Ziyuanyuan Holdings Group Limited Announces Proposed Listing on the GEM of the Hong Kong Stock Exchange

Ziyuanyuan Holdings plans to offer 100,000,000 shares, of which 90,000,000 shares will be placing shares (subject to reallocation), representing 90% of the initial offer shares; the remaining 10,000,000 shares will be public offer shares (subject to reallocation), representing 10% of the total offer shares. Offer price is set between HK$0.60 to HK$1.00 per share. The Public Offering will start at 9 a.m., 25 June 2018 (Monday), and close at 12:00 noon, 28 June 2018 (Thursday). Dealings in shares on the GEM of the Hong Kong Stock Exchange is expected to commence at 9:00 a.m. on 9 July 2018 (Monday). The shares will be traded in board lots of 4,000 shares each. The stock code will be 8223.HK.

Guoyuan Capital (Hong Kong) Limited is the Sole Sponsor. Future Land Resources Securities Limited is the Sole Bookrunner. Guoyuan Capital (Hong Kong) Limited, Future Land Resources Securities Limited and Brilliant Norton Securities Company Limited are Joint Lead Managers.

The Group is engaged in providing equipment-based finance leasing services to SME customers in the printing and logistics industries in the PRC. Since the commencement of the finance leasing business in 2014, the Group has focused its efforts on providing finance leasing services to the printing and logistics industries in various provinces, municipalities, and autonomous regions in the PRC. In addition, leveraging on its operational experience and practical knowledge in delivering finance leasing services to customers in the printing industry, the Group has further expanded the business into the transportation equipment finance leasing market in China, focusing on provision of finance leasing services to customers which purchase and operate commercial vehicles for logistics purpose.

The Group's finance leasing services are classified into two categories: (i) sale-leaseback; and (ii) direct finance leasing. Sale-leaseback involves leasing of used equipment which was owned by our customer and sold to us prior to a finance leasing transaction. In a sale-leaseback transaction, a customer sells the existing equipment to the Group, and then the Group leases the equipment back to the customer for its use. After the customer has paid up all lease payments upon expiry of the lease term, the Group transfers the ownership of leased equipment back to the customer. Direct finance leasing involves leasing of new equipment acquired by the Group from an equipment supplier prior to a finance leasing transaction. In a direct finance leasing transaction, when a customer needs financing to purchase certain equipment, the Group purchases such equipment from the supplier selected by the customer. The Group then lease the equipment to the customer for business use. After the customer has paid up all the lease payments upon expiry of the lease term, the Group transfers the ownership of leased equipment to the customer.

The Group has capitalised on and benefited from the capital demands of SME customers across China. According to the Frost & Sullivan Report, the New Contract Volume of the PRC printing equipment finance leasing market grew from RMB8.3 billion in 2011 to RMB14.6 billion in 2017 with a CAGR of 9.9%. Moreover, there are capital demands from SMEs in the printing industry in China. SMEs have difficulty in accessing to traditional bank loans due to the long-term credit records and other strict requirements under bank loan policies.The Group's finance leasing service becomes an efficient way for SME customers to solve their funding problems. The Group's customised finance leasing services satisfy the short to medium-term financing need of SME customers. Compared with traditional bank loans, the Group's finance leasing services offer SME customers a less rigid application process and a more flexible solution with respect to the interest rates, payment schedules and duration of loans.

At the same time, the Group's office automatic system (OA System) has integrated its business processes and financial systems through an online platform, covering customer data, loan processing and most steps of the transaction management workflow, enhancing the capability in risk management and overall efficiency during the loan approval process and differentiate the Group from competitors through developing and implementing an advanced information technology system in accordance with its business needs. OA System enable the Group to efficiently complete the work in the phases of customer credit assessment, project evaluation, drawdown of funds and post-drawdown management, trace and follow up with both existing customers and potential customers, monitor the payment progress of each customer, evaluate the performance of our employees, reduce the hassle of circulating physical documents and decrease the risk of human errors. It enhances the efficiency in providing quality services to customers and improving customer satisfaction and loyalty to the Group's business.

Moreover, leveraging on the Group's accumulated experience and operational expertise in the PRC printing and logistics industries, as well as its practical knowledge of its SME customers' characteristics and demands, together with streamlined loan application review process, the Group has successfully expanded its customer base and achieved revenue growth by capitalising on the growth and financing needs in the PRC printing and logistics finance leasing markets. The Group's customer base expanded from approximately 14 customers as at 1 January 2015 to approximately 292 customers across 24 provinces, municipalities and autonomous regions in China as at 31 December 2017. For FY2015, FY2016 and FY2017, the Group's revenue was approximately RMB10.8 million, RMB29.5 million and RMB52.1 million, respectively.

Mr. Zhang Junshen, Chairman, Chief Executive Officer and Executive Director of Ziyuanyuan Holdings Group Limited, said, "Since our incorporation, we have positioned ourselves in the niche market as a finance leasing service provider to SMEs with customised financial solution in comparison to CBRC-regulated finance leasing companies and other large scale finance leasing companies. We have gained practical knowledge and experience of providing finance leasing services to SMEs, which enables us to maintain our competitive position in the finance leasing market. Through customised services to customers in the printing industry, successful expansion into the transportation equipment finance leasing market, rapidly growing, diversified customer base and effective risk management measures, we differentiate ourselves from our competitors and to enable us to compete effectively in the PRC finance leasing industry."

The PRC Finance Leasing Market and Transportation Equipment Finance Leasing Market have been developing rapidly, which has tremendous potential growth. According to the Frost & Sullivan Report, the penetration rate of China's finance leasing market is merely 7.0% in 2017, which is much lower than that of developed countries, thus leaving immense market development space. The penetration rate of the PRC finance leasing market is expected to reach more than 10.0% by 2022. Furthermore, the total registered capital of finance leasing companies increased from RMB195.5 billion in 2011 to RMB3,203.1 billion in 2017, with a CAGR of 59.4%. Significant increase in capital inflows are expected to stimulate the growth of finance leasing market in China in the near future. Meanwhile, due to the increasing road freight turnover of logistics industry and the flourishing e-commerce, the New Contract Volume of the PRC transportation equipment finance leasing market increased from RMB102.3 billion in 2011 to RMB488.6 billion in 2017, with a CAGR of 29.8%. In addition, a large number of medium and small logistic companies have emerged in recent years. They need new transportation equipment, but only have limited access to traditional bank loans. These factors are beneficial to the long-term development of the Group's business.

Mr. Zhang Junshen concluded, "In the future, in light of the sizable and increasing demands for our finance leasing services in China, we will focus on expanding our operation scale, extending our sales network and broadening our customer base strategically in other regions of China, which will enable us to realise better economic efficiency. At the same time, We plan to continue to strengthen our key market player position in the finance leasing industry in China and leverage on our competitive advantages in customized service provision, prudent risk management and our OA system, to enhance our overall competitiveness and market shares, further strengthen our market position in our target industries of printing and logistics in China, and generate investment returns for our shareholders and drive our sustainable growth."

Factsheet

Information on the Global Offering:

Number of Offer Shares: 100,000,000 SharesNumber of Public Offer Shares: 10,000,000 Shares (subject to reallocation)Number of Placing Shares: 90,000,000 Shares (subject to reallocation)Maximum Offer Price: HK$1.00 per share, plus brokerage of 1.0%, SFC transaction levy of 0.0027% and Stock Exchange trading fee of 0.005% (payable in full on application and subject to refund)Board Lot: 4,000 SharesStart of the Public Offering: 9 a.m., 25 June 2018 (Monday)End of the Public Offering: 12:00 noon, 28 June 2018 (Thursday)Expected Price Determination Date: 28 June 2018 (Thursday)Announcement of Allotment Results: 6 July 2018 (Friday)Expected Listing Date: 9 July 2018 (Monday)Stock Code: 8223.HK

Use of ProceedsAfter The Group estimates that they will receive approximately HK$50.8 million net proceeds from the Share Offer after deducting underwriting commission and other estimated expenses paid and payable by the Group in connection with the Share Offer, assuming an Offer Price of HK$0.80 per Share (mid-point of the indicative Offer Price range). The Group intends to apply the net proceeds in the following manner:

Use of Proceeds: Amount(HK$ million) / As a Percentage of Total Amount (%)Develop its finance leasing business in the PRC printing and logistics industries (Note 1): 45.0 / 88.6Expanding its business in these two industries in northern and eastern parts of China: 3.5 / 6.9Exploring on its new target industries for its finance leasing business (Note 2): 1.1 / 2.2Funding its general working capital needs: 1.2 / 2.3

Note 1: Based on the finance lease agreements on hand, our Group expects to use the net proceeds to acquire 20 printing equipment. The number and types of logistics equipment to be acquired by the proceeds will be determined based on the request of our future customers.Note 2: The Group plan to expand our business operation to the PRC medical device industry, with implementation plans include but not limited to market research, business development and employee training for new industry entry.

Key Financial Figures

For the years ended Decemeber 312015(RMB '000) 2016(RMB '000) 2017(RMB '000)Revenue 10,807 29,546 52,060Profit before taxation 958 7,536 15,942Profit and total comprehensive income for the year 680 5,217 9,565

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References

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