Tsun Yip Holdings prospectus

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 —


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$ 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


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


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


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




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


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.


— 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.


— 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


Jardine House

1 Connaught Place

Central

Hong Kong

Lead Manager CIMB Securities (HK) Limited

25th Floor, Central Tower


Hong Kong

Underwriters K.K.M. Securities Limited

8th Floor, Fung House

19-20 Connaught Road Central

Hong Kong


Unit 2001, 20th Floor


Hong Kong


Room 1601, Far East Finance Centre

16 Harcourt Road

Admiralty

Hong Kong


Room 804-806, Far East Consortium Building


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


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


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:


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


the territory.

• Works commenced in January 2007 for completion in 2011.

Stage 3


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


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

— 52 —

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

— 53 —

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.

LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS

— 54 —

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:


— 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


whichever is higher

Group B - probationary HK$4,200,000 HK$4,200,000 or 10% on


whichever is higher

Group B - confirmed HK$8,600,000 HK$8,600,000 or 10% on


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


— 56 —

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


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


There are no Group A

contractors for the Site

Formation category.


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.


— 57 —


Entry on

probation to

Group B

A. Direct entry


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


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



a pre-requisite.


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


of at least one



not less than 75% of the

Group A limit after

confirmation in Group A.

Experience as a


B. By promotion



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.


— 58 —


Confirmation

to Group B


of at least one




Group B limit after

inclusion in Group B on

probation. Experience as

a subcontractor may

count.


of at least one

Government Site

Formation contract within

the past 5 years of value


Group B limit, or one

Government contract with


less than 200,000 m3

since inclusion.

Experience as a

subcontractor is not

accredited.


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


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


accredited.

A. Direct entry

1) Possession of waterworks

construction experience

either acquired as

contractor or

subcontractor for private

sector contracts, or as

subcontractor for



a pre-requisite.


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.


— 59 —


B. By promotion


of at least one




Group B limit after

confirmation to Group B.

Experience as a principal


accredited.

B. By Promotion


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


less than 300,000 m3.

Experience as a


accredited.


may be accepted to


experience.

B. By Promotion



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.


may be accepted to


experience.

Confirmation

to Group C


of at least one



over HK$90 million.

Experience as a


accredited.


of at least one

Government Group C site

formation contract within

the past 5 years of value

over $90 million.

Experience as a


accredited.


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.


— 60 —

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


institution or equivalent and two years local working


(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)



have a minimum of three years local experience in managing

a construction firm obtained in the past five years.


At least one person with the following qualifications:

(i) Higher Certificate in Civil Engineering from a Hong


institution or equivalent and two years local working


(ii) Ordinary Certificate in Civil Engineering from a Hong


institution or equivalent and three years local working

experience in the relevant category of works.


— 61 —

Group C (probationary or

confirmed)



have a minimum of five years local experience in managing a

construction firm obtained in the past eight years.


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.


— 62 —

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


— 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;


— 64 —

(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


— 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.


— 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.


— 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.


— 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


— 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


— 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


— 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


TYW (BVI)(BVI)

Investment holding


— 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


TY Civil(Hong Kong)

Holding of motor vehicles,provision of waterworks and


TYW (BVI)(BVI)

Investment holding


— 75 —

BUSINESS OVERVIEW


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.


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

— 78 —

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.

BUSINESS

— 79 —

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)


WBDB March 2009 TYW Approved Contractorsfor Public Works —Site FormationCategory (Group B)

Probationary(Notes 2and 5)


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:

BUSINESS

— 80 —

(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:


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

BUSINESS

— 81 —


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

BUSINESS

— 82 —

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.

BUSINESS

— 83 —

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


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



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


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

�BUSINESS

— 84 —

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


MHCC/MHWE Replacement and


stage 3 — mains on Hong

Kong Island South and

outlying islands

18/3/2009 -

13/9/2013

21%

1/WSD/09(W) Waterworks


MHCC/MHWE Term contract for

Waterworks District W-New

Territories

1/9/2009 -

31/8/2012

N/A

(Note 6)


3/WSD/09 Waterworks


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


Original contract

value:

HK$74,708,939.38

WSD Replacement and


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.

BUSINESS

— 85 —

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.

BUSINESS

— 86 —

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.

BUSINESS

— 87 —

(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.

BUSINESS

— 88 —

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)

BUSINESS

— 89 —

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.

BUSINESS

— 90 —

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.

BUSINESS

— 91 —

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.

BUSINESS

— 92 —

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.

BUSINESS

— 93 —

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.

BUSINESS

— 94 —

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.

BUSINESS

— 95 —

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.

BUSINESS

— 96 —

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.

BUSINESS

— 97 —

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.

BUSINESS

— 98 —

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

BUSINESS

— 99 —

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.

BUSINESS

— 100 —



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


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.

BUSINESS

— 101 —



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.

BUSINESS

— 102 —

TY Civil



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


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


training.

Project Manager/

Safety Officer

Training materials of


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.

BUSINESS

— 103 —



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


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.

BUSINESS

— 104 —



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.

BUSINESS

— 105 —

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

BUSINESS

— 106 —

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.

BUSINESS

— 107 —

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

BUSINESS

— 108 —

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.

BUSINESS

— 109 —

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.

BUSINESS

— 110 —

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

BUSINESS

— 111 —

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

BUSINESS

— 112 —

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.

BUSINESS

— 113 —

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.

CONNECTED TRANSACTIONS

— 114 —

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


— 115 —

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.


— 116 —

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.


— 117 —

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

— 118 —

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


— 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


— 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


— 121 —

• 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


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



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


quality

• Implementation of the steps or procedures formulated to


• Review the quality assurance policy after

implementation of the aforesaid steps and procedures




— 122 —

Strengthening of safety team • Implementation of the steps or procedures formulated to


• Review the safety policy after implementation of the

aforesaid steps and procedures


Expansion of business scale • Implementation of the New Project and the Prospective

Projects contracts in progress


quality



Strengthening of safety team • Maintain ongoing inspection at the work site to ensure

the safety policy is properly implemented


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


quality






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


quality






— 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.


— 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$ 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


— 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.


— 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.


— 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


— 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


— 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.


— 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.


— 132 —

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.


— 133 —

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.


— 134 —

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


— 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.


— 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


— 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


— 139 —

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.


— 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


— 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


— 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.


— 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


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.


— 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.


— 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)


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)



— 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


— 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


— 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.


— 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.


— 154 —

Administrative expenses

The table below sets out the administrative expenses for the Track Record Period.


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.


— 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.


— 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


— 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


— 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


— 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.


— 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


— 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.


— 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%.


— 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.


— 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%.


— 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.


— 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.


— 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:


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)


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


— 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.


— 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.


— 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




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


— 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.


— 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.


— 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




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.


— 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.


— 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.


— 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.


— 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)


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)


Income tax 9 (2,327) (3,558)



— 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-------------------------------------------- --------------------------------------------


— 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


— 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


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


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)------------ ------------


— 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)----------------------------------------------------------- -----------------------------------------------------------


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


— 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


— 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.


— 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



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.


— 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%


— 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.


— 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


— 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.


— 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.


— 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.


— 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.


— 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


Staff costs (note 6) 18,098 26,896

Waiver of loan to staff 68 —


— 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


— 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


— 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.


— 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.


— 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


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.


— 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


— 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.


— 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



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



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.


— 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.


— 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.


— 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


— 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)).


— 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.


— 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.


— 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.


— 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


— 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%


— 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


— 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.


— 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.


— 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


— 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.


— 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.


— 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,


No. 28 On Lok Mun Street,

North, New Territories,

Hong Kong

No commercial value

2. Unit 3 on 3rd Floor,


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


— 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).


— 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”.


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).


— III-6 —

8.05(1)(a)(1)(b)(1)(c)(1)(d)(1)(e)(ii)(1)(f)(1)(g)(1)(i)(1)(j)


Particulars of

Occupancy

Capital Value in


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


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.


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”.


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;


— 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).


— III-8 —

(1)(j)


Particulars of

Occupancy

Capital Value in


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


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.


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


— 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).


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).


— III-10 —

(1)(j)


Particulars of

Occupancy

Capital Value in


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


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).


— 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


— 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;


— 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.


— 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.


— 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


— 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;


— 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.


— 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)).


— 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.


— 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;


— 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.


— 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.


— 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.


— 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.


— 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.


— 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.


— 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


— 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.


— 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.


— 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.


— 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.


— 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.


— 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.


— 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.


— 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


— 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


— 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;


— 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.


— 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.


— 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.


— 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;


— 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.


— 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.


— 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.


— 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.


— 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.


— 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.


— V-14 —

App1A.45(3)

App1A.45(4)App1A.45B(1)(a)


(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.


— 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


— 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


— 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.


— 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.


— 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


— 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;


— 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


— 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.


— 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.


— 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


— 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.


— 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.


— 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);


— V-28 —

ThirdSchedule 25

App1A(27)


(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.


— 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)