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UNAUDITED THIRD QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2016

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UNAUDITED THIRD QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2016

Income Statement

Comprehensive Income

Balance Sheet

Review of Income Statement of the Group

Third Quarter FY2017 ("Q3 FY2017") vs Third Quarter FY2016 ("Q3 FY2016")

Revenue

Group revenue decreased by RMB9.3 million or 7.4% to RMB116.4 million in Q3 FY2017 as compared to RMB125.7 million in Q3 FY2016. Sales in Middle East and others has dropped RMB5.6 million to RMB10.6 million in Q3 FY2017 from RMB16.2 in Q3 FY2016. Asia (outside the PRC) sales has also down by RMB5.8 million to RMB43.1 million in Q3 FY2017 amidst slowdown in Singapore and Malaysia market.

Sales in PRC are comparable which reported at RMB51.2 million for both Q3 FY2017 and Q3 FY2016. Rental and service income in PRC has increased with demand for large-sized towercranes used for infrastructure projects in PRC.

Gross profit and gross profit margin

Gross profit decreased 6.2% to RMB38.4 million in Q3 FY2017 from RMB40.9 million in Q3 FY2016 in line with decrease in revenue. Average gross profit margin slightly increased to 33.0% in Q3 FY2017 from 32.6% in Q3 FY2016. The increase was attributable to sales of more larger-sized tower cranes of higher lifting capacity which generates higher gross margin. This was offset by lower margin of service income from Hong Kong operations resulted from higher repairs and maintenance expenses.

Other income

Other income decreased to RMB1.1 million in Q3 FY2017 as compared to RMB1.7 million in Q3 FY2016 was mainly due to non-recurrence compensation income in Q3 FY2016 of RMB0.8 million offset by higher gain on disposal of property, plant and equipment of RMB0.4 million.

Operating expenses

Total operating expenses decreased 1.3% to RMB39.1 million in Q3 FY2017 as compared to RMB39.6 million in Q3 FY2016.

Distribution costs increased 5.8% to RMB12.7 million in Q3 FY2017 as compared to RMB12.0 million in Q3 FY2016 mainly due to higher freight and transportation charges as a result of more sales for large-sized towercranes, partly offset by lower sales commission. This was also affected by the stricter loading restriction imposed by the local authority from Sep 2016 resulted in higher freight and transportation cost.

Administrative expenses increased 20.1% to RMB21.9 million in Q3 FY2017 as compared to RMB18.3 million in Q3 FY2016 due to higher entertainment and transportation expenses, higher staff cost and higher property and land holding tax in Q3 FY2017. Increase in entertainment and transportation arose from the participation in the bi-annual Bauma 2016 exhibition. Staff cost increased due to increase in number of staff as well as salary increment.

Other operating expenses decreased to RMB0.2 million in Q3 FY2017 from RMB3.8 million in Q3 FY2016. This is mainly due to provision for doubtful debts of RMB2.0 million in Q3 FY2016 and the exchange loss of RMB1.3 million in Q3 FY2016 as compared to the exchange gain of RMB0.1 million in Q3 FY2017.

In line with the lower average borrowing and lower effective interest rate, finance costs decreased 22.5% to RMB4.3 million in Q3 FY2017 as compared to RMB5.5 million in Q3 FY2016.

Taxation

The credit balance in tax expense of RMB2.0 million in Q3 mainly due to tax expense reversal in one of the subsidiaries following losses reported in Q3 FY2017.

Profit before taxation and Net profit attributable to equity holders of the Company

The Group recorded a profit before taxation RMB0.4 million in Q3 FY2017 as compare to RMB3.1 million in Q3 FY2016 was mainly due to lower revenue, gross profit and lower other income, partly offset by lower operating expenses.

Net profit attributable to equity holders of the Company decreased to RMB0.4 million in Q3 FY2017 as compared to RMB0.8 million in Q3 FY2016. This was mainly due to profit before taxation, and the credit balance in the tax expense reported.

Nine Months FY2017 ("9M FY2017") vs Nine Months FY2016 ("9M FY2016")

Revenue

Group revenue increased 34.6% to RMB455.5 million in 9M FY2017, as compared to RMB338.4 million in 9M FY2016. Sales in PRC has increased with revenue recorded at RMB235.7 million in 9M FY2017 as demand increased for large sized towercranes used for infrastructure projects, such as power plants, bridges and the Beijing New Airport project in Daxing. The increase is also partly contributed from higher rental and service income in the PRC. Asia (outside the PRC) sales has also increased by 6.9% contributed from improved sales in Taiwan market and higher rental and service income from Hong Kong operations offset by lower sales in Singapore and Malaysia. The increase was partly offset by decrease in sales to Middle East, USA and Europe of RMB 40.6 million from RMB85.7 million in 9M FY2016 to RMB45.1 million in 9M FY2017.

Following the improvement in the PRC sales, it formed the bulk of the sales at 51.7% in 9M FY2017 as compared to 26.4% in 9M FY2016.

Gross profit and gross profit margin

Gross profit increased 50.2% to RMB156.3 million in 9M FY2017 from RMB104.0 million in 9M FY2016. The increase was due to both higher revenue and better margin in 9M FY2017.

Average gross profit margin increased to 34.3% in 9M FY2017 from 30.7% in 9M FY2016. The increase was attributable to sales of more larger-sized tower cranes of higher lifting capacity and luffing series towercranes which generates higher gross margin as well as higher rental income and service income from Hong Kong operations, partly offset by lower gross margin on sales of components and accessories.

Other income

Other income increased to RMB3.9 million in 9M FY2017 as compared to RMB2.6 million in 9M FY2016 was mainly due to higher compensation income from customers and suppliers of RMB1.9 million in 9M FY2017 as compared to RMB0.8 million in 9M FY2016 and the gain on disposal of property, plant and equipment of RMB0.4 million in 9M FY2017.

Operating expenses

Total operating expenses increased 12.6% to RMB125.8 million in 9M FY2017 as compared to RMB111.7 million in 9M FY2016.

Distribution costs increased 22.2% to RMB42.2 million in 9M FY2017 as compared to RMB34.5 million in 9M FY2016 mainly due to higher freight and transportation charges as a result of higher sales and more sales of large-sized towercranes. This was also affected by the stricter loading restriction imposed by the local authority from Sep 2016 resulted in higher freight and transportation cost.

Administrative expenses increased 16.4% to RMB63.8 million in 9M FY2017 as compared to RMB54.8 million in 9M FY2016 largely due to higher bonus provision. There was lower bonus provision made in 9M FY2016 which reported a net loss position. The increase is also due to higher entertainment and transportation expenses, higher staff cost (excludes bonuses) and higher property and land holding tax in Q3 FY2017. Increase in entertainment and transportation arose from the participation in the bi-annual Bauma 2016 exhibition. Staff cost increased due to increase in number of staff as well as salary increment.

Other operating expenses increased to RMB6.2 million in 9M FY2017 from RMB5.9 million in 9M FY2016. This is mainly due to higher provision for doubtful debts of RMB4.0 million in 9M FY2017 as compared to RMB2.1 million in 9M FY2016. Certain provision for doubtful debts were made mainly for two Beijing local rental companies which were long-outstanding. This was offset by lower exchange loss of RMB1.0 million reported at RMB0.9 million in 9M FY2017 as compared to RMB1.9 million in 9M FY2016.

In line with the lower average borrowing and lower effective interest rate, finance costs decreased 17.8% to RMB13.5 million in 9M FY2017 as compared to RMB16.4 million in 9M FY2016.

Taxation

Income tax expense reported at RMB6.1 million in 9M FY2017 as compared to a credit balance of RMB0.6 million in 9M FY2016 in line with the net profit for the financial period.

Profit/(loss) before taxation and Net profit/(loss) attributable to equity holders of the Company

The Group reported profit before taxation of RMB34.5 million in 9M FY2017 as compared to a loss before tax of RMB5.1 million in 9M FY2016 was mainly due to higher revenue, gross profit, partly offset by higher operating expenses.

Net profit attributable to equity holders of the Company increased to RMB22.5 million in 9M FY2017 as compared to a net loss attributable to equity holders of the Company of RMB4.4 million in 9M FY2016. This was mainly due to profit before taxation, offset by tax expense.

Review Of Financial Position Of The Group

Non-current Assets

Non-current assets increased by RMB4.0 million to RMB568.6 million as at 31 December 2016 arises from net additions in property, plant and equipment mainly due to increase in rental fleet and higher deferred tax assets. This was slightly offset by lower deferred cost for the financial period.

Deferred costs related to the corresponding non-current portion cost of sales relating to revenue deferred (See Note on deferred income below).

Deferred tax assets arose mainly from deferred income, provisions and elimination of unrealised profits in intragroup sales.

Current Assets

Current assets decreased by RMB17.7 million to RMB851.6 million as at 31 December 2016 mainly due to lower amount owing by related parties, lower cash and cash equivalents (see Note on Review on Cash Flow Statement below) and lower deferred costs, offset by higher trade and other receivables and higher inventories.

Trade and other receivables increased by RMB2.8 million mainly due to increase in trade receivables in line with higher sales. Despite the increase in trade and other receivables, collection turnover days has improved. Amount owing by related parties are mainly trade in nature which decreased due to net collection over sales for the financial period.

Inventories increased by RMB31.1 million to RMB311.9 million as at 31 December 2016 as compared to RMB280.8 million as at 31 March 2016 for delivery due in Q4 FY2017.

Deferred costs related to the corresponding current portion cost of sales relating to revenue deferred (See Note on deferred income below).

Non-current Liabilities

Non-current liabilities decreased by RMB7.3 million to RMB57.5 million as at 31 December 2016 mainly due to lower deferred income (See Note on deferred income below) and lower trade and other payables, partly offset by higher deferred tax liabilities.

Current Liabilities

Current liabilities decreased by RM41.8 million to RMB699.4 million as at 31 December 2016 mainly due to repayment of borrowings, partly offset by higher trade and other payables.

Trade and other payables increased by RMB97.3 million mainly due to higher purchases as a result of higher sales and slower repayment.

Amount owing to related parties which was interest-bearing loan, was from related parties to Fushun Yongmao for the purpose of increasing the working capital of the Group.

Deferred income included RMB21.6 million of revenue deferred due to uncertainty in the timing of the consideration for the delivery of goods made to the customer. Owing to the uncertainty, the amount of the unpaid sum owed by the customer to the financial institution is deferred and recognised as revenue when the uncertainty is removed. The deferred costs, as mentioned under non-current and current assets above, related to the amount carried in the statement of financial position to the extent that revenue has been deferred. The decrease in deferred income, from RMB30.3 million as at 31 March 2016, was mainly due to repayment by customers to financial institutions.

Total Equity

As at 31 December 2016, the Group's total equity amounted to RMB663.3 million. The increase was mainly due to net profit of RMB28.4 million and other comprehensive income of RMB7.1 million for 9M FY2017.

Review Of Cash Flow Statement

Q3 FY2017 vs Q3 FY2016

The Group reported a net increase in cash and cash equivalents amounting to RMB35.9 million in Q3 FY2017 mainly due to:

  1. Net cash generated from operating activities in Q3 FY2017 of RMB59.4 million resulted mainly from operating profit before working capital changes, decrease in operating receivables and increase in operating payables, partly offset by increase in inventories;
  2. Net cash used in investing activities of RMB2.4 million mainly from purchases of machinery and motor vehicles; and
  3. Net cash used in financing activities of RMB21.2 million mainly from net repayment of bank borrowings and finance lease creditors, repayment to related parties and higher restricted bank balances.

9M FY2017 vs 9M FY2016

The Group reported a net decrease in cash and cash equivalents amounting to RMB0.1 million in 9M FY2017 mainly due to:

  1. Net cash from operating activities in 9M FY2017 of RMB136.1 million mainly from operating profit before working capital changes, decrease in operating receivables and increase in operating payables, partly offset by increase in inventories;
  2. Net cash used in investing activities of RMB4.5 million mainly from purchases of machinery and motor vehicles; and
  3. Net cash used in financing activities of RMB131.7 million mainly from net repayment of bank borrowings and finance lease creditors, repayment to related parties, partly offset by lower restricted bank balances.

Commentary

China's economy expanded 6.8 percent in the last quarter of the year 2016, a slightly improvement over the previous three quarters of 6.7 percent. Overall, the economy expanded 6.7% in 2016 which was slightly below the 6.9% rise in 2015 and well within the government's 2016 growth target between 6.5% and 7.0%.

The unexpected recovery in China's residential property market since late last year has helped support the economy in 2016. The recovery appears uneven as rapid price rises in some of the biggest cities fanned concerns of overheating and prompted a few local governments to cool sales by tightening property transfer restrictions. In smaller cities, a large number of unsold new properties continued to hit sales and prices forcing local authorities to explore new ways to increase sales. As such, domestic demand for construction machinery and equipment including towercranes for residential property market continues to remain muted.

Demand for towercranes in other overseas markets is mixed with markets such as Taiwan and Australia likely to see a better demand in the replacement market whereas markets like Singapore and Macau remain challenging.

In light of the present weaker China economy and less than favorable global market conditions, the Group views that the overall business environment for the next 12 months will remain challenging.