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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Note 1:

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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

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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

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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

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(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

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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)