If you are in any doubt about this prospectus, you should consult your stockbroker, bank manager, solicitor, professional accountant or otherprofessional adviser.
Kwang Sung Electronics H.K. Co. Limited
(Incorporated in Hong Kong with limited liability)
LISTING ON THE MAIN BOARD OFTHE STOCK EXCHANGE OF HONG KONG LIMITED
BY WAY OFPLACING, PUBLIC OFFER AND OFFER FOR SALE
Number of Offer Shares : 90,000,000 Shares consisting of60,000,000 new Shares and30,000,000 Sale Shares(subject to Over-allotment Option)
Number of Placing Shares : 81,000,000 Shares consisting of51,000,000 new Shares (subject toreallocation and the Over-allotmentOption) and30,000,000 Sale Shares
Number of Public Offer Shares : 9,000,000 Shares (subject to reallocation)Offer Price : HK$1.30 per ShareNominal value : HK$0.10 eachStock code : 2310
Sponsor
ANGLO CHINESECORPORATE FINANCE, LIMITED
Joint Lead Managers
ASIA CAPITAL LIMITED ANGLO CHINESECORPORATE FINANCE, LIMITED
Principal Placing Agent
Financial AdviserDaewoo Securities (Hong Kong) Limited
Co-managersDaewoo Securities (Hong Kong) Limited First Shanghai Securities LimitedGuotai Junan Securities (Hong Kong) Limited KGI Capital Asia LimitedShenyin Wanguo Capital (H.K.) Limited South China Securities Limited
The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of thisprospectus, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arisingfrom or in reliance upon the whole or any part of the contents of this prospectus.
A copy of this prospectus, having attached thereto the documents specified in the paragraph headed “Documents delivered to the Registrar ofCompanies” in appendix VI to this prospectus, has been registered by the Registrar of Companies in Hong Kong as required by section 38D of theCompanies Ordinance. The SFC and the Registrar of Companies in Hong Kong take no responsibility as to the contents of this prospectus or any otherdocuments referred to above.
Pursuant to the terms of the termination provisions contained in the Underwriting Agreement, DBS Asia, on behalf of the Underwriters, has the rightin certain circumstances, subject to the absolute discretion of DBS Asia (after consultation with Anglo Chinese and, to the extent that it is practicableto do so in the circumstances and when time permits, consultation with the Company and the Vendor) to terminate the obligations of the Underwriterspursuant to the Underwriting Agreement at any time prior to 10:00 a.m. on the day immediately prior to the Listing Date. Full details of the terms ofthe termination provisions are set out in the section headed “Underwriting” in this prospectus. It is important that you refer to that section for suchdetails. If the Underwriting Agreement does not become unconditional or is otherwise terminated in accordance with the terms therein, the Companywill make an announcement as soon as possible.
IMPORTANT
S38(1A)
A1a(1)
A1a(15)(1)
A1a(15)(2a)A1a(15)(2c)3rd Sch(2)
LR 11.20
S38D(2)
S3724th June, 2003
2003
(Note 3)
Latest time for lodging PINK application forms . . . . . . . . . . 4:00 p.m. on Thursday, 26th June
Application lists open (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . 11:45 a.m. on Friday, 27th June
Latest time for lodging WHITE and YELLOW
application forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12:00 noon on Friday, 27th June
Application lists close (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . 12:00 noon on Friday, 27th June
Announcement of the level of indication of interest in the
Placing, results of the applications and basis of allocation
of the Public Offer Shares and the number of Shares,
if any, reallocated between the Placing and
the Public Offer and the identification document
numbers of successful applicants to be published
in The Standard (in English) and the Hong Kong
Economic Times (in Chinese) on or before . . . . . . . . . . . . . . . . . . . . . . Wednesday, 2nd July
Despatch/collection of Share certificates and
refund cheques in respect of wholly or partially
unsuccessful applications on or before (Note 2) . . . . . . . . . . . . . . . . . . . . Thursday, 3rd July
Dealings in the Shares on the Stock Exchange expected to commence on . . . . . . Friday, 4th July
Notes:
1. If there is a “black” rainstorm warning or a tropical cyclone warning signal number 8 or above in force in Hong
Kong at any time between 9:00 a.m. and 12:00 noon on 27th June, 2003, the application lists will not open and close
on that day. Further information is set out in the paragraph headed “Effect of bad weather on the opening of the
application lists” under the section headed “How to apply for the Public Offer Shares” in this prospectus.
2. Applicants who apply for 1,000,000 or more Public Offer Shares on WHITE application forms and have indicated
on the WHITE application forms that they wish to collect Share certificates and/or refund cheques (if any)
personally may collect them in person from the Company’s share registrar, Standard Registrars Limited, between
10:00 a.m. and 1:00 p.m. on the date as described in the paragraph headed “Despatch and collection of Share
certificates and/or refund cheques and deposit of Share certificates into CCASS” in the section headed “How to
apply for the Public Offer Shares” in this prospectus. Applicants being individuals who opt for personal collection
must not authorise any other person to make their collection on their behalf. Applicants being corporations who
opt for personal collection must attend by their authorised representatives bearing letters of authorisation from
their corporations stamped with the corporation’s chop. Both individuals and authorised representatives, if
applicable, must produce at the time of collection, evidence of identity acceptable to Standard Registrars Limited.
Uncollected Share certificates and/or refund cheques will be despatched by ordinary post at the applicants’ own
risk to the addresses specified in the relevant application forms. Further information is set out under the section
headed “How to apply for the Public Offer Shares” in this prospectus.
EXPECTED TIMETABLE
— i —
A1a(15)(2f)3rd Sch(8)
A1a(15)(2k)
A1a(22)
A1a(15)(2g)
Applicants who apply on YELLOW application forms for 1,000,000 or more Public Offer Shares under the Public
Offer may collect their refund cheques, if any, in person from the Company’s registrar, Standard Registrars Limited
but may not elect to collect their Share certificates in person, which will be deposited into CCASS for the credit of
their designated CCASS participants’ stock accounts or CCASS investor participant stock accounts, as appropriate.
In order to collect refund cheques, the applicant must fill in the appropriate box on the YELLOW application form
and provide the particulars specified in the YELLOW application form. The procedure for collection of refund
cheques for YELLOW application form applicants is the same as those for WHITE application form applicants.
For applications made on PINK application forms, Share certificates and refund cheques (if applications are
revoked or wholly or partially unsuccessful) will be despatched by ordinary post at the applicants’ own risk to the
address specified in the relevant application forms on Thursday, 3rd July, 2003.
For applicants who have not indicated on their application forms that they will collect their Share certificates
and/or refund cheques (where applicable) in person, their Share certificates and/or refund cheques (where
applicable) will be despatched by ordinary post to the addresses specified in their respective application forms at
the applicants’ own risk.
3. All times refer to Hong Kong local time. Details of the structure of the Share Offer, including its conditions, are set
out in the section headed “Structure of the Share Offer” in this prospectus.
It should be noted that the Underwriting Agreement contains provisions granting DBS Asia,
on behalf of the Underwriters, the right, which may be exercised at any time prior to 10:00 a.m.
on the day immediately prior to the Listing Date, after consultation with Anglo Chinese and, to
the extent that it is practicable to do so in the circumstances and when time permits, consultation
with the Company and the Vendor, to terminate the Underwriters’ obligations under the
Underwriting Agreement on the occurrence of certain events, as set out in the Underwriting
Agreement. Details of the grounds for termination are set out in the section headed
“Underwriting” in this prospectus.
Particulars of the structure of the Share Offer, including the conditions thereto, are set forth
in the sections headed “Information about this prospectus and the Share Offer” and “Structure of
the Share Offer” in this prospectus.
EXPECTED TIMETABLE
— ii —
You should rely only on the information contained in this prospectus and the application
forms to make your investment decision.
The Company has 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 Vendor, the Sponsor, the Underwriters,
any of their respective directors or associates, or any other person involved in the Share Offer.
The contents of the Company’s website www.kse.com.hk do not form part of this
prospectus.
Page
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Glossary of technical terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Risk factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Information about this prospectus and the Share Offer . . . . . . . . . . . . . . . . . . . . . . . 29
Directors and parties involved in the Share Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Corporate information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Industry overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Business
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
History and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
The strengths of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
The Group structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Business operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Assembling and processing agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Product research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Raw materials and suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Competition and competitive strengths . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Intellectual property rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Relationship with Kwang Sung Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Competition with Kwang Sung Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Non-competition undertakings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Connected transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
CONTENTS
— iii —
Page
Directors, senior management and staff
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Senior management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Audit committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Substantial shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Financial information
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Liquidity, financial resources and capital structure . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Practice note 19 to the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Trading record . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Management’s discussion and analysis of the trading record . . . . . . . . . . . . . . . . . . . . 91
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Profit forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Property interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Distributable reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Adjusted net tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
No material adverse change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Future plans and use of proceeds
Future plans and prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Use of proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Underwriting
Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Underwriting arrangements and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Undertakings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Commission and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Underwriters’ interests in the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Structure of the Share Offer
The Share Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Price payable on application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Conditions of the Share Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
The Public Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Preference to full-time employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Offer mechanism — basis of allocation of the Offer Shares . . . . . . . . . . . . . . . . . . . . 115
The Placing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Over-allotment Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Stabilisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
CONTENTS
— iv —
Page
How to apply for the Public Offer Shares
Which application form to use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Where to obtain the application forms for the Public Offer Shares . . . . . . . . . . . . . . . 121
How to complete the application forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
How many applications may you make . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
How much are the Public Offer Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Full-time employees — time for applying for Public Offer Shares . . . . . . . . . . . . . . . 127
Members of the public — time for applying for Public Offer Shares . . . . . . . . . . . . . 127
Effect of bad weather on the opening of the application lists . . . . . . . . . . . . . . . . . . . 127
Circumstances in which you will not be allocated Public Offer Shares . . . . . . . . . . . . 128
Publication of results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Despatch and collection of Share certificates and,
or, refund cheques and deposit of Share certificates into CCASS . . . . . . . . . . . . . . . 129
Commencement of dealings in the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
Shares will be eligible for admission into CCASS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
Appendix I — Accountants’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Appendix II — Profit forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
Appendix III — Property valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Appendix IV — Summary of the constitution of the Company . . . . . . . . . . . . . . . 176
Appendix V — Statutory and general information . . . . . . . . . . . . . . . . . . . . . . . . 183
Appendix VI — Documents delivered to the Registrar of Companies and
available for inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206
CONTENTS
— v —
This summary aims to give you an overview of the information contained in this
prospectus and should be read in conjunction with the full text of this prospectus. Since this
is a summary, it does not contain all the information that may be important to you. You
should read the prospectus in its entirety before you decide to invest in the Offer Shares.
There are risks associated with any investment. Some of the particular risks in investing
in the Offer Shares are set out in the section headed “Risk factors” of this prospectus. You
should read that section carefully before you decide to invest in the Offer Shares.
BUSINESS OF THE GROUP
The Group is a recognised manufacturer and supplier of a broad line of electronic
components for electronic appliances and communication equipment. The Group has its
headquarter in Hong Kong and its manufacturing plant in Shenzhen, China. The Group’s products
are primarily used for transmitting and receiving radio frequencies through electronic circuits.
Most of the Group’s products are designed and manufactured according to the specifications and
requirements of its customers. The Group’s products are broadly categorised into two main
product groups: composite components, such as FM front-end tuners and AM/FM tuner modules;
and unit electronic components, such as coils, ceramic components, transformers and antennae.
The Group has achieved constant growth in turnover and maintained profitability over the past
ten years.
The Group’s customers include ODMs and OEMs in Korea, Hong Kong and China. In order
to meet different requirements of customers in these areas, the Group has developed production
lines for essential unit components and a sales and marketing department headed by experienced
senior management personnel. The Group markets its products through its own direct sales force
and distributors.
The Group operates in an industry characterised by rapid changes caused by the frequent
emergence of new technologies, as a result of which the life cycles of the Group’s products are
relatively short. The Directors believe that the Group can anticipate and respond rapidly to
changes in industry standards and customers’ needs and to develop and introduce new and
enhanced products on a timely and cost effective basis. The PRC R&D Team emphasises close
cooperation with the Group’s customers with a view to designing high quality and innovative
products and to improving its manufacturing processes. The Directors believe that the Group has
the ability to continue to be one of the recognised technology orientated manufacturers in the
new era of digitalisation.
All of the Group’s products are manufactured in the PRC. Its manufacturing facilities are
equipped with modern technologies and design techniques. These facilities implement a quality
management assurance system in compliance with ISO 9002 guidelines. The Group was awarded
ISO 9002 certification since 1998. Over the past ten years, the Group has been expanding its
production capability to cater for the production of more advanced electronic components. The
PRC R&D Team works closely with the Korea R&D Team to develop hardware and to design
circuits for new products. The Group’s manufacturing facilities in China have the resources and
SUMMARY
— 1 —
A1a(28)(1)(a)
3rd Sch (1)
equipment to handle the principal operations of the Group and to produce advanced electronic
components developed by the PRC R&D Team and the Korea R&D Team. This arrangement
enables the Group to accelerate the product development cycle and enhances its ability to
respond quickly to customers’ requirements.
With the support of the Korea R&D Team, the Group provides a comprehensive product
design, engineering and manufacturing package to its customers. As at the Latest Practicable
Date, the PRC R&D Team had 70 staff comprising electronic engineers, mechanical engineers and
other support staff based in China and one of their main functions is to support product
improvement and re-engineering efforts. The PRC R&D Team and the Korea R&D Team work
closely to identify and stipulate sources of components to be used in the material product
specification, and to evaluate the material cost structure, of products. The Group’s engineers also
frequently work closely with the engineers of its customers in the development of new products
tailored to their needs.
STRENGTHS OF THE GROUP
The Directors consider the principal strengths of the Group are as follows:
— a strong and effective management team;
— a proven track record of steady growth in business;
— recognition of quality and reliability of the Group’s products;
— efficient and cost effective production capability of the Group;
— strong business relationship with reputable customers; and
— competitive pricing and product range of electronic components.
SUMMARY
— 2 —
TRADING RECORD
The table below summarises the audited consolidated results of the Group for each of the
three years ended 31st December, 2002. The consolidated results for each of the three years
ended 31st December, 2002 are based on information contained in the accountants’ report set out
in appendix I to this prospectus.
Year ended 31st December,
2000 2001 2002
HK$’000 HK$’000 HK$’000
Turnover (note 1) 279,190 285,138 396,955
Cost of sales (224,781) (227,580) (299,071)
Gross profit 54,409 57,558 97,884
Other revenue 1,040 2,662 1,762
Selling and distribution expenses (6,075) (7,232) (9,769)
Administrative expenses (9,012) (9,577) (9,892)
Other operating expenses (9,239) (7,996) (11,042)
Profit from operations 31,123 35,415 68,943
Finance costs (1,837) (828) (281)
Profit from ordinary activities
before taxation 29,286 34,587 68,662
Taxation (2,430) (2,484) (5,517)
Profit attributable to shareholders 26,856 32,103 63,145
Dividends (note 2) — — 24,560
Earnings per Share
— Basic (HK cents) (note 3) 11.19 13.38 26.31
SUMMARY
— 3 —
3rd Sch(3),(27)A1a33
Notes:
1. Turnover represents the aggregate of the invoiced value of goods sold, after deducting goods returned and
trade discounts and includes sales to Hong Kong, the PRC and Korea.
2. On 2nd August, 2002, the Company declared a special dividend of approximately HK$24,560,000 to its then
shareholders. Such special dividend was paid out on 23rd August, 2002 and 27th August, 2002. On 28th May,
2003, a special dividend of HK$5,469,000 was declared by the Company to its then shareholders. The special
dividend was paid on 6th June, 2003.
3. The calculation of basic earnings per Share for each of the three years ended 31st December, 2002 (the
“Relevant Period”) is based on the profit attributable to shareholders for each of the years during the
Relevant Period and on the 240,000,000 Shares in issue and issuable during the Relevant Period, respectively,
as if the 233,000,000 Shares to be issued pursuant to the Capitalisation Issue were outstanding throughout
the Relevant Period.
REASONS FOR THE SHARE OFFER AND USE OF PROCEEDS FROM THE SHARE OFFER
The Directors believe that the net proceeds from the Share Offer will strengthen the
financial structure of the Group and will fund the capital investment and working capital
requirements of the Group. The Directors presently intend to use the proceeds of the Share Offer
to finance expansion of the Group’s production capacity, to strengthen and expand its research
and development capabilities, finance the acquisition of future opportunities relating to the
Group’s existing business and as additional working capital.
The Directors believe that the listing of the Shares on the Main Board will enhance the
corporate profile of the Group. The Directors also believe that the listing of the Shares on the
Main Board will serve to promote public awareness of the Group’s achievements and capabilities
which will in future assist in the expansion of the Group’s business.
Full-time employees of the Group in Hong Kong, among others, will be eligible for the grant
of share options under the Share Option Scheme. The grant of share options and the subscription
of Shares under the Share Offer will enable such employees to participate more directly in the
development of the Group’s business.
The net proceeds of the New Issue after deducting underwriting fees and related expenses,
and assuming that the Over-allotment Option is not exercised, are estimated to amount to
approximately HK$68.0 million. To effect the Group’s future plans (details of which are more
particularly set out in the paragraph headed “Future plans and prospects” under the section
headed “Future plans and use of proceeds” in this prospectus), the Group currently intends to
apply the net proceeds as follows:
— approximately HK$20.0 million for the upgrading of production facilities, the
expansion of production capacity and research and development capabilities in the
PRC;
— approximately HK$15.0 million for the setting up of a research and development centre
in Korea;
SUMMARY
— 4 —
A1a(17)
— approximately HK$20 million for future acquisitions which will create synergies for the
Group’s existing electronic components business; and
— the remaining balance of approximately HK$13.0 million as general working capital.
In the event that any part of the business plans of the Group does not materialise or proceed
as planned, the Directors will carefully evaluate the situation and may allocate the intended
funding to other business plans and/or to new projects of the Group and/or to hold such funds
as short-term deposits for so long as the Directors consider it to be in the best interest of the
Group and the Shareholders taken as a whole.
In the event that the Over-allotment Option is exercised in full, the additional net proceeds
of approximately HK$17.1 million will be applied by the Group as general working capital. To
the extent that the net proceeds of the Share Offer are not immediately required for the above
purposes, the Directors presently intend that such proceeds will be placed as short-term deposits
with banks or financial institutions or used to purchase money market instruments.
In the event that there is any material modification to the use of proceeds as described
above, the Company will issue an announcement regarding such modification.
FUTURE PLANS AND PROSPECTS
The Group’s existing business model has proven to be successful and the sales of the Group
has grown steadily over the past ten years. The Directors believe that the Group has become one
of the recognised manufacturers and suppliers of electronic components to manufacturers of
electronic and telecommunication products in the PRC, Hong Kong and Korea. The Directors
believe that the Group has assembled the technical and managerial resources to develop into a
substantially larger high technology electronic products manufacturing enterprise. The Directors
intend to develop the brand “KSE” as synonymous with high technology and high quality
products. The Directors believe that the Group is well positioned to become a reliable high
quality and cost efficient supplier in the electronic components industry.
The Directors believe that the trend will continue in the electronics industry where the
product design, research and development and marketing functions of international brandname
corporations will be conducted at their headquarters or research and development centres, while
other operations will be shifted to facilities in lower cost regions like China. Customers will rely
on technology enabling manufacturers such as the Group to provide partial solutions with the
supply of high quality and cost efficient components to their ODMs or OEMs. The Directors
therefore believe that there are great opportunities for the Group to further expand its business
as well as to benefit from opportunities that arise from China’s accession to the WTO. The Group
will continuously endeavour to strengthen its own product design and research and development
capabilities in order to keep abreast of industry trends. In order to accomplish this plan, the
Group intends to:
— focus on expansion through provision of product solutions in different application
areas;
SUMMARY
— 5 —
— focus on growth through expansion and penetration into growth markets;
— continue to develop and introduce new products and setting up a research and
development centre in Korea;
— leverage on the product engineering and design capabilities of Kwang Sung Korea
through their existing arrangements;
— undertake strategic acquisitions and take advantage of outsourcing opportunities; and
— expand its production capacities in the PRC and maintain cost efficiency and
production quality.
FORECASTS FOR THE FINANCIAL YEAR ENDING 31ST DECEMBER, 2003
The following is the profit forecast of the Group for the year ending 31st December, 2003
which should be read in conjunction with the paragraph headed “Profit forecast” under the
section headed “Financial information” in this prospectus.
Forecast consolidated profit after taxation
but before extraordinary items of the Group (Note 1) . . . . . . . not less than HK$63.5 million
Forecast earnings per Share
— weighted average (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.4 cents
— pro forma fully diluted (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.3 cents
SHARE OFFER STATISTICS
Offer price (per Share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$1.30
Market capitalisation (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$390.0 million
Prospective price earnings multiple
— weighted average (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.56 times
— pro forma fully diluted (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.10 times
Adjusted net tangible asset value per Share (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . 80.5 cents
SUMMARY
— 6 —
Notes:
1. The basis and assumptions on which the profit forecast for the year ending 31st December, 2003 has been prepared
are set out in appendix II to this prospectus. The Directors are not aware of any extraordinary items which have
arisen or are likely to arise in respect of the year ending 31st December, 2003.
2. The calculation of the forecast earnings per Share on a weighted average basis is based on the forecast consolidated
profit after taxation but before extraordinary items of the Group for the year ending 31st December, 2003 and the
weighted average number of 271,600,000 Shares in issue and issuable during the year, and takes no account of any
Shares which may fall to be allotted and issued upon the exercise of options granted under the Share Option
Scheme or which may be allotted and issued or repurchased by the Company under the general mandates for the
allotment and issue or repurchase of Shares referred to in the paragraph headed “Further information about the
Company and its subsidiaries” in appendix V to this prospectus.
3. The calculation of the forecast earnings per Share on a pro forma fully diluted basis is based on the forecast
consolidated profit after taxation but before extraordinary items of the Group for the year ending 31st December,
2003 and assuming the Company had been listed since 1st January, 2003 and a total of 300,000,000 Shares have
been in issue throughout the year and takes no account of any Shares which may fall to be allotted and issued upon
the exercise of options granted under the Share Option Scheme or which may be allotted and issued or repurchased
by the Company under the general mandates for the allotment and issue or repurchase of Shares referred to in the
paragraph headed “Further information about the Company and its subsidiaries” in appendix V to this prospectus.
For the purpose of this calculation, the forecast consolidated profit after taxation but before extraordinary items
of the Group for the year ending 31st December, 2003 has been adjusted to take into account the interest income
that would have been earned if the estimated net proceeds from the Share Offer had been received on 1st January,
2003 and held on deposit thereafter, based on an interest rate of 1% per annum, being the estimated twelve month
deposit rate available to the Group between that date and the expected date of receipt of the net proceeds of the
Share Offer.
4. The calculation of the market capitalisation takes no account of any Shares which may be allotted and issued
pursuant to the exercise of the Over-allotment Option and any options which may be granted under the Share
Option Scheme.
5. The prospective price earnings multiple on a weighted average basis is based on the forecast earnings per Share
on a weighted average basis of 23.4 HK cents for the year ending 31st December, 2003 and on the Offer Price of
HK$1.30 per Offer Share.
6. The prospective price earnings multiple on a pro forma fully diluted basis is based on the forecast earnings per
Share on a pro forma fully diluted basis of 21.3 HK cents for the year ending 31st December, 2003 and on the Offer
Price of HK$1.30 per Offer Share.
7. The adjusted net tangible asset value per Share has been arrived at after the adjustments referred to in the
paragraph headed “Adjusted net tangible assets” in the section headed “Financial information” in this prospectus
and on the basis of 300,000,000 Shares in issue at the Offer Price of HK$1.30 per Offer Share immediately following
the completion of the Share Offer but without taking into account any Shares which may fall to be issued upon the
exercise of the Over-allotment Option.
If the Over-allotment Option is exercised in full or in part, the adjusted net tangible asset value per Share will be
increased, while earnings per Share on a pro forma fully diluted basis will be reduced correspondingly.
SUMMARY
— 7 —
RISK FACTORS
The Directors consider that there are certain risks involved in the Group’s business, which
include those set out in the section headed “Risk factors” in this prospectus. These risks can be
categorised as follows:
Risks associated with the Group
— Relationship with and reliance on Kwang Sung Korea
— Competition from Kwang Sung Korea
— Supply and cost of raw materials
— Currency risk
— Inventory risk
— Reliance on major customers
— Reliance on major suppliers
— Taxation
— Different interests of substantial shareholders and public shareholders
— Enforceability of civil liabilities
— Competition
— Limited insurance coverage
— Special dividends
— Leased properties
SUMMARY
— 8 —
Risks associated with the industry
— Threat of new entrants
— The cyclical demand for electronic products and components could result in
fluctuations in the Group’s sales
— Rapid technological changes
— Environmental protection laws and regulations
Risks associated with the PRC
— PRC import and export duties and value added tax
— Economic, political, legal and social considerations
— Entry into the WTO
SUMMARY
— 9 —
In this prospectus, unless the context otherwise requires, the following expressions have the
following meanings:
“Anglo Chinese” Anglo Chinese Corporate Finance, Limited, the sponsor, a
joint lead manager, an underwriter of the Share Offer and
a deemed licensed corporation under the SFO permitted to
engage in types 1, 4, 6 and 9 of the regulated activity (as
defined in the SFO)
“Articles” the articles of association of the Company
“associate(s)” has the meaning ascribed to it in the Listing Rules
“Board” the board of Directors
“business day” any day (other than a Saturday) on which banks in Hong
Kong are generally open for business
“Capitalisation Issue” the issue of Shares to be made upon capitalisation of the
share premium account of the Company referred to in the
paragraph headed “Further information about the
Company and its subsidiaries” in appendix V to this
prospectus
“CCASS” the Central Clearing and Settlement System established and
operated by HKSCC
“Commission Agreement” an agreement entered into between the Company and
Kwang Sung Korea dated 23rd June, 2003 setting out the
arrangements and referral commission payable by the
Company to Kwang Sung Korea on the referral of sales
orders for the products by Kwang Sung Korea to the Group
“Companies Ordinance” the Companies Ordinance (Chapter 32 of the Laws of Hong
Kong)
“Company” Kwang Sung Electronics H.K. Co. Limited
( ), formerly known as All Profit
Industries Limited, a company incorporated on 5th May,
1987 in Hong Kong with limited liability
“Covenantors” Kwang Sung Korea, Mr. Yang (as an executive Director, a
controlling Shareholder and the Vendor), KS-Tech, Mr. Kim
Sun Cheol and Mr. Lee Byung Kwan
DEFINITIONS
— 10 —
“DBS Asia” DBS Asia Capital Limited, the bookrunner and a joint lead
manager of the Share Offer and a deemed licensed
corporation under the SFO permitted to engage in types 1,
4, 6 and 9 of the regulated activity (as defined in the SFO)
“Deed of Undertaking” an agreement entered into between Kwang Sung Korea,
KS-Tech, Mr. Yang and the Company dated 23rd June, 2003
setting out, among other things, the non-competition
undertakings by Kwang Sung Korea, KS-Tech and Mr. Yang
in favour of the Group, the option to purchase the R&D
Division, the option to purchase the Sales Division and the
referral of sales orders received by Kwang Sung Korea for
the production of electronic products to the Group. Details
of the agreement are set out in the paragraph headed
“Non-competition undertakings” in the section headed
“Business” of this prospectus
“Director(s)” the director(s) of the Company
“Group” the Company together with its subsidiaries
“Group R&D Centre” the research and development centre of the Group which
the Group has started to establish in Korea in April 2003
“HKSCC” Hong Kong Securities Clearing Company Limited
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Joint Lead Managers” DBS Asia and Anglo Chinese collectively
“Korea” the Republic of Korea
“Korea R&D Team” the product design and research and development
departments of Kwang Sung Korea
“KSK Factory” the factory operated by Kwang Sung Korea situated at 108,
Wonhyo-Ro 4 Ka, YongSan Ku, Seoul, 140-114 Korea
“KS-Tech” KS-Tech Group Corporation, a Shareholder and a company
incorporated on 7th June, 2002 in the British Virgin
Islands, currently, its entire issued share capital is
beneficially held by Kwang Sung Korea
DEFINITIONS
— 11 —
“Kwang Sung Korea” Kwang Sung Electronics Co., Ltd. ( ), a
controlling shareholder of the Company and a company
incorporated on 23rd August, 1972 in Korea, currently,
approximately 79.5% of its shares are held by Mr. Yang and
his relatives (namely Messrs. Yang Ho Sung, Kang Young
Jun, Park Yang, Kim Jae Baek, Ms. Yang Han Hui and Ms.
Yang Youn Hwa) and the remaining shares are held by
Messrs. Lee Sang Lok, Kim Sun Cheol, Chung Dae Taek and
Jang Dong Jun. Further information on the shareholding
structure of Kwang Sung Korea is set out under the
paragraph headed “The Group structure” in the section
headed “Business” of this prospectus
“Kwang Sung Korea Group” Kwang Sung Korea and its subsidiaries (if any) excluding
the Group (if applicable)
“Latest Practicable Date” 16th June, 2003, being the latest practicable date prior to
the printing of this prospectus for the purpose of
ascertaining certain information contained in this
prospectus
“Listing Date” the date on which trading in the Shares commences on the
Stock Exchange, which under the Underwriting Agreement
will not be a Monday or a business day immediately after
a public holiday in Hong Kong
“Listing Rules” the Rules Governing the Listing of Securities on the Stock
Exchange
“Main Board” the exchange operated by the Stock Exchange prior to the
establishment of the Growth Enterprise Market of the Stock
Exchange, excluding the option market, and which
continues to be operated by the Stock Exchange in parallel
with the Growth Enterprise Market
“Mr. Yang” Mr. Yang Jai Sung, the chairman, a controlling Shareholder
and an executive Director
“New Issue” the offer of 60,000,000 new Shares for subscription (and
where relevant, any additional Shares to be issued upon
the exercise of the Over-allotment Option) under the
Public Offer and the Placing
“ODM” original design manufacturer
“OEM” original equipment manufacturer
DEFINITIONS
— 12 —
“Offer for Sale” the offer for sale of the Sale Shares by the Vendor under
the Placing
“Offer Price” the offer price per Offer Share (excluding brokerage, SFC
transaction levy, investor compensation levy and Stock
Exchange trading fee), which will be HK$1.30
“Offer Share(s)” the Public Offer Share(s) and the Placing Share(s)
“Over-allotment Option” the option granted by the Company to DBS Asia under the
Underwriting Agreement pursuant to which the Company
may be required to allot and issue up to 13,500,000
additional new Shares, representing 15% of the Shares
initially available under the Share Offer at the Offer Price,
to cover over-allocations in the Placing, if any, within a
period of 30 days from the date of this prospectus
“Placing” the conditional placing of the Placing Shares as further
described in the section headed “Structure of the Share
Offer” of this prospectus
“Placing Shares” the 81,000,000 Shares, consisting of 51,000,000 new Shares
and the Sale Shares being initially offered for subscription
and sale under the Placing (subject to adjustment as
described in the section headed “Structure of the Share
Offer” of this prospectus)
“Placing Underwriters” DBS Asia, Anglo Chinese, Daewoo Securities (Hong Kong)
Limited, First Shanghai Securities Limited, Guotai Junan
Securities (Hong Kong) Limited, KGI Capital Asia Limited,
Shenyin Wanguo Capital (H.K.) Limited and South China
Securities Limited
“PRC” or “China” the People’s Republic of China which, for the purposes of
this prospectus, excludes Hong Kong, the Macau Special
Administrative Region of the PRC and Taiwan
“PRC R&D Team” the Group’s research and development team (including the
production engineering department) in the PRC
“Public Offer” the offer for subscription by the public of the Public Offer
Shares for cash at the Offer Price, on and subject to the
terms and conditions stated in this prospectus and in the
application forms relating thereto
DEFINITIONS
— 13 —
“Public Offer Shares” the 9,000,000 new Shares being initially offered by the
Company for subscription under the Public Offer (subject
to adjustment as described in the section headed “Structure
of the Share Offer” of this prospectus)
“Public Offer Underwriters” DBS Asia, Anglo Chinese, Daewoo Securities (Hong Kong)
Limited, First Shanghai Securities Limited, Guotai Junan
Securities (Hong Kong) Limited, KGI Capital Asia Limited,
Shenyin Wanguo Capital (H.K.) Limited and South China
Securities Limited
“R&D Division” Korea R&D Team and the KSK Factory
“R&D Service Agreement” an agreement entered into between Kwang Sung Korea
and the Company dated 23rd June, 2003 in relation to the
provision of design and product development services by
Kwang Sung Korea to the Company, details of which are
set out in the sub-paragraph headed “Product research and
development” in the section headed “Business” of this
prospectus
“Repurchase Mandate” the repurchase mandate referred to in the paragraph
headed “Share repurchase mandate” in appendix V to this
prospectus
“Restricted Business” any of the businesses carried out by any member of the
Group from time to time
“Sale Shares” the 30,000,000 Shares being offered for sale by the Vendor
at the Offer Price under the Placing
“Sales Division” the sales, marketing and purchasing departments of Kwang
Sung Korea
“SFC” the Securities and Futures Commission in Hong Kong
“SFO” the Securities and Futures Ordinance (Chapter 571 of the
Laws of Hong Kong)
“Share(s)” ordinary share(s) of HK$0.10 each in the share capital of
the Company
“Share Offer” the Placing and the Public Offer
DEFINITIONS
— 14 —
“Share Option Scheme” the share option scheme conditionally adopted by the
Company pursuant to resolutions passed by the
shareholders of the Company on 16th June, 2003, the
principal terms of which are summarised in the paragraph
headed “Share Option Scheme” in appendix V to this
prospectus
“Shareholders” holders of Shares
“Shenzhen Kwang Sung” (Shenzhen Kwang Sung Electronics
Co., Ltd.), a wholly owned subsidiary of the Company
established on 30th April, 1994 under the laws of the PRC
“Sponsor” Anglo Chinese
“Stock Borrowing Agreement” the stock borrowing agreement dated 23rd June, 2003
entered into between DBS Asia and the Vendor
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Underwriters” the Placing Underwriters and the Public Offer
Underwriters
“Underwriting Agreement” the conditional underwriting and placing agreement dated
23rd June, 2003 entered into between, among others, the
Company, the Covenantors, the Sponsor, the Joint Lead
Managers and the Underwriters relating to the Share Offer,
particulars of which are summarised in the section headed
“Underwriting” of this prospectus
“Vendor” Mr. Yang, the vendor of the Sale Shares
“WTO” the World Trade Organisation
“HK$” and “HK cents” Hong Kong dollars and cents, respectively, the lawful
currency of Hong Kong
“RMB” Renminbi, the lawful currency of the PRC
“sq.ft.” square feet
“sq.m.” square metre
“US” or “United States” the United States of America
“US dollars” or “US$” United States dollars, the lawful currency of the United
States
“Won” Korean Won, the lawful currency of Korea
DEFINITIONS
— 15 —
3rd Sch(29)
3rd Sch (28)A1a 15(2)(j)
“Yen” Japanese Yen, the lawful currency of Japan
“%” per cent.
For the purposes of this prospectus, unless otherwise specified, conversions of US dollars,
Won and RMB into Hong Kong dollars are based on the approximate exchange rates of US$1.00
to HK$7.80, HK$1.00 to Won160 and HK$1.00 to RMB1.07, respectively, for the purpose of
illustration only. No representation is made that any amount in Hong Kong dollars, US dollars,
Won or RMB could have been or could be converted at the above rates or at any other rates.
If there is any inconsistency between the Chinese names of PRC entities mentioned in this
prospectus and their English translations, the Chinese version shall prevail.
DEFINITIONS
— 16 —
“AM” amplitude modulation
“AV” audio/video
“˚C” degree of centigrade
“CATV” community antenna television
“CD” compact disc
“CT-1” the first generation cordless telephone and is primarily
designed for domestic use
“DECT” digitally enhanced cordless telecommunications, a digital
wireless technology standard developed in Europe
“dielectric” a substance that is a non-conductor of electricity, but an
efficient supporter of electrostatic fields
“DVD” digital video disc
“ferrite” an elementary metal that is used as a magnetic core in
coils, transformers and other components
“FET” field-effect transistor, a type of transistor commonly used
for weak signal amplification, which can amplify analog or
digital signals, switch DC or functions as an oscillator
“filter” a two-port network which is designed to transmit freely
sinusoidal signals within one or more frequency bands and
to attenuate substantially sinusoids of other frequencies.
Filters are usually characterised by their voltage transfer
function
“FM” frequency modulation
“GHz” Gigahertz, a billion cycles per second being a unit for the
measurement of frequency
“Hi-fi” high fidelity
“IC” integrated circuit
“IFT coil” intermediate frequency transformer coil
“ISO 9002” a set of international quality management and quality
assurance standards which forms a constituent part of the
ISO 9000 series, covering the areas of production,
installation and servicing
“inductor” a passive electronic component that stores energy in the
form of a magnetic field, in its simplest form, an inductor
consists of a wire loop or coil
GLOSSARY OF TECHNICAL TERMS
— 17 —
“line filter” a circuit of one or more inductors and capacitors inserted
between an alternating current-powered device and the
power line. It is used to attenuate noise signals
“MD” mini disc
“MHz” Megahertz, a million cycles per second being a unit for the
measurement of frequency
“MP3” a standard technology and format for compressing a sound
sequence into a very small file while preserving the
original level of sound quality when it is played
“PCB” printed circuit board
“RF” radio frequency
“SMT” Surface Mount Technology, a technology applied to mount
components on printed circuit boards
“transformer” an apparatus for converting a given electric current to
another current of a different voltage
“UHF” ultra high frequency
“Varicap diode” variable capacitance diode, an element with variable
capacitance in which the junction capacitance of p-n
junction varies greatly depending on the applied voltage
and is used in an electronic tuner circuit for
UHF/VHF/CATV
“VCD” video compact disc, a digital movie format
“VCR” video cassette recorder, which encodes standard video
NTSC or PAL or SECAM signals on magnetic tape. The
signals are recorded in analog
“VHF” very high frequency
GLOSSARY OF TECHNICAL TERMS
— 18 —
Potential investors should consider carefully all the information set out in this prospectus
and, in particular, should consider the following risks and special considerations associated
with an investment in the Company before making any investment decision in relation to the
Company. Additional risks and uncertainties not presently known to the Group or that the
Group currently deems immaterial could also harm the business, financial condition and
operating results of the Group.
RISKS ASSOCIATED WITH THE GROUP
Relationship with and reliance on Kwang Sung Korea
One of the Group’s major customers and the largest marketing agent referring sales to the
Group
Kwang Sung Korea has been one of the Group’s major customers during the three years
ended 31st December, 2002. The Group sells electronic components to Kwang Sung Korea, which
in turn sells those products to its ultimate customers. During the three years ended 31st
December, 2002, the amount of sales made to Kwang Sung Korea amounted to approximately
HK$37.5 million, HK$36.4 million and HK$29.6 million, respectively, which accounted for
approximately 13%, 13% and 7% of the Group’s total turnover for each of the three years ended
31st December, 2002, respectively. In addition, Kwang Sung Korea refers sales orders to the
Group and in return receives a commission. During the three years ended 31st December, 2002,
the amount of referral commission paid by the Group to Kwang Sung Korea amounted to
approximately HK$3.5 million, HK$4.5 million and HK$7.3 million, respectively. Details of such
transactions are set out in the paragraph headed “Connected transactions” in the section headed
“Business” of this prospectus.
The Group has not maintained any long-term sales contract with Kwang Sung Korea
although Kwang Sung Korea has, pursuant to the Deed of Undertaking, undertaken to, and to
procure its subsidiaries to, first refer all customers’ orders for the production of electronic
components and related products received by them from their customers to the Group. Kwang
Sung Korea has not entered into any long-term sales contracts with its ultimate customers either.
As such, there is no assurance that the customers of Kwang Sung Korea will continue to place
orders with Kwang Sung Korea or will agree to the referral to the Group by Kwang Sung Korea
and if these customers fail to place orders with Kwang Sung Korea or reject the referral, the sales
and profitability of the Group may be adversely affected. Details of the Deed of Undertaking
provided by Kwang Sung Korea are more particularly described in the paragraph headed
“Non-competition undertakings” in the section headed “Business” of this prospectus.
RISK FACTORS
— 19 —
The largest supplier of raw materials of the Group
During the three years ended 31st December, 2002, Kwang Sung Korea, the largest supplier
of raw materials of the Group, accounted for approximately 37%, 35% and 22% of the Group’s
total purchases, respectively, with respect to the sourcing of raw materials. Details of such
transactions are set out in the paragraph headed “Connected transactions” in the section headed
“Business” of this prospectus. The Group has not entered into any long-term supply contract with
Kwang Sung Korea so as to maintain continuity in the sourcing of raw materials for its production
requirements. In the event that Kwang Sung Korea, for whatever reason, ceases to supply or
reduces the supply of raw materials to the Group or increases the costs of raw materials and the
Group is unable to source suitable raw materials elsewhere in a timely manner to meet its
demand, the production and the profitability of the Group may be adversely affected.
Services for product design and research and development
The Group’s existing product design and research and development are carried out by the
Korea R&D Team, and product development, testing and modification are carried out by the PRC
R&D Team. For the three years ended 31st December, 2002, the amount of research and
development and technical support fees paid by the Group to Kwang Sung Korea amounted to
approximately HK$3.1 million, HK$3.7 million and HK$5.6 million, respectively, which
accounted for approximately 39%, 55% and 63% of the Group’s total research and development
expenses, respectively. Pursuant to the R&D Service Agreement, the Group will continue to
engage Kwang Sung Korea to provide product design and research and development functions
to the Group. The terms of such engagement will be on normal commercial terms. Details of such
transactions are set out in the paragraph headed “Connected transactions” in the section headed
“Business” of this prospectus.
It is the intention of the Group to continue to make use of Kwang Sung Korea’s expertise
in product design and research and development to better serve its existing and future customers
after the listing of the Company on the Main Board. However, the Directors realise the advantages
of having its own product design and research and development capabilities and the Group is in
the process of setting up its own product design and research and development team in Korea.
The Directors believe that the Group will be capable of handling all its product design and
research and development work independently within three years from the Listing Date.
Although the Group has its own research and development team in the PRC for product
development, testing and modification, the reliance to a certain extent on Kwang Sung Korea’s
expertise in product design and research and development may diminish the Group’s
competitiveness. In the event that the Group is unable to achieve its objective of expanding its
own product design and research and development capability, or Kwang Sung Korea is unable
to maintain its high level of design skills or Kwang Sung Korea ceases to provide product design
and research and development to the Group, the Group’s sales, profitability and business model
may be adversely affected. Furthermore, even if the Group successfully expands its own product
design and research and development capability, there is no assurance that the customers of
Kwang Sung Korea will place orders with the Group directly or transfer their business to the
Group. Kwang Sung Korea has built up strong relationships with some Korean customers over the
RISK FACTORS
— 20 —
years and these customers may continue to place orders with Kwang Sung Korea directly. In such
an event, if the Group is unable to expand its customer base through other new customers, this
may lead to a waste of resources and may have an adverse impact on the financial performance
of the Group.
Competition from Kwang Sung Korea
Kwang Sung Korea engages in the research, design and product development of electronic
components and related products and the sale, marketing and purchasing of electronic
components for electronic appliances and communication equipments. It also engages in the
manufacturing of certain electronic components and related products at the KSK Factory located
in Korea for sale within Korea only. Notwithstanding that Kwang Sung Korea’s manufacturing
capability is less extensive as compared to that of the Group and sales of products manufactured
by Kwang Sung Korea is limited to sales to customers within Korea, Kwang Sung Korea may
compete in Korea with the Group on the basis of their similar scope of businesses and that Kwang
Sung Korea has built up strong business relationships with some Korean customers over the
years.
Although Kwang Sung Korea has entered into the Deed of Undertaking in favour of the
Company to the effect that for so long as Kwang Sung Korea and/or its subsidiaries are
beneficially interested, directly or indirectly, whether individually or taken together, in 20% or
more of the issued share capital of the Company, Kwang Sung Korea will not, and Kwang Sung
Korea will procure that none of its subsidiaries, other than the Group, will, engage or otherwise
be involved in any business which competes or is likely to compete, directly or indirectly, with
any of the Restricted Business, there is no assurance that Kwang Sung Korea will strictly observe
the terms of the Deed of Undertaking or after Kwang Sung Korea ceases to be bound by the Deed
of Undertaking, that it will not engage in any business activities which competes or may compete
with those of the Group. In such an event, the Group’s sales, businesses, customer base and
profitability may be adversely affected.
Supply and cost of raw materials
The total cost of the raw materials represents approximately 77%, 81% and 80% of the total
cost of sales for the three years ended 31st December, 2002, respectively. Other costs, such as
labour and indirect costs, do not currently involve risks which the Directors consider material in
the context of the Group’s business. The Directors believe that any significant increase in the
price of IC related raw materials that cannot be passed on to its customers will have an adverse
impact on the profitability of the Group.
Currency risk
For each of the three years ended 31st December, 2002, the Group’s purchases of raw
materials were principally made in HK$, US$, RMB and Yen and the Group’s sales were made in
US$ and HK$. For the three years ended 31st December, 2002, approximately 28%, 29% and 34%,
respectively, of the Group’s purchases of supplies were made in Hong Kong dollars,
approximately 55%, 52% and 41%, respectively, of the Group’s purchases of supplies were made
RISK FACTORS
— 21 —
in US dollars, approximately 4%, 1% and 1%, respectively, of the Group’s purchases were made
in RMB and approximately 13%, 18% and 24%, respectively, of the Group’s purchases were made
in Yen. For the three years ended 31st December, 2002, approximately 45%, 58% and 39%,
respectively, of the Group’s sales were made in Hong Kong dollars and approximately 55%, 42%
and 61%, respectively, of the Group’s sales were made in US dollars. The Group’s profitability
may be adversely affected in the event of fluctuations between the currencies in which the
Group’s purchases, expenditures and sales are respectively denominated.
Inventory risk
For each of the three years ended 31st December, 2002, the provision on inventory of the
Group amounted to approximately HK$0.9 million, HK$10.9 million and HK$5.0 million,
respectively. Since 2001, the Group changed its policy on the provision of slow moving inventory
by adopting a more stringent control over the level of inventory by assessing slow moving
inventory based on the ageing of the inventory and the production schedule of the Group. As a
result, there was a significant increase in the provision on inventory for the year ended 31st
December, 2001. In the event that the Group fails to project its inventory requirement accurately,
it may result in an increase in the provision of slow moving inventory and the Group’s
profitability may be adversely affected.
Reliance on major customers
For each of the three years ended 31st December, 2002, the Group’s five largest customers
(including Kwang Sung Korea) accounted for approximately 63%, 71% and 65% of the Group’s
total turnover, respectively. For the same periods, Kwang Sung Korea accounted for
approximately 13%, 13% and 7% of the Group’s total sales, respectively. As at the Latest
Practicable Date, the Group has established business relationships with its five largest customers
for five to eight years. There is no assurance that these customers will continue to purchase from
the Group in the future. In the event that these customers cease to purchase from the Group, the
Group’s sales and profitability will be adversely affected.
Reliance on major suppliers
For each of the three years ended 31st December, 2002, the Group’s purchases from its five
largest suppliers (including Kwang Sung Korea) accounted for approximately 60%, 60% and 54%
of the Group’s total purchases, respectively. For the same periods, Kwang Sung Korea accounted
for approximately 37%, 35% and 22% of the Group’s total purchases, respectively. Raw materials
purchased by the Group consist mainly of IC, semi-conductor components and molded
components to be used for production of composite components. IC related raw materials are
sourced from Kwang Sung Korea and other IC related raw materials suppliers. Suppliers of IC
related raw materials (excluding Kwang Sung Korea) accounted for approximately 27% and 29%,
respectively, of the Group’s total purchases for the two years ended 31st December, 2002. IC
related raw materials sourced from Kwang Sung Korea accounted for approximately 12%, 9% and
10%, respectively, of the Group’s total purchases for the three years ended 31st December, 2002.
The Group has established good business relationships with its five largest suppliers from three
RISK FACTORS
— 22 —
to twelve years. However, should any of its major suppliers (in particular, Kwang Sung Korea
and/or the other IC related raw materials suppliers) ceases to supply raw materials to the Group
and the Group is unable to find suitable replacements, the Group’s business and profitability may
be adversely affected.
Taxation
The Group’s profits arising in or derived from Hong Kong are subject to Hong Kong profits
tax. Provision for Hong Kong profits tax has been calculated at the current rate of 16% on the
estimated assessable profits of those members of the Group operating in Hong Kong. As the
Group carried out manufacturing activities in the PRC under the terms of various assembling and
processing agreements with PRC assembling and processing factories and has substantial
involvement in these manufacturing activities undertaken in the PRC, the profit earned is thus
considered to be partly arising and derived from the manufacturing activities carried out in the
PRC and partly from other activities performed in Hong Kong. As such, the Group enjoys 50:50
offshore claims in respect of Hong Kong profits tax.
According to the Income Tax Law of the PRC for Foreign Investment Enterprises and Foreign
Company and an Exemption Notice 1995 No. 9 dated 28th July, 1995 issued by the tax bureau of
Baoan, Shenzhen, the Group’s wholly owned subsidiary operating in the PRC, was exempted
from PRC enterprise income tax at a full rate of 15% for the first two profitable years of operation
and thereafter, became eligible for a 50% relief from PRC enterprise income tax for the following
three years. By the financial year ending 31st December, 2003, the Group’s tax holiday would be
spent.
Should there be any changes in respect of the current taxation policies of the Hong Kong
and/or PRC tax authorities, the rates or methods of taxation, the Group’s performance and
profitability may be adversely affected.
Different interests of substantial shareholders and public shareholders
Following the listing of the Shares on the Main Board, Kwang Sung Korea will continue to
be a substantial Shareholder, holding approximately a 32.6% equity interest in the Company.
Kwang Sung Korea is beneficially owned by a group of senior management of Kwang Sung Korea,
Mr. Yang and his relatives, Chung Dae Taek and Japan Takada Musen Manufacturing Co., Ltd.. In
view of the fact that Kwang Sung Korea is comprised of different groups of shareholders, their
interests may not always coincide with the interests of the Company’s public shareholders. In
addition, conflicts of interest may arise in certain circumstances as Mr. Yang is a Director and
controlling Shareholder and a director and substantial shareholder of Kwang Sung Korea. If
Kwang Sung Korea and the Directors do not act in the best interests of the Company and its
Shareholders as a whole, the operation and the profitability of the Group may be adversely
affected. For details on the shareholding structure of Kwang Sung Korea, please refer to the
paragraph headed “Relationship with Kwang Sung Korea” under the section headed “Business”
of this prospectus.
RISK FACTORS
— 23 —
Enforceability of civil liabilities
Kwang Sung Korea is a Korean corporation, which other than its investment in the Group,
has its operating assets located in Korea. It may not be possible for investors to enforce
judgments against Kwang Sung Korea obtained in Hong Kong in any such actions, including
actions predicated upon the civil liability provisions of Hong Kong companies and securities
laws. In addition, certain directors of Kwang Sung Korea and the Company are residents of Korea,
and all or substantially all of the assets of such persons are or may be located outside Hong Kong.
As a result, it may not be possible for investors to effect service of process within Hong Kong
upon such persons, or to enforce against them judgments obtained in Hong Kong courts,
including judgments predicated upon the civil liability provision of Hong Kong companies and
securities laws.
Competition
The electronic industry is characterised by vigorous competition. The Directors believe that
the Group’s customers place considerable emphasis on product price, consistency in quality and
reliability of their suppliers’ products and their suppliers’ speediness in adapting to their specific
requirements. Accordingly, the Group’s customers may place orders with the Group if its selling
price is in a similar range or lower than that of the Group’s competitors and/or the quality of its
products is of similar standards or outperforms those of the Group’s competitors. The Directors
believe that the Group faces intense competition from other electronic component manufacturers
in Korea, Japan, Hong Kong and the PRC. Any failure by the Group to adjust promptly to meet
customers’ specific requirements would have a material adverse effect on the Group’s future
reputation, growth and profitability.
Limited insurance coverage
The Group currently maintains general insurance coverage in respect of damage to existing
properties, inventories, facilities, and third party liability. However, the Group does not carry any
business interruption insurance and does not maintain any product liability insurance.
Accordingly, the Group will not be covered or compensated in respect of losses, damages, claims
and/or liabilities arising from or in connection with product liability. If the products developed
and distributed by the Group contain defects or errors which adversely affect the performance of
such products, the Group may incur additional costs in remedying the defects or defending legal
proceedings and/or claims brought by its customers against the Group for damages. Although the
Group has not encountered any material product liability claims relating to the products
produced by the Group throughout its operating history, there can be no assurance that there will
not be any material product liability claims against the Group in the future. No assurance can be
given that losses incurred or payments required to be made by the Group, which are uninsured
or are not fully insured, will not have a material adverse effect on the Group’s financial position.
RISK FACTORS
— 24 —
Special dividends
The Company declared special dividends in the amount of approximately HK$24.6 million
and approximately HK$5.5 million on 2nd August, 2002 and 28th May, 2003, respectively, to its
then shareholders. Payment of the dividends was financed by internal resources of the Group.
However, the payment of the above dividends may not be repeated and should not be used as
a general reference for the Company’s future dividend policy. Further details on the dividend
policy of the Company are set out in the paragraph headed “Dividends” in the section headed
“Financial information” of this prospectus.
Leased properties
As at the Latest Practicable Date, in respect of Property Nos. 9, 10 and 11 as set out in
appendix III to this prospectus which are used by the Group for Korean staff quarters, housing
a reserve power generator and staff canteens, respectively, the Group is unable to ascertain
whether the existing landlords have title to the respective properties and the rights or
authorisations to lease the respective properties to the Group. If the landlord of any of these
leased properties does not have title to the relevant property or the rights or authorisations to
lease that property, the relevant lease agreement would not be valid under the PRC laws and
regulations. The beneficial owner of that property may have the right to take possession and may
request the Group to vacate the property.
Certain lease agreements in respect of properties in the PRC where the Group operates in
are subject to mortgage and the relevant information relating to the mortgage is unclear. If the
relevant mortgage was created before the commencement of the relevant lease agreement and
the mortgagee’s consent for the creation of the lease was not obtained, the relevant lease
agreement may not be binding on the mortgagee and if the landlord defaults on the mortgage,
the mortgagee can enforce the terms of the mortgage against the landlord and the mortgagee may
evict the Group from the property without paying any compensation to the Group for costs and
expenses incurred therefor.
If any of the above events materialises, the Group would have to incur costs and expenses
including relocation costs and the operations of the Group may be adversely affected.
RISKS ASSOCIATED WITH THE INDUSTRY
Threat of new entrants
Although certain barriers to entry exist in the manufacture and sale of components for
electrical and electronic appliances, including technical expertise, substantial capital
requirements, difficulties relating to building customer relationships and a large customer base
necessary for the establishment of a size comparable to the Group, barriers to entry are
comparatively low and the Directors are aware that manufacturers in Hong Kong and the PRC
may be developing or have developed the required technical capability and customer base to
compete with the Group’s existing business.
RISK FACTORS
— 25 —
The cyclical demand for electronic products and components could result in
fluctuations in the Group’s sales
All electronics products and applications use electronic components. As a result, the
demand for the Group’s products and its operating results may be adversely affected by a
downturn in the electronics sector. In addition, a variety of factors, including, without limitation,
the timing of significant orders and shipments, new product introductions, production and
quality problems, fluctuations of the cost of materials, disruption in sources of supply and
seasonal patterns of spending, some of which may be beyond the Group’s control, may influence
the level of the Group’s net sales in a particular period.
Rapid technological changes
Rapid technological evolution in the electronics industry requires the Group to anticipate
and respond rapidly to changes in industry standards and customer needs and to develop and
introduce new and enhanced products on a timely and cost-effective basis. With customers’
requirements continually changing, the Group’s products would become obsolete if the Group
did not have the ability to modify existing products and introduce new ones. The Directors
believe that although the Group has been able to adapt to changes in technological requirement
in the past through Kwang Sung Korea and/or the Group’s research and development department
and in cooperation with its customers, there is no assurance that the Group will continue to
succeed in keeping abreast of the rapidly changing technological requirements of its customers
in the future. The Group’s profits may be adversely affected in the event that the Group is unable
to respond rapidly to technological advancements or new innovative products developed by its
competitors.
Environmental protection laws and regulations
The Group’s production facilities located in Shiyan Town, Baoan District, Shenzhen,
Guangdong Province, the PRC may, due to its business nature, produce certain amount of solid
waste materials and noise in its production process. The relevant laws and regulations in relation
to environmental protection in the PRC provide for the fees payable to the relevant government
authorities. The local governments are also empowered to impose penalties on companies which
fail to comply with the relevant requirement. In the event that new requirements are promulgated
in the PRC which require the Group to incur additional expenses in relation to environmental
protection, the Group’s profitability may be adversely affected.
RISK FACTORS
— 26 —
RISKS ASSOCIATED WITH THE PRC
PRC import and export duties and value added tax
Shenzhen Kwang Sung is an enterprise engaged in the processing and assembling of
supplied raw materials ( ). The PRC imposes import duties and value added tax
(“VAT”) on certain products imported from territories outside the PRC. Some raw materials and
components used for Shenzhen Kwang Sung’s processing business are supplied by domestic
suppliers and VAT payable by Shenzhen Kwang Sung on the purchased raw materials and
components amounts to 17% of the prices (“Taxable Prices”) of the purchased raw materials and
components. If the goods produced by using those raw materials and components supplied by
domestic suppliers are for direct export, the VAT paid by Shenzhen Kwang Sung (amounting to
17% of the Taxable Prices) is tax refundable; if the goods produced by using those raw materials
and components are for indirect export (goods sold to other foreign investment enterprises for
re-processing and then exported by such re-processing enterprises), the VAT paid by Shenzhen
Kwang Sung is not tax refundable.
As the import and export duties vary for different goods, the PRC Customs Bureau will levy
different import and export duties on particular goods in accordance with the Regulations on
Import and Export Duties of the PRC ( ) promulgated on 12th
September, 1987 and amended and implemented on 28th February, 1992. The raw materials and
machinery imported by Shenzhen Kwang Sung for its processing and assembling business are
exempted from import duty and VAT and the goods produced by using those imported materials
and machinery for export are also exempted from export duty and VAT.
The Company has entered into two assembling and processing agreements with various
independent third parties in China engaging in the assembling and processing of supplied raw
materials. According to the Rules on Processing and Assembling with Foreign Entities and
Small-medium Scale Compensation Trade ( ) promulgated by
the State Council on 3rd September, 1979 and a circular issued by the State Tax Bureau on the
Administrative Measures of Tax Refund (Exemption) relating to Goods for Export
( ) promulgated by the State Tax Bureau on 18th
February, 1994, and other related provisions, enterprises importing materials or machinery for
“processing with supplied materials” ( ) are exempted from import duty and import value
added tax. The export goods after processing will also be exempted from value added tax and
consumption tax ( ). In such circumstances, upon examination and approval by the local
competent authorities, raw materials and accessories imported by the Group under processing
arrangements will be exempted from customs duty, import value added tax and consumption
tax ( ). According to Provisional Regulations on Consumption Tax of the PRC
( ) and its implementing rules, no consumption tax will be levied on
electronic components processed by the Group. If the central or the relevant local government
in the PRC revises or withdraws the preferential tax measures in the future, it may have an
adverse impact on the Group’s tax liability as well as the Group’s cost structure and capital
demand. In such event, the business and profitability of the Group may be adversely affected.
RISK FACTORS
— 27 —
Economic, political, legal and social considerations
As all of the Group’s production operations are in the PRC, the Group’s financial condition
and the results of its operations may be affected by the general economic, political, legal and
social conditions prevailing in the PRC.
The PRC economy is a planned economy operated under annual, five and ten years’ plans.
The PRC government has introduced substantial economic reforms in recent years. However,
many laws and regulations governing economic matters implemented by the PRC government are
at an early stage of development and their interpretation and enforcement involve uncertainties.
As most of the Group’s current operations in the PRC are, by law, subject to administrative review
and approval by various national and local PRC government authorities, there is no assurance
that changes in the PRC laws and regulations or the interpretation thereof will not have any
adverse effect upon the business and prospects of the Group. In addition, any changes in the
economic, political or social conditions prevailing in the PRC may lead to changes in the PRC
government’s policies which may affect the business and prospects of the Group.
Entry into the WTO
Following the successful negotiations with WTO member countries and the award of the
Permanent Normal Trading Relations by the United States, the PRC successfully joined the WTO
in December 2001. Upon the PRC’s entry into the WTO, certain of the PRC markets will be
deregulated to allow foreign competition and certain taxation treatment and subsidies granted by
the PRC government for its exports may be abolished. Therefore, the tax and other preferential
benefits currently enjoyed by the Group may be discontinued. The Group is also exposed to a
number of risks including intensifying competition, unexpected changes in regulatory
requirements, potentially adverse tax and regulatory consequences or other unanticipated
unfavourable trading policies. There can be no assurance that one or more of the factors referred
to above will not have a material adverse effect of the Group’s results in the PRC.
RISK FACTORS
— 28 —
DIRECTORS’ RESPONSIBILITY FOR THE CONTENTS OF THIS PROSPECTUS
This prospectus includes particulars given in compliance with the Companies Ordinance,
the Securities and Futures (Stock Market Listing) Rules, the Securities and Futures (Price
Stabilising) Rules and the Listing Rules for the purpose of giving information to the public with
regard to the Group. The Directors collectively and individually accept full responsibility for the
accuracy of the information contained in this prospectus and confirm, having made all reasonable
enquiries, that to the best of their knowledge and belief:
1. there are no other facts the omission of which would make any statement in this
prospectus misleading;
2. the information contained in this prospectus is accurate and complete in all material
aspects and is not misleading; and
3. all opinions expressed in this prospectus have been arrived at after due and careful
consideration and are founded on basis and assumption that are fair and reasonable.
The Offer Shares are offered solely on the basis of the information contained and the
representations made in this prospectus. No person is authorised to give any information in
connection with the Share Offer 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 Vendor, the Sponsor, the Joint Lead Managers, the
Underwriters, any of their respective directors or any other person involved in the Share Offer.
FULLY UNDERWRITTEN
The Share Offer comprises the Placing and the Public Offer. Details of the structure of the
Share Offer are set out in the section headed “Structure of the Share Offer” in this prospectus.
This prospectus is published in connection with the Share Offer and together with the related
application forms sets out the terms and conditions of the Share Offer.
The Share Offer is sponsored by Anglo Chinese, joint lead managed by DBS Asia and Anglo
Chinese and fully underwritten by the Underwriters. Information relating to the underwriting
arrangements is set out in the section headed “Underwriting” in this prospectus.
SELLING RESTRICTIONS
No action has been taken to permit an offering of the Public Offer Shares or the distribution
of this prospectus in any jurisdiction other than Hong Kong. Accordingly, this prospectus may not
be used for the purpose of, and does not constitute, an offer or invitation in any jurisdiction or
in any circumstances in which such an offer or invitation is not authorised or to any person to
whom it is unlawful to make such an offer or invitation.
INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER
— 29 —
A1a(2)
3rd Sch(7)LR7.03A1a(15)(2)(h)
The Public Offer Shares are offered to the public in Hong Kong for subscription solely on
the basis of the information contained and the representations made in this prospectus and the
application forms. No person is authorised in connection with the Share Offer 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 Vendor, the Sponsor, the Joint Lead Managers and the
Underwriters, any of their respective directors or any other person involved in the Share Offer.
In particular, but without limitation to the above:
United Kingdom
This prospectus has not been approved by an authorised person in the United Kingdom and
has not been registered with the Registrar of Companies in the United Kingdom. The Offer Shares
may not be offered or sold and, prior to the expiry of a period of six months from the latest date
of the issue of the Offer Shares will not be offered or sold, to any persons in the United Kingdom
except to persons whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of their businesses, or otherwise
in circumstances which have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations 1995. In addition, no
person may communicate or cause to be communicated any invitation or inducement to engage
in investment activity (within the meaning of section 21 of the Financial Services and Markets Act
2000 (the “FSMA”)) received by such person in connection with the issue or sale of any Shares
except in circumstances in which section 21(1) of the FSMA does not apply to the Company.
Japan
The Offer Shares have not been and will not be registered under the Securities and
Exchange Law of Japan and have not been offered or sold and may not be offered or sold, directly
or indirectly, in Japan or to or for the account of any resident of Japan, except pursuant to an
exemption from the registration requirements of the Securities and Exchange Law of Japan and
otherwise in compliance with any other applicable requirements of Japanese law and with the
written approval of the Joint Lead Managers.
Singapore
This document has not been registered as a prospectus with the Monetary Authority of
Singapore. The Offer Shares have not and will not be offered or sold and neither will this
prospectus nor any document or other material relating to the Offer Shares be distributed, either
directly or indirectly, to the public or any member of the public in Singapore other than (i) to
such institutions or persons specified in Section 274 of the Singapore Securities and Futures Act
(Chapter 289); (ii) to a sophisticated investor, and in accordance with the conditions, specified
in Section 275 of the said Singapore Securities and Futures Act; or (iii) otherwise pursuant to, and
in accordance with the conditions of, any other applicable exemption set out in Part XIII Division
(1) Subdivision (4) of the said Singapore Securities and Futures Act.
INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER
— 30 —
Korea
The Offer Shares have not been and will not be registered under the Securities and
Exchange Law of Korea. The Offer Shares have not and shall not be offered, delivered or sold
directly or indirectly in Korea or to any resident of Korea or to others for re-offering or resale
directly or indirectly in Korea or to any resident of Korea except as otherwise permitted under
applicable Korean laws and regulations.
APPLICATION FOR LISTING ON THE STOCK EXCHANGE
Application has been made to the listing committee of 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
(including any Shares which may be issued upon the exercise of the Over-allotment Option) and
any Shares to be issued upon the exercise of the options which may be granted under the Share
Option Scheme.
No part of the share or loan capital of the Company is listed or dealt in on any other stock
exchange and, at present, no such listing or permission to deal is being or is proposed to be
sought on any other stock exchange.
HONG KONG REGISTER AND STAMP DUTY
All Shares issued and to be issued as mentioned in this prospectus will be registered on the
Company’s register of members to be maintained by Standard Registrars Limited in Hong Kong.
The sale, purchase, transfer of and dealings in Shares registered on the Company’s register
of members will be subject to Hong Kong stamp duty.
All Offer Shares sold by the Vendor pursuant to the Placing will be subject to stamp duty at
the rate of 0.2% of the Offer Price, which will be met by the Vendor.
PROFESSIONAL TAX ADVICE RECOMMENDED
If you are unsure about the taxation implications of subscribing for, purchasing, holding,
disposing of, dealing in, or the exercise of any rights in relation to the Offer Shares, you should
consult an expert.
The Company, the Directors, the Sponsor, the Joint Lead Managers, the Underwriters, the
Vendor and any of their respective directors, agents or advisers or any other person involved in
the Share Offer do not accept responsibility for any tax effects on, or liabilities of, any person
resulting from, the subscription for, purchasing, holding, disposing of, dealing in, or the exercise
of any rights in relation to the Offer Shares.
INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER
— 31 —
A1a(14)(1)
A1a(11)
PROCEDURE FOR APPLICATION FOR THE PUBLIC OFFER SHARES
The procedure for applying for the Public Offer Shares is set out under the section headed
“How to apply for the Public Offer Shares” of this prospectus and on the relevant application
forms.
STRUCTURE OF THE SHARE OFFER
Details of the structure of the Share Offer, including its conditions, are set out under the
section headed “Structure of the Share Offer” of this prospectus.
SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS
Subject to the granting of the listing of, and permission to deal in, the Shares on the Stock
Exchange and compliance with the stock admission requirements of, HKSCC, the Shares will be
accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with
effect from the date of commencement of dealings in the Shares on the Stock Exchange or on any
other date HKSCC chooses. 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 stockbroker or other professional adviser 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 the Stock Exchange are expected to commence on or about 4th
July, 2003. Shares will be traded in board lots of 2,000 Shares each.
INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER
— 32 —
A1a(14)(2)
A1a(22)
Name Address Nationality
Executive Directors
Mr. YANG Jai Sung Flat B, 7th Floor, Block 32
Greenwood Terrace
26-28 Sui Wo Road
Shatin
New Territories
Hong Kong
Korean
Mr. KIM Sun Cheol Flat A, 23rd Floor
Yan Cui Ge
Hu Bin Hua Yuan
Hua Qiao Cheng, Nan Shan Qu
Shenzhen
China
Korean
Mr. LEE Byung Kwan Flat F, 28th Floor, Block 1
Granville Garden
Tai Wai, Shatin
New Territories
Hong Kong
Korean
Non-executive Director
Mr. YANG Ho Sung 227-303
Mok Dong Sinsigaji Apt.
Mok Dong, YangCheon Ku
Seoul
South Korea
Korean
Independent non-executive Directors
Dr. KIM Chung Kweon Flat B, 3rd Floor, Tower 15
Senior staff quarters
Hong Kong University of
Science and Technology
Clear Water Bay
Hong Kong
Korean
Dr. HAN Byung Joon 27 Claymore Road
#08-03 The Claymore
Block B
Singapore 229544
Korean
DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER
— 33 —
A1a(41)3rd Sch (6)A1a49(1)(a)
Sponsor Anglo Chinese Corporate Finance, Limited
40th Floor, Two Exchange Square
8 Connaught Place
Central
Hong Kong
Joint Lead Managers DBS Asia Capital Limited
16th Floor, Man Yee Building
68 Des Voeux Road Central
Hong Kong
Anglo Chinese Corporate Finance, Limited
40th Floor, Two Exchange Square
8 Connaught Place
Central
Hong Kong
Principal Placing Agents DBS Vickers (Hong Kong) Limited
18th Floor, Man Yee Building
68 Des Voeux Road Central
Hong Kong
DBS Vickers Securities (Singapore) Pte Limited
8 Cross Street #02-00
PWC Building
Singapore 048424
Financial Adviser Daewoo Securities (Hong Kong) Limited
Suites 816-819, Jardine House
1 Connaught Place
Central
Hong Kong
DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER
— 34 —
A1a(3)
Placing Underwriters DBS Asia Capital Limited
16th Floor, Man Yee Building
68 Des Voeux Road Central
Hong Kong
Anglo Chinese Corporate Finance, Limited
40th Floor, Two Exchange Square
8 Connaught Place
Central
Hong Kong
Daewoo Securities (Hong Kong) Limited
Suites 816-819, Jardine House
1 Connaught Place
Central
Hong Kong
First Shanghai Securities Limited
19th Floor, Wing On House
71 Des Voeux Road Central
Hong Kong
Guotai Junan Securities (Hong Kong) Limited
27th Floor, Low Block
Grand Millennium Plaza
181 Queen’s Road Central
Hong Kong
KGI Capital Asia Limited
27th Floor, Asia Pacific Finance Tower
Citibank Plaza
3 Garden Road
Central
Hong Kong
Shenyin Wanguo Capital (H.K.) Limited
28th Floor, Citibank Tower
Citibank Plaza
3 Garden Road
Central
Hong Kong
South China Securities Limited
28th Floor, Bank of China Tower
1 Garden Road
Central
Hong Kong
DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER
— 35 —
A1a(15)(2h)3rd Sch(7)
Public Offer Underwriters DBS Asia Capital Limited
16th Floor, Man Yee Building
68 Des Voeux Road Central
Hong Kong
Anglo Chinese Corporate Finance, Limited
40th Floor, Two Exchange Square
8 Connaught Place
Central
Hong Kong
Daewoo Securities (Hong Kong) Limited
Suites 816-819, Jardine House
1 Connaught Place
Central
Hong Kong
First Shanghai Securities Limited
19th Floor, Wing On House
71 Des Voeux Road Central
Hong Kong
Guotai Junan Securities (Hong Kong) Limited
27th Floor, Low Block
Grand Millennium Plaza
181 Queen’s Road Central
Hong Kong
KGI Capital Asia Limited
27th Floor, Asia Pacific Finance Tower
Citibank Plaza
3 Garden Road
Central
Hong Kong
Shenyin Wanguo Capital (H.K.) Limited
28th Floor, Citibank Tower
Citibank Plaza
3 Garden Road
Central
Hong Kong
South China Securities Limited
28th Floor, Bank of China Tower
1 Garden Road
Central
Hong Kong
DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER
— 36 —
3rd Sch(7)
Legal advisers to the Company As to Hong Kong law
Simmons & Simmons
35th Floor, Cheung Kong Center
2 Queen’s Road Central
Hong Kong
As to PRC law
Concord & Partners
Room 1930, Sunflower Tower
37 Maizidian Street
Chaoyang District
Beijing 100026
China
As to Korea law
Evergreen International Law Offices
401, Sunggonghoe Building
3-7, Jeong-dong
Jung-gu
Seoul
100-120, Korea
Legal advisers to the Sponsor
and the Underwriters
As to Hong Kong law
Richards Butler
20th Floor, Alexandra House
16-20 Chater Road
Central
Hong Kong
Auditors and reporting accountants KPMG
Certified Public Accountants
8th Floor, Prince’s Building
10 Chater Road
Central
Hong Kong
Property valuer DTZ Debenham Tie Leung Limited
10th Floor, Jardine House
1 Connaught Place
Central
Hong Kong
Receiving banker Hang Seng Bank
20th Floor, 83 Des Voeux Road
Central
Hong Kong
DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER
— 37 —
A1a(3)
A1a(4)3rd Sch (18)
A1a15(2)(f)3rd Sch(8)
Registered office and place of
business
Units 7-9, 13th Floor
Wah Wai Centre
38-40 Au Pui Wan Street
Fotan, Shatin
New Territories
Hong Kong
Company’s website www.kse.com.hk
Company secretary Mr. Chow Kam Keung, Albert(B.A., MAcc, ACCA, AHKSA)
Authorised representatives Mr. Yang Jai Sung, executive Director
Mr. Chow Kam Keung, Albert, Company secretary
Audit committee Dr. Kim Chung Kweon
Dr. Han Byung Joon
Principal bankers Hang Seng Bank
20th Floor, 83 Des Voeux Road
Central
Hong Kong
Standard Chartered Bank
23rd Floor, Standard Chartered Bank Building
4-4A Des Voeux Road
Central
Hong Kong
Industrial Bank of Korea
Suite 2401B, Bank of America Tower
12 Harcourt Road
Central
Hong Kong
Share registrar and transfer office Standard Registrars Limited
Ground Floor
Bank of East Asia Harbour View Centre
56 Gloucester Road
Wan Chai
Hong Kong
CORPORATE INFORMATION
— 38 —
A1a(43)A1a(6)
3rd Sch(29)
A1a(42)3rd Sch(6)
A1a(3)
A1a(3)
The information provided in this section is derived from various private and/or
government publications. This information has not been prepared or independently verified
by the Company, the Vendor, the Sponsor, the Underwriters or their respective advisers. The
Company makes no representation as to the accuracy or completeness of this information,
which may not be consistent with information compiled from other sources, and accordingly
the information contained in this section may not be accurate and should not be unduly
relied upon.
INTRODUCTION
The basic technology of tuners and cordless phones (including mobile phones) are similar,
as all are RF devices. Both tuners and cordless phones require the reception and selection of
radio signal at a predetermined frequency. To perform this task, the device must first have an
antenna to collect the signal and a filter to discard unwanted signals leaving a clear signal stream
which contains music or speech. The component that filters the signal can be a quartz crystal, IFT
coil or ceramic filter. Quartz crystals can only filter a single frequency and are relatively bulky.
IFT coils are widely used in many RF devices and have the ability to adjust or “tune” to the desired
frequency, but are limited to filtering low frequencies. The more expensive ceramic filters are
ideal in high frequency applications.
COMPOSITE COMPONENTS
Since the invention of the radio, the home entertainment system has evolved through many
generations. In the early days, the radio and the phonograph were separate distinct products.
Subsequently, the radio and the phonograph were integrated together and thus the home
entertainment system was born. Throughout the years, many functions and components have
been added to the home entertainment system or “stereo system” as it is commonly called. These
components have included the eight-track player, cassette player, CD player, and MD player. As
new components have been added some have also been removed as the related audio medium
has fallen out of favour. The vinyl record was a mainstay in many advanced stereo systems. But
with the advent of laser technology and the CD, the new media’s quality and convenience has
won over. Video technology has also been integrated into the stereo system with the addition of
the VCD players initially which was followed by the DVD player commonly seen today. This
integration has transformed the stereo system into a complete home entertainment system.
Throughout the development of the home entertainment system, one component has
remained from the start — the radio (or tuner). The tuners of today are much more refined and
functionally robust than the units of the past, but the basic function remains the same. The
Directors believe consumers consider the tuner a “staple” or necessary function of any home
entertainment or car stereo system. Probably, the only exception of an integrated tuner in an
entertainment audio device is the personal entertainment device, such as the portable MD player,
where compact size is often a higher priority than functionality.
INDUSTRY OVERVIEW
— 39 —
The Directors believe the integration of technologies into a packaged system has led to an
increase in the demand of tuners. When new technologies are introduced and integrated, the high
growth rates and consumer demand that are normally seen with new products are complementary
to the consumer demand for the tuner. Therefore, demand for the tuner increases together with
the demand for new audio and visual technologies.
The Directors believe one of the reasons for the Group’s success is its ability to
accommodate the specifications of an integrated entertainment system. The various physical
shapes of entertainment systems require specific tuner module dimensions to fit within. The
addition of new components create space and design problems for existing components. The
Group’s ability to customise its products enables it to retain and attract entertainment system
manufacturers.
The audio equipment industry is expected to generate worldwide sales of approximately
US$30 billion in 2005. World consumer market for audio equipment is projected to grow at
approximately 3.3% annually from 2002 to 2005. In 2000, China’s audio equipment exports
represented approximately 13.3% of the world audio equipment market (excluding the Eastern
European market).
Table 1: World market for audio equipment 2000-2005 (in US$ millions)
2000 2001 2002F 2003F 2004F 2005F
Western Europe 6,356 5,965 5,922 6,015 6,084 6,145
US 9,235 8,445 8,614 8,872 9,227 9,596
Canada 1,269 1,082 1,125 1,159 1,171 1,194
Australia 435 410 427 444 462 471
Brazil 477 450 414 439 465 502
South Africa 174 153 160 167 172 179
Japan 4,852 3,432 3,329 3,362 3,463 3,567
Asia Pacific 2,568 2,305 2,365 2,457 2,564 2,675
PRC 2,823 3,162* 3,288 3,518 3,694 3,879
Emerging countries 1,484 1,455* 1,476 1,544 1,601 1,651
Total** 29,673 26,859 27,120 27,977 28,903 29,859
* Forecast
** Excludes Eastern Europe
Source: Yearbook of World Electronics Data (Reed Electronics Research).
In 2001, the United States and Western Europe represented the largest consumer markets for
audio systems accounting for approximately 31.5% and 22.2%, respectively, of the world market.
The Directors believe the growth driver for audio equipment is the expanding use of new
media formats. The high fidelity digital formats of MP3, DVD and enhanced CD technologies are
expected to be the key drivers of market growth.
INDUSTRY OVERVIEW
— 40 —
CERAMIC COMPONENTS AND ANTENNAE
The main applications of ceramic components and antennae include CT-1, 900 MHz &
2.4 GHz analogue and digital or DECT cordless telephones.
Cordless phones have evolved from low frequency, short distance and poor sound quality
telephones to today’s digital quality sound telephone which can work at distances in excess of
a kilometre. The transistor components, quartz crystals and telescopic antennae have been
replaced by ICs, ceramic filters and short unobtrusive ceramic antennae all bundled in an unit
half the size.
The use of high frequencies and digital technology have vastly improved the performance
of cordless phones. High frequencies inherently can travel further distances without signal
degradation. However, more importantly, high frequencies in the 2.4 GHz range are not used by
many other devices which could otherwise cause interference and result in signal interception.
FUTURE TRENDS
The Directors believe future trends are towards further integration and technology
cross-overs. Wireless functions, audio visual equipment, computing and Internet appliances will
begin to combine. This trend can currently be seen in products such as mobile phones with radio
and MP3 functions, PDAs with mobile phone and MP3 functions, television Internet set-top tuners
and home entertainment systems with wireless functions.
INDUSTRY OVERVIEW
— 41 —
INTRODUCTION
The Group is a recognised manufacturer and supplier of a broad line of electronic
components for electronic appliances and communication equipment. The Group has its
headquarter in Hong Kong and its manufacturing plant in Shenzhen, China. The Group’s products
are primarily used for transmitting and receiving radio frequencies through electronic circuits.
Most of the Group’s products are designed and manufactured according to the specifications and
requirements of its customers. The Group’s products are broadly categorised into two main
product groups: composite components, such as FM front-end tuners and AM/FM tuner modules;
and unit electronic components, such as coils, ceramic components, transformers and antennae.
All of the Group’s products are manufactured by the first assembling and processing agreement
factory ( ), the second assembling and processing agreement factory
( ) and by Shenzhen Kwang Sung in China. For the financial year
ended 31st December, 2002, the total net sales of the Group was approximately HK$397.0 million,
with composite components and unit electronic components accounting for approximately 65%
and 35% of such net sales, respectively, and the net profit of the Group was approximately
HK$63.1 million. The Group has achieved constant growth in turnover and maintained
profitability over the past ten years.
The Group’s customers include ODMs and OEMs in Korea, Hong Kong and China. In order
to meet different requirements of customers in these areas, the Group has developed production
lines for essential unit components and a sales and marketing department headed by experienced
senior management personnel. The Group has invested approximately HK$26.5 million in plant
and equipment during the three financial years ended 31st December, 2002 to expand its
production capacity. The Group markets its products through its own direct sales force and
distributors.
The Group’s major customers include well known corporations such as Samsung Electronics
Huizhou Co. Ltd., LG Electronics (Huizhou) Inc. and CCT Telecom (HK) Limited. The Group
operates in an industry characterised by rapid changes caused by the frequent emergence of new
technologies, as a result of which the life cycles of the Group’s products are relatively short. For
example, cordless telephones have changed from megahertz to gigahertz for transmitting and
receiving signals; VCDs have gradually changed to DVDs and in the audio and video industry;
analogue will be replaced by digital in the electronic mass media industry such as television and
radio. Generally, the Directors expect life cycles for their products in the electronic components
industry to be relatively short, in particular, the life cycle of the majority of the Group’s products
was within two years. Therefore, it is crucial that the Group is able to keep abreast of
technological and market changes. The PRC R&D Team emphasises close cooperation with its
customers to design high quality and innovative products and to improve its manufacturing
processes. The Directors believe that the Group has the ability to continue to be one of the
recognised technology orientated manufacturers in the era of digitalisation.
BUSINESS
— 42 —
LR11.073rd Sch(3)
3rd Sch(1)A1a28
HISTORY AND DEVELOPMENT
In 1972, a Japanese company, Japan Takada Musen Manufacturing Co., Ltd., formed a joint
venture company, Korea Kojun Museun Mfg. Co., Ltd. (“Korea Kojun”), in which Japan Takada
Musen Manufacturing Co., Ltd. and Mr. Chi Kyung Moon, an independent Korean investor, held
an approximately 83% and 17% equity interests, respectively. Korea Kojun was located in Seoul,
Korea and its principal activities were manufacturing of IFT coils, transformers and other coil
products.
In 1974, the shares in Korea Kojun were held as to approximately 50% by Japan Takada
Musen Manufacturing Co., Ltd., as to approximately 40% by other independent Korean investors
and as to approximately 10% by Mr. Chi Kyung Moon.
In 1977, Mr. Yang Han Mo, who is the father of Mr. Yang, acquired the entire shareholding
interest in Korea Kojun from its then shareholders and became the controlling shareholder of
Korea Kojun, enabling Mr. Yang Han Mo to control the board of directors, management and
operation of Korea Kojun.
Since Mr. Yang Han Mo acquired control of Korea Kojun in 1977, Korea Kojun became
principally engaged in the design, engineering, manufacturing and marketing of electronic
components and has since then experienced growth in its businesses.
In 1982, Korea Kojun was renamed as Kwang Sung Electronics Co., Ltd. (which is referred
to in this prospectus as Kwang Sung Korea). The customer base for Kwang Sung Korea was
mainly Korean based ODMs and OEMs which included major Korean based electronics
companies such as Samsung Electronics Co., Ltd. and LG Electronics Inc.. This led to the
expansion of Kwang Sung Korea’s business and the need for a larger production capacity.
In 1991, Mr. Yang Han Mo and Mr. Lee Sang Joon, then a director and an employee of Kwang
Sung Korea, respectively, acquired from Mr. Hisamichi Kiyohara and Ms. Kinko Suto, both of
whom are independent third parties, a 95% shareholding interest in the Company (formerly
known as All Profit Industries Limited). In 1992, their equity interests were transferred to Kwang
Sung Korea at par value of HK$1.0 per share. As a result, the Company was owned as to 95% by
Kwang Sung Korea and as to 5% by Mr. Hisamichi Kiyohara, respectively. At that time, the
Company was mainly responsible for co-ordinating sales in Hong Kong and China and
production activities for Kwang Sung Korea.
In 1991, Mr. Yang joined the Company and assisted in the promotion of the Company’s
products to customers in Hong Kong and the PRC. In 1992, Mr. Yang was appointed as a Director.
The Company had since launched new products such as duplex filter for 46-49 MHz cordless
telephones, tuner modules for an audio, antenna for cordless telephone, AM/FM tuner for car
audio and switching transformers for VCR, the miniature FM tuner, antenna matching coil unit
and AM/FM antennae for home audio.
In 1994, the Group established Shenzhen Kwang Sung, the core manufacturing arm of the
Group and an equity joint venture company then owned as to 90% by the Company and the
BUSINESS
— 43 —
3rd Sch(21)
remaining 10% by an independent third party, (Shenzhen Bao Jin
Company Limited), to expand its business in the PRC. Since the share capital contributed from
(Shenzhen Bao Jin Company Limited) to Shenzhen Kwang Sung was
provided by the Group, Shenzhen Kwang Sung has been accounted for as a wholly owned
subsidiary of the Company in the Group’s consolidated accounts since its establishment.
In 1995, the Company expanded its manufacturing operation by entering into an assembling
and processing arrangement for the production operations carried out in Shenzhen, China, in
order to take advantage of the lower production and labour costs in the PRC. The factory
commenced production of the Group’s products, which included tuner module and unit
electronic components, pursuant to this processing arrangement at Guanli Industrial Zone,
Shiyan Town, Baoan District, Shenzhen, China. Details of this assembling and processing
agreement are set out under the paragraph headed “Assembling and processing agreements” in
this section.
In 1998, Mr. Yang was allotted 400,000 shares of the Company after the Company increased
its authorised and issued share capital to 700,000 Shares. As a result, the Company was held as
to approximately 57% by Mr. Yang, as to approximately 41% by Kwang Sung Korea and as to
approximately 2% by Mr. Isao Kiyohara. In the same year, the Company and Shenzhen Kwang
Sung obtained the certification of ISO 9002 in respect of some of the Group’s products such as
transformers, tuner modules and dielectric filters. Since late 1990’s, the frequency of cordless
telephones was changed from 46-49 MHz to 900 MHz and there was a major technological change
in the radio frequency components as IFT coils could no longer accommodate such high
frequency and the Group consequently developed and launched the dielectric band pass filter to
satisfy the requirements of high frequency cordless telephones. The Directors considered that it
was a good opportunity for the Group to advance its manufacturing capabilities to become a
value-added electronic component manufacturer.
In July 1999, Mr. Yang acquired from Mr. Isao Kiyohara his shares of the Company at par
value of HK$1.0 per share for a total consideration of HK$15,000. As a result, the Company was
owned by Mr. Yang as to approximately 59% and Kwang Sung Korea as to approximately 41%.
Since 1999, the Group has produced tuner modules for hi-fi audio manufacturers which can
shorten lead-time for development and the production time.
In 2002, to cope with the increased demand from the Group’s customers and the changing
environment of the electronics industry, the Company entered into another assembling and
processing agreement to expand its production capacity to enable the Group to expand its range
of products. Details of this assembling and processing agreement are set out under the paragraph
headed “Assembling and processing agreements” in this section.
On 2nd July, 2002, the board of directors of Shenzhen Kwang Sung resolved and approved
the transfer of the entire equity interest held by (Shenzhen Bao Jin
Company Limited) in Shenzhen Kwang Sung, representing 10% of the registered capital of
Shenzhen Kwang Sung, to the Company at a consideration of RMB1.0. This change in equity
BUSINESS
— 44 —
holding was subsequently approved by the relevant PRC authority on 8th August, 2002 and
Shenzhen Kwang Sung became a wholly owned subsidiary of the Company. For further details
regarding such transfer, please refer to the paragraph headed “Changes in share capital of
subsidiary” under appendix V to this prospectus.
THE STRENGTHS OF THE GROUP
The Directors believe that the principal strengths of the Group are as follows:
A strong and effective management team
Mr. Yang, the chairman and controlling shareholder of the Company, has over 12 years of
experience in the electronics industry. He has built up a strong and effective management team
for the Group. A majority of the senior management of the Group have more than five years of
experience in the electronics industry.
A proven track record of steady growth in business
Over the past ten years, the Group had achieved consistent growth in turnover and has been
profitable. As a result, the Group has been generating positive cashflows over the years. This has
enabled the Group to fund its major capital investments through internally generated funds,
thereby maintaining a prudent financial structure.
Recognition of quality and reliability of the Group’s products
The Directors recognise the importance of high quality and reliability of the Group’s
products as well as meeting customers’ specification. Based on the Directors’ experience in, and
their knowledge of, the electronics industry, the Directors believe that the products of the Group
have gained positive recognition amongst its customers.
Efficient and cost effective production capability of the Group
The establishment of production facilities in China and the entering into of the assembling
and processing arrangements have enabled the Group to take advantage of lower costs of
establishment, production and labour in China. This has enabled the Group to control its costs
more effectively and to improve the quality of its products.
Strong business relationship with reputable customers
The Group has built up a solid and reputable customer base which includes brand names
such as Samsung Electronics Huizhou Co. Ltd., LG Electronics (Huizhou) Inc. and CCT Telecom
(HK) Limited. The Directors believe that the Group’s ability to satisfy the needs of its customers
BUSINESS
— 45 —
has contributed to its ability to maintain a reputable customer base. The Directors also believe
that the Group’s solid customer base and good customer relationship provided a concrete
foundation for the Group to expand its existing business and to develop more advanced
electronic components.
Competitive pricing and product range of electronic components
The Directors believe that the Group’s pricing policy is competitive as the Group constantly
reviews and adjusts its pricing policy. Further, its experienced management and technical teams
have enabled the Group’s products to penetrate into the electronics industry and thereby achieve
growth in sales. The Directors also believe that the Group’s broad range of products has enabled
the Group to become a recognised supplier of electronic components required by certain
well-known ODMs and OEMs.
THE GROUP STRUCTURE
The following diagram illustrates the corporate structure of the Group immediately
following completion of the Capitalisation Issue and the Share Offer (assuming no exercise of the
Over-allotment Option):
1.0% 37.4% 30.0%31.6%
100%
PublicMr. YangKwang Sung Korea
Note 2
KS-TechNote 1
Shenzhen Kwang Sung(established in the PRC)
Manufacturing of electronic components
Korea branch(established in Korea)
Research and development
Company(incorporated in Hong Kong)Manufacturing and selling of
electronic components
Notes:
1. The entire issued share capital of KS-Tech is beneficially held by Kwang Sung Korea.
2. The shares of Kwang Sung Korea are beneficially held as to approximately 79.5% by Mr. Yang and his
relatives, as to approximately 3.6% by Japan Takada Musen Manufacturing Co., Ltd., as to approximately
5.7% by Mr. Kim Sun Cheol, as to approximately 6.9% by Lee Sang Lok, as to approximately 4.0% by Chung
Dae Taek and as to approximately 0.3% by Jang Dong Jun. Save for Mr. Yang and his relatives and Mr. Kim
Sun Cheol, all other shareholders of Kwang Sung Korea are independent third parties to the Company. Japan
Takada Musen Manufacturing Co., Ltd. was deemed wound up in the late 1980’s by the relevant companies
registry in Japan for failing to file the requisite information and documents at the companies registry for five
consecutive years.
BUSINESS
— 46 —
A1a(28)(2)A1a(29)
3rd Sch(29)
Organisational structure
The Company has three executive Directors, one non-executive Director and two
independent non-executive Directors on the Board and, as at the Latest Practicable Date, the
Group had a total of 2,031 employees. The diagram below is the organisational structure of the
Group showing its major operational and functional divisions.
Generalmanagement
Board
Companysecretariat
Auditcommittee
Auditdepartment
Financeand
accountingAdministrationProcurement
Productionmaterial control
Qualityassurance
Informationtechnology
Sales andmarketing
ProductionPRC R&D
Team
BUSINESS OPERATIONS
Products manufactured by the Group
The Group’s products principally comprise of essential and basic components for radio
frequency circuits, which are used in radio frequency receiving equipment such as AV receivers
and cordless telephones. The main function of a radio frequency circuit is to receive and
broadcast frequency and it is used in telecommunication equipment for transmitting and
receiving radio frequency. Most of these products are designed to meet the specifications of the
Group’s customers. The Directors believe that, coupled with the strong technical support from
Kwang Sung Korea, the Group is able to satisfy its customers’ continuously changing
requirements of its products. The Group’s products can be classified into two main product
groups by reference to their functions and applications.
1. Composite components
This is a type of electronic circuit module package composed of various passive electronics
components and active components like ICs and it has a very condensed circuit and compact
package to accommodate the specific electronic characteristics and functions of electronic
appliances. The Company’s major products in this category include FM front-end tuners and
AM/FM tuner modules.
BUSINESS
— 47 —
FM front-end tuners
This is a condensed RF circuit module designed to receive FM broadcast signals carried on
RF carrier frequency and its main function is to process the RF signals and to supply source
signals which can be converted into audible sound in audio systems such as Hi-fi audio, car audio
and MP3 players.
AM/FM tuner modules
This is a condensed RF circuit module designed to receive AM/FM broadcast signals carried
on RF carrier frequency, to process RF signals and to supply source signals, which can be
converted into audible sound in audio systems such as Hi-fi audio, car audio, DVD receivers, MP3
players and home theatre systems.
During the year ended 31st December, 2002, the Group sold a range of over 280 models of
composite components. Composite components accounted for up to approximately 47%, 54% and
65% of the Group’s total sales for the three years ended 31st December, 2002, respectively. The
principal customers for this type of product are Samsung Electronics Huizhou Co. Ltd. and LG
Electronics (Huizhou) Inc..
2. Unit electronic components
Unit electronic components have the sole passive function in electronic circuits for
transmitting and receiving radio frequency and are circuits for the power supply of electronic
appliances such as audio, video and telecommunication equipment. The Company’s products in
this category include coils, ceramic components, transformers and antennae.
Coils
These components, as essential components for all kinds of electronic appliances, are used
in RF circuits for the purpose of impedance matching, detecting signals, oscillation, and
transformation of frequency. These products are made with ferrite core and copper wire.
During the year ended 31st December, 2002, the Group sold a range of about 650 models
of coils. This product category accounted for up to approximately 20%, 19% and 15% of the total
sales for the three years ended 31st December, 2002, respectively.
Ceramic components
These products are used in high frequency RF circuits telecommunication equipment of
more than 800 MHz to filter and to pass a certain frequency band width. This component is made
with dielectric ceramic substrates.
BUSINESS
— 48 —
During the year ended 31st December, 2002, the Group sold a range of about 40 models of
ceramic components. This product catagory accounted for up to approximately 4%, 11% and 7%
of the total sales for the three years ended 31st December, 2002, respectively. The principal
customer of the product is CCT Telecom (HK) Limited.
Antennae
This is a device used for receiving certain frequency band width and carrying the
broadcasting and data signal. Depending on its application, this device can be classified as AM
antenna, FM antenna, cordless telephone antenna and mobile telephone antenna.
During the year ended 31st December, 2002, the Group sold a range of over 130 models of
antenna. This product category accounted for up to approximately 18%, 8% and 6% of the total
sales for the three years ended 31st December, 2002, respectively.
Transformers
These components, as fundamental and essential components for all kinds of electrical
appliances, are used in electric power supply circuits of electrical appliances for transforming
voltage and reducing noise.
During the year ended 31st December, 2002, the Group sold a range of over 180 models of
transformers. This product category accounted for up to approximately 6% of the total sales for
each of the three years ended 31st December, 2002.
New models
The Directors believe that one of the principal strengths of the Group is the ability to satisfy
customers’ continuously changing technical specifications for electronic components. As at 31st
December, 2002, the Group had launched over 1,300 individual models out of which 396 models
were new models within the above-mentioned product categories. A breakdown of the new
models launched during the year ended 31st December, 2002, by product group, is set out below:
No. of
new models
Composite components 146
Coils 137
Ceramic components 13
Antennae 29
Transformers 71
396
BUSINESS
— 49 —
The following table sets out the Group’s principal products by application:
Products General application
Composite components
FM front-end tuners Portable double cassette, AV receiver, DVD receiver, Hi-fi
system, home audio music center and car audio
AM/FM tuner modules Portable double cassette, AV receiver, DVD receiver, Hi-fi
system, home audio music center and MP3 system
Unit electronic components
Coils Televisions, VCRs, audio systems, wireless communication
products and hand held electronic equipment
Ceramic components Analogue, digital and DECT cordless telephone
Transformers DVD receiver, DVD player, VCR, TV and cordless
telephones
Antennae Portable double cassette, AV receiver, DVD receiver, Hi-fi
system and cordless telephones
Production process
The production process for the composite components is different from that of the unit
electronic components. The Group uses automated SMT techniques and manual intensive
components inserting and casing assembly process which provide flexibility in production
scheduling.
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The following diagram illustrates the major steps involved in the production of composite
components and unit electronic components:
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1. Composite components
SMT assembly
Most of the composite components are designed to make use of SMT components to
reduce size and improve the reliability of the products. The Group possesses in-house
automated SMT assembly capability. It uses high speed pick and place machines and other
vision type IC mounting machines, which can handle SMT components from very small size
surface mount chips up to very fine pitched packaged ICs.
Manual insertion and soldering
After assembling the SMT components, other materials like contact parts and electronic
tolerance matching components are inserted manually on the PCB. It then requires at least
two soldering processes before assembling any shield case. The first soldering process is
conducted manually while the second soldering process is automated. The components
which are inserted include unit electronics components produced by the Group and material
and parts purchased from suppliers.
2. Unit electronic components
Coils
i. Assembly
The M/T condenser and bobbin are assembled manually and then the assembled
bobbin and ferrite core are assembled by machine with adhesive bond.
ii. Winding
The assembled ferrite core bobbin is wound with copper wire using a winding
machine, depending on the desired electric characteristic.
iii. Soldering and final assembly
The copper wired bobbin will then be soldered into the solder pot to secure the copper
wire to the bobbin. The copper wired bobbin will then be assembled with a ferrite pot cave
and a metal case.
Ceramic components
i. Spray drying
This is a newly acquired vertically integrated production process which allows the
Group to produce its own raw materials. Rough ceramic powder is smashed in a bead mill,
which is a mixing and grinding machine, with distilled water to create a clay like substance
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called slurry. Slurry is then put into a slurry tank and mixed with other chemicals to create
liquid form materials. These are sucked up by a giant spray drier and sprayed inside the
chamber well of the drier. The high pressure and rotating atmosphere inside the drier will
keep rolling and drying the liquid substance until it turns into powder form. This process
is important since the material inside the slurry must spread evenly and be compressed to
a certain weight before the next two production stages, failing which the material may crack
during the process.
ii. Powder pressing
After mixing the ceramic powder in the chamber, it is then moulded into a proper
shape by using a forming press. The shape and size thereof depend on the product
specifications required by customers.
iii. Sintering in furnace
The pressed semi-goods will then be dried and sintered in a high temperature furnace
at 1,400˚C. Before the semi-finished products undergo the next production process, the
temperature of the semi-finished products must be lowered.
iv. Hole coating and printing
The cooled down semi-finished products are coated by “silver paste” within the holes
by using the vacuum spray and are printed by silk screen printing machine with “silver
plates”. It then needs to be simmered in the oven again so that the material can be stuck
together firmly. This process is one of the most important steps for ensuring that the
products satisfy the product specifications required by customers.
v. Grinding, also known as lapping
Although the production processes up to this stage can be well controlled, there may
be deficiencies in the size (especially in height) of the product. These deficiencies will result
in the products not matching the desired electrical characteristics, and can be corrected by
a grinding (lapping) process. A very precise grinding machine with a numeric controller is
used to perform the correction process.
Transformers
i. Taping and winding
Depending on the desired product specifications, copper wire and insulating tape are
wound on plastic bobbin alternately.
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ii. Soldering and assembly
After the taping and winding, the copper wired bobbin will be soldered in a solder pot
to fix the copper wired bobbin. After soldering, ferrite core is assembled on the outside of
the bobbin fixed by insulating tape.
iii. Insulating with varnish
The semi-finished products are then soaked in the vacuumed insulating varnish
container for securing proper electrical insulation level and the varnish is then dried in the
drying oven.
Antennae
i. Cutting
The plastic sleeve is cut to the desired size depending on customers’ request.
ii. Assembly and soldering
After the antenna element and the connector are assembled and soldered, the plastic
sleeve will be fixed to these parts by special adhesive bond.
3. Testing and adjustment
All trial products need to go through all requisite reliability tests before mass production.
All of the finished products go through a reliability testing programme, functional tests and
an adjustment process to ensure that they are reliable and meet the electrical characteristics as
stipulated in the product specifications requested by customers.
4. Outgoing quality control
Outgoing quality control involves sampling, visual inspections and functional tests of
finished products on a random sampling basis. In addition, quality control procedures are
implemented at each step of the production process from purchasing of raw materials and
monitoring of the production process to inspection of finished products.
5. Packing
The finished products are packed with protective packing.
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Manufacturing facilities and capacities
The manufacturing facilities at which the Group’s products are manufactured are equipped
with up-to-date technologies and design techniques. A quality management assurance system is
implemented at these facilities to provide quality assurance of the Group’s products. In addition,
the Group has been in compliance with ISO 9002 guidelines. The Group has been awarded ISO
9002 certification since 1998 in respect of some of its products.
Since 1994, the Group has been expanding its production capability to facilitate production
of a wide range of electronic components. The Group has its own research and development and
product and testing engineers who work closely with the research and development engineers in
Seoul, Korea to develop hardware and to design circuits for new products. Such research and
development capability is linked to a manufacturing facility which provides the resources and
equipment to handle the principal operations of producing advanced electronic components.
This arrangement enables the Group to speed up the product development cycle and enhances
its ability to respond quickly to changes in the market place. To enable the Group to maximise
the use of its production facilities and manpower and to plan its production and delivery
schedules more efficiently and effectively, the Group may subcontract part of its production of
electronic components to third parties on normal commercial terms from time to time when its
own production capacity is fully utilised in order to meet production demands during its peak
season. Sub-contracting fees amounted to approximately HK$4.2 million, HK$1.7 million and
HK$4.2 million during the three years ended 31st December, 2002, respectively.
Shenzhen Kwang Sung and the first assembling and processing agreement factory
Shenzhen Kwang Sung, being the core manufacturing arm of the Group, has its production
facilities located at Block Nos. 3, 7 and 8, 5th Industrial Zone, Shiyan Town, Baoan District,
Shenzhen, the PRC. The production facilities of Shenzhen Kwang Sung and the first assembling
and processing agreement factory ( ) comprise an area of approximately
10,765 sq.m. and 1,000 sq.m., respectively. Such production facilities were first established in
1994 and consist of one factory building. Production activities carried out at this factory
accounted for approximately 81%, 86% and 85% of the Group’s total production volume during
the three years ended 31st December, 2002, respectively. These production facilities have
expanded progressively and the Company has entered into an assembling and processing
agreement in 1995 as supplemented by various agreements entered into between 4th June, 1997
and 24th September, 2002 which provide supplementary production facilities to the Group. This
first assembling and processing agreement was entered into between the Company and two
independent third parties in the PRC and the details of this assembling and processing agreement
are set out under the paragraph headed “Assembling and processing agreements” in this section.
At present, the total floor area of the production facilities leased by the Group in the PRC,
including the area used by the factory under the first assembling and processing agreement, is
approximately 11,765 sq.m., of which approximately 7,976 sq.m. comprise the production area.
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The second assembling and processing agreement factory
Due to vertical expansion of the production process and production capacity, the Group has
also entered into another assembling and processing agreement in April 2002. The facility
provided by this agreement comprises an area of about 1,800 sq.m. and is used mainly for the
production of ceramic components. The space and the production line previously used by
Shenzhen Kwang Sung became available for expansion of the Group’s composite components
production capacity. Details of this assembling and processing agreement are set out under the
paragraph headed “Assembling and processing agreements” in this section.
A summary of the production facilities at which the Group’s products are processed is set
out below:
Approximate
gross floor area
Production
by class of product
Approximate full
capacity based on
12 hours and 26
days per month
Approximate
current
utilisation rate
based on average
production
quantity for 2002(sq.m.) (pieces)
4,514 Composite components 3,636,000 76%2,623 Coils 20,989,000 85%
524 Transformers 583,000 95%210 Antenna 1,590,000 65%105 Meters 31,000 79%
7,97621 hours and 26
days per month
(pieces)
1,800 Ceramic components 5,661,000 61%
The Directors believe that it is essential for the Group to maintain up-to-date technology.
Accordingly, the Group is constantly upgrading its equipment and expanding production
capacity through greater use of automation. The Group’s capital expenditure for plant and
machinery was approximately HK$5.3 million, HK$5.3 million and HK$15.9 million in the three
financial years ended 31st December, 2002, respectively.
In view of the current production capacity provided under the existing production facilities
of the Group and to cater for the Group’s increase in production, Shenzhen Kwang Sung entered
into a letter of intent on 10th December, 2002 and a supplemental letter dated 8th April, 2003 to
lease, subject to the execution of a formal lease agreement within seven months of the date of
execution of the aforesaid letter of intent, additional production premises located near the
Group’s existing production facilities with an area of approximately 7,533 sq.m. at a monthly
rental of RMB71,564 (equivalent to approximately HK$66,882) for a term of ten years. It is
intended that the additional production space will be used to cater for the Group’s increasing
demand for production capacity.
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Quality assurance and control
The Directors recognise the importance of quality control of the Group’s products. The
Group has established and implemented a quality management assurance system to ensure
quality of its products. In addition, the Group has been in compliance with ISO 9002 guidelines
and was awarded ISO 9002 certification since 1998. The Group imposes stringent quality control
standards on each of the production stages from product development to design, production and
sales.
The Group has a quality assurance team to monitor the operation of the quality control
system of the Group. Comprehensive testing and control procedures have been adopted
throughout the production process to ensure compliance with customers’ specifications.
In purchasing raw materials, incoming raw materials are subject to quality inspection on a
random sampling basis before use in the production process to ensure that the quality of such
materials satisfy the Group’s quality standards. All raw materials which are found to be below the
Group’s quality standards are returned to the suppliers.
Upon completion of the production process, all the finished products undergo further
reliability tests to ensure that they comply with the Group’s high quality standards and customers’
specifications. These generally include:
Reliability test table
Test
Composite
components Coils
Ceramic
Components Transformers Antennae
Constant high temperature test Yes Yes — Yes Yes
Constant low temperature test Yes Yes Yes Yes Yes
Extreme high low temperature
test Yes Yes — Yes —
Circulating temperature test
(high to medium to low to
medium to high) Yes Yes — Yes —
Humidity test Yes Yes Yes Yes Yes
Dropping test Yes Yes — — Yes
Insulation test — — — — Yes
Vibration test Yes Yes — — —
Pressure tolerance test — — — — Yes
For the three financial years ended 31st December, 2002, the Group had not experienced
any material amount of returned goods.
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ASSEMBLING AND PROCESSING AGREEMENTS
The Company has entered into the following assembling and processing agreements with
various independent third parties in China for the production and processing of composite
components and unit electronic components.
First assembling and processing agreement
On 13th December, 1995 the Company entered into an assembling and processing
agreement (as supplemented by various agreements entered into between 4th June, 1997 and
24th September, 2002) with two independent third parties namely,
(Shenzhen City Baoan District Shiyan Foreign Enterprise Services Company) and
(Shenzhen City Baoan District Foreign Economic Development
Corporation), for a term of ten years commencing from 29th December, 1995 and ending on 13th
December, 2005 according to the special approval business certificate dated 29th December,
1995, under which (Shenzhen City Baoan District Shiyan Foreign
Enterprise Services Company) has agreed to provide an area of 1,000 sq.m. located at the Guanli
Industrial Zone, Shiyan Town, Baoan District, Shenzhen, Guangdong Province, the PRC,
production workers and factory supervisory staff as well as the then existing water and electricity
facilities necessary for the production of electronic components while the Company is required
to provide, without consideration, production equipment such as machinery, testing equipment,
supporting materials and packaging materials necessary for the production of the electronic
components. Ownership of the production equipment provided by the Company remains with
the Company and upon termination of the assembling and processing agreement, the production
equipment shall be returned to the Company. Processing fees paid by the Company under this
assembling and processing agreement during the three years ended 31st December, 2002
amounted to approximately HK$0.3 million, HK$0.6 million and HK$0.9 million, respectively.
Second assembling and processing agreement
On 18th April, 2002, the Company entered into another assembling and processing
agreement with two independent third parties, namely, (Shenzhen City
Citizens Well-off Economic Development Company Limited) and
(Shenzhen City Baoan Foreign Economic Development Company Limited), for a term of ten years
commencing from 18th April, 2002 and ending on 17th April, 2012 according to the special
approval business certificate dated 27th April, 2002 under which
(Shenzhen City Citizens Well-off Economic Development Company Limited) has agreed to
provide an area of 1,800 sq.m. located at Zhuanchang Village, Shiyan Town, Baoan District,
Shenzhen, Guangdong Province, the PRC, production workers and factory supervisory staff as
well as water and electricity facilities necessary for the production of electronic components
while the Company is required to provide equipment and machinery which was worth
approximately HK$4.5 million together with supporting materials and packaging materials
necessary for the production of the electronic components. Ownership of the production
equipment provided by the Company remains with the Company and upon termination of the
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assembling and processing agreement, the production equipment will be returned to the
Company. Processing fees paid by the Company under this assembling and processing agreement
during the three years ended 31st December, 2002 amounted to approximately HK$ nil, HK$ nil
and HK$1.1 million, respectively.
SALES AND MARKETING
Sales and marketing
The Group’s business philosophy is to provide solutions to customers’ needs for different
electronic components. The Group, when required, forms special task force teams which usually
consist of marketing, research and development and manufacturing personnel to work with
customers to design and manufacture products to suit their specific requirements.
The Group will continue to utilise its established customers’ base in order to extend its sales
network. The Group has also participated in marketing activities such as trade fairs and published
advertisement of its products in magazines. The sales team of the Group also contacts potential
customers to promote its products from time to time.
As at the Latest Practicable Date, the Group’s sales and marketing team consists of 13
personnel. To implement the Group’s business philosophy, the sales and marketing team
maintains regular contact with its customers in order to identify and respond to their needs. The
sales and marketing team also receives full support from the PRC R&D Team and Korea R&D
Team on technical issues. The sales and marketing team aims to ensure that each sales order is
handled smoothly from design, modification, production and sales to after sales services.
In the Directors’ view, China is becoming a major production base for the worldwide AV
products. As a result, the Group has appointed two distributors, namely, World Vantage
Technology (Holdings) Limited and Dynax Electronics (HK) Limited on a non-exclusive basis to
promote tuner modules, loop antennae, choke coils and other products of the Group on 23rd
March, 2002 and 1st June, 2002, respectively. The Group pays sales commission in the range of
2% to 5% in respect of the direct sales arranged by these two distributors. Both distributors are
independent third parties to the Group. The distribution agreements are valid until either party
gives a 30-day prior notice of termination. The Directors believe that since the principal business
of both distributors involves the provision of major product design services to their customers
and they maintain regular contacts with their customers, these distributors may give priority to
the Group to participate in their projects, which would enable the Group to penetrate into the
market at a faster pace. The Group’s products will be integrated into the distributors’ designs
which could then become a total design solution for the distributors’ customers.
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Pricing
The price of the Group’s products are determined by the sales managers in charge of each
transaction with guidance from the management of the Group. The pricing policy of the Group
is reviewed on a constant basis. This gives the sales and marketing team flexibility when
conducting a sale. Factors to be taken into account when determining prices include gross profit
margin, size of orders, market prices, the Group’s marketing strategy and relationship with each
customer.
Payment terms
The management of the Group assesses the credit rating of each customer. The Group
normally gives 60 days credit to customers with a high credit rating and who have a well
established relationship with the Group. With new customers, the management of the Group also
divides them into different credit ratings. In respect of those customers with low credit ratings,
the Group requires cash on delivery or telegraph transfer in advance of delivery. All sales
conducted by the Group are denominated in US dollars or Hong Kong dollars. For the three years
ended 31st December, 2002, approximately 45%, 58% and 39%, respectively, of the Group’s sales
were made in Hong Kong dollars and approximately 55%, 42% and 61%, respectively, of the
Group’s sales were made in US dollars.
The senior management of the Group will review the recoverability of account receivables
on a regular basis based on the ageing reports. The Group will provide specific allowance on the
identified balances with recoverability issues and provide general allowance on the remaining
balance, disregarding the sales to Kwang Sung Korea, according to the age of the receivables. The
senior management assesses the reasonableness of the provision annually. The provision for the
doubtful debts of the Group for the three years ended 31st December, 2002 amounted to
approximately HK$2.0 million, HK$1.1 million and HK$0.7 million, respectively.
CUSTOMERS
For the three years ended 31st December, 2002, the Group’s five largest customers
accounted for approximately 63%, 71% and 65% of the Group’s total turnover, respectively. For
each of the three years ended 31st December, 2002, the Group’s largest customer accounted for
approximately 22%, 26% and 27% of the Group’s total turnover during such respective periods.
One of the Group’s five largest customers, Kwang Sung Korea, is owned as to 79.5% by Mr.
Yang and his relatives. Mr. Yang is a controlling shareholder, chairman and an executive Director
of the Company. Save as disclosed herein, the Directors have confirmed that none of the
shareholders holding more than 5% of the issued share capital of the Company and the Directors
and their respective associates has any interest in any of the top five customers of the Group. As
at 31st December, 2002, the Group has established business relationships with its top five
customers, excluding Kwang Sung Korea, for between five to eight years.
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A1a(28)(1)(b)
PRODUCT RESEARCH AND DEVELOPMENT
The function of the research and development of the Group can be divided into three lines,
namely product research, product development and application, and product testing and
modification.
The Group’s sales and marketing division collaborate with the Korea R&D Team and the PRC
R&D Team to obtain up-to-date market information. The Group’s sales and marketing division
would also maintain direct contact with the Group’s customers in order to ascertain their
requirements and preferences. The Group will instruct the Korea R&D Team to sketch out a plan
for any new technology or product development such as digital tuner model or multi-layer filter
based on the preliminary findings from the Group’s sales and marketing division. The PRC R&D
Team is responsible for the production of samples and presentation materials based on
information provided by the Korea R&D Team such as preliminary circuit board diagram, case
shield drawings and required material list. The samples together with technical data sheets will
be sent to the Group’s sales and marketing division for promotion to existing and potential
customers. Interested customers will review the samples and technical data sheets and submit its
own specifications and requirements to the Group’s sales and marketing division for further
development.
The next phase is product development and application. All required information will be
sent to the Korea R&D Team to design preliminary printed circuit board patterns, draw shield
cases and prepare required materials. The PRC R&D Team is responsible for the production of
samples of printed circuit boards and shield cases and the procurement of required materials for
the production of the samples. The PRC R&D Team is also responsible for the testing of samples.
Testing results together with modified data (if any) will be returned to the Korea R&D Team for
checking before sending to customers for evaluation. Customers will evaluate the samples before
placing orders for production and the PRC R&D Team will continue to modify the samples until
customers’ specifications and requirements are satisfied.
The Group, with the support of Kwang Sung Korea, provides comprehensive product
design, engineering and manufacturing packages to its customers. As at the Latest Practicable
Date, the PRC R&D Team has 70 staff comprising electronic engineers, mechanical engineers and
other support staff. These staff are based in China and one of their main functions is to support
product improvement and re-engineering. There are two types of re-engineering work. Firstly,
the PRC R&D Team will fine tune the preliminary designed printed circuit board. As the printed
circuit board is a preliminary design, there could be numerous areas of modification before it can
satisfy customer’s specifications and requirements. Secondly, customers may change some of its
current products’ specifications and requirements in order to meet changing product designs. For
example, AM/FM tuner modules are generally applied in various kinds of audio products, such
as portable audio and home audio, and the Group’s customers are required to change their
product designs frequently in order to meet changing market demand. Details of the specification
and requirements will be sent to the PRC R&D Team to produce samples for testing and
modification. Customers will test and evaluate the samples before placing orders for production.
Engineers of the PRC R&D Team work closely with the engineers of the Korea R&D Team.
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A1a(28)(5)
The PRC R&D Team is also responsible for recommending improvements to the Group’s
existing production processes to achieve greater efficiency and lower manufacturing costs,
identifying sources of components to be used in the Group’s products and evaluating material
costs. The PRC R&D Team and Korea R&D Team work together to identify and determine sources
of components to be used in the product specification and evaluate the material cost structure of
products. The Group’s engineers also cooperate with the engineers of its customers such as
Samsung Electronics Huizhou Co. Ltd. and LG Electronics (Huizhou) Inc. in the development of
new products tailored to their needs.
One of the key advantages of the Group is that most of its manufactured products and
manufacturing processes have been designed and developed by the Group with the support of
the Korea R&D Team which had 36 staff as at the Latest Practicable Date. The research center of
Kwang Sung Korea is in Seoul, Korea and has a total area of approximately 690 sq.m., to provide
research and development and technical support to both the Group and Kwang Sung Korea. The
Korea R&D Team has capabilities including, among other things:
— in-house product designers to provide product designs that can satisfy customers’
specific requirements;
— in-house electrical engineers to develop customised circuit boards according to
customers’ special needs and requirements;
— in-house software engineers to develop specific programmes to operate and test the
Group’s composite products. This software engineering capability can provide control
and operating programmes for tuner modules for the Group’s customers;
— in-house product and technology planning team to collect information and analyse the
trends of the electronic industry and other related industries in order to formulate a
long term research and development plan for the Group; and
— manufacturing engineers to develop detailed product specifications and working
samples, to engineer pilot runs and pre-production runs and to mass produce.
The Korea R&D Team places emphasis on the design and development of new products, the
manufacturing process and engineering advances in existing product lines and manufacturing
operations.
After the listing of the Shares on the Main Board, the Directors intend to further develop its
own research and development centre in Korea in order to replace the services currently
provided by Kwang Sung Korea within three years from the date of the listing of the Shares on
the Main Board. The Group plans to acquire an office premises in Seoul, Korea as offices for the
Group’s future research and development centre and has recently recruited four experienced
engineers from the Korea R&D Team whose employment with the Company will be effective
upon the listing of the Shares on the Main Board and will be situated in the future research and
development centre in Korea. Their current duties in the Korea R&D Team are as follows:
exploring new scientific or technical knowledge and applying research findings or knowledge for
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A1a(28)(1)(b)
the production of new or improved products; managing a team of engineers to design preliminary
printed circuit boards, draw shield cases and prepare required material; and reviewing work
submitted by the PRC R&D Team. The Directors believe that it is important to have identified and
recruited the four experienced engineers who have extensive industry knowledge and
experience in project management to commence the process of the proposed transfer to the
Group from Kwang Sung Korea of the R&D Division. The Group’s R&D center will commence
operation with four experienced engineers, most of which have more than ten years of
experience in the electronic component industry. They will work in Korea and commence to set
up the Group’s own research and development team in Korea by recruiting an additional ten to
15 engineers from outside of the Korea R&D Team. The Directors believe that, with the
recruitment of additional engineers, the research and development department of the Company
will have the capability to perform full scale research and development functions, which include
product research, product development and application and product modification.
With the intention of further developing the Group’s own research and development
capabilities, the Company is in the process of acquiring certain technology, industrial property
rights and know-how relating to multi-layer LC filter from a Korea company.
With a view of setting up the Group’s own research and development and product design
centre in Korea, the Company entered into a letter of intent dated 25th April, 2003 for the
acquisition of office premises in Seoul, Korea, which serves as the Group’s research and
development and product design department.
RAW MATERIALS AND SUPPLIERS
Raw materials purchased by the Group consist mainly of IC, semi-conductor components
and molded components which accounted for approximately 63%, 63% and 68% of the Group’s
total purchases during the three years ended 31st December, 2002, respectively.
The Group’s purchases are largely made in Hong Kong dollars, US dollars, RMB and Yen. For
the three years ended 31st December, 2002, approximately 28%, 29% and 34%, respectively, of
the Group’s purchases were made in Hong Kong dollars, approximately 55%, 52% and 41%,
respectively, of the Group’s purchases were made in US dollars, approximately 4%, 1% and 1%,
respectively, of the Group’s purchases were made in RMB and approximately 13%, 18% and 24%,
respectively, of the Group’s purchases were made in Yen.
The Group settles its purchases mainly by way of open accounts and letters of credit.
Payment terms granted by the Group’s suppliers vary from cash on delivery to a credit period of
up to 65 days.
Purchases from the five largest suppliers of the Group for each of the three years ended 31st
December, 2002 represented approximately 60%, 60% and 54% of the Group’s total purchases,
respectively. Purchases from the largest supplier of the Group, Kwang Sung Korea, a controlling
shareholder of the Company, represented approximately 37%, 35% and 22% of the Group’s total
purchases during each of the three years ended 31st December, 2002, respectively.
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Kwang Sung Korea is 79.5% beneficially owned by Mr. Yang and his relatives. Mr. Yang is
a controlling shareholder, chairman and an executive Director of the Company. Save as disclosed
herein, none of the Directors, or their respective associates or shareholders who, to the
knowledge of the Directors, own more than 5% of the issued share capital of the Company, has
any interest in the remaining four of the five largest suppliers of the Group’s total purchases for
the three years ended 31st December, 2002.
Certain raw materials purchased by the Group, such as IC, are sourced through Kwang Sung
Korea as some of the Group’s Korean customers have requested the Group to source specific
brands of raw materials and components which are supplied by suppliers with whom Kwang
Sung Korea has established long term relationships. In addition, there is a restriction on Korean
distributors from supplying certain raw materials outside Korea. Therefore, the Directors intend
that after the Group has completed the establishment of its own research and development centre
in Korea, the Group will start to source these raw materials and components from these Korean
suppliers directly. Apart from Kwang Sung Korea, being the Group’s largest supplier during the
three years ended 31st December, 2002, the Group’s top 20 raw material suppliers (other than
Kwang Sung Korea) in aggregate represented approximately 50%, 46% and 55% of the Group’s
total purchases during the three years ended 31st December, 2002, respectively. Accordingly, the
Group does not rely on any single source of supply for any of its raw materials or components.
The Directors believe that the relationship between the Group and its suppliers have been and
will continue to be good and stable. During the same period, the Group has not experienced any
difficulties in obtaining supplies of raw materials and components. Other than specific raw
materials such as chiptransistor, varicap diode and MOS FET and bobbin and base which
accounted for approximately 20%, 22% and 21% of the Group’s total purchases during the three
years ended 31st December, 2002, respectively, which are difficult to source by the Group. This
is because some of the raw materials requested by the Group’s customers can only be sourced
from some particular suppliers. The Directors intend to reduce its reliance on the procurement
of commonly used raw materials and components from Kwang Sung Korea after the listing of the
Company on the Main Board and they believe that it would not be difficult to purchase commonly
used raw materials and components directly from other suppliers because there is a large number
of suppliers of such kind of raw materials and components.
Stock control
The Group maintains control over the purchase of raw materials in order to reduce the risks
of over-stocking due to changes in the business environment and of such stock becoming
obsolete. The Group’s purchasing team works closely with the production and the sales and
marketing divisions to maintain control over purchase of raw materials.
When raw materials arrive at the warehouse, a special quality control team will inspect them
to ensure, among other things, that they are not damaged and are in compliance with order
specifications before accepting the raw materials. The raw materials are assigned with codes and
are stored in an orderly manner. More inventory are usually stored to cater for an increase in
customers’ orders in anticipation of the peak season of the Group, usually being from July to
October of each year. During the three years ended 31st December, 2002, the Group’s sales
during the peak season from July to October of each year amounted to approximately HK$101.8
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million, HK$122.1 million and HK$159.8 million, representing approximately 36%, 43% and 40%
of the Group’s total sales, respectively. The Directors estimate that the average inventory
turnover for the three years ended 31st December, 2002 was approximately 68 days, 38 days and
40 days, respectively.
Provision on inventory will be provided by the management of the Group on a regular basis
based on the ageing of the inventory ledger. The provision on inventory for the three years ended
31st December, 2002 was approximately HK$0.9 million, HK$10.9 million and HK$5.0 million,
respectively. There is a significant increase in the provision on inventory for the year ended 31st
December, 2001 as the Group changed its policy in 2001 on the provision of slow moving
inventory. The Group adopted more stringent policies to identify the slow moving inventory.
Based on the revised policies, provision for slow moving inventory will be made on excess
inventories if the required level of inventories for production schedule is less than 25% of the
Group’s existing inventory level and after assessing the projected production requirements. The
Directors are planning to further strengthen communications internally (between the sales team
and the purchases team) and externally (between the Group and its customers) in order to obtain
a more accurate projection, and correspondingly, to optimise the inventory level.
COMPETITION AND COMPETITIVE STRENGTHS
The Directors note that many of the larger manufacturers of electronic components are
based in Japan so that the Group faces competition mainly from Japanese manufacturers.
However, the Directors believe that the products produced by the Japanese manufacturers are not
as cost effective as those of the Group.
The Directors believe that the majority of its competitors in the PRC are smaller in terms of
production scale and the Directors are of the view that the Group’s technological know-how and
research capabilities place the Group in a more competitive position in relation to other
manufacturers in China. The Directors also believe that the Group has certain advantages over
other competitors in the PRC on product quality and reliability, breadth of product line, customer
service, technological innovation and timely delivery. The range of products that the Group
offers enables the Group to strengthen its market position by providing its customers with a
broad range of electronic component products in the electronic component industry.
INTELLECTUAL PROPERTY RIGHTS
As at the Latest Practicable Date, the Group has applied for registration of five trade marks
in Hong Kong and five trade marks in the PRC. Further details of these trade mark applications
are set out in the paragraph headed “Intellectual property” in appendix V to this prospectus.
RELATIONSHIP WITH KWANG SUNG KOREA
Kwang Sung Korea will beneficially hold approximately 32.6% of the Company immediately
following the completion of the Capitalisation Issue and the Share Offer. Mr. Yang and his
relatives have a total of approximately 79.5% shareholding interests in Kwang Sung Korea and the
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A1a(28)(4)
remaining shareholding interests are held by Japan Takada Musen Manufacturing Co., Ltd. and
four individuals. Therefore, Mr. Yang and his relatives together constitute the controlling
shareholder of Kwang Sung Korea. Apart from Mr. Yang and his relatives and Mr. Kim Sun Cheol,
an executive Director, all other shareholders of Kwang Sung Korea are independent third parties
to the Company.
At present, Kwang Sung Korea does not have any future plans in relation to its shareholding
interest in the Company. Save as disclosed in this prospectus, there is no arrangement, agreement
or understanding between Kwang Sung Korea and any other party as to its shareholding interest.
COMPETITION WITH KWANG SUNG KOREA
Kwang Sung Korea has interests in certain businesses which compete or are likely to
compete, directly or indirectly, with the Group’s businesses upon listing of the Shares on the
Main Board. The principal businesses of Kwang Sung Korea are as follows:
1. Research, design and product development of electronic components and related
products and manufacturing of electronic components for electronic appliances and
communication equipment through the KSK Factory exclusively for orders placed
directly with Kwang Sung Korea and to be sold in the Korean market but subject to the
terms and limited to the scope as set out in the Deed of Undertaking and the R&D
Service Agreement.
2. Sales, marketing, purchasing and distribution of electronic components for electronic
appliances and communication equipment, but subject to the terms and limited to the
scope as set out in the Deed of Undertaking and the Commission Agreement.
The Directors do not consider that Kwang Sung Korea poses any material competition to the
business of the Group. Since the electronic components industry is a labour intensive industry
and the average labour cost in Korea is approximately five to six times higher than the average
labour cost in the PRC, the production cost in Korea is comparatively higher than in the PRC. As
a result, Kwang Sung Korea intends to focus on the design and research and development of
electronic components rather than the production and manufacturing of electronic component
products which constitute the major operation of the Group. Kwang Sung Korea is located at 108,
Wonhyo-Ro 4 Ka, YongSan Ku, Seoul, 140-114 Korea. The total floor area of such premises
occupied by Kwang Sung Korea is approximately 1,782 sq.m. of which approximately 690 sq.m.
is used for research and development and technical support, approximately 1,032 sq.m. is used
for administration and warehouse and the remaining area of approximately 60 sq.m. is used for
production only. Due to the low production capacity of Kwang Sung Korea, the production
facility of Kwang Sung Korea can only cater for local Korean customers. The unaudited
consolidated profit of Kwang Sung Korea for the three years ended 31st December, 2002 was
approximately HK$11.3 million, HK$13.0 million and HK$19.2 million, respectively. The
Directors believe that Kwang Sung Korea will continue to rely heavily on the production capacity
of the Group in the PRC after the listing of the Company on the Main Board. The Directors also
believe that the location of the Group’s production facility in proximity to its customers in Hong
Kong and China is an important factor to consider.
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The Directors considered that although the research and development division of Kwang
Sung Korea could be injected into the Group, as advised by the Group’s tax advisers, this would
trigger a large sum of capital gains tax in Korea on the part of Kwang Sung Korea which would
ultimately be borne by the Group as part of the consideration for the transfer of the research and
development division of Kwang Sung Korea to the Group. Accordingly, the Directors consider
that it would be commercially justifiable for the Company to complete the establishment of its
own research and development functions in Korea after the listing of the Company on the Main
Board. The Directors have also considered that Kwang Sung Korea has built up long term
relationships with some of the Korean customers over the years and the Directors believe that an
immediate change in the nature of Kwang Sung Korea, including the corporate structure,
shareholdings and operation of Kwang Sung Korea, may deter Korean customers from engaging
Kwang Sung Korea or its successor entity. The Directors believe that, with the establishment of
the Group R&D Centre, the Group’s reliance on the Korea R&D Team will gradually decrease. The
gradual transfer of the research and development personnel of Kwang Sung Korea to the Group
R&D Centre in Korea could also prevent a large sum of capital gains tax in Korea. After the
successful expansion of the Group’s research and development division in Korea, the Directors
expect the Group will be able to strengthen its business relationship with the Korean customers.
The Directors believe that the proposed development plan as set out under the paragraph headed
“Product research and development” in this section and under the paragraph headed “Future
plans and prospects” in the “Future plans and use of proceeds” section of this prospectus will be
sufficient for the Group to set up the research and development capabilities for the Group’s
business. The Sponsor also believes that the proposed arrangements relating to the research and
development function of the Group, with the Deed of Undertaking, will safeguard the interests
of both the Company and the Shareholders.
Despite certain reliance on Kwang Sung Korea, the Group has its own management team.
All executive Directors have entered into service contracts with the Company committing to
devote their working time to the management and operation of the Group. Mr. Yang and Mr. Kim
Sun Cheol will continue to hold directorships in Kwang Sung Korea after the listing of the
Company on the Main Board. The Group also has its own marketing, product engineering and
research and development teams. In order to safeguard the interests of the Shareholders, Kwang
Sung Korea, Mr. Yang and KS-Tech, have entered into the Deed of Undertaking with the Group
with respect to, inter alia, the businesses to be conducted by Kwang Sung Korea. For further
details, please refer to the paragraphs headed “Connected transactions” and “Non-competition
undertakings” in the section headed “Business” of this prospectus.
NON-COMPETITION UNDERTAKINGS
Kwang Sung Korea is principally engaged in the research, design, product development,
manufacturing, sales, marketing, purchasing and distribution of the Products while the Group is
principally engaged in the manufacturing, sales and development of the Products. Kwang Sung
Korea will continue to be principally engaged in the research, design, product development,
manufacturing, sales, marketing, purchasing and distribution of the Products after the listing of
the Shares on the Main Board.
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In relation to the listing of the Shares on the Main Board, each of Kwang Sung Korea,
KS-Tech and Mr. Yang has entered into the Deed of Undertaking in favour of the Group to the
effect that for so long as Kwang Sung Korea and/or any of its subsidiaries, Mr. Yang and/or the
companies controlled by Mr. Yang are beneficially interested, directly or indirectly, whether
individually or taken together, in 20% or more of the issued share capital of the Company, Kwang
Sung Korea and Mr. Yang will not, and Kwang Sung Korea and Mr. Yang will procure that none
of its subsidiaries (other than the Group) and the companies controlled by him (other than the
Group), respectively, will engage or otherwise be involved in any business which competes or
is likely to compete, either directly or indirectly, with any of the Restricted Business in any of the
regions in which the Group engages in and undertakes the Restricted Business (such regions
include Korea and the PRC (including Hong Kong)).
The above non-competition undertaking of Kwang Sung Korea will not restrict Kwang Sung
Korea or any of its subsidiaries, which is not a member of the Group, either by itself or through
another company indirectly, from:
(1) for so long as the Company has not exercised the option to purchase the entire R&D
Division, and prior to the completion of the sale and purchase of the R&D Division (the
“R&D Division Completion”) in respect of the entire interest in the R&D Division
and/or the KSK Factory has not ceased operation, engaging in the manufacturing of
electronic component and related products (the “Products”) and provided that:
(i) the Products are for domestic sales to customers in Korea;
(ii) the manufacturing and production of the Products are solely carried out in and by
the KSK Factory; and
(iii) the total revenue generated by the sale of the Products manufactured by Kwang
Sung Korea per financial year does not exceed HK$25,000,000 (the “KSK Domestic
Carve-Out”);
(2) subject to paragraph (1), for so long as the Company has not exercised the option to
purchase the R&D Division, and prior to the R&D Division Completion in respect of the
entire interest in the R&D Division and/or the KSK Factory has not ceased operation,
engaging in the manufacturing of the Products as requested by any member of the
Group from time to time;
(3) holding or being interested in any shares or other securities in any company which
engages or involves in the Restricted Business, provided that such shares or securities
are listed on a recognised stock exchange and do not exceed 10% of such listed
company’s issued share capital and provided further that at all times there is a
shareholder holding more shares in the relevant listed company than the aggregate
shareholding of Kwang Sung Korea and/or its subsidiaries;
(4) holding any shares or other securities in any member of the Group;
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(5) engaging in or discharging any duty, service or act for, in the absolute opinion of the
Company, the benefit of any member of the Group; and
(6) engaging or participating in any business which does not conflict with, in the absolute
opinion of the Company, the interest of the Group.
The above non-competition undertaking of Mr. Yang will not restrict Mr. Yang and/or any
of the companies controlled by Mr. Yang, either by himself or through another company
indirectly, from:
(1) holding or being interested in any shares or other securities in any company which
engages or involves in the Restricted Business, provided that such shares or securities
are listed on a recognised stock exchange and do not exceed 10% of such listed
company’s issued share capital and provided further that at all times there is a
shareholder holding more shares in the relevant listed company than the aggregate
shareholding of Mr. Yang and/or the companies controlled by Mr. Yang;
(2) holding any shares or other securities in any member of the Group;
(3) engaging in or discharging any duty, service or act for, in the absolute opinion of the
Company, the benefit of any member of the Group; and
(4) engaging or participating in any business which does not conflict with, in the absolute
opinion of the Company, the interest of the Group.
In addition, each of Kwang Sung Korea, its subsidiaries, Mr. Yang and the companies
controlled by Mr. Yang shall not be restricted from acquiring, holding, retaining or otherwise
participating in any investment or business in competition, directly or indirectly, with the
Restricted Business in any of the regions in which the Group engages in and undertakes the
Restricted Business provided that such investment or business shall first have been offered to the
Group for acquisition or participation on the same terms (or better) as such investment or
business were offered to Kwang Sung Korea, its subsidiaries, Mr. Yang and/or the companies
controlled by Mr. Yang and have subsequently been declined by an independent committee of the
Board comprising the independent non-executive Directors from time to time (the “Independent
Board Committee”) and a reasonable time shall have been afforded to the Independent Board
Committee for considering such offer. In the event that a new investment or business opportunity
is offered by a third party (and having been declined by the Group), Kwang Sung Korea, its
subsidiaries, Mr. Yang and/or the companies controlled by Mr. Yang shall not acquire or
otherwise participate in such investment or business except on terms no more favourable than
those offered to the Group. For the purpose of facilitating the Group and/or the Independent
Board Committee to consider such offers, each of Kwang Sung Korea and Mr. Yang shall, and
shall procure its subsidiaries and the companies controlled by Mr. Yang, respectively, to provide
all such information as the Group and/or the Independent Board Committee shall reasonably
require in relation to the relevant investment or business.
Kwang Sung Korea has also irrevocably granted to the Company an option exercisable by
the Company to purchase the whole or part of the R&D Division and the Sales Division at a fair
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market value to be determined by an independent valuer nominated by the Company. In the
event that the option is exercised by the Company, the transaction will constitute a connected
transaction for the Company under the Listing Rules for so long as Kwang Sung Korea remains
a substantial shareholder of the Company.
Kwang Sung Korea has agreed to first refer all customers’ orders for the production of the
Products received by Kwang Sung Korea from its customers (subject to the KSK Domestic
Carve-Out) and the results and/or Products developed by the R&D Division and/or any
intellectual property right in or arising from such results and/or Products to the Group on terms
in accordance with the Deed of Undertaking, the Commission Agreement and the R&D Service
Agreement, respectively.
In order for the Company to monitor that Kwang Sung Korea and/or its subsidiaries have
duly complied with the non-competition undertaking with regards to the KSK Domestic
Carve-Out given under the Deed of Undertaking, Kwang Sung Korea has agreed to and to procure
its subsidiaries to provide the Company’s auditors with access to its and/or its subsidiaries’
accounting records (as the case may be) for so long as Kwang Sung Korea and/or any of its
subsidiaries are beneficially interested, directly or indirectly, whether individually or taken
together, 20% or more of the issued share capital of the Company and that the Shares are listed
and traded on the Main Board.
Upon the listing of the Shares on the Main Board, a number of transactions between the
Group and Kwang Sung Korea are expected to continue, or be entered into in the future. Details
of such transactions are set out in the paragraph headed “Connected transactions” below.
CONNECTED TRANSACTIONS
The Group has entered into the following arrangements with Kwang Sung Korea:
Sale of the Products to Kwang Sung Korea
The Group has been selling the Products to Kwang Sung Korea in its normal course of
business, which in turn sells the Products to the ultimate customers of Kwang Sung Korea.
According to the Directors, there is no long term supply contract between the Group and Kwang
Sung Korea and orders are placed by Kwang Sung Korea to the Group from time to time. The
Directors expect that after the listing of the Shares on the Main Board, the Group would continue
its sales of the Products to Kwang Sung Korea. For the three years ended 31st December, 2002,
the amount of sales to Kwang Sung Korea amounted to approximately HK$37.5 million, HK$36.4
million and HK$29.6 million, respectively, representing approximately 13%, 13% and 7% of the
total sales of the Group in the respective periods.
Kwang Sung Korea has been one of the Group’s major customers during the three years
ended 31st December, 2002. As confirmed by the Directors, the prices and terms of the sale of
the Products by the Group to Kwang Sung Korea were at prices and on terms comparable to the
prevailing market price or practice.
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It is expected that the maximum annual amount of sales to Kwang Sung Korea by the Group
under the above arrangement will not exceed 15% of the Group’s total turnover for any financial
year for the three years ending 31st December, 2005.
Sales orders received by the Group from customers previously referred by Kwang
Sung Korea for production of the Products
Kwang Sung Korea has referred a number of customers to the Group (collectively, the
“Korean Customers”) for production of the Products prior to the listing of the Shares on the Main
Board. Currently, the Korean Customers place orders for the production of the Products directly
with the Group. Upon production of the Products, the Group will sell the Products to the Korean
Customers directly. The Group pays to Kwang Sung Korea a referral commission which
represents not more than 3% of the amount of sales for the Products to the Korean Customers.
The Directors confirmed that the referral commission rate was determined on an arm’s length
basis, is comparable to the referral commission rates payable by the Group to independent third
parties and is on terms comparable to the prevailing market rate and practice.
The Directors believe that the payment of the above referral commission by the Group to
Kwang Sung Korea is fair and reasonable to the Group as Kwang Sung Korea spends considerable
marketing efforts and incurs expenses to maintain strong and sound relationship with the Korean
Customers.
For the three years ended 31st December, 2002, the amount of referral commission paid by
the Group to Kwang Sung Korea amounted to approximately HK$3.5 million, HK$4.5 million and
HK$7.3 million, respectively, representing approximately 1.3%, 1.6% and 1.8% of the total sales
of the Group in the respective periods.
It is expected that the maximum annual amount of referral commission payable to Kwang
Sung Korea by the Group under the above arrangement will not exceed 3% of the Group’s total
turnover for any financial year for the three years ending 31st December, 2005.
Referral of sales orders from other customers to the Group for production of the
Products
In addition to the Korean Customers, Kwang Sung Korea refers sales orders for production
of the Products from other customers (the “Customers”) to the Group. Upon production of the
Products, the Group will sell the Products to the Customers directly. The Group pays to Kwang
Sung Korea a referral commission which represents not more than 3% of the amount of sales for
the Products to the Customers. The Directors confirmed that the commission rate was determined
on an arm’s length basis, is comparable to the referral commission rates payable by the Group
to independent third parties and is on terms comparable to the prevailing market rates and
practices.
Pursuant to the Deed of Undertaking and the Commission Agreement, Kwang Sung Korea
has agreed to and to procure its subsidiaries (if any) and its associates to first offer all Customers’
orders for production of the Products received by them from the Customers to the Group on
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normal commercial terms after arm’s length negotiation. The Deed of Undertaking will cease to
have effect on the earliest of the date on which (a) the Company becomes a wholly owned
subsidiary of Kwang Sung Korea and/or beneficially owned by Mr. Yang; or (b) the Shares cease
to be listed and traded on the Main Board. Kwang Sung Korea will cease to be bound by the Deed
of Undertaking in the event that the aggregate shareholding of Kwang Sung Korea and/or its
subsidiaries in the issued share capital of the Company falls below 20% while Mr. Yang will cease
to be bound by the Deed of Undertaking in the event the aggregate shareholding of Mr. Yang
and/or the companies controlled by him in the issued share capital of the Company falls below
20%. Under the Commission Agreement, either the Company and Kwang Sung Korea may
terminate the agreement by giving written notice to the other if, amongst others, the other party
(a) commits any breach of the Commission Agreement and fails to remedy that breach within one
month after the receipt of the written notice; (b) enters into liquidation; or (c) ceases or threatens
to cease to carry on its business or makes any material change in its business.
It is expected that the maximum annual amount of referral commission payable to Kwang
Sung Korea by the Group under the above arrangement will not exceed 3% of the Group’s total
turnover for any financial year for the three years ending 31st December, 2005.
Purchases from Kwang Sung Korea
The Group sources certain raw materials necessary for production of the Products from
Kwang Sung Korea. During the three years ended 31st December, 2002, the cost of raw materials
purchased by the Group from Kwang Sung Korea amounted to approximately HK$67.7 million,
HK$58.5 million and HK$54.8 million, respectively, representing approximately 37%, 35% and
22% of the Group’s total purchases of raw materials in the respective periods. According to the
Directors, there is no long term supply contract between the Group and Kwang Sung Korea and
purchase orders are placed by the Group with Kwang Sung Korea from time to time. The
Directors confirmed that the prices and terms upon which the raw materials are supplied by
Kwang Sung Korea to the Group are carried out on normal commercial terms and are on terms
comparable to the prevailing market rate or practice.
It is expected that the maximum annual amount payable to Kwang Sung Korea by the Group
under the above arrangement will not exceed 30% of the Group’s total purchases of raw materials
in any financial year for the three years ending 31st December, 2005.
Design and development of the Products
Kwang Sung Korea will provide research and development and product design services to
the Group for the Products. The terms of such engagement will be on normal commercial terms
and are on terms comparable to the prevailing market rate or practice.
At present, the Group’s existing research and development team is mainly responsible for
providing product improvement and re-engineering work, whereas Kwang Sung Korea has a
stronger and better established research and development and product design team which
focuses on the design and development of innovative Products and the manufacturing process.
In this connection, the Group has been and will be relying on Kwang Sung Korea to provide
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design and product development services to it until the Group’s own research and development
and product design team is capable of and attains the expertise to engage in product design and
development. It is the intention of the Directors that the Group will develop its own research and
development and product design team in Korea within 2003. It is envisaged that the Group’s
research and development and product design team will be fully set up within three years from
the date of the listing of the Shares on the Main Board.
Pursuant to the R&D Service Agreement, Kwang Sung Korea has agreed to first offer all
results and/or Products developed by it and/or any intellectual property right in or arising from
such results and/or Products to the Group. In addition, Kwang Sung Korea has agreed to provide
services in relation to research and development of the Products, including technical support, to
the Group. In return, the Group has agreed to pay a monthly fee to Kwang Sung Korea.
During the three years ended 31st December, 2002, the amount of research and
development and technical support fees paid by the Group to Kwang Sung Korea amounted to
approximately HK$3.1 million, HK$3.7 million and HK$5.6 million, respectively, representing
approximately 1.1%, 1.3% and 1.4% of the total sales of the Group in the respective periods.
It is expected that the maximum annual amount payable to Kwang Sung Korea by the Group
under the above arrangement will not exceed 3% of the Group’s total turnover for any financial
year for the three years ending 31st December, 2005.
Waivers
The above transactions will constitute connected transactions for the Company under the
Listing Rules once the Shares are listed on the Main Board and for so long as Kwang Sung Korea
remains the Company’s substantial Shareholder. Under the Listing Rules, each connected
transaction would normally require disclosure and prior approval by independent Shareholders,
subject to the nature and value of the transactions. In the opinion of the Directors, including the
independent non-executive Directors, the continuing connected transactions referred to above
have been or will be entered into in the Group’s ordinary course of business and on normal
commercial terms or on terms that are fair and reasonable so far as the Shareholders taken as a
whole are concerned and are in the interests of the Group. The Directors consider that disclosure
and approval of the above transactions on a recurring basis to be impractical, unduly onerous and
not beneficial to the Shareholders.
The Company has applied to the Stock Exchange for a waiver from strict compliance with
certain disclosure and Shareholders’ approval requirements under Chapter 14 of the Listing Rules.
Taking into consideration the opinions of the Directors and based on the documents and
information provided by the Group, Anglo Chinese, as the Sponsor, is of the view that the
connected transactions referred to above were conducted on commercial terms comparable to
those applicable to third parties and in the ordinary course of business and were fair and
reasonable so far as the interests of the independent Shareholders are concerned.
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The Company has applied to the Stock Exchange for waivers on the terms stated above for
three financial years ending 31st December, 2005. The waivers to be granted by the Stock
Exchange will be subject to the following conditions:
(1) the transactions are and will be:
(i) entered into by the Group in its ordinary and usual course of business;
(ii) entered into by the Group on normal commercial terms (to the extent that there
are comparable transactions) or, where there are no sufficient comparable
transactions to judge whether they are on normal commercial terms, on terms not
less favourable to the Group than those available to or from (as appropriate)
independent third parties; and
(iii) on terms that are fair and reasonable and in the interests of the independent
Shareholders as a whole;
(2) in any financial year the respective consideration in respect of each of the transactions
does not exceed the respective caps set out below:
The transactions
Annual cap on the aggregate
value of transactions
(i) Sale of Products to Kwang Sung
Korea
15% of the Group’s total turnover for
any financial year
(ii) Commission payable to Kwang Sung
Korea by the Group for sales orders
placed by the Korean Customers
3% of the Group’s total turnover for
any financial year
(iii) Commission payable to Kwang Sung
Korea by the Group for the referral
of sales orders placed by the
Customers
3% of the Group’s total turnover for
any financial year
(iv) Purchase of raw materials from
Kwang Sung Korea by the Group
30% of the Group’s total purchase of
raw materials for any financial year
(v) Research and development and
product design services to be
provided by Kwang Sung Korea to
the Group
3% of the Group’s total turnover for
any financial year
(3) details of the transactions shall be disclosed in the Company’s annual report and
accounts for the relevant years as described in Rules 14.25(1)(A) to (D) of the Listing
Rules, that is, the date or period of the transaction, the parties thereto and a description
of their connection, a brief description of the transaction and the purpose of the
transaction, the total consideration and the terms, and the nature and extent of the
interest of the connected persons in the transaction;
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(4) the independent non-executive Directors shall review the transactions annually and
confirm, in the Company’s annual report and accounts for the year in question, that
such transactions have been entered into in the manner as stated in paragraphs (1) and
(2) above; and
(5) the Company’s auditors shall review annually the transactions and provide a letter to
the Board (with a copy to the Listing Division of the Stock Exchange) confirming that
the transactions:
(i) have received the approval of the Board;
(ii) have been entered into in accordance with the relevant agreement governing the
transactions;
(iii) are in accordance with the pricing policies of the Group, if any; and
(iv) have not exceeded their respective caps as mentioned in paragraph (2) above.
For the purpose of the above review by the Company’s auditors, Kwang Sung Korea
has undertaken to the Stock Exchange that, for so long as the Shares are listed on the
Main Board, it will provide the auditors of the Company with access to its and its
associates’ (if any) accounting records.
The Company shall promptly notify the Stock Exchange if it knows or has reason(s) to
believe that the independent non-executive Directors and/or the auditors of the Company will
not be able to confirm the matters set out in paragraphs (4) and/or (5) above, respectively, and
in such circumstances, the Company may have to comply with the reporting, announcement and
shareholders’ approval requirements set out in Chapter 14 of the Listing Rules and any other
conditions as the Stock Exchange considers appropriate.
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DIRECTORS
The Board is entrusted with the overall responsibility and the overall management of the
Company.
The Board consists of three executive Directors, one non-executive Director and two
independent non-executive Directors, whose particulars are listed below.
Executive Directors
Mr. YANG Jai Sung, aged 43, is the chairman and the chief executive officer of the Company.
Mr. Yang is also the representative director at Shenzhen Kwang Sung. He is responsible for the
overall strategic planning and business development of the Group. Mr. Yang holds a bachelor’s
degree in law from Yonsei University in Korea. Prior to joining the Group in 1991, he worked in
Daewoo Heavy Industries and Machinery Co. Ltd. for nine years and has extensive experience in
the electronic components industry.
Mr. KIM Sun Cheol, aged 48, is the deputy chairman and the chief operating officer of the
Company as well as a director of Shenzhen Kwang Sung. He is mainly responsible for managing
the Group’s factory in the PRC. He graduated from Inha Technical College in Korea with a degree
in chemical engineering. Prior to his directorship in Shenzhen Kwang Sung, he has gained 22
years of experience in Kwang Sung Korea. He joined the Group in 2000.
Mr. LEE Byung Kwan, aged 45, is an executive Director and the chief production officer of
the Company as well as a director of Shenzhen Kwang Sung. He is mainly responsible for
overseeing the production operation of Shenzhen Kwang Sung. He graduated from Suwon
College in Korea where he obtained a radio radar engineer certificate. Prior to his appointment
as a director of Shenzhen Kwang Sung, he was an assistant manager at Samsung Electronics Co.
Limited and has worked there for fourteen years. He joined the Group in 1998.
Non-executive Director
Mr. YANG Ho Sung, aged 54, is a non-executive Director. He is mainly responsible for
providing management advice on the corporate development of the Group. He holds a bachelor’s
degree in architectural engineering from Han Yang University in Korea. He gained 25 years of
experience in the electronics industry as a director in Kwang Sung Korea and 21 years of
experience as a representative director of Samkor Electronics Co., Ltd.. Since 1992, he has taken
charge of the daily operation and management in Kwang Sung Korea and was appointed as its
representative director. He joined the Group in 2002. Mr. Yang Ho Sung is the elder brother of
Mr. Yang.
DIRECTORS, SENIOR MANAGEMENT AND STAFF
— 77 —
Ala(41)3rd Sch (6)
Independent non-executive Directors
Dr. KIM Chung Kweon, aged 47, was appointed in October 2002. He holds a bachelor’s
degree in science from Seoul National University in Korea, a master’s degree in business
administration and a master’s degree in accounting from University of Washington in the US. He
also completed his doctorate degree in accountancy at the University of Washington in the US.
Dr. Kim is a member of the audit committee of the Company which monitors the financial
reporting function of the Group. He has lectured at the University of Pittsburgh in the US and
taught at the Hong Kong University of Science and Technology as an assistant professor of
accounting.
Dr. HAN Byung Joon, aged 43, was appointed in October 2002. He holds a bachelor’s degree
in engineering from Hanyang University in Korea, a master’s degree in science from Tennessee
Tech University in the United States and a master’s degree of philosophy from Columbia
University in the US. He also completed his doctorate degree of philosophy at Columbia
University in the US. Dr. Han has over 15 years of experience in research and product
development. He is now the chief technology officer of ST Assembly Test Services Ltd. which is
a member of the Singapore Technologies group. He joined the Group in 2002.
SENIOR MANAGEMENT
The day-to-day operations of the Group are entrusted to the executive Directors who are
assisted by a team of senior management personnel whose particulars are listed below:
Mr. CHOW Kam Keung, Albert, aged 39, is the group financial controller and company
secretary of the Company. He is primarily responsible for overseeing the Group’s finance and
accounting matters, administrative operation and internal control. He also supports the Board in
formulating strategic plans and corporate policies. Mr. Chow holds a bachelor’s degree in
accounting and management of information system and a master’s degree in accounting from the
University of Hawaii in the US. He is an associate member of the Hong Kong Society of
Accountants and has over 14 years of experience in financial reporting and management. He
joined the Group in 2000.
Mr. HONG Sang Joon, aged 34, is the deputy financial controller of the Company. He mainly
assists the group financial controller in finance and accounting matters, operation and internal
control. He also supports the Board in developing corporate plans. Mr. Hong holds a bachelor’s
degree majoring in Chinese and minoring in business administration from Yonsei University in
Korea. He has over seven years of experience in investment, restructuring and corporate
planning and finance matters with seven years of experience gained at Hansol group in Korea.
He joined the Group in 2002.
DIRECTORS, SENIOR MANAGEMENT AND STAFF
— 78 —
A1a(41)A1a(42)
3rdSch(6)
Mr. HO Cheuk Yui, aged 36, is the deputy general manager in marketing of the Company.
He is responsible for formulating the Company’s overall sales plans and marketing policies as
well as overseeing the sales and marketing activities in relation to non-Korean based customers.
He holds a bachelor’s degree in business administration with honours from the City University of
New York in the US. He has over ten years of experience in sales and marketing of electronic
products and management. He joined the Group in 1995.
Mr. KO Byoung Hwan, aged 36, is the marketing manager of the Company. He assists the
deputy general manager in marketing in developing the Company’s sales plans and marketing
policies as well as overseeing the sales and marketing activities in relation to the Korean based
customers. He holds a bachelor’s degree in economics from the Dongkuk University in Korea. He
has over eight years of experience in sales and marketing of electronic products and
management. He joined the Group in 1994.
Mr. TUEN Chak Wang, aged 31, is a senior system administrator of the information
technology department of the Company and is responsible for all the information technology
system management of the Group’s management office in Hong Kong. Mr. Tuen holds a
bachelor’s degree in information systems from Curtin University of Technology in Australia and
has over eight years of experience in information technology and management. He joined the
Group in 2000.
Mr. YANG Cheol Whan, aged 39, joined the Group in 1999 and is a senior manager of the
production department of Shenzhen Kwang Sung. He is mainly responsible for production
management of dielectric band pass filter. Mr. Yang has over six years of experience in
purchasing and production management.
Mr. YANG Gwi Sub, aged 39, joined the Group in 1997 and is a manager of the production
engineering department of Shenzhen Kwang Sung. He is responsible for overseeing the product
engineering functions of the Group including solving technical problems of products, research
and development for modification and improvement, production of samples and sourcing of
suitable substitute materials. He gained five years of experience in production engineering at
Kwang Sung Korea prior to his engagement by the Group.
Mr. SUH Jin Won, aged 35, joined the Group in 1996 and is a manager of the production
department of Shenzhen Kwang Sung. He is responsible for the production of unit and composite
components. He holds a bachelor’s degree in law from Dongkuk University in Korea and has over
six years of experience in purchasing and production of electronic components.
Mr. CHOI Chang Hyun, aged 42, joined the Group in 2002 and is a manager of the
production engineering department of Shenzhen Kwang Sung. He is responsible for overseeing
the engineering functions of the Group including the setting up of processing line, process
automation and improvement, tools creation and maintenance as well as production and machine
testing. He has over 20 years of industry experience.
DIRECTORS, SENIOR MANAGEMENT AND STAFF
— 79 —
Mr. CHO Gwan Je, aged 41, joined the Group in 2002 and is a manager of the purchasing
department of Shenzhen Kwang Sung. He is responsible for the procurement of raw materials. He
holds a master’s degree in business administration majoring in accounting from Chungnam
National University in Korea. He gained seven years of experience in purchasing at Kwang Sung
Korea prior to his engagement by the Group.
Mr. WEI Guang Chen, aged 33, joined the Group in 1997 and is a manager of the production
and material control department of Shenzhen Kwang Sung. He is responsible for production
scheduling, product shipment as well as warehouse management functions for finished products.
He holds a bachelor’s degree in economics management from University of Beijing in the PRC and
has over five years of industry experience.
Mr. CHOI Tae Soon, aged 44, joined the Group in 1999 and is a senior manager of the
general administrative department of Shenzhen Kwang Sung. He is responsible for overseeing the
administrative function and the finance and accounting department of Shenzhen Kwang Sung. He
has over 23 years of experience in administration, finance and accounting.
Mr. WEN Yong Jie, aged 35, joined the Group in 2002 and is a manager of the finance and
accounting department of Shenzhen Kwang Sung. He is responsible for overseeing the finance,
accounting and customs clearance matters of the Group in the PRC. He holds a bachelor’s degree
in accountancy from (China Nanjing Food and Economics University) and has
five years of experience in finance and accounting.
Mr. SHI Zhong Ming, aged 31, joined the Group in 1999 and is a manager of the information
technology department of Shenzhen Kwang Sung. He is responsible for overseeing the system
development and information technology system management functions of Shenzhen Kwang
Sung. He holds a bachelor’s degree in computer science from (Jiangxi Teacher’s
University of the PRC).
Mr. CUI Wu Nan, aged 37, joined the Group in 1994 and is a manager of the quality
assurance department of Shenzhen Kwang Sung. He is responsible for overseeing the quality
assurance functions of Shenzhen Kwang Sung. He holds a bachelor’s degree in broadcast
engineering from (Beijing Broadcasting Institute of the PRC) and has nine years
of experience in quality assurance.
AUDIT COMMITTEE
The Company established an audit committee on 16th June, 2003 with written terms of
reference in compliance with the Code of Best Practice as set out in appendix 14 of the Listing
Rules. The primary duties of the audit committee are to review and supervise the financial
reporting process and the internal control procedures of the Group.
The audit committee has two members comprising the two independent non-executive
Directors, namely Dr. KIM Chung Kweon and Dr. HAN Byung Joon, with Dr. Kim Chung Kweon
being the chairman of the audit committee.
DIRECTORS, SENIOR MANAGEMENT AND STAFF
— 80 —
The audit committee of the Company will report to the Board on a half yearly basis and
present a report to the Board which addresses the work and findings of the audit committee
during the period on a semi-annual basis.
STAFF
As at the Latest Practicable Date, the Group employed a total of 2,031 full-time employees.
The analysis by function of the Group’s staff is as follows:
Hong Kong China Total
General management 3 8 11
Procurement 2 30 32
Production — 1,756 1,756
PRC R&D Team — 70 70
Quality assurance — 57 57
Sales and marketing 10 3 13
Production material control — 22 22
Finance and accounting 5 10 15
Information technology 1 5 6
Administration 3 46 49
24 2,007 2,031
For the three years ended 31st December, 2002, the average number of employees employed
by the Group was 1,946, 1,657 and 1,836, respectively.
Relationship with staff
Since the inception of the Group, the Group has never experienced any material disruption
to its normal business operations as a result of industrial disputes nor has it experienced any
difficulties in the recruitment and retention of experienced staff and the Directors are of the view
that the Group has good relationship with its employees. As at the Latest Practicable Date, the
Group is in compliance with all relevant laws, regulations and requirements in relation to child
protection, fair labour standards, working conditions and code of conduct for its employees or
workers in Hong Kong and the PRC.
Share Option Scheme
The company has conditionally adopted the Share Option Scheme which, in the opinion of
the Directors, will assist the Group in retaining high calibre executives and employees. The
principal terms of the scheme are summarized in the paragraph headed “Share Option Scheme”
in appendix V to this prospectus.
DIRECTORS, SENIOR MANAGEMENT AND STAFF
— 81 —
A1a(28)(7)A1a(44)LR Chapter 17A1a(33)(4)(b)A1a(33)(4)(d)
Other benefits
For managerial and sales staff, discretionary bonuses are paid depending on the Directors’
assessment of performance.
In addition, the Group also provides mandatory provident fund schemes (the “MPF
Schemes”) for its employees in Hong Kong in compliance with the Mandatory Provident Fund
Schemes Ordinance (Chapter 485 of the Laws of Hong Kong), medical insurance schemes and
other allowances for its staff.
Under the MPF Schemes, both the Group and its staff have to contribute an amount equal
to 5% of the relevant income of such staff to the schemes, subject to a maximum level of the
monthly relevant income of HK$20,000. An employee earning less than HK$5,000 is not required
to contribute but may elect to do so. However, the Group must still contribute 5% of the staff’s
monthly relevant income even if that monthly income is below HK$5,000.
Contributions from the Group and its staff are 100% vested in the staff as soon as they are
paid to the MPF Schemes but all benefits derived from the mandatory contributions must be
preserved until the staff reach the retirement age of 65 (subject to exceptions such as early
retirement between the ages of 60 and 64, death, total incapacity and permanent departure from
Hong Kong). The Group’s contributions to the MPF Schemes can be used to offset any long
service payments or severance payments payable and are deductible for profits tax purposes.
For its production staff in China, the Group provides dormitory accommodation and
subsidised meals. Health benefits are paid for by the Group and are provided by the local
authority.
Training policy
The Directors recognize that well trained workers are important to maintain a highly
efficient production workflow. The Group has a standard training policy for all the workers at
each level. All the production workers are required to undergo a training programme for the
production lines based on the guideline of ISO 9002 standard and would need to pass the
required tests before they are assigned to production lines.
The production facility has a number of potentially dangerous machines and chemicals.
Careful instructions are given before workers are permitted to operate such machinery and to
handle such materials and they are closely supervised when using or handling it in order to
prevent accidents.
The Directors believe that the Group’s continuous training programmes would enable the
Group to consistently produce high quality products.
DIRECTORS, SENIOR MANAGEMENT AND STAFF
— 82 —
So far as the Directors are aware, immediately following completion of the Share Offer and
the Capitalisation Issue, without taking into account the Shares which may be issued upon the
exercise of the Over-allotment Option or Shares which may be issued pursuant to the options
which may be granted under the Share Option Scheme or Shares which may be taken up by any
person under the Share Offer which would affect disclosure in this section, the following persons
will have an interest or a short position in Shares or underlying Shares which would fall to be
disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of
Part XV of the SFO, or, who are, 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
Capacity/
Nature of interest
Number of
Shares
Approximate
percentage of
shareholding
(%)
Mr. Yang Beneficial owner 112,286,057 37.4%
13,500,000
(Note 1)
4.5%
Interest of controlled
corporation
97,713,943
(Note 2)
32.6%
Mdm. Kang Mi Young Interest of spouse 210,000,000
(Note 3)
70.0%
13,500,000
(Note 1 and Note 3)
4.5%
Kwang Sung Korea Beneficial owner 2,849,990 1.0%
Interest of controlled
corporation
94,863,953
(Note 4)
31.6%
Notes:
1. Out of the 112,286,057 Shares beneficially owned by Mr. Yang, 13,500,000 Shares are the subject of the Stock
Borrowing Agreement.
2. Mr. Yang and his relatives are interested in 79.5% of the issued share capital of Kwang Sung Korea and
therefore, Mr. Yang is deemed or taken to be interested in these Shares which are beneficially owned by
Kwang Sung Korea for the purposes of the SFO.
3. Mdm. Kang Mi Young is the wife of Mr. Yang and is deemed to be interested in the Shares in which Mr. Yang
is deemed or taken to be interested for the purposes of the SFO.
4. Kwang Sung Korea is deemed or taken to be interested in these Shares which are held by KS-Tech.
SUBSTANTIAL SHAREHOLDERS
— 83 —
A1a(45)3rd Sch (30)
Save as disclosed herein, the Directors are not aware of any person who will, immediately
following the Share Offer and the Capitalisation Issue, will have an interest or a short position
in Shares or underlying Shares which would fall to be disclosed to the Company and the Stock
Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, be directly or
indirectly interested in 10% or more of the nominal value of any class of share capital carrying
rights to vote in all circumstances at general meetings of any other member of the Group and are
therefore regarded as substantial shareholders of the Company under the Listing Rules.
SUBSTANTIAL SHAREHOLDERS
— 84 —
Authorised share capital: HK$
1,500,000,000 Shares 150,000,000
Shares issued and to be issued, fully paid or credited as fully paid:
7,000,000 Shares in issue 700,000
233,000,000 Shares to be issued under the Capitalisation Issue 23,300,000
60,000,000 Shares to be issued under the New Issue 6,000,000
Total:
300,000,000 Shares 30,000,000
Assumptions
The above table assumes that the Share Offer becomes unconditional and the Capitalisation
Issue is made but does not take into account any Shares which may be allotted and issued under
the Over-allotment Option or upon the exercise of 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 mandate for the allotment and issue or repurchase of Shares granted to
the Directors as described below.
Ranking
The Offer Shares will, other than for participation in the Capitalisation Issue, rank pari passu
in all respects with all other Shares in issue and to be issued as mentioned in this prospectus, and
in particular, will rank equally for all dividends and other distributions declared, made or paid
after the date of this prospectus.
Share Option Scheme
The Company has conditionally adopted the Share Option Scheme on 16th June, 2003, the
principal terms of which are summarised in the paragraph headed “Share Option Scheme” in
appendix V to this prospectus. Pursuant to the Share Option Scheme, eligible participants of the
scheme (including the Directors and directors of other members of the Group, full-time and
part-time employees, advisors, and consultants of the Group) may be granted options which
entitle them to subscribe for Shares representing (when aggregated with options granted under
any other scheme) of not more than 10% of the issued share capital of the Company as at the date
on which dealings in the Shares commence on the Stock Exchange.
SHARE CAPITAL
— 85 —
A1a15(1)A1a23(1)3rd Sch (2)
General mandate to issue new Shares
The Directors have been granted a general unconditional mandate to allot, issue and deal
with unissued Shares with an aggregate nominal value of not more than the sum of:
— 20% of the aggregate nominal value of the share capital of the Company in issue
immediately following completion of the Capitalisation Issue and the Share Offer (such
share capital shall include the Shares which may be issued under the Over-allotment
Option); and
— the aggregate nominal value of the share capital of the Company repurchased by the
Company, if any, pursuant to the general mandate to repurchase Shares referred to
below.
The allotment and issue of Shares under a rights issue, scrip dividend scheme or similar
arrangement, or the exercise of any subscription rights under options which may be granted
under the Share Option Scheme, any adjustment of rights to subscribe for Shares under options
and warrants or a specific authority granted by the Shareholders do not generally require the
approval of the Shareholders in general meeting and the aggregate nominal value of Shares which
the Directors are authorised to allot and issue under this mandate will not be reduced by the
allotment and issue of such Shares.
The mandate will expire:
— at the conclusion of the next annual general meeting of the Company; or
— on the expiration of the period within which the next annual general meeting of the
Company is required to be held by the Articles or the Companies Ordinance or any
other applicable laws of Hong Kong; or
— when it is varied, revoked or renewed by an ordinary resolution of the Shareholders in
general meeting of the Company,
whichever is the earliest.
For further details of this general mandate, see the sub-paragraph headed “Written
resolutions of the Shareholders passed on 16th June, 2003” under the paragraph headed “Further
information about the Company and its subsidiaries” in appendix V to this prospectus.
SHARE CAPITAL
— 86 —
General mandate to repurchase Shares
The Directors have been granted a general unconditional mandate to exercise all the powers
of and on behalf of the Company to purchase Shares with an aggregate nominal value of not
exceeding 10% of the aggregate nominal amount of the share capital of the Company in issue
immediately following completion of the Capitalisation Issue and the Share Offer (including
Shares which may be issued pursuant to the exercise of the Over-allotment Option).
This mandate only relates to repurchases made on the Stock Exchange, 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, and which are made in accordance with all applicable laws and
requirements of the Listing Rules. A summary of the relevant Listing Rules regarding the
repurchase of Shares is set out in the paragraph headed “Share repurchase mandate” in appendix
V to this prospectus.
The mandate will expire:
— at the conclusion of the next annual general meeting of the Company; or
— on the expiration of the period within which the next annual general meeting of the
Company is required to be held by the Articles or the Companies Ordinance or any
other applicable laws of Hong Kong; or
— when it is varied, revoked or renewed by an ordinary resolution of the Shareholders in
general meeting of the Company,
whichever is the earliest.
For further details of this general mandate, see the sub-paragraph headed “Written
resolutions of the Shareholders passed on 16th June, 2003” under the paragraph headed “Further
information about the Company and its subsidiaries” in appendix V to this prospectus.
SHARE CAPITAL
— 87 —
INDEBTEDNESS
Borrowings
As at the close of business on 30th April, 2003, being the Latest Practicable Date prior to the
printing of this prospectus for the purpose of this indebtedness statement, the Group did not
have any outstanding borrowings, loans, finance leases or hire purchase payables.
Contingent liabilities
As at 30th April, 2003, there were no material contingent liabilities of the Group.
Securities and guarantees
As at 30th April, 2003, the Group’s banking facilities of approximately HK$30.1 million were
secured by the following:
(i) charges on bank deposits of the Group of approximately HK$9.0 million; and
(ii) personal guarantee issued by Mr. Yang.
Release from guarantees
The Group has received written consents in principle from the relevant bankers that the
personal guarantees issued and personal indemnities and undertakings given by Mr. Yang
mentioned under the sub-paragraph headed “Securities and guarantees” in this section will be
released upon the listing of the Company’s shares on the Stock Exchange.
Disclaimer
Save as disclosed above, the Group did not, as at the close of business on 30th April, 2003
have any outstanding mortgages, charges, debentures, loan capital, bank loans and overdrafts,
debt securities or other similar indebtedness, finance lease or hire purchase commitments,
liabilities under acceptances (other than normal trade bills), acceptance credits or any guarantees
or other material contingent liabilities outstanding.
No material adverse change
The Directors have confirmed that there has been no material change in the indebtedness,
commitments and contingent liabilities of the Group since 30th April, 2003.
LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE
Net current assets
As at 30th April, 2003, the Group had total assets of approximately HK$255.9 million, which
were financed by Shareholders’ equity of approximately HK$181.5 million, and liabilities of
approximately HK$74.4 million. As at the same date, the Group had current assets of
approximately HK$222.8 million and current liabilities of approximately HK$74.4 million.
FINANCIAL INFORMATION
— 88 —
A1a(32)3rd Sch(23)(24)
A1a(32)(2)
A1a(32)
A1a(32)(1)
A1a(32)(3)A1a(32)(1)3rd Sch(25)
A1a(38)
A1a32(5)
As at 30th April, 2003, the current assets of the Group mainly comprised of inventories of
approximately HK$57.9 million, trade receivables of approximately HK$101.5 million, pre-
payments, deposits and other receivables of approximately HK$11.7 million, pledged deposits of
approximately HK$9.0 million and cash and cash equivalents of approximately HK$42.7 million.
As at 30th April, 2003, the current liabilities of the Group mainly comprised of trade
payables of approximately HK$56.4 million, accrued expenses and other payables of
approximately HK$13.3 million and tax payable of approximately HK$4.7 million.
Funding
The Group generally finances its operation with internally generated cashflow and banking
facilities provided by its principal bankers in Hong Kong. As at 30th April, 2003, the Group had
total banking facilities of approximately HK$30.1 million. As at the Latest Practicable Date, none
of such facilities has been utilised by the Group.
Capital commitments
As at 30th April, 2003, the Group’s capital commitments for acquisition of property, plant
and equipment amounted to approximately HK$2.5 million.
Special dividends
On 2nd August, 2002 and 28th May, 2003, the Board approved the payment of special
dividends totalling approximately HK$24.6 million and approximately HK$5.5 million,
respectively. The aforesaid dividends were settled by cash generated from the operating profit of
the Group.
Hedging policy
The Group generates its revenue mainly in Hong Kong dollars and US dollars and the
exchange rates of such currencies have been stable during the three years ended 31st December,
2002, no hedging or other alternatives have been implemented.
As at 30th April, 2003, the Group did not have any outstanding hedging instruments.
Working capital
The Directors are of the opinion that, taking into account its internally generated funds and
the estimated net proceeds of the Share Offer, the Group has sufficient working capital to satisfy
its present requirements.
FINANCIAL INFORMATION
— 89 —
A1a 28(3)
A1a(36)
PRACTICE NOTE 19 TO THE LISTING RULES
The Directors confirmed that as at the Latest Practicable Date, they were not aware of any
circumstances which would give rise to a disclosure requirement under Practice Note 19 of the
Listing Rules.
TRADING RECORD
The table below summarises the audited consolidated results of the Group for each of the
three years ended 31st December, 2002. The consolidated results for each of the three years
ended 31st December, 2002 are based on information contained in the accountants’ report set out
in appendix I to this prospectus.
Year ended 31st December,2000 2001 2002
HK$’000 HK$’000 HK$’000
Turnover (note 1) 279,190 285,138 396,955Cost of sales (224,781) (227,580) (299,071)
Gross profit 54,409 57,558 97,884Other revenue 1,040 2,662 1,762Selling and distribution expenses (6,075) (7,232) (9,769)Administrative expenses (9,012) (9,577) (9,892)Other operating expenses (9,239) (7,996) (11,042)
Profit from operations 31,123 35,415 68,943Finance costs (1,837) (828) (281)
Profit from ordinary activities
before taxation 29,286 34,587 68,662
Taxation (2,430) (2,484) (5,517)
Profit attributable to shareholders 26,856 32,103 63,145
Dividends (note 2) — — 24,560
Earnings per Share
— Basic (HK cents) (note 3) 11.19 13.38 26.31
Notes:
1. Turnover represents the aggregate of the invoiced value of goods sold, after deducting goods returned and
trade discounts, which includes sales to Hong Kong, the PRC and Korea.
2. On 2nd August, 2002, the Company declared a special dividend of approximately HK$24,560,000 to its then
shareholders, which was paid on 23rd August, 2002 and 27th August, 2002. On 28th May, 2003, a special
dividend of HK$5,469,000 was declared by the Company to its then shareholders. The special dividend was
paid on 6th June, 2003.
FINANCIAL INFORMATION
— 90 —
3rd Sch(3),(27)
3. The calculation of basic earnings per Share for each of the three years ended 31st December, 2002 (the
“Relevant Period”) is based on the profit attributable to shareholders for each of the years during the
Relevant Period and on the 240,000,000 Shares in issue and issuable during the Relevant Period, respectively,
as if the 233,000,000 Shares to be issued pursuant to the Capitalisation Issue were outstanding throughout
the Relevant Period.
The following table shows the geographical breakdown of the turnover of the Group’s
products on the basis of the destination of delivery for each of the three years ended 31st
December, 2002:
Year ended 31st December,
2000 2001 2002
HK$’000 HK$’000 HK$’000
Hong Kong 113,536 106,497 133,402
PRC (other than Hong Kong) 115,021 133,754 217,755
Korea 47,642 38,001 32,149
Others (note) 2,991 6,886 13,649
279,190 285,138 396,955
Note: Other countries include the Philippines, Thailand, Japan, Brazil, Turkey and Taiwan.
Turnover by geographical location is determined on the basis of the destination of the
Group’s products.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE TRADING RECORD
Overview
The Group is a recognised manufacturer and supplier of a broad line of electronic
components for electronic appliances and communications equipment with its headquarter
located in Hong Kong. It has its manufacturing plant in Shenzhen, China. The Group’s revenues
are derived primarily from the sale of these products to ODMs and OEMs in Korea, China and
Hong Kong. The Group’s products are broadly categorised into two main product groups, namely
composite components such as FM front-end tuners and AM/FM tuner modules and unit
electronic components such as coils, ceramic components, transformers and antennae.
The principal expenses of the Group are cost of goods sold, which comprise of mainly raw
material costs and direct labour costs. Other material expenses include referral commission and
research and development and technical support fees paid to Kwang Sung Korea and staff costs.
The Group has financed its development principally by cashflow generated from its operations.
FINANCIAL INFORMATION
— 91 —
The average debtor turnover for the Group for each of the three years ended 31st December,
2002 was approximately 70 days, 72 days and 83 days, respectively, and was in line with the
Group’s policy to maintain its debtor turnover in the range of 70 to 85 days. Debtor turnover rose
from 72 days as at 31st December, 2001 to 83 days as at 31st December, 2002. The increase in
debtor turnover days reflected higher sales generated in November and December for 2002 as
compared with the same period in 2001.
The average creditor turnover for the Group for each of the three years ended 31st
December, 2002 was 52 days, 55 days and 63 days, respectively, and was in line with the Group’s
policy to maintain its creditor turnover in the range of 50 to 65 days. The increase in creditor
turnover from 55 days as at 31st December, 2001 to 63 days as at 31st December, 2002 was mainly
the result of longer credit terms of about 10 days provided by the Group’s suppliers.
The average inventory turnover for the Group for each of the three years ended 31st
December, 2002 was 68 days, 38 days and 40 days, respectively. The Group’s average inventory
turnover decreased from 68 days as at 31st December, 2000 to 38 days as at 31st December, 2001
primarily due to the stringent inventory control system adopted by the Group in year 2001 which
resulted in the provision for inventory of approximately HK$10.9 million during that year.
Inventory turnover rose from 38 days as at 31st December, 2001 to 40 days as at 31st December,
2002 as a result of higher sales recorded during the year ended 31st December, 2002. Also more
inventory was required to cater for an increase in customers’ orders in anticipation of the peak
season of the Group from approximately July to October of each year.
Turnover by principal activity
The following table sets out the breakdown of the Group’s consolidated turnover by
principal activity for each of the three years ended 31st December, 2002:
Year ended 31st December,
2000 2001 2002
HK$’000 HK$’000 HK$’000
Sales of composite components 131,750 153,083 259,469
Sales of unit electronic components 147,440 132,055 137,486
279,190 285,138 396,955
In the financial year ended 31st December, 2000, the Group saw a strong demand for its
composite components as there was an increasing trend for audio manufacturers to outsource the
design and production of their electronic parts in order to shorten development lead time and
production time as well as to reduce defective rates and thus production costs. For the three years
ended 31st December, 2002, there has been a continued increase in the sales of composite
components relative to unit electronic components. In particular, sales of composite components
during the year ended 31st December, 2002 increased by approximately 69% as compared to the
FINANCIAL INFORMATION
— 92 —
previous financial year of which approximately 47% of the increase in sales was contributed by
the Group’s existing customers and approximately 22% was contributed by new customers. The
Directors believe that the revenue generated from the Group’s composite components will
continue to be the major contributor to the Group’s revenue in the near future.
Cost of sales and margins
The table set out below shows the gross profit margin (“GP %”) from sales by product group
for the three years ended 31st December, 2002:
Year ended 31st December,
2000 2001 2002
HK$’000 GP% HK$’000 GP% HK$’000 GP%
Composite components
Sales 131,750 153,083 259,469
Cost of sales (103,977) (127,812) (196,472)
Gross profit 27,773 21% 25,271 17% 62,997 24%
Unit electronic components
Sales 147,440 132,055 137,486
Cost of sales (120,804) (99,768) (102,599)
Gross profit 26,636 18% 32,287 24% 34,887 25%
Total
Sales 279,190 285,138 396,955
Cost of sales (224,781) (227,580) (299,071)
Gross profit 54,409 19% 57,558 20% 97,884 25%
The cost of sales of the Group’s products consists primarily of raw materials, labour costs
and factory overheads. During the three years ended 31st December, 2002, there has been a
continued decrease in labour costs as a percentage of total cost of goods sold, which resulted
from the decrease in sales of unit electronic components relative to composite components and
the fact that the production of unit electronic components is relatively more labour intensive as
compared to composite components. During the same period, there was also an improvement in
factory overheads due to cost control policies implemented by the Group. Measures implemented
by the Group include purchase of additional machinery to reduce the need to outsource its
production to third parties which resulted in a decrease in subcontractors’ charges of
approximately HK$2.5 million, or approximately 59%, in 2001 as compared to the previous year.
Sea transportation was increasingly used to replace air transportation in delivering the Group’s
raw materials, which also resulted in a significant decrease in freight inwards and transportation
costs by approximately HK$1.7 million, or approximately 37%, in 2001 as compared with year
2000. As a result of tighter cost control, factory supplies also decreased by approximately HK$1.9
million, or approximately 35%, in 2001. In the financial year 2000, overall gross profit margin
amounted to approximately 19% mainly as a result of a relatively significant decrease in gross
FINANCIAL INFORMATION
— 93 —
profit margin of unit electronic components which offset the contribution arising from the
improvement in gross profit margin of composite components. The decrease in gross profit
margins of unit electronic components was mainly due to an increase in raw material costs and
labour costs. In the financial year 2001, the gross margins improved due to both lower direct
labour costs and lower factory overheads. In the year 2002, the gross margins further improved
due to a reduction in raw material costs of composite components. In particular, gross profit of
composite components during the year ended 31st December, 2002 increased to approximately
24% from approximately 17% in the year ended 31st December, 2001.
Composite components
In the financial year 2000, gross margin increased to approximately 21% as compared to
approximately 18% in the previous year, this was mainly resulted from a significant decrease in
raw material costs of composite components and subcontractors’ charges. In the 2001 financial
year, the improvement in factory overheads was offset by an increase in raw material costs during
the year. The increase in raw material costs was mainly attributable to a provision for inventory
of approximately HK$10.9 million during the year due to stringent inventory control
implemented by the Group in 2001. The improvement in factory overheads was mainly a result
of tighter cost controls implemented by the Group which led to a reduction in costs relating to
factory supplies by approximately 35% and freight inwards and transportation by approximately
37% as compared to the previous financial year. As a result, gross margin dropped to
approximately 17% in year 2001. During the year ended 31st December, 2002, the significant
increase in gross margin to approximately 24% from approximately 17% in the previous year was
mainly attributable to a significant reduction in raw material costs. Raw material costs were
reduced as a result of an improvement in the Group’s production efficiency and increased
accuracy in the projection of inventory requirement which in turn led to a reduction in raw
material usage and provision for inventory during the year. During the year ended 31st
December, 2002, raw material costs of composite components as a percentage of sales and
provision for inventory as a percentage of sales were reduced from approximately 67% to
approximately 60% and from approximately 3% to approximately 2%, respectively.
Unit electronic components
In the financial year 2000, the Group recorded a gross margin of approximately 18% as
compared to a gross margin of approximately 24% in the previous year. The decrease mainly
reflected that raw materials and labour costs as a percentage of sales increased from
approximately 53% and 11% in 1999 to approximately 56% and 13% in 2000, respectively.
However, such increase could not be transferred to the selling price of unit electronic
components as a result of increased market competition. Gross margin for the financial year 2001
improved to approximately 24%. The improvement was primarily attributable to a decrease in
direct labour costs and subcontractors’ charges arising from automation of some production
processes. During the year ended 31st December, 2002, gross margin of unit electronic
components remained at approximately 25% due to a decrease in raw material costs although
there was a slight increase in direct labour costs during the period. Raw material costs were
reduced as a result of an improvement in the Group’s production efficiency and increased
accuracy in the projection of inventory requirement which in turn led to a reduction in raw
FINANCIAL INFORMATION
— 94 —
material usage and provision for inventory during the year. The decrease in raw material costs
was also due to localisation in the sourcing of raw materials, that is, more raw materials were
sourced in Hong Kong and China. In addition, the Group had better bargaining power in the
purchase of raw materials as its production volume increased. Factory overheads remained stable
during the year and accounted for approximately 11% of the sales of unit electronic components
in the two years ended 31st December, 2002.
Expenses
The following table shows a breakdown of the principal expenses incurred by the Group for
the three years ended 31st December, 2002:
Year ended 31st December,
2000 2001 2002
HK$’000 HK$’000 HK$’000
Selling and distribution expenses 6,075 7,232 9,769
Administrative expenses 9,012 9,577 9,892
Other operating expenses 9,239 7,996 11,042
The major components of the Group’s expenses are staff costs and referral commission and
research and development and technical support fees paid to Kwang Sung Korea as the Group
is principally a manufacturing company of products that are relatively labour intensive and which
require continuing efforts in research and development.
Administrative expenses mainly comprised of staff costs and rent and rates. The largest
component of administrative expenses relates to staff costs which amounted to approximately
HK$7.1 million, HK$7.6 million and HK$7.6 million during the three years ended 31st December,
2002, respectively. The number of staff in Hong Kong increased from 21 on average in the
financial year 2000 to 24 as at 31st December, 2002 and was primarily attributable to the
continued growth of the Group’s business during the year.
Results of operations
For the year ended 31st December, 2000
For the year ended 31st December, 2000, the Group recorded a total turnover of
approximately HK$279.2 million, of which sales in composite components represented
approximately 47% of the Group’s total turnover. Sales of unit electronic components amounted
to approximately HK$147.4 million and accounted for approximately 53% of the Group’s total
turnover. As a result of the decrease in the gross margin of unit electronic components due to the
increase in cost of raw materials and labour costs and increased market competition, gross profit
amounted to approximately HK$54.4 million, representing a gross margin of approximately 19%
as compared to approximately 22% in the previous financial year. In addition, the Group earned
interest income of approximately HK$1.0 million during the year.
FINANCIAL INFORMATION
— 95 —
Selling and distribution expenses and administrative expenses amounted to approximately
HK$6.1 million and HK$9.0 million, respectively. During the year, staff costs were substantially
higher which resulted from the recruitment of additional staff in all departments of the Group
which was required in order to cope with the continued growth of its business. Staff costs for the
year ended 31st December, 2000 grew by approximately 37% over the previous year, which was
in line with the corresponding increase in the Group’s average number of employees of
approximately 30% from the previous year.
Depreciation expenses for the year ended 31st December, 2000 also increased by
approximately HK$1.2 million as a result of additional investments in plant and machinery as the
Group expanded its production capacity.
Overall, the Group recorded a net profit of approximately HK$26.9 million, representing a
net margin of approximately 10% and a 36% return on average shareholders’ funds.
For the year ended 31st December, 2001
The Group’s turnover grew slightly by approximately 2% over the previous year to
approximately HK$285.1 million, of which sales in composite components increased by
approximately 16% to approximately HK$153.1 million and accounted for approximately 54% of
the Group’s total turnover. Sales in unit electronic components declined by approximately 10%
to approximately HK$132.1 million and accounted for approximately 46% of the Group’s total
turnover. Sales in China and other countries showed a satisfactory increase while sales in Korea
showed a corresponding decrease as more Korean manufacturers relocated their production
plants to China and gradually reduced their production activities in Korea.
The gross profit margin of unit electronic components improved significantly to
approximately 24% from approximately 18% in the previous year. The increase in gross profit
margin primarily reflected the decrease in raw materials costs and direct labour costs as a
percentage of sales from approximately 56% and 8% in 2000 to approximately 54% and 3% in
2001, respectively. The improvement resulted from both the automation of certain production
processes of the Group and the adoption of a more stringent inventory control system with a view
to improving its raw material planning and reducing raw material stocking days. However, the
improvement was offset by a decrease in gross margin of composite components to
approximately 17% from approximately 21% in the previous year due to an increase in related
raw material costs. Overall gross margin improved slightly from approximately 19% to
approximately 20%.
Other revenue for the year increased by approximately 156% to approximately HK$2.7
million, of which interest income amounted to approximately HK$1.1 million, recovery of bad
debts amounted to approximately HK$1.1 million and the remaining balance comprised scrap
sales amounted to approximately HK$0.5 million.
FINANCIAL INFORMATION
— 96 —
Finance costs for the year declined by approximately 55% to approximately HK$0.8 million
as the Group repaid most of its bank debts in the previous year which resulted in a net cash
position.
The Company recorded a net profit margin of approximately 11% based on net profits of
approximately HK$32.1 million. This was achieved principally by an increase in the recovery of
bad debts and a reduction in finance costs during the year.
For the year ended 31st December, 2002
The Group’s turnover for the year ended 31st December, 2002 amounted to approximately
HK$397.0 million. The increase reflected that sales of composite components increased by
approximately 69% as compared to the previous financial year. The increase in sales of composite
components resulted in part from the Group’s introduction of new model of products. These new
models enjoyed higher profit margin because most of these models were custom made. In
addition, due to growing efficiency of the Group’s manufacturing operation, a reduction in raw
material costs in composite components and a better inventory control system which resulted in
gross profit margin substantially improved to approximately 25% from approximately 20% in the
previous year. The growing efficiency in the Group’s manufacturing operation was partly due to
a reduction in raw material costs which was a result of both an improvement in yield rates in the
manufacturing of both composite components and unit electronic components and lower
purchasing prices due to localisation in the sourcing of raw materials. As more raw materials were
sourced in Hong Kong and China, the Group was able to maintain freight inwards expenses paid
to overseas suppliers at approximately HK$1.7 million for the years ended 31st December, 2001
and 2002 despite an increase in the purchase of raw materials from approximately HK$164.7
million in year 2001 to approximately HK$249.8 million in year 2002. In addition, the Group had
greater bargaining power in the purchase of raw materials as its production volume increased.
With the adoption of a better inventory control which resulted from an increased accuracy in the
ability to project the Group’s inventory requirement, provision for inventory was reduced by
approximately 54% from approximately HK$10.9 million for the year ended 31st December, 2001
to approximately HK$5.0 million for the year ended 31st December, 2002.
Selling and distribution expenses, administrative expenses and other operating expenses
remained approximately at the same level as the previous financial year with the result that net
margin was materially higher than the previous year. Net profit margin was approximately 16%
against a net profit margin of approximately 11% for the year ended 31st December, 2001. Net
profit amounted to approximately HK$63.1 million, representing an increase of approximately
97% as compared to the year ended 31st December, 2001.
TAXATION
The Group’s profit arising in or derived from Hong Kong are subject to Hong Kong profits
tax. Provision for Hong Kong profits tax has been calculated at the applicable rate of 16% for each
year during the three years ended 31st December, 2002 on the estimated assessable profits of the
Group’s companies operating in Hong Kong. The Group carried out manufacturing activities in
the PRC under the terms of various assembling and processing agreements with PRC entities and
FINANCIAL INFORMATION
— 97 —
has substantial involvement in these manufacturing activities undertaken in the PRC. The profit
earned is thus considered to be partly arising and derived from the manufacturing activities
carried out in the PRC and partly from other activities performed in Hong Kong. As such, the
Group enjoys 50:50 offshore claim in respect of Hong Kong profits tax.
According to the Income Tax Law of the PRC for Foreign Investment Enterprises and Foreign
Company and the Exemption Notice 1995 No. 9 dated 28th July, 1995 issued by the tax bureau
of Baoan, Shenzhen, the Group’s wholly owned subsidiary operating in the PRC, was exempted
from PRC enterprise income tax at a full tax rate of 15% for the first two profitable years of
operations starting from 1st January, 1999 to 31st December, 2000, and thereafter, became eligible
for a 50% relief from PRC enterprise income tax for the following three years from 1st January,
2001 to 31st December, 2003. As at 31st December, 2002, the Group’s PRC wholly owned
subsidiary is subject to PRC income tax at 7.5%.
The overall effective tax rates for the three years ended 31st December, 2002 were 8%, 7%
and 8%, respectively.
PROFIT FORECAST
The Directors forecast that, on the basis and assumptions set out in appendix II to the
prospectus, and in the absence of unforeseen circumstances, the forecast consolidated profit
after taxation but before extraordinary items of the Group for the year ending 31st December,
2003 will amount to not less than HK$63.5 million. The Directors are not aware of any
extraordinary items which have arisen or are likely to arise in respect of the year ending 31st
December, 2003.
On the basis of the above profit forecast and the weighted average number of 271,600,000
Shares expected to be in issue throughout the financial year ending 31st December, 2003, the
forecast earnings per Share for the year ending 31st December, 2003 will be about 23.4 HK cents
and will represent a prospective price earnings multiple of about 5.56 times, based on the Issue
Price of HK$1.30 per Offer Share. This represents a pro forma fully diluted price earnings
multiple of 6.10 times calculated on the assumptions that the Share Offer was completed and the
new Shares were issued on 1st January, 2003; and the net proceeds of the Share Offer, estimated
to be about HK$68.0 million and based on an interest rate of 1% per annum. The above
calculations does not take into account any Shares which may fall to be issued pursuant to the
exercise of options granted under the Share Option Scheme or otherwise or of any Shares which
may be repurchased by the Company.
The texts of the respective letters from KPMG, the reporting accountants of the Company,
and from Anglo Chinese, in respect of the profit forecast are set out in appendix II to this
prospectus.
FINANCIAL INFORMATION
— 98 —
A1a(34)(2)
PROPERTY INTERESTS
Properties held and occupied in Hong Kong
The Group owns and occupies two units of an industrial building on 13th floor of Wah Wai
Centre located at 38-40 Au Pui Wan Street, Fotan, Shatin, New Territories, Hong Kong. The total
gross floor area of the two units of the industrial building is approximately 349.59 sq.m.. The
property is occupied by the Group as ancillary office and warehouse.
This property has been valued as at 30th April, 2003 by DTZ Debenham Tie Leung Limited,
an independent property valuer, as having a commercial value of HK$1,200,000.
Further details of this property are contained in appendix III to this prospectus.
Properties leased in Hong Kong
The Group leases another unit on the 13th floor of Wah Wai Centre located at 38-40 Au Pui
Wan Street, Fotan, Shatin, New Territories, Hong Kong. This space has a gross floor area of
approximately 185.43 sq.m. and is currently occupied by the Group as ancillary office.
The Group leases a residential unit on the 28th floor of Tower 1 of Granville Garden located
at 18 Pik Tin Street, Shatin, New Territories, Hong Kong. The unit has a gross floor area of
approximately 77.85 sq.m. and is currently used by the Group as its staff quarters.
The Group leases a residential unit on the 7th floor of Block 32 and a carparking space of
Greenwood Terrace located at 26-28 Sui Wo Road, Shatin, New Territories, Hong Kong. The unit
has a gross floor area of approximately 154.96 sq.m. and is currently used by the Group as its
director’s quarter.
The Group leases a residential unit on the 12th Floor of Tower 4 of The Greenwood (Phase
I) of Laguna Verde, located at 8 Laguna Verde Avenue, Hunghom, Kowloon. The unit has a gross
floor area of approximately 96.06 sq.m. and is currently used by the Group as staff quarters.
These properties had been valued as at 30th April, 2003 by DTZ Debenham Tie Leung
Limited, an independent property valuer, as having no commercial value.
Properties leased in China
The Group leases an industrial complex comprising three industrial and warehouse
buildings, three staff dormitory buildings for local workers, one staff dormitory for Korean
workers, a canteen and a reserve power generator room in the 5th Industrial Zone, Shiyan Town,
Baoan District, Shenzhen, Guangdong Province, China. The total gross floor area of the industrial
complex leased by the Group is approximately 17,900 sq.m., equivalent to approximately 192,694
sq.ft.. The above properties are currently occupied by the Group as workshop, staff quarter,
warehouse, canteen and ancillary office.
FINANCIAL INFORMATION
— 99 —
A1a(39)
Property valuation
DTZ Debenham Tie Leung Limited has valued the total property interests of the Group at
HK$1,200,000 as at 30th April, 2003. The text of this letter, summary of valuations and valuation
certificates are set out in appendix III to this prospectus.
DISTRIBUTABLE RESERVES
As at 31st December, 2002, the distributable reserves of the Company were approximately
HK$158.9 million.
DIVIDENDS
The Company has not declared or paid any dividends since its incorporation other than
special dividends in an amount of approximately HK$24,560,000 and HK$5,469,000 that were
declared on 2nd August, 2002 and 28th May, 2003, respectively in recognition of the contribution
of the then shareholders of the Company to the growth of the Group and to their efforts in
relation to the listing of the Shares on the Main Board.
In the future, the declaration of dividends is subject to the discretion of the Directors and
any final dividend for the year is subject to shareholders’ approval. The amounts of dividends
actually paid to holders of Shares will depend upon a number of factors, including the Company’s
earnings, the future capital requirements of the Group, the required distributable reserve for
payment of such dividends, its general financial condition, the provisions of relevant laws and
any other factors considered relevant by the Directors.
The level of total reserves of the Group as at 31st December, 2002 and the portion of these
were distributable, are set out in note 22 to the accountants’ report in appendix I to this
prospectus.
In the future, the Directors intend to declare and recommend dividends which would
amount in total to approximately 25% of the distributable profits of the Group for each financial
year. The Directors, subject to review in the light of the requirements of the Group, intend to
adhere to such a dividend payout ratio policy.
The Directors expect that in the future, subject to the financial performance of the Company,
the Company will pay two dividends in respect of each financial year with interim and final
dividends in October and May respectively.
FINANCIAL INFORMATION
— 100 —
A1a(33)(5)
A1a(12)
ADJUSTED NET TANGIBLE ASSETS
The following pro forma statement of adjusted net tangible assets of the Group is based on
the audited consolidated net tangible assets of the Group as at 31st December, 2002, as shown
in the accountants’ report set out in appendix I to this prospectus, and adjusted as follows:
HK$’000Audited consolidated net tangible assets of the Group
as at 31st December, 2002 159,640Unaudited consolidated profit after taxation
for the four months ended 30th April, 2003 21,876Deficit arising on revaluation of the leasehold properties
of the Group (Note 1) (2,424)Special dividend (Note 2) (5,469)Estimated net proceeds of the Share Offer 68,000
Adjusted net tangible assets 241,623
Adjusted net tangible asset value per Share (Note 3) 80.5 cents
Notes:
1. The Group’s leasehold properties were revalued at 30th April, 2003. The deficit arising from revaluation of
the Group’s leasehold properties as at 30th April, 2003 amounted to approximately HK$2,424,000.
The revaluation deficit has not been incorporated into the Group’s net assets as at 31st December, 2002,
however it will be adjusted in the Group’s financial statements for the year ending 31st December, 2003.
2. On 28th May, 2003, a special dividend was declared by the Company to its then shareholders. The special
dividend was paid on 6th June, 2003 and was financed by the Group’s internal resources.
3. The adjusted net tangible asset value per Share was arrived at based on the 300,000,000 Shares expected to
be in issue immediately following completion of the Offer and the Capitalisation Issue but does not take into
account any Shares which may fall to be issued upon the exercise of options which may be granted under
the Share Option Scheme or which may be allotted and issued or purchased by the Company pursuant to the
general mandate for the allotment and issue and repurchase of Shares granted to the Directors as referred
to in the section headed “Further information about the Company and its subsidiaries” in appendix V to this
prospectus or otherwise.
NO MATERIAL ADVERSE CHANGE
The Directors confirm that there has been no material adverse change in the financial or
trading position or prospects of the Group since 31st December, 2002, the date to which the latest
audited consolidated financial statements of the Group were made up.
FINANCIAL INFORMATION
— 101 —
A1a(21)
A1a(38)
FUTURE PLANS AND PROSPECTS
The Group’s existing business model has proven to be successful and the sales of the Group
have grown steadily over the past ten years. The Directors believe that the Group has become
one of the recognised manufacturers and suppliers of electronic components to manufacturers of
electronic and telecommunication products in the PRC, Hong Kong and Korea. The Directors
believe that the Group has assembled the technical and managerial resources to develop into a
substantially larger high technology electronic products manufacturing enterprise. The Directors
intend to develop the brand “KSE” as synonymous with high technology and high quality
products. The Directors believe that the Group is well positioned to become a reliable high
quality and cost efficient supplier in the electronic components industry.
The Directors believe that the trend will continue in the electronic industry where the
product design, research and development and marketing functions of international brandname
corporations will be conducted at their headquarters or research and development centres, while
other operations will be shifted to facilities in lower cost regions like China. Customers will rely
on technology enabling manufacturers such as the Group to provide partial solutions with the
supply of high quality and cost efficient components to their ODMs or OEMs. The Directors
therefore believe that there are great opportunities for the Group to further expand its business
as well as to benefit from opportunities that arise from China’s accession to the WTO. The Group
will continuously endeavour to strengthen its own product design and research and development
capabilities in order to keep abreast of industry trends. In order to accomplish this plan, the
Group intends to:
— Focus on expansion through provision of product solutions in different
application areas
The Group seeks to expand its business through providing product solutions in
different application areas such as home and car audio, telecommunication and mobile
phones. In order to achieve this, the Directors intend to enhance its marketing and
engineering capabilities to achieve growth in revenue and profitability and revenue
diversification across different applications.
— Focus on growth through expansion and penetration into growth markets
The Group seeks to expand and penetrate its products by leveraging on its design and
manufacturing expertise into growth markets which represent potential customers based in
the PRC, other southeastern Asian countries such as Taiwan and Turkey. In order to achieve
this, the Directors intend to achieve growth in profitability and revenue diversification
across end markets, geographies and customers.
FUTURE PLANS AND USE OF PROCEEDS
— 102 —
A1a28(8)A1a34
— Continue to develop and introduce new products and setting up a research
and development centre in Korea
Introduce digital RF tuner modules to its product range
Digital RF tuner module is a new product under development. It is a condensed RF
circuit module for receiving new digital multi-media broadcasting signals such as Digital
Audio Broadcasting, In Band On Channel and Digital Video Broadcasting-Satellite broadcast
signals which are carried on RF carrier frequency. It will process RF signals and supply
source signals which can be converted into audio, video and data to audio and video
systems.
A research and development division in Korea will be set up
The Directors intend to strengthen the Group’s products and research and
development capabilities by setting up its own research and development centre in Korea
within 2003.
— Leverage on the product engineering and design capabilities of Kwang Sung
Korea through their existing arrangements
The Group will continue to take advantage of the engineering and design capabilities
of Kwang Sung Korea in order to provide high quality products for the Group’s customers.
The Group’s customers, collaborative design capabilities enable the Group to produce
customised products early in their life cycle and provide the Group with higher margin
opportunities. As major customers are, and the development of new products are mainly by,
customers based in Korea, the Directors believe that Korea is currently one of the leaders
in the electronics industry in Asia, excluding Japan. The Directors believe that Korea is a
suitable location to establish a research and development centre in order to cooperate with
customers based in Korea.
— Undertake strategic acquisitions and take advantage of outsourcing
opportunities
The Directors intend to pursue acquisitions and outsourcing opportunities to
complement the Group’s organic growth, enter into new market sectors and expand the
Group’s design and manufacturing capabilities. The Directors believe this strategy will
increase the Group’s market exposure, consolidate markets within the Group’s existing
product lines and increase operational synergies.
— Expand its production capacities in the PRC and maintain cost efficiency
and production quality
The Directors intend to continue to invest in its PRC factories and expand their
production capacities in order to cope with the Group’s business growth. The Group strives
to maintain both cost efficiency and production quality. The Group seeks to take advantage
FUTURE PLANS AND USE OF PROCEEDS
— 103 —
of low labour cost, selective automation and continuous improvement in its manufacturing
processes in order to maximise cost efficiency, while striving to achieve the highest
manufacturing quality standards for its products. The Group will continue to enhance its
capabilities to design and manufacture unit components which are used to produce
composite components. The Directors believe that high quality unit components produced
in-house will contribute to achieving a high quality standard for its composite products.
USE OF PROCEEDS
The net proceeds of the New Issue after deducting underwriting fees and related expenses,
and assuming that the Over-allotment Option is not exercised at all, are estimated to amount to
approximately HK$68.0 million. To effect the Group’s future plans (details of which are more
particularly set out in the paragraph headed “Future plans and prospects” in this section), the
Group currently intends to apply the net proceeds as follows:
— approximately HK$20.0 million for the upgrading of production facilities, the
expansion of production capacity and research and development capability in the PRC;
— approximately HK$15.0 million for the setting up of a research and development centre
in Korea;
— approximately HK$20.0 million for the future acquisitions which will create synergies
for the Group’s existing electronic components business; and
— the remaining balance of approximately HK$13.0 million as general working capital.
In the event that any part of the business plans of the Group does not materialise or proceed
as planned, the Directors will carefully evaluate the situation and may allocate the intended
funding to other business plans and/or to new projects of the Group and/or to hold such funds
as short-term deposits for so long as the Directors consider it to be in the best interest of the
Group and the Shareholders taken as a whole.
In the event that the Over-allotment Option is exercised in full, the additional net proceeds
of approximately HK$17.1 million will be applied by the Group as general working capital. To
the extent that the net proceeds of the Share Offer are not immediately required for the above
purposes, the Directors presently intend that such proceeds will be placed on short-term deposits
with banks or financial institutions or used to purchase money market instruments.
In the event that there is to be any material modification to the use of proceeds as described
above, the Company will issue an announcement regarding such modification.
FUTURE PLANS AND USE OF PROCEEDS
— 104 —
A1a (17)
UNDERWRITERS
Placing Underwriters
DBS Asia
Anglo Chinese
Daewoo Securities (Hong Kong) Limited
First Shanghai Securities Limited
Guotai Junan Securities (Hong Kong) Limited
KGI Capital Asia Limited
Shenyin Wanguo Capital (H.K.) Limited
South China Securities Limited
Public Offer Underwriters
DBS Asia
Anglo Chinese
Daewoo Securities (Hong Kong) Limited
First Shanghai Securities Limited
Guotai Junan Securities (Hong Kong) Limited
KGI Capital Asia Limited
Shenyin Wanguo Capital (H.K.) Limited
South China Securities Limited
UNDERWRITING ARRANGEMENTS AND EXPENSES
Underwriting Agreement
Under the Underwriting Agreement, the Company agreed to offer (a) the Public Offer Shares
for subscription on and subject to the terms and conditions of this prospectus and the application
forms relating thereto, and (b) the Placing Shares, other than the Sale Shares which are being
offered by the Vendor, for subscription by professional investors, institutional investors and other
investors which are anticipated to have a sizeable demand on and subject to the terms and
conditions of this prospectus.
In addition, the Company has granted the Over-allotment Option to DBS Asia exercisable
from time to time during the period of 30 days from the date of this prospectus to require the
Company to issue an aggregate of up to 13,500,000 additional new Shares, representing 15% of
the Shares initially available under the Share Offer, on the same terms as those applicable to the
Public Offer and the Placing, to cover over-allocations in the Placing, if any.
Subject to the listing committee of the Stock Exchange granting the listing of, and
permission to deal in, the Shares (subject only to allotment and issue) and to certain other
conditions set out in the Underwriting Agreement being satisfied (or where appropriate, waived
in whole or in part), (a) the Public Offer Underwriters have severally agreed to subscribe or
procure subscribers, on the terms and conditions of this prospectus and the application forms
UNDERWRITING
— 105 —
3rd Sch(7)
A1a(15)(2)(h)
A1a(15)(2i)
relating thereto, for the Public Offer Shares now being offered and which are not taken up under
the Public Offer; and (b) the Placing Underwriters have severally agreed to subscribe or purchase
or procure subscribers or purchasers or placees for the Placing Shares which have not been
subscribed, purchased or placed pursuant to the Placing. If the Underwriting Agreement does not
become unconditional or is terminated in accordance with the terms therein, the Company will
make an announcement as soon as possible. It has been agreed in the Underwriting Agreement
that the Listing Date will not be a Monday or a business day immediately after a public holiday
in Hong Kong.
Grounds for termination
The obligations of the Underwriters to subscribe or purchase or procure subscribers or
purchasers for the Offer Shares are subject to termination and DBS Asia has the absolute
discretion, after consultation with Anglo Chinese and to the extent that it is practicable to do so
in the circumstances and when time permits, consultation with the Company and the Vendor
upon giving written notice to the Company and the Vendor, to terminate the Underwriting
Agreement with immediate effect if any of the following events shall occur at any time prior to
10:00 a.m. on the day immediately prior to the Listing Date:
(A) if it has come to the notice of DBS Asia, acting for itself and on behalf of the
Underwriters:
(i) that any statement, considered by DBS Asia in its absolute discretion to be
material, contained in this prospectus and/or the application forms in relation to
the Share Offer was or when any of such documents was issued, or has become
untrue, incorrect or misleading in any material respect; or
(ii) that any matter has arisen or has been discovered which would, had it arisen or
been discovered immediately before the date of this prospectus and/or the
application forms in relation to the Share Offer, constitute an omission therefrom
considered by DBS Asia to be material to the Share Offer; or
(iii) any breach of the warranties and representations contained in the Underwriting
Agreement (including without limitation such breach as may be caused by any act
or thing done by or omission of any member of the Group or the Directors or the
Vendor or any of them otherwise than in the ordinary course of business), other
than those given by the Sponsor, the Joint Lead Managers or the Underwriters,
reasonably considered by DBS Asia in its absolute discretion to be material; or
(iv) any event, act or omission which gives or is likely to give rise to any material
liability of the Company, the Covenantors pursuant to the indemnities contained
in the Underwriting Agreement or the deed of indemnity referred to in the
sub-paragraph headed “Summary of material contracts” in appendix V to this
prospectus; or
UNDERWRITING
— 106 —
(v) any material breach as determined in the sole discretion of DBS Asia of any of the
obligations imposed upon any party to the Underwriting Agreement (other than
on any of the Sponsor, the Joint Lead Managers or the Underwriters); or
(vi) any material adverse change in the business or in the financial or trading position
of any member of the Group which is material in the context of the Share Offer
in the sole opinion of DBS Asia;
(B) if there develops, occurs or comes into effect:
(i) any material adverse change or deterioration in the conditions of local, national
or international securities markets; or
(ii) any event, or series of events, beyond the reasonable control of the Underwriters
(including, without limitation, acts of government, strikes, riot, public disorder,
terrorist strike or counter terrorist strike anywhere in the world, epidemic,
lock-outs, fire, explosion, flooding, civil commotion, acts of war, acts of God,
accident or interruption); or
(iii) any material adverse change in local, national, international, financial, economic,
political, military, industrial, fiscal, regulatory or market conditions and matters
(including any moratorium, suspension or material restriction on trading in
securities generally on the Stock Exchange) and/or the occurrence of any
disasters; or
(iv) any new law or regulation or change, whether or not forming part of a series of
changes, 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
PRC, Korea or any other jurisdiction relevant to the Group or any member thereof;
or
(v) the imposition of economic sanctions, in whatever form, directly or indirectly, by,
or for the US or by the European Union (or any member thereof) on the PRC,
Hong Kong, Korea or any other jurisdiction relevant to the Group or any member
thereof; or
(vi) a change or development occurs involving a prospective change in taxation or
exchange control (or the implementation of any exchange control) in Hong Kong,
the PRC, Korea or any other jurisdiction relevant to the Group or any member
thereof; or
(vii) the imposition of any moratorium, suspension or material restriction on trading in
securities generally on the New York Stock Exchange, NASDAQ, the London Stock
Exchange or the Stock Exchange due to exceptional financial circumstances or
otherwise; or
UNDERWRITING
— 107 —
(viii) a general moratorium or commercial banking activities in New York, London or
Hong Kong declared by the relevant authorities; or
(ix) any outbreak, continuation or escalation of any outbreak of any infectious
disease, virus or similar event in New York, London, Hong Kong, the PRC or the
refusal of any potential investor(s) to meet with any of the Underwriters as a result
of any of the foregoing; or
(x) any other change which is ejusdem generis with any of the foregoing,
which in each case, in the absolute opinion of DBS Asia (for itself and on behalf of the
Underwriters):
(a) is or will or is likely to be materially adverse to the business, financial or other
condition or prospects of the Group or, in the case of a change or development
involving a prospective change in taxation or exchange control, or the implementation
of any exchange control, in the PRC, Hong Kong, Korea or any other jurisdiction
relevant to the Group or any member thereof, is or will or is likely to be materially
adverse to any present or prospective shareholder of the Company in his capacity as
such; or
(b) has or will or is likely to have a material adverse effect on the success of the Share
Offer or the level of Offer Shares being applied for; or
(c) for any reason makes it impracticable, inadvisable or inexpedient to proceed with the
Share Offer.
UNDERTAKINGS
The Underwriting Agreement contains the following undertakings:
(A) each of the Covenantors (to the extent that each of them directly or indirectly holds,
or will hold before the Listing Date, any Shares) has jointly and severally undertaken
to and covenanted with the Company, the Sponsor, the Joint Lead Managers and the
Underwriters that:
(i) save as permitted under the Listing Rules and with the prior written consent of the
Joint Lead Managers, each of the Covenantors shall not, and shall procure that
none of its affiliates, associates, nominees or trustees holding in trust for him
shall, during the period of six months following the Listing Date (the “First Six
Months Period”) (a) sell, transfer or otherwise dispose of or create any rights in
respect of any of its direct or indirect interest in the Shares held by it or its
affiliates, associates or nominees or trustees; or (b) sell, transfer or otherwise
dispose of any interest in any shares in any company controlled by any of them
which is directly, or through another company indirectly, the beneficial owner of
any of the issued capital of the Company (provided that the foregoing restriction
UNDERWRITING
— 108 —
shall not apply to any Shares which each of the Covenantors or any of its affiliates
or associates may acquire or become interested in following the Listing Date
provided that any such acquisition would not result in any breach of rule 8.08 of
the Listing Rules nor shall such restriction restrict the Vendor from lending Shares
held by it to DBS Asia pursuant to the Stock Borrowing Agreement);
(ii) that, it shall not, and shall procure that none of its affiliates, associates, nominees
or trustees holding in trust for him shall, at any time during the period of six
months commencing from the expiry of the First Six Months Period (the “Second
Six Months Period”), in cases where the Covenantor (or where appropriate, the
relevant Covenantors taken together) is a controlling shareholder of the Company
(within the meaning of the Listing Rules), take, permit or cause to be done any
action referred to in paragraph (A)(i) above or paragraph (B) below which would
result in the Covenantor (or where appropriate, the relevant Covenantors taken
together) ceasing to be a controlling shareholder of the Company and/or in the
case of Mr. Yang, a controlling shareholder of Kwang Sung Korea (within the
meaning of the Listing Rules), and in the event of any disposal of such Shares (or
any other shares or securities or an interest in the Company arising or deriving
therefrom), it shall, and shall procure that its affiliates, associates, nominees or
trustees holding in trust for it to take all reasonable steps to ensure that such
disposal will not create a disorderly or false market (provided that the foregoing
restriction shall not apply to any Shares which each of the Covenantors or any of
its affiliates or associates may acquire or become interested in following the
Listing Date provided always that any such acquisition would not result in any
breach of rule 8.08 of the Listing Rules);
(iii) each of them shall, and shall procure that each of their respective associates,
nominees or trustees holding in trust for any of them shall comply with all
restrictions and requirements under the Listing Rules on the disposal by them, or
by the registered holder, of any Shares or other securities of the Company in
respect of which any of them is, or is shown in this prospectus to be, the
beneficial owner; and
(iv) except as disclosed in this prospectus, none of them nor any of their affiliates or
companies controlled by them has any present intention of disposing of any
Shares or other securities of the Company in respect of which any of them is
shown to be the beneficial owner, or any beneficial interest therein;
(B) Save and except with the prior written consent of the Joint Lead Managers (on behalf
of the Underwriters), each of the Company and the Covenantors has jointly and
severally undertaken to and covenanted with the Sponsor, the Joint Lead Managers and
the Underwriters, that it shall not (in the case of the Company) and shall procure (in
the case of each of the Covenantors) that the Company and its subsidiaries shall not,
except under the Share Offer, the Capitalisation Issue and the exercise of the
Over-allotment Option and options which may be granted under the Share Option
Scheme, within the First Six Months Period, (i) allot, issue or agree to allot or issue any
UNDERWRITING
— 109 —
securities of the Company or any subsidiary (including warrants or other securities
convertible into or exchangeable for Shares or options or rights to subscribe for Shares
and whether or not of a class already listed); or (ii) grant or agree to grant any options
or other rights carrying any right to subscribe for or otherwise acquire any securities
of the Company or any of its subsidiaries; or (iii) offer to or agree to do any of the
foregoing or announce any intention to do so; or (iv) enter into any swap or other
arrangement that transfers, in whole or in part, any of the economic consequences of
ownership of any Shares;
(C) Each of the Covenantors (to the extent that any of them directly or indirectly holds, or
will hold before the Listing Date, any Shares) has jointly and severally undertaken with
the Company, the Sponsor, the Joint Lead Managers and the Underwriters that within
the period of twelve months from the Listing Date, if any of them pledges, charges,
encumbers or creates any third party rights in respect of any of the Shares beneficially
owned by it or each of its associates, nominees or trustees it will:
(i) immediately inform or procure to inform the Company and the Joint Lead
Managers in writing of the details and the number of Shares subject to such
pledge, charge or encumbrance or third party rights and the proposed use of any
funds secured thereby; and
(ii) immediately inform the Company and the Joint Lead Managers, and give all
material information, if any of them receives indication, either verbal or written,
from the pledgee or chargee that any of the pledged or charged securities or
interests in the securities of the Company will be disposed of.
The Company will notify the Stock Exchange and disclose the matters referred to in (i)
and (ii) above, as applicable, by way of a press notice as soon as possible after being
so informed by the relevant Covenantor; and
(D) Each of the Covenantors and the Company has jointly and severally undertaken and
covenanted with the Sponsor, the Joint Lead Managers and the Underwriters that, save
with the prior written consent of the Sponsor and the Joint Lead Managers (for
themselves and on behalf of the Underwriters), it shall not, in the case of the Company,
and shall procure, in the case of the Covenantors, that the Company and its subsidiaries
shall not at any time within the period during which the Over-allotment Option may be
exercised by DBS Asia, declare or make any payment of dividends, make any other
distribution of profits whatsoever, any return of value or any issue of bonus Shares to
its shareholders or offer or agree to do any of the foregoing or announce any intention
to do so.
UNDERWRITING
— 110 —
COMMISSION AND EXPENSES
The Underwriters will receive a commission of 2.5% of the aggregate issue price of all the
Offer Shares, including such number of Shares to be issued under the Over-allotment Option
(being not more than 13,500,000 Shares), out of which each Underwriter will pay its own
sub-underwriting commission and selling concessions (if any). In addition, Anglo Chinese and
Daewoo Securities (Hong Kong) Limited will receive a financial advisory fee for providing
advisory services and for acting as the sponsor and financial advisor, respectively to the Share
Offer. Such financial advisory fees and commission, together with the Stock Exchange listing
fees, the SFC transaction levy, investor compensation levy, the Stock Exchange trading fee, legal
and other professional fees, printing and other expenses relating to the Share Offer which are
estimated to amount in aggregate to approximately HK$15.0 million, assuming the Over-
allotment Option is not exercised, and will be payable as to 66.7% by the Company and as to
33.3% by the Vendor. The Vendor shall be solely responsible for any fixed transfer duty, ad
valorem stamp duty in respect of the sale and transfer of the Sale Shares, the Stock Exchange
trading fees, the SFC transaction levy and the investor compensation levy in respect of the Sale
Shares.
UNDERWRITERS’ INTERESTS IN THE COMPANY
Save for its obligations under the Underwriting Agreement, none of the Underwriters or any
of their respective holding companies, or any of their respective subsidiaries was beneficially
interested, directly or indirectly, in any shareholding in the Company or any of its subsidiaries
or has any right, whether legally enforceable or not, to subscribe for or to nominate persons to
subscribe for securities in the Company or any of its subsidiaries.
UNDERWRITING
— 111 —
A1a(13)3rd Sch 143rd Sch(7)
A1a20(2)
THE SHARE OFFER
The Share Offer comprises the Public Offer and the Placing. Assuming the Over-allotment
Option is not exercised, the total number of Offer Shares under the Public Offer and the Placing
is 90,000,000 Shares. 9,000,000 new Shares, representing 10.0% of the total number of Shares
initially available under the Share Offer, will initially be offered for subscription under the Public
Offer. 51,000,000 new Shares offered by the Company and 30,000,000 Sale Shares offered by the
Vendor, which, in aggregate, represent 90.0% of the total number of Shares initially available
under the Share Offer, will initially be offered for subscription or purchase under the Placing. If
the Over-allotment Option is exercised in full, the Offer Shares comprised in the Share Offer will
represent approximately 33.0% of the enlarged issued share capital of the Company immediately
after the completion of the Capitalisation Issue, the Share Offer and the exercise of the
Over-allotment Option.
Investors may apply for Shares under the Public Offer or indicate an interest for Shares
under the Placing, but may not do both. The Public Offer is open to members of the public in
Hong Kong as well as to institutional and professional investors. The Placing will involve
selective marketing of Shares to professional and institutional investors and other investors
expected to have a sizeable demand for the Shares. Professional and institutional investors and
other investors generally include brokers, dealers, companies (including fund managers) whose
ordinary business involves dealing in shares and other securities and corporate entities which
regularly invest in shares and other securities.
Assuming the Over-allotment Option is not exercised, the Offer Shares will represent 30.0%
of the enlarged issued share capital of the Company immediately after completion of the
Capitalisation Issue and the Share Offer. If the Over-allotment Option is exercised in full, the
Offer Shares comprised in the Share Offer will represent approximately 33.0% of the enlarged
issued share capital of the Company immediately after completion of the Capitalisation Issue, the
Share Offer and the exercise of the Over-allotment Option.
The Public Offer is fully underwritten by the Public Offer Underwriters and the Placing is
fully underwritten by the Placing Underwriters, in each case, on a several basis, and each being
subject to the conditions set out in the section headed “Underwriting” in this prospectus.
PRICE PAYABLE ON APPLICATION
The Offer Price is HK$1.30 per Offer Share. Applicants should pay, on application, the Offer
Price of HK$1.30 per Offer Share plus brokerage of 1%, a SFC transaction levy of 0.005%, an
investor compensation levy of 0.002% and a Stock Exchange trading fee of 0.005%. This means
that for every 2,000 Offer Shares, the subscriber will pay HK$2,626.32. Each of the application
forms includes a table showing the exact amount payable for certain multiples of Offer Shares.
Further details are set out in the section headed “How to apply for the Public Offer Shares”
in this prospectus.
STRUCTURE OF THE SHARE OFFER
— 112 —
A1a(15)(1)(2)A1a49(1)(b)
A1a(15)(2)(c)
3rdSch(9)
CONDITIONS OF THE SHARE OFFER
Acceptance of your application for the Offer Shares is conditional upon:
1. Listing
The listing committee of the Stock Exchange granting the listing of, and permission to
deal in, the Shares in issue and to be issued as mentioned in this prospectus, including
Shares to be issued under the Capitalisation Issue, any Shares which may fall to be issued
upon the exercise of the Over-allotment Option and options which may be granted under
the Share Option Scheme.
2. Underwriting Agreement
The obligations of the Underwriters under the Underwriting Agreement becoming
unconditional, including, if relevant, as a result of the waiver of any conditions by the Joint
Lead Managers, acting for themselves and on behalf of the Underwriters, and not being
terminated in accordance with its terms 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 18th July, 2003.
In the event that the Share Offer does not become unconditional, the Share Offer will lapse
and a press announcement will be made by the Company as soon as possible. Details of the
Underwriting Agreement and its conditions and grounds for termination are set out in the section
headed “Underwriting” in this prospectus.
If any of these conditions are not fulfilled, or where applicable, waived by the Joint Lead
Managers, for and on behalf of the Underwriters, on or before 18th July, 2003, your application
money will be returned to you as soon as possible without interest. The terms on which your
money will be returned to you are set out under the paragraph headed “Refund of your money”
on the application forms. In the meantime, your money will be held in one or more separate bank
accounts with the receiving banker or other licensed bank or banks in Hong Kong licensed under
the Banking Ordinance (Chapter 155 of the Laws of Hong Kong).
THE PUBLIC OFFER
The Company is initially offering 9,000,000 Public Offer Shares at the Offer Price,
representing in aggregate 10% of the Offer Shares initially available under the Share Offer, for
subscription by members of the public in Hong Kong. The Public Offer is fully underwritten by
the Public Offer Underwriters, subject to the terms and conditions of the Underwriting
Agreement.
STRUCTURE OF THE SHARE OFFER
— 113 —
A1a(15)(2)
A1a14(1)
The Public Offer is open to all members of the public in Hong Kong. Persons allotted shares
under the Public Offer cannot apply for Shares under the Placing. The Public Offer will be subject
to the conditions stated under the paragraph headed “Conditions of the Share Offer” above.
Allocation of the Public Offer Shares to applicants under the Public Offer will be based
solely on the level of valid applications received under the Public Offer. When there is
over-subscription under the Public Offer, allocation of the Public Offer Shares may involve
balloting, which would mean that some applications may be allotted more Public Offer Shares
than others who have applied for the same number of Public Offer Shares, and those applicants
who are not successful in the ballot may not receive any Public Offer Shares.
If the Public Offer is not fully subscribed, DBS Asia will have the absolute discretion to
reallocate Shares originally included in the Public Offer to the Placing in such number as it deems
appropriate.
The total number of Public Offer Shares to be allotted and issued pursuant to the Public
Offer may change as a result of the clawback arrangement referred to under the sub-paragraph
headed “Over-subscription” below, any reallocation of unsubscribed Public Offer Shares
originally included in the Public Offer to the Placing and any reallocation of the Placing Shares
to the Public Offer as described under the paragraph headed “The Placing” below.
PREFERENCE TO FULL-TIME EMPLOYEES
Up to 900,000 Public Offer Shares, being 10% of the Shares initially being offered under the
Public Offer, are available for subscription by full-time employees of the Company and its
subsidiaries in Hong Kong, excluding the Directors, the chief executive of the Company, existing
beneficial owners of the Shares and their respective associates, on a preferential basis. These
Public Offer Shares will be allocated to eligible applicants on an equitable basis according to the
number of Shares validly subscribed for by the full-time employees who have applied for such
Shares in accordance with the terms set out under the section headed “How to apply for the
Public Offer Shares” of this prospectus. Each eligible applicant will be allotted at least 2,000
Shares in the first allotment. For the balance, the allocation will be made on a pro rata basis in
proportion to the number of Shares being applied for. Any application made by any eligible
full-time employee of the Group for more than 100% of the Public Offer Shares being offered to
eligible full-time employees of the Group will be rejected.
Only Hong Kong employees of the Group may apply on a preferential basis.
STRUCTURE OF THE SHARE OFFER
— 114 —
OFFER MECHANISM — BASIS OF ALLOCATION OF THE OFFER SHARES
The Share Offer
Apart from the 900,000 Public Offer Shares made available for application by full-time
employees of the Group in Hong Kong on a preferential basis, there will initially be a total of
8,100,000 Public Offer Shares available for subscription under the Public Offer under the WHITE
and YELLOW application forms.
For allocation purposes only, the total number of Public Offer Shares initially available for
public subscription under the Public Offer (taking into account any adjustment of Offer Shares
between the Placing and the Public Offer referred to below), other than those Public Offer Shares
which have been validly applied and paid for by full-time employees of the Company and its
subsidiaries using PINK application forms, will be divided equally into two pools: pool A and
pool B. Subject to the employees’ full subscription of 900,000 Public Offer Shares using PINK
application forms, pool A will consist of not less than 4,050,000 Public Offer Shares and will be
allocated on an equitable basis to successful applicants who have applied for Public Offer Shares
with a total subscription amount (excluding SFC transaction levy, Stock Exchange trading fee and
brokerage payable thereon) of HK$5 million or less; pool B will consist of not less than 4,050,000
Public Offer Shares and will be allocated on an equitable basis to successful applicants who have
applied for Public Offer Shares with a total subscription amount (excluding SFC transaction levy,
investor compensation levy, Stock Exchange trading fee and brokerage payable thereon) of more
than HK$5 million and up to the total value of pool B.
If the Public Offer Shares initially set aside for preferential allotment to eligible full-time
employees of the Group are not fully subscribed, the unsubscribed Shares will be allocated
equally between the two pools (so far as possible without involving fraction of a board lot of
2,000 Shares). Applicants should be aware that applications within the same pool, and as well as
between different pools, are likely to receive different allocation ratios. Where one of the pools
is undersubscribed and the other pool is oversubscribed, the surplus Public Offer Shares from the
undersubscribed pool will be transferred to the other pool to satisfy excess demand in the
oversubscribed pool and be allocated accordingly. Applicants can only apply to receive an
allocation of Public Offer Shares in either pool A or pool B but not from both pools. No
applications will be accepted from investors applying for more than the total number of Public
Offer Shares originally allocated to each pool. Multiple applications or suspected multiple
applications within either pool or between pools will be rejected.
Applications on PINK application forms for more than the total number of Public Offer
Shares available under the PINK application forms, being 900,000 Public Offer Shares, will be
rejected.
Applicants under the Public Offer will be required each to give an undertaking and
confirmation in the application form submitted by them that they and any person(s) for whose
benefit they are making the application will not receive any Placing Shares under the Placing,
STRUCTURE OF THE SHARE OFFER
— 115 —
have not indicated and will not indicate an interest for any Placing Shares under the Placing, and
their applications are liable to be rejected if the said undertaking and/or confirmation is breached
and/or untrue, as the case may be. Anglo Chinese, in consultation with the Company, have full
discretion to reject or accept any application, or to accept only part of any application.
Allocation of the Public Offer Shares, including any Offer Shares which may be reallocated
from the Placing, under the Public Offer will be based solely on the level of valid applications
received under the Public Offer. When there is over-subscription under the Public Offer, the basis
of allocation may vary depending on the number of Public Offer Shares validly applied for by
each applicant. The allocation of the Public Offer Shares may involve balloting, which would
mean that some applicants may be allotted more Public Offer Shares in such circumstances than
others who have applied for the same number of the Public Offer Shares, and those applicants
who are not successful in the ballot may not receive any Public Offer Shares.
Allocation of the Placing Shares will be based on a number of factors, including the level
and timing of demand and whether or not it is expected that the potential investors are likely to
buy further Shares, or hold or sell their Shares, after the listing of the Shares on the Stock
Exchange. Such allocation is intended to result in a distribution of the Placing Shares which
would lead to the establishment of a solid professional and institutional shareholder base to the
benefit of the Company and its shareholders as a whole. Investors who have been allocated any
of the Placing Shares under the Placing will not be allocated any Public Offer Shares under the
Public Offer. Similarly, investors who have been allocated any Public Offer Shares under the
Public Offer will not be allocated any Placing Shares under the Placing.
Over-subscription
The allocation of the Offer Shares between the Public Offer and the Placing is subject to
adjustment. If the number of Shares validly applied for under the Public Offer represents 15 times
or more but less than 50 times the number of Shares initially available for subscription under the
Public Offer, then Shares will be reallocated to the Public Offer from the Placing, so that the total
number of Shares available under the Public Offer will be 27,000,000 Shares (representing 30%
of the total number of the Offer Shares available under the Share Offer, assuming the
Over-allotment Option is not exercised). If the number of Shares validly applied for under the
Public Offer represents 50 times or more but less than 100 times the number of Shares initially
available for subscription under the Public Offer, then the number of Shares to be reallocated to
the Public Offer from the Placing will be increased so that the total number of Shares available
under the Public Offer will be 36,000,000 Shares (representing 40% of the total number of Offer
Shares available under the Share Offer, assuming the Over-allotment Option is not exercised). If
the number of Shares validly applied for under the Public Offer represents 100 times or more the
number of Shares initially available for subscription under the Public Offer, then the number of
Shares to be reallocated to the Public Offer from the Placing will be increased so that the total
number of Shares available under the Public Offer will be 45,000,000 Shares (representing 50%
of the total number of the Offer Shares available under the Share Offer, assuming the
Over-allotment Option is not exercised). In each such case, the additional Shares reallocated to
the Public Offer will be allocated equally between pool A and pool B and the number of Shares
allocated to the Placing will be correspondingly reduced.
STRUCTURE OF THE SHARE OFFER
— 116 —
Under-subscription
If the Public Offer is not fully subscribed, DBS Asia, on behalf of the Underwriters, has the
authority to reallocate all or any unsubscribed Public Offer Shares originally included in the
Public Offer to the Placing, in such number as it deems appropriate provided that there is
sufficient demand under the Placing to take up such reallocated Shares. If the Placing is not fully
subscribed, DBS Asia, on behalf of the Underwriters, has the authority to reallocate all or any
unsubscribed Placing Shares originally included in the Placing to the Public Offer, in such
number as it deems appropriate provided that there is sufficient demand under the Public Offer
to take up such reallocated Shares. Details of any reallocation of Shares between the Public Offer
and the Placing will be disclosed in the results announcement, which is expected to be made on
2nd July, 2003.
THE PLACING
The Company is initially offering 51,000,000 new Shares and the Vendor is offering
30,000,000 Sale Shares in each case at the Offer Price, representing in aggregate 90% of the total
number of Offer Shares initially available under the Share Offer, for subscription, or in the case
of the Sale Shares, purchase by professional, institutional and individual investors by way of
Placing. The Placing is fully underwritten by the Placing Underwriters, subject to the terms and
conditions of the Underwriting Agreement.
Pursuant to the Placing, it is expected that the Placing Underwriters or selling agents
nominated by the Placing Underwriters on behalf of the Company and, in respect of the Sale
Shares, the Vendor shall place the Placing Shares at the Offer Price payable by the purchasers of
the Placing Shares. Investors purchasing the Placing Shares are also required to pay 1.0%
brokerage, 0.005% Stock Exchange trading fee, 0.005% transaction levy imposed by the SFC and
0.002% investor compensation levy. Placing Shares will be placed with professional, institutional
and individual investors in Hong Kong and certain other jurisdictions outside the United States.
Professional investors generally include brokers, dealers and companies (including fund
managers) whose ordinary business involves dealings in shares and other securities and entities
which regularly invest in shares and other securities.
In Hong Kong, retail investors should apply for the Offer Shares under the Public Offer, as
retail investors applying for Placing Shares (including applying through banks and other
institutions) are unlikely to be allocated any Placing Shares. If you are a professional,
institutional or individual investor and have applied for the Placing Shares, you are required to
declare that you have applied for the Placing Shares only. In such event, you will not receive any
Shares under the Public Offer.
All decisions concerning the allocation of Placing Shares to prospective placees pursuant to
the Placing will be made on the basis of and by reference to a number of factors including the
level and timing of demand, total size of the relevant investor’s invested assets or equity assets
in the relevant sector and whether or not it is expected that the relevant investor is likely to buy
further, and/or hold or sell its Placing Shares, after the listing of the Shares on the Main Board.
Such allocation is intended to result in a distribution of the Placing Shares on a basis which would
STRUCTURE OF THE SHARE OFFER
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lead to the establishment of a solid shareholders base to the benefit of the Company and its
shareholders as a whole. In addition, the Directors and the Joint Lead Managers (for themselves
and on behalf of the Underwriters), will use their best endeavours to observe the minimum public
float requirement under the Listing Rules when making allocations of the Placing Shares to
investors who are anticipated to have a sizeable demand for such Shares.
OVER-ALLOTMENT OPTION
Under the Underwriting Agreement, the Company has granted to DBS Asia the right but not
the obligation to exercise the Over-allotment Option, exercisable for 30 days from the date of this
prospectus. Under the Over-allotment Option, DBS Asia will have the right to require the
Company to issue up to 13,500,000 additional Shares, representing 15% of the number of Shares
initially available under the Share Offer, solely for the purpose of covering over-allocations in the
Placing, if any. These Shares will be issued at the issue price of the Offer Shares. In connection
with the Share Offer, DBS Asia may, at its option, also cover any over-allocations by, among other
means, the purchase of Shares in the secondary market, or by a combination of purchases in the
secondary market and exercise of the Over-allotment Option. Any such secondary market
purchases will be made at prices not higher than the issue price of the Offer Shares and in
compliance with all applicable laws, rules and regulations. The maximum number of Shares that
may be over-allocated in the Placing shall not exceed the number of Shares that may be issued
and allotted under the Over-allotment Option.
If the Over-allotment Option is exercised in full, the Offer Shares comprised in the Share
Offer will represent 33.0% of the enlarged issued share capital of the Company immediately after
completion of the Capitalisation Issue and the Share Offer and the exercise of the Over-allotment
Option. In the event that the Over-allotment Option is exercised, an announcement will be made
in English in the Standard and in Chinese in the Hong Kong Economic Times.
In order to facilitate settlement of over-allocations in connection with the Placing, the Stock
Borrowing Agreement has been entered into between the Vendor and DBS Asia. Under the Stock
Borrowing Agreement, the Vendor, being a controlling shareholder of the Company, has agreed
with DBS Asia that, if requested by DBS Asia, he will, subject to the terms of the Stock Borrowing
Agreement, make available to DBS Asia up to 13,500,000 Shares held by him, by way of stock
lending, in order to cover over-allocations in connection with the Placing. The Company has
applied to the Stock Exchange for a waiver from strict compliance with rule 10.07(1) of the Listing
Rules, which restricts the disposal of shares by the controlling shareholders, as defined in the
Listing Rules, of a company following the new listing of that company, in order to allow the
Vendor, who is a controlling shareholder, as defined in the Listing Rules, of the Company, to enter
into and perform his obligations under the Stock Borrowing Agreement on the conditions that:
1. such stock borrowing arrangement with the Vendor will only be effected by DBS Asia
for settlement of over-allocations in connection with the Placing;
STRUCTURE OF THE SHARE OFFER
— 118 —
2. the maximum number of Shares which may be borrowed from the Vendor by DBS Asia
must not exceed the maximum number of Shares issuable upon full exercise of the
Over-allotment Option;
3. the same number of Shares so borrowed will be returned to the Vendor (or his
nominees), not later than three business days following the earlier of (i) the day on
which the Over-allotment Option is exercised in full and the relevant Over-allotment
Shares have been issued; and (ii) the last day on which Shares may be issued by the
Company pursuant to the Over-allotment Option;
4. the stock borrowing agreement will be effected in compliance with all applicable laws
and regulatory requirements in Hong Kong; and
5. no consideration will be paid to the Vendor by DBS Asia in consideration of the
borrowed Shares.
STABILISATION
In connection with the Share Offer, DBS Asia may over-allocate Shares and may cover such
over-allocations by means of exercising the Over-allotment Option no later than 30 days after the
date of this prospectus, stock borrowing, or making open market purchases of the Shares in the
secondary market. The number of Shares over-allocated will not be greater than the number of
Shares which may be issued upon the full exercise of the Over-allotment Option, being
13,500,000 Shares, which is 15% of the Shares initially available under the Share Offer.
In connection with the Share Offer, DBS Asia, or any person acting for it, may over-allot or
effect transactions with a view to supporting the market price of the Shares at a level higher than
that which might otherwise prevail for a limited period after the issue date. Such stabilisation
transactions may include exercising the Over-allotment Option, stock borrowing, making market
purchases of Shares in the secondary market or selling Shares to liquidate a position held as a
result of those purchases. Any such market purchases will be effected in compliance with all
applicable laws, rules and regulatory requirements. However, there is no obligation on DBS Asia
or any person acting for it to conduct any such stabilising activity, which if commenced, will be
done at the absolute discretion of DBS Asia and may be discontinued at any time. Any such
stabilising activity is required to be brought to an end within 30 days of the last day for the
lodging of applications under the Public Offer.
As a result of effecting transactions to stabilise or maintain the market price of the Shares,
DBS Asia, or any person acting for it, may maintain a long position in the Shares. The size of the
long position, and the period for which DBS Asia, or any person acting for it, will maintain the
long position is at the discretion of DBS Asia and is uncertain. In the event that DBS Asia
liquidates this long position by making sales in the open market, this may lead to a decline in the
market price of the Shares.
STRUCTURE OF THE SHARE OFFER
— 119 —
Stabilising action by DBS Asia, or any person acting for it, is not permitted to support the
price of the Shares for longer than the stabilising period, which begins on the commencement of
trading of the Shares on the Stock Exchange after the Offer Price is announced and ends on the
thirtieth day after the last day for the lodging of applications under the Public Offer. The
stabilising period is expected to end on or before 27th July, 2003. After this date, when no further
stabilising action may be taken, demand for the security, and therefore its price, could fall.
Any stabilising action taken by DBS Asia, or any person acting for it, may not necessarily
result in the market price of the Shares staying at or above the Offer Price either during or after
the stabilising period. Bids for or market purchases of the Shares by DBS Asia, or any person
acting for it, may be made at a price at or below the Offer Price and therefore at or below the
price paid for the Shares by subscribers or purchasers.
Stabilisation is a practice used by underwriters in some markets to facilitate the distribution
of securities. To stabilise, the underwriters may bid for, or purchase, the newly issued securities
in the secondary market, during a specified period of time, to delay and, if possible, prevent a
decline in the initial public offer prices of such securities. In Hong Kong and certain other
jurisdictions, activity aimed at reducing the market price is prohibited, and the price at which
stabilisation is effected is not permitted to exceed the Offer Price.
Stabilisation is not a practice commonly associated with the distribution of securities in
Hong Kong. In Hong Kong, such stabilisation activities are restricted to cases where underwriters
genuinely purchase shares in the secondary market solely for the purpose of covering
over-allocations in an offering. The relevant provisions of the SFO and the Securities and Futures
(Price Stabilising) Rules, prohibit market manipulation in the form of pegging or stabilising the
price of securities in certain circumstances.
STRUCTURE OF THE SHARE OFFER
— 120 —
WHICH APPLICATION FORM TO USE
Use a WHITE application form if you want the Public Offer Shares to be issued in your own
name.
Use a YELLOW application form if you want the Public Offer Shares to be issued in the name
of HKSCC Nominees Limited and deposited directly into CCASS for credit to your investor
participant stock account or your designated CCASS participant’s stock account maintained in
CCASS.
Use a PINK application form if you are a full-time employee of the Company or any of its
subsidiaries, and you want the Public Offer Shares to be registered in your own name and want
your application to be given preferential consideration. Up to 900,000 Public Offer Shares,
representing 10% of the Shares initially available for subscription under the Public Offer, are
available to full-time employees of the Company or its subsidiaries in Hong Kong on this basis.
Joint applications on PINK application forms are not permitted. You may not apply on a PINK
application form on behalf of other person(s) as a nominee.
Note: The Public Offer Shares offered for public subscription under the Public Offer are not available to the
Directors or the chief executive of the Company or existing beneficial owners of the Shares, or their
respective associates.
WHERE TO OBTAIN THE APPLICATION FORMS FOR THE PUBLIC OFFER SHARES
You can obtain a WHITE application form and a prospectus between 9:00 a.m. on 24th June,
2003 to 12:00 noon on 27th June, 2003 from:
Any participant of
The Stock Exchange of Hong Kong Limited
or
DBS Asia Capital Limited
16th Floor, Man Yee Building
68 Des Voeux Road Central
Hong Kong
Anglo Chinese Corporate Finance, Limited
40th Floor, Two Exchange Square
8 Connaught Place
Central
Hong Kong
or
HOW TO APPLY FOR THE PUBLIC OFFER SHARES
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Daewoo Securities (Hong Kong) Limited
Suites 816-819, Jardine House
1 Connaught Place
Central
Hong Kong
First Shanghai Securities Limited
19th Floor, Wing On House
71 Des Voeux Road Central
Hong Kong
or
Guotai Junan Securities (Hong Kong) Limited
27th Floor, Low Block
Grand Millennium Plaza
181 Queen’s Road Central
Hong Kong
KGI Capital Asia Limited
27th Floor, Asia Pacific Finance Tower
Citibank Plaza
3 Garden Road
Central
Hong Kong
or
Shenyin Wanguo Capital (H.K.) Limited
28th Floor, Citibank Tower
Citibank Plaza
3 Garden Road
Central
Hong Kong
South China Securities Limited
28th Floor, Bank of China Tower
1 Garden Road
Central
Hong Kong
or any of the following branches of Hang Seng Bank:
Hong Kong Island: Head Office 83 Des Voeux Road Central
Central District Branch Basement, Central Building,
Pedder Street
Causeway Bay Branch 28 Yee Woo Street
Wanchai Branch 200 Hennessy Road
Kowloon: Kowloon Main Branch 618 Nathan Road
Tsimshatsui Branch 18 Carnarvon Road
Kwun Tong Branch 70 Yue Man Square
Mongkok Branch 677 Nathan Road
New Territories: Chung On Street Branch 38 Chung On Street,
Tsuen Wan
Shatin Branch Shop 18 Lucky Plaza,
Wang Pok Street, Sha Tin
HOW TO APPLY FOR THE PUBLIC OFFER SHARES
— 122 —
You can collect a YELLOW application form and a prospectus between 9:00 a.m. on 24th
June, 2003 to 12:00 noon on 27th June, 2003 from:
Depository Counter
Hong Kong Securities Clearing Company Limited
2nd Floor, Vicwood Plaza
199 Des Voeux Road Central
Hong Kong
or
Customer Service Centre
Hong Kong Securities Clearing Company Limited
Upper Ground Floor, V-Heun Building
128-140 Queen’s Road Central
Hong Kong
or your stockbroker may have the application forms available.
You can obtain a PINK application form and a prospectus from the company secretary of the
Company, Mr. Chow Kam Keung, Albert at Units 7-9, 13th Floor, Wah Wai Centre, 38-40 Au Pui
Wan Street, Fotan, Shatin, New Territories, Hong Kong.
HOW TO COMPLETE THE APPLICATION FORMS
There are detailed instructions on each application form. You should read these instructions
carefully. If you do not follow the instructions, your application may be rejected and returned by
ordinary post together with the accompanying cheque(s) or banker’s cashier order(s) to you (or
the first-named applicant in the case of joint applicant(s)) at your own risk at the address stated
in the application form.
If your application is made through a duly authorised attorney, Anglo Chinese (acting for
itself and on behalf of the Underwriters), in consultation with the Company, or its agents, may
accept your application at their discretion, and subject to any conditions they think fit, including
evidence of the authority of your attorney. Anglo Chinese, in its capacity as agent for the
Company, has full discretion to reject or accept any application, in full or in part, without
assigning any reason.
In order for the YELLOW application forms to be valid:
1. if the application is made through a designated CCASS participant, other than a CCASS
investor participant:
(i) the designated CCASS participant or its authorised signatories must sign in the
appropriate box; and
HOW TO APPLY FOR THE PUBLIC OFFER SHARES
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(ii) the designated CCASS participant must endorse the form with its company chop
(bearing its company name) and insert its participant I.D. in the appropriate box;
or
2. if the application is made by an individual CCASS investor participant:
(i) the application form must contain the CCASS investor participant’s name and
his/her Hong Kong identity card number; and
(ii) the CCASS investor participant should insert its participant I.D. and sign in the
appropriate box in the application form; or
3. if the application is made by a joint individual CCASS investor participant:
(i) the application form must contain all joint CCASS investor participants’ names and
the Hong Kong identity card number of at least one of the joint CCASS investor
participants; and
(ii) the participant I.D. should be inserted and the authorised signatory(ies) of the
CCASS investor participant’s stock account should sign in the appropriate box in
the application form; or
4. if the application is made by a corporate CCASS investor participant:
(i) the application form must contain the CCASS investor participant’s company name
and Hong Kong business registration number; and
(ii) the participant I.D. and company chop, bearing the applicant’s company name,
endorsed by its authorised signatory(ies) should be inserted in the appropriate
box in the application form; and
5. signature(s), number of signatories and form of chop, where appropriate, should
match with the records kept by HKSCC. Incorrect or incomplete details of the CCASS
participant or the omission or inadequacy of authorised signatory(ies) (if applicable),
CCASS participant I.D. or other similar matters may render the application invalid.
Nominees who wish to submit separate applications in their names on behalf of
different owners are requested to designate on each application form in the box marked
“For nominees” account numbers or other identification codes for each beneficial
owner or, in the case of joint beneficial owners, for each such joint beneficial owner.
Each WHITE, YELLOW, or PINK application form must be accompanied by either one
separate cheque drawn on the applicant’s Hong Kong dollar bank account in Hong Kong and
bearing the account name (either pre-printed by the bank or certified by an authorised signatory
of such bank on the reverse of the cheque) which must correspond with the name of the
applicant (or, in the case of joint applicants, the name of the first applicant) on the relevant
HOW TO APPLY FOR THE PUBLIC OFFER SHARES
— 124 —
application form, or one separate banker’s cashier order on the reverse of which the bank has
certified by an authorised signatory the name of the applicant, which must correspond with the
name of the applicant (or, in the case of joint applicants, the name of the first applicant) on the
relevant application form. All such cheques or banker’s cashier orders must be made payable to
Hang Seng (Nominee) Limited — Kwang Sung Public Offer as set out in the application form and
crossed “Account Payee Only”.
HOW MANY APPLICATIONS MAY YOU MAKE
There are only two situations where you may make more than one application for
the Public Offer Shares:
If you are a nominee, you may lodge more than one application in your own name on
behalf of different beneficial owners. In the box on the application form marked “For nominees”
you must include:
— an account number; or
— some other identification code
for each beneficial owner (or, in the case of joint beneficial owners, for each such joint beneficial
owner). If you do not include this information, the application will be treated as being for your
benefit.
If you are a full-time employee, other than a Director, the chief executive of the Company
or existing beneficial owner of Shares, or an associate of any of them, and apply on a PINK
application form, you may also apply for the Public Offer Shares on a WHITE or YELLOW
application form.
Otherwise, multiple applications are not allowed.
It will be a term and condition of all applications that by completing and delivering an
application form, you:
— (if the application is made for your own benefit) warrant that this is the only
application which will be made for your benefit on a WHITE or YELLOW application
form; or
— (if you are an agent for another person) warrant that reasonable enquiries have been
made of that other person that this is the only application which will be made for the
benefit of that other person on a WHITE or YELLOW application form, and that you
are duly authorised to sign the application form as that other person’s agent.
HOW TO APPLY FOR THE PUBLIC OFFER SHARES
— 125 —
Save as referred to above, all of your applications for Public Offer Shares will be rejectedas multiple applications if you, or you and your joint applicants together or any of your jointapplicants:
— make more than one application on a WHITE or YELLOW application form; or
— make more than one application on a PINK application form; or
— apply on one WHITE or YELLOW application form for more than 100% of the PublicOffer Shares being initially available in either pool A or pool B to the public as referredto in the paragraph headed “Offer mechanism — basis of allocation of the Offer Shares”under this section of the prospectus; or
— apply on one PINK application form for more than 100% of the Public Offer Sharesbeing offered to eligible full-time employees on a preferential basis.
All of your applications for Public Offer Shares will also be rejected as multiple applicationsif more than one application for Public Offer Shares is made for your benefit. If an applicationis made by an unlisted company and;
— the only business of that company is dealing in securities; and
— you exercise statutory control over that company,
then the application will be treated as being for your benefit.
Unlisted company means a company with no equity securities listed on the StockExchange.
Statutory control means you:
— control the composition of the board of directors of that company; or
— control more than half of the voting power of that company; or
— hold more than half of the issued share capital of that company, not counting any partof it which carries no right to participate beyond a specified amount in a distributionof either profits or capital.
HOW MUCH ARE THE PUBLIC OFFER SHARES
The Offer Price of the Public Offer Shares is HK$1.30 each. You must pay the price ofHK$1.30 per Share together with brokerage of 1%, a SFC transaction levy of 0.005%, an investorcompensation levy of 0.002% and a Stock Exchange trading fee of 0.005% in full when you applyfor the Public Offer Shares. This means that for every board lot of 2,000 Shares, you will pay
HOW TO APPLY FOR THE PUBLIC OFFER SHARES
— 126 —
HK$2,626.32. Each of the application form has a table showing the exact amount payable forcertain multiples of Public Offer Shares. Your payment must be by one cheque or one banker’scashier order and must comply with the terms of the relevant application forms.
If your application is successful, brokerage is paid to participants of the Stock Exchange, thetransaction levy and the investor compensation levy paid to the SFC and the trading fee is paidto the Stock Exchange.
FULL-TIME EMPLOYEES — TIME FOR APPLYING FOR PUBLIC OFFER SHARES
Completed PINK application forms, with payment attached, must be returned to thecompany secretary of the Company at Units 7-9, 13th Floor, Wah Wai Centre, 38-40 Au Pui WanStreet, Fotan, Shatin, New Territories, Hong Kong, by 4:00 p.m. on 26th June, 2003.
MEMBERS OF THE PUBLIC — TIME FOR APPLYING FOR PUBLIC OFFER SHARES
Completed WHITE or YELLOW application forms, with payment attached, must be lodgedby 12:00 noon on 27th June, 2003, or, if the application lists are not open on that day, thenby 12:00 noon on the next business day when the lists are open.
Your completed WHITE or YELLOW application form, with payment attached, should bedeposited in the special collection boxes provided at any of the branches of Hang Seng Banklisted in this section of this prospectus at the following times:
24th June, 2003 — 9:00 a.m. to 4:00 p.m.
25th June, 2003 — 9:00 a.m. to 4:00 p.m.
26th June, 2003 — 9:00 a.m. to 4:00 p.m.
27th June, 2003 — 9:00 a.m. to 12:00 noon
The application lists will be open from 11:45 a.m. to 12:00 noon on 27th June, 2003.Applications for the Public Offer Shares will not be processed, and no allotment of any suchPublic Offer Shares will be made, until the closing of the application lists.
EFFECT OF BAD WEATHER ON THE OPENING OF THE APPLICATION LISTS
The application lists will not open if there is:
— a tropical cyclone warning signal number 8 or above; or
— a “black” rainstorm warning
in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon on 27th June, 2003. Insteadthe application lists will open between 11:45 a.m. and 12:00 noon on the next business day whichdoes not have either of those warning signals in force in Hong Kong at any time between 9:00a.m. and 12:00 noon.
Business day means a day that is not a Saturday, Sunday or public holiday in Hong Kong.
HOW TO APPLY FOR THE PUBLIC OFFER SHARES
— 127 —
CIRCUMSTANCES IN WHICH YOU WILL NOT BE ALLOCATED PUBLIC OFFER SHARES
Full details of the circumstances in which you will not be allocated Public Offer Shares are
set out in the notes attached to the application forms, and you should read them carefully. You
should note in particular the following three situations in which Public Offer Shares will not be
allocated to you:
1. If your application is revoked
By completing an application form, you agree that you cannot revoke your application
before the end of the fifth day after the time of the opening of the application lists,
excluding for this purpose any day which is a Saturday, Sunday or public holiday in Hong
Kong, being 7th July, 2003 unless a person responsible for this prospectus under section 40
of the Companies Ordinance gives a public notice under that section which excludes or
limits the responsibility of that person for this prospectus.
If your application has been accepted, it cannot be revoked. For this purpose,
acceptance of applications which are not rejected will be constituted by notification in
English in the Standard and in Chinese in the Hong Kong Economic Times of the basis of
allocation, and where such basis of allocation is subject to certain conditions or provides for
allocation by ballot, such acceptance will be subject to the satisfaction of such conditions
or the results of the ballot, respectively;
2. If the allocation of the Public Offer Shares is void
Your allocation of the Public Offer Shares will be void if the listing committee of the
Stock Exchange does not grant permission to list the Shares either:
(i) within three weeks from the closing of the applications lists; or
(ii) within a longer period of up to six weeks if the listing committee of the Stock
Exchange notifies the Company of that longer period within three weeks of the
closing of the application lists; or
3. If Anglo Chinese exercises its discretion
Anglo Chinese (acting for itself and on behalf of the Underwriters) has full discretion
to reject or accept any application, or to accept only part of any application, without having
to give any reasons for any rejection or acceptance, if:
(i) your application is a multiple or a suspected multiple application;
(ii) your application form is not completed correctly;
HOW TO APPLY FOR THE PUBLIC OFFER SHARES
— 128 —
(iii) your payment is not made correctly or you pay by cheque or banker’s cashier
order and the cheque or banker’s cashier order is dishonoured on its first
presentation;
(iv) you or the person for whose benefit you are applying have applied for and/or
received or will receive Shares under the Placing; or
(v) the Underwriting Agreement does not become unconditional or it is terminated in
accordance with the terms thereof.
PUBLICATION OF RESULTS
The Company expects to release an announcement on the level of interest in the Placing,
results of applications and basis of allocation of Shares under the Public Offer, and the number
of Shares, if any, reallocated between the Placing and the Public Offer on or before 2nd July, 2003
in English in The Standard and in Chinese in the Hong Kong Economic Times.
DESPATCH AND COLLECTION OF SHARE CERTIFICATES AND, OR, REFUND CHEQUES
AND DEPOSIT OF SHARE CERTIFICATES INTO CCASS
The Company will not issue temporary documents of title. No receipt will be issued for
application monies received.
WHITE application forms:
If you have applied for 1,000,000 Public Offer Shares or more and have indicated on your
application form that you will collect your share certificate(s) and, or, refund cheque, if any, in
person, you may collect it, them, in person from:
Standard Registrars Limited
Ground Floor, Bank of East Asia Harbour View Centre
56 Gloucester Road
Wanchai
Hong Kong
between 10:00 a.m. and 1:00 p.m. on the date notified by the Company in the newspapers as the
date of despatch of share certificates and, or, refund cheques. This is expected to be on or before
3rd July, 2003.
If you are an individual who opts for personal collection, you must not authorise any other
person to make collection on your behalf. If you are a corporate applicant which opts for
personal collection, you must attend by your authorised representative bearing a letter of
authorisation from your corporation stamped with your corporation’s chop. Both individuals and
authorised representatives, if applicable, must produce, at the time of collection, evidence of
identity acceptable to Standard Registrars Limited.
HOW TO APPLY FOR THE PUBLIC OFFER SHARES
— 129 —
If you do not collect your share certificate(s) and, or, refund cheque, if any, in person within
the time specified for collection, it/they will be sent to the address on your application form
shortly after 1:00 p.m. on the date of despatch by ordinary post and at your own risk.
If you have applied for 1,000,000 Public Offer Shares or more and have not indicated on
your application form that you will collect your share certificate(s) and, or, refund cheque, if any,
in person, or if you have applied for less than 1,000,000 Public Offer Shares, or if your application
is rejected, not accepted or accepted in part only, or if the conditions of the Public Offer
described under the paragraph headed “Conditions of the Share Offer” in the section headed
“Structure of the Share Offer” in this prospectus are not fulfilled in accordance with their terms,
or if any application is revoked or any allotment pursuant thereto has become void, then your
share certificate(s) and/or refund cheque, if any, in respect of the application monies, or the
appropriate portion thereof, together with the related brokerage, SFC transaction levy and Stock
Exchange trading fee, if any, without interest, will be sent to the address on your application form
on the date of despatch by ordinary post and at your own risk.
YELLOW application forms:
Your share certificate(s) will be issued in the name of HKSCC Nominees Limited and
deposited into CCASS for credit to your CCASS investor participant stock account or the stock
account of your designated CCASS participant, as instructed by you, at the close of business on
3rd July, 2003, or under contingent situations, on any other date as shall be determined by HKSCC
or HKSCC Nominees Limited.
If you are applying through a designated CCASS participant, other than a CCASS investor
participant:
— for Public Offer Shares credited to the stock account of your designated CCASS
participant, other than a CCASS investor participant, you can check the number of
Public Offer Shares allotted to you with that CCASS participant on 2nd July, 2003.
If you are applying as a CCASS investor participant:
— the Company expects to publish the results of CCASS investor participants’ applications
together with the results of the Public Offer in the newspapers on 2nd July, 2003. You
should check the announcement published by the Company and report any
discrepancies to HKSCC before 12:00 noon on 3rd July, 2003 or such other date as shall
be determined by HKSCC or HKSCC Nominees Limited. On 4th July, 2003, the next day
following the credit of the Public Offer Shares to your stock account, you can check
your new account balance via the CCASS Phone System and CCASS Internet System
(under the procedures contained in HKSCC’s “An Operating Guide for Investor
Participants” in effect from time to time). HKSCC will also mail to you an activity
statement showing the number of the Public Offer Shares credited to your stock
account.
HOW TO APPLY FOR THE PUBLIC OFFER SHARES
— 130 —
If you have applied for 1,000,000 Public Offer Shares or more and have indicated on your
application form that you will collect your refund cheque in person, please follow the
instructions set out in the paragraph headed “WHITE application forms” above.
If you have applied for 1,000,000 Public Offer Shares or more and have not indicated on
your application form that you will collect your refund cheque (if any) in person, or if you have
applied for less than 1,000,000 Public Offer Shares, your refund cheque, if any, will be sent to
the address on your application form on the date of despatch, which is expected to be 3rd July,
2003, by ordinary post and at your own risk.
PINK application forms:
The share certificate(s) and, or, refund cheque, if any, will be sent to the address on your
application form shortly after the date of despatch, which is expected to be 3rd July, 2003, by
ordinary post and at your own risk.
COMMENCEMENT OF DEALINGS IN THE SHARES
Dealings in the Shares on the Stock Exchange are expected to commence on 4th July, 2003.
The Shares will be traded in board lots of 2,000 Shares each.
The Stock Exchange code for the Shares is 2310.
SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS
If the Stock Exchange grants the listing of, and permission to deal in, the Shares issued and
to be issued as mentioned in this prospectus and the Company complies with the stock admission
requirements of HKSCC, the Shares will be accepted as eligible securities by HKSCC for deposit,
clearance and settlement in CCASS with effect from the date of commencement of dealings in the
Shares on the Stock Exchange or on such other date determined by HKSCC. Settlement of
transactions between participants of the Stock Exchange is required to take place in CCASS on
the second business day after any trading day.
All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational
Procedures in effect from time to time.
All necessary arrangements have been made for the Share to be admitted into CCASS.
HOW TO APPLY FOR THE PUBLIC OFFER SHARES
— 131 —
A1a(22)
A1a(14(2)
The following is the text of a report, prepared for the purpose of incorporation in this
prospectus, received from the auditors and reporting accountants of the Company, KPMG,
Certified Public Accountants, Hong Kong. As described in the section headed “Documents
available for inspection” in appendix VI, a copy of the accountants’ report is available for
inspection.
8th Floor
Prince’s Building
10 Chater Road
Central
Hong Kong
24th June, 2003
The Directors
Kwang Sung Electronics H.K. Co. Limited
Anglo Chinese Corporate Finance, Limited
Dear Sirs,
We set out below our report on the financial information relating to Kwang Sung Electronics
H.K. Co. Limited (the “Company”) and its subsidiary (hereinafter collectively referred to as the
“Group”) including the summaries of the consolidated profit and loss accounts and cash flow
statements of the Group for each of the three years ended 31st December, 2002 (the “relevant
period”) and of the consolidated balance sheets of the Group as at 31st December, 2000, 2001 and
2002 (the “Financial Information”), for inclusion in the prospectus of the Company dated 24th
June, 2003 (the “Prospectus”).
The Company was incorporated in Hong Kong on 5th May, 1987 with limited liability under
the Hong Kong Companies Ordinance. The principal activities of the Company are the
manufacture and sale of electronic components.
At the date of this report, the Company has direct interest in the following subsidiary,
particulars of which are set out below:
Company name
Place and
date of
establishment
Particular
of registered
capital
Attributable
interest
Principal
activity
Shenzhen Kwang Sung
Electronics Co., Ltd.
The People’s
Republic of China
(“the PRC”)
30th April, 1994
US$3,760,000 100%
(note 1(c))
Manufacturing
of electronic
components
APPENDIX I ACCOUNTANTS’ REPORT
— 132 —
Ch.4LR4.04(4)3rd Sch(31)(43)
A1a(4)A1a(35)A1a(37)
A1a(9)(3)
A1a(29)(1)A1a(29)(2)3rd Sch(29)
We have acted as auditors of the Company throughout the relevant period in accordance
with Statements of Auditing Standards issued by the Hong Kong Society of Accountants (“HKSA”).
Shenzhen City Baolong Certified Public Accountants Co. Ltd. and Shenzhen Great Wall Certified
Public Accountants Co., Ltd., certified public accountants registered in the PRC, are the statutory
auditors of the Company’s subsidiary for the years ended 31st December, 2000 and 2001 and for
the year ended 31st December, 2002, respectively.
The statutory accounts of the Company’s subsidiary are prepared in accordance with the
relevant PRC accounting rules and regulations applicable to enterprises with foreign investment.
Pursuant to the requirements of the Hong Kong Companies Ordinance and Statements of
Standard Accounting Practice, audited consolidated accounts of the Group have been prepared
annually since the establishment of the subsidiary. As a basis for forming an opinion on the
consolidated accounts of the Group, we have carried out appropriate audit procedures in respect
of the state of affairs and the results of the subsidiary in accordance with Statements of Auditing
Standards issued by the HKSA.
The Financial Information as set out in the report has been prepared by the directors of the
Company based on the audited consolidated accounts of the Group.
For the purposes of this report, we have examined the audited accounts or, where
appropriate, management accounts, of the Company and its subsidiary for the relevant period
and carried out such additional procedures as we considered necessary, in accordance with the
Auditing Guideline “Prospectuses and the Reporting Accountant” issued by the HKSA. We have
not audited any accounts of the Company and its subsidiary in respect of any period subsequent
to 31st December, 2002.
The directors of the Company are responsible for the preparation of the Financial
Information which gives a true and fair view. In preparing the Financial Information which gives
a true and fair view, it is fundamental that appropriate accounting policies are selected and
applied consistently, that judgements and estimates are made which are prudent and reasonable
and that the reasons for any significant departure from applicable accounting standards are
stated.
It is our responsibility to form an independent opinion on the Financial Information.
In our opinion, for the purposes of this report, no adjustments are considered necessary and
the Financial Information gives a true and fair view of the consolidated results and cash flows of
the Group for each of the three years ended 31st December, 2002, and of the consolidated state
of affairs of the Group as at 31st December, 2000, 2001 and 2002.
APPENDIX I ACCOUNTANTS’ REPORT
— 133 —
3rd Sch(42)
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
(Expressed in Hong Kong dollars)
The following is a summary of the consolidated profit and loss accounts of the Group for
the relevant period prepared based on the audited consolidated accounts of the Group:
Year ended 31st December,
Note 2000 2001 2002
$’000 $’000 $’000
Turnover 2 279,190 285,138 396,955
Cost of sales (224,781) (227,580) (299,071)
Gross profit 54,409 57,558 97,884
Other revenue 3 1,040 2,662 1,762
Selling and distribution expenses (6,075) (7,232) (9,769)
Administrative expenses (9,012) (9,577) (9,892)
Other operating expenses (9,239) (7,996) (11,042)
Profit from operations 31,123 35,415 68,943
Finance costs 4 (1,837) (828) (281)
Profit from ordinary activities
before taxation 4 29,286 34,587 68,662
Taxation 7 (2,430) (2,484) (5,517)
Profit attributable to shareholders 8 26,856 32,103 63,145
Dividends 10 — — 24,560
Earnings per share - Basic (HK cents) 11 11.19 13.38 26.31
The accompanying notes are an integral part of this financial information.
APPENDIX I ACCOUNTANTS’ REPORT
— 134 —
A1a(37)Chapter43rd Sch(31)
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Expressed in Hong Kong dollars)
The following is a summary of the consolidated statements of changes in equity of the
Group for the relevant period prepared based on the audited consolidated accounts of the Group:
Year ended 31st December,
2000 2001 2002
$’000 $’000 $’000
Total equity at the beginning of the year 62,096 88,952 121,055
Net profit for the year 26,856 32,103 63,145
Dividends — — (24,560)
Total equity at the end of year 88,952 121,055 159,640
APPENDIX I ACCOUNTANTS’ REPORT
— 135 —
CONSOLIDATED BALANCE SHEETS
(Expressed in Hong Kong dollars)
The following is a summary of the consolidated balance sheets of the Group as at 31st
December, 2000, 2001 and 2002 prepared based on the audited consolidated accounts of the
Group:
As at 31st December,
Note 2000 2001 2002
$’000 $’000 $’000
Non-current assets
Fixed assets 12 12,246 13,938 25,514- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Current assets
Inventories 13 42,046 23,463 32,807
Trade receivables 14 53,733 56,227 90,624
Prepayments, deposits and other receivables 2,184 2,332 6,683
Tax recoverable 7 238 — —
Pledged deposits 13,959 14,003 9,000
Cash and cash equivalents 15 18,913 48,326 49,326
131,073 144,351 188,440- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Current liabilities
Bank loans (secured) 16 14,473 658 1,211
Obligations under hire purchase contracts,
current portion 17 695 997 302
Trade payables 18 26,310 24,887 43,425
Accrued expenses and other payables 6,432 4,642 6,791
Loan from a director 19 3,939 2,996 —
Deferred payment, current portion 20 441 — —
Tax payable 7 — 1,593 2,585
52,290 35,773 54,314- - - - - - - - - ----------------------------------------- - - - - - - - - - ----------------------------------------- - - - - - - - - - -----------------------------------------
Net current assets 78,783 108,578 134,126- - - - - - - - - ----------------------------------------- - - - - - - - - - ----------------------------------------- - - - - - - - - - -----------------------------------------
Total assets less current liabilities
carried forward 91,029 122,516 159,640- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
APPENDIX I ACCOUNTANTS’ REPORT
— 136 —
As at 31st December,
Note 2000 2001 2002
$’000 $’000 $’000
Total assets less current liabilities
brought forward 91,029 122,516 159,640- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Non-current liabilities
Bank loans (secured) 16 — 1,159 —
Obligations under hire purchase contracts 17 303 302 —
Deferred payment 20 1,774 — —
2,077 1,461 —- - - - - - - - - ----------------------------------------- - - - - - - - - - ----------------------------------------- - - - - - - - - - -----------------------------------------
NET ASSETS 88,952 121,055 159,640
CAPITAL AND RESERVES
Share capital 21 700 700 700
Retained profits 88,252 120,355 158,940
88,952 121,055 159,640
The accompanying notes are an integral part of this financial information.
APPENDIX I ACCOUNTANTS’ REPORT
— 137 —
A1a(32)(2)
A1a(32)(4)
CONSOLIDATED CASH FLOW STATEMENTS
(Expressed in Hong Kong dollars)
The following is a summary of the consolidated cash flow statements of the Group for the
relevant period prepared based on the audited consolidated accounts of the Group:
Year ended 31st December,
2000 2001 2002
$’000 $’000 $’000
Operating activities
Profit from ordinary activities before taxation 29,286 34,587 68,662
Adjustments for:
Finance costs 1,837 828 281
Interest income (953) (1,054) (749)
Depreciation of fixed assets 3,979 3,724 6,449
Operating profit before working capital
changes 34,149 38,085 74,643
(Increase)/decrease in inventories (13,200) 18,583 (9,344)
Decrease/(increase) in trade receivables 3,240 (2,494) (34,397)
Decrease/(increase) in prepayments, deposits and
other receivables 226 (526) (4,594)
(Decrease)/increase in trade payables (3,278) (1,423) 18,538
(Decrease)/increase in accrued expenses and
other payables (2,304) (1,790) 2,149
Cash generated from operations 18,833 50,435 46,995
PRC tax paid — (97) (156)
Hong Kong Profits Tax paid (4,573) (556) (4,369)
Net cash from operating activities 14,260 49,782 42,470- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Investing activities
Interest received 520 1,432 992
Payment for purchase of fixed assets (5,897) (5,269) (18,025)
(Increase)/decrease in pledged bank deposits (5,250) (44) 5,003
Net cash used in investing activities (10,627) (3,881) (12,030)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
APPENDIX I ACCOUNTANTS’ REPORT
— 138 —
Year ended 31st December,
2000 2001 2002
$’000 $’000 $’000
Financing activities
Capital element of hire purchase contracts
rentals paid (862) (2,061) (997)
Interest element of hire purchase contracts
rentals paid (52) (145) (48)
Interest on loan from a director (107) (300) (113)
Interest on bank loans (1,414) (271) (120)
Other borrowing costs on premises payments (264) (112) —
New bank loans 51,665 18,102 8,687
Repayment of bank loans (49,047) (30,758) (9,293)
New loan from a director 3,291 300 113
Repayment of loan from a director (276) (1,243) (3,109)
Dividend paid — — (24,560)
Net cash from/(used in) financing activities 2,934 (16,488) (29,440)- - - - - - - - - ----------------------------------------- - - - - - - - - - ----------------------------------------- - - - - - - - - - -----------------------------------------
Net increase in cash and cash equivalents 6,567 29,413 1,000
Cash and cash equivalents at the beginning
of year 12,346 18,913 48,326
Cash and cash equivalents at the end
of year 18,913 48,326 49,326
APPENDIX I ACCOUNTANTS’ REPORT
— 139 —
NOTES ON THE FINANCIAL INFORMATION
(Expressed in Hong Kong dollars)
1 Principal accounting policies
(a) Statement of compliance
The Financial Information has been prepared in accordance with the accounting policies set out below.
These accounting policies would conform with accounting principles generally accepted in Hong Kong. The
Financial Information conforms with the disclosure requirements of the Rules Governing the Listing of Securities
on The Stock Exchange of Hong Kong Limited as applicable to Accountants’ Reports included in Listing Documents.
(b) Basis of measurement
The measurement basis used in the preparation of the Financial Information is historical cost.
(c) Basis of consolidation
A subsidiary, in accordance with the Hong Kong Companies Ordinance, is a company in which the Group,
directly or indirectly, holds more than half of the issued share capital, or controls more than half of the voting
power, or controls the composition of the board of directors.
The consolidated Financial Information includes the results of operations and the state of affairs of the
Company and the subsidiary. All significant inter-company transactions and balances have been eliminated on
consolidation.
The subsidiary, Shenzhen Kwang Sung Electronics Co., Ltd. (“Shenzhen Kwang Sung”), was established in
the PRC under a joint venture agreement dated 18th March, 1994 between the Company and Shenzhen Bao Jin
Company Limited ( ) (the “PRC Partner”), to be operated for 30 years up to 30th April, 2024.
In accordance with the joint venture agreement, the equity percentage in Shenzhen Kwang Sung between the
Company and the PRC Partner was 90% and 10% respectively. The PRC partner’s share capital contributed to
Shenzhen Kwang Sung was provided by the Group. Therefore, Shenzhen Kwang Sung has been accounted for as
a wholly-owned subsidiary of the Company in the Group’s consolidated accounts since its establishment.
The board of directors of Shenzhen Kwang Sung resolved and approved on 2nd July, 2002 the proposed
transfer of the entire equity interest held by the PRC Partner in Shenzhen Kwang Sung, representing 10% of the
registered capital of Shenzhen Kwang Sung, to the Company at a consideration of RMB1.00. This change in equity
holding was subsequently approved by the relevant PRC authorities on 8th August, 2002.
(d) Fixed assets
(i) Fixed assets are stated in the consolidated balance sheets at cost less accumulated depreciation (see
note 1(f)) and impairment losses (see note 1(g)).
Small value assets costing less than $500 are charged directly to the consolidated profit and loss
account.
APPENDIX I ACCOUNTANTS’ REPORT
— 140 —
(ii) Subsequent expenditure relating to a fixed asset that has already been recognised is added to the
carrying amount of the asset when it is probable that future economic benefits, in excess of the
originally assessed standard of performance of the existing asset, will flow to the Group. All other
subsequent expenditure is recognised as an expense in the period in which it is incurred.
(iii) Gains or losses arising from the retirement or disposal of a fixed asset are determined as the difference
between the estimated net disposal proceeds and the carrying amount of the asset and are recognised
in the consolidated profit and loss account on the date of retirement or disposal.
(e) Leased assets
Leases of assets under which the lessee assumes substantially all the risks and benefits of ownership are
classified as hire purchase contracts. Leases of assets under which the lessor has not transferred all the risks and
benefits of ownership are classified as operating leases.
(i) Assets acquired under hire purchase contracts
Where the Group acquires the use of assets under hire purchase contracts, the amounts representing
the fair value of the leased asset, or, if lower, the present value of the minimum lease payments, of such
assets are included in fixed assets and the corresponding liabilities, net of finance charges, are recorded as
obligations under hire purchase contracts. Depreciation is provided at rates which write off the cost of the
assets in equal annual amounts over the term of the relevant lease or, where it is likely the Company or
Group will obtain ownership of the asset, the life of the asset, as set out in note 1(f). Impairment losses are
accounted for in accordance with the accounting policy as set out in note 1(g). Finance charges implicit in
the lease payments are charged to the consolidated profit and loss account over the period of the leases so
as to produce an approximately constant periodic rate of charge on the remaining balance of the obligations
for each accounting period.
(ii) Operating lease charges
Where the Group has the use of assets under operating leases, payments made under the leases are
charged to the consolidated profit and loss account in equal instalments over the accounting periods covered
by the lease term.
(f) Depreciation
Depreciation is calculated to write off the cost of fixed assets over their estimated useful lives as follows:
(i) leasehold land is depreciated on a straight-line basis over the remaining term of the lease or 50 years
whichever is shorter;
(ii) buildings are depreciated on a straight-line basis over the remaining term of the lease or 30 years
whichever is shorter; and
(iii) other fixed assets are depreciated on a straight-line basis over 4 years.
APPENDIX I ACCOUNTANTS’ REPORT
— 141 —
(g) Impairment of assets
Internal and external sources of information are reviewed at each balance sheet date to identify indications
that fixed assets may be impaired or an impairment loss previously recognised no longer exists or may have
decreased. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is
recognised whenever the carrying amount of an asset exceeds its recoverable amount.
(i) Calculation of recoverable amount
The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of time value of money and the risks specific to the asset. Where
an asset does not generate cash inflows largely independent of those from other assets, the recoverable
amount is determined for the smallest group of assets that generates cash inflows independently (that is a
cash-generating unit).
(ii) Reversals of impairment losses
An impairment loss is reversed if there has been a favourable change in the estimates used to
determine the recoverable amount. A reversal of impairment losses is limited to the asset’s carrying amount
that would have been determined had no impairment loss been recognised in prior years. Reversals of
impairment losses are credited to the consolidated profit and loss account in the year in which the reversals
are recognised.
(h) Inventories
Inventories are carried at the lower of cost and net realisable value.
Cost is calculated using the first-in, first-out cost formula and comprises all costs of purchase, costs of
conversion and other costs incurred in bringing the inventories to their present location and condition.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs
necessary to make the sale.
When inventories are sold, the carrying amount of those inventories is recognised as an expense in the
period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable
value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The
amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is
recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal
occurs.
(i) Revenue recognition
Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if
applicable, can be measured reliably, revenue is recognised in the consolidated profit and loss account as follows:
(i) Sale of goods
Revenue is recognised when goods are delivered to the customers’ premises which is taken to be the
point in time when the customer has accepted the goods and the related risks and rewards of ownership.
Revenue is after deduction of trade discounts and returns.
APPENDIX I ACCOUNTANTS’ REPORT
— 142 —
(ii) Interest income
Interest income from bank deposits is accrued on a time-apportioned basis by reference to the
principal outstanding and the rate applicable.
(j) Translation of foreign currencies
Foreign currency transactions during the relevant period are translated into Hong Kong dollars at the
exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are
translated into Hong Kong dollars at the exchange rates ruling at the balance sheet dates. Exchange differences on
foreign currency translation are dealt with in the consolidated profit and loss account.
The results of subsidiaries outside Hong Kong are translated into Hong Kong dollars at the average exchange
rates for the year; balance sheet items are translated into Hong Kong dollars at the rates of exchange ruling at the
balance sheet date. The resulting exchange differences are dealt with as a movement in reserves.
(k) Employee benefits
(i) Salaries, annual bonuses and the cost to the Group of non-monetary benefits are accrued in the year
in which the associated services are rendered by employees of the Group. Where payment or
settlement is deferred and the effect would be material, these amounts are stated at their present
values.
(ii) Contributions to defined contribution retirement scheme and Mandatory Provident Fund are
recognised as an expense in the consolidated profit and loss account as incurred, except to the extent
that they are included in the inventories not yet recognised as an expense.
(l) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, demand deposits with banks and other
financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of
cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity
at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash
management are also included as a component of cash and cash equivalents for the purpose of the cash flow
statement.
(m) Deferred taxation
Deferred taxation is provided using the liability method in respect of the taxation effect arising from all
material timing differences between the accounting and tax treatment of income and expenditure, which are
expected with reasonable probability to crystallise in the foreseeable future.
Future deferred tax benefits are not recognised unless their realisation is assured beyond reasonable doubt.
(n) Dividends
Dividends are recognised as a liability in the period in which they are declared or approved.
(o) 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, it is probable that an outflow of economic benefits will
be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material,
provisions are stated at the present value of the expenditures expected to settle the obligation.
APPENDIX I ACCOUNTANTS’ REPORT
— 143 —
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, whose existence 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.
(p) Related parties
For the purposes of this report, parties are considered to be related to the Group if the Group has the ability,
directly or indirectly, to control the party or exercise significant influence over the party in making financial and
operating decisions, or vice versa, or where the Group and the party are subject to common control or common
significant influence. Related parties may be individuals or other entities.
(q) Segment reporting
A segment is a distinguishable component of the Group that is engaged either in providing products
(business segment), or in providing products within a particular economic environment (geographical segment),
which is subject to risks and rewards that are different from those of other segments.
In accordance with the Group’s internal financial reporting, the Group has chosen business segment
information as the primary reporting format and geographical segment information as the secondary reporting
format.
Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as
well as those that can be allocated on a reasonable basis to that segment.
Segment capital expenditure is the total cost incurred during the period to acquire segment assets (both
tangible and intangible) that are expected to be used for more than one period.
Unallocated items mainly comprise financial and corporate assets, interest-bearing loans, borrowings,
corporate and financing expenses.
2 Turnover
Turnover represents aggregate of the invoiced value of goods sold, after deducting goods returned and trade
discounts.
3 Other revenue
Year ended 31st December,
2000 2001 2002
$’000 $’000 $’000
Interest income 953 1,054 749
Recovery of bad debts 87 1,085 733
Scrap sales — 523 75
Others — — 205
1,040 2,662 1,762
APPENDIX I ACCOUNTANTS’ REPORT
— 144 —
4 Profit from ordinary activities before taxation
Profit from ordinary activities before taxation is arrived at after charging:
Year ended 31st December,
2000 2001 2002
$’000 $’000 $’000
(a) Finance costs:
Interest on bank loans 1,414 271 120
Finance charges on obligations under hire
purchase contracts 52 145 48
Interest on loan from a director (note 19) 107 300 113
Other borrowing costs on premises payments 264 112 —
1,837 828 281
(b) Other items:
Cost of inventories sold 224,781 227,580 299,071
Staff costs
— wages, salaries and benefits 31,220 30,283 37,003
— contributions to defined contribution
schemes 90 503 703
Depreciation
— owned assets 3,228 3,073 6,066
— assets held under hire purchase contracts 751 651 383
Research and development and technical
support fee 7,872 6,717 8,985
Operating lease charges in respect of properties 3,045 2,759 2,644
Auditors’ remuneration 164 153 401
Provision for slow moving inventories 915 10,856 5,030
Cost of inventories sold includes the following amounts which are also included in the respective total amounts
disclosed separately above for each of these types of expenses:
Year ended 31st December,
2000 2001 2002
$’000 $’000 $’000
Staff costs
— wages, salaries and benefits 24,161 23,046 29,611
— contributions to defined contribution schemes 90 164 492
Depreciation 3,712 3,465 6,138
Operating lease charges in respect of properties 2,153 1,998 1,999
Provision for slow moving inventories 915 10,856 5,030
APPENDIX I ACCOUNTANTS’ REPORT
— 145 —
5 Directors’ emoluments
Details of directors’ emoluments are as follows:
Year ended 31st December,
2000 2001 2002
$’000 $’000 $’000
Fees — — 36
Salaries, allowances and benefits in kind 1,881 1,995 2,860
Retirement benefits — 26 36
Discretionary bonuses — — 290
1,881 2,021 3,222
Included in the directors’ emoluments were fees of $36,000 (2001: $nil and 2000: $nil) paid to the independent
non-executive directors during the year ended 31st December, 2002.
The directors’ emoluments fell within the following bands:
Number of directors
Year ended 31st December,
2000 2001 2002
$Nil - $1,000,000 3 2 6
$1,000,001 - $1,500,000 1 1 1
4 3 7
Save as disclosed above, no directors’ emoluments have been paid or are payable by the Group during the relevant
period. There was no arrangement under which a director waived or agreed to waive any emolument during the relevant
period.
APPENDIX I ACCOUNTANTS’ REPORT
— 146 —
A1a33(2)(3)
6 Senior management’s emoluments
The five highest paid individuals in the Group during the relevant period included three (2001: one and 2000: one)
directors of the Company whose emoluments are reflected in note 5 above. Details of the emoluments paid by the Group
and designated bands for the remaining highest paid non-director individuals during the relevant period are as follows:
Year ended 31st December,
2000 2001 2002
$’000 $’000 $’000
Salaries, allowances and benefits in kind 2,016 2,173 1,210
Retirement benefits — 52 24
Discretionary bonuses 97 — 80
2,113 2,225 1,314
Number of individuals
Year ended 31st December,
2000 2001 2002
$Nil - $1,000,000 4 4 2
During the relevant period, no emoluments were paid by the Group to the directors or any of the highest paid
individuals as an inducement to join or upon joining the Group or as compensation for loss of office.
7 Taxation
(a) Taxation in the consolidated profit and loss accounts represents:
Year ended 31st December,
2000 2001 2002
$’000 $’000 $’000
Provision for Hong Kong Profits Tax for the year 2,430 2,960 5,456
Overprovision for Hong Kong Profits Tax in
respect of the prior year — (599) (79)
2,430 2,361 5,377
PRC taxation — 123 140
2,430 2,484 5,517
APPENDIX I ACCOUNTANTS’ REPORT
— 147 —
(b) Taxation in the consolidated balance sheets represents:
As at 31st December,
2000 2001 2002
$’000 $’000 $’000
Provision for Hong Kong Profits Tax for the year 2,430 2,960 5,456
Provisional profits tax paid (2,694) (1,393) (2,881)
(264) 1,567 2,575
Balance of Hong Kong Profits Tax provision
relating to the prior year 26 — —
(238) 1,567 2,575
PRC taxation — 26 10
Tax (recoverable)/payable (238) 1,593 2,585
(c) Provisions for Hong Kong Profits Tax have been calculated at the applicable tax rates on the estimated
assessable profits arising in Hong Kong for the relevant period. The applicable tax rate was 16% for the entire
relevant period. The Group carried out manufacturing activities in the PRC under the terms of various
assembling and processing agreements with PRC entities and has substantial involvement in these
manufacturing activities undertaken in the PRC. The profits earned are thus considered to be partly arisen
and derived from the manufacturing activities carried out in the PRC and partly from other activities
performed in Hong Kong. As such the Group is granted a 50:50 offshore exemption in respect of Hong Kong
Profits Tax.
Provisions for income tax in respect of the subsidiary in the PRC have been calculated at the applicable rate
of taxation ruling in the PRC based on its respective estimated assessable profits for the relevant period.
As a foreign invested enterprise, the subsidiary in the PRC was granted certain tax relief, under which it was
exempted from PRC income tax for the years ended 31st December, 1999 and 2000 and was/is entitled to 50%
income tax relief and hence subject to PRC income tax at 7.5% for the years ended/ending 31st December,
2001, 2002 and 2003.
No provision for deferred taxation has been made as the net effect of all timing differences is immaterial.
8 Profit attributable to shareholders
The profit attributable to shareholders includes a profit of $63,145,000 (2001: $32,103,000; 2000: $26,856,000)
which has been dealt with in the accounts of the Company.
9 Retirement schemes
As from 1st December, 2000, the Group operates a Mandatory Provident Fund Scheme (the “MPF scheme”) under
the Hong Kong Mandatory Provident Fund Schemes Ordinance for employees employed under the jurisdiction of the
Hong Kong Employment Ordinance. The MPF scheme is a defined contribution retirement scheme administered by
independent trustees. Under the MPF scheme, the employer and its employees are each required to make contributions
to the scheme at 5% of the employees relevant income, subject to a cap of monthly relevant income of $20,000.
APPENDIX I ACCOUNTANTS’ REPORT
— 148 —
The subsidiary in the PRC participates in a defined contribution retirement scheme organised by the PRC municipal
government. The subsidiary is required to make contributions at 8% of the relevant PRC employees’ salaries to the
scheme.
The only obligation of the Group with respect to the above retirement schemes is to make the required
contributions under the schemes. No forfeited contribution is available to reduce the contribution payable in the future
years.
Save as disclosed above, the Group has no other obligations to make payments in respect of retirement benefits
of the employees.
10 Dividends
On 2nd August, 2002, a special dividend of $24,560,000 was declared by the Company to its then shareholders. The
special dividend was paid on 23rd August, 2002 and 27th August, 2002.
11 Earnings per share
The calculation of earnings per share for each of the three years ended 31st December, 2002 is based on the profit
attributable to shareholders for the respective periods and on the assumption that 240,000,000 shares of the Company are
in issue, comprising 7,000,000 shares in issue as at the date of the Prospectus and 233,000,000 shares to be issued
pursuant to the capitalisation issue as described in the section headed “Written resolutions of the shareholders passed on
16th June, 2003” in appendix V to the Prospectus, as if all those shares were outstanding throughout the relevant period.
There were no dilutive potential ordinary shares during the relevant period and therefore diluted earnings per
Share are not presented.
APPENDIX I ACCOUNTANTS’ REPORT
— 149 —
A1a(37)3rd Sch(31)
12 Fixed assets
(a)
Land and
buildings
Plant and
machinery
Furniture
and fixtures Total$’000 $’000 $’000 $’000
2000Cost:At 1st January, 2000 4,519 12,834 5,395 22,748Additions — 5,307 1,973 7,280
At 31st December, 2000 4,519 18,141 7,368 30,028- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Accumulated depreciation:At 1st January, 2000 482 8,397 4,924 13,803Charge for the year 109 3,233 637 3,979
At 31st December, 2000 591 11,630 5,561 17,782- - - - - - - - - - - ------------------------------------------------- - - - - - - - - - - - ------------------------------------------------- - - - - - - - - - - - ------------------------------------------------- - - - - - - - - - - - -------------------------------------------------
Net book value:At 31st December, 2000 3,928 6,511 1,807 12,246
2001Cost:At 1st January, 2001 4,519 18,141 7,368 30,028Additions — 5,279 137 5,416Disposals — — (76) (76)
At 31st December, 2001 4,519 23,420 7,429 35,368- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Accumulated depreciation:At 1st January, 2001 591 11,630 5,561 17,782Charge for the year 109 3,008 607 3,724Written back on disposal — — (76) (76)
At 31st December, 2001 700 14,638 6,092 21,430- - - - - - - - - - - ------------------------------------------------- - - - - - - - - - - - ------------------------------------------------- - - - - - - - - - - - ------------------------------------------------- - - - - - - - - - - - -------------------------------------------------
Net book value:At 31st December, 2001 3,819 8,782 1,337 13,938
2002Cost:At 1st January, 2002 4,519 23,420 7,429 35,368Additions — 15,900 2,125 18,025
At 31st December, 2002 4,519 39,320 9,554 53,393- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Accumulated depreciation:At 1st January, 2002 700 14,638 6,092 21,430Charge for the year 158 5,518 773 6,449
At 31st December, 2002 858 20,156 6,865 27,879- - - - - - - - - - - ------------------------------------------------- - - - - - - - - - - - ------------------------------------------------- - - - - - - - - - - - ------------------------------------------------- - - - - - - - - - - - -------------------------------------------------
Net book value:At 31st December, 2002 3,661 19,164 2,689 25,514
APPENDIX I ACCOUNTANTS’ REPORT
— 150 —
(b) Land and buildings are situated in Hong Kong and are held for own use under medium term leases.
Land and buildings of the Group were pledged to secure the deferred payment (note 20) as at 31st December,
2000 and to secure an instalment loan (note 16) as at 31st December, 2001 and 2002.
The Group’s properties at 30th April, 2003 were revalued by DTZ Debenham Tie Leung Limited (“DTZ”), an
independent firm of professional valuers in Hong Kong and such valuation gave rise to deficits totalling
approximately $2.42 million from the book carrying amounts of the relevant assets at that date. Such deficits
will be incorporated into the accounts of the Group for the year ending 31st December, 2003. Details of the
valuation are set out in the professional valuers’ certificate in appendix III to the Prospectus.
(c) Fixed assets of the Group include assets held under hire purchase contracts as follows:
As at 31st December,
2000 2001 2002
$’000 $’000 $’000
Net book value of fixed assets held under hire
purchase contracts 1,336 1,735 895
The terms of hire purchase contracts are two years. At the end of the lease term the Group has the option
to purchase the fixed assets at a price deemed to be a bargain purchase option. None of the contracts
included contingent rentals.
13 Inventories
As at 31st December,
2000 2001 2002
$’000 $’000 $’000
Raw materials 28,905 11,697 11,242
Work in progress 5,054 4,638 10,701
Finished goods 8,087 7,128 10,864
42,046 23,463 32,807
Included in the above are inventories stated at net realisable value as follows:
As at 31st December,
2000 2001 2002
$’000 $’000 $’000
Inventories stated at net realisable value — 1,026 1,281
APPENDIX I ACCOUNTANTS’ REPORT
— 151 —
14 Trade receivables
Included in trade receivables as at 31st December, 2002 is an amount of $4,485,000 (2001: $4,903,000 and 2000:
$5,420,000) due from a shareholder.
Credit terms granted by the Group to customers (including the shareholder) generally range from one to two
months.
The ageing analysis of trade receivables (net of provision for doubtful debts) is as follows:
As at 31st December,
2000 2001 2002
$’000 $’000 $’000
Current 19,531 29,082 52,406
Less than 1 month overdue 19,491 14,966 25,621
Over 1 month but less than 3 months overdue 14,048 12,179 12,597
Over 3 months but less than 12 months overdue 663 — —
53,733 56,227 90,624
All of the above balances are expected to be recovered within one year.
15 Cash and cash equivalents
As at 31st December,
2000 2001 2002
$’000 $’000 $’000
Deposits with banks maturing within three months
from placements 4,805 20,410 40,410
Cash at bank and in hand 14,108 27,916 8,916
18,913 48,326 49,326
16 Bank loans (secured)
As at 31st December,
2000 2001 2002
$’000 $’000 $’000
Trust receipt loans 14,473 — —
Instalment loan — 1,817 1,211
14,473 1,817 1,211
APPENDIX I ACCOUNTANTS’ REPORT
— 152 —
A1a(32)(2)
Bank loans are repayable as follows:
As at 31st December,
2000 2001 2002
$’000 $’000 $’000
Within 1 year or on demand 14,473 658 1,211- - - - - - - - - - - - - - - - - - - - - - - - - - -
After 1 year but within 2 years — 647 —
After 2 years but within 5 years — 512 —
— 1,159 —- - - - - - - - ------------------------------------- - - - - - - - - ------------------------------------- - - - - - - - - -------------------------------------
14,473 1,817 1,211
As at 31st December, 2000, 2001 and 2002, the bank loans were secured by the following:
As at 31st December,
2000 2001 2002
$’000 $’000 $’000
Deposits with banks 13,959 14,003 9,000
Land and buildings (net book value) — 3,819 3,661
13,959 17,822 12,661
Amount of banking facilities 38,275 40,800 32,220
One of the directors, also a major shareholder of the Company, issued personal guarantees to banks as part of the
security against the banking facilities granted to the Group. The personal guarantees were limited to the principal amount
of $32,220,000 (2001: $40,800,000 and 2000: $37,295,000) plus interest and other charges.
The relevant bankers have agreed in principle that the personal guarantees will be released upon the listing of the
Company’s shares on The Stock Exchange of Hong Kong Limited.
APPENDIX I ACCOUNTANTS’ REPORT
— 153 —
17 Obligations under hire purchase contracts
The Group had obligations under hire purchase contracts repayable at the respective balance sheet dates as
follows:
Present value of
minimum lease
payments
Finance charges
relating to future
periods
Total minimum
lease payments
$’000 $’000 $’000
As at 31st December, 2000
Within 1 year 695 101 796
After 1 year but within 2 years 303 16 319
998 117 1,115
As at 31st December, 2001
Within 1 year 997 48 1,045
After 1 year but within 2 years 302 4 306
1,299 52 1,351
As at 31st December, 2002
Within 1 year 302 2 304
During the years ended 31st December, 2000 and 2001, the Group entered into hire purchase contracts with a total
value of $1,781,000 and $2,362,000 respectively at the inception of the contracts.
One of the directors, who is also a major shareholder, has given personal indemnities and undertakings in respect
of the above hire purchase contracts. In January 2003, the above obligations under hire purchase contracts were fully
settled.
18 Trade payables
Included in trade payables as at 31st December, 2002 is an amount of $8,614,000 (2001: $6,059,000 and 2000:
$8,439,000) due to a shareholder.
The credit terms granted by the suppliers (including the shareholder) generally range from one to two months. The
ageing analysis of trade payables is as follows:
As at 31st December,
2000 2001 2002
$’000 $’000 $’000
Due within 1 month or on demand 25,420 20,610 35,031
Due after 1 month but within 3 months 890 4,277 8,394
26,310 24,887 43,425
All of the above balances are expected to be settled within one year.
APPENDIX I ACCOUNTANTS’ REPORT
— 154 —
A1a(32)(4)
19 Loan from a director
The loan is unsecured, interest-bearing at 8% (2001: 10% and 2000: 10.5%) per annum and has no fixed terms of
repayment. The amount of interest paid to the director during the respective periods is set out in note 4(a). The loan was
fully settled during the year ended 31st December, 2002.
20 Deferred payment
In prior years, the Group’s land and buildings were acquired under deferred payment terms. Outstanding
instalments which were secured on the properties are payable as follows:
As at 31st December,
2000 2001 2002
$’000 $’000 $’000
Within 1 year 441 — —- - - - - - - - - - - - - - - - - - - - - - - - - - -
After 1 year but within 2 years 493 — —
After 2 years but within 5 years 1,165 — —
After 5 years 116 — —
1,774 — —- - - - - - - - ------------------------------------- - - - - - - - - ------------------------------------- - - - - - - - - -------------------------------------
2,215 — —
21 Share capital
As at 31st December,
2000 2001 2002
No. of
shares Amount
No. of
shares Amount
No. of
shares Amount
’000 $’000 ’000 $’000 ’000 $’000
Authorised:
Ordinary shares of $0.1 each
(2001: $1 and 2000: $1) 700 700 700 700 7,000 700
Issued and fully paid:
At the beginning of the year 700 700 700 700 700 700
Subdivision of shares (note (i)) — — — — 6,300 —
At the end of the year 700 700 700 700 7,000 700
Note:
(i) On 28th September, 2002, the authorised and issued share capital of the Company, comprising 700,000 shares
of $1 each fully paid up, were subdivided into 7,000,000 shares of $0.1 each.
APPENDIX I ACCOUNTANTS’ REPORT
— 155 —
22 Distributable reserves
At 31st December, 2002, the amount of reserves available for distribution to shareholders of the Company was
$158,940,000.
23 Operating lease commitments
At 31st December, 2000, 2001 and 2002, the total future minimum lease payments under non-cancellable operating
leases of the Group in respect of properties were payable as follows:
As at 31st December,2000 2001 2002$’000 $’000 $’000
Within 1 year 2,588 757 2,363After 1 year but within 5 years 514 114 2,273
3,102 871 4,636
The Group leases a number of properties under operating leases. The leases typically run for an initial period of
one to five years, with an option to renew the lease when all terms are renegotiated. None of the leases includes
contingent rentals.
24 Related party transactions
During the relevant period, the following significant related party transactions took place:
Year ended 31st December,
Note 2000 2001 2002
$’000 $’000 $’000
Continuing transactions
— Sales of finished goods (a) 37,542 36,379 29,581
— Purchases of raw materials (a) 67,690 58,512 54,850
— Referral commission (b) 3,539 4,519 7,317
— Research and development and
technical support fee (c) 3,064 3,677 5,648
Non-continuing transactions
— Purchase of machinery (d) 1,188 29 3,108
— Interest paid (e) 107 300 113
APPENDIX I ACCOUNTANTS’ REPORT
— 156 —
The net balances due to related parties as at 31st December, 2000, 2001 and 2002 were as follows:
As at 31st December,
2000 2001 2002
$’000 $’000 $’000
Kwang Sung Electronics Co., Ltd.
(“Kwang Sung Korea”) 3,019 1,156 4,129
Mr Yang Jai Sung 3,939 2,996 —
Notes:
(a) The Group sold finished goods to Kwang Sung Korea, a shareholder of the Company, and purchased raw
materials from Kwang Sung Korea for production.
(b) The Group paid 3% referral commission to Kwang Sung Korea for the marketing services provided and sales
orders referred to the Group.
(c) The Group paid fees to Kwang Sung Korea for the research and development and technical support provided
to the Group.
(d) The Group purchased machinery from Kwang Sung Korea.
(e) The Group paid interest to Mr Yang Jai Sung, a director and a shareholder of the Company, for a loan. Details
of the loan are set out in note 19.
(f) Mr Yang Jai Sung issued personal guarantees to banks as part of the security against the facilities granted to
the Group. The relevant bankers have agreed in principle that the personal guarantees will be released upon
the listing of the Company’s shares on The Stock Exchange of Hong Kong Limited.
(g) Mr Yang Jai Sung gave personal indemnities and undertakings to a finance company in respect of several hire
purchase contracts of the Group. In January 2003, the personal indemnities and undertakings have been
released upon the settlement of the hire purchase obligations.
The directors of the Company are of the opinion that the above transactions with related parties were conducted
on normal commercial terms and in the ordinary and usual course of business and have confirmed that transactions set
out in (d) to (g) above will not continue in the future after the listing of the Company’s shares on The Stock Exchange
of Hong Kong Limited.
APPENDIX I ACCOUNTANTS’ REPORT
— 157 —
25 Segmental reporting
(a) Primary segment
The Group is engaged in the manufacture and sales of electronic products which can be divided into two
product segments — composite components and unit electronic components. An analysis of the Group’s results of
operations for the years ended 31st December, 2000, 2001 and 2002 and the Group’s financial position as at 31st
December, 2000, 2001 and 2002 by product segment is as follows:
Year ended 31st December,
2000 2001 2002
$’000 $’000 $’000
Turnover
Composite components 131,750 153,083 259,469
Unit electronic components 147,440 132,055 137,486
279,190 285,138 396,955
Segment results
Composite components 13,124 11,981 43,031
Unit electronic components 16,957 20,867 23,435
30,081 32,848 66,466
Unallocated income and expenses 1,042 2,567 2,477
Profit from operations 31,123 35,415 68,943
Finance costs (1,837) (828) (281)
Taxation (2,430) (2,484) (5,517)
Profit attributable to shareholders 26,856 32,103 63,145
Additional information on segments
Depreciation
Composite components 2,321 2,455 4,277
Unit electronic components 1,658 1,269 2,172
3,979 3,724 6,449
Significant non-cash expenses
(other than depreciation)
Composite components 965 582 463
Unit electronic components 1,085 502 246
2,050 1,084 709
Capital expenditures
Composite components 4,040 1,949 13,102
Unit electronic components 3,240 3,467 4,923
7,280 5,416 18,025
APPENDIX I ACCOUNTANTS’ REPORT
— 158 —
As at 31st December,
2000 2001 2002
$’000 $’000 $’000
Assets
Composite components 56,583 47,534 94,991
Unit electronic components 52,528 47,141 55,711
Unallocated assets 34,208 63,614 63,252
143,319 158,289 213,954
Liabilities
Composite components 13,960 15,389 24,558
Unit electronic components 12,210 10,133 16,467
Unallocated liabilities 28,197 11,712 13,289
54,367 37,234 54,314
(b) Secondary segment
An analysis of the Group’s turnover by geographical location determined on the basis of the destination of
the Group’s products for the years ended 31st December, 2000, 2001 and 2002 is as follows:
Year ended 31st December,
2000 2001 2002
$’000 $’000 $’000
Turnover
Hong Kong 113,536 106,497 133,402
PRC (other than Hong Kong) 115,021 133,754 217,755
Korea 47,642 38,001 32,149
Others 2,991 6,886 13,649
279,190 285,138 396,955
Year ended 31st December,
2000 2001 2002
$’000 $’000 $’000
Segment assets
Hong Kong 59,404 91,575 95,136
PRC (other than Hong Kong) 76,332 60,162 108,525
Korea 7,227 4,987 5,885
Others 118 1,565 4,408
Unallocated 238 — —
143,319 158,289 213,954
No analysis of capital expenditures by geographical location is presented as all of the capital expenditures
are located in the PRC.
APPENDIX I ACCOUNTANTS’ REPORT
— 159 —
26 Net assets of the Company
The following is a summary of the assets and liabilities of the Company as at 31st December, 2000, 2001 and 2002.
As at 31st December,
2000 2001 2002
$’000 $’000 $’000
Non-current assets
Fixed assets 4,304 4,165 5,584
Interest in a subsidiary 7,942 9,773 19,930
12,246 13,938 25,514- - - - - - - - - - - - - - - - - - - - - - - - - - -
Current assets
Inventories 42,046 23,463 32,807
Trade receivables 53,733 56,227 90,624
Prepayments, deposits and other receivables 2,184 2,332 6,683
Tax recoverable 238 — —
Pledged deposits 13,959 14,003 9,000
Cash and cash equivalents 18,913 48,326 49,326
131,073 144,351 188,440- - - - - - - - - - - - - - - - - - - - - - - - - - -
Current liabilities
Bank loans (secured) 14,473 658 1,211
Obligations under hire purchase contracts,
current portion 695 997 302
Trade payables 26,310 24,887 43,425
Accrued expenses and other payables 6,432 4,642 6,791
Loan from a director 3,939 2,996 —
Deferred payment, current portion 441 — —
Tax payable — 1,593 2,585
52,290 35,773 54,314- - - - - - - - ------------------------------------- - - - - - - - - ------------------------------------- - - - - - - - - -------------------------------------
Net current assets 78,783 108,578 134,126- - - - - - - - ------------------------------------- - - - - - - - - ------------------------------------- - - - - - - - - -------------------------------------
Total assets less current liabilities 91,029 122,516 159,640- - - - - - - - - - - - - - - - - - - - - - - - - - -
Non-current liabilities
Bank loans (secured) — 1,159 —
Obligations under hire purchase contracts 303 302 —
Deferred payment 1,774 — —
2,077 1,461 —- - - - - - - - ------------------------------------- - - - - - - - - ------------------------------------- - - - - - - - - -------------------------------------
NET ASSETS 88,952 121,055 159,640
APPENDIX I ACCOUNTANTS’ REPORT
— 160 —
A1a(32)(2)
A1a(32)(4)
27 Directors’ remuneration
Save as disclosed herein, no remuneration has been paid or is payable in respect of the relevant period by the
Group to the directors of the Company.
Under the arrangement presently in force, the estimated aggregate amount of remuneration, excluding bonuses, of
the directors of the Company payable for the year ending 31st December, 2003 is not more than $3,553,000.
28 Subsequent events
The following significant transaction took place subsequent to 31st December, 2002 and up to the date of this
report:
(a) For the purpose of the listing of the Company’s shares on The Stock Exchange of Hong Kong Limited, the
properties of the Group were revalued as at 30th April, 2003 by DTZ. Deficits totalling approximately $2.42
million arising from the revaluation will be incorporated into the accounts of the Group for the year ending
31st December, 2003.
(b) On 28th May, 2003, a special dividend of $5,469,000 was declared by the Company to its then shareholders.
The special dividend was paid on 6th June, 2003.
29 Subsequent accounts
No audited accounts have been prepared for any of the companies comprising the Group in respect of any period
subsequent to 31st December, 2002.
Yours faithfully,
KPMG
Certified Public Accountants
Hong Kong
APPENDIX I ACCOUNTANTS’ REPORT
— 161 —
The forecast of the consolidated profit after taxation but before extraordinary items of the
Group for the year ending 31st December, 2003 is set out in the subsection headed “Profit
forecast” under the section headed “Financial information” of this prospectus.
BASES AND ASSUMPTIONS
The Directors have prepared the forecast of the consolidated profit after taxation but before
extraordinary items of the Group for the year ending 31st December, 2003 based on the
unaudited management accounts of the Group for the four months ended 30th April, 2003 and a
forecast of the results of the Group for the remaining eight months of the year ending 31st
December, 2003. The Directors are not aware of any extraordinary items which have arisen or are
likely to arise in respect of the year ending 31st December, 2003. The profit forecast has been
prepared on the basis of accounting policies consistent in all material respects with those
normally adopted by the Group as summarised in the accountants’ report, the text of which is set
out in appendix I to this prospectus.
The Directors have adopted the following assumptions in the preparation of the profit
forecast:
(i) There will be no material changes in the existing government policies or political,
military, legal, fiscal, market or economic conditions in Hong Kong and the PRC;
(ii) there will be no material changes in legislation or regulations or rules in Hong Kong
and the PRC which adversely affect the business of the Group;
(iii) there will be no material changes in the bases or rates of taxation in Hong Kong and
the PRC; and
(iv) there will be no material changes in exchange rates or interest rates from those present
prevailing.
APPENDIX II PROFIT FORECAST
— 162 —
A1a(34)(2)
LETTERS
Set out below are the texts of the letters received by the Directors from KPMG, the reporting
accountants and from Anglo Chinese, in connection with the profit forecast of the Group for the
year ending 31st December, 2003 and prepared for the purpose of incorporation in this
prospectus.
8th Floor
Prince’s Building
10 Chater Road
Central
Hong Kong
24th June, 2003
The Directors
Kwang Sung Electronics H.K. Co. Limited
Anglo Chinese Corporate Finance, Limited
Dear Sirs,
We have reviewed the accounting policies and calculations adopted in arriving at the
forecast consolidated profit after taxation but before extraordinary items of Kwang Sung
Electronics H.K. Co. Limited (the “Company”) and its subsidiary (hereinafter collectively referred
to as the “Group”) for the year ending 31st December, 2003 (the “forecast”), for which the
Directors of the Company (the “Directors”) are solely responsible, as set out in the subsection
headed “Profit forecast” in the section headed “Financial Information” in the prospectus of the
Company dated 24th June, 2003 (the “prospectus”).
The forecast has been prepared by the Directors based on the audited accounts of the Group
for the year ended 31st December, 2002, the unaudited management accounts of the Group for
the four months ended 30th April, 2003, and a forecast of the consolidated results of the Group
for the remaining eight months ending 31st December, 2003.
In our opinion, so far as the accounting policies and the calculations are concerned, the
forecast has been properly compiled on the bases and assumptions adopted by the Directors as
set out in appendix II of the prospectus and is presented on a basis consistent in all material
respects with the accounting policies normally adopted by the Group as set out in our
accountants’ report dated 24th June, 2003, the text of which is set out in appendix I of the
prospectus.
Yours faithfully,
KPMG
Certified Public Accountants
Hong Kong
APPENDIX II PROFIT FORECAST
— 163 —
A1a(9)(3)
A1a(4)
24th June, 2003
The Directors
Kwang Sung Electronics H.K. Co. Limited
Dear Sirs,
We refer to the forecast of the combined profit after taxation but before extraordinary items
of Kwang Sung Electronics H.K. Co. Limited (the “Company”) and its subsidiary for the year
ending 31st December, 2003 (the “Forecast”) as set out in the prospectus of the Company dated
24th June, 2003.
We have discussed with you the bases upon which the Forecast has been made. We have
also considered the letter dated 24th June, 2003, addressed to yourselves and ourselves from
KPMG regarding the accounting policies and calculations upon which the Forecast has been
made.
On the basis of the foregoing and the accounting policies and calculations reviewed by
KPMG, we have formed the opinion that the Forecast, for which you as directors are solely
responsible, has been made after due and careful consideration.
Yours faithfully,
For and on behalf of
Anglo Chinese Corporate Finance, Limited
Dennis Cassidy
Director
APPENDIX II PROFIT FORECAST
— 164 —
A1a(9)(3)
The following is the text of a letter, a summary of valuation and an extract of the valuation
certificate, prepared for the purpose of incorporation in this prospectus received from DTZ
Debenham Tie Leung Limited, the independent property valuer, in connection with their
valuation as at 30th April, 2003 of the property interests held by the Group.
24th June, 2003
The Directors
Kwang Sung Electronics H.K. Co., Limited
Units 7-9, 13th Floor, Wah Wai Centre
38-40 Au Pui Wan Street
Fo Tan, Sha Tin
New Territories
Hong Kong
Dear Sirs,
In accordance with your instructions for us to value the properties held by Kwang Sung
Electronics H.K. Co. Limited and/or its subsidiary (collectively the “Group”) in Hong Kong and
the People’s Republic of China (“the PRC”), we confirm that we have carried out inspections,
made relevant enquiries and searches and obtained such further information as we consider
necessary for the purpose of providing you with our opinion of the values of the properties as
at 30th April, 2003 (the “date of valuation”).
Our valuation of each of the properties represents its open market value which we would
define as intended to mean “an opinion of the best price at which the sale of an interest in
property would have been completed unconditionally for cash consideration on the date of
valuation, assuming:
(a) a willing seller;
(b) that, prior to the date of valuation, there had been a reasonable period (having regard
to the nature of the property and the state of the market) for the proper marketing of
the interest, for the agreement of the price and terms and for the completion of the
sale;
(c) that the state of the market, level of values and other circumstances were, on any
earlier assumed date of exchange of contracts, the same as on the date of valuation;
APPENDIX III PROPERTY VALUATION
— 165 —
A1a(9)(3)A1a(39)3rd Sch(34)(46)
(d) that no account is taken of any additional bid by a prospective purchaser with a special
interest; and
(e) that both parties to the transaction had acted knowledgeably, prudently and without
compulsion.”
Our valuations have been made on the assumption that the owners sell the properties on the
open market without the benefit of deferred terms contracts, leasebacks, joint ventures,
management arrangements or any similar arrangements which could serve to affect the values of
the properties.
In valuing the property in Group I which is owned by the Group in Hong Kong, we have
valued it by direct comparison approach by making reference to comparable sales transactions
as available in the relevant market.
In valuing a property situated in Hong Kong, the Government Lease of which expired before
30th June, 1997, we have taken into account that under the 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 in the New Territories Leases
(Extension) Ordinance such lease has been extended without payment of premium until 30th
June, 2047 and that a rent of three per cent. of the rateable value is charged per annum from the
date of extension.
In valuing the properties situated in the PRC, we have assumed that the Group has free and
uninterrupted right to use or to assign the property for the whole of the unexpired term as
granted. We have also assumed that transferable land use right in respect of the property for
specific term at nominal annual land use fee has been granted and that, unless otherwise stated,
any premium payable has already been fully paid. We have relied on the advice given by the
Group and the Group’s PRC legal adviser regarding the title to the property and the Group’s
interest in the property.
The properties in Groups II and III which are rented by the Group in Hong Kong and the
PRC respectively are considered to have no commercial value due mainly to the prohibitions
against assignment or sub-letting or otherwise due to the lack of substantial profit rents.
We have relied to a considerable extent on the information given by the Group and have
accepted advice given to us on such matters as planning approvals, statutory notices, easements,
tenure, particulars of occupancy, floor areas and all other relevant matters.
We have been provided with copies of the tenancy agreements relating to the properties.
However, we have not examined the original documents to ascertain ownership or to verify any
amendments which may not appear on the copies handed to us. The documents have been used
for reference only and all dimensions and measurements are based on the copies of documents
or other information provided to us by the Group and are therefore only approximations. Unless
otherwise stated, we have not been able to carry out detailed on-site measurements to verify the
APPENDIX III PROPERTY VALUATION
— 166 —
floor areas of the properties and we have assumed that the areas shown on the documents
handed to us are correct. We have no reason to doubt the truth and accuracy of the information
provided to us by the Group which are material to the valuation. We were also advised by the
Group that no material facts have been omitted from the information supplied.
We have not been provided with copies of the title documents relating to the properties in
Hong Kong but have caused searches to be made at the relevant Land Registry. However, we have
not perused the original documents to verify ownership or to ascertain any amendments. All
documents have been used for reference only and all dimensions, measurements and areas are
approximate.
We have inspected the exterior and where possible, the interior of the properties. However,
no structural survey has been made, but in the course of our inspection, we did not note any
serious defects. We are not, however, able to report whether the properties are free of rot,
infestation or any other structural defects. No test was carried out on any of the services.
No allowance has been made in our valuations for any charges, mortgages or amounts
owing on the properties nor any expenses or taxation which may be incurred in effecting a sale.
Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions
and outgoings of any onerous nature which could affect their values.
Unless otherwise stated, all money amounts stated in our valuations are in Hong Kong
dollars. The exchange rate adopted in our valuation is HK$1=RMB1.06 which was the
approximate exchange rate prevailing as at the date of valuation. There has been no significant
fluctuation in the said exchange rate between the date of valuation and the date of this letter.
We enclose herewith a summary of valuations and our valuation certificate.
Yours faithfully,
for and on behalf of
DTZ Debenham Tie Leung Limited
K.B. Wong
Registered Professional Surveyor (GP)
M.R.I.C.S., M.H.K.I.S.
Director
Note: Mr. K.B. Wong is a Registered Professional Surveyor who has extensive experience in the valuation of properties
in Hong Kong and the People’s Republic of China.
APPENDIX III PROPERTY VALUATION
— 167 —
SUMMARY OF VALUATIONS
Property
Capital value in
existing state as at
30th April, 2003
HK$
Group I — Property owned by the Group in Hong Kong
1. Workshops Nos. 8 and 9 on 13th Floor,
Wah Wai Centre,
38-40 Au Pui Wan Street,
Fo Tan, Sha Tin,
New Territories
1,200,000
Group II — Properties rented by the Group in Hong Kong
2. Workshop No. 7 on 13th Floor,
Wah Wai Centre,
38-40 Au Pui Wan Street,
Fo Tan, Sha Tin,
New Territories
No commercial value
3. Flat F on 28th Floor,
Tower 1,
Granville Garden,
18 Pik Tin Street,
Tai Wai, Sha Tin,
New Territories
No commercial value
4. Flat B on 7th Floor,
Block 32 and Western Car Parking
Space No. 69 on Level 1
Greenwood Terrace,
26-28 Sui Wo Road,
Sha Tin,
New Territories
No commercial value
5. Flat D on 12th Floor,
Tower 4,
The Greenwood (Phase 1),
Laguna Verde,
8 Laguna Verde Avenue,
Hunghom,
Kowloon
No commercial value
APPENDIX III PROPERTY VALUATION
— 168 —
Property
Capital value in
existing state as at
30th April, 2003
HK$
Group III — Properties rented by the Group in the PRC
6. Block No. 3,
The 5th Industrial Zone,
Shiyan Town,
Baoan District,
Shenzhen,
Guangdong Province
No commercial value
7. Block Nos. 7 and 8,
The 5th Industrial Zone,
Shiyan Town,
Baoan District,
Shenzhen,
Guangdong Province
No commercial value
8. Guanchang Dormitory Block Nos. 3, 4 and 5,
The 5th Industrial Zone,
Shiyan Town,
Baoan District,
Shenzhen,
Guangdong Province
No commercial value
9. Level 3 of a Dormitory Building,
The 5th Industrial Zone,
Shiyan Town,
Baoan District,
Shenzhen,
Guangdong Province
No commercial value
10. The Generator Room,
The 5th Industrial Zone,
Shiyan Town,
Baoan District,
Shenzhen,
Guangdong Province
No commercial value
11. Korean Canteen,
Si Din Xin Cun,
The 5th Industrial Zone,
Shiyan Town,
Baoan District,
Shenzhen,
Guangdong Province
No commercial value
APPENDIX III PROPERTY VALUATION
— 169 —
VALUATION CERTIFICATE
Group I — Property owned by the Group in Hong Kong
Property Description and tenure
Particulars of
occupancy
Capital value in
existing state as at
30th April, 2003
1. Workshops Nos. 8
and 9 on 13th
Floor,
Wah Wai Centre,
38-40 Au Pui Wan
Street,
Fo Tan, Sha Tin,
New Territories
20/3468th shares
of and in Sha Tin
Town Lot No. 140
The property comprises two industrial
units on the 13th floor of a 19-storey
industrial building completed in 1992.
The property has a gross floor area of
approximately 349.59 sq.m. (3,763 sq.ft.).
The property is held from the Government
for a term of 99 years less the last 3 days
from 1st July, 1898 which has been
statutorily extended to 30th June, 2047.
The current Government rent payable for
the property is an amount equal to 3% of
the rateable value for the time being of the
property per annum.
The property is
currently
occupied by
the Group
mainly for
ancillary office
and warehouse
purposes.
HK$1,200,000
Note: The registered owner of the property is Kwang Sung Electronics H.K. Co. Limited vide Assignment Memorial
Nos. 1229308 and 1229309.
APPENDIX III PROPERTY VALUATION
— 170 —
Group II — Properties rented by the Group in Hong Kong
Property Description and tenancy particulars
Capital value in
existing state as at
30th April, 2003
2. Workshop 7 on 13th Floor,
Wah Wai Centre,
38-40 Au Pui Wan Street,
Fo Tan, Sha Tin,
New Territories
The property comprises an industrial unit on the
13th floor of a 19-storey industrial building
completed in 1992.
The property has a gross floor area of
approximately 185.43 sq.m. (1,996 sq.ft.) and is
currently occupied by the Group for ancillary office
use.
The property is currently leased to the Group from
Yau Fook Hong Company Limited, an independent
third party of the Group, under a tenancy agreement
dated 11th March, 2002 for a term of 2 years
commencing from 1st March, 2002 to 29th February,
2004 at a monthly rent of HK$12,200, exclusive of
rates, management fees and all other outgoings.
No commercial value
3. Flat F on 28th Floor,
Tower 1,
Granville Garden,
18 Pik Tin Street,
Tai Wai, Sha Tin,
New Territories
The property comprises a domestic unit on the 28th
floor of a 28-storey residential building erected
upon a 5-level car park podium completed in 1997.
The property has a gross floor area of
approximately 77.85 sq.m. (839 sq.ft.) and is
currently occupied by the Group as staff quarter.
The property is currently leased to the Group from
Lam Kwong Fu and Lai Tung Mui, independent third
parties of the Group, under a tenancy agreement
dated 22nd November, 2002 for a term of 2 years
commencing from 10th December, 2002 to 9th
December, 2004 at a monthly rent of HK$9,000
inclusive of Government rent, rates and
management fees.
No commercial value
4. Flat B on 7th Floor,
Block 32 and Western Car
Parking Space No. 69 on
Level 1
Greenwood Terrace,
26-28 Sui Wo Road,
Sha Tin,
New Territories
The property comprises a domestic unit on the 7th
floor of a 9-storey residential block and a car
parking space on level 1 of the Western Car Park
completed in 1987.
The property has a gross floor area of
approximately 154.96 sq.m. (1,668 sq.ft.) and is
currently occupied by the Group as director’s
quarter.
The property is currently leased to the Group from
Sin Kang Yuk, an independent third party from the
Group, under a tenancy agreement dated 15th
October, 2002 for a term of 2 years commencing
from 1st November, 2002 to 31st October, 2004 at a
monthly rent of HK$24,000, inclusive of rates,
management fees, Government rent and service
charges.
No commercial value
APPENDIX III PROPERTY VALUATION
— 171 —
Property Description and tenancy particulars
Capital value in
existing state as at
30th April, 2003
5. Flat D on 12th Floor,
Tower 4,
The Greenwood (Phase 1),
Laguna Verde,
8 Laguna Verde Avenue,
Hunghom,
Kowloon
The property comprises a domestic unit on the 12th
floor of a 19-storey residential black completed in
1998.
The property has a gross floor area of
approximately 96.06 sq.m. (1,034 sq.ft.) and is
currently occupied by the Group as staff quarter.
The property is currently leased to the Group from
Ma Sak Ying Becky, an independent third party of
the Group under a tenancy agreement dated 15th
October, 2002 for a term of 2 years commencing
from 20th October, 2002 to 19th October, 2004 at a
monthly rent of HK$16,000, inclusive of rates,
management fees and Government rent.
No commercial value
Group III — Properties rented by the Group in the PRC
6. Block No. 3,
The 5th Industrial Zone,
Shiyan Town,
Baoan District,
Shenzhen,
Guangdong Province
The property comprises a block of 4-storey
industrial building completed in 1992.
The property has a gross floor area of
approximately 3,375.00 sq.m. (36,329 sq.ft.) and is
currently occupied by the Group for warehouse and
ancillary office uses.
The property is currently rented by the Group
from Shiyan Town Property Development Co., Ltd.
( ), an independent third
party of the Group under the lease agreement dated
4th January, 2000 for a term from 24th March, 2000
to 24th March, 2003. Under a supplemental
agreement between the same parties dated 11th
April, 2003, the term has been extended for one
more year until 24th March, 2004. The current
monthly rent of the property is RMB27,000 exclusive
of utilities charges, management fee and other
outgoings.
No commercial value
APPENDIX III PROPERTY VALUATION
— 172 —
Property Description and tenancy particulars
Capital value in
existing state as at
30th April, 2003
7. Block Nos. 7 and 8,
The 5th Industrial Zone,
Shiyan Town,
Baoan District,
Shenzhen,
Guangdong Province
The property comprises two blocks of 4-storey
industrial building completed in 1992.
The property has a total gross floor area of
approximately 8,390.00 sq.m. (90,310 sq.ft.) and is
currently occupied by the Group for workshop and
ancillary office uses.
The property is currently rented by the Group from
Shenzhen Guanlida Industry Stock Co., Ltd.
( ), an independent third party
of the Group under the lease agreement and its
supplemental agreement both dated 26th April, 2002
for a term from 20th April, 2002 to 19th April, 2005
at a monthly rent of RMB83,900 for the first year
and RMB88,095 for the remaining 2 years, exclusive
of utilities charges, management fee and other
outgoings.
No commercial value
8. Guanchang Dormitory
Block Nos. 3, 4 and 5,
The 5th Industrial Zone,
Shiyan Town,
Baoan District,
Shenzhen,
Guangdong Province
The property comprises three blocks of 6-storey
dormitory building completed in 1992.
The property has a total gross floor area of
approximately 5,696.70 sq.m. (61,319 sq.ft.) and is
currently occupied by the Group for staff quarters
use.
The property is currently rented by the Group from
Shenzhen Guanlida Industry Stock Co., Ltd.
( ), an independent third party
of the Group under the lease agreement and its
supplemental agreement both dated 24th February,
2002 for a term from 1st June, 2002 to 19th April,
2005 at a total monthly rent of RMB51,270.30,
exclusive of utilities charges, management fee and
other outgoings.
No commercial value
APPENDIX III PROPERTY VALUATION
— 173 —
Property Description and tenancy particulars
Capital value in
existing state as at
30th April, 2003
9. Level 3 of a Dormitory
Building,
The 5th Industrial Zone,
Shiyan Town,
Baoan District,
Shenzhen,
Guangdong Province
The property comprises the 3rd level of a 5-storey
dormitory building completed in 2000.
The property has a gross floor area of
approximately 120 sq.m. (1,292 sq.ft.) and is
currently occupied by the Group for staff quarters
use.
The property is currently rented by the Group from
and , independent third parties of the
Group under the lease agreement dated 1st
September, 2002 for a term from 1st September,
2002 to 31st August, 2003 at a monthly rent of
RMB1,000, exclusive of utilities charges,
management fee and other outgoings. The Group is
unable to ascertain whether the existing landlords
have title to the property and the right or
authorisation to lease the property to the Group. If
the landlords of the property do not have title to the
property or the right or authorisation to lease the
property, the existing lease agreement would not be
valid under the PRC laws and regulations. The
beneficial owner of the property may have the right
to take possession and may request the Group to
vacate the property.
No commercial value
10. The Generator Room,
The 5th Industrial Zone,
Shiyan Town,
Baoan District,
Shenzhen,
Guangdong Province
The property comprises a block of single-storey
building completed in 2001.
The property has a gross floor area of
approximately 240.0 sq.m. (2,583 sq.ft.) and is
currently occupied by the Group for the installation
of generator.
The land comprising a site area of approximately
240.00 sq.m. (2,583 sq.ft.) of which the generator
room is erected upon is currently rented by the
Group from Shiyan Town Property Development
Co., Ltd. ( ), an
independent third party of the Group under the
lease agreement dated 8th June, 2001 for a term
from 1st July, 2001 to 30th June, 2006 at a monthly
rent of RMB960, exclusive of utilities charges and
other outgoings. The Group is unable to ascertain
whether the existing landlord has title to the
property and the right or authorisation to lease the
property to the Group. If the landlord of the
property does not have title to the property or the
right or authorisation to lease the property, the
existing lease agreement would not be valid under
the PRC laws and regulations. The beneficial owner
of the property may have the right to take
possession and may request the Group to vacate the
property.
No commercial value
APPENDIX III PROPERTY VALUATION
— 174 —
Property Description and tenancy particulars
Capital value in
existing state as at
30th April, 2003
11. Korean Canteen,
Si Din Xin Cun,
The 5th Industrial Zone,
Shiyan Town,
Baoan District,
Shenzhen,
Guangdong Province
The property comprises 2nd level of a 5-storey
building completed in 2000.
The property has a gross floor area of
approximately 80 sq.m. (861 sq.ft.) and is currently
occupied by the Group for staff canteen use.
The property is currently rented by the Group from
, an independent third party of the Group
under the lease agreement dated 1st September,
2002 for a term from 1st September, 2002 to 31st
August, 2003 at a monthly rent of RMB600, exclusive
of utilities charges and other outgoings. The Group
is unable to ascertain whether the existing landlord
has title to the property and the right or
authorisation to lease the property to the Group. If
the landlord of the property does not have title to
the property or the right or authorisation to lease
the property, the existing lease agreement would
not be valid under the PRC laws and regulations.
The beneficial owner of the property may have the
right to take possession and may request the Group
to vacate the property.
No commercial value
APPENDIX III PROPERTY VALUATION
— 175 —
Set out below is a summary of certain provisions of the memorandum and articles of
association of the Company.
The Articles were conditionally adopted on 16th June, 2003. The following is a summary of
certain provisions of the Articles:
Alteration of capital
The Company may from time to time by ordinary resolution (a) consolidate and divide
all or any of its share capital into shares of larger or smaller amount than its existing shares;
(b) cancel any shares which at the date of the passing of the resolution have not been taken
or agreed to be taken by any person, and diminish the amount of its share capital by the
amount of the shares so cancelled; and (c) sub-divide its shares or any of them into shares
of smaller amount than is fixed by the memorandum of association of the Company and the
resolution may determine that, as between the holders of the shares resulting from the
sub-division, one or more of the shares may have any such preferred or other special rights
over other shares or to be subject to any such restrictions which the Company has power to
attach to unissued or new shares, subject nevertheless to the provisions of the Companies
Ordinance.
The Company may by special resolution reduce its share capital, any capital
redemption reserve fund or any share premium account in any manner authorised and
subject to any conditions prescribed by law.
Modification of rights
Subject to section 64 of the Companies Ordinance, if at any time the share capital is
divided into different classes of shares, the rights attached to any class of shares (unless
otherwise provided by the terms of issue of the shares of that class) may be varied, modified
or abrogated 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 the class. To every such
separate general meeting, the provisions of these regulations relating to general meetings of
the Company shall mutatis mutandis apply, but so that the necessary quorum shall be two
persons at least holding or representing by proxy or by authorised representative not less
than one-third in nominal value of the issued shares of that class and that every holder of
shares of that class shall be entitled on a poll to one vote for every share of that class held
by him, and any holder of shares of the class present in person or by proxy or by authorised
representative may demand a poll and that at any adjourned meeting of the holders, two
persons holding shares of that class present in person or by proxy or by authorised
representative (whatever the number of shares held by them) shall be a quorum.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY
— 176 —
A1a(7)(6)
A1a(25)(3)
3rd Sch(20)
Votes of members
Subject to any special rights, privileges or restrictions as to voting for the time being
attached to any class or classes of shares, at any general meeting of the Company on a show
of hands every member who (being an individual) is present in person or (being a
corporation) is present by a representative duly authorised under section 115 of the
Companies Ordinance shall have one vote, and on a poll every member who is present in
person or by proxy or by duly authorised representative shall have one vote for every fully
paid up share of which he is the holder.
Where a member of the Company is a recognised clearing house within the meaning
of the SFO or its nominees, it may authorise such person or persons as it thinks fit to act as
its representative(s) or proxy(ies) at any general 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 or proxy form shall specify the number and class of shares in
respect of which each such person is so authorised. The person so authorised shall be
entitled to exercise the same rights and powers on behalf of the clearing house (or its
nominee(s)) which he represents as that clearing house (or its nominee(s)) would be
entitled to exercise as if such person were an individual member of the Company including
the right to vote individually on a show of hands.
Borrowing powers
The Board may from time to time at their discretion exercise all the powers of the
Company to raise or borrow, or to secure the payment of, any sum or sums of money for the
purposes of the Company. Further, the Board to mortgage or charge its undertaking,
property and uncalled capital or any part thereof and may raise or secure the payment or
repayment of such sum or sums in such manner as they think fit, and in particular, by the
issue of debentures, debenture stock, bonds or 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.
Directors
The number of Directors shall be not less than two. A Director is not required to hold
any qualification shares but shall nevertheless be entitled to receive a notice of and to attend
and speak at all general meetings of the Company and at all separate meetings of the
respective holders of all classes of shares of the Company.
The Company may by special resolution remove any Director (including a managing or
other executive director) before the expiration of his period of office and may elect another
person in his stead for the remaining period of office.
Subject to provisions in the Articles, at every annual general meeting, one-third of the
Directors for the time being, or if their number is not three or a multiple of three, then the
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY
— 177 —
3rd Sch(20)A1a(25)(1)
3rd Sch(22)A1a(7)(3)
A1a(7)(5)3rd Sch(5)
number nearest to but not exceeding one-third, shall retire from office. The chairman of the
Board, the managing director, the joint managing director and/or deputy managing director
of the Company shall not, whilst holding such office, be subject to retirement by rotation or
be taken into account in determining the number of Directors to retire at each annual
general meeting.
Without prejudice to the provisions for retirement by rotation or otherwise contained
in the Articles, a Director shall vacate office if by notice in writing served upon him and
signed by all his co-Directors.
Subject to the provisions of the Companies Ordinance, no person shall be required to
vacate office or be ineligible for appointment, re-appointment or re-election as a Director
by reason only of his having attained any particular age.
The Directors shall be entitled to receive by way of remuneration for their services such
sum as shall from time to time be determined by the members in general meeting of the
Company or by the Board on the authority of the Company. A Director shall receive such
extra remuneration (whether by way of salary, commission, participation in profits or
otherwise) as the Board may determine and in addition to his remuneration as a Director.
Each Director shall be entitled to be repaid all travelling, hotel and other expenses
reasonably incurred by him in or about the performance of his duties as a Director,
including his expenses of travelling to and from board meetings, committee meetings or
general meetings or otherwise incurred while engaged in the business of the Company. Any
Director who performs any special or extra services to or at the request of the Company may
be paid special remuneration. Such special remuneration may be made payable to such
Director in addition to or in substitution of his ordinary remuneration as a Director, and may
be made by way of salary, commission, participation in profits or otherwise as may be
arranged.
Notwithstanding the above, the remuneration of a Director appointed to any office in
the management of the Company shall from time to time be fixed by the Board and may be
by way of salary, commission, participation in profits or otherwise or by all or any of those
modes and with 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 shall be in addition to his remuneration as a Director.
Directors’ interests
A Director may hold any other office or place of profit with the Company (except that
of an auditor) in conjunction with his office of Director for such period and upon such terms
as the Board may determine, and may be paid such extra remuneration therefor (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 any remuneration provided for by or
pursuant to any other provision of the Articles.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY
— 178 —
A1a(7)(2)3rd Sch(5)
A1a(7)(2)3rd Sch(5)
Subject to the Companies Ordinance and the provisions of the Articles, no Director or
proposed or intending 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 of the
fiduciary relationship thereby established.
A Director who to his knowledge or proposed contract or arrangement is in any way,
whether directly or indirectly, interested in a 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 that
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. For this purpose, a general notice to the Board given
by a Director to the effect that (a) he is a member of a specified company or firm and is to
be regarded as interested in any contract or arrangement which may after the date of the
notice be made with that company or firm; or (b) he is to be regarded as interested in any
contract or arrangement which may after the date of the notice be made with a specified
person who is connected with him, shall be deemed to be a sufficient declaration of interest
in relation to any such contract or arrangement; provided that no such notice shall be
effective unless it is given at a meeting of the Board or the Director takes reasonable steps
to secure that it is brought up and read at the next meeting of the Board after it is given.
Save as otherwise provided by the Articles, a Director shall not vote on, nor be counted
in the quorum in relation to, any resolution of the Board in respect of any contract or
arrangement in which he is to his knowledge materially interested, but this prohibition shall
not apply to any of the following matters:
(a) the giving to him by the Company of any indemnity or security in respect of
money lent by him or obligations incurred or undertaken by him at the request of
or for the benefit of the Company and/or any of its subsidiaries;
(b) the giving to a third party by the Company of any indemnity or security in respect
of a debt or obligation of the Company or any of its subsidiaries for which the
Director has himself assumed responsibility in whole or in part whether alone or
jointly under a guarantee or indemnity or by the giving of security;
(c) any contract or arrangement concerning an offer of the 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
is or is to be interested as a participant in the underwriting or sub-underwriting
of the offer;
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY
— 179 —
A1a(7)(1)
(d) any contract or arrangement in which the Director is interested in the same
manner as other holders of shares or debentures or other securities of the
Company by virtue of his interest in shares or debentures or other securities of the
Company;
(e) any contract, arrangement or proposal concerning any company (not being a
company in which the Director, together with any of his associates, owns five per
cent. or more of the equity share capital or of the voting rights available) in which
he is interested only, whether directly or indirectly, as an officer, executive or
shareholder of that company;
(f) any proposal or arrangement concerning the benefit of employees of the
Company or its subsidiaries including the adoption, modification or operation of
a pension fund or retirement, death or disability benefits scheme which relates
both to Directors and employees of the Company or of any of its subsidiaries and
does not provide in respect of any Director as such any privilege or advantage not
accorded to the employees to which the fund or scheme relates;
(g) any proposal or arrangement concerning the adoption, modification or operation
of any share incentive or share option scheme under which the Director may
benefit; and
(h) any contract or arrangement by a Director to subscribe for shares, debentures or
other securities of the Company issued or to be issued pursuant to any offer or
invitation to members or debenture holders of the Company or any class thereof,
and which does not provide in respect of any Director as such any privilege or
advantage not accorded to any other members or debenture holders of the
Company or any class thereof or to the public or any sections thereof.
Any Director may act by himself or his firm in a professional capacity for the Company
(otherwise than as auditor), and he or his firm shall be entitled to remuneration for
professional services as if he was not a Director.
Dividends
The Company may in general meeting declare dividends in any currency, but no
dividend shall exceed the amount recommended by the Board.
Except in so far as the rights attaching to, or the terms of issue of, any share with
special rights as to dividend, all dividends shall be declared and paid according to the
amounts paid up on the shares in respect of which the dividend is paid, but no amount paid
up on a share in advance of calls shall be treated for this purpose as paid up on the share.
The Board may from time to time pay such interim dividends as appear to the Board
to be justified by the profits of the Company and may also pay half-yearly or at other suitable
intervals to be settled by it any dividend which may be payable at a fixed rate if the Board
is of the opinion that the profits justify the payment.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY
— 180 —
A1a(7)(7)A1a(12)
3rd Sch(20)
The Directors may deduct from any dividend or bonus payable to a member by the
Company all sums of money (if any) presently payable by him to the Company on account
of calls, instalments or otherwise in relation to the shares of the Company.
In respect of any dividend proposed to be paid or declared by the Board or by the
Company in general meeting, the Board may further resolve that (a) such dividend be
satisfied wholly or in part in the form of an allotment of shares credited as fully paid
provided that the members entitled thereto will be entitled to elect to receive such dividend
(or part thereof) in cash in lieu of such allotment; or (b) the members entitled to such
dividend be entitled to elect to receive an allotment of shares credited as fully paid in lieu
of the whole or such part of the dividend as the Board may think fit.
Notwithstanding this, the Company may, upon the recommendation of the Board, by
special resolution, resolve that any particular dividend of the Company be satisfied wholly
by the allotment of shares credited as fully paid without offering any right to shareholders
to elect to receive such dividend in cash in lieu of such allotment.
All dividends 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 of thereof for any profit or benefit
derived therefrom. Any dividend unclaimed after a period of six years after having been
declared may be forfeited by the Board and shall revert to the Company.
Transfer of shares
Subject to such restrictions of the Articles as may be applicable, any member may
transfer all or any of his shares by an instrument of transfer in the usual or common form
or in such other form as prescribed by the Stock Exchange or in such other form as the
Board may accept. Such transfer may be under hand or, if the transferor or transferee is a
clearing house or its nominee(s), under hand or by machine imprinted signature or by such
other manner of execution as the Board may approve from time to time.
The instrument of transfer of any share shall be executed by or on behalf of the
transferor and the transferee. The transferor shall, for all purposes hereof, remain the holder
of the share until the name of the transferee is entered in the register of members in respect
thereof. Nothing in the Articles shall preclude the Board from recognising a renunciation of
the allotment or provisional allotment of any share by the allottee in favour of some person.
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 or any share
(not being a fully paid up share) on which the Company has a lien.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY
— 181 —
A1a(7)(8)
The Board may also decline to register any instrument of transfer unless:
(a) the instrument of transfer, duly stamped (if applicable), is accompanied by the
certificate of the shares to which it relates and such other evidence as the Board
may reasonably require to show the right of the transferor to make the transfer;
(b) a fee is paid to the Company for registering the transfer such fee being the amount
determined to be payable by the Stock Exchange or such lesser sum as the Board
may from time to time prescribe);
(c) the instrument of transfer is in respect of only one class of shares; and
(d) the shares concerned are free from any lien in favour of the Company.
If the Board refuses to register a transfer of any share, it shall, within two months after
the date on which the instrument of transfer was lodged with the Company, send to the
transferor and the transferee a notice of such refusal as required by section 69 of the
Companies Ordinance.
Purchase of Shares
The Company is authorised by the Articles to purchase its shares and may do so so far
as is permitted by the Companies Ordinance or any other applicable ordinance and the
purchase is made in accordance with any relevant rules or regulations issued by the Stock
Exchange or the SFC from time to time.
APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY
— 182 —
Art 5
FURTHER INFORMATION ABOUT THE COMPANY AND ITS SUBSIDIARIES
Incorporation of the Company
The Company was incorporated in Hong Kong with limited liability under the Companies
Ordinance on 5th May, 1987. The Company was formerly known as All Profit Industries Limited
until it changed its name on 12th January, 1995. The Company’s registered office is at Units 7-9,
13th Floor, Wah Wai Centre, 38-40 Au Pui Wan Street, Fotan, Shatin, New Territories, Hong Kong.
As the Company was incorporated in Hong Kong, it is subject to the laws of Hong Kong. A
summary of the Articles is set out in appendix IV to this prospectus.
Changes in share capital
As at the date of incorporation of the Company, the Company’s authorised share capital was
HK$10,000 divided into 10,000 shares of HK$1.0 each.
On 28th September, 2002, the authorised and issued share capital of the Company,
comprising 700,000 shares of HK$1.0 each, was subdivided into 7,000,000 shares of HK$0.10
each.
The authorised share capital of the Company was increased from HK$700,000 to
HK$150,000,000 by the creation of 1,493,000,000 new Shares pursuant to a resolution in writing
passed by the Shareholders referred to in the sub-paragraph headed “Written resolutions of the
Shareholders passed on 16th June, 2003” below.
Immediately following the Share Offer and the Capitalisation Issue becoming unconditional
and the issue of Shares as mentioned herein being made (taking no account of any Shares which
may be issued and allotted pursuant to the Share Option Scheme and upon the exercise of the
Over-allotment Option), the authorised share capital of the Company will be HK$150,000,000
divided into 1,500,000,000 Shares, of which 300,000,000 Shares will be issued fully paid or
credited as fully paid, and 1,200,000,000 Shares will remain unissued. Other than pursuant to the
exercise of any options which may be granted under the Share Option Scheme or upon the
exercise of the Over-allotment Option, 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 Shareholders
in general meeting, no issue of Shares will be made which would effectively alter the control of
the Company.
Save as disclosed herein, there has been no alteration in the share capital of the Company
within the two years preceding the date of the prospectus.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 183 —
A1a(5)
A1a(26)3rd Sch(2)
A1a(23)(1)
3rd Sch(11)
A1a(15)(1)
Written resolutions of the Shareholders passed on 16th June, 2003
On 16th June, 2003, written resolutions of the Company were passed pursuant to which,
inter alia:
(a) conditional on the listing committee of the Stock Exchange granting listing of, and
permission to deal in, the Shares in issue and the new Shares to be issued pursuant to
the Share Offer (including those which may be made available pursuant to the exercise
of the Over-allotment Option) and on the obligations of the Underwriters under the
Underwriting Agreement becoming unconditional (including, if relevant, as a result of
the waiver of any condition(s) by the Underwriters) and not being terminated in
accordance with the terms of the Underwriting Agreement or otherwise, in each case
on or before the day immediately before the date on which trading in the Shares
commences on the Stock Exchange:
(i) the authorised capital of the Company was increased from HK$700,000 to
HK$150,000,000 by the creation of 1,493,000,000 new Shares ranking pari passu
in all respects with the existing issued Shares;
(ii) the proposed issue of 9,000,000 new Shares to the public for subscription and
placing of 81,000,000 Shares to professional and institutional investors (including
such Shares which may be issued pursuant to the exercise of the Over-allotment
Option) on the terms and subject to the conditions set out in this prospectus were
approved;
(iii) the Directors were authorised to allot and issue such number of Shares in
connection with the Share Offer as they may think fit on and subject to such terms
and conditions that they may in their absolute discretion decide;
(iv) conditional upon the listing committee of the Stock Exchange granting approval
of the Share Option Scheme and the listing of, and permission to deal in, the
Shares which may be issued pursuant to the exercise of any options granted under
the Share Option Scheme, the Share Option Scheme were approved and adopted
(subject to any further amendments to the Share Option Scheme that may be
requested by the Stock Exchange and approved by any two Directors) and the
Directors were authorised, at their absolute discretion, to grant options to
subscribe for Shares thereunder, to allot and issue Shares pursuant to the exercise
of such options and to take all such steps as may be necessary or desirable to
implement the Share Option Scheme;
(v) the Articles was approved and adopted as the new Articles in substitution for and
to the exclusion of all the existing Articles, the terms of which are summarised in
appendix IV to this prospectus;
(vi) conditional on the share premium account of the Company being credited as a
result of the Share Offer, the Directors were authorised to capitalise
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 184 —
HK$23,300,000 standing to the credit of the share premium account of the
Company by applying such sum in paying up in full at par 233,000,000 Shares for
allotment and issue to the holders of Shares whose names appear on the register
of members of the Company at the close of business on 2nd July, 2003 (or as they
may direct) in proportion (as nearly as possible without involving fractions) to
their existing holdings (the “Capitalisation Issue”), such Shares to be allotted and
issued shall rank pari passu in all respects with the existing issued Shares;
(vii) a general unconditional mandate was given to the Directors to allot, issue and
deal with unissued Shares, save that, otherwise than pursuant to, or in
consequence of, the Share Offer, a rights issue, the exercise of any subscription
rights under options granted under the Share Option Scheme, any scrip dividend
or similar arrangement, any adjustment of rights to subscribe for Shares under
options and warrants or a specific authority granted by the Shareholders, such
mandate is limited to Shares with an aggregate nominal value not exceeding the
sum of (1) 20% of the aggregate nominal amount of the share capital of the
Company in issue immediately following completion of the Share Offer and the
Capitalisation Issue (such share capital shall include Shares which may be issued
upon the exercise of the Over-allotment Option); and (2) the aggregate nominal
amount of the share capital of the Company which may be purchased by the
Company under the authority referred to in paragraph (viii) below, such mandate
to remain in effect until the conclusion of the next annual general meeting of the
Company, or the expiration of the period within which the next annual general
meeting of the Company is required by the Articles or the Companies Ordinance
or any other applicable laws of Hong Kong to be held, or when it is revoked,
varied or renewed by an ordinary resolution of the Shareholders in general
meeting of the Company, whichever is the earliest; and
(viii) a general unconditional mandate was given to the Directors to exercise all the
powers of and on behalf of the Company to purchase on the Stock Exchange or
on any other stock exchange on which the Shares may be listed and which is
recognised by the SFC and the Stock Exchange for this purpose, such number of
Shares with an aggregate nominal value of not exceeding 10% of the aggregate
nominal amount of the share capital of the Company in issue immediately
following completion of the Share Offer and the Capitalisation Issue (including
Shares which may be issued pursuant to the exercise of the Over-allotment
Option); such mandate to remain in effect until the conclusion of the next annual
general meeting of the Company, or the expiration of the period within which the
next annual general meeting of the Company is required by the Articles or the
Companies Ordinance or any other applicable laws of Hong Kong to be held, or
when it is revoked, varied or renewed by an ordinary resolution of the
Shareholders in general meeting of the Company, whichever is the earliest.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 185 —
Changes in share capital of subsidiary
The subsidiary of the Company is referred to in the accountants’ report, the text of whichis set out in appendix I to this prospectus.
The following alterations in the share capital of the Company’s subsidiary have taken placewithin the two years preceding the date of this prospectus:
The board of directors of Shenzhen Kwang Sung resolved and approved on 2nd July, 2002the proposed transfer of the entire equity interest held by (ShenzhenBao Jin Company Limited) in Shenzhen Kwang Sung, representing 10% of the registered capitalof Shenzhen Kwang Sung, to the Company (the “Transfer”). An approval was obtained from
(Shenzhen Foreign Trade and Economic Cooperation Bureau) on 8thAugust, 2002 in respect of the Transfer. As a result of the Transfer, Shenzhen Kwang Sung becamea wholly owned foreign enterprise and a wholly owned subsidiary of the Company.
Save as disclosed herein, there has been no alteration in the share capital of the subsidiaryof the Company within the two years preceding the date of this prospectus.
SHARE REPURCHASE MANDATE
This section includes information required by the Stock Exchange to be included in thisprospectus concerning the repurchase by the Company of its own shares.
(a) Provisions of the Listing Rules
The Listing Rules permit companies whose primary listing is on the Stock Exchange torepurchase their shares on the Stock Exchange subject to certain restrictions, the more importantof which are summarised below:
(i) Shareholders’ approval
All proposed repurchases of shares (which must be fully paid up) by a company whoseprimary listing is on the Stock Exchange must be approved by its shareholders in advanceby an ordinary resolution, either by way of a general mandate to its directors or by a specificapproval of a particular transaction.
Note: Pursuant to a written resolution passed by the Shareholders on 16th June, 2003, a general
unconditional mandate (the “Repurchase Mandate”) was given to the Directors to exercise all the
powers of and on behalf of the Company to purchase on the Stock Exchange or on any other stock
exchange on which the Shares may be listed and which is recognised by the SFC and the Stock
Exchange for this purpose, such number of Shares with an aggregate nominal value of not exceeding
10% of the aggregate nominal amount of the share capital of the Company in issue immediately
following completion of the Share Offer and the Capitalisation Issue (including Shares which may be
issued pursuant to the exercise of the Over-allotment Option); such mandate to remain in effect until
the conclusion of the next annual general meeting of the Company, or the expiration of the period
within which the next annual general meeting of the Company is required by the Articles or the
Companies Ordinance or any other applicable laws of Hong Kong to be held, or when it is revoked,
varied or renewed by an ordinary resolution of the Shareholders in general meeting of the Company,
whichever is the earliest.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 186 —
A1a(29)(1)3rd Sch(11)
(ii) Source of funds
Repurchases must be funded out of funds legally available for such purposes in
accordance with the memorandum and Articles of the Company and the applicable laws of
Hong Kong.
(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 at any appropriate time. Such repurchases may, depending on
market conditions and funding arrangements at that time, lead to an enhancement of the net asset
value and/or earnings per Share and will only be made if the Directors believe that such
repurchases will benefit the Company and the Shareholders.
(c) Financial effect of repurchases
There might be a material adverse effect on the working capital or gearing position of the
Company, as compared with the position disclosed in this prospectus, in the event that the
Repurchase Mandate is exercised in full at any time. 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 or gearing position of the Company which, in each
case and in the opinion of the Directors, are from time to time appropriate for the Company.
(d) General
(i) Applicability
Exercise in full of the Repurchase Mandate, on the basis of 300,000,000 Shares in issue
immediately after the listing of the Shares on the Main Board (subject to any Shares which
may be issued under the Over-allotment Option), could result in up to 30,000,000 Shares
being repurchased by the Company during the period prior to:
— the conclusion of the next annual general meeting of the Company; or
— the expiration of the period within which the next annual general meeting of the
Company is required by the Articles or the Companies Ordinance or any other
applicable laws of Hong Kong to be held; or
— when it is revoked, varied or renewed by an ordinary resolution of the
Shareholders in general meeting of the Company,
whichever is the earliest.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 187 —
(ii) Directors and connected persons
None of the Directors nor, to the best of their knowledge having made all reasonable
enquiries, their associates, have any present intention to sell any Shares to the Company.
No connected person (as defined in the Listing Rules) has notified the Company that
he has a present intention to sell any Shares to the Company, or has undertaken not to do
so if the Repurchase Mandate is exercised.
(iii) Undertaking
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 Listing Rules
and the applicable laws of Hong Kong.
(iv) Effect of the Takeovers Code
If, as the result of a repurchase of Shares, a Shareholder’s proportionate interest in the
voting rights of the Company is increased, such increase will be treated as an acquisition for
the purposes of the Code on Takeovers and Mergers (the “Takeovers Code”). 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
the Takeovers Code. Save as aforesaid, the Directors are not aware of any consequences
which would arise under the Takeovers Code as a consequence of any repurchases pursuant
to the Repurchase Mandate.
FURTHER INFORMATION ABOUT THE BUSINESS OF THE GROUP
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 preceding the date of this prospectus
and are or may be material:
(a) a transfer agreement dated 29th July, 2002 entered into between the Company and the
liquidation committee of (Shenzhen Bao Jin Company
Limited) relating to the transfer of 10% equity interest in Shenzhen Kwang Sung for a
consideration of RMB1.00;
(b) a deed of indemnity dated 23rd June, 2003 given by Kwang Sung Korea and Mr. Yang
in favour of the Group containing the indemnities in respect of, inter alia, estate duty,
taxation, properties, litigation matters and the second assembling and processing
agreement referred to in the paragraph headed “Other information” of this appendix V;
(c) the Deed of Undertaking; and
(d) the Underwriting Agreement.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 188 —
A1a(52)3rd Sch(17)
Intellectual property
As at the Latest Practicable Date, the Group has applied for registration of the following
trade marks in Hong Kong:
Trade mark Class (Note)
Application
number Application date
KSE 9 2002/13985 6th September, 2002
9 2002/13984 6th September, 2002
KWANG SUNGELECTRONICS H.K. CO. LIMITED
16 2002/13986 6th September, 2002
KSE 16 2002/14813 20th September, 2002
16 2002/14812 20th September, 2002
As at the Latest Practicable Date, the Group has applied for registration of the following
trade marks in the PRC:
Trade mark Class (Note)
Application
number Application date
KSE 9 3319396 25th September, 2002
9 3319440 25th September, 2002
KWANG SUNGELECTRONICS H.K. CO. LIMITED
16 3319437 25th September, 2002
KSE 16 3319438 25th September, 2002
16 3319395 25th September, 2002
Notes:
Class Specification
9 inter alia, electronic tuner packs and modules, dielectric filters, transformers, inductors, antennae and
coils, meters, power supply modules, ceramic filters, adaptors
16 inter alia, paper, cardboard, printer matter, printed publications, note books, plastic materials for
packaging (not included in other classes), technical manuals
Save as mentioned above, there are no registered intellectual property rights which are or
may be material in relation to the Group’s business and which are beneficially owned by the
Group.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 189 —
DISCLOSURE OF INTERESTS
Interests in Shares
(a) Immediately following completion of the Share Offer and the Capitalisation Issue and
taking no account of any Shares which may be issued and allotted pursuant to the
Share Option Scheme or the exercise of the Over-allotment Option, the interests and
short positions of each of the Directors and chief executive of the Company in the
shares, underlying shares and debentures of the Company or any of its associated
corporations (within the meaning of Part XV of the SFO), which, once the Shares are
listed on the Stock Exchange, 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 which he is taken or deemed to have under such provisions of the SFO),
or will be required pursuant to section 352 of the SFO, to be entered in the register
referred to therein, or will be required to be notified to the Company and the Stock
Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed
Companies in the Listing Rules (all of the aforesaid being “Discloseable Interests”), will
be as follows:
Name of Director
Capacity/
Nature of interest
Number of
Shares
Approximate
percentage of
shareholding
(%)
Mr. Yang Beneficial owner 112,286,057
13,500,000
(Note 1)
37.4%
4.5%
Interest of controlled
corporation
97,713,943
(Note 2)
32.6%
Notes:
1. Out of the 112,286,057 Shares beneficially owned by Mr. Yang, 13,500,000 Shares are the subject of the
Stock Borrowing Agreement.
2. Mr. Yang and his relatives are interested in 79.5% of the issued share capital of Kwang Sung Korea and
therefore, Mr. Yang is deemed or taken to be interested in these Shares which are beneficially owned
by Kwang Sung Korea for the purposes of the SFO.
Save as disclosed above, none of the Directors will at the aforesaid time have any
Discloseable Interests.
(b) Information on the person, not being a Director or chief executive of the Company,
who has an interest or short position in the shares and underlying shares of the
Company which would fall to be disclosed to the Company under the provisions of
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 190 —
A1a(45)(1)3rd Sch(30)
Divisions 2 and 3 of Part XV of the SFO or who is, directly or indirectly interested in
10% or more of the nominal value of any class of share capital carrying rights to vote
in all circumstances at general meetings of any other member of the Group is set out
in the section headed “Substantial Shareholders” of this prospectus.
Directors’ remuneration
(a) Each of Mr. Yang, Mr. Kim Sun Cheol, Mr. Lee Byung Kwan and Mr. Yang Ho Sung has
entered into a service agreement with the Company dated 16th June, 2003 with effect
from 1st March, 2003; whereas each of Dr. Kim Chung Kweon and Dr. Han Byung Joon
has entered into a letter of appointment dated 11th October, 2002 with effect from 11th
October, 2002. Particulars of these agreements and appointment letters, except as
indicated, are in all material respects identical and are set out below:
(i) each service agreement will continue until terminated and each service agreement
may be terminated by either party by three months’ prior notice; and
(ii) the annual salary of each of Mr. Yang, Mr. Kim Sun Cheol, Mr. Lee Byung Kwan,
Mr. Yang Ho Sung, Dr. Kim Chung Kweon and Dr. Han Byung Joon will be
HK$650,000, HK$650,000, HK$676,000, HK$455,000, HK$80,000 and HK$80,000
per annum, respectively, until such review by the Company.
(b) During the year ended 31st December, 2002, the aggregate value of remuneration paid
and benefits in kind granted to the Directors were HK$3,222,000. Further information
in respect of the Directors’ remuneration is set out in Appendix I to this prospectus.
(c) An estimate of approximately HK$3,553,000 was paid and payable to the Directors as
remuneration, including any rental benefits in kind, retirement scheme contributions,
other than discretionary bonuses, by the Group in respect of the year ending 31st
December, 2003.
(d) None of the independent non-executive Directors has entered into any service
agreement with the Company. Each independent non-executive Director will receive
an annual director’s fee of HK$80,000 with effect from 11th October, 2002.
Related party transactions
Save as disclosed above and in the paragraph headed “Connected transactions” under the
“Business” section of this prospectus and in note 24 under “Notes on the financial information”
of the accountants’ report, the text of which is set out in appendix I to this prospectus, during
the two years preceding the date of this prospectus, the Group did not enter into any other
material related party transaction.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 191 —
A1a(46)
3rd Sch(19)
A1a(46)(2)3rd Sch(19)
3rd Sch(19)
A1a(46)(3)
Further provisions
Save as disclosed in this prospectus:
(a) and taking no account of any Shares which may be taken up or acquired under the
Share Option Scheme or the Over-allotment Option, the Directors are not aware of any
person (not being a Director or chief executive of the Company) who immediately
following the Share Offer and the Capitalisation Issue will hold directly or indirectly,
or be beneficially interested in 10% or more of the share capital of the Company in
issue and to be issued as mentioned in this prospectus;
(b) none of the Directors nor the persons referred to in the sub-paragraph headed
“Consents and qualifications” of the “Other information” paragraph of this appendix V
has any direct or indirect interest in the promotion of any member of the Group, or in
any assets which have been, within the two years immediately preceding the date of
this prospectus, acquired or disposed of by or leased to, any member of the Group, or
are proposed to be acquired or disposed of by or leased to any member of the Group;
(c) none of the Directors nor the persons referred to in the sub-paragraph headed
“Consent and qualifications” of the “Other information” paragraph of this appendix V
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;
(d) none of the persons named in the sub-paragraph headed “Consents and qualifications”
of the “Other information” paragraph of this appendix V has any shareholding in any
member of the Group or the right (whether legally enforceable or not) to subscribe for
or to nominate persons to subscribe for securities in any member of the Group or is in
the employment as an officer or servant of the Group; and
(e) none of the Directors has entered into or is proposing to enter into a service contract
with the Company or its subsidiaries (other than contracts expiring or determinable by
the employer within one year without payment of compensation other than statutory
compensation).
SHARE OPTION SCHEME
The following is a summary of all the principal terms of the Share Option Scheme
conditionally adopted by a resolution in writing passed by all Shareholders on 16th June, 2003:
(a) Purpose of the Share Option Scheme
The purposes of the Share Option Scheme are to attract and retain the best available
personnel, to provide additional incentive to employees, directors, consultants and advisors
of the Group and to promote the success of the business of the Group.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 192 —
3rd Sch(19)A1a(47)(1)
A1a(47)(2)3rd Sch(19)
A1a(46)(1)
Ch.17
R17.02(1)(b)3rd Sch(10)
R17.03(1)
The Share Option Scheme provides that the Company may specify a minimum holding
period and performance conditions which must be satisfied before options can be exercised
by the option holders. In addition, the basis for the determination of the exercise price of
the options has been set out in the Share Option Scheme. The Board considers that the
aforesaid criteria and the terms of the Share Option Scheme will serve to preserve the value
of the Company and encourage option holders to acquire proprietary interests in the
Company.
(b) Who may join
The Board may offer any employee (whether full-time or part-time), director,
consultant or adviser of the Group (the “Eligible Person”) options to subscribe for Shares at
a price calculated in accordance with paragraph (e) below and subject to the other terms of
the Share Option Scheme summarised below. Upon acceptance of the option, the grantee
shall pay HK$1.00 to the Company as consideration for the grant.
(c) Maximum number of Shares
(i) 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 schemes of the Company shall not exceed such number of
Shares as shall represent 30% of the issued share capital of the Company from
time to time;
(ii) Subject always to the overall limit specified in paragraph (c) (i) above:
— the Board may grant options under the Share Option Scheme, generally and
without further authority, in respect of such number of Shares which may be
issued upon exercise of all options to be granted under the Share Option
Scheme and any other schemes in aggregate not exceeding 10% of the issued
share capital of the Company as at the date on which dealings in the Shares
commence on the Main Board (the “Scheme Mandate Limit”) (being
30,000,000 Shares). For the avoidance of doubt, options lapsed in
accordance with the Share Option Scheme shall not be counted for the
purpose of calculating the Scheme Mandate Limit;
— the Scheme Mandate Limit may be renewed by obtaining approval of the
Shareholders in general meeting provided that such renewed limit shall not
exceed 10% of the Shares in issue as at the date of approval of such limit (the
“Refreshed Limit”). Options previously granted under the Share Option
Scheme (including those outstanding, cancelled, lapsed in accordance with
the Share Option Scheme or exercised options) shall not be counted for the
purpose of calculating the Refreshed Limit. The Company shall send a
circular to the Shareholders in accordance with and containing such
information as required under rule 17.03(3) of the Listing Rules; and
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 193 —
R17.03(6)
R17.03(2)3rd Sch(10)(d)
3rd Sch(10)(c)R17.03(8)
3rd Sch(10)(c)
R17.03(2),(3)
R17.03(3)(1)
R17.03(3)(1)
— the Board may grant options in excess of the 10% limit to specifically
identified Eligible Persons by first obtaining approval of the Shareholders in
general meeting to grant the options in the amounts and to the Eligible
Persons specified in the resolution. The Company shall send a circular to the
Shareholders in accordance with and containing such information as
required under rule 17.03(3) of the Listing Rules.
(iii) Unless approved by the Shareholders in general meeting (with such Eligible
Person and his associates abstaining from voting), the total number of Shares
issued and to be issued upon the exercise of the options granted to each Eligible
Person (including both exercised, cancelled and outstanding options) in any 12
month period shall not exceed 1% of the relevant class of securities of the
Company in issue.
(d) Performance target
The Share Option Scheme does not set out performance targets which must be
achieved before the options may be exercised. However, on the grant of options by the
Board, the Board may specify, as part of the terms and conditions of such option, the
performance condition which must be satisfied before the option can be exercised.
(e) Exercise price
The amount payable for each Share to be subscribed for under an option in the event
of the option being exercised shall be determined by the Board and shall be not less than
the greater of:
(i) the closing price of the Shares on the Stock Exchange as stated in the Stock
Exchange’s daily quotations sheet on the date, which must be a Business Day, of
the written notice from the Company granting the option (the “Date of Grant”);
and
(ii) the average closing price of the Shares on the Main Board as stated in the Stock
Exchange’s daily quotations sheets for the five Business Days immediately
preceding the Date of Grant; and
(iii) the nominal value of the Shares.
(f) Rights are personal to grantee
An option which has been granted and has neither lapsed nor been cancelled or
exercised in full (the “Subsisting Option”) and an offer to grant an option shall be personal
to the Eligible Person to whom it is granted or made and shall not be assignable.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 194 —
R17.03(3)(1)
17.03(4)
3rd Sch(10)(b)
R17.03(9)Note(1)
3rd Sch(10)R17.03(7)
(g) Options granted to Directors or substantial Shareholders
(i) Any options granted to an Eligible Person who is a Director, chief executive or
substantial Shareholder (as defined in the Listing Rules) of the Company or any of
their respective associates shall be approved by the independent non-executive
Directors and in any event if the proposed grantee is an independent non-
executive Director, the vote of such grantee shall not be counted for the purpose
of approving such grant.
(ii) Any options granted to an Eligible Person who is a substantial Shareholder (as
defined in the Listing Rules) or independent non-executive Director or their
respective associates, which will result in the total number of Shares issued and
to be issued upon exercise of all the options granted and to be granted (including
options whether exercised, cancelled or still outstanding) to such person in the
period of 12 months up to and including the date of such grant:
— representing in aggregate over 0.1% of the issued share capital of the
Company; and
— having an aggregate value, based on the closing price of the Shares at the
date of each grant, in excess of HK$5,000,000.00,
such further grant of options must be approved by the Shareholders in general
meeting by poll convened and held in accordance with the Articles. All connected
persons (as defined in the Listing Rules) of the Company shall abstain from voting
at such general meeting, except that any connected person may vote against such
resolution provided that his intention to do so has been stated in the circular to
be despatched to the Shareholders. The aforementioned circular shall contain
such information as required under rule 17.04 of the Listing Rules.
(h) Grant of option
(i) Each grantee of options will receive an option certificate sealed by the Company
specifying the number of options granted and specifying the applicable terms and
conditions relating to such options. These terms and conditions may include
provisions as to the performance conditions which must be satisfied before the
option can be exercised, the minimum period for which an option must be held
before it can be exercised, vesting conditions (if any), lapse conditions and such
other provisions as the Board may determine provided such provisions are not
inconsistent with the relevant requirements of the Listing Rules.
(ii) The Board shall not grant any option under the Share Option Scheme after a price
sensitive development concerning the Company or any of its subsidiaries has
occurred or a price sensitive matter concerning the Company or any of its
subsidiaries has been the subject of a decision until such price sensitive
information has been announced pursuant to the requirements of the Listing
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 195 —
R17.04
Rules. In particular, during the period of one month immediately preceding the
earlier of (1) the date of the Board meeting for the approval of the Company’s
interim or annual results; and (2) the deadline for the Company to publish its
interim or annual results announcement under the listing agreement, and ending
on the date of the results announcement, no option shall be granted.
(i) Time of exercise of an option
An option may be exercised in whole or in part by the option holder in accordance
with the terms of the Share Option Scheme at any time during the “Exercise Period”, that is,
the period to be notified by the Board to each option holder upon the grant of options, such
period not to exceed ten years from the Date of Grant of the relevant option.
(j) Cancellation of options
Any cancellation of any Subsisting Option shall be conditional on the approval by the
Board (including the approval of independent non-executive Directors) and the option
holder(s) concerned.
In the event that the Board elects to cancel Subsisting Options and issue new options
to the same option holder, the issue of such new options shall be made with available
unissued options (excluding the cancelled options) within the Scheme Mandate Limit or the
Refreshed Limit, as the case may be.
(k) Voting and dividend rights
No voting rights shall be exercisable and no dividends shall be payable in relation to
options that have not been exercised.
(l) Effects of alterations in the capital structure of the Company
Subject to the provisions as to the maximum number of shares available for
subscription, in the event of capitalisation issue, rights issue, consolidation, subdivision or
reduction of the share capital of the Company in accordance with applicable laws and
regulatory requirements, such corresponding alterations (if any) shall be made in relation to
any Subsisting Option to (i) the number of Shares subject to the unexercised option; and/or
(ii), the option price; and/or (iii) in the event of a consolidation and subdivision of the share
capital of the Company, the maximum number of Shares referred to in paragraph (c) above.
Any such corresponding alterations to the Subsisting Option shall be certified by the
auditors for the time being of the Company as being fair and reasonable, and shall give an
option holder the same proportion of the issued share capital of the Company as that to
which he was previously entitled but so that no such alteration shall have the effect of
enabling any Share to be issued at less than its nominal value or which would result in the
aggregate amount payable on the exercise of any option in full being increased.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 196 —
3rd Sch(10)
R17.03(14)
R17.03(10)3rd Sch(10)
3rd Sch(10)R17.03(13)
(m) Rights on a takeover
If during the Exercise Period an offer is made to acquire all or part of the issued Shares
(other than those held by the offeror and persons acting in concert with it) and such offer
becomes or is declared unconditional, the Company shall give written notice to all persons
then holding Subsisting Options and each such option holder may, by notice in writing to
the Company, within 14 days of the date of such notice, exercise his option in full or to the
extent specified in such notice.
(n) Rights on schemes of compromise or arrangement
If during the Exercise Period an application is made to the court (otherwise than where
the Company is being voluntarily wound up), pursuant to sections 166 and 167 of the
Companies Ordinance, in connection with a proposed compromise or arrangement between
the Company and its creditors (or any class of them) or between the Company and its
members (or any class of them), an option holder may by notice in writing to the Company,
within a period of 21 days after the date of such application, exercise his option in full or
to the extent specified in such notice.
(o) Rights on a voluntary winding up
In the event of a notice of a meeting being convened to consider a resolution for the
voluntary winding up of the Company during the Exercise Period, the Company shall
forthwith upon notice of such meeting being given, give written notice to option holders of
the convening of such meeting and an option holder may thereupon by notice in writing to
the Company exercise any Subsisting Option at any time not later than five Business Days
prior to the proposed general meeting of the Company to its full extent or to the extent
specified in such notice.
(p) Ranking of Shares
Shares issued or transferred on the exercise of an option shall rank equally in all
respects with the other Shares of the same class in issue at the date of allotment (including
without limitation as to voting, dividend and transfer rights and rights arising on the
liquidation of the Company) and will be subject to all the provisions of the Articles. They
shall not rank for any rights attaching to Shares by reference to a record date preceding the
date of allotment.
(q) Present status of the Share Option Scheme
The Share Option Scheme shall take effect subject to and is conditional on (i) the
passing of an ordinary resolution to adopt the Share Option Scheme by the Shareholders in
general meeting (with any persons required to abstain from voting under the Listing Rules
so abstaining); (ii) the listing committee of the Stock Exchange granting approval of the
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 197 —
3rd Sch(10)
Share Option Scheme, and the listing of and permission to deal in the Shares which may be
issued pursuant to the exercise of the options; and (iii) the obligations of the Underwriters
under the Underwriting Agreement becoming unconditional and not being terminated.
The Board considers that it is not appropriate to state the value of all options that can
be granted under the Share Option Scheme as if they had been granted on the Latest
Practicable Date, as a number of variables which are crucial for the calculation of the option
value have not been determined. Such variables include the exercise price, exercise period,
lock up period (if any), performance targets set (if any) and other relevant variables. The
Board believes that any calculation of the value of the options as at the Latest Practicable
Date would be based on a great number of speculative assumptions and would henceforth
not be meaningful and be misleading to Shareholders.
As at the date of this prospectus, no option has been granted or agreed to be granted
by the Company under the Share Option Scheme.
(r) Duration of the Share Option Scheme
The Share Option Scheme will remain in force for a period to be notified by the Board,
such period not to exceed the period of ten years from the date on which it is adopted by
resolution of the Shareholders in general meeting.
(s) Amendment of the Share Option Scheme
(i) Subject to paragraph (ii) below, the Board may amend any of the provisions of the
Share Option Scheme or withdraw or otherwise terminate the Share Option
Scheme at any time but no alterations shall be made to the advantage of any
option holder unless approved by the Shareholders in general meeting. In
addition, no alteration shall operate to affect adversely any rights which have
accrued to any option holder at that date.
(ii) The Company in general meeting must approve in advance by ordinary resolution
any proposed change which relates to the following:
— the persons to or for whom Shares may be provided under the Share Option
Scheme;
— the authority of the Board in relation to any alteration to the terms of the
Share Option Scheme;
— the limitations on the number of Shares which may be issued under the Share
Option Scheme;
— the individual limit for each option holder under the Share Option Scheme;
— the determination of the exercise price of the option;
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 198 —
— any rights attaching to the options and the Shares;
— the terms of granted options;
— the rights of option holders in the event of a capitalisation issue, rights issue,
sub-division or consolidation of shares or reduction or any other variation of
capital of the Company;
— the provisions under the Share Option Scheme regarding the amendment of
the Share Option Scheme;
— any matters set out in rule 17.03 of the Listing Rules as amended from time
to time; and
— any alterations to the Share Option Scheme which are of a material nature.
(iii) Except as described in paragraph (ii) above, the Board need not obtain the
approval of the Shareholders in general meeting for any minor changes:
— to benefit the administration of the Share Option Scheme;
— to comply with or take account of the provisions of any proposed or existing
legislation;
— to take account of any changes to the legislation; or
— to obtain or maintain favourable tax, exchange control or regulatory
treatment of the Company or any of its subsidiaries or any present or future
option holder.
(iv) Unless otherwise approved by the Stock Exchange, the amended terms of the
Share Option Scheme or the Subsisting Options shall comply with the relevant
requirements of the Listing Rules.
(t) Lapse of options
An option shall lapse forthwith (to the extent not already exercised) on the earliest of
the following events:
(i) expiry of the Exercise Period;
(ii) the first anniversary of the death of the option holder;
(iii) in the case of an option holder who is an employee of the Group or a Director,
upon the option holder ceasing to be an employee of the Group or its Director by
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 199 —
R17.03(12)
reason of dismissal from employment or termination of office, in the case of an
option holder who is a consultant or advisor of the Group, by reason of
termination by the Company or any of its subsidiaries of the contract for provision
of such services, in each case on the ground of:
(1) the option holder’s misconduct;
(2) the option holder committing an act of bankruptcy;
(3) the option holder becoming insolvent or making any arrangements or
composition with his creditors generally; or
(4) the option holder being convicted of any criminal offence involving his or
her integrity or honesty;
(iv) three months after the option holder ceases to be an employee of the Group by
reason of:
(1) his retirement on or after attaining normal retirement age;
(2) his resignation;
(3) ill health or disability;
(4) the company by which he is employed ceasing to be a subsidiary of the
Company;
(5) the expiry of his contract of employment with the Group; or
(6) termination of his employment with the Group for reasons other than the
reasons specified in paragraphs (ii) and (iii) above;
(v) three months after the option holder ceases to be a Director for reasons other than
the reasons specified in paragraphs (ii) and (iii) above;
(vi) in the case of any takeovers, schemes of compromise or arrangement and
liquidation, the expiry of the periods of notice as specified in the Share Option
Scheme; provided that in the scheme of compromise or arrangement, such
proposed compromise or arrangement becomes effective;
(vii) save as otherwise provided, in the case of a voluntary winding up of the Company
during the Exercise Period, the earlier of the close of business on the fifth
Business Day prior to the general meeting convened to consider such voluntary
winding up or the date of the commencement of the winding up of the Company;
(viii) any breach of the provision described in paragraph (f) above; or
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 200 —
(ix) in the case of an option holder who is a consultant or advisor of the Group, on
the date which is the later of (1) the date on which the Board resolves in its
reasonable opinion that the option holder no longer provides consultancy or
advisory (as appropriate) services to the Group; and (2) the date which falls three
months after the date on which the option holder is notified of such resolution.
(u) Termination
In the event that the Board elects to terminate the operation of the Share Option
Scheme, no further option shall be offered but the provisions of the Share Option Scheme
shall remain in force in all other respects. All options granted prior to such termination and
not then exercised shall continue to be valid and exercisable subject to and in accordance
with the terms of the Share Option Scheme.
(v) Disclosure of the Share Option Scheme
The Company shall disclose all information as required by the Listing Rules or any
other applicable rules and regulations in its annual and interim reports.
OTHER INFORMATION
Estate duty and tax indemnity
Each of Kwang Sung Korea and Mr. Yang (together the “Indemnifiers”) has conditionally
entered into the deed of indemnity (“Deed of Indemnity”) on 23rd June, 2003, referred to in
paragraph (b) of the sub-paragraph headed “Summary of material contracts” under the paragraph
headed “Further information about the business of the Group” of this appendix V, in favour of
the Company and each member of the Group to provide indemnities on a joint and several basis
in respect of, among other matters:
(a) (i) any liability for Hong Kong estate duty which might be incurred and payable by
any member of the Group by virtue of section 35 of the Estate Duty Ordinance
(Chapter 111 of the Laws of Hong Kong) (“Estate Duty Ordinance”) or the
equivalent thereof under the laws of any jurisdiction outside Hong Kong, under
the provisions of section 43 of the Estate Duty Ordinance or the equivalent thereof
under the laws of any jurisdiction outside Hong Kong, by reason of the death of
any person and by reason of the assets of any member of the Group or any of such
assets being deemed for the purpose of the Estate Duty Ordinance to be included
in the property passing on his death by reason of that person making or having
made a relevant transfer to any member of the Group;
(ii) any tax which might be payable by any member of the Group in respect of any
income, profits, gains, transactions, events, matters or things earned, accrued or
received on or before the date of the Deed of Indemnity;
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 201 —
A1a(10)
(b) The Indemnifiers will, however, not be liable under the Deed of Indemnity for taxation
in circumstances where:
(i) provision has been made for such taxation in the audited combined accounts of
the Group for the financial period ended 31st December, 2002;
(ii) the taxation arises or is incurred as a result of a retrospective change in law or a
retrospective increase in tax rates coming into force after the date of the Deed of
Indemnity; and
(iii) the taxation on liability would not have arisen, but for some act or omission of any
member of the Group voluntarily effected other than in the course of normal day
to day operations on or before the effective date of the Deed of Undertaking.
PRC leased-properties indemnity
Pursuant to the Deed of Indemnity, the Indemnifiers agreed to secure substituted premises
for use by the relevant members of the Group within a period of four calendar months (or such
longer period as the relevant member of the Group may agree) on comparable terms and provide
indemnities on a joint and several basis against all claims, increase in rentals on relocation to
substituted premises, losses, liabilities, costs, charges, fees, expenses and fines suffered by any
member of the Group as a result of or in connection with the prohibition of any Group member
from using or being evicted from any one or more of the leased properties of the Group before
the expiration of the current terms of the relevant leases as set out in Group III in Appendix III
to this prospectus (the “PRC leased properties”) on the ground that the landlord does not have
the building ownership right or land use right to any of the PRC leased properties or has not
obtained the requisite land use right certificate and building ownership certificate or the lease
agreement is invalid or unenforceable or any requisite procedure (including but not limited to
registration, filing or obtain the mortgagee’s consent in the creation of the lease agreement) has
not been completed.
Hong Kong leased-property indemnity
Pursuant to the Deed of Indemnity, the Indemnifiers agreed to secure substituted premises
for the use by the relevant members of the Group within a period of four calendar months (or
such longer period as the relevant member of the Group may agree) on comparable terms and
provide indemnities on a joint and several basis against all claims, increase in rentals on
relocation to substituted premises, losses, liabilities, costs, charges and expenses suffered by any
member of the Group as a result of or in connection with the prohibition of the Company from
using or being evicted from one of the leased properties of the Group in Hong Kong before the
expiration of the current term of the lease as set out in No. 2, Group II in appendix III to this
prospectus (the “HK leased property”) on the ground that the actual use of the HK leased
property does not conform to the prescribed use under the relevant tenancy agreement.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 202 —
Hong Kong owned-property indemnity
Pursuant to the Deed of Indemnity, the Indemnifiers agreed to provide indemnities on a
joint and several basis against all costs and expenses which the Group may reasonably incur or
suffer in complying with any competent governmental order, in applying for any requisite licence
for the current use and relocation costs as a result of it being discovered that the actual use of
the property (as set out in No. 1, Group I in Appendix III to this prospectus, the “HK
owned-property”) does not conform to the use as prescribed under the relevant title deeds and
documents in respect of the HK owned-property and/or the relevant rules and regulations
affecting the HK owned-property.
The second assembling and processing agreement indemnity
Pursuant to the Deed of Indemnity, the Indemnifiers agreed to provide indemnities on a
joint and several basis against all costs, claims, losses, liabilities, fines, penalties and charges
suffered by any member of the Group as a result of or in connection with the prohibition of the
relevant member of the Group and/or the Chinese parties to the second assembling and
processing agreement from using or being evicted from the factory subject to the second PRC
assembling and processing agreement (the “Factory”) on the ground that the construction of the
Factory has not been fully completed or approved.
Litigation
No member of the Group is engaged in any litigation or arbitration of material importance
and no litigation, arbitration or claim of material importance is known to the Directors to be
pending or threatened by or against any member of the Group.
Sponsor
Anglo Chinese has made an application on behalf of the Company to the Listing Division of
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 including those pursuant to the Share Option Scheme and
the exercise of the Over-allotment Option.
Preliminary expenses
There are no preliminary expenses payable by the Company.
Agency fees or commission granted
The Underwriters will receive an underwriting commission as mentioned in the section
headed “Underwriting” in this prospectus.
Promoter
The Company has no promoter.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 203 —
A1a(40)
3rd Sch(15)
A1a(20)
A1a(8)(2)3rd Sch(16)
Consents and qualifications
Each of Anglo Chinese, KPMG, DTZ Debenham Tie Leung Limited, Concord and Partners
and Evergreen International Law Offices has given and has not withdrawn its written consent to
the issue of this prospectus with copies of its reports, valuation, letters or opinions (as the case
may be), dated the date they respectively appear, and the references to its name or summaries
of opinions included herein in the form and context in which they respectively appear.
The following are the qualifications of the experts who have given opinions or advice which
are contained in this prospectus:
Name Qualification
Anglo Chinese Corporate Finance, Limited Deemed licensed corporation under the SFO
KPMG Certified Public Accountants
DTZ Debenham Tie Leung Limited Professional surveyors
Concord and Partners PRC legal advisers
Evergreen International Law Offices Korea legal advisers
Particulars of the Vendor
The following are the particulars of the Vendor:
Name Registered address Description
Number of
Sale Shares
Mr. Yang Flat B, 7/F, Block 32,
Greenwood Terrace,
26-28 Sui Wo Road,
Shatin, New Territories,
Hong Kong
Personal 30,000,000
Binding effect
This prospectus shall have the effect, if an application is made in pursuant hereof, 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 insofar as applicable.
MISCELLANEOUS
(a) Save as disclosed in this prospectus:
(i) within the two years immediately preceding the date of this prospectus:
(aa) 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;
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 204 —
A1a(9)(2)S38C
A1a(9)(1)
3rd Sch(28)
A1a(15)(2)(j)
S44A
S44B
A1a(26)(1)3rd Sch(11)
(bb) 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; and
(cc) no commission has been paid or is payable (excluding commission to
sub-underwriters) for subscribing or agreeing to subscribe, or procuring or
agreeing to procure subscription for any shares in the Company;
(ii) no share 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; and
(iii) since 31st December, 2002 (being the date to which the latest audited combined
financial statements of the Group were made up), there has been no material
adverse change in the financial or trading position or prospects of the Group.
(b) There are no founder, management or deferred shares in the Company or any of its
subsidiaries.
(c) All necessary arrangements have been made to enable the Shares to be admitted into
CCASS for clearing and settlement.
(d) There has not been any interruption in the business of the Group which may have or
have had a material adverse effect on the financial position of the Group in the 12
months preceding the date of this prospectus.
APPENDIX V STATUTORY AND GENERAL INFORMATION
— 205 —
3rd Sch(14)
3rd Sch(14)A1a(13)
A1a(27)3rd Sch(10)
3rd Sch(4)A1a(24)
A1a(28)(6)
DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES
The documents attached to the copy of this prospectus delivered to the Registrar of
Companies in Hong Kong for registration were copies of the WHITE, YELLOW and PINK
application forms, the written consents referred to in the sub-paragraph headed “Consents and
qualifications” under the paragraph headed “Other information” in appendix V to this prospectus,
a statement of the name, description and address of the Vendor and copies of the material
contracts referred to in the sub-paragraph headed “Summary of material contracts” under the
paragraph headed “Further information about the business of the Group” in appendix V to this
prospectus.
DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection at the offices of Simmons
& Simmons at 35th Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong during
normal business hours up to and including 10th July, 2003:
(a) the memorandum and Articles of the Company;
(b) the accountants’ report, the text of which is set out in appendix I to this prospectus;
(c) the audited financial statements of each member of the Group for the three years ended
31st December, 2002;
(d) the letters relating to the profit forecast of the Group, the text of which are set out in
appendix II to this prospectus;
(e) the letter, summary of valuation and valuation certificate relating to the property
interests of the Group, the text of which is set out in appendix III to this prospectus;
(f) the material contracts referred to in the sub-section headed “Summary of material
contracts” under the paragraph headed “Further information about the business of the
Group” in appendix V to this prospectus;
(g) the written consents referred to in the sub-paragraph headed “Consents and
qualifications” under the paragraph headed “Other information” in appendix V to this
prospectus;
(h) the rules of the Share Option Scheme;
(i) the service agreements referred to in the sub-paragraph headed “Directors’
remuneration” under the paragraph headed “Disclosure of interests” in appendix V to
this prospectus; and
(j) the statement containing certain particulars of the Vendor.
APPENDIX VI DOCUMENTS DELIVERED TO THE REGISTRAROF COMPANIES AND AVAILABLE FOR INSPECTION
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S38D
A1a(52)
A1a(53)