THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND … · FUTURE PLANS ANd USE oF [REdACTEd] — 318 — 1ST Proof ♠ Job > ProJecT LighT ♠ Name > 24e2006221 fuTure PLaNS ♠ DaTe

FUTURE PLANS ANd USE oF [REdACTEd]

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1ST Proof ♠ Job > ProJecT LighT ♠ Name > 24e2006221 fuTure PLaNS ♠ DaTe > 2020-06-26 (19:09) ♠ (fai)-05(beNNy) ♠ TraNSLaTor > Teamco ♠ SiZe > 210 X 280

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FUTURE PLANS

See the section headed “Business — Our Business Strategies” for a detailed description of our future plans.

USE oF [REdACTEd]

We estimate that the aggregate [REdACTEd] to us from the [REdACTEd] (after deducting [REdACTEd] fees and estimated expenses payable by us in connection with the [REdACTEd], and assuming that the [REdACTEd] is HK$[REdACTEd] per [REdACTEd], being the mid-point of the indicative [REdACTEd]) will be approximately HK$[REdACTEd] million, assuming that the [REdACTEd] is not exercised. We currently intend to apply such [REdACTEd] in the following manner:

(i) approximately [REdACTEd]%, or HK$[REdACTEd] million, will be used for the expansion of our client base and sales networks, among which:

(a) approximately [REdACTEd]%, or HK$[REdACTEd] million, will be used for strengthening our existing sales networks in Hong Kong, including:

• approximately [REdACTEd]%, or HK$[REdACTEd] million, for expanding our sales and advisory team; and

• approximately [REdACTEd]%, or HK$[REdACTEd] million, for enhancing our brand recognition.

Please see “Business — Our Business Strategies — Expand our client base and sales networks — (i) Strengthening existing sales networks in Hong Kong” for further information; and

(b) approximately [REdACTEd]%, or HK$[REdACTEd] million, will be used for establishing new sales networks in Mainland China. Please see “Business — Our Business Strategies — Expand our client base and sales networks — (ii) Establish new sales networks in Mainland China” for further information;


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(ii) approximately [REdACTEd]%, or HK$[REdACTEd] million, will be used for the expansion of our asset management business, among which:

(a) approximately [REdACTEd]%, or HK$[REdACTEd] million, which will be used for seeding new funds; and

(b) approximately [REdACTEd]%, or HK$[REdACTEd] million, which will be used for expanding our asset management team and increasing our AUM in the long run.

Please see “Business — Our Business Strategies — Expand our asset management business” for further information;

(iii) approximately [REdACTEd]%, or HK$[REdACTEd] million, will be used for the enhancement of our risk management and internal control capabilities;

(iv) approximately [REdACTEd]%, or HK$[REdACTEd] million, will be used for the enhancement of our IT capabilities; and

(v) approximately [REdACTEd]%, or HK$[REdACTEd] million, will be used for our general working capital.

We intend to apply the fixed amount of approximately HK$[REdACTEd] million out of the [REdACTEd] from the [REdACTEd] for seeding new funds under our business strategy for the expansion of our asset management business as stated above regardless of the final price at which the [REdACTEd] is set; and to apply the remaining [REdACTEd] from the [REdACTEd] to the remaining purposes above on a pro-rata basis (except that the maximum amount to be allocated to the enhancement of our IT capabilities shall not exceed HK$[REdACTEd] million) if the [REdACTEd] is set at HK$[REdACTEd] per [REdACTEd] (being the high-end of the indicative [REdACTEd]), HK$[REdACTEd] per [REdACTEd] (being the low-end of the indicative [REdACTEd]) or any other price within the indicative [REdACTEd]. If the [REdACTEd] is exercised in full or in part, we intend to apply the additional [REdACTEd] from the exercise of the [REdACTEd] to the above purposes on the same basis as stated above.

Should our Directors decide to re-allocate the intended use of [REdACTEd] to other business plans and/or new projects of our Group to a material extent and/or there is to be any material modification to the use of [REdACTEd] as described above, we will make appropriate announcement(s) in due course.

To the extent that the [REdACTEd] from the [REdACTEd] are not immediately required for the above purposes or if we are unable to effect any part of our future development plans as intended, we may hold such funds in short-term deposits with licensed banks and authorised financial institutions for so long as it is in our best interests.

REASoNS FoR THE [REdACTEd] ANd THE [REdACTEd]

Our Directors believe that the [REdACTEd] and [REdACTEd] from the [REdACTEd] will enhance our profile, strengthen our financial position and competitiveness and provide us with additional capital to implement our business strategies and future plans set out in “Business — Our Business strategies”, and are beneficial to our Group and our Shareholders as a whole on the following bases:


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• Continuousdevelopmentofourassetmanagementbusiness

During the Track Record Period, we recorded considerable growth in the revenue derived from our asset management business. The revenue contributed by our asset management segment increased from 3.9% of our total revenue for FY2017 to 27.4% for FY2019, which is in line with the rapid growth of the AUM of the funds we managed and/or advised from HK$15.3 million as at 31 December 2017 to HK$777.4 million as at 31 December 2019. We also believe that the growth of our asset management business was contributed by our experienced and well-connected management and investment executive team, whose experience and connections are highly valuable to the marketing and cross-selling of our financial and wealth management services and products including funds managed/advised by us, and whose forward-looking approach in terms of business development had enabled us to launch various innovative fund products, such as Hexagon SP2, Hexagon SP3, Hexagon SP4, Hexagon SP5 and Hexagon SP7 and Lever VC Fund. For details, please see “Business — Our Competitive Strengths”.

Our Directors consider that our asset management business will continue to be one of our key growth drivers in the next few years. As stated in the Frost & Sullivan Report, driven by the sound economic growth and growing development in green finance and FinTech, the market size by AUM of the asset management and fund advisory sector in Hong Kong is expected to reach approximately HK$22,716 billion in 2023, representing a CAGR of approximately 8.2% from 2019 to 2023. We therefore believe that it is in the interests of our Group and our Shareholders as a whole to capitalise on the expertise which we have developed in the asset management area and ride on such market growth to maintain the growth momentum of our asset management business.

As disclosed in “Business — Our Business Strategies — Expand our asset management business”, we intend to seed three new funds, namely AIC Fund II, VS Best Opportunities Fund and Cyprus Property Fund, and manage them as investment manager. We believe that by making capital contributions to the funds we manage, we will be able to align our interest in the funds currently managed by us with that of their existing and prospective investors and to share the investment returns that we have contributed to achieve, which will in turn enable us to attract more investments into these funds and enhance our track record in fundraising for these funds. This is particularly the case in respect of funds launched or seeded by us. We believe that making capital commitments to the funds we launch or seed is in line with market practice and will help attract third-party investments into these funds. However, our capital contributions to the funds launched and/or managed by us during the Track Record Period were limited by the financial resources available to us. Also, though we had identified certain novel investment themes with relatively high market potential and certain investors whose demands to invest on certain niche markets or products had been underserved, during the Track Record Period, we were unable to launch and seed new funds adopting such investment themes to capture such business opportunities due to limited funding.

The [REdACTEd] wi l l provide us with addit ional capita l to f inance our investment in certain funds managed by us or to seed new funds and enable us to reap the abovementioned benefits of making capital contributions to the funds we serve. Our Directors consider that investments in these funds would not only facilitate the expansion of our asset management business and distribution of our fund products, but would also enable us to enjoy the capital growth of and investment returns from such funds as an investor.


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To cater to the expansion of the asset management business and the increasing AUM of the current and future funds we serve, we also plan to use part of the [REdACTEd] from the [REdACTEd] to recruit and retain high calibre personnel who have adequate skills, knowledge and expertise in (i) the areas of investment focus of such funds, so as to support the establishment of our new funds, enhance our ability to advise and manage the funds we serve and oversee their investment portfolios, and strengthen our ability in securing fund management engagements, which is expected to increase our AUM and asset management income in the long run; and (ii) the risk management and internal control aspects of asset management to further strengthen the overall risk management and internal control of our expanding assets management business.

• Continuousdevelopmentofoursalesandadvisorybusiness

We recorded growth in revenue derived from our sales and advisory business from HK$59.8 million in FY2018 to HK$72.5 million in FY2019. As disclosed in “Business — Sales and Marketing”, during the Track Record Period, we derived our service engagements primarily from client referrals, repeat business and cross-selling efforts, which are facilitated by the networks and connections of our Directors, senior management and investment executives. We also generated an integral part of our revenue by successfully distributing the products which our clients engaged us to distribute via our platform under our various business lines. For instance, clients engaged us under our investment and advisory business to source and introduce private equity or other investment or divestment opportunities which are compatible with their investment and business development strategies and are complementary to their investment portfolio, and we may, depending on suitability and availability of the products, recommend financial products available on our platform, such as bonds arranged by us under our placing business and funds managed by us under our asset management business.

Our Directors identified that there is a growing market consisting of mid-market clients off-boarded from large-scale financial institutions and whose wealth management needs are currently underserved, and the market trend of foreign investors accessing the Mainland China market and Chinese enterprises reaching international markets through Hong Kong. For details, please see “Business — Our Business Strategies — Expand our client base and sales networks”. Our Directors therefore consider that it is critical to our future business development for us to leverage and capitalise on the expertise and market intelligence which we had developed in respect of our sales and advisory business to capture the aforementioned business opportunities. To support such growth, we shall not only focus on expanding our existing sales networks in Hong Kong through expanding our sales and advisory team, but also expand our footprints into the Mainland Chinese market. We believe that setting up our China Marketing Team would be a good first step for us to establish new sales networks in Mainland China. To expedite the expansion of our sales and advisory business, apart from expanding our client base and enhancing cross-selling of financial and wealth management products through the networks and connections of our Directors, it is also important for us to attract and source clients through marketing and brand-building. With stronger brand awareness and hence enhanced client confidence in partnering with us to pursue their investment objectives and fulfill their wealth management needs, we believe that our client-sourcing, cross-selling and product distribution efforts through our existing sales networks will be more efficient to enhance our brand recognition and publicity, which we believe may help us attract, source and secure new clients. We also consider it necessary


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to expand our front office and back office to cater to the expansion of our sales and advisory business. The [REdACTEd] will provide us with the financial resources required to implement these expansion plans to support the continuous development and future growth of our sales and advisory business.

• Apublic[REDACTED]statuswillenhanceourcorporateprofile

As stated in the Frost & Sullivan Report, it is difficult for new entrants of the financial and wealth management industry, such as our Group as a financial service provider with relatively short operating history, to build strong brand awareness in a short period of time. The status of being a [REdACTEd] company on the Stock Exchange in Hong Kong is an efficient and complementary means of enhancing our brand awareness, which is expected to raise our market exposure and enhance our reputation amongst our competitors and in turn help implement our business strategies.

Also, as mentioned, high net worth individuals form an integral part of our client base and are the primary target clients of our investment and advisory business. We believe that apart from brand recognition, credibility is one of the considerations of these target clients in selecting service providers. We believe that a public [REdACTEd] status would assist us in reinforcing our image and enhancing the confidence of our existing and potential clients in our Group, in particular high net worth individuals, who are usually more willing and inclined to establish business relationship with listed companies.

• Improvingourfinancialstructure

During the Track Record Period, our operations and business development were principally financed by Shareholders’ equity and internally generated funds. We require cash primarily for financing our different business needs including, but not limited to, early stage expenses in settling up funds or investment vehicles, investment in the funds or vehicles that we managed, expanding our loan portfolio and general working capital. As disclosed in this section above, we would also require [REdACTEd] from the [REdACTEd] to implement our future plans and business strategies in order to achieve future business growth and development. However, as at 31 December 2019, our cash and cash equivalents only amounted to HK$38.0 million.

We believe that the [REdACTEd] will provide us with access to the capital markets from which we may raise funds through the [REdACTEd] and further issuance of listed or unlisted equity and/or debt securities. In particular, as a [REdACTEd] entity upon the [REdACTEd], we believe we may be able to negotiate for better terms for debt financing and our ability to obtain bank loans with more favourable terms is also expected to improve as compared to being a private entity. Moreover, raising funds through equity issuance is expected to have less negative impact on our profit margin as compared to debt financing as the direct costs of issuing equity securities can be capitalised under our financial policy while the interest costs of debt instruments shall be recognised as expenses. Our Directors also believe that equity financing complements with our business developments and future plans as disclosed above, the returns and contributions of which may only be reflected in our financial performance over time, as Shareholders generally focus on the business growth and performance of our Group over a relatively longer term than financiers.


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• Apublic[REDACTED]statuswillhelpusrecruitandretainhighcalibrepersonnel

We believe that a strong team of professional staff equipped with adequate knowledge, skill and experiences is crucial to the continuous success of our business. However, as stated in the Frost & Sullivan Report, experienced and professional personnel with broad connections and network are mainly concentrated in the leading service providers of financial and wealth management industry in Hong Kong. The scarcity of these high-skilled talents builds an intangible barrier for market entrants with relatively short operating history, including our Group.

We believe that the [REdACTEd] will provide us with a public [REdACTEd] status and improved brand recognition, which will enhance our ability to compete with other market players in recruiting, motivating and retaining our key management personnel and staff. Furthermore, the [REdACTEd] will also enable us to offer equity-based incentive programs, such as the Share Option Scheme, which may provide better motivation for our existing staff and personnel and attract potential talents to contribute to the continuous growth and development of our Group.

Documents

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND … · FUTURE PLANS ANd USE oF [REdACTEd] — 318 — 1ST Proof ♠ Job > ProJecT LighT ♠ Name > 24e2006221 fuTure PLaNS ♠ DaTe