
works of high quality in a timely manner. The Group has received outstanding performance ratings for
the quality of its works from WBDB during the Track Record Period. The Directors consider that
FUTURE PLANS AND USE OF PROCEEDS
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App1A.(48)R11.15App1A(28)(8)R14.19(1)(a),(b)R14.19(2)(3),(4)R14.21
maintaining work quality is of utmost importance to the Group’s ongoing development in the
waterworks engineering sector and the Group’s tendering of Government contracts in the future. In
order to uphold the work quality of the Group, the Directors plan to recruit additional personnel for
quality assurance of the Group.
Strengthening of safety team
The Directors consider that enhancing the Group’s project safety and upholding the Group’s
work quality are equally important. A sound safety system lowers the risk of accidents and improves
work efficiency. It is the Group’s responsibility to provide a safe and healthy working environment
for the benefit of its staff, its subcontractors and the general public. In order to enhance the Group’s
safety system, the Directors plan to recruit additional personnel to strengthen the safety team of the
Group.
MARKET POTENTIAL AND FUTURE PROSPECTS
The Directors believe the Group’s proven track record in delivering works of high quality in a
timely manner has placed the Group in an advantageous position to seize the growth opportunities in
the civil engineering sector, particularly in waterworks, roads and drainage, and site formation areas,
in Hong Kong. Not only will the replacement and rehabilitation program launched by WSD (details
of which are set out in the section headed “Industry overview” in this prospectus) continue to open
up numerous waterworks opportunities to the Group, the infrastructure and development projects
being currently implemented or to be implemented by the Government, which the Directors believe
would inevitably involve waterworks, roads and drainage works or site formation works at some stage,
will also create tremendous business opportunities to the Group in the coming years.
The 2007-08 Policy Address sets out ten major infrastructure projects that the Government would
undertake to boost economic growth. The ten major infrastructure projects comprise three transport
infrastructure projects, four cross-boundary infrastructure projects and three new urban development
projects. Construction works or site formation works for some of the aforesaid projects, namely the
Hong Kong-Zhuhai-Macao Main Bridge project, the Central-Wan Chai Bypass project and the Kai Tak
Development project, have already commenced at the end of 2009, whilst the construction of the
terminal building and ancillary facilities of the Kai Tai Cruise Terminal and the crossing facilities of
the Hong Kong-Zhuhai-Macao Main Bridge are expected to commence in 2010. In addition,
construction of the core arts and cultural facilities of the West Kowloon Cultural District is expected
to commence in 2013.
Apart from the aforesaid major infrastructure projects, the Civil Engineering and Development
Department (土木工程拓展署) has been devoting continuous effort to new town development and
urban development. Projects-in-progress of the Civil Engineering and Development Department
(土木工程拓展署) include, among other things, the widening of certain roads in Tsuen Wan, the
development of a science park in Pak Shek Kok in Tai Po, the development of lower intensity
residential area at Town Centre South and Pak Shing Kok in Tseung Kwan O and the development of
FUTURE PLANS AND USE OF PROCEEDS
— 119 —
public housing, schools and related community facilities in Sau Mau Ping. The Government estimated
that the capital expenditure, which is not limited to waterworks, roads and drainage and site formation
areas, of Hong Kong would increase to HK$49.6 billion in 2010-11 from HK$45.1 billion in 2009-10.
The Directors believe the aforesaid infrastructure projects and new town or urban development
projects would drive the demand for civil engineering services and, more specifically, would
inevitably involve waterworks, roads and drainage works or site formation works at some stage.
Coupled with the opportunities entailed in the continued implementation of the replacement and
rehabilitation program by WSD, the Directors believe that the civil engineering services industry has
significant market potential and promising prospects.
REASONS FOR THE LISTING
The Directors believe that the Listing will enhance the Group’s profile. Furthermore, the Placing
will strengthen the Group’s capital base and provide the Group with additional working capital to
implement the future plans set out in the paragraphs headed “Business objective and strategies” and
“Implementation plan” respectively in this section.
IMPLEMENTATION PLAN
The Directors have drawn up an implementation plan for the period up to 31 March 2013 with
a view to achieve the business objective along with the strategies as described above. Details of the
implementation plan and expected timetable are set out below. The following implementation plan
involves, among other things, undertaking additional waterworks contracts by the Group in the
capacity of a main contractor to expand the Group’s business scale.
As disclosed in the sub-paragraph headed “Expansion of business scale” in this section, the
Group’s expansion has been historically constrained by the availability of financial resources and
manpower of the Group. With the net proceeds from the Placing, the Group will have additional funds
to enhance TYW’s capital base, acquire the necessary equipment and machinery and recruit additional
staff to undertake new contracts, which will bring the Group to a better position to tender for contracts
from WSD. Having considered (i) the Group’s past track record on successfully bidding for contracts
from WSD, in particular, the successful bidding for a new waterworks contract (contract number
9/WSD/09, the “New Project”) from WSD with contract value of approximately HK$75.0 million and
a term of 911 days in May 2010; (ii) the Group’s past experience in handling various replacement and
rehabilitation works contracts; (iii) TYW’s outstanding performance ratings received from WSD
during the Track Record Period; and (iv) the Group’s historical financial and human resources
constraints are expected to be lessened by the availability of the net proceeds from the Placing, the
Directors are optimistic that the Group can obtain waterworks contracts from WSD, subject to WSD’s
acceptance, in the six months ending 31 March 2011. Subject to the obtaining of such contracts, the
Group intends to acquire additional equipment and machinery and recruit additional staff for
undertaking of the aforesaid contracts.
Investors should note that the implementation plan is drawn up based on the current economic
status and the assumptions as set out in the paragraph headed “Bases and assumptions” below which
are inherently subject to uncertainties and unpredictable factors. The Group’s actual course of
FUTURE PLANS AND USE OF PROCEEDS
— 120 —
business may vary from the business objective set out in this prospectus. There can be no assurance
that the plans of the Group will materialise in accordance with the expected time frame or that the
objective of the Group will be accomplished at all. The Directors will use their best endeavors to
anticipate future changes in the market, take measures and be flexible so that the Group may stay
ahead of or react timely and appropriately to such changes.
For the six months ending 30 September 2010
Expansion of business scale • Form the project management team for the New Project
recently obtained from WSD in which the Group acts as
the main contractor
• Draw up the master program for the New Project
• Source the required equipment and machinery for the
implementation of the New Project
• Implementation of contract works under the New Project
in progress
• Monitor the forecasts of work tenders published on the
website of WBDB for upcoming tenders for the period
from April 2010 to September 2010
Further enhancement in work
quality
• Review the existing quality assurance policy of the
Group and the staffing
Strengthening of safety team • Identify suitable candidate(s) for the quality assurance
team
• Review the existing safety policy of the Group and the
staffing
• Identify suitable candidate(s) for the safety team
For the six months ending 31 March 2011
Expansion of business scale • Closely monitor the tender notices published by the
relevant Government department for contract works and
identify prospective projects
• In the capacity as a main contractor, submit tender(s) for
waterworks contracts
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• Assuming the Group successfully obtains waterworks
contracts (the “Prospective Projects”) relating to
replacement and rehabilitation of water mains with
terms of around 2.5 years and estimated aggregate
contract value of HK$150.0 million from WSD, prepare
the kick-off of project implementation (including
analysing the requirements on equipment and
machinery, project management and technical
personnel)
• Form the project management team and draw up the
master programs for the Prospective Projects
• Commence the sourcing of required equipment and
machinery and the recruitment of required project
management and technical personnel
• Implementation of contract works under the New Project
in progress
Further enhancement in work
quality
• Recruit additional staff to be responsible for quality
assurance
• Identify the areas of improvement based on the quality
assurance policy and formulate steps or procedures to
address the areas of improvement
• Maintain ongoing quality assurance review on the works
performed by the Group
Strengthening of safety team • Recruit additional staff for the safety team
• Identify the areas of improvement based on the existing
safety policy and formulate steps or procedures to
address the areas of improvement
For the six months ending 30 September 2011
Expansion of business scale • Acquire the equipment and machinery and recruit the
project management and technical personnel required
for implementation of the Prospective Projects
• Implementation of the New Project and the Prospective
Projects in progress
Further enhancement in work
quality
• Implementation of the steps or procedures formulated to
address the areas of improvement
• Review the quality assurance policy after
implementation of the aforesaid steps and procedures
• Maintain ongoing quality assurance review on the works
performed by the Group
FUTURE PLANS AND USE OF PROCEEDS
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Strengthening of safety team • Implementation of the steps or procedures formulated to
address the areas of improvement
• Review the safety policy after implementation of the
aforesaid steps and procedures
For the six months ending 31 March 2012
Expansion of business scale • Implementation of the New Project and the Prospective
Projects contracts in progress
Further enhancement in work
quality
• Maintain ongoing quality assurance review on the works
performed by the Group
Strengthening of safety team • Maintain ongoing inspection at the work site to ensure
the safety policy is properly implemented
For the six months ending 30 September 2012
Expansion of business scale • Implementation of the New Project and the Prospective
Projects contracts in progress
• Monitor the forecasts of work tenders published on the
website of WBDB for upcoming tenders for the period
from April 2012 to September 2012
Further enhancement in work
quality
• Maintain ongoing quality assurance review on the works
performed by the Group
Strengthening of safety team • Maintain ongoing inspection at the work site to ensure
the safety policy is properly implemented
For the six months ending 31 March 2013
Expansion of business scale • Closely monitor the tender notices published by the
relevant Government department for contract works,
identify prospective projects and evaluate the viability
of taking on additional contract works by the Group
• Implementation of the New Project and the Prospective
Projects in progress
Further enhancement in work
quality
• Maintain ongoing quality assurance review on the works
performed by the Group
Strengthening of safety team • Maintain ongoing inspection at the work site to ensure
the safety policy is properly implemented
FUTURE PLANS AND USE OF PROCEEDS
— 123 —
BASES AND ASSUMPTIONS
Potential investors should note that the attainability of the Group’s business objective depends
on the following assumptions:
• there will be no material changes in the existing laws, policies, industry or regulatory
requirements applicable to the Group and its business; and there will be no material adverse
change in the political, economic or market conditions in Hong Kong;
• the Group will be able to continue its operation in substantially the same way as it has been
operating and the Group will also be able to carry out its implementation plans without
significant disruptions;
• there will be no change in the effectiveness of the licences, permits and registration held
by the Group;
• the Group will be able to retain key personnel in the management and the technical staff;
• the Group will be able to recruit additional key project personnel and technical staff when
required;
• there will be no material changes in the funding required for each of the scheduled
achievements as outlined under the paragraph headed “Implementation plan” in this
section; and
• the Group will not be materially and adversely affected by the risk factors as set out in the
section headed “Risk factors” in this prospectus.
FUTURE PLANS AND USE OF PROCEEDS
— 124 —
USE OF PROCEEDS
The net proceeds from the Placing, after deducting the underwriting fees and estimated expenses
payable by the Company in connection thereto, are estimated to be approximately HK$21.0 million
based on the Placing Price of HK$1.28. The Directors intend to apply the aforesaid net proceeds in
the following manner:
For thesix months
ending30 September
2010
For thesix months
ending31 March
2011
For thesix months
ending30 September
2011
For thesix months
ending31 March
2012
For thesix months
ending30 September
2012
For thesix months
ending31 March
2013 Totalapproximately
HK$ millionapproximately
HK$ millionapproximately
HK$ millionapproximately
HK$ millionapproximately
HK$ millionapproximately
HK$ millionapproximately
HK$ million
Expansion of businessscale• Acquisition of
equipment andmachinery 2.00 2.50 2.00 — — — 6.50*
• Recruitment ofadditional staff 0.50 0.50 1.00 1.00 — — 3.00#
Further enhancementin work quality• Recruitment of
additionalqualityassurance staff — 0.20 0.20 0.20 0.20 0.20 1.00
Strengthening ofsafety team• Recruitment of
safety staff — 0.28 0.28 0.28 0.28 0.28 1.40
Repayment ofShareholder’s loan 4.04 — — — — — 4.04
Repayment of financeleases 0.73 0.97 0.54 0.34 0.31 0.17 3.06
7.27 4.45 4.02 1.82 0.79 0.65 19.00
* Out of HK$6.5 million, HK$4.0 million will be applied to the Prospective Projects
# Out of HK$3.0 million, HK$2.0 million will be applied to the Prospective Projects
FUTURE PLANS AND USE OF PROCEEDS
— 125 —
It is expected that the equipment and machinery to be acquired by the Group will include heavy
crane lorries, heavy grab lorries, light lorries, light vehicles, small excavators, small generators and
small hydraulic breakers.
The balance of approximately HK$2.0 million will be used for general working capital of the
Group.
Based on current estimations by the Directors, the net proceeds from the Placing will be
sufficient to finance the Group’s business plan as scheduled up to 31 March 2013. In particular,
approximately HK$6.5 million and approximately HK$3.0 million of the net proceeds will be used to
acquire equipment and machinery and recruit additional staff respectively to undertake the New
Project and the Prospective Projects by the Group as a main contractor to enable the Group to scale
up its business. In the event that the Group fails to obtain the Prospective Projects but is successfully
awarded with other waterworks contract(s) from WSD, the Directors will apply the net proceeds
originally allocated to the Prospective Projects to such waterworks contract(s). To the extent that the
net proceeds from the Placing are not immediately required for the above purposes, the Directors
currently intend that such proceeds will be placed on short-term deposits with licenced banks or
financial institutions in Hong Kong.
FUTURE PLANS AND USE OF PROCEEDS
— 126 —
DIRECTORS
Executive Directors
Mr. Kan Kwok Cheung (簡國祥), aged 46, is the founder of the Group. Mr. Kan is the chairman
of the Board and is responsible for the overall business planning and corporate strategy of the Group.
In 1989, Mr. Kan formed TYC as a sole proprietorship to carry out civil engineering subcontracting
works. Mr. Kan later formed TYW and TY Civil in 1996 and 2000 respectively and has been the
director of both companies since their formation. Mr. Kan has over 20 years of experience in handling
civil engineering projects of various types. His experience in handling civil engineering projects was
gained from running the construction business through his employment, as a foreman in the
construction industry before founding the Group. In the last three years, he held no directorships in
any listed public companies. Mr. Kan has entered into a service contract with the Company for an
initial term of three years commencing from 11 August 2010, and will continue thereafter until
terminated by not less than three months’ notice in writing served by either party on the other or three
months’ salary being payment in lieu of notice. In addition, Mr. Kan has entered into an employment
contract with TYW to act as the director of TYW for a continuous term commencing from 6 February
1996 until terminated by not less than thirty days’ notice in writing served by either party on the other
or thirty days’ salary being payment in lieu of notice.
Mr. Cheng Ka Ming, Martin (鄭家銘), aged 59, is the vice-chairman of the Board and an
executive Director and is responsible for the business management and corporate development of the
Group. Mr. Cheng obtained a bachelor’s degree in civil engineering from the National Cheng Kung
University, Taiwan in 1973 and a master’s degree in analytical soil mechanics from the King’s
College, University of London in 1975. He has over 29 years of experience in the construction
industry. Mr. Cheng was an engineer at Watermeye, Legge, Piesold & Uhlmann Consulting Engineers
(UK) from 1974 to 1976. Mr. Cheng was a project director of Gammon-Nishimatsu Joint Venture from
March 2001 to December 2002 and prior to that he held a managerial position at Gammon
Construction Limited, at which he worked during 1976 to 2000. Mr. Cheng was an independent
non-executive director and a member of the audit committee of a Hong Kong listed company, namely
Ming Hing Waterworks, from 1 October 2008 to 20 February 2009. Subsequently, Mr. Cheng was
appointed as a consultant of a subsidiary of Ming Hing Waterworks, namely MHCC, from February
2009 to April 2009. After he resigned as a consultant of MHCC, Mr. Cheng joined the Group as a
director of TYW and a director of TY Civil in May 2009. Save as disclosed above, he held no
directorships in other listed public companies in the last three years. He has entered into a service
contract with the Company for an initial term of three years commencing from 11 August 2010, and
will continue thereafter until terminated by not less than three months’ notice in writing served by
either party on the other or three months’ salary being payment in lieu of notice. In addition, Mr.
Cheng has entered into an employment contract with TYW to act as the director of TYW for a
continuous term commencing from 1 May 2009 until terminated by not less than thirty days’ notice
in writing served by either party on the other or thirty days’ salary being payment in lieu of notice.
Mr. Fung Chung Kin (馮中健), aged 52, is the chief executive officer of the Group and an
executive Director and is responsible for overseeing the overall project management and the daily
operation of the Group. Mr. Fung joined the Group as director of TYW in April 2006 and has been
appointed as a director of TY Civil since March 2009. Prior to joining the Group, Mr. Fung has been
DIRECTORS, SENIOR MANAGEMENT, BOARD COMMITTEES AND STAFF
— 127 —
App1A.(41)R11.12A(3)R11.07(1)ThirdSchedule 6
a general manager of Flame Construction Company Limited from July 2000 to August 2002. Mr. Fung
held various supervisory or managerial positions in several companies since December 1978 and has,
up to now, accumulated over 25 years of experience in the fields of civil engineering or construction.
He worked as a works supervisor at Maunsell Consultants Asia from December 1978 to July 1986. He
worked as a resident assistant inspector of works at Harris & Sutherland (Far East) Ltd from July 1986
to January 1989. He worked as a resident inspector of works at Mott MacDonald Hong Kong Limited
from January 1989 to August 1991. Mr. Fung was appointed as an executive director of Hoi Sing
Holdings Limited (presently known as ITC Corporation Limited, a company incorporated in Bermuda,
whose shares are listed on the Stock Exchange), from January 1992 to September 1993 and then he
was appointed as a director and general manager at Hoi Sing Construction Company Limited from
September 1991 to June 1995. Mr. Fung acted as a graduate engineer for Owen Williams Railways
Limited for approximately one year until October 1999. He worked as a project manager at Chun Wo
Construction & Engineering Company Limited from December 1999 to April 2000. Mr. Fung obtained
the diploma in civil engineering from Hong Kong Polytechnic (now The Hong Kong Polytechnic
University) in 1978 and the higher certificate in civil engineering from the same institution in 1980.
Mr. Fung also obtained a bachelor’s degree in civil engineering from the University of Greenwich in
1998. Mr. Fung was admitted as an associate member of the Hong Kong Institution of Engineers in
January 1986. In the last three years, he held no directorships in any listed public companies. He has
entered into a service contract with the Company for an initial term of three years commencing from
11 August 2010, and will continue thereafter until terminated by not less than three months’ notice in
writing served by either party on the other or three months’ salary being payment in lieu of notice.
In addition, Mr. Fung has entered into an employment contract with TYW to act as the director of
TYW for a continuous term commencing from 1 April 2006 until terminated by not less than thirty
days’ notice in writing served by either party on the other or thirty days’ salary being payment in lieu
of notice.
Mr. Chia Thien Loong, Eric John (謝天龍), aged 40, is an executive Director and the
compliance officer of the Group and is responsible for overseeing the financial and compliance aspects
of the Group. Mr. Chia joined the Group as director of TYW and TY Civil in May 2009. Mr. Chia is
also currently the director of Vietnam Infrastructure (BVI) Limited, Super Pizza Holdings Limited and
HKLC. Prior to joining the Group, Mr. Chia held directorate positions in Gransing Securities Company
Limited from 2003 to 2007. Mr. Chia has over 14 years of experience in corporate finance,
management and investment. Mr. Chia graduated with a degree of Bachelor of Science in accounting
and finance from Purdue University, Indiana, USA in 1994. He joined Apple Computer International
Limited as a financial analyst from June 1995 to March 1997. Mr. Chia joined the Listing Division
of the Stock Exchange as an executive from March 1997 to June 1998 and joined BNP Peregrine
Paribas Capital Limited as an assistant manager in June 1998. He re-joined the Listing Division of the
Stock Exchange as an assistant manager during the period between August 1999 and July 2001 and
joined Worldwide Finance Capital Limited as a senior manager in August 2001. In the last three years,
he held no directorships in any listed public companies. He has entered into a service contract with
the Company for an initial term of three years commencing from 11 August 2010, and will continue
thereafter until terminated by not less than three months’ notice in writing served by either party on
the other or three months’ salary being payment in lieu of notice. In addition, Mr. Chia has entered
into an employment contract with TYW to act as the director of TYW for a continuous term
commencing from 1 May 2009 until terminated by not less than thirty days’ notice in writing served
by either party on the other or thirty days’ salary being payment in lieu of notice.
DIRECTORS, SENIOR MANAGEMENT, BOARD COMMITTEES AND STAFF
— 128 —
Independent non-executive Directors
Mr. Lim Hung Chun (林洪進), aged 46, has been appointed by the Company as the independent
non-executive Director on 11 August 2010. Mr. Lim graduated from the Hong Kong Polytechnic (now
The Hong Kong Polytechnic University) in Accountancy in 1988. He is a fellow of the Association of
Chartered Certified Accountants and an associate of the Hong Kong Institute of Certified Public
Accountants. Mr. Lim has extensive experience of over 20 years in corporate and strategic planning,
finance and administration, internal control and auditing, information technology and human
resources management in various industries. He worked in Deloitte Touche Tohmatsu (formerly called
Deloitte Ross Tohmatsu) for two years from 1988 to 1990. He then acted as a chief accountant in Hong
Kong Toy Centre International Limited, for approximately two years. He was appointed as a general
manager in an electronic company from 1993 to 1997. He served as the Corporate Director of Finance
in Lee Kum Kee Group, a fast moving consumer goods company engaged in manufacturing, sales and
distribution of Chinese sauces and condiments, from 1997 to 2007. Since 2008, Mr. Lim has been
engaging in business consulting industry providing business solutions, management consultancy,
financial advisory and company secretary services to clients. On 21 September 2009, Mr. Lim was
appointed as an independent non-executive director of Sanyuan Group Limited (“Sanyuan”) which
was then under delisting procedures. Based on Mr. Lim’s experience in corporate and strategic
planning, he was invited by the then board of directors of Sanyuan to assist in the application for
resumption of trading of shares in Sanyuan. Mr. Lim resigned from his position on 14 December 2009
as resumption of trading of Sanyuan failed and Sanyuan had been subsequently delisted on 24
December 2009. Save as disclosed above, Mr. Lim held no directorships in other listed public
companies in the last three years. He has not, by himself or through his firm in which he practices,
provided professional services to the Company during the Track Record Period.
Mr. Lo Ho Chor (盧浩初), aged 54, has been appointed by the Company as the independent
non-executive Director on 11 August 2010. Mr. Lo graduated from the University of Hong Kong in
1978 holding the degree of Bachelor of Social Sciences. He has over 21 years of experience in the
banking industry. Mr. Lo was an executive trainee at The Bank of East Asia Limited from August 1978
to March 1980. He worked as a credit officer for The Ka Wah Bank Limited from March 1981 to March
1982 and in the credit review department at Far East Bank Limited from June 1982 to March 1989.
Mr. Lo was a manager in credit & marketing department at Banco Central Hispano Americano S.A.
from January 1990 to July 1991 and prior to that he acted as an Assistant Vice President at Security
Pacific Asian Bank Ltd. He has proven track records in managing two credit card centres as operations
head with ORIX Asia Limited and Industrial and Commercial Bank of China Limited, Hong Kong
Branch. In the last three years, Mr. Lo held no directorships in any listed public companies. He has
not, by himself or through his firm in which he practices, provided professional services to the
Company during the Track Record Period.
Mr. Sung Lee Kwok (宋利國), aged 45, has been appointed by the Company as the independent
non-executive Director on 11 August 2010. Mr. Sung graduated from the Peking University, China
with a doctorate degree in laws in 1995. He has obtained the PRC attorney qualification in 1999 and
is now a registered foreign lawyer in Hong Kong. He is currently a foreign legal consultant of PRC
laws in Jones Day, registered arbitrators of 中國國際經濟貿易仲裁委員會 (China International
Economic and Trading Arbitration Commission) and 深圳仲裁委員會 (Shenzhen Arbitration
Commission), an associate professor in laws of Anhui University and an independent director of
DIRECTORS, SENIOR MANAGEMENT, BOARD COMMITTEES AND STAFF
— 129 —
北京電子城投資開發股份有限公司 (Beijing Electric City Investment and Development Co., Ltd*), a
company listed on the Shanghai Stock Exchange, PRC starting from 2009. Mr. Sung was an
independent director of 國電南京自動化股份有限公司 (Guodian Nanjing Automation Company
Limited*), a company listed on the Shanghai Stock Exchange, PRC from 2003 to 2009. Save as
disclosed above, in the last three years, Mr. Sung held no directorships in any listed public companies.
He has not, by himself or through his firm in which he practices, provided professional services to the
Company during the Track Record Period.
Please refer to the paragraph headed “Further information about Directors, management, staff
and experts” in Appendix V to this prospectus for information regarding particulars of the Directors’
service contracts and emoluments and information regarding their respective interests (if any) in
shares of the Company within the meaning of Part XV of the SFO.
Save as disclosed in this prospectus, each of the Directors has confirmed that there are no other
matters relating to his appointment as a Director that need to be brought to the attention of the
Shareholders and there is no other information in relation to his appointment which is required to be
disclosed pursuant to Rule 17.50(2) of the GEM Listing Rules.
SENIOR MANAGEMENT OF THE GROUP
Contracts Manager
Mr. Leung Hon Chung, aged 53, has been the contracts manager of TYW since August 2008.
Mr. Leung is experienced in overseeing contractual matters in relation to construction projects and has
over 30 years of experience in project management for civil engineering projects. Prior to joining the
Group, Mr. Leung worked as a deputy project manager for Sum Kee Construction Limited from 2007
to 2008. He worked as an assistant site agent, site agent and project manager at Shun Hing
Construction Company Limited from 1978 to 1995 and worked as a project manager at Sequence
Construction Company Limited from 1997 to 2007. Mr. Leung worked as a senior inspector of works
at J. Rogers Preston Limited during the period between June 1995 and September 1997. Mr. Leung
obtained a diploma in civil engineering and a higher certificate in civil engineering from the Hong
Kong Polytechnic (now The Hong Kong Polytechnic University) in 1978 and 1980 respectively. In the
last three years, Mr. Leung held no directorships in any listed public companies.
Project Manager
Mr. Lau Wai Chun, Jacky, aged 50, first joined the Group as a project manager of TYW
between May 2002 and March 2003. In July 2008, Mr. Lau returned to the Group as the project
manager of TYW and was also appointed as the head of quality assurance and the head of
environmental compliance of the Group. Mr. Lau has over 28 years of experience in supervision of
construction work. He worked as works supervisor and assistant inspector of works at Maunsell
Consultants Asia Limited from 1979 to 1989 and as senior inspector of works at Scott Wilson (Hong
Kong) Limited from 2003 to 2005. Mr. Lau also worked as an inspector of works for Watson Hawksley
Consulting Engineers and Pypun Engineering Consultants Ltd from 1991 to 1993. He worked as a
* For identification purpose only
DIRECTORS, SENIOR MANAGEMENT, BOARD COMMITTEES AND STAFF
— 130 —
senior inspector of works for Freeman Fox Maunsell Consulting Engineers from 1993 to 1998 and a
project manager for Man Wah New Concepts Engineering Ltd from 1998 to 2002. Mr. Lau was a senior
inspector of works of the Mass Transit Rail Corporation from 2005 to 2008. Mr. Lau holds the diploma
in civil engineering and the higher certificate in civil engineering from the Hong Kong Polytechnic
in 1978 and 1980 respectively. Mr. Lau obtained the certificate of proficiency in industrial safety from
the Hong Kong Polytechnic (now The Hong Kong Polytechnic University) in 1983 and was a
registered safety officer in 1997 and such registration was re-validated in March 2008. In the last three
years, Mr. Lau held no directorships in any listed public companies.
Chief Financial Officer and Company Secretary
Mr. Tam Tsang Ngai, aged 35, has been the chief financial officer and company secretary of
TYW since April 2010. Mr. Tam worked in Deloitte Touche Tohmatsu from 1997 to 2000. Prior to
joining the Group, Mr. Tam worked as the finance manager in both MHCC from 2008 to March 2010
and China Resources Petrochems (Group) Company Limited and China Resources Gas (Holdings)
Limited from 2001 to 2007. Mr. Tam graduated with a bachelor’s degree in business administration
from The Chinese University of Hong Kong in 1997. Mr. Tam is a member of Hong Kong Institute of
Certified Public Accountants and a fellow of the Association of Chartered Certified Accountants. In
the last three years, Mr. Tam held no directorships in any listed public companies.
Administration Officer
Ms. Kan May Bo, Mabel, aged 42, has been working in TYW since October 1996. Ms. Kan has
over 13 years of experience in clerical and administrative work for various companies from 1985 to
1996 prior joining to the Group. Ms. Kan is currently the administration officer of the Group and is
responsible for the general administration of the Group. In the last three years, Ms. Kan held no
directorships in any listed public companies. Ms. Kan has no family relationship with Mr. Kan Kwok
Cheung.
COMPLIANCE OFFICER
Mr. Chia Thien Loong, Eric John, who is also an executive Director also acts as the compliance
officer of the Group. Please refer to his biography set out in the sub-paragraph headed “Executive
Directors” in this section.
BOARD COMMITTEES
Audit committee
The Company established the audit committee pursuant to a resolution of the Directors passed
on 11 August 2010 in compliance with Rule 5.28 of the GEM Listing Rules. The written terms of
reference are in compliance with paragraph C3.3 of the Code on Corporate Governance Practices as
set out in Appendix 15 to the GEM Listing Rules. The primary duties of the audit committee are to
review and supervise the financial reporting process and internal control system of the Group. At
present, the audit committee of the Company consists of three members, namely Mr. Lim Hung Chun,
Mr. Lo Ho Chor and Mr. Sung Lee Kwok. Mr. Lim Hung Chun is the chairman of the audit committee.
DIRECTORS, SENIOR MANAGEMENT, BOARD COMMITTEES AND STAFF
— 131 —
App1A(42)(1)(b)R11.07(3)
R11.07(5)App1A(42)(2)
Remuneration committee
The Company established a remuneration committee on 11 August 2010 with written terms of
reference in compliance with paragraph B1.1 of the Code on Corporate Governance Practices as set
out in Appendix 15 to the GEM Listing Rules. The primary duties of the remuneration committee are
to make recommendation to the Board on the overall remuneration policy and structure relating to all
Directors and senior management of the Group and to review and determine the terms of remuneration
packages, bonuses and other compensation payable to them. The remuneration committee consists of
three members, namely Mr. Kan, Mr. Lo Ho Chor and Mr. Sung Lee Kwok. Mr. Kan is the chairman
of the remuneration committee.
Nomination committee
The Company established a nomination committee on 11 August 2010. The written terms of
reference are in compliance with paragraph A4.4 of the Code on Corporate Governance Practices as
set out in Appendix 15 to the GEM Listing Rules. The primary function of the nomination committee
is to make recommendations to the Board on the appointment of Directors and the management of the
Board succession. The nomination committee consists of three members, namely Mr. Kan, Mr. Lo Ho
Chor and Mr. Lim Hung Chun. The chairman of the nomination committee is Mr. Kan.
COMPLIANCE ADVISER
In accordance with Rule 6A.19 of the GEM Listing Rules, the Company has appointed Optima
Capital to be the compliance adviser, who will have access to the Company’s authorised
representatives, Directors and other officers at all times. The compliance adviser will advise the
Company on on-going compliance requirements and other issues under the GEM Listing Rules. The
compliance adviser’s appointment shall commence on the Listing Date and end on the date on which
the Company complies with Rule 18.03 of the GEM Listing Rules in respect of its financial results
for the second full financial year commencing after the Listing Date, or until the agreement is
terminated, whichever is earlier.
Pursuant to Rule 6A.23 of the GEM Listing Rules, the compliance adviser will advise the
Company in the following circumstances:
(1) before the publication of any regulatory announcement, circular or financial report;
(2) where a transaction, which might be a notifiable or connected transaction, is contemplated
including share issues and share repurchases;
(3) where the Company proposes to use the proceeds of the Placing in a manner different from
that detailed in this prospectus or where the business activities, developments or results of
the Company deviate from any forecast, estimate, or other information in this prospectus;
and
(4) where the Stock Exchange makes an inquiry of the Company concerning unusual
movements in the price or trading volume of the Company.
DIRECTORS, SENIOR MANAGEMENT, BOARD COMMITTEES AND STAFF
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DIRECTORS’ REMUNERATION
The aggregate amount of fees, salaries, allowances and benefits in kind paid by the Group to the
Directors for each of the two financial years ended 31 March 2009 and 2010 amounted to
approximately HK$1,554,000 and HK$2,720,000 respectively. Each of the executive Directors has
entered into a service contract with the Company for an initial term of three years commencing on 11
August 2010 while each of independent non-executive Directors is appointed for a term of three years
commencing from 11 August 2010. Under the respective service contracts or appointment letters, the
aggregate basic annual remuneration (excluding payment of discretionary bonus) payable by the
Group to the Directors will be HK$336,000. The Directors’ remuneration policy of the Group after
Listing will be substantially the same as the remuneration policy of the Group for the year ended 31
March 2010. Further details of the service contracts and appointment letters of the Directors and their
respective remuneration after Listing are set out in the sub-paragraph headed “Particulars of Directors’
service contracts” in the paragraph headed “Further information about Directors, management, staff
and experts” in Appendix V to this prospectus.
STAFF
Number of staff members
As at the Latest Practicable Date, the Group had a total of 171 full-time staff members in Hong
Kong. The following table sets out the number of staff of the Group as at 31 March 2009, 31 March
2010 and the Latest Practicable Date by job functions:
Job function
As at31 March
2009
As at31 March
2010
As atLatest
PracticableDate
Project management 35 51 51
Administration, accounting and finance 11 18 24
Direct workers 54 92 96
Total 100 161 171
Remuneration
The employees of the Group are remunerated by way of fixed salary. The Group has devised an
assessment system for its employees and the Group uses the assessment result for salary reviews and
promotion decisions.
All the staff undergoes a performance appraisal once a year. The appraisal provides the Group
with an opportunity to assess each individual staff ’s strengths and areas for improvement, thereby
enabling the Group to effectively train and develop each individual staff.
DIRECTORS, SENIOR MANAGEMENT, BOARD COMMITTEES AND STAFF
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App1A(28)(7)
The five highest paid individuals whose emoluments were the highest in the Group included two
and three Directors for the years ended 31 March 2009 and 2010 respectively. The aggregate salaries,
bonuses and benefits in kind paid by our Group to its remaining three and two highest paid individuals
and the contributions for mandatory provident fund made by the Group for such highest paid
individuals for each of the two financial years ended 31 March 2010 were approximately
HK$1,135,000 and approximately HK$1,324,000 respectively.
During the Track Record Period, no emoluments were paid by the Group to any of the aforesaid
five highest paid individuals as an inducement to join the Group or upon joining the Group as
compensation for loss of office.
Relationship with staff
The Directors consider that the Group maintains good working relationship with its staff. The
Group has not encountered any difficulty in recruitment and retention of staff for its operation or
experienced any material disruption of its operation as a result of labour disputes since the
establishment of its business.
PROVIDENT FUND
The Group participates in a mandatory provident fund scheme (the “MPF Scheme”) under the
Mandatory Provident Fund Schemes Ordinance (Chapter 485 of Laws of Hong Kong) for its employees
in accordance with the requirements of such ordinance.
The MPF Scheme is a defined contribution retirement plan administered by independent trustees.
Under the MPF Scheme, both the Group and the employees have to contribute an amount equal to 5%
of the relevant income of such employees to the MPF Scheme, subject to a minimum and maximum
level of the monthly relevant income of HK$5,000 and HK$20,000 respectively. “Relevant income”
includes wages, salaries, leave pay, fee, commission, bonus, gratuity perquisite and allowance
(excluding housing allowance or housing benefits). Contributions to the plan vest immediately.
DIRECTORS, SENIOR MANAGEMENT, BOARD COMMITTEES AND STAFF
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App1A(33)(4)(a),(b),(d)
CONTROLLING SHAREHOLDERS
So far as the Directors are aware, immediately following completion of the Placing and the
Capitalisation Issue, the following entity/person are entitled to exercise or control the exercise of 30%
or more of the voting power at the general meetings of the Company:
Name Capacity and nature of interest
Number ofShares
(Note 1)
Percentage ofshareholding
Shunleetat (Note 2) Beneficial owner 40,920,000 (L) 41.25%
Mr. Kan (Note 2) Interest of controlled corporation 40,920,000 (L) 41.25%
Notes:
1. The letter “L” denotes a long position in the shareholder’s interest in the share capital of the Company.
2. Shunleetat is wholly and beneficially owned by Mr. Kan. Accordingly, Mr. Kan is deemed to be interested in the
40,920,000 Shares held by Shunleetat under the SFO.
Save for the entity/person disclosed above, there are no other persons who will, immediately
following completion of the Placing and the Capitalisation Issue, be directly or indirectly entitled to
exercise or control the exercise of 30% or more of the voting power at general meetings of the
Company.
SUBSTANTIAL SHAREHOLDERS
So far as the Directors are aware, immediately following completion of the Placing and the
Capitalisation Issue, the following entities/persons (other than the entity/person as disclosed in the
paragraph headed “Controlling Shareholders” above) are entitled to exercise or control the exercise
of 10% or more of the voting power at general meetings of the Company:
Name Capacity and nature of interest
Number ofShares
(Note 1)
Percentage ofshareholding
Chuwei (Note 2) Beneficial owner 13,020,000 (L) 13.125%
Mr. Cheng (Note 2) Interest of controlled corporation 13,020,000 (L) 13.125%
Purplelight (Note 3) Beneficial owner 11,160,000 (L) 11.25%
Mr. Fung (Note 3) Interest of controlled corporation 11,160,000 (L) 11.25%
Notes:
1. The letter “L” denotes a long position in the shareholder’s interest in the share capital of the Company.
CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS
— 135 —
App1A(27A)
2. Chuwei is wholly and beneficially owned by Mr. Cheng. Accordingly, Mr. Cheng is deemed to be interested in the
13,020,000 Shares held by Chuwei under the SFO.
3. Purplelight is wholly and beneficially owned by Mr. Fung. Accordingly, Mr. Fung is deemed to be interested in
the 11,160,000 Shares held by Purplelight under the SFO.
Save for the entities/persons disclosed above, there are no other entities/persons (other than the
entity/person as disclosed in the paragraph headed “Controlling Shareholders” above) who will,
immediately following completion of the Placing and the Capitalisation Issue, be directly or indirectly
entitled to exercise or control the exercise of 10% or more of the voting power at general meetings
of the Company.
COMPETING INTERESTS
Mr. Chia is the director and the beneficial owner of Vietnam Infrastructure (BVI) Limited, a
company engaged in provision of civil engineering services in Vietnam. The civil engineering services
provided by Vietnam Infrastructure (BVI) Limited are similar to those provided by the Group but are
limited to Vietnam. Mr. Chia confirms that Vietnam Infrastructure (BVI) Limited does not intend to
extend its business to Hong Kong. As the Group and Vietnam Infrastructure (BVI) Limited are
carrying on business in two distinct jurisdictions, the Directors consider that the business of Vietnam
Infrastructure (BVI) Limited is not in direct competition with that of the Group.
As at the Latest Practicable Date, Mr. Chia was interested in less than 1.0% in the issued share
capital of Ming Hing Waterworks, a company whose issued shares are listed on the Main Board of the
Stock Exchange, which is engaged in a business similar to that of the Group. During the Track Record
Period, MHCC/MHWE, each a subsidiary of Ming Hing Waterworks, was the largest customer of the
Group. Mr. Chia has not held and does not presently hold any position in or otherwise was not
involved and is not presently involved in the daily operations of Ming Hing Waterworks or any of its
subsidiaries or associated companies. Mr. Chia holds its interests in Ming Hing Waterworks for
investment purpose.
Save as disclosed above, none of the Controlling Shareholders, the Substantial Shareholders, the
Directors and their respective associates is interested in any business which competes or is likely to
compete, directly or indirectly, with the business of the Group.
Deed of non-competition undertaking
Mr. Kan, Shunleetat, Mr. Cheng, Chuwei, Mr. Fung, Purplelight, Mr. Chia and Lotawater (the
“Covenantors”) have executed a deed of non-competition undertaking in favour of the Group,
undertaking that he/it shall not, and procure his/its associates not to, whether on his/its own account
or in conjunction with or on behalf of any person, firm or company and whether directly or indirectly,
whether for profit or not, carry on, engage, invest or be interested or otherwise involved or engaged
in any business that is in competition with or is likely to be in competition with any business carried
on by any member of the Group from time to time in Hong Kong, Macau or the PRC or in which any
member of the Group is engaged or has invested or is otherwise involved in in Hong Kong, Macau or
the PRC (the “Restricted Business”). It has also been provided in the deed of non-competition
undertaking that if a Covenantor and/or any of his/its associates is offered of any project or new
CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS
— 136 —
R11.04
App1A(28)(1)(b)(v)
business opportunity that relates to the Restricted Business, whether directly or indirectly, he/it shall:
(i) promptly notify the Company in writing of such opportunity and provide such information as is
reasonably required by the Company in order to enable the Company to come to an informed
assessment of such opportunity; and (ii) use his/its best endeavours to procure that such opportunity
is offered to the Company or one of its subsidiaries on terms no less favourable than the terms on
which such opportunity is offered to such Covenantor and/or his/its associates. The Covenantors have
further undertaken that if such Covenantor and/or any of his/its associates becomes aware of any
project or new business opportunity that relates to the Restricted Business, whether directly or
indirectly, he/it shall: (i) promptly notify the Company in writing of such opportunity and provide such
information as is reasonably required by the Company in order to enable the Company to come to an
informed assessment of such opportunity; and (ii) use his/its best endeavours to procure that such
opportunity is offered to the Company or one of its subsidiaries on terms no less favourable than the
terms on which such opportunity is offered to such Covenantor and/or his/its associates, provided that
such restriction shall not apply to any project or new business opportunity in connection with any
invitation for tender for the Restricted Business announced by the Government.
The deed of non-competition undertaking does not apply to:
(i) the holding of shares or other securities issued by the Company or any of its subsidiaries
from time to time;
(ii) the holding of shares or other securities in any company which has an involvement in the
Restricted Business, provided that such shares or securities are listed on a recognised stock
exchange and the aggregate interest of the relevant covenantor and his respective associates
(as “interest” is construed in accordance with the provisions contained in Part XV of the
SFO) do not amount to more than 5% of the relevant share capital of the company
concerned; and
(iii) the investment, participation or engagement by the relevant Covenantor in any project or
business opportunity in the Restricted Business in relation to which the Company has
rejected or declined to be involved or engaged, or to participate in provided that the
following procedures having been complied with: (a) the information about the principal
terms of the relevant project or business opportunity have been disclosed to the Company
and the Directors; (b) the decision to reject or decline is made after review by the
independent non-executive Directors based on the profitability of such project or business
opportunity, the resources of the Company required for carrying out such project or
business opportunity, the relevant expertise required in such project or business opportunity
and the impact on the Company’s business and competitiveness if such project or business
opportunity is not taken up by the Company but by the relevant Covenantor; (c) the
principal terms on which the relevant Covenantor or the relevant associate invests,
participates or engages in the such project or business opportunity are substantially the
same as or not more favourable than those disclosed to the Company; and (d) the
investment, participation and engagement by the relevant Covenantor or the relevant
associate in such project or business opportunity shall be subject to any conditions that may
be imposed by the independent non-executive Directors.
CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS
— 137 —
The undertakings are effective in respect of each Covenantor from the Listing Date until the
earlier of: (i) the day when the Shares cease to be listed on GEM or other stock exchange; or (ii) the
day when the relevant Covenantor ceases to be a Director, or the day when the relevant Covenantor,
taken as a whole with his/its associates, ceases to own or hold 5% or more of the entire issued share
capital of the Company, whichever is later.
As a matter of good corporate governance practices and to improve transparency, the Company
will adopt the following measures for the purpose of monitoring the due compliance with the deed of
non-competition undertaking:
(i) the independent non-executive Directors will review, on an annual basis, the compliance
with the undertakings by Mr. Kan, Mr. Cheng, Mr. Fung and Mr. Chia and their respective
associates under the deed of non-competition undertaking including the right of first refusal
for any new project or business opportunity;
(ii) each of Mr. Kan, Mr. Cheng, Mr. Fung and Mr. Chia and their respective associates
undertakes to provide all information requested by the Company which is necessary for the
annual review by the independent non-executive Directors and the enforcement of the deed
of non-competition undertaking;
(iii) the Company will disclose decisions on matters reviewed by the independent non-executive
Directors relating to compliance and enforcement of the undertaking of Mr. Kan,
Mr. Cheng, Mr. Fung and Mr. Chia including the decisions reached in respect of the right
of first refusal for any new project or business opportunity either in the annual report or by
issuing an announcement of the Company;
(iv) Mr. Kan, Mr. Cheng, Mr. Fung and Mr. Chia will make an annual declaration on compliance
with his undertaking, under the deed of non-competition undertaking in the annual report
of the Company;
(v) Mr. Kan, Mr. Cheng, Mr. Fung and Mr. Chia shall abstain from voting at any general
meeting of the Company if there is any actual or potential conflict of interests; and
(vi) the independent non-executive Directors shall be entitled to engage or appoint appropriate
professional advisors to provide necessary assistance for the interpretation, enforcement or
implementation of the terms of the deed of non-competition undertaking, at the costs of the
Company when they consider appropriate to do so.
The declaration and disclosure regarding compliance with and enforcement of the deed of
non-competition undertaking shall be consistent with the principles of making voluntary disclosures
in the Corporate Governance Report of the Company to be issued in accordance with Appendix 16 to
the GEM Listing Rules.
In addition to the provisions under the deed of non-competition undertaking, the Articles of
Association provide that a Director shall not be counted as quorum and shall not vote on any resolution
of the board approving any contract or arrangement or other proposal in which he or any of his
CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS
— 138 —
associates is materially interested. Based on the above, there should be sufficient safeguards for the
Company to manage any potential or actual conflicts of interests between the Company on the one
hand and the Controlling Shareholder(s), the Substantial Shareholders and/or the Directors on the
other hand so as to protect the interests of the minority Shareholders.
INDEPENDENCE FROM THE CONTROLLING SHAREHOLDER
Management independence and operational independence
Although the Controlling Shareholders will retain a controlling interest in the Company after the
Listing Date, the Company has full rights to make all decisions on and to carry out its business
operations independently. The Company’s management and operational decisions are made by the
Board and senior management, who are experienced in managing business generally and in the civil
engineering industry. The Board comprises three independent non-executive Directors who will bring
independent judgment to the decision-making process of the Board.
The Group has established a set of organisational structure made up of individual departments,
each with specific areas of responsibilities. The Group also has independent access to sources of
supplies or construction materials as well as customers. In addition, the Group has established a set
of internal controls to facilitate the effective operation of its business.
The Directors currently do not expect that following the Listing Date, there will be any material
business transactions between the Company and the Controlling Shareholders. Based on the reasons
above, the Directors are of the view that the Company is independent of the Controlling Shareholders
in terms of management and business operations.
Administrative independence
The Group has its own capabilities and personnel to perform all essential administrative
functions including financial and accounting management, and general business management. The
company secretary and senior management staff are independent of the Controlling Shareholders.
Financial independence
The Group has certain bank loans/facilities, certain obligations under finance leases and rental
arrangements which are secured by the personal guarantees given by Mr. Kan, the Controlling
Shareholder.
Bank loans and facilities
Mr. Kan has provided personal guarantee to the HSBC in respect of the Loans, the General
Facilities and the Credit Card Facility. During the Track Record Period, the Group had drawn down
the Loans in full, which carried interest (i) at 1% per annum over the best lending rate of HSBC
(currently 5%, subject to fluctuation) which was charged on a daily basis for the HK$4.0 million
non-revolving loan; and (ii) at a flat rate of 3.75% per annum (subject to HSBC’s right to renegotiate
in the event that the best lending rate of HSBC (currently 5%) changes between the date of the relevant
CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS
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App1A(27A)
facility letter and the date of drawdown) for the HK$2.0 million non-revolving loan. Out of HK$6.0
million of the Loans, approximately HK$1.6 million was used to repay a bank overdraft with a
commercial bank, approximately HK$2.4 million was used to acquire machinery and the remaining
approximately HK$2.0 million was used for general working capital purpose.
The Loans were granted by HSBC under the Special Loan Guarantee Scheme (the “Scheme”)
launched by the Government in December 2008, aiming at assisting enterprises to secure loans from
participating lending institutions for meeting general business needs to tide over the liquidity problem
during the global financial crisis with the Government acting as the guarantor. To be eligible for the
Scheme, an enterprise must, among other things, have substantive business operations and personal
guarantee provided by shareholders together holding more than 50% of the equity interest of the
enterprise. The Group has made use of the Scheme to obtain the Loans at favorable terms for its
business operation use.
Pursuant to a subordination agreement (the “Subordination Agreement”) dated 19 May 2009
and entered into between TYW, Mr. Kan and HSBC, in consideration of HSBC advancing monies to
TYW, each of Mr. Kan and TYW undertook to HSBC that, among other things, so long as there were
any sums due from TYW to HSBC, the indebtedness owed by TYW to Mr. Kan shall not be repayable
unless HSBC otherwise consented to such repayment. In January 2010, the Group set off an account
payable to Mr. Kan against certain sums paid by the Group for Mr. Kan in advance. Hence, TYW has
been in breach of the terms of the Subordination Agreement (the “Breach”). As a result of the Breach,
TYW may be legally liable for (i) immediate repayment of all the outstanding sums due to HSBC by
TYW at the time of the Breach, (ii) all the costs, fees and expenses incurred by HSBC demanding
repayment of the loans, and (iii) overdue interest charged by HSBC in accordance with the relevant
facility letters entered into between HSBC and TYW in the event that TYW fails to repay the
outstanding loans immediately upon demand of HSBC.
Soon after becoming aware of the Breach, the Directors had informed HSBC of the Breach and
commenced discussions with HSBC thereon in early July 2010. The Directors considered, after
discussions with HSBC, the best way to resolve the issue was to fully repay all the outstanding
liabilities due to HSBC. As at the Latest Practicable Date, all outstanding sums under the Loans, the
General Facilities and the Credit Card Facility had been fully repaid by the Group. On 12 July 2010,
HSBC issued letters confirming repayment of all outstanding liabilities by the Group, and did not
indicate therein that they would take legal actions against the Group for the Breach. Also, up to the
Latest Practicable Date, the Group had not been served with any legal notice regarding HSBC’s right
to take legal action against the Group as a result of the Breach. As such, the Directors consider that
the risk and the liabilities of Group in respect of the matters related to the Breach are minimal. The
personal guarantees provided by Mr. Kan in respect of the Loans, the General Facilities and the Credit
Card Facility have not been released before the Listing due to the internal policy of HSBC, which
would only permit release of Mr. Kan’s personal guarantee after the expiry of the retention period as
determined by HSBC, which is normally six months after full repayment of the aforesaid loans and
facilities.
CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS
— 140 —
Finance leases and rental arrangements
Mr. Kan has also been providing personal guarantee in respect of the finance leases of certain
motor vehicles and machinery prior to the commencement of and during the Track Record Period,
which are largely under terms from two to three years. The Group has already paid off the finance
leases relating to some of the motor vehicles entered into before or during the Track Record Period.
As at 30 June 2010, 30 motor vehicles of the Group under finance leases with an aggregate outstanding
principal amount of approximately HK$3.01 million were secured by personal guarantees provided by
Mr. Kan. The aforesaid finance leases are due to expire from September 2010 to August 2013.
Certain agreements entered into by TY Civil and the financiers in relation to the finance leases
of certain motor vehicles and machinery contain a “cross-default” clause stipulating that if TY Civil
or the guarantor (i.e. Mr. Kan) has defaulted under other loan agreements which entitles the lender
thereof to declare such loans due prematurely, the relevant financier is entitled to regard such default
under other loan agreements as a breach under the finance lease concerned and to terminate such
finance lease as a result. With regard to the Breach under the Subordination Agreement between TYW
and HSBC (under which Mr. Kan is the guarantor for the Group’s obligations), Mr. Kan (in the
capacity of guarantor) could be required to repay the loans due to HSBC prematurely. Hence, the
Group has committed, technically speaking, a breach under certain finance leases because of Mr.
Kan’s potential liability for premature repayment of loans to HSBC.
Given that the Group has committed a technical breach under certain finance lease documents for
the motor vehicles and Mr. Kan has provided personal guarantee in respect of the finance lease
documents, Mr. Kan (as guarantor of the Group) could be liable for immediate repayment of all
outstanding sum due under the relevant finance lease documents (including payment of all arrears of
rent and all outstanding rent which would be payable during or in respect of the unexpired term of the
original period of the finance lease). However, the Group shall be under no obligations to indemnify
Mr. Kan as a result of the aforesaid matters. For details of the technical breach, please refer to the
sub-paragraph headed “Litigation” under the paragraph headed “Other information” in Appendix V to
this prospectus.
During the Track Record Period, the Group has also entered into rental arrangements in respect
of photocopying machines for office use, the payment obligations of which are secured by the personal
guarantees given by Mr. Kan. As at 30 June 2010, there were eight photocopying machines with an
aggregate outstanding rental payment amount of approximately HK$453,000 secured by the personal
guarantees provided by Mr. Kan. The aforesaid rental arrangements are subject to a fixed rental period
of 60 months, due to expire from December 2012 to October 2014. Pursuant to the terms of the rental
agreements, the rental arrangements may not be terminated by the Group during the aforesaid fixed
rental period.
The aforesaid personal guarantees from Mr. Kan have not been released before the Listing for
the following reasons: (i) the Directors consider that acquiring motor vehicles by way of finance
leases and leasing the photocopying machines for office use allow the Group to better utilise its
financial resources; (ii) the finance companies providing finance leases to the Group in respect of the
aforesaid motor vehicles and the lessor providing rental arrangements to the Group in respect of the
photocopying machines did not accept a replacement of Mr. Kan’s personal guarantees by the
CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS
— 141 —
Company’s corporate guarantees with the principal finance company and the lessor of photocopying
machines expressed that they could not accept corporate guarantee due to their company policies; and
(iii) the early termination of the finance leases and rental arrangements may involve penalties to be
imposed on the Group. In consideration of the above, the Directors are of the view that the early
termination of such personal guarantees may expose the Group to additional and unnecessary costs and
business disruption, which are not in the interest of the Company, and thus the personal guarantees
from Mr. Kan in respect of the aforesaid finance leases and rental arrangements shall continue after
the Listing. In this connection, Mr. Kan will provide an undertaking to the Company that, after Listing,
he will not demand for release of the personal guarantees prior to the maturity of the respective
finance leases and rental arrangements, and therefore it is unlikely that the Group’s business and
operations will be materially affected by Mr. Kan unilaterally demand for release of such guarantee.
Shareholder’s loan
On 9 July 2010, the Group borrowed a sum of HK$4.04 million from Mr. Kan for the purpose
of repaying all the outstanding liabilities due to HSBC under the Loans, the General Facilities and the
Credit Card Facility as aforesaid. Due to Mr. Kan’s inability to provide sufficient funds to the Group
for repayment of debts to HSBC within a relatively short period of time, Mr. Kan borrowed HK$4.04
million from Mr. Chia on the same day in order to provide the necessary funding to the Group. Such
shareholder’s loan from Mr. Kan to the Group is non-interest bearing, and is due on the earlier of (i)
the third Business Day after which the Company receives the net proceeds from the Placing and (ii)
the date falling six months from 9 July 2010. Mr. Kan’s loan with Mr. Chia bears interest at the rate
of 5% per annum, and is due on the earlier of (i) the third Business Day after which the Company
receives the net proceeds from the Placing and (ii) the date falling six months from 9 July 2010. The
Group intends to apply part of the proceeds from the Placing to repay the loan due to Mr. Kan, who
will in turn apply such funds to repay his debts owing to Mr. Chia. As the shareholder’s loan owing
to Mr. Kan will be settled shortly after Listing, the Board considers that there will not be undue
financial reliance of the Group on Mr. Kan after Listing.
Conclusion
Notwithstanding that Mr. Kan has provided certain personal guarantees in respect of the Group’s
financial leases and rental arrangements and has provided a loan of HK$4.04 million to the Group, the
Directors consider that the Group is not financially dependent on Mr. Kan. The Group has established
its own financial management system, its own finance department for discharging the treasury
function for cash receipt and payment, and an internal control functions independent from Mr. Kan.
Upon Listing, the Company will obtain net proceeds of approximately HK$21.0 million from the
Placing. The Company intends to apply HK$7.1 million out of the net proceeds to fully repay all the
finance leases and the loan due to Mr. Kan. Among which, approximately HK$3.06 million will be
used to fully repay the finance leases according to their respective repayment schedules, whereby the
personal guarantees from Mr. Kan in connection thereto will be gradually released from September
2010 to August 2013; and approximately HK$4.04 million will be used to fully repay the loan due to
Mr. Kan upon Listing. In addition, the Company has obtained an offer letter from Hang Seng Bank
Limited in respect of a revolving loan facility of HK$10.0 million. Such revolving loan facility is
conditional on the Listing and will be secured by a corporate guarantee from the Company and a
charge over Hong Kong dollars time deposit by TYW. In view of the above, the Directors consider the
CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS
— 142 —
Group will be able to operate financially independent of Mr. Kan at the time of Listing or shortly
thereafter at the latest. However, the Directors are of the view that it is in the interests of the Company
and the Shareholders as a whole that the personal guarantees in respect of the existing finance leases
and rental arrangements from Mr. Kan should remain after Listing as described above as the premature
release of such guarantees is not commercially sound or practical. After Listing, it is the intention of
the Directors that the Group will not seek personal guarantees from Mr. Kan in relation to acquisitions
of motor vehicles or machinery, rental of office equipment, or application for bank loans or facilities
in the future. Also, the Group has no intention to obtain loans from Mr. Kan again after repayment of
HK$4.04 million to him.
CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS
— 143 —
Share capital
Authorised share capital: HK$
50,000,000,000 Shares 500,000,000
Issued and to be issued, fully paid or credited as fully paid:
1,000 Shares in issue 10
74,399,000 Shares to be issued under the Capitalisation Issue 743,990
24,800,000 Shares to be issued under the Placing 248,000
99,200,000 Shares 992,000
Assumptions
The table above assumes that the Placing and the Capitalisation Issue become unconditional and
the issue of Shares pursuant thereto are made, but takes no account of any Shares falling to be allotted
and issued upon exercise of any options which may be granted under the Share Option Scheme, or any
Shares which may be allotted and issued or repurchased under the general mandates for the allotment
and issue or repurchase of the Shares granted to the Directors as described below.
Minimum public float
Pursuant to Rule 11.23(7) of the GEM Listing Rules, at the time of the Listing and at all times
thereafter, the Company must maintain the “minimum prescribed percentage” of 25% of the total
issued share capital of the Company in the hands of the public (as defined in the GEM Listing Rules).
Ranking
The Placing Shares will rank pari passu in all respects with all other Shares in issue or to be
issued as mentioned in this prospectus and, in particular, will qualify in full for all dividends and other
distributions declared, made or paid after the date of this prospectus save for any entitlement under
the Capitalisation Issue.
SHARE CAPITAL
— 144 —
App1A(23)(1)ThirdSchedule 2
App1A(15)(1)
App1A(14)(4)
App1A(15)(1)
CAPITALISATION ISSUE
Pursuant to the resolutions of the Shareholders passed on 11 August 2010, subject to the share
premium account of the Company being credited as a result of the issue of the Placing Shares, the
Directors are authorised to allot and issue a total of 74,399,000 Shares credited as fully paid at par
to the holders of Shares on the register of members of our Company at the close of business on 11
August 2010 in proportion to their respective shareholdings (save that no Shareholder shall be entitled
to be allotted or issued any fraction of a Share) by way of capitalisation of the sum of HK$743,990
standing to the credit of the share premium account of the Company, and the Shares to be allotted and
issued pursuant to this resolution shall rank pari passu in all respects with the existing issued Shares.
General mandate to issue new Shares
Subject to the Placing becoming unconditional, the Directors have been conditionally granted a
general unconditional mandate to allot, issue and deal with Shares with a total nominal value not
exceeding the sum of:
1. 20% of the aggregate nominal amount of the Shares in issue immediately following
completion of the Placing and the Capitalisation Issue; and
2. the aggregate amount of Shares purchased by the Company (if any, pursuant to the
repurchase mandate as described below).
This mandate will remain in effect until:
— the conclusion of the next annual general meeting of the Company;
— the expiration of the period within which the next annual general meeting of the Company
is required by the Articles or any other applicable laws of the Cayman Islands to be held;
or
— the passing of an ordinary resolution of the Shareholders in general meeting revoking,
varying or renewing such mandate,
whichever is the earliest.
Further details of this general mandate is set forth under the sub-paragraph headed “Written
resolutions of all Shareholders passed on 11 August 2010” as set out in the paragraph headed “Further
information about the Company and its subsidiaries” in Appendix V to this prospectus.
SHARE CAPITAL
— 145 —
General mandate to repurchase shares
Subject to the Placing becoming unconditional, the Directors have been conditionally granted a
general unconditional mandate authorising them to exercise all the powers of the Company to
repurchase Shares with an aggregate nominal value of not exceeding 10% of the aggregate nominal
amount of the Shares in issue immediately following completion of the Placing and the Capitalisation
Issue.
This mandate only relates to purchases made on GEM, or on any other stock exchange on which
the Shares are listed (and which is recognised by the SFC and the Stock Exchange for this purpose).
A summary of the relevant GEM Listing Rules is set out in the sub-paragraph headed “Repurchase of
the Company’s own securities” as set out in the paragraph headed “Further information about the
Company and its subsidiaries” in Appendix V to this prospectus.
This mandate will remain in effect until:
— the conclusion of the next annual general meeting of the Company;
— the expiration of the period within which the next annual general meeting of the Company
is required by the Articles or any other applicable laws of the Cayman Islands to be held;
or
— the passing of an ordinary resolution of the Shareholders in general meeting revoking,
varying or renewing such mandate,
whichever is the earliest.
Further details of this general mandate is set forth under the sub-paragraph headed “Written
resolutions of all Shareholders passed on 11 August 2010” as set out in the paragraph headed “Further
information about the Company and its subsidiaries” in Appendix V to this prospectus.
SHARE OPTION SCHEME
The Company has conditionally adopted the Share Option Scheme. A summary of the principal
terms of the Share Option Scheme is set out in the sub-paragraph headed “Share Option Scheme” as
set out in the paragraph headed “Further information about Directors, management, staff and experts”
in Appendix V to this prospectus.
The Group did not have any outstanding share options, warrants, convertible instruments,
pre-Listing share options or similar rights convertible into the Shares as at the Latest Practicable Date.
SHARE CAPITAL
— 146 —
You should read the following discussion and analysis of the Group’s financial conditionand results of operations together with the combined financial statements for the financialyears ended 31 March 2009 and 2010 and the accompanying notes included in theAccountants’ Report. The Accountants’ Report has been prepared in accordance withHKFRSs. Potential investors should read the whole of the Accountants’ Report and not relymerely on the information contained in this section. The following discussion and analysiscontains forward-looking statements that involve risks and uncertainties. For additionalinformation regarding these risks and uncertainties, please refer to the section headed “Riskfactors” in this prospectus.
BASIS OF PRESENTATION
On 11 August 2010, the Company became the holding company of the subsidiaries now
comprising the Group pursuant to the Reorganisation, details of which are set out in the sub-paragraph
headed “Reorganisation” in the paragraph headed “Further information about the Company and its
subsidiaries” in Appendix V to this prospectus. The Reorganisation involved business combinations of
entities under common control before and immediately after the Reorganisation. The Group resulting
from the Reorganisation is regarded and accounted for as a continuing group. Accordingly, the
combined statement of comprehensive income, combined statement of changes in equity and combined
statement of cash flows of the Group for the Track Record Period have been prepared and included
the financial information of the companies now comprising the Group as if the current group structure
had been in existence throughout the Track Record Period. The combined statement of financial
positions of the Group as at 31 March 2009 and 31 March 2010 have been prepared to present the
assets and liabilities of the Group as at the end of the reporting periods as if the current structure of
the Group had been in existence at those dates.
OVERVIEW
The Group is principally engaged in the provision of waterworks engineering services, road
works and drainage services and site formation works for the public sector in Hong Kong. Over the
years, the Group, in the capacity as a main contractor or a subcontractor, has been providing civil
engineering services in Hong Kong including construction and maintenance of water mains drainage
channel and sewer, service reservoirs, pumping stations, water tank, irrigation works and other related
construction works and provision of site formation and road improvement works.
FACTORS AFFECTING THE GROUP’S RESULTS OF OPERATIONS AND FINANCIALCONDITION
Relationship with major customers
During the Track Record Period, the major customers of the Group were WSD and MHCC/
MHWE. For the two financial years ended 31 March 2009 and 2010, revenue generated from
undertaking waterworks projects of WSD in the capacity as a main contractor or a subcontractor
represented approximately 96.4% and 99.8% of the Group’s total revenue. Of all the revenue generated
from these WSD projects, a substantial portion was derived from projects subcontracted by
FINANCIAL INFORMATION
— 147 —
ThirdSchedule 1
R14.08(7)(a)
MHCC/MHWE to the Group, a small portion was derived from another main contractor while the rest
was related to projects secured from WSD directly by the Group. Revenue generated from
subcontracting works granted by MHCC/MHWE represented approximately 68.8% and 88.3% of the
Group’s total revenue respectively.
There is no assurance that the Group will be able to maintain its relationship with its major
customers and to continue to secure work contracts from them. In the event that there is a significant
reduction of work contracts or a reduction in the value of the work contracts from the major customers
and the Group fails to secure work contracts from other customers to compensate for such loss of
business, the Group’s business, results of operations and profitability may be adversely affected.
Unexpected fluctuations in cost of service
The contracts of the Group were mainly secured by way of public tendering. In determining the
tender price, the Group needs to estimate the cost of service including but not limited to
subcontracting charges, direct labour and cost of construction materials. The actual costs of service
may be different from the Group’s estimation due to shortage of labour and materials, adverse weather
conditions, and other unforeseen reasons. There may be fluctuations in the costs of service during the
contract period which generally lasts for a few years. In the event that the cost of construction
materials and labour cost increase unexpectedly to the extent that the Group has to incur substantial
extra costs without sufficient compensations, the financial performance and profitability of the Group
will be adversely affected.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of the combined financial statements 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 estimates and judgement are based on historical records,
experience and other factors that are considered by the management to be relevant. Actual results may
differ from these estimates. The significant accounting policies adopted by the Group are detailed in
note 2 to the Accountants’ Report. Certain critical accounting policies and estimates are set out as
follows:
Construction contracts
Contract revenue comprises the agreed contract amount and appropriate amounts for variation
orders, claims and incentive payments, if any. Contract costs comprise direct materials, costs of
subcontracting, direct labour, borrowing costs attributable directly to the construction and an
appropriate portion of variable and fixed construction overheads.
When the outcome of a construction contract can be estimated reliably, revenue and contract
costs associated with the construction contract are recognised as revenue and expenses respectively
by reference to the stage of completion of the contract activity at the end of the reporting periods.
When the outcome of a construction contract cannot be estimated reliably, revenue is recognised only
to the extent of contract costs incurred that will probably be recoverable, and contract costs are
recognised as expenses in the period in which they are incurred.
FINANCIAL INFORMATION
— 148 —
When it is probable that total contract costs will exceed total contract revenue, the expected loss
is recognised as an expense immediately. When progress billings exceed contract costs incurred to date
plus recognised profits less recognised losses, the surplus is treated as an amount due to contract
customers. Where contract costs incurred to date plus recognised profits less recognised losses exceed
progress billings, the surplus is treated as an amount due from contract customers.
Revenue recognition
Revenue from construction contracts is recognised on the percentage of completion method,
measured by reference to the certification by architects.
Interest income is accrued on a time basis on the principal outstanding at the applicable interest
rate.
Upon applying the percentage of completion method, the Group needs to estimate the gross profit
margin of each construction contract, which was determined based on the estimated total construction
costs and total construction contract sums, including confirmed variation orders and claims, and
liquidated damages. If the actual gross profit margin of construction contract differs from the
management’s estimates, the construction contract revenue to be recognised within the next year will
need to be adjusted accordingly.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. They arise principally through provision of goods and services
to customers and also incorporate other types of contractual monetary assets. Loans and receivables
are initially recognised at fair value plus directly attributable transaction costs. Subsequent to initial
recognition, they are measured at amortised cost using the effective interest method, less any
identified impairment losses.
At the end of each reporting period, the Group assesses whether there is any objective evidence
that financial asset is impaired. Financial asset is impaired if there is objective evidence of impairment
as a result of one or more events that has occurred after the initial recognition of the asset and that
event has an impact on the estimated future cash flows of the financial asset that can be reliably
estimated. An impairment loss is recognised in profit or loss and directly reduces the carrying amount
of the financial asset, and is measured as the difference between the asset’s carrying amount and the
present value of the estimated future cash flows discounted at the original effective interest rate.
Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable
amount can be related objectively to an event occurring after the impairment was recognised, subject
to a restriction that the carrying amount of the asset at the date the impairment is reversed does not
exceed what the amortised cost would have been had the impairment not been recognised.
FINANCIAL INFORMATION
— 149 —
Financial liabilities
Financial liabilities include trade and other payables and borrowings. They are initially
recognised at fair value, net of directly attributable transaction costs incurred and are subsequently
measured at amortised cost using the effective interest method. The related interest expense is
recognised in profit or loss.
Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as
through the amortisation process.
Inventories
Inventories are initially recognised at cost, and subsequently at the lower of cost and net
realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in
bringing the inventories to their present location and condition. Cost is calculated using the weighted
average method. Net realisable value represents the estimated selling price in the ordinary course of
business less the estimated costs of completion and applicable selling expenses.
MANAGEMENT DISCUSSION AND ANALYSIS
I. Combined Statement of Comprehensive Income
The following table sets forth the audited combined statement of comprehensive income of the
Group for the two years ended 31 March 2009 and 2010 which are extracted from the Accountants’
Report.
Year ended 31 March2009 2010
HK$’000 HK$’000
Revenue 87,696 148,844Cost of service (70,617) (121,872)
Gross profit 17,079 26,972
Other income 2,539 811Administrative expenses (5,431) (6,753)
Profit from operations 14,187 21,030Finance costs (455) (634)
Profit before income tax 13,732 20,396Income tax (2,327) (3,558)
Profit and total comprehensive income for the year 11,405 16,838
FINANCIAL INFORMATION
— 150 —
ThirdSchedule 1ThirdSchedule 27
Revenue
The Group’s revenue for the financial years ended 31 March 2009 and 31 March 2010 was
approximately HK$87.7 million and approximately HK$148.8 million respectively. For the financial
year ended 31 March 2009, the Group’s revenue was mainly attributable to the revenue generated from
the contract for replacement and rehabilitation of water mains (Stage 2) — Tai Po and Fanling
(contract numbered 21/WSD/06) of approximately HK$55.1 million and the contract for replacement
and rehabilitation of water mains stage 2 — mains in Ngau Tam Mei (contract numbered 13/WSD/06)
of approximately HK$15.6 million, representing approximately 62.8% and approximately 17.8% of
the Group’s revenue for the year, respectively.
The revenue for the financial year ended 31 March 2010 of approximately HK$148.8 million
represented an increase of approximately 69.7% over the revenue for the year ended 31 March 2009.
For the year ended 31 March 2010, the Group recorded revenue from the two aforesaid contracts in
a total of approximately HK$72.8 million from the two contracts carried forward from the preceding
financial year. The increase in revenue for the financial year ended 31 March 2010 was largely
attributable to the new contract for the replacement and rehabilitation of water mains stage 3 — mains
on Hong Kong Island South and outlying islands (contract numbered 18/WSD/08), which generated
revenue of approximately HK$53.0 million, representing approximately 35.6% of the Group’s revenue
for the year. The contract for Waterworks District W — New Territories (contract numbered
1/WSD/09(W)), which commenced in September 2009, also contributed approximately HK$14.1
million to the Group’s revenue for the financial year ended 31 March 2010.
During the Track Record Period, the Group’s revenue was mainly generated from the undertaking
of waterworks projects of WSD in the capacity as a main contractor or subcontractor. For the years
ended 31 March 2009 and 31 March 2010, the Group recorded revenue from undertaking of
waterworks projects of WSD as a main contractor or a subcontractor of approximately HK$84.5
million and approximately HK$148.5 million respectively, representing approximately 96.4% and
99.8% of the total revenue for the respective year.
During the Track Record Period, the Group carried out the work projects in the capacity as a
main contractor or a subcontractor. The breakdown of total revenue by nature of capacity of the Group
is set forth below:
Financial year ended 31 March
2009 % of total 2010 % of total
HK$’000 HK$’000
Main contractor 22,929 26.1 17,154 11.5
Subcontractor 64,767 73.9 131,690 88.5
Total 87,696 100.0 148,844 100.0
FINANCIAL INFORMATION
— 151 —
For the year ended 31 March 2009, the revenue of the Group was primarily generated from the
undertaking of waterworks contracts in the capacity of a subcontractor. The subcontracting revenue
amounted to approximately HK$64.8 million, representing approximately 73.9% of the total revenue
for the year.
For the year ended 31 March 2010, the Group continued to generate the majority of the revenue
from undertaking waterworks contracts as a subcontractor. The subcontracting revenue for the year
was approximately HK$131.7 million, representing approximately 88.5% of the total revenue for the
year and an increase of approximately 103.3% from the preceding financial year of approximately
HK$64.8 million. The higher subcontracting revenue in the financial year ended 31 March 2010 was
mainly attributable to the additional revenue generated from the contracts for the replacement and
rehabilitation of water mains stage 3 — mains on Hong Kong Island South and outlying islands
(contract numbered 18/WSD/08) and the maintenance contract for Waterworks District W-New
Territories (contract numbered 1/WSD/09(W)). These two contracts generated a total revenue of
approximately HK$67.1 million to the Group for the financial year ended 31 March 2010.
As disclosed in the section headed “Business” in this prospectus, the maximum contract value
which the Group is eligible to undertake as a Group B contractor on the Contractor List in the capacity
as a main contractor is HK$75 million. By acting as a subcontractor, the Group is able to undertake
projects with contract value over HK$75 million. During the Track Record Period, the two contracts
with the highest original contract value, which were the contract for replacement and rehabilitation of
water mains (Stage 2) — Tai Po and Fanling (contract numbered 21/WSD/06) and the contract for the
replacement and rehabilitation of water mains stage 3 — mains on Hong Kong Island South and
outlying islands (contract numbered 18/WSD/08) were contracts undertaken by the Group in the
capacity of a subcontractor. The two contracts carried the original contract value of approximately
HK$228.0 million and approximately HK$359.8 million respectively. This explained why the revenue
generated from undertaking of waterworks contract as a subcontractor contributed a significant share
of the total revenue of the Group during the Track Record Period.
Cost of service
The following table sets out a breakdown of the Group’s cost of service during the Track Record
Period:
Financial year ended 31 March
2009 % of total 2010 % of total
HK$’000 HK$’000
Costs of materials 14,695 20.8 30,331 24.9
Costs of subcontracting 24,643 34.9 40,123 32.9
Direct labour 15,891 22.5 22,899 18.8
Other direct costs 15,388 21.8 28,519 23.4
Total 70,617 100.0 121,872 100.0
FINANCIAL INFORMATION
— 152 —
The cost of service has increased by approximately 72.6% from approximately HK$70.6 million
for the financial year ended 31 March 2009 to approximately HK$121.9 million for the financial year
ended 31 March 2010. The increase in cost of service was generally in line with the growth of the
Group’s business.
The Group’s cost of service mainly includes costs of subcontracting, costs of materials, direct
labour and other direct costs. The costs of subcontracting represent charges and fees paid to the
subcontractors and services providers of the Group which provide labour, materials and services
necessary for the completion of the projects undertaken by the Group. In the event that the materials
are purchased by the Group on behalf of the subcontractors, material costs will be deducted from the
costs of subcontracting accordingly. The other direct costs refer to a great variety of items including
but not limited to the consumables for the projects, interest for advance payment from customers and
contract administration fee paid to main contractor(s), depreciation expenses of machinery and motor
vehicles, fuel and other expenses such as repair and maintenance costs relating to motor vehicles.
Generally speaking, the composition of cost of service of projects varies, and is affected by
factors such as the nature of the projects, complexity of the projects, the accessibility and location of
the site areas, and the intensity of the labour and technology employed. As shown in the table above,
there had not been significant fluctuation in the composition of the cost of service during the Track
Record Period. The costs of subcontracting remained the largest item of cost of service throughout the
Track Record Period, implying that certain part of the works performed by the Group were
subcontracted to the subcontractors and the engagement of subcontractors was an important part of the
project management of the Group during the Track Record Period.
For the financial year ended 31 March 2009, the other direct costs mainly comprised project
consumables of approximately HK$1.9 million, contract administration fee of approximately HK$2.5
million and interest for advance payment from customers of approximately HK$429,000, depreciation
expenses of site office, motor vehicles and machinery of approximately HK$3.5 million, and fuel and
expenses relating to motor vehicles of approximately HK$2.7 million.
For the financial year ended 31 March 2010, the other direct costs mainly comprised project
consumables of approximately HK$9.3 million, contract administration fee of approximately HK$6.0
million and interest for advance payment from customers of approximately HK$242,000, depreciation
expenses of site office, motor vehicles and machinery of approximately HK$3.6 million, and fuel and
expenses relating to motor vehicles of approximately HK$4.1 million.
The major reason for the fluctuation in the other direct costs for the financial year ended 31
March 2010 was the substantial increase in the project consumables from approximately HK$1.9
million for the year 2009 to approximately HK$9.3 million for the year 2010. The higher usage of
consumables, including but not limited to road signs, gates, lights, pavement sealant and metal boards,
was a result of increasing amount of construction work conducted on the roads for a project (contract
numbered 21/WSD/06) and also in extensive areas in outlying islands for another project (contract
numbered 18/WSD/08) during the financial year ended 31 March 2010.
FINANCIAL INFORMATION
— 153 —
Gross profit
The Group’s gross profit during the Track Record Period is as follows:
Financial year ended31 March
2009 2010
(HK$’000) (HK$’000)
Gross Profit 17,079 26,972
Gross Profit margin (%) 19.5 18.1
Gross profit increased by approximately 57.9% from approximately HK$17.1 million for the year
ended 31 March 2009 to approximately HK$27.0 million for the year ended 31 March 2010. The
increase in gross profit was mainly attributable to the higher revenue for the financial year ended 31
March 2010 as compared with that for the financial year ended 31 March 2009, and was in line with
the growth in revenue.
The gross profit margin on the other hand has decreased slightly from approximately 19.5% for
the financial year ended 31 March 2009 to approximately 18.1% for the financial year ended 31 March
2010. There were no significant factors to the knowledge of the Directors that had caused such slight
decrease in the gross profit margin.
Other income
For each of the two financial years ended 31 March 2009 and 2010, the Group recorded other
income of approximately HK$2.5 million and approximately HK$811,000 respectively. The other
income of the Group for the financial year ended 31 March 2009 represented the write-off of long
outstanding trade payables of approximately HK$2.5 million. For the financial year ended 31 March
2010, the other income represented write-off of long outstanding trade payables of approximately
HK$802,000 and sundry income of approximately HK$9,000.
FINANCIAL INFORMATION
— 154 —
Administrative expenses
The table below sets out the administrative expenses for the Track Record Period.
Financial year ended31 March
2009 2010
HK$’000 HK$’000
Auditor’s remuneration 403 500
Legal and professional fees 75 131
Staff costs 653 1,277
Directors’ remuneration 1,554 2,720
Depreciation 315 252
Entertainment 772 531
Motor vehicles related expenses 415 559
Office rental 199 284
Loss on disposal of property, plant and equipment 598 40
Others 447 459
Total 5,431 6,753
Administrative expenses of the Group amounted to approximately HK$5.4 million andapproximately HK$6.8 million for the financial years ended 31 March 2009 and 31 March 2010respectively, representing approximately 6.2% and approximately 4.5% of the revenue for therespective year.
Administrative expenses refer to expenses incurred on a regular basis to support the Group’snormal course of business, including principally audit fees, legal and professional fees, staff costs,directors’ remuneration and depreciation expenses. Staff costs and directors’ remuneration were thetwo major items under the administrative expenses during the Track Record Period. Staff costs, whichmainly relate to the salaries of accounting and administrative staff (other than Directors) in the headoffice of the Group, amounted to approximately HK$653,000 and approximately HK$1.3 million forthe years ended 31 March 2009 and 31 March 2010 respectively. To meet the operation needs andaccommodate the increase in administrative work for the development of Group’s business, during thefinancial year ended 31 March 2010, the Group had increased the manpower and recruited additionalstaff at the head office, which explained the increase in staff cost during the year. Directors’remuneration amounted to approximately HK$1.6 million for the year ended 31 March 2009 andapproximately HK$2.7 million for the year ended 31 March 2010. The increase in directors’remuneration was mainly due to the appointment of two Directors during the financial year ended31 March 2010. A loss on disposal of property, plant and equipment of approximately HK$598,000was resulted from the disposal of machinery in the year ended 31 March 2009 while the Grouprecorded a loss on disposal of property, plant and equipment of approximately HK$40,000 in the yearended 31 March 2010. The Company disposes of the machinery according to its working conditions.Save for the above, there were no significant fluctuations in other major items under the administrativeexpenses.
FINANCIAL INFORMATION
— 155 —
Finance costs
Finance costs represented the interest on finance leases and interest on bank loans and overdraftsof the Group. For the financial years ended 31 March 2009 and 31 March 2010, finance costsamounted to approximately HK$455,000 and approximately HK$634,000 respectively. The interestcosts on finance lease were approximately HK$390,000 and approximately HK$396,000 for each ofthe two financial years ended 31 March 2009 and 2010 respectively. For the year ended 31 March2009, the interests on bank overdrafts were approximately HK$65,000 and the Group did not recordany interest on bank loans, as the Group only used bank overdraft facilities to support its workingcapital uses. During the financial year ended 31 March 2010, the Group obtained three loan facilitiesin the total amount of HK$12.0 million which were granted by a bank in Hong Kong pursuant to ascheme launched by the Government with an aim to assist small to medium-sized enterprises to secureloans from participating lending institution to meet general business needs to tide over the liquidityproblem during the global financial crisis in late 2008. As a result, the Group recorded bank loaninterests of approximately HK$218,000 attributable to the drawdown of such loans of HK$6 millionon top of the interest on bank overdrafts of approximately HK$20,000 during the financial year ended31 March 2010.
Income tax
The income tax paid by the Group is subject to the applicable tax rate in Hong Kong and the taxexpenses were calculated at 16.5% of the estimated assessable profits of TYW and TY Civil and 15%of that of TYC for the Track Record Period. The Group had no other tax payable in other jurisdictionsduring the Track Record Period.
The increase in the income tax of the Group from approximately HK$2.3 million for the financialyear ended 31 March 2009 to approximately HK$3.6 million for the financial year ended 31 March2010 was primarily due to the increase in profit before income tax from approximately HK$13.7million for the year ended 31 March 2009 to approximately HK$20.4 million for the year ended 31March 2010, which resulted in an increase in the current tax by approximately HK$0.5 million. Inaddition, as the Group acquired approximately HK$8.7 million of property, plant and equipmentduring the year ended 31 March 2010, the resulting tax benefit from accelerated tax depreciationdeductible for these property, plant and equipment led to additional recognition of deferred taxexpense of approximately HK$0.7 million during the year ended 31 March 2010. As a result, theeffective tax rate of the Group for the year ended 31 March 2010 was approximately 17.4%, which isslightly higher than that of 16.9% for the year ended 31 March 2009.
Net profit
The net profit of the Group for the financial years ended 31 March 2009 and 31 March 2010 wasapproximately HK$11.4 million and approximately HK$16.8 million respectively. The net profitmargin has decreased from approximately 13.0% for the financial year ended 31 March 2009 toapproximately 11.3% for the financial year ended 31 March 2010. The increase in net profit wasresulted from the increase in revenue for the financial year ended 31 March 2010, while the decreasein net profit margin for the financial year ended 31 March 2010 was mainly because the net profit forthe financial year ended 31 March 2009 was attributable to a higher amount of other income fromwrite-off of long outstanding payables.
FINANCIAL INFORMATION
— 156 —
II. Combined Statement of Financial Position
As at 31 March2009 2010
HK$’000 HK$’000
Non-current assetsProperty, plant and equipment 8,697 13,308
--------- ---------
Current assetsInventories 7,763 9,788Trade and other receivables 37,015 28,271Tax recoverable 222 —Cash and cash equivalents 196 10,330
45,196 48,389-------------------------------------------- --------------------------------------------
Total assets 53,893 61,697--------- ---------
Current liabilitiesTrade and other payables 19,738 24,451Finance lease creditors 3,087 3,052Borrowings — 4,532Employee benefits 513 473Current tax liabilities 2,384 4,365Bank overdraft 1,775 —
27,497 36,873-------------------------------------------- --------------------------------------------
Net current assets 17,699 11,516-------------------------------------------- --------------------------------------------
Total assets less current liabilities 26,396 24,824-------------------------------------------- --------------------------------------------
Non-current liabilitiesFinance lease creditors 1,531 826Deferred tax liabilities 793 1,658
2,324 2,484-------------------------------------------- --------------------------------------------
Total liabilities 29,821 39,357-------------------------------------------- --------------------------------------------
TOTAL NET ASSETS 24,072 22,340
Capital and reservesShare capital 9,868 9,868Reserves 14,204 12,472
TOTAL EQUITY 24,072 22,340
FINANCIAL INFORMATION
— 157 —
Property, plant and equipment
The net carrying value of the property, plant and equipment amounted to approximately HK$8.7
million and HK$13.3 million as at 31 March 2009 and 31 March 2010 respectively. The property, plant
and equipment mainly comprised motor vehicles, machinery, site offices and office equipment. Given
the nature of the Group’s business, motor vehicles are necessary for the transport of materials to
various project sites which are located all over the territory. During the financial year ended 31 March
2010, the Group acquired additional property, plant and equipment of approximately HK$8.7 million,
of which the acquisition cost of motor vehicles and machinery amounted to approximately HK$4.7
million and HK$2.9 million respectively.
Inventory
The inventory of the Group comprises construction materials for the contract work including
mainly pipes, fittings and valves which accounted for approximately 93.6% and approximately 97.4%
of the total inventory of the Group as at 31 March 2009 and 31 March 2010 respectively. They are
durable in nature and have long useful lives. Inventories are initially recognised at cost, and
subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs
of conversion and other costs incurred in bringing the inventories to their present location and
condition and is calculated using the weighted average method. Net realisable value represents the
estimated selling price in the ordinary course of business less the estimated costs of completion and
applicable selling expenses. The inventory of the Group amounted to approximately HK$7.8 million
and approximately HK$9.8 million as 31 March 2009 and 31 March 2010 respectively. The
comparatively higher level of inventory as at 31 March 2010 as compared to that as at 31 March 2009
was principally due to the stock-up of more construction materials for the use of projects which were
of larger size than those of the previous year. As at 30 June 2010, approximately 41.6% of the
inventory balance of the Group as at 31 March 2010 has been used.
Trade and other receivables
Trade and other receivables of the Group comprised:
As at 31 March
2009 2010
HK$’000 HK$’000
Trade receivables 3,614 2,612
Retention receivables 10,449 6,495
Other receivables and prepayments 458 7,935
Amounts due from customers for contract works 4,446 10,635
Amount due from a director 17,671 —
Deposits 377 594
37,015 28,271
FINANCIAL INFORMATION
— 158 —
Trade receivables are mainly derived from provision of construction work on civil engineering
contracts. The related customers are mainly Government departments/organisations and
well-established corporations. These customers have established business relationship with the Group
and have no history of defaulting payment to the Group. Based on the historical payment record of the
two major customers, the Company considers that the exposure to credit risk is minimal. Despite this,
the Company will still monitor the creditworthiness of the two customers on an on-going basis by
reference to the settlement status of the related receivables. The Directors believe that no impairment
allowance is necessary in respect of the trade receivables as at 31 March 2009 and 31 March 2010.
The Group does not hold any collateral over these balances.
The following table sets out the aging analysis of the trade receivables as at 31 March 2009 and
31 March 2010.
As at 31 March
2009 2010
HK$’000 HK$’000
Current 2,757 2,612
Less than 1 month past due 857 —
1 to 3 months past due — —
More than 3 months but less than 12 months past due — —
3,614 2,612
In general, the Group grants credit period ranging from 14 to 30 days to its trade customers of
contract works. Application for progress payments of contract works is made regularly, usually on a
monthly basis. The trade receivables as at 31 March 2009 and 31 March 2010 were aged less than 1
month as shown in the table above. As at 30 June 2010, all the trade receivables as at 31 March 2010
were settled.
Retention receivables refer to the sum retained by the customers for retention purpose and can
generally be used for recovery of the damages, costs, charges, expenses, debts or sums for which the
contractor/subcontractor is liable to the customers in connection with the undertaking of the relevant
project. Retention money, usually represents a specified percentage on the certified payment, is
retained by the customers for a period of time according to the terms of respective contract to ensure
satisfactory completion of the projects. For projects which are divided into two or more sections or
comprising several work orders, the retention money will be released after the maintenance period of
respective sections or completion of respective work orders. In such cases, the retention money may
be released before the completion of the whole project. Accordingly, the balance of retention
receivables is somewhat floating in nature and may be subject to both upward and downward
movements throughout the contract term. In general, the duration of maintenance period is one year.
As at 31 March 2009 and 31 March 2010 respectively, the retentions held by customers for contract
works included in other receivables amounted to approximately HK$10.4 million and approximately
HK$6.5 million. The reduction in the retention receivables as at 31 March 2010 was mainly
attributable to the release of retention money from the customer of approximately HK$3.7 million in
FINANCIAL INFORMATION
— 159 —
respect of the contract for replacement and rehabilitation of water mains (stage 2) — Tai Po and
Fanling (contract numbered 21/WSD/06). During the Track Record Period, the Group has not
encountered material claims from its customers which have resulted in a significant deduction from
the retention receivables. As at 30 June 2010, the retention receivables of approximately HK$0.7
million as at 31 March 2010 has been received by the Group.
As detailed in the section headed “Business” in this prospectus, under normal circumstances, the
Group will submit the monthly application for interim payment to the engineer appointed for the
project or the main contractor (as appropriate) showing the estimated value of the work in progress
and other relevant information as in accordance with the terms of the contracts. After certification, the
engineer will issue a certificate of payment no later than 21 days of the date of receipt of such notice
if, in his/her opinion, the works were satisfactorily completed within the relevant time frame in
accordance with the relevant contract. The amounts due from customers for contract works relate to
the estimated revenue before the application for interim payment is made by the Group or the
certificate of payment is issued by the engineer or the main contractor. They will become trade
receivables upon certification of the relevant work by the customers.
As at 31 March 2009 and 31 March 2010 respectively, the amounts due from customers for
contract work amounted to approximately HK$4.4 million and approximately HK$ 10.6 million. As
the time periods for interim payment application and certification vary in accordance with the specific
terms of each project, it is common that the work done by the Group is still subject to certification
at the end of each reporting period. As at 31 March 2009, the amount due from customers was mainly
related to work pending payment application and certification in relation to the contract for
replacement and rehabilitation of water mains (Stage 2) — Tai Po and Fanling (contract numbered
21/WSD/06) of approximately HK$3.6 million. The increase in amount due from customers of
approximately HK$7.2 million as at 31 March 2010 was principally due to the work done by the Group
in respect of the contract for the replacement and rehabilitation of water mains stage 3 — mains on
Hong Kong Island South and outlying islands (contract numbered 18/WSD/08) and the contract for
Waterworks District W- New Territories (contract numbered 1/WSD/09(W)), for which relevant
interim payment has not been applied. Amounts due from customers will become trade receivables
upon certification, hence it is not relevant to present subsequent settlement thereof.
Other receivables and prepayments amounted to approximately HK$458,000 and approximately
HK$7.9 million as at 31 March 2009 and 31 March 2010 respectively. The substantial increase in other
receivables and prepayments as at 31 March 2010 was mainly due to the increase in prepaid project
insurance which amounted to approximately HK$3.5 million as at 31 March 2010, of which
approximately HK$2.7 million was the insurance cost relating to the new contract for the replacement
and rehabilitation of water mains stage 3 - mains on Hong Kong Island South and outlying islands
(contract numbered 18/WSD/08). The advance to subcontractors of the Group of approximately
HK$2.3 million and the deferred expenses in relation to the professional fees for listing of the Shares
of approximately HK$1.8 million as at 31 March 2010 also accounted partly for the increase in other
receivables and prepayments. As other receivables and prepayments comprised mainly insurance cost
and deferred professional fees for the listing of the Shares on GEM, which will be expensed towards
the completion of the projects and upon successful Listing respectively, subsequent settlements
thereof are not presented.
FINANCIAL INFORMATION
— 160 —
The amount due from a director of approximately HK$17.7 million as at 31 March 2009, which
was unsecured, interest-free and repayable on demand, related to current account with a director and
had been fully settled as at 31 March 2010.
Trade and other payables
Trade and other payables of the Group comprised:
As at 31 March
2009 2010
HK$’000 HK$’000
Trade payables 5,328 8,046
Retention money payables 1,852 2,854
Advances received from customers 9,572 9,550
Other payables and accruals 2,986 4,001
19,738 24,451
Trade payables represented the amounts due to subcontractors of the Group, suppliers of
materials and consumables. The following table sets out the ageing analysis of the trade payables as
at 31 March 2009 and 31 March 2010.
As at 31 March
2009 2010
HK$’000 HK$’000
Current or less than 1 month 3,258 5,418
1 to 3 months 557 1,104
More than 3 months but less than 12 months 1,492 385
More than 12 months (Note) 21 1,139
5,328 8,046
Note: The upper ceiling for the trade payables under aging catagory “more than 12 months” was six years.
The Group normally settles trade payables within a credit period ranging from 14 to 42 days. The
trade payables are short term and hence their carrying values are considered by the Directors to be a
reasonable approximation of their fair value. As at 31 March 2009 and 31 March 2010 respectively,
the trade payables amounted to approximately HK$5.3 million and HK$8.0 million. The majority of
trade payables as at 31 March 2009 and 31 March 2010 were current or aged less than 1 month. The
increase in trade payables as at 31 March 2010 was resulted from the increase in waterworks work
done by the Group for the year as indicated by the increase in revenue for the financial year ended
FINANCIAL INFORMATION
— 161 —
31 March 2010. As a result of an increased amount of contract work, the charges by the subcontractors
and the cost of materials were both higher in the financial year ended 31 March 2010. The trade
payables represented the outstanding amounts payable to the subcontractors and suppliers as at 31
March 2010. The trade payables aged more than 12 months as at 31 March 2010 were mainly related
to the charges payable to a subcontractor of the Company. As there was certain outstanding work to
be completed by such subcontractor, the related payables of approximately HK$900,000 were still
unsettled as at the 30 June 2010. As at 30 June 2010, the subsequent settlement of the trade payables
as at 31 March 2010 amounted to approximately HK$6.8 million.
Retention money payables represented the money withheld by the Group when making interim
payment to the subcontractors. Retention money will usually be retained by the Group for a period of
time according to the terms of respective contract to ensure satisfactory completion of the projects by
the Group’s subcontractors. For projects which are divided into two or more sections or comprising
several work orders, the retention money will be released after the maintenance period of respective
sections or completion of respective work orders. In such cases, the retention money may be released
before the completion of the whole project. Accordingly, the balance of retention money payable of
a particular project may be subject to both upward and downward movements during the term of the
project. The retention money payables amounted to approximately HK$1.9 million at 31 March 2009
and approximately HK$2.9 million as at 31 March 2010. The increase in such balance as at 31 March
2010 was mainly due to the retention money withheld by the Group from the major subcontractors
which were involved in the contract for replacement and rehabilitation of water mains (Stage 2) — Tai
Po and Fanling (contract numbered 21/WSD/06) and contract for replacement and rehabilitation of
water mains stage 2 - mains in Ngau Tam Mei (contract numbered 13/WSD/06).
The advances received from customers refer to the funds advanced by the main contractors to the
Group for the general working capital of the relevant projects undertaken by the Group as a
subcontractor of such customers. Such advances are unsecured and repayable on demand except for
an amount of approximately HK$8.2 million and approximately HK$3.5 million as at 31 March 2009
and 31 March 2010 respectively which are interest-bearing. As such advances from customers are
directly related to a specific project, the interest cost on such advances is included as part of the
Group’s cost of services during the Track Record Period. As at 31 March 2009, the advances received
from customers in a total amount of approximately HK$9.6 million comprised mainly funds advanced
by the main contractor in respect of the contract for replacement and rehabilitation of water mains
(Stage 2) — Tai Po and Fanling (contract numbered 21/WSD/06). The advances received from
customers as at 31 March 2010 amounted to approximately HK$9.6 million and represented mainly the
advances from the main contractor in respect of the aforesaid contract in 2009 and the contract for the
replacement and rehabilitation of water mains stage 3 — mains on Hong Kong Island South and
outlying islands (contract numbered 18/WSD/08).
The advances from customers are reviewed periodically by the Group and the main contractors.
The balance of advances from customer on a particular project may also be subject to change as the
main contractor may raise or reduce the advances with reference to the anticipated funds required and
the internally generated resources of that particular project. The advance from customers is usually set
off against certified payments payable by the main contractors to the Group.
FINANCIAL INFORMATION
— 162 —
Due to the floating nature of the retention money payables and advance from customers as
described above, the subsequent settlement thereof are not presented.
Other payables and accruals of the Group amounted to approximately HK$3.0 million and
approximately HK$4.0 million as at 31 March 2009 and 31 March 2010 respectively. The major item
of other payables and accruals was the provision for salaries of the employees of the Group for the
month of March which are paid in the first week of the following month according to the Group’s
policy, and amounted to approximately HK$1.8 million and approximately HK$2.6 million as at 31
March 2009 and 31 March 2010 respectively. The increase in provision for salaries as a result of
increase in manpower of the Group together with the corresponding increase in mandatory provident
fund payable accounted for the increase in other payables and accruals as at 31 March 2010. The other
payables were related to the outstanding payment for the sundry creditors including but not limited
to machinery suppliers and petroleum companies. As at 30 June 2010, approximately HK$3.8 million
of the other payables and accruals as at 31 March 2010 was subsequently settled.
Finance lease creditors
The Company leases a number of motor vehicles and machinery for use in its projects. Such
assets are classified under as assets held under finance lease as the rental period approximates the
estimated useful economic life of the assets concerned and often the Group has the right to purchase
the assets outright at the end of the minimum lease term by paying nominal amount. As at 31 March
2009 and 2010, the outstanding amounts of the finance lease creditors amounted to approximately
HK$4.6 million and approximately HK$3.9 million respectively. The outstanding balance as at 31
March 2010 was mainly related to new finance lease of approximately HK$3.2 million from the hire
purchase of the motor vehicles.
Borrowings
During the financial year ended 31 March 2010, the Group borrowed loans of HK$6.0 million
from a bank, of which approximately HK$1.5 million was repaid. The bank loans were interest-bearing
and were drawn down from the loan facilities granted by a bank under the Scheme as mentioned above.
The interest rate in respect of a non-revolving loan of HK$4.0 million was 1% per annum over the best
lending rate offered by the bank. One of the bank loans in the amount of HK$2.0 million, also a
non-revolving loan, was borrowed at a flat rate of 3.75% per annum. As at 31 March 2010, the bank
loans due within one year amounted to approximately HK$4.5 million. The weighted average interest
rate of the borrowings for the year was approximately 5.1%.
FINANCIAL INFORMATION
— 163 —
III. Selected key financial ratios
The following tables set out certain key financial ratios of the Group for the Track Record
Period:
Year ended 31 March
2009 2010
Trade receivables turnover days 77.0 48.4
Trade payables turnover days 37.1 32.6
Inventory turnover days 192.8 117.8
Notes:
1. Trade receivables turnover days equal to the balance of trade receivables, retention receivables and amounts due
from customers for contract works as at the financial year end dates divided by total revenue for the respective
financial year and multiplied by 365 days.
2. Trade payables turnover days equal to the balance of trade payables and retention payables as at the financial year
end dates divided by cost of service for the respective financial year and multiplied by 365 days.
3. Inventory turnover days equal to the inventories as at the financial year end dates divided by total cost of materials
for the respective financial year and multiplied by 365 days.
Trade receivables turnover days
The trade receivables and amounts due from customers for contract works were mainly derived
from provision of contract works service. In general, the Group grants an average credit period
ranging from 14 to 30 days to its trade customers of contract works. The average credit period granted
by the Group refers to the period starting from the certification of contract work until the settlement
of the trade receivables. Application for progress payments of contract works is made regularly,
usually on a monthly basis. In general, the Group’s customers are able to make payments for
settlement of the trade receivables to the Group within the credit period. For the financial years ended
31 March 2009 and 31 March 2010, the Group’s trade receivable turnover days were approximately
77.0 days and 48.4 days respectively. The turnover days shown above were longer than the average
credit period of the Group, as the balances of retention receivables were included in the calculation
of the trade receivables turnover days. If the retention receivable balances as at 31 March 2009 and
31 March 2010 were not taken into account in the calculation of trade receivable turnover days, the
trade receivable turnover for the financial years ended 31 March 2009 and 31 March 2010 would have
been approximately 38.1 days and 34.0 days respectively.
FINANCIAL INFORMATION
— 164 —
In the calculation of the trade receivables turnover days above, the amounts due from customers
for contract work are included in addition to trade receivables. As discussed in the above section, the
amounts due from customers for contract works relate to the estimated revenue before the application
for interim payment is made or the certificate of payment is issued. The amounts due from customers
will become trade receivables upon certification of the relevant work by the customers. As such, the
inclusion of the amounts due from customers would also result in the turnover days as calculated
slightly longer than the average credit period granted to the customers.
Trade payables turnover days
Trade payables comprised mainly the subcontracting charge payable to the Group’s
subcontractors and the amount due to suppliers of materials and consumables. The Group normally
settles trade payables within a credit period ranging from 14 days to 42 days. For the financial years
ended 31 March 2009 and 31 March 2010, the Group’s trade payables turnover days were
approximately 37.1 days and 32.6 days respectively. The trade payables turnover days were consistent
with the settlement period of the Group during the Track Record Period.
Inventory turnover days
For the financial year ended 31 March 2009 and 31 March 2010, the Group’s inventory turnover
days were approximately 192.8 days and 117.8 days respectively. During the financial year ended 31
March 2009, the Group has purchased more materials in anticipation of the commencement of works
for a project of significant size (contract numbered 21/WSD/06). However, due to the unexpected time
taken to obtain the necessary excavation permits from the relevant government authorities necessary
for the commencement of work, the materials purchased have not been utilised as expected. As a
result, the inventory turnover days for the year ended 31 March 2009 was comparatively higher than
that for the year ended 31 March 2010.
Year ended 31 March
2009 2010
Return on equity (Note 1) 47.4% 75.4%
Return on assets (Note 2) 21.2% 27.3%
Notes:
1. Return on equity equals to net profit for the financial year divided by shareholders’ equity as at the financial year
end date and multiplied by 100%.
2. Return on assets equals to net profit for the financial years divided by total assets as at the financial year end date
and multiplied by 100%.
FINANCIAL INFORMATION
— 165 —
Return on equity increased from approximately 47.4% for the year ended 31 March 2009 to
approximately 75.4% for the year ended 31 March 2010. This was mainly caused by an increase in net
profit for the year ended 31 March 2010. Given that there was no significant change in the Group’s
shareholders’ equity, an increase in net profit would cause the return on equity to increase for the
financial year ended 31 March 2010, implying a better rate of return for the equity holders.
Return on assets also improved, increasing from approximately 21.2% for the year ended 31
March 2009 to approximately 27.3% for the year ended 31 March 2010. This was mainly due to the
combined effect of a higher growth of net profit of approximately 47.6% and a smaller increase in total
assets of approximately 14.5%.
Both the return on equity and return on assets were increasing during the Track Record Period.
The larger increase in return on equity as compared with the return on assets for the year ended 31
March 2010 was because the total assets had increased while there was no significant change in equity.
The increase in total assets was mainly attributable to the increase in cash and cash equivalents
generated from the payment by the customers.
LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE
The Group generally finances its operations through internally generated cash flows and bank
borrowings. Depending on the terms of the relevant contracts, the Group can receive advances from
customers for general working capital of the project(s) in respect of the contract(s) undertaken by the
Group as a subcontractor. In addition to the internally generated cash flows from the projects and the
advances from customers which are main contractors, one of the main source of funds is bank
borrowing. Save for the bank overdrafts and the bank borrowings, there was no other material external
financing for the Group during the Track Record Period. As at the Latest Practicable Date, all the bank
overdrafts and the bank borrowings have been fully repaid by the Group.
The Directors consider that the regulatory licencing requirement on the working capital of the
Company, which is detailed under the section headed “Licencing and other requirement for
Government projects” in this prospectus, and funds required for execution of or generated from the
projects are major factors affecting the liquidity and working capital of the Company. For the projects
undertaken by the Company as a main contractor, there are no advances from WSD for daily operations
of the projects. As disclosed above, in some cases where the Company undertakes a project as a
subcontractor, the Company may request for advances from the main contractor for project use. Thus,
whether or not the Company is able to obtain advances from the customers also affects the liquidity
of the Group.
As at the Latest Practicable Date, the Company has planned capital expenditures of up to HK$6.5
million, mainly for acquisition of equipment and machinery to meet the use of new project(s). The
Company intends to finance the acquisition by the net proceeds from the Placing. Saved for the
Placing, there are no other external financing plans for the Group.
FINANCIAL INFORMATION
— 166 —
App1A(32)(5)(a)
Net current asset
As at 31 March 2009, the net current assets of the Group were approximately HK$17.7 million.
As at 31 March 2010, the net current assets of the Group were approximately HK$11.5 million. Due
to the settlement of the trade and other receivables and an increase in cash and cash equivalents, the
amount of total current assets increased as at 31 March 2010 and was a bit higher than the total current
assets as at 31 March 2009. The decrease in net current assets was primarily due to higher current
liabilities as at 31 March 2010, mainly attributable to higher trade and other payables and current tax
liabilities as a result of more business activities as compared with that for the year ended 31 March
2009.
As at 30 June 2010, being the latest practicable date for the purpose of the statement of
indebtedness, the Group’s net current assets was approximately HK$12.4 million, consisting of current
assets of approximately HK$48.6 million and current liabilities of approximately HK$36.2 million.
As at 30 June 2010HK$’000
Current assets
Inventories 9,279
Trade and other receivables 37,494
Cash and cash equivalents 1,832
48,605
Current liabilities
Trade and other payables 26,147
Finance lease creditors 2,411
Borrowings 3,985
Employee benefits 473
Current tax liabilities 3,203
36,219
Current ratio
The current ratio, which was defined as the total current assets divided by total current liabilities,
has decreased from approximately 1.6 as at 31 March 2009 to approximately 1.3 as at 31 March 2010.
The Directors believe that the Group’s current ratio is healthy.
FINANCIAL INFORMATION
— 167 —
Quick ratio
The quick ratio, which was defined as total current assets less inventories divided by total current
liabilities, was approximately 1.4 as at 31 March 2009 and approximately 1.0 as at 31 March 2010
respectively. The lower quick ratio as at 31 March 2010 was due to the higher inventory balance at
the financial year end date. Although a lower quick ratio usually suggests a lower liquidity of an entity
and lower ability to convert the current assets into cash, the liquidity of the Group was not worse-off
as at 31 March 2010 in view of the higher level of cash and cash equivalents as compared with that
of the preceding financial year.
Gearing ratio
The gearing ratio, which is based on the amount of total bank borrowings and obligations under
finance lease and advance received from customers divided by total assets, was approximately 29.6%
and approximately 29.1% as at 31 March 2009 and 31 March 2010 respectively. For the financial year
ended 31 March 2009, there are no bank borrowing other than the bank overdraft of approximately
HK$1.8 million as at 31 March 2009. The advance received from customers was approximately
HK$9.6 million and the obligation under finance lease was approximately HK$4.6 million as at
31 March 2009. The total assets of the Group was approximately HK$53.9 million and HK$61.7
million as at 31 March 2009 and 31 March 2010 respectively. As at 31 March 2010, the Group had
total bank borrowings of approximately HK$4.5 million, advance received from customers of
approximately HK$9.6 million and obligation under finance lease of approximately HK$3.9 million.
The slight decrease in gearing ratio of the Group as at 31 March 2010 was mainly due to the drawdown
of the bank loans and an increase in total assets.
Cashflow
The following table summaries the Group’s cash flows during the Track Record Period:
Financial year ended31 March
2009 2010
HK$’000 HK$’000
Net cash generated from operating activities 4,124 27,169
Net cash used in investing activities (390) (5,242)
Net cash used in financing activities (3,834) (10,018)
Net (decrease)/increase in cash and cash equivalents (100) 11,909
Cash and cash equivalents at the beginning of year (1,479) (1,579)
Cash and Cash equivalents at the end of year (1,579) 10,330
FINANCIAL INFORMATION
— 168 —
Operating activities
For the financial year ended 31 March 2009, the cash inflow from operating activities was mainly
generated from the payment by the customers for the Group’s undertaking of the projects for the year.
The Group recorded profit before income tax of approximately HK$13.7 million and operating profit
before changes in working capital of approximately HK$16.2 million. During the year, an increase in
inventories, trade and other receivables and the increase in trade and other payables mainly accounted
for a cash outflow of approximately HK$12.1 million, resulting in net cash inflow from operating
activities of approximately HK$4.1 million for the year.
For the financial year ended 31 March 2010, the Group recorded net cash inflow from operating
activities of approximately HK$27.2 million. The higher cash inflow as compared with the preceding
year was mainly due to cash generated from larger amount of work done by the Group for the year.
The Group recorded profit before income tax of approximately HK$20.4 million and operating profit
before changes in working capital of approximately HK$24.3 million. During the year, the growth of
the Group’s business had led to the increase in trade payables to subcontractors and the salaries
payable to the employees of the Group, resulting in a higher trade and other payables. The increase
in trade and other payables caused a net working capital inflow of approximately HK$2.8 million,
which was partly offset by cash used in the purchase of inventories.
Investing activities
Net cash used in investing activities was approximately HK$390,000 for the year ended 31
March 2009, which was related to the purchases of property, plant and equipment of approximately
HK$1.0 million offset partially by the proceeds from the sale of property, plant and equipment of
approximately HK$654,000.
Net cash used in investing activities was approximately HK$5.2 million for the year ended 31
March 2010 which was related to the purchases of property, plant and equipment of approximately
HK$5.5 million offset partially by the proceeds from sale of property, plant and equipment of
approximately HK$0.2 million. During the financial year ended 31 March 2010, the Group acquired
new machinery, equipment and motor vehicles for replacement of the old ones and for use in the new
projects.
Financing activities
Net cash used in financing activities was approximately HK$3.8 million for the year ended 31
March 2009. This was mainly attributable to the repayment of finance lease of approximately HK$3.3
million.
Net cash used in financing activities was approximately HK$10.0 million for the year ended 31
March 2010. The cash outflow mainly represented the dividend paid to an owner of the Company of
approximately HK$9.9 million and repayment of finance lease of approximately HK$4.0 million.
FINANCIAL INFORMATION
— 169 —
Instead of relying on the bank overdrafts to meet its financial needs, the Group borrowed bank loans
during the financial year ended 31 March 2010. The cash inflow represented the drawdown of bank
loans of HK$6.0 million, of which approximately HK$1.5 million has been repaid before 31 March
2010.
Foreign exchange exposure
The Group is principally engaged in the undertaking of engineering projects in Hong Kong. As
the revenue and cost of services are principally denominated in Hong Kong dollars, the exposure to
the risk of foreign exchange rate fluctuations for the Group is minimal.
INDEBTEDNESS
Borrowings
As at the close of business on 30 June 2010, being the latest practicable date for the purpose of
preparing this indebtedness statement prior to the printing of this prospectus, the Group had
outstanding bank loans of approximately HK$4.0 million which were secured, interest-bearing and
repayable on demand. The obligations under finance leases amounted to approximately 3.1 million.
Security and guarantees
As at the close of business on 30 June 2010, the bank loans together with the banking facilities
were secured by personal guarantees given by the chairman, Mr. Kan, and cross guarantee within the
Group. As at 30 June 2010, 30 motor vehicles of the Group under hire purchase with an aggregate
outstanding principal amount of approximately HK$3.0 million were secured by personal guarantees
from Mr. Kan.
As at the close of business on 30 June 2010, the Group had total outstanding non-revolving loan
of approximately HK$4.0 million and banking facilities of HK$6.2 million. The unutilised banking
facilities of HK$6.2 million comprise of business credit card of HK$0.2 million, overdraft and
revolving credit of HK$2.0 million and import facilities of HK$4.0 million.
Contingent liabilities
As at 30 June 2010, the Group did not have any material contingent liabilities.
Commitments
The Group leased its office properties, and director’s quarter and certain office equipment under
operating lease arrangements which was negotiated for terms from two to three years. As at the close
of business on 30 June 2010, the Group had operating lease commitments of approximately HK$0.9
million.
FINANCIAL INFORMATION
— 170 —
App1A(31)(2)
App1A(32)(1),(2)ThirdSchedule 23
App1A(32)(3)ThirdSchedule 24
App1A(32)(4)
Disclaimers
Save as disclosed aforesaid and apart from intra-group liabilities, the Group did not have any
outstanding mortgages, charges, debentures, loan capital, bank overdrafts, loans, debt securities or
other similar indebtedness, finance leases or hire purchase commitments, liabilities under acceptance
or acceptance credits or any guarantees or other material contingent liabilities outstanding as at the
close of business on 30 June 2010.
The Directors confirm that there have been no material changes in the Group’s indebtedness and
contingent liabilities since 30 June 2010.
WORKING CAPITAL
Taking into account the internally generated funds of approximately HK$12.4 million available
to the Group and the net proceeds from the issue of Shares under the Placing of approximately
HK$21.0 million, the Directors are of the opinion that the Group will have sufficient funds to meet
the working capital and financial requirements for at least next 12 months commencing from the date
of this prospectus.
OFF-BALANCE SHEET TRANSACTIONS
Except for the commitments and contingent liabilities set forth above, the Group has not entered
into any material off-balance sheet transactions or arrangements as at 31 March 2010.
DIVIDEND POLICY AND DISTRIBUTABLE RESERVES
The Group did not declare any dividends for the year ended 31 March 2009. For the year ended
31 March 2010, TYW and TY Civil declared and paid dividends of HK$245,000 and HK$9,700,000
respectively to Mr. Kan and TYC declared dividends of approximately HK$8,625,000 to Mr. Kan
which was set off against the amount due from Mr. Kan. TY Civil also declared and paid a final
dividend of HK$4,000,000 to Mr. Kan in April 2010.
Despite the aforesaid dividends, if otherwise not declared and paid, would provide additional
capital for the Group to undertake more contract works, the Directors consider that it is commercially
justified to declare and pay the aforesaid dividends to Mr. Kan for the following reasons: (i) the
aforesaid dividends were declared to Mr. Kan, the then sole shareholder of TYW and TY Civil, to
reward his past investments in and support and contribution to the Group; (ii) the level of distribution
is appropriate as a sufficient portion of the net profits attributable to the Shareholders has been
retained to support the Group’s ongoing operations and compliance with the employed capital and
working capital requirements as required by WBDB for retention on the Contractor List; (iii) the
Group could utilise a combination of retained profits and borrowings to finance the Group’s working
capital needs rather than solely rely on retained profits; (iv) the Group’s gearing ratios, calculated as
a percentage of the aggregate of the amount of total bank borrowings and obligations under finance
lease and advance received from customers to total assets (31 March 2009: 29.6%; 31 March 2010:
29.1%) and the Group’s finance costs (for the year ended 31 March 2009: approximately HK$455,000;
for the year ended 31 March 2010: approximately HK$634,000) during the Track Record Period were
FINANCIAL INFORMATION
— 171 —
App1A(36)
at reasonable level respectively; and (v) the Shareholders will be entitled to the future profits of the
Group after the Listing. The Directors also consider it was in the interest of the Company and the
Shareholders as a whole to declare and pay the aforesaid dividends to Mr. Kan as rewards for his past
contribution and encouragement for his continued support to the Group’s business.
The Company does not have any pre-determined dividend distribution ratio. The declaration of
future dividends will be subject to the decision by the Board and will depend on, among other things,
the earnings, financial condition, cash requirements and availability, and any other factors that the
Directors may consider relevant. Any final dividend for a financial year will be subject to our
Shareholders’ approval.
The Company had no reserve available for distribution to the Shareholders as at 31 March 2010,
being the date of which the Group’s latest audited financial statements were made up.
UNAUDITED PRO FORMA ADJUSTED NET TANGIBLE ASSETS
The unaudited pro forma adjusted net tangible assets of the Group has been prepared, on the basis
of the notes set forth below, for the purpose of illustrating the effect of the Placing as if it had taken
place on 31 March 2010. It has been prepared for illustrative purpose only and, because of its
hypothetical nature, may not give a true and fair picture of the financial position of the Group.
The unaudited pro forma adjusted net tangible assets of the Group as at 31 March 2010 is based
on the audited combined net tangible assets attributable to owners of the Company as at 31 March
2010 as shown in the Accountants’ Report set out in Appendix I to this prospectus and the adjustments
described below.
Auditedcombined net
tangibleassets
attributableto owners of
the Companyas at 31
March 2010
Add:Estimated
net proceedsfrom the
Placing
Less:Dividends
declared after31 March
2010
Unauditedpro forma
adjustedcombined
net tangibleassets
attributable tothe owners ofthe Company
Unauditedpro forma
adjustedcombined
net tangibleassets
per Share
HK$’000 HK$’000 HK$’000 HK$’000 HK cents
(Note 1) (Note 2) (Note 3) (Note 4)
Based on the
Placing Price
of HK$1.28
per Share 22,340 21,000 (4,000) 39,340 39.7
Notes:
1. The audited combined net tangible assets attributable to owners of the Company as at 31 March 2010 is based on
the audited combined net assets of the Company as at 31 March 2010 of HK$22,340,000.
FINANCIAL INFORMATION
— 172 —
App1A(35)
App1A(21)R.7.31(3)(2)
R.7.31(3)(b)R.7.31(4)
2. The estimated net proceeds from the Placing are based on 24,800,000 Shares to be issued under the Placing at the
Placing Price of HK$1.28 each, after deduction of the underwriting fees and related expenses payable of
approximately HK$10,744,000 as estimated by the Directors.
3. Dividend declared after 31 March 2010 represents a final dividend of HK$4,000,000 declared and paid by TY Civil
on 9 April 2010 in respect of the year ended 31 March 2010 to its then shareholders prior to the Reorganisation.
4. The unaudited pro forma adjusted combined net tangible assets per Share is calculated based on 99,200,000 Shares
to be in issue immediately following the completion of the Placing and the Capitalisation Issue and the payment
of final dividend by TY Civil. It does not take into account any Shares which may fall to be allotted and issued
pursuant to the exercise of any options which may be granted under the Share Option Scheme, or any Shares which
may be allotted and issued or repurchased by the Company pursuant to the general mandates for the allotment and
issue or repurchase of Shares as referred to in Appendix V to this prospectus or otherwise.
PROPERTY VALUATION
The Group has leased a number of properties in Hong Kong for office use and as director’s
quarter.
Vigers Appraisal and Consulting Limited, an independent property valuer, has valued the
property interests of the Group as at 31 May 2010 and is of the opinion that the property interest is
of no commercial value. The full text of the letter, summary of values and valuation certificate with
regard to such property interests are set out in Appendix III to this prospectus.
NO MATERIAL ADVERSE CHANGE
The Directors confirm that there has been no material adverse change in the financial or trading
positions or prospects of the Company since 31 March 2010, the date to which the latest audited
financial statements of the Group was made up.
The Directors confirm that they have performed sufficient due diligence on the Company to
ensure that, up to the Latest Practicable Date, there has been no material adverse change in the Group’s
financial or trading positions or prospects since 31 March 2010, the date to which the latest audited
financial statements of the Group were made up, and there is no event since 31 March 2010 which
would materially affect the information shown in the Accountants’ Report.
DISCLOSURE REQUIRED UNDER RULES 17.15 TO 17.21 OF THE GEM LISTING RULES
The Directors have confirmed that as at the Latest Practicable Date, they were not aware of any
circumstances that would give rise to a disclosure requirement under Rules 17.15 to 17.21 of the GEM
Listing Rules.
FINANCIAL INFORMATION
— 173 —
R.7.31(5)R.7.31(6)
App1A(38)
App1A(34)(2)
UNDERWRITERS
Lead ManagerCIMB Securities (HK) Limited
Underwriters
CIMB Securities (HK) Limited
K.K.M. Securities Limited
I-Access Investors Limited
Sinomax Securities Limited
Gransing Securities Co., Limited
UNDERWRITING ARRANGEMENTS
Underwriting Agreement
Pursuant to the Underwriting Agreement, the Company is offering the Placing Shares under the
Placing at the Placing Price for subscription by professional, institutional and/or other investors on
and subject to the terms and conditions set forth in this prospectus.
Subject to, inter alia, the Listing Division granting the listing of, and permission to deal in, the
Shares in issue and to be issued as mentioned in this prospectus on or before the date falling 30 days
from the date of this prospectus, or such later date as the Sponsor (on behalf of the Lead Manager and
the Underwriters) may agree in writing with the Company, the Underwriters have severally agreed to
subscribe for or procure placees to subscribe for, subject to the terms and conditions of the
Underwriting Agreement, the Placing Shares under the Placing.
Grounds for termination
The obligations of the Underwriters to subscribe for, or procure subscribers to subscribe for, the
Placing Shares are subject to termination. The Sponsor and the Lead Manager (for itself and on behalf
of the other Underwriters), on a jointly basis, are entitled to terminate the Underwriting Agreement
at their sole and absolute discretion forthwith upon the occurrence of any of the following events by
notice in writing to the Company (for itself and on behalf of the executive Directors and the
Substantial Shareholders) given at any time prior to 8:00 a.m. on the Listing Date (the “TerminationTime”) if, any time before the Termination Time:
(a) there comes to the knowledge of the Sponsor, the Lead Manager or any of the Underwriters
of any matter or event showing any of the representations, warranties or undertakings
contained in the Underwriting Agreement to be untrue, inaccurate or misleading in any
respect when given or repeated or there has been a breach of any of the warranties or any
other obligations imposed on any party to the Underwriting Agreement (other than those
undertaken by the Underwriters, the Sponsor and/or the Lead Manager) which, in any such
cases, is considered, in the sole and absolute opinion of the Lead Manager (for itself and
on behalf of the other Underwriters), to be material in the context of the Placing; or
UNDERWRITING
— 174 —
A1A(15)(3)(h)
App1A(15)(3)(i)
(b) any statement contained in this prospectus has become or been discovered to be untrue,
incorrect or misleading in any material respect; or
(c) any event, series of events, matters or circumstances occurs or arises on or after the date
of the Underwriting Agreement and before the Termination Time, being events, matters or
circumstances which, if it had occurred before the date of the Underwriting Agreement
would have rendered any of the warranties contained in the Underwriting Agreement
untrue, incorrect or misleading in any respect, and comes to the knowledge of any of the
Sponsor, the Lead Manager or any of the Underwriters and which is considered, in the sole
and absolute opinion of the Lead Manager (for itself and on behalf of the other
Underwriters), to be material in the context of the Placing; or
(d) any matter which, had it arisen or been discovered immediately before the date of this
prospectus and not having been disclosed in this prospectus, would have constituted, in the
sole and reasonable opinion of the Lead Manager (for itself and on behalf of the other
Underwriters), an material omission in the context of the Placing; or
(e) any event, act or omission which gives or is likely to give rise to any material liability of
the Company or any of Shunleetat, Chuwei, Purplelight, Lotawater and the executive
Directors arising out of or in connection with any representations, warranties or
undertakings contained in the Underwriting Agreement; or
(f) there comes to the notice of any of the Sponsor, the Lead Manager or any of the
Underwriters any breach by any party to the Underwriting Agreement (other than the
Sponsor, the Lead Manager or the Underwriters) of any provision thereof which, in the sole
and reasonable opinion of the Lead Manager (for itself and on behalf of the other
Underwriters), is material; or
(g) there shall have developed, occurred, existed or come into effect any event or series of
events, matters or circumstances whether occurring or continuing before, on and/or after
the date of the Underwriting Agreement and including an event or change in relation to or
a development of an existing state of affairs concerning or relating to any of the following:
(i) any new law or regulation or any change in existing laws or regulations or any change
in the interpretation or application thereof by any court or other competent authority
in Hong Kong, the Cayman Islands, the BVI, or any of the jurisdictions in which the
Group operates or has or is deemed by any applicable law to have a presence (by
whatever name called) or any other jurisdiction relevant to the Group; or
(ii) any adverse change in, or any event or series of events or development resulting or
likely to result in any adverse change in Hong Kong, the Cayman Islands, the BVI or
any of the jurisdictions in which the Group operates or has or is deemed by any
applicable law to have a presence (by whatever name called) or other jurisdiction
relevant to the Group, the local, national, regional or international financial, currency,
political, military, industrial, economic, stock market or other market conditions or
prospects; or
UNDERWRITING
— 175 —
(iii) any adverse change in the conditions of Hong Kong, the US, the PRC or international
equity securities or other financial markets; or
(iv) the imposition of any moratorium, suspension or material restriction on trading in
securities generally on any of the markets operated by the Stock Exchange due to
exceptional financial circumstances or otherwise; or
(v) any adverse change or development involving a prospective adverse change in
taxation or exchange control (or the implementation of any exchange control) in Hong
Kong, the Cayman Islands, the BVI, or any of the jurisdictions in which the Group
operates or has or is deemed by any applicable law to have a presence (by whatever
name called) or other jurisdiction relevant to the Group; or
(vi) any adverse change or prospective adverse change, in any material respect, in the
business or in the financial or trading position or prospects of the Group taken as a
whole; or
(vii) the imposition of economic sanction or withdrawal of trading privileges, in whatever
form, by the United States or by the European Union (or any member thereof) on Hong
Kong or the PRC; or
(viii) a general moratorium on commercial banking activities in the PRC or Hong Kong
declared by the relevant authorities; or
(ix) any event of force majeure including, without limiting the generality thereof, any act
of God, war, riot, public disorder, civil commotion, economic sanctions, fire, flood,
explosion, epidemic, outbreak of an infectious disease, calamity, crisis, terrorism,
strike or lock-out (whether or not covered by insurance); or
(x) any other change,
which, in the reasonable opinion of the Lead Manager (for itself and on behalf of the other
Underwriters):
(aa) is or will be or is likely to be adverse, in any material respect, to the business,
financial or trading condition or prospects of the Group taken as a whole or, in
the case of sub-paragraph (v) above, on any present or prospective shareholder
in his/its capacity as such shareholder of the Company; or
(bb) has or will have or is likely to have a material adverse effect on the success of
the Placing as a whole or the level of the Placing Shares being demanded,
applied for or accepted or the distribution of the Placing Shares; or
(cc) for any reason makes it impracticable, inadvisable or inexpedient for the
Underwriters to proceed with the Placing as a whole.
UNDERWRITING
— 176 —
For the purposes of the above grounds of termination, (i) a change in the system under
which the value of the Hong Kong currency is linked to that of the currency of the United
States or any change of the value of Hong Kong currency under such system shall be taken
as an event resulting in a change in currency conditions; and (ii) any market fluctuations,
whether or not within the normal range therefor, may be considered as a change of market
conditions referred to above.
UNDERTAKINGS
Each of Shunleetat and Mr. Kan, Chuwei and Mr. Cheng, Purplelight and Mr. Fung and Lotawater
and Mr. Chia, has jointly and severally, irrevocably and unconditionally undertaken to the Company,
the Stock Exchange, the Sponsor, the Lead Manager and the Underwriters that he/it shall not and shall
procure that the relevant registered holder(s) (if any) shall not save as provided in Rule 13.18 of the
GEM Listing Rules, in the period commencing on the Latest Practicable Date and ending on the date
which is six months from the Listing Date (“First Six Months’ 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 Shares in respect of which he/it is shown by this prospectus to be the beneficial owner.
Mr. Kan and Shunleetat, each being a Controlling Shareholder, has irrevocably and
unconditionally undertaken to the Company, the Stock Exchange, the Sponsor, the Lead Manager and
the Underwriters to comply with the following requirements:
(a) in the period of six months commencing on the date on which the First Six Months’ Period
expires, he/it will not dispose of, nor enter into any agreement to dispose of or otherwise
create any options, rights, interests or encumbrances in respect of, any of the Shares in
respect of which he/it is shown by this prospectus to be the beneficial owner if, immediately
following such disposal or upon the exercise or enforcement of such options, rights,
interests or encumbrances, the Controlling Shareholders would, either individually or taken
together with the others of them, cease to be a Controlling Shareholder;
(b) in the event that the Controlling Shareholder pledges or charges any of his/its direct or
indirect interest in the Shares pursuant to a pledge or charge in favour of an authorised
institution (as defined in the Banking Ordinance (Chapter 155 of the Laws of Hong Kong)),
as security for a bona fide commercial loan or pursuant to any right or waiver granted by
the Stock Exchange pursuant to Rule 13.18(4) of the GEM Listing Rules, at any time during
the First Six Months’ Periods, he/it must inform the Company immediately thereafter,
disclosing the details specified in Rules 17.43(1) to (4) of the GEM Listing Rules; and
(c) having pledged or charged any interest in the Shares referred to in (b) above, he/it must
inform the Company immediately in the event that he/it becomes aware that the pledgee or
chargee has disposed of or intends to dispose of such interest and of the number of Shares
affected.
UNDERWRITING
— 177 —
App1A(55)
The Company will inform the Stock Exchange, the Sponsor, the Lead Manager and the
Underwriters as soon as it has been informed of such matters and must forthwith publish an
announcement giving details of the same in accordance with the requirements of Rule 17.43 of the
GEM Listing Rules. The Company has undertaken to and covenanted with the Sponsor, the Lead
Manager and the Underwriters that, and each of the Substantial Shareholders and the executive
Directors has jointly and severally undertaken and covenanted with the Sponsor, the Lead Manager
and the Underwriters to procure that, without the prior written consent of the Sponsor (for itself and
on behalf of the Lead Manager and the Underwriters), and subject always to the requirements of the
Stock Exchange, save for the Placing Shares, the Shares to be issued pursuant to the Capitalisation
Issue, the grant of any options under the Share Option Scheme, and any Shares which may fall to be
issued pursuant to the exercise of any options which may be granted under the Share Option Scheme,
or by way of scrip dividend schemes or similar arrangements in accordance with the articles of
association of the Company, neither the Company nor any of its subsidiaries from time to time shall:
(a) allot and issue or agree to allot and issue any shares in the Company or any subsidiary of
the Company from time to time or agree to grant any options, warrants or other rights
carrying any rights to subscribe for or otherwise acquire any securities of the Company or
any subsidiary of the Company from time to time during the First Six Months’ Period; or
(b) allot and issue or agree to allot and issue any of the shares or other interests referred to in
(a) above during the six months after the First Six Months’ Period if, immediately following
such allotment and issue, the Substantial Shareholders, taken together with the others of
them, would cease to be the single largest shareholder of the Company; or
(c) during the First Six Months’ Period purchase any Shares or securities of the Company.
COMMISSIONS AND EXPENSES
The Underwriters will receive an underwriting commission of an amount equivalent to 2.5% of
the aggregate Placing Price of the Placing Shares, out of which they will pay any sub-underwriting
commissions. The Sponsor will also receive a financial advisory and documentation fee. On the basis
of the Placing Price of HK$1.28 per Placing Share and the total subscription money, the estimated
commissions and expenses relating to the Placing including the underwriting commission, the Stock
Exchange listing fee, the Stock Exchange trading fee, the SFC transaction levy, legal and other
professional fees (including the fee of the Sponsor), printing, and other expenses relating to the
Placing, amount to approximately HK$10.7 million in aggregate, of which approximately HK$5.3
million has been paid by the Company as at 30 June 2010 and the remaining HK$5.4 million is payable
by the Company, out of the proceeds of the Placing, the estimated net proceeds of the Placing is
approximately HK$21.0 million.
UNDERWRITING
— 178 —
App1A(20)(2)
Third Schedule 14
UNDERWRITERS’ INTEREST IN THE COMPANY
Save for the underwriting commitment under the Underwriting Agreement, none of the
Underwriters has any shareholding in any member of the Group or any right or option (whether legally
enforceable or not) to subscribe for or to nominate persons to subscribe for or purchase securities in
any member of the Group.
SPONSOR’S INTEREST IN THE COMPANY
The Sponsor, being the Company’s compliance adviser pursuant to Rule 6A.19 of the GEM
Listing Rules, will also receive a financial advisory fee from the Company during the term of its
appointment as the compliance adviser of the Company.
Save for (i) the advisory and documentation fees to be paid to Optima Capital as the sponsor to
the Placing; and (ii) the financial advisory fee to be paid to Optima Capital as the Company’s
compliance adviser pursuant to the requirements under Rule 6A.19 of the GEM Listing Rules, neither
Optima Capital nor any of its associates has or may have, as a result of the Placing, any interest in
any class of securities in the Company or any of its subsidiaries (including options or rights to
subscribe for such securities).
No director or employee of Optima Capital who is involved in providing advice to the Company
has or may have, as a result of the Placing, any interest in any class of securities of the Company or
any of its subsidiaries (including options or rights to subscribe for such securities that may be
subscribed for or purchased by any such director or employee pursuant to the Placing).
No director or employee of Optima Capital has a directorship in the Company or any of its
subsidiaries.
Optima Capital is independent from the Group under Rule 6A.07 of the GEM Listing Rules.
UNDERWRITING
— 179 —
App1A(54)
PLACING PRICE ON SUBSCRIPTION
Based on the Placing Price of HK$1.28, plus 1% brokerage, 0.004% SFC transaction levy and
0.005% Stock Exchange trading fee, one board lot of 2,000 Shares amounting to a total of
approximately HK$2,585.86 will be payable upon subscription.
CONDITIONS OF THE PLACING
Acceptance of all applications for the Placing Shares will be conditional upon:
(i) the Listing Division granting the listing of, and permission to deal in, the Shares in issue
and to be issued pursuant to the Capitalisation Issue, the Placing and the exercise of the
options granted under the Share Option Scheme as described in this prospectus, and such
listing and permission not subsequently having been revoked prior to the commencement of
dealings in the Shares on GEM; and
(ii) the obligations of the Underwriters under the Underwriting Agreement becoming
unconditional (including, if relevant, the waiver of any condition(s) by the Sponsor and the
Lead Manager (for itself and on behalf of the Underwriters), and not being terminated in
accordance with the terms of the Underwriting Agreement or otherwise,
in each case, on or before the dates and times specified in the Underwriting Agreement (unless and
to the extent such conditions are validly waived on or before such dates and times) and in any event
not later than 19 September 2010, being the date which is 30 days after the date of this prospectus.
If such conditions have not been fulfilled or waived (as the case may be) prior to the times and
dates specified, the Placing will lapse and the Listing Division will be notified immediately. Notice
of the lapse of the Placing will be published by the Company on the Exchange Website on the next
Business Day following such lapse.
THE PLACING
The Company is offering 24,800,000 Placing Shares, representing 25% of the enlarged issued
share capital of the Company, for subscription by way of the Placing. The Placing is fully underwritten
by the Underwriters on and subject to the terms and conditions of the Underwriting Agreement.
Pursuant to the Placing, it is expected that the Underwriters, on behalf of the Company, will
conditionally place the Placing Shares at the Placing Price (plus 1% brokerage, 0.005% Stock
Exchange trading fee and 0.004% SFC transaction levy) with selected professional and institutional
investors in Hong Kong. Professional and institutional investors generally include brokers, dealers,
high net worth individuals and companies (including fund managers) whose ordinary business
involves dealing and investing in securities.
STRUCTURE AND CONDITIONS OF THE PLACING
— 180 —
App1A(15)(3)(d)
ThirdSchedule 9
I.E.Note(11)App1A(15)(2),(3)(a)R11.23(7)R11.23(10)
ThirdSchedule 14
BASIS OF ALLOCATION
Allocation of the Placing Shares is based on a number of factors, including the level and timing
of demand and whether or not it is expected that the relevant investor is likely to buy further and/or
hold or sell its Shares after the Listing. Such allocation is generally intended to result in a distribution
of the Placing Shares on a basis which would lead to the establishment of a solid and broad
shareholder base to the benefit of the Company and the Shareholders as a whole. In particular, the
Placing will be allocated pursuant to Rule 11.23(8) of the GEM Listing Rules, that not more than 50%
of the Shares in public hands at the time of Listing will be owned by the three largest public
Shareholders.
No allocations will be permitted to nominee companies unless the name of the ultimate
beneficiary is disclosed, without the prior written consent of the Stock Exchange. Details of the
Placing will be announced in accordance with Rules 10.12(4), 16.08 and 16.16 of the GEM Listing
Rules.
SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS
Subject to the granting of the approval for the listing of, and permission to deal in, the Shares
on GEM and the compliance with the stock admission requirements of HKSCC, the Shares will be
accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect
from the Listing Date or any other date as determined by HKSCC.
Settlement of transactions between participants of the Stock Exchange is required to take place
in CCASS on the second Business Day after any trading day. Investors should seek the advice of their
stockbrokers or other professional advisers for details of those settlement arrangements and how such
arrangements will affect their rights and interests.
All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational
Procedures in effect from time to time. All necessary arrangements have been made for the Shares to
be admitted into CCASS.
Dealings in the Shares on GEM are expected to commence on 30 August 2010. The Shares will
be traded in board lots of 2,000 each.
LISTING ON ANY OTHER STOCK EXCHANGE
The Directors are not considering any listing of the Company’s securities on any other overseas
stock exchange. The Company has not submitted any application or obtained any approval for the
listing of the Shares on any other overseas stock exchange.
STRUCTURE AND CONDITIONS OF THE PLACING
— 181 —
R11.33App1A(15)(3)(a)
R10.12(1)R10.12(2)
R11.29(1)R11.29(2)R11.29(3)
The following is the text of a report, prepared for the purpose of incorporation in this prospectus,
received from the Company’s reporting accountants, BDO Limited, Certified Public Accountants,
Hong Kong.
20 August 2010
The DirectorsTsun Yip Holdings LimitedOptima Capital Limited
Dear Sirs
We set out below our report on the financial information of Tsun Yip Holdings Limited (the“Company”), its subsidiaries and controlled entity (hereinafter collectively referred to as the “Group”)for each of the years ended 31 March 2009 and 2010 (the “Relevant Periods”), prepared on the basisset out in Section II below, for inclusion in the prospectus of the Company dated 20 August 2010 (the“Prospectus”) in connection with the initial listing of the shares of the Company on the GrowthEnterprise Market of The Stock Exchange of Hong Kong Limited (the “GEM of the Stock Exchange”).
The Company was incorporated in the Cayman Islands on 15 March 2010 as an exemptedcompany with limited liability under the Companies Law, Cap.22 (Law 3 of 1961, as consolidated andrevised) of the Cayman Islands. On 11 August 2010, the Company became the holding company of thesubsidiaries now comprising the Group pursuant to a group reorganisation (the “Reorganisation”) asset out in the subsection headed “Reorganisation” in Appendix V to the Prospectus. The Group isprincipally engaged in the provision of waterworks engineering services, road works and drainageservices and site formation works for the public sector in Hong Kong. The Company and itssubsidiaries have adopted 31 March as their financial year-end date.
As at the date of this report, the Company had direct or indirect interests in the followingsubsidiaries and controlled entity, all of which are private companies. The particulars of thesubsidiaries and controlled entity are set out below:
Name of company
Place anddate ofincorporation andform of businessstructure
Percentage ofequity attributable
to the CompanyNominal valueof issued capital
Principalactivities
Direct Indirect
Subsidiaries
TYW (BVI) Limited(“TYW (BVI)”)
British VirginIslands (the “BVI”),2 July 2009, limitedliability company
100% — United StatesDollars (“US$”)10,000, dividedinto 10,000shares ofUS$1.00 each
Investmentholding
APPENDIX I ACCOUNTANTS’ REPORT
— I-1 —
App1A(37)R7.01R7.08(4)R11.10R11.11
App1A(9)(3)R7.08(5)Third Schedule 31
ThirdSchedule 29
App1A (28)(1)(a)
App1A(28)(2)App1A(29)(1)App1A(29)(2)
Name of company
Place anddate ofincorporation andform of businessstructure
Percentage ofequity attributable
to the CompanyNominal valueof issued capital
Principalactivities
Direct Indirect
Tsun Yip Civil ConstructionCompany Limited(“TY Civil”)
Hong Kong,16 June 2000,limited liabilitycompany
— 100% Hong KongDollars (“HK$”)1,000, dividedinto 1,000 sharesof HK$1.00 each
Rental ofmotorvehicles,provision ofwaterworksand laying ofwater pipes
Tsun Yip WaterworksConstruction CompanyLimited (“TYW”)
Hong Kong,6 February 1996,limited liabilitycompany
— 100% Hong KongDollars (“HK$”)10,000,000,divided into10,000,000shares ofHK$1.00 each
Provision ofwaterworksand laying ofwater pipes
Controlled entity
Tsun Yip Construction Co.(“TYC”)
Hong Kong,1 August, 1989Sole proprietorship
— 100% — Provision ofwaterworksand laying ofwater pipes,inactive since1 April 2009and ceased tobe part of theGroup
No audited financial statements have been prepared for the Company since its date of
incorporation as it has not carried out any business, other than the Reorganisation as referred to above.
We have, however, reviewed all the relevant transactions of the Company since its date of
incorporation.
No audited financial statements have been prepared for TYW (BVI) and TYC since their
respective dates of incorporation as there is no statutory requirement for these companies to prepare
audited financial statements. We have, however, reviewed all the relevant transactions of TYW (BVI)
since its date of incorporation. In respect of TYC, we have performed independent audit procedures
in accordance with Hong Kong Standards of Auditing (“HKSAs”) issued by the Hong Kong Institute
of Certified Public Accountants (the “HKICPA”) on the unaudited management accounts for the
Relevant Periods for the purpose of this report.
The statutory financial statements of TY Civil and TYW for the Relevant Periods have been
prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”),
Hong Kong Accounting Standards (“HKASs”) and Interpretations (hereinafter collectively referred to
as the “HKFRSs”) issued by the HKICPA, and were audited by ourselves.
APPENDIX I ACCOUNTANTS’ REPORT
— I-2 —
App1A (28)(1)(a)
R7.08(1)(a)R7.08(1)(b)
For the purpose of this report, the directors of the Company have prepared the combined
financial statements of the Group for the Relevant Periods (the “Underlying Financial Statements”),
based on the audited financial statements or, where appropriate, unaudited management accounts of
the companies now comprising the Group.
The combined statement of comprehensive income, combined statement of changes in equity and
combined statement of cash flows of the Group for the Relevant Periods, and the combined statement
of financial position of the Group as at 31 March 2009 and 2010 together with the notes thereon
(collectively the “Combined Financial Information”) have been prepared based on the Underlying
Financial Statements on the basis set out in note 1 of Section II below, for the purpose of preparing
this report for inclusion in the Prospectus. No adjustments on the Underlying Financial Statements for
the Relevant Periods are considered necessary for the purpose of preparing the Combined Financial
Information. The Combined Financial Information also includes the applicable disclosure
requirements of the Hong Kong Companies Ordinance (the “Companies Ordinance”) and the Rules
Governing the Listing of Securities on the GEM of the Stock Exchange (the “GEM Listing Rules”).
The directors of the Company are responsible for the preparation of the Combined Financial
Information which gives a true and fair view and the contents of the Prospectus in which this report
is included. The responsibility includes designing, implementing and maintaining internal control
relevant to the preparation and the true and fair presentation of the Combined Financial Information
that are free from material misstatement, whether due to fraud or error; selecting and applying
appropriate accounting policies; and making accounting estimates that are reasonable in the
circumstances. It is our responsibility to form an independent opinion on the Combined Financial
Information, based on our audit, and to report our opinion to you.
For the purpose of this report, we have carried out an independent audit on the Combined
Financial Information for the Relevant Periods in accordance with HKSAs issued by the HKICPA, and
have carried out such additional procedures as are necessary in accordance with the Auditing
Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.
In our opinion, the Combined Financial Information, for the purpose of this report, gives a true
and fair view of the state of affairs of the Group as at 31 March 2009 and 2010 and of the combined
results and combined cash flows of the Group for the Relevant Periods.
APPENDIX I ACCOUNTANTS’ REPORT
— I-3 —
R7.09
R7.18
R7.11
R7.08 (3)
App1A (35)R7.08(2)
I. COMBINED FINANCIAL INFORMATION
1. Combined Statement of Comprehensive Income
Year ended 31 March
Notes 2009 2010
HK$’000 HK$’000
Revenue 4 87,696 148,844
Cost of service (70,617) (121,872)
Gross profit 17,079 26,972
Other income 4 2,539 811
Administrative expenses (5,431) (6,753)
Profit from operations 5 14,187 21,030
Finance costs 7 (455) (634)
Profit before income tax 13,732 20,396
Income tax 9 (2,327) (3,558)
Profit and total comprehensive income for the year 11,405 16,838
APPENDIX I ACCOUNTANTS’ REPORT
— I-4 —
R7.03(1)
R7.04(1)(a)
R7.04(1)(d)
R7.04(1)(b)
R7.04(1)(e)
R7.04(1)(g)
R7.04(1)(h)
R7.04(1)(j)
2. Combined Statement of Financial Position
As at 31 March
Notes 2009 2010
HK$’000 HK$’000
Non-current assets
Property, plant and equipment 12 8,697 13,308--------- ---------
Current assets
Inventories 13 7,763 9,788
Trade and other receivables 14 37,015 28,271
Tax recoverable 222 —
Cash and cash equivalents 196 10,330
45,196 48,389-------------------------------------------- --------------------------------------------
Total assets 53,893 61,697--------- ---------
Current liabilities
Trade and other payables 16 19,738 24,451
Finance lease creditors 17 3,087 3,052
Borrowings 18 — 4,532
Employee benefits 19 513 473
Current tax liabilities 2,384 4,365
Bank overdraft 1,775 —
27,497 36,873-------------------------------------------- --------------------------------------------
Net current assets 17,699 11,516-------------------------------------------- --------------------------------------------
Total assets less current liabilities 26,396 24,824-------------------------------------------- --------------------------------------------
APPENDIX I ACCOUNTANTS’ REPORT
— I-5 —
R7.03(3)(a)R7.03(4)(a)
R7.04(2)(a)
R7.04(2)(b)
R7.04(2)(b)(i)
R7.04(2)(b)(ii)
R7.04(2)(iii)
R7.04(2)(c)
R7.04(2)(c)(ii)
R7.04(2)(c)(i)
R7.04(2)(d)
R7.04(2)(e)
As at 31 March
Notes 2009 2010
HK$’000 HK$’000
Non-current liabilities
Finance lease creditors 17 1,531 826
Deferred tax liabilities 20 793 1,658
2,324 2,484-------------------------------------------- --------------------------------------------
Total liabilities 29,821 39,357-------------------------------------------- --------------------------------------------
TOTAL NET ASSETS 24,072 22,340
Capital and reserves
Share capital 21 9,868 9,868
Reserves 22 14,204 12,472
TOTAL EQUITY 24,072 22,340
APPENDIX I ACCOUNTANTS’ REPORT
— I-6 —
R7.03(3)(a)
R7.04(2)(f)
R7.04(2)(g)
3. Combined Statement of Cash Flows
Year ended 31 March
Note 2009 2010
HK$’000 HK$’000
Cash flows from operating activities
Profit before income tax 13,732 20,396
Adjustments for:
Depreciation of property, plant and equipment 3,789 3,831
Waiver of loan to staff 68 —
Write-off of long outstanding trade payables (2,539) (802)
Impairment loss on trade receivables 105 243
Loss on disposal of property, plant and equipment 598 40
Finance costs 455 634
Interest income — (9)
16,208 24,333
Increase in inventories (5,786) (2,025)
Increase in trade and other receivables (9,423) (124)
Increase in trade and other payables 3,354 5,515
Increase/(decrease) in employee benefits 103 (40)
Cash generated from operations 4,456 27,659
Income tax paid (332) (536)
Income tax refunded — 46
Net cash from operating activities 4,124 27,169------------ ------------
Cash flows from investing activities
Purchases of property, plant and equipment (1,044) (5,464)
Proceeds from sale of property, plant and equipment 654 213
Interest received — 9
Net cash used in investing activities (390) (5,242)------------ ------------
APPENDIX I ACCOUNTANTS’ REPORT
— I-7 —
R7.03(4A)
R11.12A(1)
Year ended 31 March
Note 2009 2010
HK$’000 HK$’000
Cash flows from financing activities
Proceeds from borrowings — 6,000
Repayment of borrowings — (1,468)
Repayment of loan from staff (50) —
Interest element of finance lease creditors (390) (396)
Repayment of finance lease creditors (3,329) (3,971)
Interest paid (65) (238)
Dividend paid to an owner of the Company — (9,945)
Net cash used in financing activities (3,834) (10,018)----------------------------------------------------------- -----------------------------------------------------------
Net (decrease)/increase in cash and cash equivalents (100) 11,909
Cash and cash equivalents at beginning of year 23 (1,479) (1,579)
Cash and cash equivalents at end of year 23 (1,579) 10,330
APPENDIX I ACCOUNTANTS’ REPORT
— I-8 —
R7.03(4A)
4. Combined Statement of Changes in Equity
Sharecapital
Retainedearnings
Proposeddividend Total
HK$’000 HK$’000 HK$’000 HK$’000
Balance as at 1 April 2008 9,868 2,799 — 12,667
Total comprehensive income for the year — 11,405 — 11,405
Balance as at 31 March 2009 and1 April 2009 9,868 14,204 — 24,072
Total comprehensive income for the year — 16,838 — 16,838
Interim dividends paid during the year
(note 10) — (18,570) — (18,570)
Proposed final dividend (note IV(c)) — (4,000) 4,000 —
Balance as at 31 March 2010 9,868 8,472 4,000 22,340
APPENDIX I ACCOUNTANTS’ REPORT
— I-9 —
App1A(33)(5)R7.03(4B)
II. NOTES TO THE COMBINED FINANCIAL INFORMATION
1. CORPORATE INFORMATION AND BASIS OF PRESENTATION
The Company was incorporated in the Cayman Islands on 15 March 2010 as an exempted
company with limited liability under the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and
revised) of the Cayman Islands. The registered office and principal place of business of the Company
are located at the offices of Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111,
Cayman Islands and Flat 314, 3/F., Fuk Shing Commercial Building, 28 On Lok Mun Street, Fanling,
New Territories, Hong Kong, respectively. The Group is principally engaged in the provision of
waterworks engineering services, road works and drainage services and site formation works for the
public sector in Hong Kong.
Pursuant to the Reorganisation as detailed in the subsection headed “Reorganisation” in
Appendix V to the Prospectus, in preparation for the listing of shares of the Company on the GEM of
the Stock Exchange and for the purpose of rationalising the Group’s structure, the Company became
the holding company of the subsidiaries now comprising the Group on 11 August 2010. The
Reorganisation involved business combinations of entities under common control before and
immediately after the Reorganisation. Consequently, immediately after the Reorganisation, there was
a continuation of the risks and benefits to the controlling parties that existed prior to the
Reorganisation. The Group is regarded and accounted for as a continuing group resulting from the
Reorganisation since all of the entities which took part in the Reorganisation were under common
control in a manner similar to pooling of interests. Accordingly, for the purpose of this report, the
Combined Financial Information has been prepared on a combined basis by applying the principles of
merger accounting in accordance with the Accounting Guideline No. 5 (“AG5”), “Merger Accounting
for Common Control Combination” issued by the HKICPA.
The Combined Financial Information is presented in Hong Kong Dollars (“HK$”), which is also
the functional currency of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of compliance
The Combined Financial Information set out in this report has been prepared in accordance with
all applicable HKFRSs issued by the HKICPA. The Combined Financial Information also includes the
applicable disclosure required by the GEM Listing Rules and by the Companies Ordinance.
The preparation of the Combined Financial Information in conformity with HKFRSs 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 Combined
Financial Information, are disclosed in note 3.
APPENDIX I ACCOUNTANTS’ REPORT
— I-10 —
App1A(5)App1A(6)
R7.03(8)
R7.11R7.12
Application of new and revised HKFRSs
For the purpose of preparing the Combined Financial Information, the Group has adopted all thenew and revised HKFRSs that are effective for annual periods beginning on or after 1 January 2009consistently throughout the Relevant Periods except for the following new or revised HKFRSs thathave been issued, potentially relevant to the Group’s operations, but are not yet effective for any ofthe Relevant Periods:
HKFRSs (Amendments) Amendment to HKFRS 5 as part of Improvements to
HKFRSs2
HKFRSs (Amendments) Improvements to HKFRSs 20093
HKFRSs (Amendments) Improvements to HKFRSs 20107
Amendments to HKFRS 2 Share-based Payment — Group Cash-settled Share-based
Payment Transactions1
HKAS 24 (Revised) Related Party Disclosures5
HKAS 27 (Revised) Consolidated and Separate Financial Statements2
HKFRS 3 (Revised) Business Combinations2
HKFRS 9 Financial Instruments6
HK(IFRIC) — Interpretation
19
Extinguishing Financial Liabilities with Equity
Instruments4
1 Effective for annual periods beginning on or after 1 January 2010
2 Effective for annual periods beginning on or after 1 July 2009
3 Effective for annual periods beginning on or after 1 July 2009 and 1 January 2010, as appropriate
4 Effective for annual periods beginning on or after 1 July 2010
5 Effective for annual periods beginning on or after 1 January 2011
6 Effective for annual periods beginning on or after 1 January 2013
7 Effective for annual periods beginning on or after 1 July 2010 and 1 January 2011, as appropriate
The adoption of HKFRS 3 (Revised) may affect the Group’s accounting for business combinationfor which the acquisition dates are on or after 1 April 2010. HKAS 27 (Revised) will affect theaccounting treatment for changes in a Group’s ownership interest in a subsidiary. Changes in theGroup’s ownership that do not result in a loss of control of the subsidiary will be accounted for asequity transactions.
The Group is in the process of making an assessment of the potential impact of other new/revisedHKFRSs and the directors so far concluded that the application of the other new/revised HKFRSs willhave no material impact on the results and the financial position of the Group.
2.1 Merger accounting for common control combination
The Combined Financial Information incorporate the financial statements of the combiningentities or businesses in which the common control combination occurs as if they had been combinedfrom the date when the combining entities or businesses first came under the control of the controllingparty.
APPENDIX I ACCOUNTANTS’ REPORT
— I-11 —
R7.17
The net assets of the combining entities or businesses are combined using the existing book
values from the controlling parties’ perspective. No amount is recognised in respect of goodwill or
excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and
contingent liabilities over cost at the time of common control combination, to the extent of the
continuation of the controlling party’s interest.
The combined statement of comprehensive income includes the results of each of the combining
entities from the earliest date presented or since the date when the combining entities first came under
the common control, where this is a shorter period, regardless of the date of the common control
combination.
All inter-company transactions, cash flows and balances between the companies now comprising
the Group are eliminated.
2.2 Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated
impairment losses.
The cost of property, plant and equipment includes its purchase price and the costs 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 recognised in profit or loss during
the financial period in which they are incurred.
Property, plant and equipment are depreciated at rates sufficient to write off their cost or
valuation net of expected residual value over their estimated useful lives on a straight-line basis. The
useful lives, residual value and depreciation method are reviewed, and adjusted if appropriate, at the
end of each reporting period. The principal annual rates are as follows:
Site offices Over the respective project terms
Leasehold improvements 30% or over the respective life of the leases, whichever is
shorter
Machinery 30%
Furniture and fixtures 20%
Office equipment 20%
Motor vehicles 20%
APPENDIX I ACCOUNTANTS’ REPORT
— I-12 —
An asset is written down immediately to its recoverable amount if its carrying amount is higher
than the asset’s estimated recoverable amount.
Assets held under finance leases are depreciated over their expected useful lives on the same
basis as owned assets.
The gain or loss on disposal of an item of property, plant and equipment is the difference between
the net sale proceeds and its carrying amount, and is recognised in profit or loss on disposal.
2.3 Inventories
Inventories are initially recognised at cost, and subsequently at the lower of cost and net
realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in
bringing the inventories to their present location and condition. Cost is calculated using the weighted
average method. Net realisable value represents the estimated selling price in the ordinary course of
business less the estimated costs of completion and applicable selling expenses.
2.4 Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all
the risks and rewards of ownership to lessee. All other leases are classified as operating leases.
The Group as lessee
Assets held under finance leases are initially recognised as assets at their fair value or, if
lower, the present value of the minimum lease payments. The corresponding lease commitment
is shown as a liability. Lease payments are analysed between capital and interest. The interest
element is charged to profit or loss over the period of the lease and is calculated so that it
represents a constant proportion of the lease liability. The capital element reduces the balance
owed to the lessor.
The total rentals payable under the operating leases are charged to profit or loss on a
straight-line basis over the lease term. Lease incentives received are recognised as an integrated
part of the total rental expense, over the term of the lease.
2.5 Financial instruments
(i) Financial assets — loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They arise principally through the provision
of goods and services to customers (trade debtors), and also incorporate other types of
contractual monetary asset. Loans and receivables are initially recognised at fair value plus
directly attributable transaction costs. Subsequent to initial recognition, they are measured at
amortised cost using the effective interest method, less any identified impairment losses.
APPENDIX I ACCOUNTANTS’ REPORT
— I-13 —
(ii) Impairment loss on financial assets
The Group assesses, at the end of each reporting period, whether there is any objective
evidence that financial asset is impaired. Financial asset is impaired if there is objective evidence
of impairment as a result of one or more events that has occurred after the initial recognition of
the asset and that event has an impact on the estimated future cash flows of the financial asset
that can be reliably estimated. Evidence of impairment may include:
• significant financial difficulty of debtor;
• a breach of contract, such as a default or delinquency in interest or principal
payments;
• granting concession to a debtor because of debtors’ financial difficulty; or
• it becoming probable that the debtor will enter bankruptcy or other financial
reorganisation.
An impairment loss is recognised in profit or loss and directly reduces the carrying amount
of financial asset when there is objective evidence that the asset is impaired, and is measured as
the difference between the asset’s carrying amount and the present value of the estimated future
cash flows discounted at the original effective interest rate.
Impairment losses are reversed in subsequent periods when an increase in the asset’s
recoverable amount can be related objectively to an event occurring after the impairment was
recognised, subject to a restriction that the carrying amount of the asset at the date the
impairment is reversed does not exceed what the amortised cost would have been had the
impairment not been recognised.
(iii) Financial liabilities
Financial liabilities include trade and other payables and borrowings, they are initially
recognised at fair value, net of directly attributable transaction costs incurred and are
subsequently measured at amortised cost using the effective interest method. The related interest
expense is recognised in profit or loss.
Gains and losses are recognised in profit or loss when the liabilities are derecognised as
well as through the amortisation process.
(iv) Derecognition
The Group derecognises a financial asset only when the contractual rights to the future cash
flows in relation to the financial asset expire or when it transfers the financial asset and
substantially all the risks and rewards of ownership of the asset to another entity. If the Group
neither transfers nor retains substantially all the risks and rewards of ownership and continues
APPENDIX I ACCOUNTANTS’ REPORT
— I-14 —
to control the transferred asset, the Group recognises its retained interest in the asset and an
associated liability for amounts it may have to pay. If the Group retains substantially all the risks
and rewards of ownership of a transferred financial asset, the Group continues to recognise the
financial asset and also recognises a collateralised borrowing for the proceeds received.
Financial liabilities are derecognised when the obligation specified in the relevant contract
is discharged, cancelled or expires.
2.6 Employee benefits
(i) Defined contribution retirement plan
Contributions to defined contribution retirement plans are recognised as an expense in
profit or loss when the services are rendered by the employees.
(ii) Short-term employee benefits
Short-term employee benefits are recognised when they accrue to employees. In particular,
a provision is made for the estimated liability for annual leave as a result of services rendered
by employees up to the end of reporting period. Non-accumulating compensated absences such
as sick leave and maternity leave are not recognised until the time of leave.
(iii) Termination benefits
Termination benefits are recognised when, and only when, the Group demonstrably
commits itself to terminate employment or to provide benefits as a result of voluntary
redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.
(iv) Long service payments
The Group’s net obligation in respect of long service payments payable on cessation of
employment in certain circumstances under the Hong Kong Employment Ordinance is the
amount of future benefit that employees have earned in return for their service in the current and
prior periods. The obligation is calculated using the projected unit credit method, discounted to
its present value and reduced by entitlements accrued under the Group’s retirement plans that are
attributable to contributions made by the Group.
2.7 Construction contracts
Contract revenue comprises the agreed contract amount and appropriate amounts for variation
orders, claims and incentive payments. Contract costs comprise direct materials, costs of
subcontracting, direct labour, borrowing costs attributable directly to the construction and an
appropriate portion of variable and fixed construction overheads.
APPENDIX I ACCOUNTANTS’ REPORT
— I-15 —
App1A(33)(4)(b)
When the outcome of a construction contract can be estimated reliably, revenue and contract
costs associated with the construction contract are recognised as revenue and expenses respectively
by reference to the stage of completion of the contract activity at the end of the reporting period.
When the outcome of a construction contract cannot be estimated reliably, revenue is recognised
only to the extent of contract costs incurred that will probably be recoverable, and contract costs are
recognised as an expense in the period in which they are incurred.
When it is probable that total contract costs will exceed total contract revenue, the expected loss
is recognised as an expense immediately.
Where progress billings exceed contract costs incurred to date plus recognised profits less
recognised losses, the surplus is treated as an amount due to contract customers.
Where contract costs incurred to date plus recognised profits less recognised losses exceed
progress billings, the surplus is treated as an amount due from contract customers.
2.8 Revenue recognition
Revenue from construction contracts is recognised on the percentage of completion method,
measured by reference to the certification by architects (note 2.7).
Interest income is accrued on a time basis on the principal outstanding at the applicable interest
rate.
2.9 Income taxes
Income taxes for the year comprise current tax and deferred tax.
Current tax is based on the profit or loss from ordinary activities adjusted for items that are
non-assessable or disallowable for income tax purposes and is calculated using tax rates that have been
enacted or substantively enacted at the end of the reporting period.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the corresponding amounts used for tax
purposes. Except for recognised assets and liabilities that affect neither accounting nor taxable profits,
deferred tax liabilities are recognised for all temporary differences. Deferred tax assets are recognised
to the extent that it is probable that taxable profits will be available against which deductible
temporary differences can be utilised. Deferred tax is measured at the tax rates expected to apply in
the period when the liability is settled or the asset is realised based on tax rates that have been enacted
or substantively enacted at the end of the reporting period.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments
in subsidiaries, except where the Group is able to control the reversal of the temporary difference and
it is probable that the temporary difference will not reverse in the foreseeable future.
APPENDIX I ACCOUNTANTS’ REPORT
— I-16 —
App1A(33)(1)
Income taxes are recognised in profit or loss except when they relate to items directly recognised
in other comprehensive income in which case the taxes are also directly recognised in other
comprehensive income.
2.10 Provisions and contingent liabilities
Provisions are recognised for liabilities of uncertain timing or amount when the Group has a
legal or constructive obligation arising as a result of a past event, which will probably result in an
outflow of economic benefits that can be reasonably estimated.
Where it is not probable that an outflow of economic benefits will be required, or the amount
cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability
of outflow of economic benefits is remote. Possible obligations, the existence of which will only be
confirmed by the occurrence or non-occurrence of one or more future events, are also disclosed as
contingent liabilities unless the probability of outflow of economic benefits is remote.
2.11 Impairment of non-financial assets
At each end of the reporting period, the Group reviews the carrying amounts of property, plant
and equipment to determine whether there is any indication that those assets have suffered an
impairment loss or an impairment loss previously recognised no longer exists or may have decreased.
If the recoverable amount (i.e. the greater of the fair value less costs to sell and value in use)
of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced
to its recoverable amount. An impairment loss is recognised immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased
to the revised estimate of its recoverable amount, but so that the increased carrying amount does not
exceed the carrying amount that would have been determined had no impairment loss been recognised
for the asset in prior years. A reversal of an impairment loss is recognised immediately in profit or
loss.
3. CRITICAL ACCOUNTING JUDGEMENT AND KEY SOURCES OF ESTIMATION
UNCERTAINTY
Estimates and judgements are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under the
circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting
estimates will, by definition, seldom equal the related actual results. The estimates and assumptions
that have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are discussed below.
APPENDIX I ACCOUNTANTS’ REPORT
— I-17 —
(i) Construction contract revenue recognition
According to the accounting policies of construction contracts as stated in note 2.7, the Group
uses the percentage of completion method to determine the appropriate revenues to be recognised in
a given period. The stage of completion is measured by reference to the contract costs incurred up to
the end of the reporting period as percentage of total estimated costs for each contract.
Upon applying the percentage of completion method, the Group needs to estimate the gross profit
margin of each construction contract, which was determined based on the estimated total construction
contract costs and total construction contract sum, including confirmed variation orders and claims,
and liquidated damages. If the actual gross profit margin of construction contract differs from the
management’s estimates, the construction contract revenue to be recognised within the next year will
need to be adjusted accordingly.
(ii) Impairment of assets
The Group assesses annually whether the financial assets and other assets have suffered any
impairment in accordance with accounting policies stated in note 2.5(ii) and 2.11 respectively. The
assets are reviewed for the impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets exceeds its recoverable amount. The determination of recoverable
amount requires an estimation of future cash flows and the selection of appropriate discount rates.
4. REVENUE AND OTHER INCOME
Revenue and other income recognised during the Relevant Periods are as follows:
Year ended 31 March2009 2010
HK$’000 HK$’000
RevenueTurnover — revenue from construction works 87,696 148,844
Other incomeWrite-off of long outstanding trade payables which were
overdue for more than 6 years 2,539 802Sundry income — 9
2,539 811
(i) As there was dispute with the supplier/subcontractor, no payments were made for such
outstanding trade payables. The Group did not recognise such trade payables due to the
aforesaid dispute. According to the Limitation Ordinance, issuance of legal action for
recovery of debts that remained outstanding for over 6 years was precluded and the
management considered that the Group no longer had the legal or constructive obligation
to repay. As a result, trade payables aged more than six years were written off during the
Relevant Periods.
APPENDIX I ACCOUNTANTS’ REPORT
— I-18 —
Operating segments
During the Relevant Periods, the Group is principally engaged in the waterworks engineering
services, road works and damage services and site formation works for the public sector in Hong
Kong.
Information about major customers
Revenues from major customers are as follows:
Year ended 31 March
2009 2010
HK$’000 HK$’000
Water Supplies Department 22,929 17,154
Ming Hing Civil Contractors Limited/Ming Hing Waterworks
Engineering Company Limited 60,305 131,376
Others 4,462 314
87,696 148,844
5. PROFIT FROM OPERATIONS
Profit from operations is arrived at after charging:
Year ended 31 March
2009 2010
HK$’000 HK$’000
Contract costs recognised as expense, including borrowing
costs of HK$242,000 (2009: HK$429,000) 70,617 121,872
Auditor’s remuneration 403 500
Depreciation 3,789 3,831
Impairment loss on trade receivables 105 243
Loss on disposal of property, plant and equipment 598 40
Staff costs (note 6) 18,098 26,896
Waiver of loan to staff 68 —
APPENDIX I ACCOUNTANTS’ REPORT
— I-19 —
R7.04(4)
R7.04(1)(f)
6. STAFF COSTS
Year ended 31 March
2009 2010
HK$’000 HK$’000
Staff costs (including directors) comprise:
Wages, salaries and other benefits 17,732 26,086
Contribution on defined contribution retirement plan 366 810
18,098 26,896
7. FINANCE COSTS
Year ended 31 March
2009 2010
HK$’000 HK$’000
Interest on finance leases 390 396
Interest on bank overdraft 65 20
Interest on bank loans wholly repayable within five years — 218
455 634
APPENDIX I ACCOUNTANTS’ REPORT
— I-20 —
App1A (33)(4)(c)
8. DIRECTORS’ REMUNERATION AND SENIOR MANAGEMENT’S EMOLUMENTS
(i) Directors’ emoluments
The aggregate amounts of the emoluments paid and payable to the directors of the Company by
the companies now comprising the Group for each of the Relevant Periods are as follows:
Fees
Salariesand
allowances Bonus
Definedcontribution
retirementbenefitscheme
contributions Total
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Year ended 31 March 2009
Executive directors
Mr. Cheng Ka Ming, Martin — — — — —
Mr. Chia Thien Loong,
Eric John — — — — —
Mr. Fung Chung Kin — 600 50 12 662
Mr. Kan Kwok Cheung — 830 50 12 892
— 1,430 100 24 1,554
FeesSalaries and
allowances Bonus
Definedcontribution
retirementbenefit scheme
contributions Total
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Year ended 31 March2010
Executive directors
Mr. Cheng Ka Ming,
Martin — 880 — 11 891
Mr. Chia Thien Loong,
Eric John — 11 — 1 12
Mr. Fung Chung Kin — 600 50 12 662
Mr. Kan Kwok Cheung — 1,093 50 12 1,155
— 2,584 100 36 2,720
APPENDIX I ACCOUNTANTS’ REPORT
— I-21 —
App1A(33)(2)(c)App1A(33)(3)(a), (b)
During the Relevant Periods, none of the directors waived or agreed to waive any remuneration
and there were no emoluments paid by the Group to the directors as an inducement to join, or upon
joining the Group, or as compensation for loss of office.
(ii) Five highest paid individuals
The five highest paid individuals whose emoluments were the highest in the Group included two
and three directors for the years ended 31 March 2009 and 2010 respectively whose emoluments are
reflected in the analysis as shown in note 8(i). The emoluments of the remaining three and two highest
paid individuals for the years ended 31 March 2009 and 2010 respectively are as follows:
Year ended 31 March
2009 2010
HK$’000 HK$’000
Basic salaries, bonuses and other allowances 1,109 1,300
Defined contribution retirement benefit scheme contributions 26 24
1,135 1,324
Their emoluments were within the following band:
Year ended 31 March
2009 2010
No. ofemployees
No. ofemployees
Nil to HK$1,000,000 3 2
During the Relevant Periods, none of the senior management waived or agreed to waive any
remuneration and there were no emoluments paid by the Group to any of the five highest paid
individuals as an inducement to join, or upon joining the Group or as compensation for loss of office.
APPENDIX I ACCOUNTANTS’ REPORT
— I-22 —
App1A(33)(3)(c)App1A(33)(2)(d)
9. INCOME TAX
The amount of income tax in the combined statement of comprehensive income represents:
Year ended 31 March
2009 2010
HK$’000 HK$’000
Current tax - Hong Kong Profits tax
- tax for the year 2,167 2,603
- under-provision in respect of prior years — 90
2,167 2,693--------- ---------
Deferred tax (note 20)
- current year 182 865
- attributable to decrease in tax rate (22) —
160 865-------------------------------------------- --------------------------------------------
Income tax 2,327 3,558
Hong Kong profits tax is calculated at 16.5% of the estimated assessable profits of TYW & TY
Civil and 15% that of TYC for the Relevant Periods.
APPENDIX I ACCOUNTANTS’ REPORT
— I-23 —
The income tax for the Relevant Periods can be reconciled to the profit per the combined
statement of comprehensive income as follows:
Year ended 31 March
2009 2010
HK$’000 HK$’000
Profit before income tax 13,732 20,396
Tax calculated at the domestic tax rate of 16.5% 2,266 3,365
Effect of difference tax rate of sole proprietorship (186) —
Tax effect of expenses not deductible for tax purpose 47 63
Utilisation of deductible temporary difference previously
not recognised 284 40
Tax loss not recognised (39) —
Effect on opening deferred tax balances resulting from
a decrease in applicable tax rate (22) —
Under-provision for prior years — 90
Others (23) —
Income tax 2,327 3,558
10. DIVIDENDS
No dividend has been paid or declared by the Company since its date of incorporation on 15
March 2010.
The dividends during the Relevant Periods represented those declared by TYW, TY Civil and
TYC to its then shareholders prior to the Reorganisation. The rates of dividend and the number of
shares ranking for dividends are not presented as such information is not meaningful for this report.
Year ended 31 March
2009 2010
HK$’000 HK$’000
Interim dividends — 18,570
11. EARNINGS PER SHARE
No earnings per share information is presented as its inclusion, for the purpose of this report, is
not meaningful due to the Reorganisation and the preparation of the results for the Relevant Periods
on a combined basis as described in note 1 above.
APPENDIX I ACCOUNTANTS’ REPORT
— I-24 —
R7.03(5)R7.04(1)(k)
R7.03(5)
12. PROPERTY, PLANT AND EQUIPMENT
Leaseholdimprovements Machinery
Furnitureand fixtures
Officeequipment
Motorvehicles
Siteoffices Total
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Cost
At 1 April 2008 — 3,227 500 1,582 6,011 1,141 12,461
Additions at cost 80 1,381 61 49 1,619 — 3,190
Disposals — (1,992) — — (622) — (2,614)
At 31 March 2009 andat 1 April 2009 80 2,616 561 1,631 7,008 1,141 13,037
Additions at cost — 2,889 137 367 4,741 561 8,695
Disposals — — (3) (1) (341) — (345)
At 31 March 2010 80 5,505 695 1,997 11,408 1,702 21,387- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Accumulateddepreciation
At 1 April 2008 — 1,516 31 51 269 46 1,913
Depreciation 12 1,147 130 367 1,699 434 3,789
Eliminated ondisposals — (1,322) — — (40) — (1,362)
At 31 March 2009 andat 1 April 2009 12 1,341 161 418 1,928 480 4,340
Depreciation 24 1,044 128 361 1,891 383 3,831
Eliminated ondisposals — — (1) — (91) — (92)
At 31 March 2010 36 2,385 288 779 3,728 863 8,079- - - - - - - - ------------------------------------ - - - - - - - - ------------------------------------ - - - - - - - - ------------------------------------ - - - - - - - - ------------------------------------ - - - - - - - - ------------------------------------ - - - - - - - - ------------------------------------ - - - - - - - - ------------------------------------
Net book value
At 31 March 2010 44 3,120 407 1,218 7,680 839 13,308
At 31 March 2009 68 1,275 400 1,213 5,080 661 8,697
APPENDIX I ACCOUNTANTS’ REPORT
— I-25 —
The net carrying amount of property, plant and equipment includes the following assets held
under finance leases (note 17).
As at 31 March
2009 2010
HK$’000 HK$’000
Machinery 587 327
Office equipment 1,091 —
Furniture and fixtures 189 —
Motor vehicles 4,417 5,544
6,284 5,871
13. INVENTORIES
As at 31 March
2009 2010
HK$’000 HK$’000
Construction materials 7,763 9,788
14. TRADE AND OTHER RECEIVABLES
As at 31 March
2009 2010
HK$’000 HK$’000
Trade receivables (note (i)&(iii)) 3,614 2,612
Retention receivables (note (ii)&(iii)), (note 15) 10,449 6,495
Other receivables and prepayments 458 7,935
Amounts due from customers for contract works (note 15) 4,446 10,635
Amount due from a director (note (iv)) 17,671 —
Deposits 377 594
37,015 28,271
(i) Trade receivables as at the end of the reporting period mainly derived from provision of
construction works on civil engineering contracts. The related customers are mainly
government department/organisation and reputable corporations. These customers have
established good track records with the Group and have no history of default payments. On
this basis, management believes that no impairment allowance is necessary in respect of the
trade receivables as at the end of each reporting period. The Group does not hold any
collateral over these balances.
APPENDIX I ACCOUNTANTS’ REPORT
— I-26 —
The Group grants an average credit period of 30 days to its trade customers of contract
works. Application for progress payments of contract works is made on a regular basis.
The balance included in trade receivables of HK$2,757,000 and HK$2,612,000 as at 31
March 2009 and 2010, respectively, was neither past due nor impaired which relate to
customers as government department/organisation and reputable corporations for whom
there is no recent history of default.
Included in trade and other receivables are trade debtors (net of impairment losses) with the
following ageing analysis as of the end of the reporting period:
As at 31 March
2009 2010
HK$’000 HK$’000
Current 2,757 2,612
Less than 1 month past due 857 —
1 to 3 months past due — —
More than 3 months but less than 12 months past due — —
3,614 2,612
The ageing of trade receivables, which are past due but not impaired are as follows:
As at 31 March
2009 2010
HK$’000 HK$’000
Less than 1 month past due 857 —
1 to 3 months past due — —
More than 3 months past due but less than 12 months
past due — —
Amount past due at end of the reporting period but not
impaired 857 —
(ii) Retention monies withheld by customers of contract works are released after the completion
of maintenance period of the relevant contract or in accordance with the terms specified in
the relevant contract.
(iii) Trade and other receivables including the retention receivables are short term and hence the
directors consider the carrying amount of trade and other receivables approximate their fair
values at the end of each reporting periods.
APPENDIX I ACCOUNTANTS’ REPORT
— I-27 —
R7.04 (2)(b)
(iv) Particulars of the amount due from a director, who is also a shareholder of the Company,
is as follows:
Name of borrower
Balance at31 March
2010
Maximumamount
outstandingduring theyear ended
31 March2010
Balance at31 March2009 and
1 April2009
Maximumamount
outstandingduring theyear ended
31 March2009
Balanceat 1 April
2008
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Mr. Kan Kwok Cheung — 17,671 17,671 17,671 12,491
The amount due from a director is unsecured, interest-free and repayable on demand. The
Group has not made any provision for doubtful debts in respect of the amount due from the
director.
15. AMOUNTS DUE FROM CUSTOMERS FOR CONTRACT WORKS
As at 31 March2009 2010
HK$’000 HK$’000
Contracts in progress at the end of the reporting period:Contract costs incurred to date plus recognised profits 200,190 210,075Less: recognised losses — —
200,190 210,075Progress billings (195,744) (199,440)
4,446 10,635
“Contract costs incurred to date plus recongised profits” comprise direct materials, costs of
subcontracting, direct labour, an appropriate portion of variable and fixed construction overheads
incurred and gross profit earned to date of the contracts, which is measured by reference to the
certification by architects.
“Progress billings” represent the amounts billed to the customers for work performed up to the
end of each of the Reporting Periods.
At 31 March 2009 and 2010, retentions held by customers for contract works included in other
receivables (note 14) amounted to HK$10,449,000 and HK$6,495,000 respectively.
At 31 March 2009 and 2010, advances received from customers included in other payables (note
16) under current liabilities amounted to HK$9,572,000 and HK$9,550,000 respectively.
APPENDIX I ACCOUNTANTS’ REPORT
— I-28 —
16. TRADE AND OTHER PAYABLES
As at 31 March
2009 2010
HK$’000 HK$’000
Trade payables 5,328 8,046
Retention money payables 1,852 2,854
Advances received from customers (note (i)) (note 15) 9,572 9,550
Other payables and accruals 2,986 4,001
19,738 24,451
(i) Advances received from customers are unsecured and repayable on demand except for an
amount of HK$8,170,000 and HK$3,450,000 at 31 March 2009 and 2010 respectively which
bears interest at a rate of HIBOR + 4% per annum.
The Group normally settles trade payables within 30 days’ credit term. Based on the invoice date,
ageing analysis of trade payables at the end of the reporting period is as follows:
As at 31 March
2009 2010
HK$’000 HK$’000
Current or less than 1 month 3,258 5,418
1 to 3 months 557 1,104
More than 3 months but less than 12 months 1,492 385
More than 12 months 21 1,139
5,328 8,046
All amounts are short term and hence the carrying values of trade payables are considered to be
a reasonable approximation of fair value.
17. LEASES
Finance leases
The Group leases a number of its motor vehicles and machinery. Such assets are classified as
finance leases as the rental period approximates the estimated useful economic life of the assets
concerned and often the Group has the right to purchase the assets outright at the end of the minimum
lease term by paying a nominal amount. The lease terms ranged from one to three years. For the years
ended 31 March 2009 and 2010, the weighted average interest rates were 7.3% and 7.9% respectively.
APPENDIX I ACCOUNTANTS’ REPORT
— I-29 —
R7.04(2)(b)
Future lease payments are due as follows:
As at 31 March 2009
Minimumlease
payments InterestPresent
value
HK$’000 HK$’000 HK$’000
Not later than one year 3,340 253 3,087
Later than one year and not later than
five years 1,635 104 1,531
4,975 357 4,618
As at 31 March 2010
Minimumlease
payments InterestPresent
value
HK$’000 HK$000 HK$’000
Not later than one year 3,335 283 3,052
Later than one year and not later than
five years 875 49 826
4,210 332 3,878
Operating leases — lessee
The Group leased its office property, director’s quarter and certain office equipment under
operating lease arrangement which was negotiated for terms from two to three years with an option
to renew the leases upon expiry when all terms are renegotiated. None of the leases includes
contingent rentals.
The lease payments recognised as an expenses are as follows:
As at 31 March
2009 2010
HK$’000 HK$’000
Minimum lease payments 338 991
APPENDIX I ACCOUNTANTS’ REPORT
— I-30 —
The total future minimum lease payments are due as follows:
As at 31 March
2009 2010
HK$’000 HK$’000
Not later than one year 549 658
Later than one year and not later than five years 132 412
Later than five years — —
681 1,070
18. BORROWINGS
As at 31 March
2009 2010
HK$’000 HK$’000
Interest bearing:
Bank loans — on demand — 4,532
For the year ended 31 March 2010, the weighted average interest rate of borrowings was 5.1%.
The bank loans together with the banking facilities are secured by personal guarantees executed
by Mr. Kan Kwok Cheung, a director of the Company, and a cross guarantee from TY Civil.
The unutilised banking facilities as at 31 March 2010 amounted to HK$6,200,000.
Pursuant to a subordination agreement (the “Subordination Agreement”) dated 19 May 2009
entered into between the Group, Mr. Kan and a bank (“the bank”), in consideration of granting
facilities and advancing monies to the Group, each of Mr. Kan and the Group undertook to the bank
that, among other things, so long as there were any sums due from the Group to the bank, the
indebtedness owed by the Group to Mr. Kan shall not be repayable unless the bank otherwise
consented to such repayment.
In January 2010, the Group has set off certain sums of indebtedness owed to Mr. Kan against
certain sums paid by the Group for Mr. Kan in advance without obtaining prior consent of the bank
in accordance with the Subordination Agreement. This constituted a breach of the terms of the
Subordination Agreement and caused the bank loans became immediately repayable. Therefore, the
aforesaid bank loans were classified as current. The bank loans were originally repayable in full in
June 2012.
Subsequent to the year ended 31 March 2010, the Group has repaid all the outstanding bank loans
(note IV(d)).
APPENDIX I ACCOUNTANTS’ REPORT
— I-31 —
R7.03(7)
19. EMPLOYEE BENEFITS
As at 31 March
2009 2010
HK$’000 HK$’000
Liabilities for employee benefits comprise provision for:
Annual leave entitlement 360 330
Long service payments entitlement 153 143
513 473
20. DEFERRED TAX
Details of the deferred tax liabilities recognised and movements during the Relevant Periods are
as follows:
Accelerateddepreciation
allowances
HK$’000
At 1 April 2008 633
Charge to profit or loss for the year (note 9) 182
Effect of change in tax rate (note 9) (22)
At 31 March 2009 and 1 April 2009 793
Charge to profit or loss for the year (note 9) 865
At 31 March 2010 1,658
21. SHARE CAPITAL
The Company was incorporated in Cayman Islands on 15 March 2010 with an authorised share
capital of HK$380,000 divided into 38,000,000 ordinary shares of HK$0.01 each. On the same date,
one ordinary share was allotted and issued nil paid to initial subscriber. Further details on the
Company’s share capital are set out in the sub-paragraph headed “Changes in the share capital of the
Company” in Appendix V to the Prospectus.
For the purpose of this report, the share capital of the Group as at 31 March 2009 and 2010
represented the aggregate amount of the nominal value of the issued share capital of the entities now
comprising the Group at the end of reporting periods.
APPENDIX I ACCOUNTANTS’ REPORT
— I-32 —
22. RESERVES
Retainedearnings
Proposeddividend Total
HK$’000 HK$’000 HK$’000
Balance as at 1 April 2008 2,799 — 2,799
Total comprehensive income for the year 11,405 — 11,405
Balance as at 31 March 2009 and1 April 2009 14,204 — 14,204
Total comprehensive income for the year 16,838 — 16,838
Interim dividends paid during the year
(note 10) (18,570) — (18,570)
Proposed final dividend (note IV(c)) (4,000) 4,000 —
Balance as at 31 March 2010 8,472 4,000 12,472
(i) Distributable reserves
The Company was incorporated on 15 March 2010. As at 31 March 2010, there was no
reserve available for distribution to the shareholders.
23. NOTES SUPPORTING COMBINED STATEMENT OF CASH FLOWS
Cash and cash equivalents comprise:
As at 31 March
2009 2010
HK$’000 HK$’000
Cash and bank balances 196 10,330
Overdrafts (1,775) —
(1,579) 10,330
Major non-cash transactions during the Relevant Periods are as follows:
(i) During the year ended 31 March 2010, dividend of approximately HK$8,625,000 payable
to a shareholder of one of the Company’s subsidiaries was settled by offsetting the current
account with the director who was also the then shareholder of that subsidiary under the
instruction of the then shareholder.
APPENDIX I ACCOUNTANTS’ REPORT
— I-33 —
R7.03(6)
App1A(33)(5)
(ii) During the years ended 31 March 2009 and 2010, the Group entered into finance lease
arrangements in respect of purchase of property, plant and equipment with a capital value
at the inception of the leases of approximately HK$1,636,000 and HK$3,231,000
respectively and other payables of HK$510,000 during the year ended 31 March 2009.
24. RELATED PARTY TRANSACTIONS
(i) In addition to the transactions and balances disclosed elsewhere in these Combined
Financial Information, the Group entered into the following related party transactions.
Related party relationship Type of transaction Transaction amount
2009 2010
HK$’000 HK$’000
A company that Mr. Chia
Thien Loong, Eric John
had material interest
Rental expense for an
office premise paid
(note (a))
— 44
Spouse of Mr. Fung Chung
Kin
Sale of a motor vehicle to
the Group (note (b))
— 150
(a) Rental expense was charged at a term mutually agreed between the Group and the
related company. This related party transaction is expected to be continued after
floatation.
(b) The purchase of motor vehicle from the spouse of a director of the Company was made
according to the published price. This related party transaction is one-off nature and
expected not to be continued after floatation.
One of the Group’s directors, who is also a shareholder of the Group, has provided personal
guarantee to the lessor in respect of the Group’s obligations under finance lease and bank
loans as at each of the reporting period as disclosed in note 17 and 18 respectively.
The directors considered that the above related party transactions were conducted on normal
commercial terms and in the ordinary and usual course of the Group’s business.
(ii) Key management personnel compensation
The key management personnel of the Group are the directors of the Company. Details of
the remuneration paid to them during the Relevant Periods are set out in note 8 to the
Combined Financial Information.
25. FINANCIAL INSTRUMENTS — RISK MANAGEMENT
The Group’s principal financial assets are trade and other receivables and cash and cash
equivalents. Financial liabilities of the Group include trade and other payables.
APPENDIX I ACCOUNTANTS’ REPORT
— I-34 —
The Group has not issued and does not hold any financial instruments for trading purposes at the
end of the reporting period. The main risks arising from the Group’s financial instruments are credit
risk and liquidity risk.
The Group’s financial risk management policy seeks to ensure that adequate resources are
available to manage the above risks and to create value for its shareholders.
(i) Credit risk
The Group’s trade on credit terms only with recognised and creditworthy third parties. The credit
risk of Group’s trade and retention receivables (note 14) is concentrated as 93% (2009: 86%) of the
carrying amount was derived from two major customers. Management has a credit policy in place and
the exposures to these credit risks are monitored on an ongoing basis.
In respect of trade and other receivables, individual credit evaluations performed on all
customers requiring credit over a certain amount. These evaluation focus on the customer’s past
history of making payment when due and current ability to pay, and take into account information
specific to the customer as well as pertaining to the economic environment in which the customer
operates. Trade receivables are due within one year after the completion of project. Normally, the
Group does not obtain collateral from customers.
The credit risks of the Group’s other financial assets, which comprise bank balances,
prepayments and other receivables, arise from default of the counterparty, with a maximum exposure
equal to the carrying amounts of these financial instruments.
(ii) Liquidity risk
The Group’s objective is to ensure adequate funds to meet commitments associated with its
financial liabilities. Cash flows are closely monitored on an ongoing basis. The Group will raise funds
either through the advances from shareholders or from the realisation of its assets if required.
The table below summarises the maturity profile of the Group’s financial liabilities at 31 March
based on contractual undiscounted payments.
Year ended 31 March 2009On
demandLess than3 months
3 to 12months
Over1 year Total
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Other payables and accruals 2,986 — — — 2,986
Finance lease creditors 121 662 2,557 1,635 4,975
3,107 662 2,557 1,635 7,961
APPENDIX I ACCOUNTANTS’ REPORT
— I-35 —
Year ended 31 March 2010On
demandLess than3 months
3 to 12months
Over1 year Total
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Other payables and accruals 4,001 — — — 4,001
Bank loans 4,855 — — — 4,855
Finance lease creditors 1,662 537 1,136 875 4,210
10,518 537 1,136 875 13,066
(iii) Capital management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue
as a going concern in order to provide returns for shareholder and to maintain an optimal capital
structure to reduce the cost of capital.
The Group manages its capital structure and makes adjustments to it, in light of changes in
economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend
payment to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
No changes in the objectives, policies or processes were made during the Relevant Periods.
The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus
net debt. Net debt is calculated as the total of trade and other payables, finance lease creditors,
borrowings, employee benefits, bank overdraft and less cash and cash equivalents. Capital includes
equity attributable to owners of the Group.
2009 2010
HK$’000 HK$’000
Total debt 26,644 33,334
Less: Cash and cash equivalents (196) (10,330)
Net debt 26,448 23,004
Equity 24,072 22,340
Net debt and equity 50,520 45,344
Gearing ratio 52% 51%
APPENDIX I ACCOUNTANTS’ REPORT
— I-36 —
III. DIRECTORS’ REMUNERATION
Saved as disclosed in note 8(i) of Section II above, no other remuneration has been paid or is
payable in respect of the Relevant Periods to the directors of the Company.
IV. SUBSEQUENT EVENTS
Subsequent to 31 March 2010 and up to the date of this report, the following significant events
have taken place:
(a) On 11 August 2010, the entities now comprising the Group underwent a group
reorganisation to rationalise the Group’s structure in preparation of the listing of shares of
the Company on the GEM of the Stock Exchange.
(b) On 11 August 2010, written resolutions were passed to effect the transactions as set out in
the sub-paragraph headed “Written resolutions of all Shareholders passed on 11 August
2010” in Appendix V to the Prospectus, certain of which is disclosed as follows:
(i) The authorised share capital of the Company was increased from HK$380,000 to
HK$500,000,000 by the creation of additional 49,962,000,000 shares.
(ii) 999 shares of HK$0.01 each of the Company were issued as consideration for the
acquisition of the entire issued share capital of TYW (BVI).
(c) On 9 April 2010, TY Civil declared and paid a final dividend of HK$4,000,000 in respect
of the year ended 31 March 2010 to its then shareholders prior to the Reorganisation.
(d) Subsequent to the year ended 31 March, 2010, Mr. Kan Kwok Cheung, a director and
shareholder of the Company, has repaid all the outstanding bank loans of the Group. The
personal guarantees of Mr. Kan Kwok Cheung provided for the loans and other banking
facilities will be released in six months period from the date of aforesaid repayment.
Save as disclosed above, there are no other significant events which have taken place subsequent
to 31 March 2010.
V. SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by the Company in respect of any period
subsequent to 31 March 2010.
Yours faithfully,
BDO LimitedCertified Public Accountants
Li Yin FanPractising Certificate Number P03113
Hong Kong
APPENDIX I ACCOUNTANTS’ REPORT
— I-37 —
R7.03(9)
R7.02R7.08(4)
The following unaudited pro forma financial information prepared in accordance with Rule
7.31(1) and paragraph 21 of Appendix 1A of the GEM Listing Rules is for illustrative purpose only,
and is set out herein to provide the prospective investors with further financial information about how
the proposed listing might have affected the net tangible assets of the Group after the completion of
the Placing as if the Placing had taken place on 31 March 2010.
The accompanying unaudited pro forma financial information of the Group is based on currently
available information along with a number of assumptions, estimates and uncertainties. As a result of
these assumptions, estimates and uncertainties, the accompanying unaudited pro forma financial
information of the Group does not purport to predict the Group’s future financial position.
Although reasonable care has been exercised in preparing the said information, prospective
investors who read the information should bear in mind that these figures are inherently subject to
adjustments and may not give a true picture of the Group’s financial position.
The information set forth in this appendix does not form part of the Accountants’ Report prepared
by BDO Limited, Certified Public Accountants, Hong Kong, the reporting accountants of the
Company, as set forth 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 the section
headed “Financial Information” in this prospectus and the Accountants’ Report set forth in Appendix
I to this prospectus.
APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION
— II-1 —
R7.31(1)R7.31(2)(a)
R7.31(2)(c)
R7.31(2)(b)
(A) UNAUDITED PRO FORMA ADJUSTED NET TANGIBLE ASSETS
The unaudited pro forma adjusted net tangible assets of the Group has been prepared, on the basis
of the notes set forth below, for the purpose of illustrating the effect of the Placing as if it had taken
place on 31 March 2010. It has been prepared for illustrative purpose only and, because of its
hypothetical nature, may not give a true and fair picture of the financial position of the Group.
The unaudited pro forma adjusted net tangible assets of the Group as at 31 March 2010 is based
on the audited combined net tangible assets attributable to owners of the Company as at 31 March
2010 as shown in the Accountants’ Report set out in Appendix I to this prospectus and the adjustments
described below.
Auditedcombined net
tangibleassets
attributableto owners of
the Companyas at 31
March 2010
Add:Estimated
net proceedsfrom the
Placing
Less:Dividends
declared after31 March
2010
Unauditedpro forma
adjustedcombined
net tangibleassets
attributableto the
owners ofthe Company
Unauditedpro forma
adjustedcombined
net tangibleassets
per Share
HK$’000 HK$’000 HK$’000 HK$’000 HK cents
(Note 1) (Note 2) (Note 3) (Note 4)
Based on the
Placing Price
of HK$1.28
per share 22,340 21,000 (4,000) 39,340 39.7
Notes:
(1) The audited combined net tangible assets attributable to owners of the Company as at 31 March 2010 is based onthe audited combined net assets of the Company as at 31 March 2010 of HK$22,340,000.
(2) The estimated net proceeds from the Placing are based on 24,800,000 Placing Shares at the Placing Price ofHK$1.28 each, after deduction of the underwriting fees and related expenses payable of approximatelyHK$10,744,000 as estimated by the Directors.
(3) Dividend declared after 31 March 2010 representing TY Civil declared and paid a final dividend of HK$4,000,000on 9 April 2010 in respect of the year ended 31 March 2010 to its then shareholders prior to the Reorganisation.
(4) The unaudited pro forma adjusted combined net tangible assets per Share is calculated based on 99,200,000 Sharesin issue immediately following the completion of the Placing and the Capitalisation Issue and declared and paida final dividend of TY Civil. It does not take into account any Shares which may fall to be allotted and issuedpursuant to the exercise of any options which may be granted under the Share Option Scheme, or any Shares whichmay be allotted and issued or repurchased by the Company pursuant to the general mandates for the allotment andissue or repurchase of Shares referred to in Appendix V to this Prospectus or otherwise.
APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION
— II-2 —
App1A(21)
R7.31(3)(a)
R7.31(3)(a)R7.31(5)(b)
R7.31(3)(b)
R7.31(6)(a)R7.31(6)(b)
(B) LETTER FROM THE INDEPENDENT REPORTING ACCOUNTANTS ON THEUNAUDITED PRO FORMA FINANCIAL INFORMATION
The following is the text of a report, received from the independent reporting accountants of the
Company, BDO Limited, Certified Public Accountants, Hong Kong, prepared for inclusion in this
prospectus, in respect of the Group’s unaudited pro forma financial information.
20 August 2010
The Directors
Tsun Yip Holdings Limited
Optima Capital Limited
Dear Sirs,
Report on the unaudited pro forma financial information to the directors of Tsun Yip HoldingsLimited (the “Company”)
We report on the unaudited pro forma financial information relating to the adjusted net tangible
assets (the “Unaudited Pro Forma Financial Information”) of the Company and its subsidiaries
(collectively referred to as the “Group”), which has been prepared by the directors of the Company,
for illustrative purpose only, to provide information about how the proposed listing of the Company’s
shares might have affected the financial information presented, for inclusion in section A of Appendix
II the prospectus dated 20 August 2010 (the “Prospectus”) issued by the Company. The basis of
preparation of the Unaudited Pro Forma Financial Information is set out on section A of Appendix II
to the Prospectus.
Respective Responsibilities of Directors of the Company and the Reporting Accountants
It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma
Financial Information in accordance with paragraph 31 of Chapter 7 of the Rules Governing the
Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited
(the “GEM” Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma
Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of
Certified Public Accountants (the “HKICPA”).
It is our responsibility to form an opinion, as required by paragraph 31(7) of Chapter 7 of the
GEM Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion
solely 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 whose reports were addressed by us at the dates of their issue.
APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION
— II-3 —
R7.31(7)(a)R7.31(7)(b)R7.31(7)(c)App1A(9)(3)
Basis of opinion
We conducted our engagement in accordance with Hong Kong Standard on Investment Circular
Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment
Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial
information with source documents, considering the evidence supporting the adjustments and
discussing the Unaudited Pro Forma Financial Information with the directors of the Company. This
engagement did not involve independent examination of any of the underlying financial information.
We planned and performed our work so as to obtain the information and explanations we
considered necessary in order to provide us with sufficient evidence to give reasonable assurance that
the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the
Company on the basis stated, that such basis is consistent with the accounting policies of the Group
and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial
Information as disclosed pursuant to paragraph 31(1) of Chapter 7 of the GEM Listing Rules.
Our work did not constitute an audit or a review made in accordance with Hong Kong Standards
on Auditing or Hong Kong Standards on Review Engagements or Hong Kong Standards on Assurance
Engagements issued by the HKICPA, and accordingly, we did not express any such assurance on the
Unaudited Pro Forma Financial Information.
The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the
judgements and assumptions of the directors of the Company, and because of its hypothetical nature,
does not give any assurance or indication that any event will take place in the future and may not be
indicative of the financial position of the Group as at 31 March 2010 or at any future date.
Opinion
In our opinion:
(a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors
of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial
Information as disclosed pursuant to paragraph 31(1) of Chapter 7 of the GEM Listing
Rules.
Yours faithfully,
BDO LimitedCertified Public Accountants
Li Yin FanPractising Certificate Member P03113
Hong Kong
APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION
— II-4 —
R7.31(7)(a)R7.31(7)(b)R7.31(7)(c)
The following is the text of a letter, summary of values and valuation certificate prepared for the
purpose of incorporation in this prospectus received from Vigers Appraisal and Consulting Limited,
an independent valuer, in connection with the valuations of the property interests of the properties
rented by the Group as at 31 May 2010.
Vigers Appraisal and Consulting LimitedInternational Property Consultants
10th Floor, The Grande Building
398 Kwun Tong Road
Kowloon
Hong Kong
20 August 2010
The Board of Directors
Tsun Yip Holdings Limited
Flat 314, 3/F,
Fuk Shing Commercial Building,
28 On Lok Mun Street,
Fanling,
New Territories,
Hong Kong
Dear Sirs,
In accordance with your instruction for us to value the property interests held by Tsun Yip
Holdings Limited (referred to as “the Company”) and its subsidiaries (hereinafter together referred to
as “the Group”) as listed in the attached Summary of Values, we confirm that we have inspected the
properties, made relevant enquiries and investigations as well as obtained such further information as
we consider necessary for the purpose of providing our opinion of values of the property interests of
the properties as at 31 May 2010 (the “Valuation Date”).
Basis of Valuation
Our valuations are our opinion of market values of the property interests of the properties in
concern which is defined as intended to mean “the estimated amount for which a property should
exchange on the date of valuation between a willing buyer and a willing seller on an arm’s length
transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and
without compulsion”. Our valuations have been prepared in accordance with “The HKIS Valuation
Standards on Properties (First Edition 2005)” published by The Hong Kong Institute of Surveyors, the
relevant provisions in the Companies Ordinance and the Rules Governing the Listing of Securities on
the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited.
APPENDIX III PROPERTY VALUATION
— III-1 —
App1A.39
8.05(7)
App1A(9)(3)
8.05(8)8.30
8.04
8.05(9)
Property Categorisation
In respect of the property interests of the properties rented by the Group in the Hong Kong
Special Administrative Region (“Hong Kong”), we are of the opinion that such property interests carry
no commercial value due to the prohibition against assignment or sub-letting or otherwise due to lack
of substantial profit rent and/or the short term nature of the property interests.
Title Investigation
The properties are located in Hong Kong and we have conducted land searches for the properties
but we have not searched the original documents to ascertain ownership nor to verify any lease
amendments which may not appear on the copies handed to us.
Valuation Assumptions
Our valuations have been made on the assumption that the property interests of the properties can
be sold in the prevailing market in existing state without the effect of any deferred term contract,
leaseback, joint venture, management agreement or any other similar arrangement which may serve to
affect the values of the property interests of the properties, unless otherwise noted or stated. In
addition, no account has been taken into of any option or right of pre-emption concerning or affecting
the sale of the property interests of the properties, and no allowance has been made for the property
interests of the properties to be sold to a single party and/or as a portfolio or portfolios.
In valuing the property interests of the properties, we have assumed that the owners of the
property interests of the properties in concern have free and uninterrupted rights to use and assign the
properties during the whole of the unexpired terms granted subject to the payment of usual land-use
fees.
No investigation has been carried out to determine the suitability of the ground conditions or the
services for any property development(s) erected on the properties. Our valuations have been carried
out on the assumption that these aspects are satisfactory. We have also assumed that all necessary
consents, approvals and licences from relevant government authorities have been or will be granted
without onerous conditions or delay. Other special assumptions for the property interests of the
properties have been stated in the footnotes of the respective valuation certificate.
Valuation Consideration
We have inspected the properties included in the attached valuation certificate. During the course
of our inspections, we did not note any serious defect. However, neither structural survey nor test on
any of the services has been made and we are therefore unable to report as to whether the properties
are free from rot, infestation or other structural or non-structural defect.
APPENDIX III PROPERTY VALUATION
— III-2 —
Having examined all relevant documentation, we have relied to a considerable extent on the
information given by the Group, particularly in respect of planning approvals, statutory notices,
easements, tenure, site and floor areas, occupancy status, building age and specifications, and in the
identification of the properties in concern.
Unless otherwise stated, all dimensions, measurements and areas included in the valuation
certificate are based on the information contained in the documents provided to us by the Group and
are therefore approximations. We have had no reason to doubt the truth and accuracy of the
information made available to us and we have been advised by the Group that no material facts have
been omitted from the information so given.
Unless otherwise noted, we have not carried out detailed on-site measurement to verify the
correctness of the site and floor areas in respect of the properties in concern but we have assumed that
the site and floor areas shown on the documents handed to us are correct.
No allowance has been made in our valuations for any charges, mortgages or amounts owing on
the property interests of the properties being valued for any expenses or taxation which may be
incurred in effecting a sale. Unless otherwise stated, we have assumed that the property interests of
the properties are free from any encumbrances, restrictions and outgoings of an onerous nature which
may serve to affect the values of the property interests of the properties.
Remarks
We declare hereby that we are independent to the Group and we are not interested directly or
indirectly in any shares in any member of the Group. We do not have any right or option whether
legally enforceable or not to subscribe for or to nominate persons to subscribe for any shares in any
member of the Group.
We enclose herewith our Summary of Values and Valuation Certificate.
Yours faithfully,
For and on behalf of
VIGERS APPRAISAL AND CONSULTING LIMITEDDavid W. I. CHEUNG
MRICS MHKIS RPS(GP) CREA MCIArb
Executive Director
Note: Mr. David W. I. Cheung is a Registered Professional Surveyor in General Practice Division with over 27 years’ valuation
experience on properties in Asia Pacific including the People’s Republic of China and Hong Kong, who has been vetted
on the list of property valuers for undertaking valuations for incorporation or reference in listing particulars and
circulars and valuations in connection with takeovers and mergers published by The Hong Kong Institute of Surveyors,
and is suitably qualified for undertaking valuations relating to listing exercises.
APPENDIX III PROPERTY VALUATION
— III-3 —
8.31(1)8.31(2)
8.05(7)
8.32(1)
SUMMARY OF VALUES
No. Property Address
Capital Valuein ExistingState as at
31 May 2010
Interestattributable
to the Group
Capital Valueattributable to
the Group as at31 May 2010
Property Interests Rented by the Group in Hong Kong
1. Unit 14 on 3rd Floor,
Fuk Shing Commercial Building,
No. 28 On Lok Mun Street,
North, New Territories,
Hong Kong
No commercial value
2. Unit 3 on 3rd Floor,
Fuk Shing Commercial Building,
No. 28 On Lok Mun Street,
North, New Territories,
Hong Kong
No commercial value
3. Ground Floor,
No. 86 San Uk Ka,
Tai Po,
New Territories,
Hong Kong
No commercial value
4. Flat B (with A/C (Rooms)
pertaining thereto which is/are
accessible from the Flat itself) on
21st Floor of Tower 8,
The Palazzo,
No. 28 Lok King Street,
Shatin,
New Territories,
Hong Kong
No commercial value
5. Rooms 1 & 3 on 7th Floor,
Anton Building,
No. 1 Anton Street,
Wan Chai
Hong Kong
No commercial value
GRAND TOTAL NO COMMERCIAL VALUE
APPENDIX III PROPERTY VALUATION
— III-4 —
8.05(1)(a)
VALUATION CERTIFICATE
Property Interests Rented by the Group in Hong Kong
No. Property Description and TenureParticulars ofOccupancy
Capital Value inExisting State as at
31 May 2010
1. Unit 14 on3rd Floor,Fuk ShingCommercialBuilding,No. 28 On LokMun Street,North,New Territories,Hong Kong
All those21/1380th shares ofparts or parcels ofground known andregistered at theLand Registry asFanling SheungShui Town Lot No.162
The property comprises an office unit onthe 3rd floor in a 7-storey industrial/officebuilding completed in 1999.
As measured from the assignment plan, theproperty has a saleable area ofapproximately 1,398 square feet (129.91square metres).
Fanling Sheung Shui Town Lot No. 162 isheld under New Grant No. 13092commencing on 19 November 1996 andexpiring on 30 June 2047 at an annualGovernment Rent equivalent to 3% of theRateable Value.
Pursuant to a tenancy agreement enteredinto between Golden OpportunityDevelopment Limited as lessor and TsunYip Waterworks Construction CompanyLimited as lessee dated 27 August 2008, theproperty is leased for a term of two yearscommencing on 1 September 2008 andexpiring on 31 August 2010 at a monthlyrent of HK$20,000, inclusive of GovernmentRent, Rates and management fees, butexclusive of other out-goings.
The property isoccupied by theGroup for officeuse.
No commercial value
Note (Property 1):
1. The current registered owner of the property is “Golden Opportunity Development Limited”.
2. Pursuant to our land search record, the property is subject to the following salient encumbrances:
i. Certificate of Compliance vide Memorial No. N468856 dated 25 January 2000;
ii. Occupation Permit (Permit No. NT 60/99) vide Memorial No. N473125 dated 6 November 1999;
iii. Deed of Mutual Covenant and Management Agreement vide Memorial No. N483900 dated 29 May 2000;
iv. Tripartite Legal Charge/Mortgage for All Monies in favour of Standard Chartered Bank (Hong Kong)Limited vide Memorial No. N568375 dated 28 August 2004; and
v. Rental Assignment vide Memorial No. N568376 dated 28 August 2004.
3. The property lies on an area zoned “Industrial” under Fanling/Sheung Shui District Outline Zoning Plan (No.S/FSS/14).
APPENDIX III PROPERTY VALUATION
— III-5 —
8.05(1)(a)(1)(b)(1)(c)(1)(d)(1)(e)(ii)(1)(f)(1)(g)(1)(i)(1)(j)
No. Property Description and Tenure
Particulars of
Occupancy
Capital Value in
Existing State as at
31 May 2010
2. Unit 3 on
3rd Floor,
Fuk Shing
Commercial
Building,
No. 28 On Lok
Mun Street,
North,
New Territories,
Hong Kong
All those 13/1380
shares of parts or
parcels of ground
known and
registered at the
Land Registry as
Fanling Sheung
Shui Town Lot No.
162
The property comprises an office unit on
the 3rd floor in a 7-storey industrial/office
building completed in 1999.
As measured from the assignment plan, the
property has a saleable area of
approximately 854 square feet (79.35 square
metres).
Fanling Sheung Shui Town Lot No. 162 is
held under New Grant No. 13092
commencing on 19 November 1996 and
expiring on 30 June 2047 at an annual
Government Rent equivalent to 3% of the
Rateable Value.
Pursuant to a tenancy agreement entered
into between Golden Opportunity
Development Limited as lessor and Tsun
Yip Waterworks Construction Company
Limited as lessee dated 8 September 2009,
the property is leased for a term of two
years commencing on 7 October 2009 and
expiring on 6 October 2011 at a monthly
rent of HK$8,800, inclusive of Government
Rent, Rates and management fees , but
exclusive of other out-goings.
The property is
occupied by the
Group for office
use.
No commercial value
Note (Property 2):
1. The current registered owner of the property is “Golden Opportunity Development Limited”.
2. Pursuant to our land search record, the property is subject to the following salient encumbrances:
i. Certificate of Compliance vide Memorial No. N468856 dated 25 January 2000;
ii. Occupation Permit (Permit No. NT 60/99) vide Memorial No. N473125 dated 6 November 1999;
iii. Deed of Mutual Covenant and Management Agreement vide Memorial No. N483900 dated 29 May 2000;
iv. Tripartite Legal Charge/Mortgage for All Monies in favour of Standard Chartered Bank (Hong Kong)
Limited vide Memorial No. N568375 dated 28 August 2004; and
v. Rental Assignment vide Memorial No. N568376 dated 28 August 2004.
3. The property lies on an area zoned “Industrial” under Fanling/Sheung Shui District Outline Zoning Plan (No.
S/FSS/14).
APPENDIX III PROPERTY VALUATION
— III-6 —
8.05(1)(a)(1)(b)(1)(c)(1)(d)(1)(e)(ii)(1)(f)(1)(g)(1)(i)(1)(j)
No. Property Description and Tenure
Particulars of
Occupancy
Capital Value in
Existing State as at
31 May 2010
3. Ground Floor,
No. 86 San Uk Ka,
Tai Po,
New Territories,
Hong Kong
All those certain
parts or parcels of
ground known and
registered at the
Land Registry as
Sub-Section 13 of
Section A of Lot
No. 20 in D.D. 21
The property comprises a residential unit on
ground floor in a 3-storey village type
house completed in or about 2005.
According to our on-site measurement, the
property has a saleable area of
approximately 673 square feet (62.56 square
metres).
The property is held under Government
Lease for a term of 75 years commencing
on 1st July 1898 renewed for a further lease
term of 24 years less the last three days and
has been renewed for a further lease term of
50 years expiring on 30th June 2047
without paying additional premium but an
annual Government Rent equivalent to 3%
of the then Rateable Value by virtue of the
relevant provisions contained in Annex III
of the Joint Declaration of the Government
of the United Kingdom and the Government
of the People’s Republic of China on the
question of Hong Kong as well as the New
Territories Leases (Extension) Ordinance
1988.
Pursuant to a tenancy agreement entered
into between Wong Yuet Sang as lessor and
Tsun Yip Waterworks Construction Company
Limited as lessee dated 16 July 2009, the
property is leased for a term of two years
commencing on 1 August 2009 and expiring
on 31 July 2011 at a monthly rent of
HK$7,500, inclusive of Government Rent
and Rates, but exclusive of other
out-goings.
The property is
occupied by the
Group for office
use.
No commercial value
Note (Property 3):
1. No sub-division registration for the property is made available at the Land Registry. Pursuant to our land search
record, the property is registered at the Land Registry as “No. 86 San Uk Ka, Tai Po, New Territories, Hong Kong”
and the current registered owner of the property is “Wong Yuet Sang”.
2. Pursuant to our land search record, the property is subject to the following salient encumbrances:
i. Deed of Grant of Right of Way vide Memorial No. TP581823 dated 6 October 1997;
ii. Deed of Grant of Right of Way vide Memorial No. TP709887 dated 17 September 2003;
APPENDIX III PROPERTY VALUATION
— III-7 —
8.05(1)(a)(1)(b)(1)(c)(1)(d)(1)(e)(ii)(1)(f)(1)(g)(1)(i)
iii. Deed of Consent regarding R.P. & SS.13 of S.A of Lot No. 20 in DD21 vide Memorial No. TP710665 dated
10 October 2003;
iv. Re-registration of Deed of Agreement and Undertaking (previously registered by Memorial No. TP709888)
vide Memorial No. TP713676 dated 17 September 2003;
v. Building Licence No. 177/2002 from District Lands Officer Tai Po for and on behalf of The Chief Executive
of the HKSAR vide Memorial No. TP717016 dated 27 January 2004;
vi. Deed of Dedication vide Memorial No. TP717508 dated 29 December 2003; and
vii. Permission Letter from District Lands Officer/Tai Po vide Memorial No. 05110900350123 dated 6 October
2005.
3. The property lies on an area zoned “Village Type Development” under Tai Po District Outline Zoning Plan (No.
S/TP/21).
APPENDIX III PROPERTY VALUATION
— III-8 —
(1)(j)
No. Property Description and Tenure
Particulars of
Occupancy
Capital Value in
Existing State as at
31 May 2010
4. Flat B (with A/C
(Rooms) pertaining
thereto which
is/are accessible
from the Flat
itself) on 21st
Floor of Tower 8,
The Palazzo,
No. 28 Lok King
Street,
Sha Tin,
New Territories,
Hong Kong
All those 14/
25263rd shares of
parts or parcels of
ground known and
registered at the
Land Registry as
Sha Tin Town Lot
No. 470
The property comprises a residential unit on
the 21st Floor in a 37-storey (designation of
7th, 13th Floor, 14th Floor, 17th Floor, 24th
Floor, 27th Floor, 34th Floor, 37th Floor,
40th Floor to 49th Floor, 53rd Floor, 54th
Floor, 57th Floor to 59th Floor and 64th
Floor omitted, 29th Floor designated as
Refuge Floor, 16th Floor and 18th Floor
designated as Sky Garden Floors) residential
building erected over a 3-storey club
house/carpark podium completed in 2008.
According to the developer’s sales brochure,
the property has a gross floor area of
approximately 1,835 square feet (170.48
square metres). As measured from the
assignment plan, the property has a saleable
area of approximately 1,415 square feet
(131.46 square metres) including balcony of
appropriately 41 square feet (3.81 square
metres) and utility platform of appropriately
16 square feet (1.49 square metres) but
excluding bay window of appropriately 46
square feet (4.27 square metres) and
air-conditioning plant room of
approximately 46 square feet (4.27 square
metres).
The property is held under New Grant No.
ST13170 for a term of 50 years
commencing on 3 March 2003 at an annual
Government Rent equivalent to 3% of the
Rateable Value.
Pursuant to a tenancy agreement entered
into between Kim Nam Woon and Yu Su
Yeon as lessors and Tsun Yip Waterworks
Construction Company Limited as lessee
dated 1 April 2010, the property is leased
for a term of two years commencing on 16
April 2010 and expiring on 15 April 2012 at
a monthly rent of HK$37,000, inclusive of
Government Rent, Rates and management
fees, but exclusive of other out-goings.
The property is
occupied by the
Group for domestic
use.
No commercial value
APPENDIX III PROPERTY VALUATION
— III-9 —
8.05(1)(a)(1)(b)(1)(c)(1)(d)(1)(e)(ii)(1)(f)(1)(g)(1)(i)
Note (Property 4):
1. The current registered owners of the property are “Kim Nam Woon” (1/2) and “Yu Su Yeon” (1/2) (Tenants in
Common).
2. Pursuant to our land search record, the property is subject to the following salient encumbrances:
i. Occupation Permit Nos. PR7/2008 (OP) and PR1/2009(OP) from Building Authority of Hong Kong vide
Memorial Nos. 08121902440019 and 09020502080017 dated 12 December 2008 and 23 January 2009
respectively;
ii. Certificate of Compliance vide Memorial No. 09042902560310 dated 24 April 2009;
iii. Deed of Mutual Covenant and Management Agreement in favour of MTR Corporation Limited (Manager)
vide Memorial No. 09051802240182 dated 4 May 2009;
iv. Mortgage to Secure All the Banking Facilities made or to be made Available to the Mortgagor in favour of
Standard Chartered Bank (Hong Kong) Limited vide Memorial No. 09061000880093 dated 21 May 2009;
and
v. Second Mortgage to Secure All Moneys in respect of General Credit Facilities in favour of Rich Treasure
Investments Limited vide Memorial No. 09061000880105 dated 21 May 2009.
3. The property lies on an area zoned “Other Specified Uses(Railway Depot Comprehensive Development Area)”
under Sha Tin Outline Zoning Plan (No.S/ST/23).
APPENDIX III PROPERTY VALUATION
— III-10 —
(1)(j)
No. Property Description and Tenure
Particulars of
Occupancy
Capital Value in
Existing State as at
31 May 2010
5. Rooms 1 & 3 on
7th Floor,
Anton Building,
No. 1 Anton Street,
Wan Chai,
Hong Kong
All those certain
portion of 2/34th
shares of parts or
parcels of ground
known and
registered at the
Land Registry as
Sub-Section 2 of
Section A of
Marine Lot No. 65
The property comprises two office units on
the 7th floor in a 15-storey office
commercial building completed in or about
1984.
According to our on-site measurement, the
property has a total saleable area of
approximately 156 square feet (14.49 square
metres) with breakdown shown as follows:
Portion Saleable Area
Room 1 78 sq.ft. 7.28 sq.m.
Room 3 78 sq.ft. 7.21 sq.m.
Total 156 sq.ft. 14.49 sq.m.
Marine Lot No. 65 is held under
Government Lease for a term of 999 years
commencing on 25 June 1863 with total
Government Rent payable of HK$26.00 per
annum.
Pursuant to a sub-lease agreement and a
supplementary tenancy agreement entered
into between Hong Kong Listco Limited as
lessor and Tsun Yip Waterworks
Construction Company Limited as lessee
dated 1 May 2009 and 7 May 2010
respectively, the property is sub-leased for a
term of two years and six months
commencing on 1 May 2009 and expiring
on 31 October 2011 at a monthly rent of
HK$4,000, inclusive of Government Rent,
Rates and management fees, but exclusive
of other out-goings.
The property is
occupied by the
Group for office
use.
No commercial value
Note (Property 5):
1. The current registered owner of the property is “Super Pizza Holdings Limited”.
2. Pursuant to our land search record, the property is subject to Deed of Mutual Covenant (previously registered by
Memorial No. UB2571530) vide Memorial No. UB3948191 dated 10 April 1984.
3. The property lies on an area zoned “Residential (Group A)” under Wan Chai District Outline Zoning Plan (No.
S/H5/25).
APPENDIX III PROPERTY VALUATION
— III-11 —
8.05(1)(a)(1)(b)(1)(c)(1)(d)(1)(e)(ii)(1)(f)(1)(g)(1)(h)(1)(i)(1)(j)
Set out below is a summary of certain provisions of the Memorandum and Articles of Association
of the Company and of certain aspects of Cayman company law.
The Company was incorporated in the Cayman Islands as an exempted company with limited
liability on 15 March, 2010 under the Companies Law. The memorandum of association of the
Company (the “Memorandum”) and the Articles comprise its constitution.
1. MEMORANDUM OF ASSOCIATION
(a) The Memorandum states, inter alia, that the liability of members of the Company is limited
to the amount, if any, for the time being unpaid on the Shares respectively held by them and
that the objects for which the Company is established are unrestricted (including acting as
an investment company), and that the Company shall have and be capable of exercising all
the functions of a natural person of full capacity irrespective of any question of corporate
benefit, as provided in section 27(2) of the Companies Law and in view of the fact that the
Company is an exempted company that the Company will not trade in the Cayman Islands
with any person, firm or corporation except in furtherance of the business of the Company
carried on outside the Cayman Islands.
(b) The Company may by special resolution alter its Memorandum with respect to any objects,
powers or other matters specified therein.
2. ARTICLES OF ASSOCIATION
The Articles were adopted on 11 August 2010. The following is a summary of certain provisions
of the Articles:
(a) Directors
(i) Power to allot and issue shares and warrants
Subject to the provisions of the Companies Law and the Memorandum and Articles
and to any special rights conferred on the holders of any shares or class of shares, any share
may be issued with or have attached thereto such rights, or such restrictions, whether with
regard to dividend, voting, return of capital, or otherwise, as the Company may by ordinary
resolution determine (or, in the absence of any such determination or so far as the same may
not make specific provision, as the board may determine). Subject to the Companies Law,
the rules of any Designated Stock Exchange (as defined in the Articles) and the
Memorandum and Articles, any share may be issued on terms that, at the option of the
Company or the holder thereof, they are liable to be redeemed.
The board may issue warrants conferring the right upon the holders thereof to
subscribe for any class of shares or securities in the capital of the Company on such terms
as it may from time to time determine.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-1 —
R24.09(2),(3)
3rd Sch.(23)
R11.31S342
A1A7S342(1)(a)(i)
A36(1)
Subject to the provisions of the Companies Law and the Articles and, where
applicable, the rules of any Designated Stock Exchange (as defined in the Articles) and
without prejudice to any special rights or restrictions for the time being attached to any
shares or any class of shares, all unissued shares in the Company shall be at the disposal
of the board, which may offer, allot, grant options over or otherwise dispose of them to such
persons, at such times, for such consideration and on such terms and conditions as it in its
absolute discretion thinks fit, but so that no shares shall be issued at a discount.
Neither the Company nor the board shall be obliged, when making or granting any
allotment of, offer of, option over or disposal of shares, to make, or make available, any
such allotment, offer, option or shares to members or others with registered addresses in
any particular territory or territories being a territory or territories where, in the absence of
a registration statement or other special formalities, this would or might, in the opinion of
the board, be unlawful or impracticable. Members affected as a result of the foregoing
sentence shall not be, or be deemed to be, a separate class of members for any purpose
whatsoever.
(ii) Power to dispose of the assets of the Company or any subsidiary
There are no specific provisions in the Articles relating to the disposal of the assets
of the Company or any of its subsidiaries. The Directors may, however, exercise all powers
and do all acts and things which may be exercised or done or approved by the Company and
which are not required by the Articles or the Companies Law to be exercised or done by the
Company in general meeting.
(iii) Compensation or payments for loss of office
Pursuant to the Articles, payments to any Director or past Director of any sum by way
of compensation for loss of office or as consideration for or in connection with his
retirement from office (not being a payment to which the Director is contractually entitled)
must be approved by the Company in general meeting.
(iv) Loans and provision of security for loans to Directors
There are provisions in the Articles prohibiting the making of loans to Directors.
(v) Disclosure of interests in contracts with the Company or any of its subsidiaries.
A Director may hold any other office or place of profit with the Company (except that
of the auditor of the Company) in conjunction with his office of Director for such period
and, subject to the Articles, upon such terms as the board may determine, and may be paid
such extra remuneration therefor (whether by way of salary, commission, participation in
profits or otherwise) in addition to any remuneration provided for by or pursuant to any
other Articles. A Director may be or become a director or other officer of, or otherwise
interested in, any company promoted by the Company or any other company in which the
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-2 —
A11B5(4)
A11B5(2)
A1A7(1)
Company may be interested, and shall not be liable to account to the Company or the
members for any remuneration, profits or other benefits received by him as a director,
officer or member of, or from his interest in, such other company. Subject as otherwise
provided by the Articles, the board may also cause the voting power conferred by the shares
in any other company held or owned by the Company to be exercised in such manner in all
respects as it thinks fit, including the exercise thereof in favour of any resolution
appointing the Directors or any of them to be directors or officers of such other company,
or voting or providing for the payment of remuneration to the directors or officers of such
other company.
Subject to the Companies Law and the Articles, no Director or proposed or intended
Director shall be disqualified by his office from contracting with the Company, either with
regard to his tenure of any office or place of profit or as vendor, purchaser or in any other
manner whatsoever, nor shall any such contract or any other contract or arrangement in
which any Director is in any way interested be liable to be avoided, nor shall any Director
so contracting or being so interested be liable to account to the Company or the members
for any remuneration, profit or other benefits realised by any such contract or arrangement
by reason of such Director holding that office or the fiduciary relationship thereby
established. A Director who to his knowledge is in any way, whether directly or indirectly,
interested in a contract or arrangement or proposed contract or arrangement with the
Company shall declare the nature of his interest at the meeting of the board at which the
question of entering into the contract or arrangement is first taken into consideration, if he
knows his interest then exists, or in any other case, at the first meeting of the board after
he knows that he is or has become so interested.
A Director shall not vote (nor be counted in the quorum) on any resolution of the
board approving any contract or arrangement or other proposal in which he or any of his
associates is materially interested, but this prohibition shall not apply to any of the
following matters, namely:
(aa) any contract or arrangement for giving to such Director or his associate(s) any
security or indemnity in respect of money lent by him or any of his associates
or obligations incurred or undertaken by him or any of his associates at the
request of or for the benefit of the Company or any of its subsidiaries;
(bb) any contract or arrangement for the giving of any security or indemnity to a third
party in respect of a debt or obligation of the Company or any of its subsidiaries
for which the Director or his associate(s) has himself/themselves assumed
responsibility in whole or in part whether alone or jointly under a guarantee or
indemnity or by the giving of security;
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-3 —
A11B5(3)
App1A(7)(1)A34(1)
(cc) any contract or arrangement concerning an offer of shares or debentures or other
securities of or by the Company or any other company which the Company may
promote or be interested in for subscription or purchase, where the Director or
his associate(s) is/are or is/are to be interested as a participant in the
underwriting or sub-underwriting of the offer;
(dd) any contract or arrangement in which the Director or his associate(s) is/are
interested in the same manner as other holders of shares or debentures or other
securities of the Company by virtue only of his/their interest in shares or
debentures or other securities of the Company;
(ee) any contract or arrangement concerning any other company in which the Director
or his associate(s) is/are interested only, whether directly or indirectly, as an
officer or executive or a shareholder or in which the Director and any of his
associates are not in aggregate beneficially interested in 5 percent. or more of the
issued shares or of the voting rights of any class of shares of such company (or
of any third company through which his interest or that of any of his associates
is derived); or
(ff) any proposal or arrangement concerning the adoption, modification or operation
of a share option scheme, a pension fund or retirement, death, or disability
benefits scheme or other arrangement which relates both to Directors, his
associates and employees of the Company or of any of its subsidiaries and does
not provide in respect of any Director, or his associate(s) as such any privilege
or advantage not accorded generally to the class of persons to which such scheme
or fund relates.
(vi) Remuneration
The ordinary remuneration of the Directors shall from time to time be determined by
the Company in general meeting, such sum (unless otherwise directed by the resolution by
which it is voted) to be divided amongst the Directors in such proportions and in such
manner as the board may agree or, failing agreement, equally, except that any Director
holding office for part only of the period in respect of which the remuneration is payable
shall only rank in such division in proportion to the time during such period for which he
held office. The Directors shall also be entitled to be prepaid or repaid all travelling, hotel
and incidental expenses reasonably expected to be incurred or incurred by them in attending
any board meetings, committee meetings or general meetings or separate meetings of any
class of shares or of debentures of the Company or otherwise in connection with the
discharge of their duties as Directors.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-4 —
A1A7(2)
3rd Sch.(5)
Any Director who, by request, goes or resides abroad for any purpose of the Company
or who performs services which in the opinion of the board go beyond the ordinary duties
of a Director may be paid such extra remuneration (whether by way of salary, commission,
participation in profits or otherwise) as the board may determine and such extra
remuneration shall be in addition to or in substitution for any ordinary remuneration as a
Director. An executive Director appointed to be a managing director, joint managing
director, deputy managing director or other executive officer shall receive such
remuneration (whether by way of salary, commission or participation in profits or otherwise
or by all or any of those modes) and such other benefits (including pension and/or gratuity
and/or other benefits on retirement) and allowances as the board may from time to time
decide. Such remuneration may be either in addition to or in lieu of his remuneration as a
Director.
The board may establish or concur or join with other companies (being subsidiary
companies of the Company or companies with which it is associated in business) in
establishing and making contributions out of the Company’s monies to any schemes or
funds for providing pensions, sickness or compassionate allowances, life assurance or other
benefits for employees (which expression as used in this and the following paragraph shall
include any Director or ex-Director who may hold or have held any executive office or any
office of profit with the Company or any of its subsidiaries) and ex-employees of the
Company and their dependents or any class or classes of such persons.
The board may pay, enter into agreements to pay or make grants of revocable or
irrevocable, and either subject or not subject to any terms or conditions, pensions or other
benefits to employees and ex-employees and their dependents, or to any of such persons,
including pensions or benefits additional to those, if any, to which such employees or
ex-employees or their dependents are or may become entitled under any such scheme or
fund as is mentioned in the previous paragraph. Any such pension or benefit may, as the
board considers desirable, be granted to an employee either before and in anticipation of,
or upon or at any time after, his actual retirement.
(vii) Retirement, appointment and removal
At each annual general meeting, one third of the Directors for the time being (or if
their number is not a multiple of three, then the number nearest to but not less than one
third) will retire from office by rotation provided that every Director shall be subject to
retirement at an annual general meeting at least once every three years. The Directors to
retire in every year will be those who have been longest in office since their last re-election
or appointment but as between persons who became or were last re-elected Directors on the
same day those to retire will (unless they otherwise agree among themselves) be determined
by lot. There are no provisions relating to retirement of Directors upon reaching any age
limit.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-5 —
App1A(7)(4)A1A7(4)
The Directors shall have the power from time to time and at any time to appoint any
person as a Director either to fill a casual vacancy on the board or as an addition to the
existing board. Any Director appointed to fill a casual vacancy shall hold office until the
first general meeting of members after his appointment and be subject to re-election at such
meeting and any Director appointed as an addition to the existing board shall hold office
only until the next following annual general meeting of the Company and shall then be
eligible for re-election. Neither a Director nor an alternate Director is required to hold any
shares in the Company by way of qualification.
A Director may be removed by an ordinary resolution of the Company before the
expiration of his period of office (but without prejudice to any claim which such Director
may have for damages for any breach of any contract between him and the Company) and
may by ordinary resolution appoint another in his place. Unless otherwise determined by
the Company in general meeting, the number of Directors shall not be less than two. There
is no maximum number of Directors.
The office or director shall be vacated:
(aa) if he resigns his office by notice in writing delivered to the Company at the
registered office of the Company for the time being or tendered at a meeting of
the Board;
(bb) becomes of unsound mind or dies;
(cc) if, without special leave, he is absent from meetings of the board (unless an
alternate director appointed by him attends) for six (6) consecutive months, and
the board resolves that his office is vacated;
(dd) if he becomes bankrupt or has a receiving order made against him or suspends
payment or compounds with his creditors;
(ee) if he is prohibited from being a director by law;
(ff) if he ceases to be a director by virtue of any provision of law or is removed from
office pursuant to the Articles.
The board may from time to time appoint one or more of its body to be managing
director, joint managing director, or deputy managing director or to hold any other
employment or executive office with the Company for such period and upon such terms as
the board may determine and the board may revoke or terminate any of such appointments.
The board may delegate any of its powers, authorities and discretions to committees
consisting of such Director or Directors and other persons as the board thinks fit, and it may
from time to time revoke such delegation or revoke the appointment of and discharge any
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-6 —
A34(2)
App1A(7)(5)A34(3)
A11B5(1)
such committees either wholly or in part, and either as to persons or purposes, but every
committee so formed shall, in the exercise of the powers, authorities and discretions so
delegated, conform to any regulations that may from time to time be imposed upon it by the
board.
(viii) Borrowing powers
The board may exercise all the powers of the Company to raise or borrow money, to
mortgage or charge all or any part of the undertaking, property and assets (present and
future) and uncalled capital of the Company and, subject to the Companies Law, to issue
debentures, bonds and other securities of the Company, whether outright or as collateral
security for any debt, liability or obligation of the Company or of any third party.
Note: These provisions, in common with the Articles in general, can be varied with the sanction of a special
resolution of the Company.
(ix) Proceedings of the Board
The board may meet for the despatch of business, adjourn and otherwise regulate their
meetings as they think fit. Questions arising at any meeting shall be determined by a
majority of votes. In the case of an equality of votes, the chairman of the meeting shall have
an additional or casting vote.
(x) Register of Directors and Officers
The Companies Law and the Articles provide that the Company is required to maintain
at its registered office a register of directors and officers which is not available for
inspection by the public. A copy of such register must be filed with the Registrar of
Companies in the Cayman Islands and any change must be notified to the Registrar within
thirty (30) days of any change in such directors or officers.
(b) Alterations to constitutional documents
The Articles may be rescinded, altered or amended by the Company in general meeting by
special resolution. The Articles state that a special resolution shall be required to alter the
provisions of the Memorandum, to amend the Articles or to change the name of the Company.
(c) Alteration of capital
The Company may from time to time by ordinary resolution in accordance with the relevant
provisions of the Companies Law:
(i) increase its capital by such sum, to be divided into shares of such amounts as the
resolution shall prescribe;
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-7 —
App1A(7)(3)A1A7(3)
ThirdSchedule 22
A11B1
A1A7(6)
App1A(7)(6)
(ii) consolidate and divide all or any of its capital into shares of larger amount than its
existing shares;
(iii) divide its shares into several classes and without prejudice to any special rights
previously conferred on the holders of existing shares attach thereto respectively any
preferential, deferred, qualified or special rights, privileges, conditions or restrictions
as the Company in general meeting or as the directors may determine;
(iv) sub-divide its shares or any of them into shares of smaller amount than is fixed by the
Memorandum, subject nevertheless to the provisions of the Companies Law, and so
that the resolution whereby any share is sub-divided may determine that, as between
the holders of the shares resulting from such sub-division, one or more of the shares
may have any such preferred or other special rights, over, or may have such deferred
rights or be subject to any such restrictions as compared with the others as the
Company has power to attach to unissued or new shares; or
(v) cancel any shares which, at the date of passing of the resolution, have not been taken,
or agreed to be taken, by any person, and diminish the amount of its capital by the
amount of the shares so cancelled.
The Company may subject to the provisions of the Companies Law reduce its share capital
or any capital redemption reserve or other undistributable reserve in any way by special
resolution.
(d) Variation of rights of existing shares or classes of shares
Subject to the Companies Law, all or any of the special rights attached to the shares or any
class of shares may (unless otherwise provided for by the terms of issue of that class) be varied,
modified or abrogated either with the consent in writing of the holders of not less than
three-fourths in nominal value of the issued shares of that class or with the sanction of a special
resolution passed at a separate general meeting of the holders of the shares of that class. To every
such separate general meeting the provisions of the Articles relating to general meetings will
mutatis mutandis apply, but so that the necessary quorum (other than at an adjourned meeting)
shall be two persons holding or representing by proxy not less than one-third in nominal value
of the issued shares of that class and at any adjourned meeting two holders present in person or
by proxy whatever the number of shares held by them shall be a quorum. Every holder of shares
of the class shall be entitled on a poll to one vote for every such share held by him.
The special rights conferred upon the holders of any shares or class of shares shall not,
unless otherwise expressly provided in the rights attaching to the terms of issue of such shares,
be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-8 —
App1A25(3)
A36(2)A11B2(1)
(e) Special resolution-majority required
Pursuant to the Articles, a special resolution of the Company must be passed by a majority
of not less than three-fourths of the votes cast by such members as, being entitled so to do, vote
in person or, in the case of such members as are corporations, by their duly authorised
representatives or, where proxies are allowed, by proxy at a general meeting of which notice of
not less than twenty-one (21) clear days and not less than ten (10) clear business days specifying
the intention to propose the resolution as a special resolution, has been duly given. Provided that
if permitted by the Designated Stock Exchange (as defined in the Articles), except in the case
of an annual general meeting, if it is so agreed by a majority in number of the members having
a right to attend and vote at such meeting, being a majority together holding not less than
ninety-five per cent. (95%) in nominal value of the shares giving that right and, in the case of
an annual general meeting, if so agreed by all Members entitled to attend and vote thereat, a
resolution may be proposed and passed as a special resolution at a meeting of which notice of
less than twenty-one (21) clear days and less than ten (10) clear business days has been given.
A copy of any special resolution must be forwarded to the Registrar of Companies in the
Cayman Islands within fifteen (15) days of being passed.
An ordinary resolution is defined in the Articles to mean a resolution passed by a simple
majority of the votes of such members of the Company as, being entitled to do so, vote in person
or, in the case of corporations, by their duly authorised representatives or, where proxies are
allowed, by proxy at a general meeting held in accordance with the Articles.
(f) Voting rights
Subject to any special rights or restrictions as to voting for the time being attached to any
shares by or in accordance with the Articles, at any general meeting on a poll every member
present in person or by proxy or, in the case of a member being a corporation, by its duly
authorised representative shall have one vote for every fully paid share of which he is the holder
but so that no amount paid up or credited as paid up on a share in advance of calls or installments
is treated for the foregoing purposes as paid up on the share. A member entitled to more than one
vote need not use all his votes or cast all the votes he uses in the same way.
At any general meeting a resolution put to the vote of the meeting is to be decided by way
of a poll.
If a recognised clearing house (or its nominee(s)) is a member of the Company it may
authorise such person or persons as it thinks fit to act as its representative(s) at any meeting of
the Company or at any meeting of any class of members of the Company provided that, if more
than one person is so authorised, the authorisation shall specify the number and class of shares
in respect of which each such person is so authorised. A person authorised pursuant to this
provision shall be deemed to have been duly authorised without further evidence of the facts and
be entitled to exercise the same powers on behalf of the recognised clearing house (or its
nominee(s)) as if such person was the registered holder of the shares of the Company held by that
clearing house (or its nominee(s)).
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-9 —
A11B1
App1A(25)(1)
A1A13A
A11B6
Where the Company has any knowledge that any shareholder is, under the rules of the
Designated Stock Exchange (as defined in the Articles), required to abstain from voting on any
particular resolution of the Company or restricted to voting only for or only against any
particular resolution of the Company, any votes cast by or on behalf of such shareholder in
contravention of such requirement or restriction shall not be counted.
(g) Requirements for annual general meetings
An annual general meeting of the Company must be held in each year, other than the year
of adoption of the Articles (within a period of not more than fifteen (15) months after the holding
of the last preceding annual general meeting or a period of eighteen (18) months from the date
of adoption of the Articles, unless a longer period would not infringe the rules of any Designated
Stock Exchange (as defined in the Articles)) at such time and place as may be determined by the
board.
(h) Accounts and audit
The board shall cause true accounts to be kept of the sums of money received and expended
by the Company, and the matters in respect of which such receipt and expenditure take place, and
of the property, assets, credits and liabilities of the Company and of all other matters required
by the Companies Law or necessary to give a true and fair view of the Company’s affairs and
to explain its transactions.
The accounting records shall be kept at the registered office or at such other place or places
as the board decides and shall always be open to inspection by any Director. No member (other
than a Director) shall have any right to inspect any accounting record or book or document of
the Company except as conferred by law or authorised by the board or the Company in general
meeting.
A copy of every balance sheet and profit and loss account (including every document
required by law to be annexed thereto) which is to be laid before the Company at its general
meeting, together with a printed copy of the Directors’ report and a copy of the auditors’ report,
shall not less than twenty-one (21) days before the date of the meeting and at the same time as
the notice of annual general meeting be sent to every person entitled to receive notices of general
meetings of the Company under the provisions the Articles; however, subject to compliance with
all applicable laws, including the rules of the Designated Stock Exchange (as defined in the
Articles), the Company may send to such persons summarised financial statements derived from
the Company’s annual accounts and the directors’ report instead provided that any such person
may by notice in writing served on the Company, demand that the Company sends to him, in
addition to summarised financial statements, a complete printed copy of the Company’s annual
financial statement and the directors’ report thereon.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-10 —
App. 314
A11B4(2)
A11B4(1)
A35
A11B3(3)4(2)
Auditors shall be appointed and the terms and tenure of such appointment and their duties
at all times regulated in accordance with the provisions of the Articles. The remuneration of the
auditors shall be fixed by the Company in general meeting or in such manner as the members may
determine.
The financial statements of the Company shall be audited by the auditor in accordance with
generally accepted auditing standards. The auditor shall make a written report thereon in
accordance with generally accepted auditing standards and the report of the auditor shall be
submitted to the members in general meeting. The generally accepted auditing standards referred
to herein may be those of a country or jurisdiction other than the Cayman Islands. If so, the
financial statements and the report of the auditor should disclose this fact and name such country
or jurisdiction.
(i) Notices of meetings and business to be conducted thereat
An annual general meeting shall be called by notice of not less than twenty-one (21) clear
days and not less than twenty (20) clear business days and any extraordinary general meeting at
which it is proposed to pass a special resolution shall (save as set out in sub-paragraph (e) above)
be called by notice of at least twenty-one (21) clear days and not less than ten (10) clear business
days. All other extraordinary general meeting shall be called by at least fourteen (14) clear days
and not less than ten (10) clear business days. The notice must specify the time and place of the
meeting and, in the case of special business, the general nature of that business. In addition
notice of every general meeting shall be given to all members of the Company other than such
as, under the provisions of the Articles or the terms of issue of the shares they hold, are not
entitled to receive such notices from the Company, and also to the auditors for the time being
of the Company.
Notwithstanding that a meeting of the Company is called by shorter notice than that
mentioned above if permitted by the rules of the Designated Stock Exchange, it shall be deemed
to have been duly called if it is so agreed:
(i) in the case of a meeting called as an annual general meeting, by all members of the
Company entitled to attend and vote thereat; and
(ii) in the case of any other meeting, by a majority in number of the members having a
right to attend and vote at the meeting, being a majority together holding not less than
ninety-five per cent (95%) in nominal value of the issued shares giving that right.
All business shall be deemed special that is transacted at an extraordinary general meeting
and also all business shall be deemed special that is transacted at an annual general meeting with
the exception of the following, which shall be deemed ordinary business:
(aa) the declaration and sanctioning of dividends;
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-11 —
A11B3(1)
(bb) the consideration and adoption of the accounts and balance sheet and the reports of the
directors and the auditors;
(cc) the election of directors in place of those retiring;
(dd) the appointment of auditors and other officers;
(ee) the fixing of the remuneration of the directors and of the auditors;
(ff) the granting of any mandate or authority to the directors to offer, allot, grant options
over or otherwise dispose of the unissued shares of the Company representing not
more than twenty per cent (20%) in nominal value of its existing issued share capital;
and
(gg) the granting of any mandate or authority to the directors to repurchase securities of
the Company.
(j) Transfer of shares
All transfers of shares may be effected by an instrument of transfer in the usual or common
form or in a form prescribed by the Designated Stock Exchange (as defined in the Articles) or
in such other form as the board may approve and which may be under hand or, if the transferor
or transferee is a clearing house or its nominee(s), by hand or by machine imprinted signature
or by such other manner of execution as the board may approve from time to time. The instrument
of transfer shall be executed by or on behalf of the transferor and the transferee provided that
the board may dispense with the execution of the instrument of transfer by the transferee in any
case in which it thinks fit, in its discretion, to do so and the transferor shall be deemed to remain
the holder of the share until the name of the transferee is entered in the register of members in
respect thereof. The board may also resolve either generally or in any particular case, upon
request by either the transferor or the transferee, to accept mechanically executed transfers.
The board in so far as permitted by any applicable law may, in its absolute discretion, at
any time and from time to time transfer any share upon the principal register to any branch
register or any share on any branch register to the principal register or any other branch register.
Unless the board otherwise agrees, no shares on the principal register shall be transferred
to any branch register nor may shares on any branch register be transferred to the principal
register or any other branch register. All transfers and other documents of title shall be lodged
for registration and registered, in the case of shares on a branch register, at the relevant
registration office and, in the case of shares on the principal register, at the registered office in
the Cayman Islands or such other place at which the principal register is kept in accordance with
the Companies Law.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-12 —
A1A7(8)
App1A(7)(8)A31(4)
A31(1)
The board may, in its absolute discretion, and without assigning any reason, refuse to
register a transfer of any share (not being a fully paid up share) to a person of whom it does not
approve or any share issued under any share incentive scheme for employees upon which a
restriction on transfer imposed thereby still subsists, and it may also refuse to register any
transfer of any share to more than four joint holders or any transfer of any share (not being a fully
paid up share) on which the Company has a lien.
The board may decline to recognise any instrument of transfer unless a fee of such
maximum sum as any Designated Stock Exchange (as defined in the Articles) may determine to
be payable or such lesser sum as the Directors may from time to time require is paid to the
Company in respect thereof, the instrument of transfer, if applicable, is properly stamped, is in
respect of only one class of share and is lodged at the relevant registration office or registered
office or such other place at which the principal register is kept accompanied by the relevant
share certificate(s) and such other evidence as the board may reasonably require to show the right
of the transferor to make the transfer (and if the instrument of transfer is executed by some other
person on his behalf, the authority of that person so to do).
The registration of transfers may be suspended and the register closed on giving notice by
advertisement in a relevant newspaper and, where applicable, any other newspapers in
accordance with the requirements of any Designated Stock Exchange (as defined in the Articles),
at such times and for such periods as the board may determine and either generally or in respect
of any class of shares. The register of members shall not be closed for periods exceeding in the
whole thirty (30) days in any year.
(k) Power for the Company to purchase its own shares
The Company is empowered by the Companies Law and the Articles to purchase its own
Shares subject to certain restrictions and the Board may only exercise this power on behalf of
the Company subject to any applicable requirements imposed from time to time by any
Designated Stock Exchange (as defined in the Articles).
(l) Power for any subsidiary of the Company to own shares in the Company and
financial assistance to purchase shares of the Company
There are no provisions in the Articles relating to ownership of shares in the Company by
a subsidiary.
Subject to compliance with the rules and regulations of the Designated Stock Exchange (as
defined in the Articles) and any other relevant regulatory authority, the Company may give
financial assistance for the purpose of or in connection with a purchase made or to be made by
any person of any shares in the Company.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-13 —
A31(2)1(3)
A31(1)
A11B3(2)
A1A7(9)
(m) Dividends and other methods of distribution
Subject to the Companies Law, the Company in general meeting may declare dividends in
any currency to be paid to the members but no dividend shall be declared in excess of the amount
recommended by the board.
The Articles provide dividends may be declared and paid out of the profits of the Company,
realised or unrealised, or from any reserve set aside from profits which the directors determine
is no longer needed. With the sanction of an ordinary resolution dividends may also be declared
and paid out of share premium account or any other fund or account which can be authorised for
this purpose in accordance with the Companies Law.
Except in so far as the rights attaching to, or the terms of issue of, any share may otherwise
provide, (i) all dividends shall be declared and paid according to the amounts paid up on the
shares in respect whereof the dividend is paid but no amount paid up on a share in advance of
calls shall for this purpose be treated as paid up on the share and (ii) all dividends shall be
apportioned and paid pro rata according to the amount paid up on the shares during any portion
or portions of the period in respect of which the dividend is paid. The Directors may deduct from
any dividend or other monies payable to any member or in respect of any shares all sums of
money (if any) presently payable by him to the Company on account of calls or otherwise.
Whenever the board or the Company in general meeting has resolved that a dividend be paid
or declared on the share capital of the Company, the board may further resolve either (a) that
such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully
paid up, provided that the shareholders entitled thereto will be entitled to elect to receive such
dividend (or part thereof) in cash in lieu of such allotment, or (b) that shareholders entitled to
such dividend will be entitled to elect to receive an allotment of shares credited as fully paid up
in lieu of the whole or such part of the dividend as the board may think fit. The Company may
also upon the recommendation of the board by an ordinary resolution resolve in respect of any
one particular dividend of the Company that it may be satisfied wholly in the form of an
allotment of shares credited as fully paid up without offering any right to shareholders to elect
to receive such dividend in cash in lieu of such allotment.
Any dividend, interest or other sum payable in cash to the holder of shares may be paid by
cheque or warrant sent through the post addressed to the holder at his registered address, or in
the case of joint holders, addressed to the holder whose name stands first in the register of the
Company in respect of the shares at his address as appearing in the register or addressed to such
person and at such addresses as the holder or joint holders may in writing direct. Every such
cheque or warrant shall, unless the holder or joint holders otherwise direct, be made payable to
the order of the holder or, in the case of joint holders, to the order of the holder whose name
stands first on the register in respect of such shares, and shall be sent at his or their risk and
payment of the cheque or warrant by the bank on which it is drawn shall constitute a good
discharge to the Company. Any one of two or more joint holders may give effectual receipts for
any dividends or other moneys payable or property distributable in respect of the shares held by
such joint holders.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-14 —
A1A 16
A1A7(7)App1A(7)(7)
A33(1)
Whenever the board or the Company in general meeting has resolved that a dividend be paid
or declared the board may further resolve that such dividend be satisfied wholly or in part by the
distribution of specific assets of any kind.
All dividends or bonuses unclaimed for one year after having been declared may be
invested or otherwise made use of by the board for the benefit of the Company until claimed and
the Company shall not be constituted a trustee in respect thereof. All dividends or bonuses
unclaimed for six years after having been declared may be forfeited by the board and shall revert
to the Company.
No dividend or other monies payable by the Company on or in respect of any share shall
bear interest against the Company.
(n) Proxies
Any member of the Company entitled to attend and vote at a meeting of the Company is
entitled to appoint another person as his proxy to attend and vote instead of him. A member who
is the holder of two or more shares may appoint more than one proxy to represent him and vote
on his behalf at a general meeting of the Company or at a class meeting. A proxy need not be
a member of the Company and shall be entitled to exercise the same powers on behalf of a
member who is an individual and for whom he acts as proxy as such member could exercise. In
addition, a proxy shall be entitled to exercise the same powers on behalf of a member which is
a corporation and for which he acts as proxy as such member could exercise if it were an
individual member. Votes may be given either personally (or, in the case of a member being a
corporation, by its duly authorised representative) or by proxy.
(o) Call on shares and forfeiture of shares
Subject to the Articles and to the terms of allotment, the board may from time to time make
such calls upon the members in respect of any monies unpaid on the shares held by them
respectively (whether on account of the nominal value of the shares or by way of premium). A
call may be made payable either in one lump sum or by installments. If the sum payable in
respect of any call or instalment is not paid on or before the day appointed for payment thereof,
the person or persons from whom the sum is due shall pay interest on the same at such rate not
exceeding twenty per cent. (20%) per annum as the board may agree to accept from the day
appointed for the payment thereof to the time of actual payment, but the board may waive
payment of such interest wholly or in part. The board may, if it thinks fit, receive from any
member willing to advance the same, either in money or money’s worth, all or any part of the
monies uncalled and unpaid or installments payable upon any shares held by him, and upon all
or any of the monies so advanced the Company may pay interest at such rate (if any) as the board
may decide.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-15 —
App1A(7)(7)
A33(2)
A11B2(2)
If a member fails to pay any call on the day appointed for payment thereof, the board may
serve not less than fourteen (14) clear days’ notice on him requiring payment of so much of the
call as is unpaid, together with any interest which may have accrued and which may still accrue
up to the date of actual payment and stating that, in the event of non-payment at or before the
time appointed, the shares in respect of which the call was made will be liable to be forfeited.
If the requirements of any such notice are not complied with, any share in respect of which
the notice has been given may at any time thereafter, before the payment required by the notice
has been made, be forfeited by a resolution of the board to that effect. Such forfeiture will
include all dividends and bonuses declared in respect of the forfeited share and not actually paid
before the forfeiture.
A person whose shares have been forfeited shall cease to be a member in respect of the
forfeited shares but shall, notwithstanding, remain liable to pay to the Company all monies
which, at the date of forfeiture, were payable by him to the Company in respect of the shares,
together with (if the board shall in its discretion so require) interest thereon from the date of
forfeiture until the date of actual payment at such rate not exceeding twenty per cent. (20%) per
annum as the board determines.
(p) Inspection of register of members
Pursuant to the Articles the register and branch register of members shall be open to
inspection for at least two (2) hours on every business day by members without charge, or by any
other person upon a maximum payment of HK$2.50 or such lesser sum specified by the board,
at the registered office or such other place at which the register is kept in accordance with the
Companies Law or, upon a maximum payment of HK$1.00 or such lesser sum specified by the
board, at the Registration Office (as defined in the Articles), unless the register is closed in
accordance with the Articles.
(q) Quorum for meetings and separate class meetings
No business shall be transacted at any general meeting unless a quorum is present when the
meeting proceeds to business, but the absence of a quorum shall not preclude the appointment
of a chairman.
Save as otherwise provided by the Articles the quorum for a general meeting shall be two
members present in person (or, in the case of a member being a corporation, by its duly
authorised representative) or by proxy and entitled to vote. In respect of a separate class meeting
(other than an adjourned meeting) convened to sanction the modification of class rights the
necessary quorum shall be two persons holding or representing by proxy not less than one-third
in nominal value of the issued shares of that class.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-16 —
A11B3(2)
App1A(7)(2)
A36(2)
A corporation being a member shall be deemed for the purpose of the Articles to be present
in person if represented by its duly authorised representative being the person appointed by
resolution of the directors or other governing body of such corporation to act as its representative
at the relevant general meeting of the Company or at any relevant general meeting of any class
of members of the Company.
(r) Rights of the minorities in relation to fraud or oppression
There are no provisions in the Articles relating to rights of minority shareholders in relation
to fraud or oppression. However, certain remedies are available to shareholders of the Company
under Cayman law, as summarised in paragraph 3(f) of this Appendix.
(s) Procedures on liquidation
A resolution that the Company be wound up by the court or be wound up voluntarily shall
be a special resolution.
Subject to any special rights, privileges or restrictions as to the distribution of available
surplus assets on liquidation for the time being attached to any class or classes of shares (i) if
the Company shall be wound up and the assets available for distribution amongst the members
of the Company shall be more than sufficient to repay the whole of the capital paid up at the
commencement of the winding up, the excess shall be distributed pari passu amongst such
members in proportion to the amount paid up on the shares held by them respectively and (ii)
if the Company shall be wound up and the assets available for distribution amongst the members
as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be
distributed so that, as nearly as may be, the losses shall be borne by the members in proportion
to the capital paid up, or which ought to have been paid up, at the commencement of the winding
up on the shares held by them respectively.
If the Company shall be wound up (whether the liquidation is voluntary or by the court) the
liquidator may, with the authority of a special resolution and any other sanction required by the
Companies Law divide among the members in specie or kind the whole or any part of the assets
of the Company whether the assets shall consist of property of one kind or shall consist of
properties of different kinds and the liquidator may, for such purpose, set such value as he deems
fair upon any one or more class or classes of property to be divided as aforesaid and may
determine how such division shall be carried out as between the members or different classes of
members. The liquidator may, with the like authority, vest any part of the assets in trustees upon
such trusts for the benefit of members as the liquidator, with the like authority, shall think fit,
but so that no contributory shall be compelled to accept any shares or other property in respect
of which there is a liability.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-17 —
(t) Untraceable members
Pursuant to the Articles, the Company may sell any of the shares of a member who is
untraceable if (i) all cheques or warrants in respect of dividends of the shares in question (being
not less than three in total number) for any sum payable in cash to the holder of such shares have
remained uncashed for a period of 12 years; (ii) upon the expiry of the 12 year period, the
Company has not during that time received any indication of the existence of the member; and
(iii) the Company has caused an advertisement to be published in accordance with the rules of
the Designated Stock Exchange (as defined in the Articles) giving notice of its intention to sell
such shares and a period of three (3) months, or such shorter period as may be permitted by the
Designated Stock Exchange (as defined in the Articles), has elapsed since the date of such
advertisement and the Designated Stock Exchange (as defined in the Articles) has been notified
of such intention. The net proceeds of any such sale shall belong to the Company and upon
receipt by the Company of such net proceeds, it shall become indebted to the former member of
the Company for an amount equal to such net proceeds.
(u) Subscription rights reserve
The Articles provide that to the extent that it is not prohibited by and is in compliance with
the Companies Law, if warrants to subscribe for shares have been issued by the Company and
the Company does any act or engages in any transaction which would result in the subscription
price of such warrants being reduced below the par value of a share, a subscription rights reserve
shall be established and applied in paying up the difference between the subscription price and
the par value of a share on any exercise of the warrants.
3. CAYMAN ISLANDS COMPANY LAW
The Company is incorporated in the Cayman Islands subject to the Companies Law and,
therefore, operates subject to Cayman law. Set out below is a summary of certain provisions of
Cayman company law, although this does not purport to contain all applicable qualifications and
exceptions or to be a complete review of all matters of Cayman company law and taxation, which may
differ from equivalent provisions in jurisdictions with which interested parties may be more familiar:
(a) Operations
As an exempted company, the Company’s operations must be conducted mainly outside the
Cayman Islands. The Company is required to file an annual return each year with the Registrar
of Companies of the Cayman Islands and pay a fee which is based on the amount of its authorised
share capital.
(b) Share capital
The Companies Law provides that where a company issues shares at a premium, whether
for cash or otherwise, a sum equal to the aggregate amount of the value of the premiums on those
shares shall be transferred to an account, to be called the “share premium account”. At the option
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-18 —
A313(2)(a)13(2)(b)
of a company, these provisions may not apply to premiums on shares of that company allotted
pursuant to any arrangement in consideration of the acquisition or cancellation of shares in any
other company and issued at a premium. The Companies Law provides that the share premium
account may be applied by the company subject to the provisions, if any, of its memorandum and
articles of association in (a) paying distributions or dividends to members; (b) paying up
unissued shares of the company to be issued to members as fully paid bonus shares; (c) the
redemption and repurchase of shares (subject to the provisions of section 37 of the Companies
Law); (d) writing-off the preliminary expenses of the company; (e) writing-off the expenses of,
or the commission paid or discount allowed on, any issue of shares or debentures of the company;
and (f) providing for the premium payable on redemption or purchase of any shares or debentures
of the company.
No distribution or dividend may be paid to members out of the share premium account
unless immediately following the date on which the distribution or dividend is proposed to be
paid, the company will be able to pay its debts as they fall due in the ordinary course business.
The Companies Law provides that, subject to confirmation by the Grand Court of the
Cayman Islands (the “Court”), a company limited by shares or a company limited by guarantee
and having a share capital may, if so authorised by its articles of association, by special
resolution reduce its share capital in any way.
The Articles includes certain protections for holders of special classes of shares, requiring
their consent to be obtained before their rights may be varied. The consent of the specified
proportions of the holders of the issued shares of that class or the sanction of a resolution passed
at a separate meeting of the holders of those shares is required.
(c) Financial assistance to purchase shares of a company or its holding company
Subject to all applicable laws, the Company may give financial assistance to Directors and
employees of the Company, its subsidiaries, its holding company or any subsidiary of such
holding company in order that they may buy Shares in the Company or shares in any subsidiary
or holding company. Further, subject to all applicable laws, the Company may give financial
assistance to a trustee for the acquisition of Shares in the Company or shares in any such
subsidiary or holding company to be held for the benefit of employees of the Company, its
subsidiaries, any holding company of the Company or any subsidiary of any such holding
company (including salaried Directors).
There is no statutory restriction in the Cayman Islands on the provision of financial
assistance by a company to another person for the purchase of, or subscription for, its own or its
holding company’s shares. Accordingly, a company may provide financial assistance if the
directors of the company consider, in discharging their duties of care and acting in good faith,
for a proper purpose and in the interests of the company, that such assistance can properly be
given. Such assistance should be on an arm’s-length basis.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-19 —
(d) Purchase of shares and warrants by a company and its subsidiaries
Subject to the provisions of the Companies Law, a company limited by shares or a company
limited by guarantee and having a share capital may, if so authorised by its articles of
association, issue shares which are to be redeemed or are liable to be redeemed at the option of
the company or a shareholder. In addition, such a company may, if authorised to do so by its
articles of association, purchase its own shares, including any redeemable shares. However, if the
articles of association do not authorise the manner or purchase, a company cannot purchase any
of its own shares unless the manner of purchase has first been authorised by an ordinary
resolution of the company. At no time may a company redeem or purchase its shares unless they
are fully paid. A company may not redeem or purchase any of its shares if, as a result of the
redemption or purchase, there would no longer be any member of the company holding shares.
A payment out of capital by a company for the redemption or purchase of its own shares is not
lawful unless immediately following the date on which the payment is proposed to be made, the
company shall be able to pay its debts as they fall due in the ordinary course of business.
A company is not prohibited from purchasing and may purchase its own warrants subject
to and in accordance with the terms and conditions of the relevant warrant instrument or
certificate. There is no requirement under Cayman Islands law that a company’s memorandum or
articles of association contain a specific provision enabling such purchases and the directors of
a company may rely upon the general power contained in its memorandum of association to buy
and sell and deal in personal property of all kinds.
Under Cayman Islands law, a subsidiary may hold shares in its holding company and, in
certain circumstances, may acquire such shares.
(e) Dividends and distributions
With the exception of section 34 of the Companies Law, there is no statutory provisions
relating to the payment of dividends. Based upon English case law, which is regarded as be
persuasive in the Cayman Islands, dividends may be paid only out of profits. In addition, section
34 of the Companies Law permits, subject to a solvency test and the provisions, if any, of the
company’s memorandum and articles of association, the payment of dividends and distributions
out of the share premium account (see paragraph 2(m) above for further details).
(f) Protection of minorities
The Cayman Islands courts ordinarily would be expected to follow English case law
precedents which permit a minority shareholder to commence a representative action against or
derivative actions in the name of the company to challenge (a) an act which is ultra vires the
company or illegal, (b) an act which constitutes a fraud against the minority and the wrongdoers
are themselves in control of the company, and (c) an irregularity in the passing of a resolution
which requires a qualified (or special) majority.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-20 —
In the case of a company (not being a bank) having a share capital divided into shares, the
Court may, on the application of members holding not less than one fifth of the shares of the
company in issue, appoint an inspector to examine into the affairs of the company and to report
thereon in such manner as the Court shall direct.
Any shareholder of a company may petition the Court which may make a winding up order
if the Court is of the opinion that it is just and equitable that the company should be wound up
or, as an alternative to a winding up order, (a) an order regulating the conduct of the company’s
affairs in the future, (b) an order requiring the company to refrain from doing or continuing an
act complained of by the shareholder petitioner or to do an act which the shareholder petitioner
has complained it has omitted to do, (c) an order authorising civil proceedings to be brought in
the name and on behalf of the company by the shareholder petitioner on such terms as the Court
may direct, or (d) an order providing for the purchase of the shares of any shareholders of the
company by other shareholders or by the company itself and, in the case of a purchase by the
company itself, a reduction of the company’s capital accordingly.
Generally claims against a company by its shareholders must be based on the general laws
of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as
established by the company’s memorandum and articles of association.
(g) Management
The Companies Law contains no specific restrictions on the power of directors to dispose
of assets of a company. However, as a matter of general law, every officer of a company, which
includes a director, managing director and secretary, in exercising his powers and discharging his
duties must do so honestly and in good faith with a view to the best interests of the company and
exercise the care, diligence and skill that a reasonably prudent person would exercise in
comparable circumstances.
(h) Accounting and auditing requirements
A company shall cause proper books of account to be kept with respect to (i) all sums of
money received and expended by the company and the matters in respect of which the receipt and
expenditure takes place; (ii) all sales and purchases of goods by the company; and (iii) the assets
and liabilities of the company.
Proper books of account shall not be deemed to be kept if there are not kept such books as
are necessary to give a true and fair view of the state of the company’s affairs and to explain its
transactions.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-21 —
(i) Exchange control
There are no exchange control regulations or currency restrictions in the Cayman Islands.
(j) Taxation
Pursuant to section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands,
the Company has obtained an undertaking from the Governor-in-Cabinet:
(1) that no law which is enacted in the Cayman Islands imposing any tax to be levied on
profits, income, gains or appreciation shall apply to the Company or its operations;
and
(2) that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall
not be payable on or in respect of the shares, debentures or other obligations of the
Company.
The undertaking for the Company is for a period of twenty years from 23 March 2010.
The Cayman Islands currently levy no taxes on individuals or corporations based upon
profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax
or estate duty. There are no other taxes likely to be material to the Company levied by the
Government of the Cayman Islands save certain stamp duties which may be applicable, from time
to time, on certain instruments executed in or brought within the jurisdiction of the Cayman
Islands. The Cayman Islands are not party to any double tax treaties.
(k) Stamp duty on transfers
No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands
companies except those which hold interests in land in the Cayman Islands.
(l) Loans to directors
There is no express provision in the Companies Law prohibiting the making of loans by a
company to any of its directors.
(m) Inspection of corporate records
Members of the Company will have no general right under the Companies Law to inspect
or obtain copies of the register of members or corporate records of the Company. They will,
however, have such rights as may be set out in the Company’s Articles.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-22 —
An exempted company may, subject to the provisions of its articles of association, maintain
its principal register of members and any branch registers at such locations, whether within or
without the Cayman Islands, as the directors may, from time to time, think fit. There is no
requirement under the Companies Law for an exempted company to make any returns of
members to the Registrar of Companies of the Cayman Islands. The names and addresses of the
members are, accordingly, not a matter of public record and are not available for public
inspection.
(n) Winding up
A company may be wound up compulsorily by order of the Court; voluntarily; or, under
supervision of the Court. The Court has authority to order winding up in a number of specified
circumstances including where it is, in the opinion of the Court, just and equitable to do so.
A company may be wound up voluntarily when the members so resolve in general meeting
by special resolution, or, in the case of a limited duration company, when the period fixed for
the duration of the company by its memorandum or articles expires, or the event occurs on the
occurrence of which the memorandum or articles provides that the company is to be dissolved,
or, the company does not commence business for a year from its incorporation (or suspends its
business for a year), or, the company is unable to pay its debts. In the case of a voluntary winding
up, such company is obliged to cease to carry on its business from the time of passing the
resolution for voluntary winding up or upon the expiry of the period or the occurrence of the
event referred to above.
For the purpose of conducting the proceedings in winding up a company and assisting the
Court, there may be appointed one or more than one person to be called an official liquidator or
official liquidator; and the Court may appoint to such office such person or persons, either
provisionally or otherwise, as it thinks fit, and if more persons than one are appointed to such
office, the Court shall declare whether any act hereby required or authorised to be done by the
official liquidator is to be done by all or any one or more of such persons. The Court may also
determine whether any and what security is to be given by an official liquidator on his
appointment; if no official liquidator is appointed, or during any vacancy in such office, all the
property of the company shall be in the custody of the Court. A person shall be qualified to accept
an appointment as an official liquidator if he is duly qualified in terms of the Insolvency
Practitioners Regulations. A foreign practitioner may be appointed to act jointly with a qualified
insolvency practitioner.
In the case of a members’ voluntary winding up of a company, the company in general
meeting must appoint one or more liquidators for the purpose of winding up the affairs of the
company and distributing its assets. A declaration of solvency must be signed by all the directors
of a company being voluntarily wound up within twenty-eight (28) days of the commencement
of the liquidation, failing which, its liquidator must apply to Court for an order that the
liquidation continue under the supervision of the Court.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-23 —
Upon the appointment of a liquidator, the responsibility for the company’s affairs rests
entirely in his hands and no future executive action may be carried out without his approval.
A liquidator’s duties are to collect the assets of the company (including the amount (if any)
due from the contributories), settle the list of creditors and, subject to the rights of preferred and
secured creditors and to any subordination agreements or rights of set-off or netting of claims,
discharge the company’s liability to them (pari passu if insufficient assets exist to discharge the
liabilities in full) and to settle the list of contributories (shareholders) and divide the surplus
assets (if any) amongst them in accordance with the rights attaching to the shares.
As soon as the affairs of the company are fully wound up, the liquidator must make up an
account of the winding up, showing how the winding up has been conducted and the property of
the company has been disposed of, and thereupon call a general meeting of the company for the
purposes of laying before it the account and giving an explanation thereof. At least twenty-one
(21) days before the final meeting, the liquidator shall send a notice specifying the time, place
and object of the meeting to each contributory in any manner authorised by the company’s
articles of association and published in the Gazette in the Cayman Islands.
(o) Reconstructions
There are statutory provisions which facilitate reconstructions and amalgamations approved
by a majority in number representing seventy-five per cent. (75%) in value of shareholders or
class of shareholders or creditors, as the case may be, as are present at a meeting called for such
purpose and thereafter sanctioned by the Court. Whilst a dissenting shareholder would have the
right to express to the Court his view that the transaction for which approval is sought would not
provide the shareholders with a fair value for their shares, the Court is unlikely to disapprove
the transaction on that ground alone in the absence of evidence of fraud or bad faith on behalf
of management.
(p) Compulsory acquisition
Where an offer is made by a company for the shares of another company and, within four
(4) months of the offer, the holders of not less than ninety per cent. (90%) of the shares which
are the subject of the offer accept, the offeror may at any time within two (2) months after the
expiration of the said four (4) months, by notice in the prescribed manner require the dissenting
shareholders to transfer their shares on the terms of the offer. A dissenting shareholder may apply
to the Court within one (1) month of the notice objecting to the transfer. The burden is on the
dissenting shareholder to show that the Court should exercise its discretion, which it will be
unlikely to do unless there is evidence of fraud or bad faith or collusion as between the offeror
and the holders of the shares who have accepted the offer as a means of unfairly forcing out
minority shareholders.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-24 —
(q) Indemnification
Cayman Islands law does not limit the extent to which a company’s articles of association
may provide for indemnification of officers and directors, except to the extent any such provision
may be held by the court to be contrary to public policy (e.g. for purporting to provide
indemnification against the consequences of committing a crime).
4. GENERAL
Conyers Dill & Pearman, the Company’s special legal counsel on Cayman Islands law, have sent
to the Company a letter of advice summarising certain aspects of Cayman Islands company law. This
letter, together with a copy of the Companies Law, is available for inspection as referred to in the
paragraph headed “Documents available for inspection” in Appendix VI. Any person wishing to have
a detailed summary of Cayman Islands company law or advice on the differences between it and the
laws of any jurisdiction with which he is more familiar is recommended to seek independent legal
advice.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW
— IV-25 —
A. FURTHER INFORMATION ABOUT THE COMPANY AND ITS SUBSIDIARIES
1. Incorporation of the Company
The Company was incorporated in the Cayman Islands under the Companies Law as an exempted
company with limited liability on 15 March 2010.
The Company has established its principal place of business in Hong Kong at Unit 14, 3/F, Fuk
Shing Commercial Building, 28 On Lok Mun Street, Fanling, New Territories, Hong Kong and was
registered with the Registrar of Companies in Hong Kong as a non-Hong Kong company under Part
XI of the Companies Ordinance on 12 May 2010. Each of Mr. Fung and Mr. Chia has been appointed
as the authorised representative of the Company for acceptance of service of process and notice in
Hong Kong under Part XI of the Companies Ordinance. As the Company was incorporated in the
Cayman Islands, its operation is subject to the Cayman Islands laws and its constitutional documents
comprising a memorandum of association and the Articles of Association. A summary of certain parts
of its constitution and relevant aspects of the Cayman Islands company law is set out in Appendix IV
to this prospectus.
2. Changes in share capital of the Company
The authorised share capital of the Company as at the date of its incorporation was HK$380,000
divided into 38,000,000 Shares. The following alterations in the share capital of the Company have
taken place since its incorporation:
(a) on 15 March 2010, one Share was allotted and issued nil paid to Codan Trust Company
(Cayman) Limited as the initial subscriber, which was then transferred by Codan Trust
Company (Cayman) Limited to Shunleetat at nil consideration on the same date;
(b) in consideration of the acquisition by the Company of the entire issued share capital of
TYW (BVI), a total of 999 Shares were allotted and issued by the Company on 11 August
2010, all credited as fully paid, to Shunleetat, Chuwei, Purplelight and Lotawater in the
following numbers:
NameNumber of Shares
allotted
Shunleetat 549
Chuwei 175
Purplelight 150
Lotawater 125
TOTAL 999
In addition, the one nil-paid Share acquired by Shunleetat was credited as fully paid at par;
(c) on 11 August 2010, pursuant to the resolutions in writing of all Shareholders passed on 11
August 2010, the Company increased its authorised share capital from HK$380,000 to
HK$500,000,000 by the creation of an additional 49,962,000,000 Shares; and
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-1 —
R11.05R24.05(2)App1A(6)S342
App1A(23)(1)App1A(26)(1)App1A(26)(2)ThirdSchedule 11
(d) immediately following the completion of the Placing and the Capitalisation Issue, the
authorised share capital of the Company will be HK$500,000,000 divided into
50,000,000,000 Shares and the issued share capital will be HK$992,000 divided into
99,200,000 Shares, all fully paid or credited as fully paid and 49,900,800,000 Shares will
remain unissued. Other than pursuant to the exercise of any options which may be granted
under the Share Option Scheme, there is no present intention to issue any of the authorised
but unissued share capital of the Company and, without the prior approval of the members
in general meeting, no issue of Shares will be made which would effectively alter the
control of the Company.
Save as disclosed above, there has been no alteration in the share capital of the Company
since its incorporation.
3. Written resolutions of all Shareholders passed on 11 August 2010
Pursuant to the written resolutions of all the then Shareholders passed on 11 August 2010:
(a) the Company approved and adopted the Articles of Association;
(b) the authorised share capital of the Company was increased from HK$380,000 to
HK$500,000,000 by the creation of an additional 49,962,000,000 Shares;
(c) conditional on the same conditions as stated in the paragraph headed “Conditions of the
Placing” in the section headed “Structure and conditions of the Placing” in this prospectus:
(i) the Placing was approved and the Directors were authorised to allot and issue the
Placing Shares;
(ii) the rules of the Share Option Scheme, the principal terms of which are set out in
sub-paragraph headed “Share Option Scheme” in the paragraph headed “Further
information about Directors, management, staff and experts” of this appendix, were
approved and adopted and the Directors were authorised to implement the same, grant
options to subscribe for Shares thereunder and to allot, issue and deal with Shares
pursuant thereto and to take all such steps as they consider necessary or desirable to
implement the Share Option Scheme including without limitation: (1) administering
the Share Option Scheme; (2) modifying and/or amending the Share Option Scheme
from time to time provided that such modification and/or amendment is effected in
accordance with the rules of the Share Option Scheme and the requirement of the
GEM Listing Rules; (3) granting options under the Share Option Scheme and issuing
and allotting from time to time any Shares pursuant to the exercise of the options that
may be granted under the Share Option Scheme with an aggregate nominal value not
exceeding 10% of the total nominal value of the share capital of the Company in issue
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-2 —
on the Listing Date; and (4) making application at the appropriate time or times to the
Stock Exchange for the listing of, and permission to deal in, any Shares or any part
thereof that may hereafter from time to time be issued and allotted pursuant to the
exercise of the options granted under the Share Option Scheme;
(iii) subject to the share premium account of the Company being credited as a result of the
issue of the Placing Shares, an amount of HK$743,990 which will then be standing to
the credit of the share premium account of the Company be capitalised and applied to
pay up in full at par a total of 74,399,000 Shares for allotment and issue to holders
of Shares whose names shall appear on the register of members of the Company at the
close of business on 11 August 2010 (or as they may direct) in proportion (as nearly
as possible without involving fractions) to their respective then existing shareholdings
in the Company, and the Directors were authorised to give effect to the Capitalisation
Issue and the Shares to be allotted and issued shall, save for the entitlements to the
Capitalisation Issue, rank pari passu in all respects with all the then existing Shares;
(iv) a general unconditional mandate was given to the Directors to allot, issue and deal
with (otherwise than by way of rights, scrip dividend schemes or similar arrangements
in accordance with the Articles of Association, or pursuant to the exercise of any
option which may be granted under the Share Option Scheme or under the Placing or
the Capitalisation Issue) Shares with an aggregate nominal amount of not exceeding
20% of the aggregate nominal amount of the share capital of the Company in issue and
as enlarged immediately following completion of the Capitalisation Issue and the
Placing (excluding Shares which may fall to be issued pursuant to the exercise of any
option which may be granted under the Share Option Scheme) until the conclusion of
the next annual general meeting of the Company, or the date by which the next annual
general meeting of the Company is required by the Articles of Association or any
applicable law to be held, or the passing of an ordinary resolution by the Shareholders
revoking or varying the authority given to the Directors, whichever is the earliest;
(v) a general unconditional mandate was given to the Directors authorising them to
exercise all powers of the Company to purchase Shares on the Stock Exchange with
an aggregate nominal amount of not exceeding 10% of the aggregate nominal amount
of the share capital of the Company in issue immediately following the completion of
the Capitalisation Issue and the Placing (excluding Shares which may fall to be issued
pursuant to the exercise of any option which may be granted under the Share Option
Scheme), until the conclusion of the next annual general meeting of the Company, or
the date by which the next annual general meeting of the Company is required by the
Articles of Association or any applicable law to be held, or the passing of an ordinary
resolution by the Shareholders revoking or varying the authority given to the
Directors, whichever is the earliest; and
(vi) the general unconditional mandate mentioned in sub-paragraph (iv) above was
extended by the addition of an amount representing the aggregate nominal value of the
share capital of the Company repurchased by the Company pursuant to the mandate to
repurchase Shares referred to in sub-paragraph (v) above to the aggregate nominal
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-3 —
amount of the share capital of the Company which may be allotted or agreed to be
allotted by the Directors pursuant to such general mandate provided that such
extended amount shall not exceed 10% of the aggregate of the total nominal amount
of the share capital of the Company in issue immediately following completion of the
Capitalisation Issue and the Placing (excluding Shares which may fall to be issued
pursuant to the exercise of any option which may be granted under the Share Option
Scheme).
4. Reorganisation
The companies comprising the Group underwent a reorganisation in preparation for the Listing
which involved the following steps:
(a) with effect from 1 April 2009, TYW acquired part of the business (including the assets and
liabilities thereof) carried out under the name of TYC from Mr. Kan at a consideration of
HK$7,157,311.72, which was offset against an equivalent amount of the debts due from Mr.
Kan to TYW, and TY Civil acquired the remaining part of business carried out under the
name of TYC from Mr. Kan at a consideration of HK$1,467,756.22, which was offset
against an equivalent amount of debts due from Mr. Kan to TY Civil. In such transfer, all
the customers’ contracts, suppliers’ contracts, and other assets and liabilities originally
belonged to the business of TYC were transferred to TYW and TY Civil;
(b) on 2 July 2009, TYW (BVI) was incorporated in the BVI. One share of TYW (BVI) was
allotted and issued and fully paid or credited as fully paid to Mr. Kan on the same date;
(c) on 28 September 2009, Mr. Kan acquired all the 110,000 shares of TYW which were held
by Ms. Lam Shun Kiu, Rosita (“Ms. Lam”), at a total consideration of HK$110,000, and
became the sole legal and beneficial owner of TYW;
(d) on 28 September 2009, Mr. Kan acquired 100 shares of TY Civil, representing its entire
issued share capital, which were held by Ms. Lam at a total consideration of HK$100 and
became the sole legal and beneficial owner of TY Civil;
(e) on 29 September 2009, TYW allotted and issued 133,000 new shares of TYW, credited as
fully paid up, to TYW (BVI) (which was wholly and beneficially owned by Mr. Kan at that
time);
(f) on 15 March 2010, the Company was duly incorporated in the Cayman Islands. One nil paid
Share was allotted and issued to Codan Trust Company (Cayman) Limited on the same date;
(g) on 15 March 2010, Shunleetat, a company wholly and beneficially owed by Mr. Kan,
acquired the one nil paid Share from Codan Trust Company (Cayman) Limited at nil
consideration;
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-4 —
(h) on 26 April 2010, TYW (BVI) acquired the entire issued share capital of TY Civil from Mr.
Kan in consideration of the allotment and issue of a total of 5,080 ordinary shares of TYW
(BVI) of US$1 each, all credited as fully paid up, to Shunleetat;
(i) on 26 April 2010, TYW (BVI) acquired the entire issued share capital of TYW (other than
the 133,000 shares of TYW which were already owned by TYW (BVI) at the time of such
acquisition) from Mr. Kan in consideration of the allotment and issue of a total of 4,919
ordinary shares of TYW (BVI) of US$1 each, all credited as fully paid up, to Shunleetat;
(j) on 26 April 2010, Shunleetat acquired the one share in TYW (BVI) from Mr. Kan at a
consideration of HK$1.00 and Shunleetat become the sole member of TYW (BVI);
(k) on 26 April 2010, Shunleetat transferred:
(i) 1,750 TYW (BVI) shares to Chuwei at a consideration of HK$3,656,682.83, which
was offset against an equivalent amount of loan due from Mr. Kan to Mr. Cheng
outstanding as at the date of transfer;
(ii) 1,250 TYW (BVI) shares to Lotawater at a consideration of HK$2,611,916.31, which
was offset against an equivalent amount of loan due from Mr. Kan to Mr. Chia
outstanding as at the date of transfer;
(iii) 1,500 TYW (BVI) shares to Purplelight at a consideration of HK$3,134,299.57, which
was offset against an equivalent amount of loan due from Mr. Kan to Mr. Fung
outstanding as at the date of transfer; and
(l) on 11 August 2010, the Company acquired the entire issued share capital of (TYW) BVI
from Shunleetat, Chuwei, Purplelight and Lotawater in consideration of (i) the allotment
and issue of 549, 175, 150 and 125 Shares, all credited as fully paid up, to Shunleetat,
Chuwei, Purplelight and Lotawater respectively; and (ii) crediting the one nil paid Share
transferred to Shunleetat on 15 March 2010 as fully paid up.
5. Changes in the share capital of subsidiaries of the Company
The subsidiaries of the Company are listed in the Accountants’ Report. In addition to the
alterations described in the sub-paragraph headed “Reorganisation” above, the following alterations
in the share capital of each of the Company’s subsidiaries took place during the two years immediately
preceding the date of this prospectus:
(a) TYW
On 28 September 2009, Ms. Lam transferred all her 110,000 shares of TYW of HK$1.00 each to
Mr. Kan at an aggregate consideration of HK$110,000, and as a result, Mr. Kan became the sole legal
and beneficial owner of TYW. On 29 September 2009, TYW allotted and issued 133,000 new shares
of TYW of HK$1.00 each to TYW (BVI) at an aggregate issue price of HK$133,000. Since then, the
issued share capital of TYW has become HK$10,000,000 divided into 10,000,000 shares of HK$1.00
each.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-5 —
ThirdSchedule 11
(b) TYW (BVI)
TYW (BVI) was incorporated in the BVI on 2 July 2009. One share of TYW (BVI) was allotted
and issued and fully paid to Mr. Kan on the 2 July 2009 at US$1. Mr. Kan transferred the one share
in TYW (BVI) he held to Shunleetat on 26 April 2010 and Shunleetat became the sole member of TYW
(BVI). The existing authorised share capital of TYW (BVI) is US$50,000 divided into 50,000 shares
of US$1 each.
(c) TY Civil
On 28 September 2009, Ms. Lam transferred all her 100 shares of TY Civil to Mr. Kan at an
aggregate consideration of HK$100 and Mr. Kan became the sole beneficial owner of TY Civil.
Save as disclosed above, there has been no alteration in the share capital of any of the
subsidiaries of the Company within the two years immediately preceding the date of this prospectus.
6. Repurchase of the Company’s own securities
A general unconditional mandate (the “Repurchase Mandate”) was granted to the Directors
pursuant to a resolution of the Shareholders passed on 11 August 2010 authorising them to exercise
all powers of the Company to purchase Shares on the Stock Exchange with an aggregate nominal
amount of not exceeding 10% of the aggregate nominal amount of the share capital of the Company
in issue immediately following the completion of the Capitalisation Issue and the Placing (excluding
Shares which may fall to be issued pursuant to the exercise of any option which may be granted under
the Share Option Scheme) until the conclusion of the next annual general meeting of the Company,
or the date by which the next annual general meeting of the Company is required by the Articles of
Association or any applicable law to be held, or the passing of an ordinary resolution by the
Shareholders revoking or varying the authority given to the Directors, whichever is the earliest.
The following part includes information required by the Stock Exchange to be included in this
prospectus concerning the repurchase by the Company of its own securities.
(a) Source of funds
Repurchases must be funded out of funds legally available for the purpose in accordance with the
memorandum and articles of association of the Company, the GEM Listing Rules and the applicable
laws of the Cayman Islands. Under the Cayman Islands laws, any repurchase by the Company may be
made out of profits of the Company or out of the proceeds of a fresh issue of Shares made for the
purpose of the repurchase or, if so authorised by its Articles of Association and subject to the
provisions of the Companies Law, out of capital. Any premium payable on a redemption or purchase
over the par value of the Shares to be purchased must be provided for out of the profits of the Company
or from sums standing to the credit of the share premium account of the Company or, if authorised
by its Articles of Association and subject to the provisions of the Companies Law, out of capital.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-6 —
(b) Reasons for repurchases
The Directors believe that it is in the best interest of the Company and the Shareholders for the
Directors to have a general authority from the Shareholders to enable the Company to repurchase
Shares in the market. Such repurchases may, depending on market conditions and funding
arrangements at the time, lead to an enhancement of the net asset value of the Company and/or
earnings per Share and will only be made when the Directors believe that such repurchases will benefit
the Company and the Shareholders.
(c) Funding of repurchases
In repurchasing securities, the Company may only apply funds legally available for such purpose
in accordance with its Articles of Association, the GEM Listing Rules and the applicable laws of the
Cayman Islands.
On the basis of the current financial position of the Group as disclosed in this prospectus and
taking into account the current working capital position of the Group, the Directors consider that, if
the Repurchase Mandate were to be exercised in full, it might have a material adverse effect on the
working capital and/or the gearing position of the Group as compared with the position disclosed in
this prospectus. However, the Directors do not propose to exercise the Repurchase Mandate to such
an extent as would, in the circumstances, have a material adverse effect on the working capital
requirements of the Group or the gearing levels which in the opinion of the Directors are from time
to time appropriate for the Group.
The exercise in full of the Repurchase Mandate, on the basis of 99,200,000 Shares in issue
immediately after the Listing, would result in up to 9,920,000 Shares being repurchased by the
Company during the period in which the Repurchase Mandate remains in force.
(d) General
None of the Directors nor, to the best of their knowledge having made all reasonable inquiries,
any of their associates currently intends to sell any Shares to the Company or its subsidiaries.
The Directors have undertaken to the Stock Exchange that, so far as the same may be applicable,
they will exercise the Repurchase Mandate in accordance with the GEM Listing Rules and the
applicable laws of the Cayman Islands.
If, as a result of a securities repurchase, a Shareholder’s proportionate interest in the voting
rights of the Company increases, such increase will be treated as an acquisition for the purpose of the
Takeovers Code.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-7 —
Accordingly, a shareholder or a group of shareholders acting in concert could obtain or
consolidate control of the Company and become obliged to make a mandatory offer in accordance with
rule 26 of the Takeovers Code. Save as disclosed above, the Directors are not presently aware of any
consequences which would arise under the Takeovers Code as a consequence of any repurchases
pursuant to the Repurchase Mandate immediately after the Listing.
No connected person (as defined in the GEM Listing Rules) has notified the Company that he
has a present intention to sell Shares to the Company, or has undertaken not to do so if the Repurchase
Mandate is exercised.
B. FURTHER INFORMATION ABOUT THE BUSINESS
1. Summary of material contracts
The following contracts (not being contracts in the ordinary course of business) have been
entered into by members of the Group within the two years immediately preceding the date of this
prospectus and are or may be material:
(a) the Underwriting Agreement;
(b) the deed of indemnity dated 20 August 2010 and entered into by Mr. Kan, Shunleetat, Mr.
Fung, Purplelight, Mr. Cheng, Chuwei, Mr. Chia and Lotawater (collectively, the
“Indemnifiers”) with and in favour of the Company, pursuant to which the Indemnifiers
have agreed to provide indemnity for (i) all taxation liabilities of the Group incurred before
the Placing becoming unconditional in favour of the Company and its subsidiaries; (ii) all
loss, damages, liability, increment in rental charges, relocation cost and disruption in
operation suffered by any members of the Group in connection with the forfeiture or early
termination of two lease agreements entered into by the Group; and (iii) all losses,
damages, liability, cost suffered by the Group in obtaining or preserving the right to use the
same or substantially the same kind of vehicle for the Group’s operations, in the
enforcement of any provisions of the finance leases by the financier(s) and in disrupting the
Group’s business in connection with the breach under certain finance lease of the motor
vehicles and machinery of the Group;
(c) the sale and purchase agreement dated 11 August 2010 and entered into between the
Company as purchaser and Shunleetat, Chuwei, Purplelight and Lotawater as vendors
relating to the acquisition of the entire issued share capital in TYW (BVI) by the Company
in consideration of the Company (i) allotting and issuing an aggregate of 999 Shares, all
credited as fully paid, to Shunleetat, Chuwei, Purplelight and Lotawater; and (ii) crediting
the one nil-paid Share transferred to Shunleetat on 15 March 2010 as fully-paid at par;
(d) the sale and purchase agreement dated 26 April 2010 and entered into between TYW (BVI)
as purchaser and Mr. Kan as vendor relating to the acquisition of the entire issued share
capital in TYW by TYW (BVI) in consideration of TYW (BVI) allotting and issuing 4,919
ordinary shares of TYW (BVI), all credited as fully paid, to Shunleetat;
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-8 —
App1A(51)
ThirdSchedule 17
(e) the sale and purchase agreement dated 26 April 2010 and entered into between TYW (BVI)
as purchaser and Mr. Kan as vendor relating to the acquisition of the entire issued share
capital in TY Civil by TYW (BVI) in consideration of TYW (BVI) allotting and issuing
5,080 ordinary shares of TYW (BVI), all credited as fully paid, to Shunleetat;
(f) the sale and purchase agreement dated 9 March 2010 and entered into between Mr. Kan and
TYW in relation to acquisition of part of the business (including the assets and liabilities
thereof) carried on by “Tsun Yip Construction Company” with effect from 1 April 2009 at
a consideration of HK$7,157,311.72;
(g) the sale and purchase agreement dated 9 March 2010 and entered into between Mr. Kan and
TY Civil in relation to the acquisition of part of the business (including the assets and
libailites thereof) carried on by “Tsun Yip Construction Company” with effect from 1 April
2009 at a consideration of HK$1,467,756.22;
(h) the deed of assignment dated 9 March 2010 and entered into between Mr. Kan and TYW
in relation to the assignment of part of the goodwill and certain assets held by “Tsun Yip
Construction Company” with effect from 1 April 2009; and
(i) the deed of assignment dated 9 March 2010 and entered into between Mr. Kan and TY Civil
in relation to the assignment of part of the goodwill and certain assets held by “Tsun Yip
Construction Company” with effect from 1 April 2009.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-9 —
2. Intellectual property rights of the Group
As at the Latest Practicable Date, the Group was the registered proprietor and beneficial owner
of the following trademarks:
Trademark
Place of
registration Class
Date of
registration
Expiration
Date Owner
Trade Mark
No.
Hong Kong 37
(Note)
31 December
2009
30 December
2019
TYW (BVI) 301514088
Hong Kong 37
(Note)
31 December
2009
30 December
2019
TYW (BVI) 301514097
Hong Kong 37
(Note)
31 December
2009
30 December
2019
TYW (BVI) 301514105
Note: The services covered under Class 37 include civil engineering services; construction, maintenance, installation
and repair services; construction, renovation, maintenance and repair of waterworks; waterworks engineering;
construction, maintenance and repair of service reservoir, pumping station and water main laying; construction,
maintenance, restoration and demolition of roads, pavings and drainage and water installations; site formation,
excavation, dredging, ground investigation and improvement; conducting construction of foundation works;
advisory, consultancy and information services relating to the foregoing.
As at the Latest Practicable Date, TYW owned the domain name, www.tsunyip.hk. The
ownership has been registered with Hong Kong Domain Name Registration Company Limited. Such
registration will expire on 12 September 2013.
C. FURTHER INFORMATION ABOUT DIRECTORS, MANAGEMENT, STAFF AND
EXPERTS
1. Disclosure of interests
(a) Disclosure of interests of Directors and experts
(i) During the two years immediately preceding the date of this prospectus, the Group had
engaged in dealings with certain Directors and their associates as described in note 24 to
section II of the Accountants’ Report; and
(ii) Each of the executive Directors is interested in the Group reorganisation referred to under
the sub-paragraph headed “Reorganisation” in the paragraph headed “Further information
about the Company and its subsidiaries” of this appendix.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-10 —
App1A(28)(4)
(b) Particulars of Directors’ service contracts
Each of Mr. Kan, Mr. Cheng, Mr. Fung and Mr. Chia, being all the executive Directors, has
entered into a service contract with the Company for an initial term of three years commencing from
11 August 2010, and will continue thereafter until terminated by not less than three months’ notice in
writing served by either party on the other or three months’ salary being payment in lieu of notice.
Each of these executive Directors is entitled to the respective basic annual emoluments set out below,
plus a discretionary bonus to be determined by the Board every year.
HK$Mr. Kan 12,000Mr. Cheng 12,000Mr. Fung 12,000Mr. Chia 12,000
In addition, each of Mr. Kan, Mr. Cheng, Mr. Fung and Mr. Chia has entered into an employment
contract with TYW to act as the director of TYW for a continuous term until teminated by not less than
thirty days’ notice in writing served by either party on the other or thirty days’ salary being payment
in lieu of notice. The basic annual emoluments and benefits in kind for each of Mr. Kan, Mr. Cheng,
Mr. Fung and Mr. Chia under the said employment contracts in force for the year ending 31 March
2010 and the commencement date of employment are set out below:
HK$Commencement
date of employment
Mr. Kan 1,390,500 6 February 1996
Mr. Cheng 960,000 1 May 2009
Mr. Fung 900,000 1 April 2006
Mr. Chia 132,000 1 May 2009
Each of Mr. Kan, Mr. Cheng, Mr. Fung and Mr. Chia is also entitled to a discretionary bonus at
every Lunar New Year end with reference to their respective performance.
Save as disclosed above, none of the Directors has or is proposed to have a service contract with
the Company or any of its subsidiaries (other than contracts expiring or determinable by the employer
within one year without the payment of compensation (other than statutory compensation)).
Each of the above remunerations is determined by the Group with reference to the duties and
level of responsibilities of each Director, the remuneration policy of the Group and the prevailing
market conditions. The Directors’ remuneration policy of the Group after Listing will be substantially
the same as the remuneration policy of the Group for the year ended 31 March 2010.
(c) Directors’ remuneration
(i) During the two financial years ended 31 March 2009 and 2010, the aggregate emoluments
paid and benefits in kind granted by the Group to the Directors were approximately
HK$1,554,000 and HK$2,720,000 respectively.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-11 —
App1A.(46)(1)
App1A.46(4)
App1A(33)(2)(a),(b)App1A(46)(2)
(ii) Under the arrangements currently in force, the aggregate emoluments payable by the Group
to and benefits in kind receivable by the Directors for the year ending 31 March 2011 will
be approximately HK$3.6 million.
(iii) None of the Directors or any past directors of any member of the Group has been paid any
sum of money for each of the two financial years ended 31 March 2009 and 2010 (1) as an
inducement to join or upon joining the Company or (2) for loss of office as a director of
any member of the Group or of any other office in connection with the management of the
affairs of any member of the Group.
(iv) There has been no arrangement under which a Director has waived or agreed to waive any
emoluments for each of the two financial years ended 31 March 2009 and 2010.
(v) Each of the executive Directors is entitled to reimbursement of all reasonable out-of-pocket
expenses properly incurred in connection with the performance of his duties.
(vi) Each independent non-executive Directors is entitled to monthly director’s fee of
HK$8,000.
(d) Personal guarantees
As at the Latest Practicable Date, Mr. Kan has been providing personal guarantees in respect of
(i) the finance leases in respect of certain motor vehicles and rental arrangements in respect of certain
photocopying machines of the Group in the aggregate sum of approximately HK$3.46 million; and (ii)
the Loans, the General Facilities and the Credit Card Facility previously granted by HSBC to the
Group (all of which have been fully repaid by the Group). Other than the personal guarantee relating
to item (ii) (which is expected to be released after six months after full repayment of the relevant
facilities in accordance with the internal policy of HSBC), Mr. Kan’s personal guarantee for item (i)
is intended to continue after Listing. For details of such personal guarantees, please refer to the section
headed “Controlling Shareholders and Substantial Shareholders” of this prospectus.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-12 —
App1A(46)(3)
App1A(33)(2)(e),(f)
App1A(33)(2)(g)
(e) Interests and short positions of Directors in the shares, underlying shares or debentures of
the Company and its associated corporations
Immediately following completion of the Placing and the Capitalisation Issue, the interests and
short positions of the Directors in the shares, underlying shares or debentures of the Company and its
associated corporations (within the meaning of the SFO) which will have to be notified to the
Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including
interests and short positions in which they are taken or deemed to have under such provisions of the
SFO) or which will be required pursuant to section 352 of the SFO to be entered in the register referred
to therein, or which will be required to notify to the Company and the Stock Exchange pursuant to
Rules 5.46 to 5.67 of the GEM Listing Rules, once the Shares are listed, will be as follows:
Name of Director Nature of interestNo. of
Shares held Position
Percentage ofissued share
capital
Mr. Kan (Note 1) Interest in controlled
corporation
40,920,000 Long 41.25
Mr. Cheng (Note 2) Interest in controlled
corporation
13,020,000 Long 13.125
Mr. Fung (Note 3) Interest in controlled
corporation
11,160,000 Long 11.25
Mr. Chia (Note 4) Interest in controlled
corporation
9,300,000 Long 9.375
Note:
1. Mr. Kan is the sole beneficial owner of Shunleetat, which is interested in 40,920,000 Shares. Under the SFO, Mr.
Kan is deemed to be interested in all the Shares held by Shunleetat.
2. Mr. Cheng is the sole beneficial owner of Chuwei, which is interested in 13,020,000 Shares. Under the SFO, Mr.
Cheng is deemed to be interested in all the Shares held by Chuwei.
3. Mr. Fung is the sole beneficial owner of Purplelight, which is interested in 11,160,000 Shares. Under the SFO,
Mr. Fung is deemed to be interested in all the Shares held by Purplelight.
4. Mr. Chia is the sole beneficial owner of Lotawater, which is interested in 9,300,000 Shares. Under the SFO, Mr.
Chia is deemed to be interested in all the Shares held by Lotawater.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-13 —
App1A.45A(1)(a)App1A.45A(2)
App1A.45(1)(a),(b),(c)ThirdSchedule 30
(f). Interests and short position of Substantial Shareholders in the Shares underlying shares or
debentures of the Company
Immediately following completion of the Placing and the Capitalisation Issue, the following
parties (not being a Director or chief executive of the Company) will have an interest or short position
in the Shares or underlying Shares which would fall to be disclosed to the Company 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 any other member of the Group:
Name of Shareholders Nature of interestNo. of
Shares held Position
Percentage ofissued share
capital
Shunleetat (Note 1) Beneficial owner 40,920,000 Long 41.25
Lam Shun Kiu, Rosita (Note 1) Spouse interest 40,920,000 Long 41.25
Chuwei (Note 2) Beneficial owner 13,020,000 Long 13.125
Purplelight (Note 3) Beneficial owner 11,160,000 Long 11.25
Cham Yee Wa (Note 3) Spouse interest 11,160,000 Long 11.25
Lotatwater (Note 4) Beneficial owner 9,300,000 Long 9.375
Wan Pui Ki (Note 4) Spouse interest 9,300,000 Long 9,375
Note:
1. Mr. Kan is the sole beneficial owner of Shunleetat. Ms. Lam Shun Kiu, Rosita is the spouse of Mr. Kan and is
deemed to be interested in 40,920,000 Shares under the SFO.
2. Mr. Cheng is the sole beneficial owner of Chuwei.
3. Mr. Fung is the sole beneficial owner of Purplelight. Ms. Cham Yee Wa is the spouse of Mr. Fung and is deemed
to be interested in 11,160,000 Shares under the SFO.
4. Mr. Chia is the sole beneficial owner of Lotawater. Ms. Wan Pui Ki is the spouse of Mr. Chia and is deemed to
be interested in 9,300,000 Shares under the SFO.
(g) Agency fees or commissions received
No agency fees, commissions, discounts, brokerages or other special terms have been granted by
the Group to the Directors or the experts named in the sub-paragraph headed “Consents and
qualifications of experts” in this appendix within the two years immediately preceding the date of this
prospectus in connection with the issue or sale of any share or loan capital of any member of the
Group.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-14 —
App1A.45(3)
App1A.45(4)App1A.45B(1)(a)
App1A(13)ThirdSchedule 14
(h) Disclaimers
Save as disclosed in this prospectus:
(i) and taking no account of any Shares which may be taken up or acquired under the Placing
and the Capitalisation Issue or upon the exercise of any options which may be granted under
the Share Option Scheme, the Directors are not aware of any person who immediately
following the completion of the Placing and the Capitalisation Issue will have an interest
or short position in the Shares and underlying Shares which would fall to be disclosed to
the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or who is,
either directly or indirectly, interested in 10% or more of the nominal value of any class of
share capital carrying rights to vote in all circumstances at general meetings of any other
member of the Group;
(ii) none of the Directors has for the purpose of Divisions 7 and 8 of Part XV of the SFO or
the GEM Listing Rules, nor is any of them taken to or deemed to have under Divisions 7
and 8 of Part XV of the SFO, any interests and short positions in the shares, underlying
shares and debentures of the Company or any associated corporations (within the meaning
of the SFO) or any interests which will have to be entered in the register to be kept by the
Company pursuant to section 352 of the SFO or which will be required to be notified to the
Company and the Stock Exchange pursuant to the Rules 5.46 to 5.67 of the GEM Listing
Rules;
(iii) none of the Directors or the experts named in the sub-paragraph headed “Consents and
qualifications of experts” in the paragraph headed “Other information” in this appendix has
been interested in the promotion of, or has any direct or indirect interest in any assets
acquired or disposed of by or leased to, any member of the Group within the two years
immediately preceding the date of this prospectus, or which are proposed to be acquired or
disposed of by or leased to any member of the Group nor will any Director apply for the
Placing Shares either in his own name or in the name of a nominee;
(iv) no Director is materially interested in any contract or arrangement subsisting at the date of
this prospectus which is significant in relation to the business of the Group taken as a
whole;
(v) no Director is interested in more than 1% shareholding in any of the five largest customers,
the five largest suppliers and subcontractors of the Group during the Track Record Period;
and
(vi) none of the experts named in the sub-paragraph headed “Consents and qualifications of
experts” in the paragraph headed “Other information” in this appendix has any shareholding
in any company in the Group or the right (whether legally enforceable or not) to subscribe
for or to nominate persons to subscribe for securities in any company in the Group.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-15 —
App1A.45(3)
ThirdSchedule 19App1A(47)(1)(a)3rd Sch19(b)
App1A(47)(2)
App1A(9)(1)
2. Share Option Scheme
(a) Summary of terms of the Share Option Scheme
(i) Purpose of the Share Option Scheme
The purpose of this Share Option Scheme is to provide incentive or reward to eligible persons
for their contribution to the Group and/or to enable the Group to recruit and retain high-calibre
employees and attract human resources that are valuable to the Group or any entity in which the Group
holds any equity interest (the “Invested Entity”). As at the Latest Practicable Date, there are no
“Invested Entity” other than members of the Group, and the Group has not identified any potential
“Invested Entity” for investment.
(ii) Who may join
Subject to the provisions in the Share Option Scheme, the Board shall be entitled at any time and
from time to time within the period of 10 years after the date of adoption of the Share Option Scheme
to make an offer to any of the following classes of persons:
(1) any employee (whether full time or part time employee, including any executive director
but not the non-executive directors) of the Company, its subsidiaries and any Invested
Entity;
(2) any non-executive director (including independent non-executive directors) of the
Company, any of its subsidiaries or any Invested Entity;
(3) any supplier of goods or services to any member of the Group or any Invested Entity;
(4) any customer of the Group or any Invested Entity; and
(5) any consultant, adviser, manager, officer or entity that provides research, development or
other technological support to the Group or any Invested Entity.
(iii) Maximum number of Shares
(1) Notwithstanding anything to the contrary herein, the maximum number of Shares which
may be issued upon the exercise of all outstanding options granted and yet to be exercised
under the Share Option Scheme and any other share option schemes of the Company must
not, in aggregate, exceed 30% of the total number of Shares in issue from time to time.
(2) The total number of Shares in respect of which options may be granted under the Share
Option Scheme and any other share option schemes of the Company shall not exceed
9,920,000 Shares, being 10% of the total number of Shares in issue as at the date of listing
of the Shares unless the Company obtains the approval of the Shareholders in general
meeting for refreshing the 10% limit (the “Scheme Mandate Limit”) under this Share
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-16 —
App1A(44)
ThirdSchedule 10
Option Scheme, provided that the options previously granted (including options
outstanding, cancelled or lapsed in accordance with the terms of this Share Option Scheme
or any other share option schemes of the Company) will not be counted for the purpose of
calculating the Scheme Mandate Limit.
(3) The Company may seek separate approval of the Shareholders in general meeting for
refreshing the Scheme Mandate Limit such that the total number of Shares in respect of
which options may be granted under the Share Option Scheme and any other share option
schemes of the Company as “refreshed” shall not exceed 10% of the total number of Shares
in issue as at the date of the approval of the Shareholders on the refreshment of the Scheme
Mandate Limit, provided that options previously granted under the Share Option Scheme or
any other share option schemes of the Company (including options outstanding, cancelled,
lapsed in accordance with the terms of the Share Option Scheme or any other share option
scheme of the Company or exercised) will not be counted for the purpose of calculating the
limit as “refreshed”.
For the purpose of seeking the approval of Shareholders, a circular containing the
information as required under the GEM Listing Rules must be sent to the Shareholders.
(4) The Company may seek separate approval of the Shareholders in general meeting for
granting options beyond the Scheme Mandate Limit provided that the proposed grantee(s)
of such option(s) must be specifically identified by the Company before such approval is
sought and that the proposed grantee(s) and his associates shall abstain from voting in the
general meeting. For the purpose of seeking the approval of the Shareholders, the Company
must send a circular to the Shareholders containing a generic description of the specified
proposed grantees of such options, the number and terms of the options to be granted, the
purpose of granting such options to the proposed grantees with an explanation as to how the
terms of options serve such purpose and the information as required under the GEM Listing
Rules.
(iv) Maximum entitlement of each eligible person
No option shall be granted to any eligible person if any further grant of options would result in
the Shares issued and to be issued upon exercise of all options granted and to be granted to such person
(including exercised, cancelled and outstanding options) in the 12-month period up to and including
such further grant would exceed 1% of the total number of Shares in issue, unless:
(1) such grant has been duly approved, in the manner prescribed by the relevant provisions of
Chapter 23 of the GEM Listing Rules, by resolution of the Shareholders in general meeting,
at which the eligible person and his associates shall abstain from voting;
(2) a circular regarding the grant has been dispatched to the Shareholders in a manner
complying with, and containing the information specified in, the relevant provisions of
Chapter 23 of the GEM Listing Rules (including the identity of the eligible person, the
number and terms of the options to be granted and options previously granted to such
eligible person); and
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-17 —
(3) the number and terms (including the subscription price) of such option are fixed before the
general meeting of the Company at which the same are approved.
(v) Grant of options to connected persons
(1) The grant of options to a Director, chief executive, management shareholder or substantial
shareholder of the Company or any of their respective associates requires the approval of
all the independent non-executive Directors (excluding any independent non-executive
Director who is a prospective grantee of the option) and shall comply with the relevant
provisions of Chapter 23 of the GEM Listing Rules.
(2) Where an option is to be granted to a substantial shareholder or an independent
non-executive Director (or any of their respective associates), and such grant will result in
the Shares issued and to be issued upon exercise of all options already granted and to be
granted (including options exercised, cancelled and outstanding) to such person in the
12-month period up to and including the date of such grant: (1) exceeding 0.1% of the total
number of Shares in issue at the relevant time of grant; and (2) exceeding an aggregate
value (based on the closing price of the Shares on the Stock Exchange on the date of each
grant) of HK$5 million, such grant shall not be valid unless: (a) a circular containing the
details of the grant has been dispatched to the Shareholders in a manner complying with,
and containing the matters specified in, the relevant provisions of Chapter 23 of the GEM
Listing Rules (including, in particular, a recommendation from the independent
non-executive Directors (excluding the independent non-executive Director who is the
prospective grantee of the option) to the independent Shareholders as to voting); and (b) the
grant has been approved by the independent Shareholders in general meeting (taken on a
poll), at which all connected persons of the Company shall abstain from voting in favour
of the grant.
(3) Where any change is to be made to the terms of any option granted to a substantial
shareholder or an independent non-executive Director (or any of their respective
associates), such change shall not be valid unless the change has been approved by the
independent Shareholders in general meeting.
(vi) Time of acceptance and exercise of an option
An offer of grant of an option may be accepted by an eligible person within the date as specified
in the offer letter issued by the Company, being a date not later than 21 business days from the date
upon which it is made, by which the eligible person must accept the offer or be deemed to have
declined it, provided that such date shall not be more than ten years after the date of adoption of the
Share Option Scheme or after the termination of the Share Option Scheme.
A consideration of HK$1.00 is payable on acceptance of the offer of grant of an option. Such
consideration shall in no circumstances be refundable. An option may be exercised in whole or in part
by the grantee (or his legal personal representatives) at any time before the expiry of the period to be
determined and notified by the Board to the grantee which in any event shall not be longer than ten
years commencing on the date of the offer letter and expiring on the last day of such ten-year period
subject to the provisions for early termination as contained in the scheme.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-18 —
(vii) Performance targets
There is no performance target that has to be achieved or minimum period in which the option
must be held before the exercise of any option save as otherwise imposed by the Board on the relevant
offer of options.
(viii) Subscription price for Shares
The subscription price of a Share in respect of any particular option granted under the Share
Option Scheme shall be such price as determined by the Board and notified to an eligible person, and
shall be at least the highest of: (1) the closing price of the Shares as stated in the Stock Exchange’s
daily quotations sheet on the date (the “Offer Date”), which must be a trading day, on which the Board
passes a resolution approving the making of an offer of grant of an option to an eligible employee;
(2) the average closing price of the Shares as stated in the Stock Exchange’s daily quotation sheets
for the 5 trading days immediately preceding the Offer Date; and (3) the nominal value of a Share on
the Offer Date.
Where an option is to be granted, the date of the Board meeting at which the grant was proposed
shall be taken to be the date of the offer of such option. For the purpose of calculating the subscription
price, where an option is to be granted less than 5 business days after the listing of the Shares on the
Stock Exchange, the offer price shall be taken to be the closing price for any business day before
listing.
(ix) Ranking of Shares
The Shares to be issued and allotted upon the exercise of an option shall be subject to the
Company’s constitutional documents for the time being in force and shall rank pari passu in all
respects with the fully-paid Shares in issue of the Company as at the date of allotment and will entitle
the holders to participate in all dividends or other distributions declared or recommended or resolved
to be paid or made in respect of a record date falling on or after the date of allotment.
(x) Restrictions on the time of grant of options
No option shall be granted after a price sensitive development concerning the Company or any
subsidiary has occurred or a price sensitive matter concerning the Company or any subsidiary has been
the subject of a decision until such price sensitive information has been announced pursuant to the
requirements of the GEM Listing Rules. In particular, during the period commencing one month
immediately preceding the earlier of (1) the date of the meeting of the Board (as such date is first
notified to the Stock Exchange in accordance with the GEM Listing Rules) for the approval of the
Company’s result for any year, half-year, quarterly or any other interim period (whether or not
required under the GEM Listing Rules); and (2) the deadline for the Company to publish an
announcement of its results for any year or half-year or quarterly or any other interim period (whether
or not required under the GEM Listing Rules), and ending on the date of the results announcement,
no option shall be granted.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-19 —
(xi) Period of the Share Option Scheme
Subject to earlier termination by the Company in general meeting or by the Board, the Share
Option Scheme shall be valid and effective for a period of 10 years commencing on the date of
adoption of the Share Option Scheme, after which period no further option shall be granted. All
options granted prior to expiry of the Share Option Scheme shall continue to be valid and exercisable
in accordance with the terms of the Share Option Scheme.
(xii) Rights on cessation of employment
Where the grantee of an outstanding option ceases to be an employee of the Group for any reason
other than his death or the termination of his employment on one or more of the grounds specified in
(xxi)(5), the grantee may exercise the option up to his entitlement at the date of cessation in whole
or in part (to the extent which has become exercisable and not already exercised) within the period
of 1 month following the date of such cessation. The date of such cessation shall be his last actual
working day at his work place with the Company or the relevant subsidiary or the relevant Invested
Entity whether salary is paid in lieu of notice or not.
(xiii) Rights on death
Where the grantee of an outstanding option dies before exercising the option in full or at all, the
option may be exercised in full or in part (to the extent not already exercised) by his personal
representative(s) within 12 months from the date of death.
(xiv) Rights on a general offer
In the event of a general or partial offer, whether by way of take-over offer, share re-purchase
offer, or scheme of arrangement or otherwise in like manner is made to all the holders of Shares, or
all such holders other than the offeror and/or any person controlled by the offeror and/or any person
acting in concert with the offeror, the Company shall use all reasonable endeavours to procure that
such offer is extended to all the grantees on the same terms, mutatis mutandis, and assuming that they
will become, by the exercise in full of the options granted to them, shareholders of the Company. If
such offer becomes or is declared unconditional, a grantee shall be entitled to exercise his option (to
the extent not already exercised) to its full extent or to the extent specified in the grantee’s notice to
the Company in exercise of his option at any time thereafter and up to the close of such offer (or any
revised offer).
(xv) Rights on winding-up
In the event a notice is given by the Company to its Shareholders to convene a general meeting
for the purposes of considering and, if thought fit, approving a resolution to voluntarily wind-up the
Company, the Company shall on the same date as or soon after it despatches such notice to each
Shareholder give notice thereof to all grantees (together with a notice of existence of this provision)
and thereupon, each grantee (or his legal representative(s)) shall be entitled to exercise all or any of
his options (to the extent which has become exercisable and not already exercised) at any time not
later than 2 business days prior to the proposed general meeting of the Company by giving notice in
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-20 —
writing to the Company, accompanied by a remittance for the full amount of the aggregate exercise
price for the Shares in respect of which the notice is given, whereupon the Company shall as soon as
possible and, in any event, no later than the business day immediately prior to the date of the proposed
general meeting referred to above, allot the relevant Shares to the grantee credited as fully paid, which
Shares shall rank pari passu with all other Shares in issue on the date prior to the passing of the
resolution to wind-up the Company to participate in the distribution of assets of the Company
available in liquidation.
(xvi) Rights on compromise or arrangement between the Company and its creditors
In the event of a compromise or arrangement between the Company and its creditors (or any class
of them) or between the Company and its Shareholders (or any class of them), in connection with a
scheme for the reconstruction or amalgamation of the Company, the Company shall give notice thereof
to all grantees on the same day as it gives notice of the meeting to its Shareholders or creditors to
consider such a scheme or arrangement, and thereupon any grantee (or his legal representative(s)) may
forthwith and until the expiry of the period commencing with such date and ending with the earlier
of the date falling 2 calendar months thereafter or the date on which such compromise or arrangement
is sanctioned by Court be entitled to exercise his option (to the extent which has become exercisable
and not already exercised), but the exercise of the option shall be conditional upon such compromise
or arrangement being sanctioned by the Court and becoming effective. The Company may thereafter
require such grantee to transfer or otherwise deal with the Shares issued as a result of such exercise
of his option so as to place the grantee in the same position as nearly as possible as would have been
the case had such Shares been subject to such compromise or arrangement.
(xvii) Reorganisation of capital structure
In the event of any alteration in the capital structure of the Company whilst any option has been
granted and remains exercisable, whether by way of capitalisation of profits or reserves, rights issue,
consolidation, subdivision or reduction of the share capital of the Company (other than an issue of
Shares as consideration in respect of a transaction), the Company shall (if applicable) make
corresponding alterations (if any), in accordance with the GEM Listing Rules and any applicable
guidance/interpretation of the GEM Listing Rules issued by the Stock Exchange from time to time
(including but not limited to the supplemental guidance issued on 5 September 2005) to:
(1) the number and/or nominal amount of Shares subject to the options already granted so far
as they remain exercisable; and/or
(2) the subscription price; and/or
(3) the maximum number of Shares referred to in paragraphs (iii) and (iv) above provided that:
(a) no such alteration shall be made in respect of an issue of Shares or other securities by
the Company as consideration in a transaction;
(b) any such alterations must be made so that each grantee is given the same proportion
of the equity capital of the Company as that to which he was previously entitled;
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-21 —
(c) no such alterations shall be made which would result in the subscription price for a
Share being less than its nominal value; and
(d) any such alterations, save those made on a capitalisation issue, shall be confirmed by
an independent financial adviser or the auditors in writing to the Directors as
satisfying the requirements of provisos paragraphs (bb) and (cc) above.
(xviii) Cancellation of options
The Company may cancel an option granted but not exercised with the approval of the Board.
Any options cancelled by approval of the Board cannot be re-granted to the same eligible person.
(xix) Termination of the Share Option Scheme
The Company, by resolution in general meeting, or the Board may at any time terminate the
operation of the Share Option Scheme and in such event no further option will be offered but in all
other respects the provision of the Share Option Scheme shall remain in full force and effect. Options
granted prior to such termination shall continue to be valid and exercisable in accordance with the
Share Option Scheme.
(xx) Rights are personal to grantee
An option shall be personal to the grantee and shall not be assignable or transferable, and no
grantee shall in any way sell, transfer, charge, mortgage, encumber or create any interest (whether
legal or beneficial) in favour of any third party over or in relation to any option.
(xxi) Lapse of option
The right to exercise an option (to the extent not already exercised) shall terminate immediately
upon the earliest of:
(1) the expiry of the period to be determined and notified by the Board to the grantee;
(2) the expiry of the periods referred to in sub-paragraphs (xii) and (xiii) respectively;
(3) subject to the scheme of arrangement becoming effective, the expiry of the period referred
to in sub-paragraph (xvi);
(4) subject to the court of competent jurisdiction not making an order prohibiting the offeror
from acquiring the remaining shares in the offer, the expiry of the period referred to in
sub-paragraph (xiv);
(5) the date on which the grantee ceases to be an eligible person by reason of summary
dismissal for misconduct or other breach of the terms of his employment or other contract
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-22 —
constituting him an eligible person, on which he begins to appear to be unable to pay or has
no reasonable prospect of being able to pay his debts or has committed an act of bankruptcy
or has become insolvent or has made any arrangements or composition with his creditors
generally or on which he has been convicted of any criminal offence involving his integrity
or honesty;
(6) subject to sub-paragraph (xv), the date of the commencement of the winding-up of the
Company; and
(7) the date on which the grantee sells, transfers, charges, mortgages, encumbers or creates any
interest (whether legal or beneficial) in favour of any third party over or in relation to any
option or purport to do any of the foregoing in breach of the Share Option Scheme.
(xxii) Alterations to the Share Option Scheme
(1) The Share Option Scheme may be amended or altered in any respect to the extent allowed
by the GEM Listing Rules by resolution of the Board except that the following alteration
must be approved by a resolution of the Shareholders in general meeting:
(a) any changes to the definitions of eligible person, grantee and option period;
(b) any changes to the terms and conditions of the Share Option Scheme to the advantage
of the grantees of the options;
(c) any alteration to the terms and conditions of the Share Option Scheme which are of
a material nature;
(d) any change to the terms of options granted; and
(e) any change to the authority of the Board in relation to any alteration to the terms of
the Scheme except where such alterations take effect automatically under the existing
terms of the Share Option Scheme, provided that: (aa) the amended terms of the Share
Option Scheme or the options must comply with Chapter 23 of the GEM Listing Rules;
and (bb) no such alteration shall operate to affect adversely the terms of issue of any
option granted or agreed to be granted prior to such alteration except with the consent
or sanction in writing of such number of grantees as shall together hold options in
respect of not less than three-fourths in nominal value of all Shares then subject to the
option granted under the Scheme.
(2) Notwithstanding the other provisions of the Share Option Scheme, the Share Option
Scheme may be altered in any respect by resolution of the Board without the approval of
the Shareholders or the grantee(s) to the extent such amendment or alteration is required by
the GEM Listing Rules or any guidelines issued by the Stock Exchange from time to time.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-23 —
(3) The Company must provide to all grantees all details relating to changes in the terms of the
Share Option Scheme during the life of the Share Option Scheme immediately upon such
changes taking effect.
(xxiii) Conditions
(1) The Share Option Scheme is conditional upon:
(a) the Stock Exchange granting approval of the listing of, and permission to deal in, the
Shares in issue and any Shares which may fall to be issued pursuant to the exercise
of any option granted under the Share Option Scheme;
(b) the passing of the necessary resolution to approve and adopt the Share Option Scheme
by the Shareholders in general meeting or by way of written resolution to authorise
the Directors to grant options at their absolute discretion thereunder and to allot, issue
and deal with Shares pursuant to the exercise of any options granted under the Share
Option Scheme; and
(c) the commencement of dealings in the Shares on the GEM.
(b) Present status of the Share Option Scheme
(i) Approval and adoption of the rules of the Share Option Scheme
The rules of the Share Option Scheme, the principal terms of which are set out above, were
approved and adopted by the Shareholders on 11 August 2010. The provisions of the Share Option
Scheme comply with Chapter 23 of the GEM Listing Rules in all material respects.
(ii) Application for approval
Application has been made to the Listing Division of the Stock Exchange for the listing of and
permission to deal in the Shares to be issued pursuant to the exercise of options which may be granted
under the Share Option Scheme. The total number of Shares in respect of which options may be
granted under the Scheme and any other share option schemes of the Company shall not exceed
9,920,000 Shares, being 10% of the total number of Shares in issue as at the date of listing of the
Shares unless the Company obtains the approval of the Shareholders in general meeting for refreshing
the said 10% limit under the Share Option Scheme, provided that options lapsed in accordance with
the terms of the Share Option Scheme or any other share option schemes of the Company will not be
counted for the purpose of calculating the 10% limit above mentioned.
(iii) Grant of option
As at the date of this prospectus, no options have been granted or agreed to be granted under the
Share Option Scheme.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-24 —
(iv) Value of options
The Directors consider it inappropriate to disclose the value of options which may be granted
under the Share Option Scheme as if they had been granted as at the Latest Practicable Date. Any such
valuation will have to be made on the basis of certain option pricing model or other methodology,
which depends on various assumptions including the exercise price, the exercise period, interest rate,
expected volatility and other variables. As no options have been granted, certain variables are not
available for calculating the value of options. The Directors believe that any calculation of the value
of options as at the Latest Practicable Date based on a number of speculative assumptions would not
be meaningful and would be misleading to investors.
D. OTHER INFORMATION
1. Tax and other indemnities
The Indemnifiers have entered into a deed of indemnity with and in favour of the Company (for
itself and as trustee for each of its present subsidiaries) (being the material contract referred to in
sub-paragraph headed “Summary of material contracts” in the paragraph headed “Further information
about the business” of this appendix) and all its present subsidiaries to provide indemnities in respect
of, among other matters, (i) any taxation which might be payable by any member of the Group in
respect of any income, profits or gains earned, accrued or received on or before the date on which the
Placing becomes unconditional (the “Relevant Date”); (ii) all loss, damages, liability, increment in
rental charges, relocation cost and disruption in operation suffered by any members of the Group in
connection with the forfeiture or early termination of two lease agreements entered into by the Group;
and (iii) all losses, damages, liability, cost suffered by the Group in obtaining or preserving the right
to use the same or substantially the same kind of vehicles for the Group’s operations, in the
enforcement of any provisions of the finance leases by the financiers and in disrupting the Group’s
business in connection with the breach under certain finance leases of the motor vehicles and
machinery of the Group as a result of the Breach (as defined below).
The deed of indemnity does not cover any claim (and the Indemnifiers shall be under no liability
under the deed of indemnity) to the extent:
(a) that provision has been made for such taxation in the audited accounts of the Company or
any of its subsidiaries up to 31 March 2010; or
(b) that such taxation falling on any member of the Group in respect of their current accounting
periods or any accounting period commencing on or after 1 April 2010 unless liability for
such taxation would not have arisen but for some act or omission of, or transaction
voluntarily effected by, any member of the Group (whether alone or in conjunction with
some other act, omission or transaction, whenever occurring) with the prior written consent
or agreement of the Indemnifiers other than any such act, omission or transaction:
(1) carried out or effected in the ordinary course of business after 31 March 2010; or
(2) carried out, made or entered into pursuant to a legally binding commitment created on
or before 31 March 2010 or pursuant to any statement of intention made in this
prospectus; or
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-25 —
App1A(10)
(c) to the extent that any provision or reserve made for such taxation in the audited accountsof any member of the Group up to 31 March 2010 which is finally established to be anover-provision or an excessive reserve, in which case the Indemnifiers’ liability (if any) inrespect of such taxation shall be reduced by an amount not exceeding such provision orreserve, provided that the amount of any such provision or reserve applied pursuant to thedeed of indemnity to reduce the Indemnifiers’ liability in respect of such taxation shall notbe available in respect of any such liability arising thereafter; or
(d) that such claim arises or is incurred as a result of the imposition of taxation as aconsequence of any retrospective change in the law or practice coming into force after theRelevant Date or that such claim arises or is increased by an increase in rates of taxationafter the Relevant Date with retrospective effect.
2. Litigation
As at the Latest Practicable Date, save as disclosed below, neither the Company nor any of itssubsidiaries is engaged in any litigation or arbitration of material importance and no litigation or claimof material importance is known to the Directors to be pending or threatened against the Company orany of its subsidiaries.
Pursuant to a subordination agreement (the “Subordination Agreement”) dated 19 May 2009and entered into between TYW, Mr. Kan and HSBC, in consideration of HSBC advancing monies toTYW, each of Mr. Kan and TYW undertook to HSBC that, among other things, so long as there wereany sums due from TYW to HSBC, the indebtedness owed by TYW to Mr. Kan shall not be repayableunless HSBC otherwise consented to such repayment. In January 2010, the Group set off an accountpayable to Mr. Kan against certain sums paid by the Group for Mr. Kan in advance. Hence, TYW hasbeen in breach of the terms of the Subordination Agreement (the “Breach”). As a result of the Breach,TYW may be legally liable for (i) immediate repayment of all the outstanding sums due to HSBC byTYW at the time of the Breach, (ii) all the costs, fees and expenses incurred by HSBC demandingrepayment of the loans, and (iii) overdue interest charged by HSBC in accordance with the relevantfacility letters entered into between HSBC and TYW in the event that TYW fails to repay theoutstanding loans immediately upon demand of HSBC.
Moreover, the Group could also have been in breach of certain finance leases in respect of themotor vehicles of the Group as a result of the Breach, given there are cross-default clauses under suchfinance leases. Under the relevant finance leases documents, the motor vehicles of the Group whichare subject to hire purchase could be re-possessed by the relevant financial institutions or the Group
could be liable for immediate payment of all the outstanding sum due under the finance leases
documents (including all arrears of the hire rent and all outstanding hire rent which would be payable
during or in respect of the unexpired term of the original hiring period).
As at the Latest Practicable Date, since the Group has repaid all the outstanding loans to HSBC
in full, the Directors consider that the risk and the liabilities of Group in respect of the matters related
to the Breach are minimal.
3. Application for listing of Shares
The Sponsor has made an application on behalf of the Company to the Stock Exchange for the
listing of, and permission to deal in, the Shares in issue and to be issued as mentioned in this
prospectus and any Shares which may fall to be issued pursuant to the exercise of any options which
may be granted under the Share Option Scheme on the Stock Exchange.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-26 —
App1A(40)
R11.30(1)
App1A(14)(1)
4. Preliminary expenses
The estimated preliminary expenses of the Company are approximately HK$40,000 and are
payable by the Company.
5. Consents and qualifications of experts
The qualifications of the experts who have given opinions and/or whose names are included in
this prospectus are as follows:
Optima Capital Limited a licenced corporation under the SFO permitted to engage in
type 1 (dealings in securities), type 4 (advising on securities)
and type 6 (advising on corporate finance) regulated activities
under the SFO
BDO Limited Certified Public Accountants
Michael Li & Co. Legal advisers of the Company as to Hong Kong laws
Conyers Dill & Pearman Cayman Islands attorneys-at-law
Vigers Appraisal and
Consulting Limited
Professional valuers
The Sponsor has confirmed that it satisfies the independence test under Rule 6A.07 of the GEM
Listing Rules.
Each of the experts referred to above has given and has not withdrawn its written consent to the
issue of this prospectus with the inclusion of its report and/or letter and/or valuation certificate and/or
legal opinion (as the case may be) and the references to its name included in the form and context in
which they are respectively included.
None of the experts named above is interested beneficially or non-beneficially in any shares in
any member of the Group or has any right or option (whether legally enforceable or not) to subscribe
for or to nominate persons to subscribe for any shares in any member of the Group.
6. Binding effect
This prospectus shall have the effect, if an application is made in pursuance of it, of rendering
all persons concerned bound by all of the provisions (other than the penal provisions) of sections 44A
and 44B of the Companies Ordinance so far as applicable.
7. Share registrar
The Company’s register of members will be maintained in Hong Kong by its branch share
registrar and transfer office, Tricor Investor Services Limited. Unless the Directors otherwise agree,
all transfers and other documents of title to Shares must be lodged for registration with and registered
by the branch share registrar in Hong Kong.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-27 —
App1A(20)(1)
ThirdSchedule 15
Companies Ord.S342B
App1A(4)
App1A(9)(2)App1A(9)(3)S342B
App1A(9)(1)
R24.05(3)
8. Taxation of holders of Shares
(a) Hong Kong
Dealings in Shares registered on the Company’s Hong Kong register of members will be subject
to Hong Kong stamp duty, the current rate charged on each of the purchaser and seller is 0.1% of the
consideration or, if higher, the fair value of the Shares being sold or transferred. Profits from dealings
in the Shares arising in or derived from Hong Kong may also be subject to Hong Kong profits tax.
(b) The Cayman Islands
Under present Cayman Islands law, transfers and other dispositions of Shares are exempt from
Cayman Islands stamp duty.
(c) Consultation with professional advisers
Intending holders of Shares are recommended to consult their professional advisers if they are
in any doubt as to the taxation implications of subscribing for, purchasing, holding or disposing of or
dealing in Shares or exercising any rights attaching to them. It is emphasised that none of the
Company, the Directors or the other parties involved in the Placing can accept responsibility for any
tax effect on, or liabilities of, holders of Shares resulting from their subscription for, purchase, holding
or disposal of or dealing in Shares or exercising any rights attaching to them.
9. Miscellaneous
Save as disclosed herein:
(a) within two years immediately preceding the date of this prospectus:
(i) no share or loan capital of the Company or any of its subsidiaries has been issued,
agreed to be issued or is proposed to be issued fully or partly paid either for cash or
for a consideration other than cash; and
(ii) no commissions, discounts, brokerages or other special terms have been granted in
connection with the issue or sale of any share or loan capital of the Company or any
of its subsidiaries;
(b) no share, warrant or loan capital of the Company or any of its subsidiaries is under option
or is agreed conditionally or unconditionally to be put under option;
(c) the Company has not issued nor agreed to issue any founder shares, management shares or
deferred shares;
(d) the Directors confirm that there has been no material adverse change in the financial or
trading position or prospects of the Group since 31 March 2010 (being the date to which
the latest audited combined financial statements of the Group were made up);
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-28 —
ThirdSchedule 25
App1A(27)
App1A(24)ThirdSchedule 4
(e) all necessary arrangements have been made enabling the Shares to be admitted into CCASS;
(f) the Directors confirm that none of them shall be required to hold any shares by way of
qualification and none of them has any interest in the promotion of the Company; and
(g) there has not been any interruption in the business of the Group which may have or have
had a significant effect on the financial position of the Group in the 12 months immediately
preceding the date of this prospectus.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— V-29 —
ThirdSchedule 5ThirdSchedule 19
DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES IN HONG KONG
The documents attached to the copy of this prospectus delivered to the Registrar of Companies
in Hong Kong for registration were copies of the written consents of the experts referred to in the
sub-paragraph headed “Consents and qualifications of experts” in the paragraph headed “Other
information” of Appendix V to this prospectus, and copies of the material contracts referred to in the
sub-paragraph headed “Summary of material contracts” in the paragraph headed “Further information
about the business” in Appendix V to this prospectus.
DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection at the offices of Michael Li
& Co. at 14th Floor, Printing house, 6 Duddell Street, Central, Hong Kong during normal business
hours up to and including the date which is 14 days from the date of this prospectus:
(a) the memorandum of association of the Company and the Articles of Association;
(b) the Accountants’ Report prepared by BDO Limited, the text of which is set out in Appendix
I to this prospectus;
(c) the audited financial statements of TYW and TY Civil for each of the two years ended 31
March 2010;
(d) the report on unaudited pro forma financial information of the Group prepared by BDO
Limited, the text of which is set out in Appendix II to this prospectus;
(e) the letter, summary of values and valuation certificate relating to the property interests of
the Group prepared by Vigers Appraisal and Consulting Limited, the texts of which are set
out in Appendix III to this prospectus;
(f) the letter of advice prepared by Conyers Dill & Pearman summarising certain aspects of the
Companies Law referred to in Appendix IV to this prospectus;
(g) the Companies Law;
(h) the legal opinion issued by the Company’s legal adviser as to Hong Kong laws in relation
to all relevant permits/licences obtained by the Group for its operations and the Group’s
compliance with all relevant regulatory requirements for operations and sufficiency of
working capital as required by the ETWB’s Contractor Management Handbook (Revision
B) July 2005 (承建商管理手冊 — 修訂版B);
(i) the legal opinion issued by the Company’s legal adviser as to Hong Kong laws in relation
to whether there are litigations in respect of the Group committing any offences under Hong
Kong environmental protection laws and regulations;
APPENDIX VI DOCUMENTS DELIVERED TO THE REGISTRAR OFCOMPANIES AND AVAILABLE FOR INSPECTION
— VI-1 —
App1A(52)(1)S342
App1A(52)(5)
App1A(52)(3)
App1A(52)(3)
App1A(52)(3)
(j) the material contracts referred to in the sub-paragraph headed “Summary of material
contracts” in the paragraph headed “Further information about the business” in Appendix
V to this prospectus;
(k) the written consents referred to in the sub-paragraph headed “Consents and qualifications
of experts” in the paragraph headed “Other information” in Appendix V to this prospectus;
and
(l) the service contracts and letters of appointment referred to in the sub-paragraph headed
“Particulars of Directors’ service contracts” in the paragraph headed “Further information
about Directors, management, staff and experts ” in Appendix V to this prospectus.
APPENDIX VI DOCUMENTS DELIVERED TO THE REGISTRAR OFCOMPANIES AND AVAILABLE FOR INSPECTION
— VI-2 —
App1A(52)(2)
App1A(52)(3)
App1A(52)(2)
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