(1) Major and Connected Transaction: Proposed Acquisition of the Target Group Engaged in the Provision of Security Guarding & Event Services, Insurance Solutions and Landscaping Services; (2) Major and Connected Transaction: Disposal of Properties; (3) Continuing Connected Transactions: 2021 Master Facility and Related Services Agreements; (4) Proposed Change of Company Name and Stock Short Name ; (5) Re-election of the Retiring Director; and (6) Notice of Extraordinary General Meeting

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this Circular or as to the action to be taken, you should consult your stockbroker or other licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in FSE Services Group Limited, you should at once hand this Circular and the accompanying form of proxy to the purchaser(s) or the transferee(s) or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or the transferee(s).

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this Circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this Circular.

This Circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities of the Company.

FSE SERVICES GROUP LIMITED ᔮସ؂ਕණྠϞࠢʮ̡

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 331)

(1) MAJOR AND CONNECTED TRANSACTION: PROPOSED ACQUISITION OF THE TARGET GROUP ENGAGED IN THE PROVISION OF SECURITY GUARDING & EVENT SERVICES,

INSURANCE SOLUTIONS AND LANDSCAPING SERVICES;

(2) MAJOR AND CONNECTED TRANSACTION:

DISPOSAL OF PROPERTIES;

(3) CONTINUING CONNECTED TRANSACTIONS:

2021 MASTER FACILITY AND RELATED SERVICES AGREEMENTS;

(4) PROPOSED CHANGE OF COMPANY NAME AND

STOCK SHORT NAME;

(5) RE-ELECTION OF THE RETIRING DIRECTOR;

AND

(6) NOTICE OF EXTRAORDINARY GENERAL MEETING

Sole Financial Adviser

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

All capitalised terms used in this Circular shall have the meanings ascribed to them in the section headed ''Definitions'' of this Circular.

A letter from the Board is set out on pages 11 to 73 of this Circular. A letter from the Independent Board Committee is set out on pages 74 to 76 of this Circular. A notice convening the EGM to be held at 17th Floor, Chevalier Commercial Centre, 8 Wang Hoi Road, Kowloon Bay, Kowloon, Hong Kong on Friday, 9 April 2021 at 4:30 p.m. is set out on pages EGM-1 to EGM-7 in this Circular. A form of proxy for use at the EGM is enclosed with this Circular. Whether or not you are able to attend the EGM in person, please complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the Company's branch share registrar and transfer office in Hong Kong, Tricor Investor Services Limited, at Level 54, Hopewell Centre, 183 Queen's Road East, Hong Kong as soon as practicable but in any event not less than 48 hours before the time appointed for the holding of the EGM. Completion and return of the accompanying form of proxy will not preclude you from attending and voting at the EGM should you so wish.

19 March 2021

CONTENTS

Page

DEFINITIONS ..................................................................

LETTER FROM THE BOARD ..................................................

LETTER FROM THE INDEPENDENT BOARD COMMITTEE .................

LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR ................

1 11 74 77

APPENDIX I - FINANCIAL INFORMATION OF THE GROUP ...........

I-1

APPENDIX II - FINANCIAL INFORMATION OF

THE TARGET GROUP ..................................

II-1

NOTICE OF EGM .............................................................. EGM-1

- i -

In this Circular, unless the context requires otherwise, the following expressions have the following meanings:

''2021 Master Facility and

Related Services Agreements''

the following proposed new master services agreements collectively:

• (1) the agreement to be entered into between the Company and the Seller in relation to (a) rental and related services by Doo's Associates Group to the Enlarged Group; and (b) the provision of the Security Guarding & Event Services, Insurance Solutions and Landscaping Services by the Enlarged Group to the Doo's Associates Group (''2021 FSE Master Facility and Related Services Agreement'');

• (2) the agreement to be entered into between the Company and NWD in relation to (a) the provision of the IT Support Services and Rental Services by the NWD Group to the Target Group of the Enlarged Group; and (b) the provision of the Security Guarding & Event Services, the Insurance and Related Services and the Landscaping Services by the Enlarged Group to the NWD Group (''2021 NWD Master Facility and Related Services Agreement'');

• (3) the agreement to be entered into between the Company and NWS in relation to (a) the provision of the Security Guarding & Event Services, supply of security products, the Insurance Advisory Services and the Landscaping Services by Enlarged Group to the NWS Group; and (b) the provision of rental and related services and convention and exhibition facilities and related functions and services, and food and beverage catering services by the NWS Group to the Enlarged Group (''2021 NWS Master Facility and Related Services Agreement'');

• (4) the agreement to be entered into between the Company and CTFE in relation to (a) the provision of the Security Guarding & Event Services, Insurance Solutions and Landscaping Services by the Enlarged Group to the CTFE Group; and (b) the provision of leasing or licensing services by the CTFE Group to the Enlarged Group (''2021 CTFE Master Facility and Related Services Agreement''); and

(5)the agreement to be entered into between the Company and CTFJ in relation to (a) the provision of the Security Guarding & Event Services, Insurance Solutions and Landscaping Services by the Enlarged Group to the CTFJ Group ; and (b) the provision of leasing or licensing services by the CTFJ Group to the Enlarged Group (''2021 CTFJ Master Facility and Related Services Agreement'')

''30%-controlled company''

has the meaning ascribed to it under the Listing Rules

''Announcement''

the announcement of the Company dated 26 February 2021 in relation to, among other things, the Proposed Transactions, the 2021 Master Facility and Related Services Agreements, the Services Transactions contemplated thereunder, the Annual Caps and the Proposed Change of Company Name

''Annual Cap(s)''

the estimated maximum aggregate annual amounts in respect of the Services Transactions contemplated under each of the 2021 Master Facility and Related Services Agreements for the period commencing from the date of Completion of the Proposed Transactions and ending on 30 June 2023 (as applicable) as stated in the section headed ''Annual Caps'' in the Letter from the Board in this Circular

''associate''

has the meaning ascribed to it under the Listing Rules

''Beijing Nova''

北 京 新 域 保 險 經紀 有 限 公 司 (Beijing Nova Insurance Services Limited*), a limited liability company incorporated in the PRC

''Best Culture''

Best Culture Holdings Limited, a company incorporated in the British Virgin Islands with limited liability and, as at the Latest Practicable Date, an indirect wholly-owned subsidiary of the Company

''Board''

the Board of Directors

''Brokerslink''

Brokerslink Management AG, an AG (aktiengesellschaft) incorporated in the Switzerland

''Business Days''

any day (other than a Saturday or Sunday or public holiday) on which banks in Hong Kong are open for the transaction of normal business

''Business Valuation''

a business valuation of the Target Group performed by an independent professional valuer, Vigers Appraisal & Consulting Limited, as at 31 December 2020, amounting to HK$840,600,000

''Buyer Co''

''City Essential Services''

FSE City Essential Services Limited, a company incorporated in the British Virgin Islands with limited liability and a wholly-owned subsidiary of the Company referring to certain services essential to the operation of a city, including environmental services, cleaning services, maintenance services, security guarding services, security design, installation and management, event services (concierge services), insurance solutions, landscaping services and other related services

''Company''

FSE Services Group Limited (豐盛服務集團有限公司 ), a company incorporated in the Cayman Islands with limited liability, the issued shares of which are listed on the main board of the Stock Exchange (stock code: 331)

''Completion''

the completion of the Proposed Acquisition, the Proposed Disposal and the transaction contemplated under the Sale and Purchase Agreement

''Completion Date''

the date which is ten (10) Business Days, or such other date as the Company and the Seller may agree, after the date (not being later than the Longstop Date) on which the last of the Conditions to be satisfied or waived is satisfied or waived (as applicable)

''Conditions''

the conditions for Completion set forth in the paragraph headed ''Conditions precedent to Completion'' in the Letter from the Board in this Circular

''connected person''

has the meaning ascribed to it under the Listing Rules

''Consideration''

the consideration for the sale and purchase of the Sale Share, the initial sum of which being HK$840,600,000, comprising (i) a non-cash consideration of HK$442,650,000 settled through the Proposed Disposal of the Disposal Property and the entire issued share capital in the Property Holdcos by the Group to the Seller Group; and (ii) a cash consideration of HK$397,950,000 payable in cash by the Company

''controlling shareholder''

has the meaning ascribed to it under the Listing Rules

''CTFE''

Chow Tai Fook Enterprises Limited (周大福企業有限公司), a company incorporated in Hong Kong with limited liability

''CTFE Group''

CTFE and its subsidiaries from time to time

''CTFJ''

Chow Tai Fook Jewellery Group Limited (周大福珠 寶集團 有限公司), a company incorporated in the Cayman Islands with limited liability, the issued shares of which are listed on the main board of the Stock Exchange (stock code: 1929)

''CTFJ Group''

CTFJ and its subsidiaries from time to time

''Definitive Agreements''

with respect to any 2021 Master Facility and Related Services Agreement, the individual definitive agreements in respect of the Services Transactions contemplated under each of the 2021 Master Facility and Related Services Agreement which may from time to time be entered into in pursuance thereto

''Directors''

the directors of the Company

''Disposal Property''

the property owned by the Group to be disposed of to the Seller in accordance with the Sale and Purchase Agreement (as more particularly set out under the section headed ''INFORMATION ON THE PROPERTY HOLDCOS AND THE DISPOSAL PROPERTY'' in the Letter from the Board in this Circular)

''Doo's Associates Group''

Mr. Doo and companies, other than members of the Enlarged Group, which are the 30%-controlled companies of Mr. Doo, his ''immediate family members'' and/or ''family members'' (as defined in the Listing Rules), individually or together, and the subsidiaries of such companies

''Dr. Cheng''

Dr. Cheng Kar Shun, Henry, the chairman and a non-executive Director of the Company

''EGM''

an extraordinary general meeting of the Company to be convened and held to consider and, if thought fit, approve the EGM Matters

''EGM Matters''

(i) the Proposed Transactions; (ii) the transactions and the proposed Annual Caps stipulated under the 2021 Master Facility and Related Services Agreements; (iii) the Proposed Change of Company Name; and (iv) the proposed re-election of the retiring Director

''Enlarged Group''

the Group as enlarged by the Target Group upon Completion

''FSE Holdings''

FSE Holdings Limited ( 豐 盛 創 建 控 股 有 限 公 司 ), a company incorporated in the Cayman Islands with limited liability and a controlling shareholder of the Company holding 75% of the Ordinary Shares in issue of the Company as at the Latest Practicable Date

''Fultech Development''

Fultech Development Limited, a company incorporated in Hong Kong with limited liability and, as at the Latest Practicable Date, an indirect wholly-owned subsidiary of the Company

''Group''

''FY'' or ''financial year''

financial year of the Company ended or ending 30 June the Company and its subsidiaries from time to time

''Heritage Star''

Heritage Star Limited, a company incorporated in the British Virgin Islands with limited liability and, as at the Latest Practicable Date, an indirect wholly-owned subsidiary of the Company

''HK$''

Hong Kong dollars, the lawful currency of Hong Kong

''Hong Kong''

the Hong Kong Special Administrative Region of the People's Republic of China

''Independent Board

Committee''

an independent committee of the Board, which comprises all of the independent non-executive Directors, namely Mr. Kwong Che Keung, Gordon, Mr. Hui Chiu Chung, Stephen, Mr. Lee Kwan Hung, Eddie and Dr. Tong Yuk Lun, Paul, established to advise the Independent Shareholders on, among other matters, the fairness and reasonableness of the Proposed Transactions and the 2021 Master Facility and Related Services Agreements and the transactions and proposed Annual Caps contemplated thereunder

''Independent Financial

Adviser''

Ballas Capital Limited, a corporation licensed to carry out Types 1 and 6 regulated activities as defined under the SFO, being the independent financial adviser to the Independent Board Committee and the Independent Shareholders with regard to the Proposed Transactions and the 2021 Master Facility and Related Services Agreements and the transactions and proposed Annual Caps contemplated thereunder

''Independent Shareholders''

''Insurance and Related

Services''

the Shareholders, other than FSE Holdings, who do not have any material interest in the Proposed Transactions referring to insurance underwriting services, insurance consultancy and advisory services, policy underwriting services, medical and health care services, rehabilitation and wellness enhancement and related services, but excluding insurance brokerage services

''Insurance Advisory Services''

''IT Support Services''

referring to insurance advisory and related services referring to the maintenance and support of computer software-related matters, such as solving software and hardware conflicts and usability problems and supplying updates and patches for bugs, security holes in the programme and other services as required by in-house IT staff as and when necessary

''Joint Venture Target Entities''

Landes Limited ( 景 藝 設計 有 限 公 司 ), a company incorporated in Hong Kong with limited liability and, as at completion of the Reorganisation, indirectly owned as to 20% by the Target Company

''Latest Practicable Date''

means 15 March 2021, being the latest practicable date prior to the printing of this Circular for the purpose of ascertaining certain information contained herein

''Listing Rules''

the Rules Governing the Listing of Securities on the Stock Exchange

''Longstop Date''

30 June 2021, or such other date as the Company and the Seller may agree in writing

''Macao''

Macao Special Administrative Region of the People's Republic of China

''Mr. Doo''

Mr. Doo Wai Hoi, William, one of the controlling shareholders of the Company

''Non-Compete Undertakings''

the non-compete undertakings dated 20 November 2015 executed by the Company's controlling shareholders in favour of the Company containing the non-compete undertakings more particularly referred to in the paragraph headed ''Competition'' in the section headed ''Relationship with Controlling Shareholders'' in the Prospectus

''NTAV''

the net tangible assets value of the Target Group

''NWD''

New World Development Company Limited (新世界發展有 限公司), a company incorporated in Hong Kong with limited liability, the issued shares of which are listed on the main board of the Stock Exchange (stock code: 17)

''NWD Group''

NWD and its subsidiaries from time to time but excluding the NWS Group

''NWS''

NWS Holdings Limited (新創建集團有限公司), a company incorporated in Bermuda with limited liability, the issued shares of which are listed on the main board of the Stock Exchange (stock code: 659)

''NWS Group''

NWS and its subsidiaries from time to time

''Optimum Result''

Optimum Result Holdings Limited, a company incorporated in the British Virgin Islands with limited liability and, as at the Latest Practicable Date, an indirect wholly-owned subsidiary of the Company

''Ordinary Share''

ordinary share of par value HK$0.10 in the share capital of the Company

''P/E''

price divided by earnings

''Percentage Ratios''

the applicable percentage ratios under Rule 14.07 of the Listing Rules

''PRC''

the People's Republic of China, for which, for the purpose of this circular only, excludes Hong Kong, Macau and Taiwan

''Property Holdcos''

collectively, Top Line Investment, Fultech Development, Heritage Star, Optimum Result and Best Culture which directly or indirectly own certain properties, to be disposed of by the Group to the Seller in accordance with the Sale and Purchase Agreement (as more particularly set out under the section headed ''INFORMATION ON THE PROPERTY HOLDCOS AND THE DISPOSAL PROPERTY'' in the Letter from the Board in this Circular)

''Property Management

Services''

referring to the property and facility management services, agency leasing and sales services, consultancy services, provision of car parking and other related services

''Property Valuation''

a property valuation of the properties held by the Property Holdcos and the Disposal Property performed by an independent professional valuer, Vigers Appraisal & Consulting Limited, as at 31 December 2020

''Proposed Acquisition''

the proposed acquisition of the Sale Share by the Company from the Seller on and subject to the terms and conditions of the Sale and Purchase Agreement and the performance of the transactions contemplated thereunder

''Proposed Change of Company

Name''

the proposed change of the English name of the Company from ''FSE Services Group Limited'' to ''FSE Lifestyle Services Limited'' and the proposed adoption of the Chinese name of ''豐盛生活服務有限公司'' as the dual foreign name of the Company in place of its existing Chinese name ''豐盛服務集團有限公司''

''Proposed Disposal''

the proposed disposal of all right, title and interest in the Disposal Property and the entire issued share capital of each of the Property Holdcos by the Group to the Seller on and subject to the terms and conditions of the Sale and Purchase Agreement and the performance of the transactions contemplated thereunder

''Proposed Transactions''

collectively, the Proposed Acquisition and the Proposed Disposal contemplated under the Sale and Purchase Agreement

''Prospectus''

''Rental Services''

the prospectus of the Company dated 26 November 2015 referring to the leasing of properties, including, without limitation, spare spaces, office spaces and car parking spaces, and related services

''Reorganisation''

''Retained Insurance Business''

the series of transactions required in order for each member of the Target Group to become subsidiaries of (or, in the case of the Joint Venture Target Entity, to become an associated company under) the Target Company collectively, Brokerslink and Beijing Nova

''Sale and Purchase Agreement''

the conditional agreement for the sale and purchase of the Sale Share entered into between the Seller, the Buyer Co and the Company dated 26 February 2021

''Sale Share''

one (1) fully paid ordinary share(s) of par value of US$1.00 in the share capital of the Target Company legally and beneficially owned by the Seller, representing the entire issued share capital of the Target Company

''Security Guarding & Event

Services, Insurance Solutions and Landscaping Services''

collectively, referring to:

(A) the provisions of services of security guarding, event servicing, security services, security systems & technology (including installation and maintenance), security consultancy, armoured transit & vaulting security, escort & surveillance security services and related services (the ''Security Guarding & Event Services'');

• (B) the provision of insurance brokerage services, insurance consultancy and advisory services and related services (the ''Insurance Solutions''); and

• (C) the provision of landscaping and plant maintenance, supply of plants and related services (the ''Landscaping Services'')

''Seller''

FSE Management Company Limited (豐盛創建管理有限公 司), a company incorporated in Hong Kong with limited liability and a direct wholly-owned subsidiary of FSE Holdings

''Seller Group''

the Seller and its subsidiaries from time to time

''Services''

''Services Transactions''

the provision and receipt of the services stipulated under the 2021 Master Facility and Related Services Agreements the provision of the Services as contemplated under the 2021 Master Facility and Related Services Agreements (as more particularly set out under the section headed ''THE 2021 MASTER FACILITY AND RELATED SERVICES AGREEMENTS'' in the Letter from the Board in this Circular)

''SFO''

the Securities and Futures Ordinance (Cap. 571)

''Shareholder''

the holder of any Ordinary Share

''Stock Exchange''

The Stock Exchange of Hong Kong Limited

''Target Company''

Business Investments Limited, a company incorporated in the British Virgin Islands with limited liability and, as at the Latest Practicable Date, a direct wholly-owned subsidiary of the Seller

''Target Entity''

each member of the Target Group

''Target Group''

the Target Company, and members of each of (i) and each of (i) FSE C & L Limited and its subsidiaries and the Joint Venture Target Entity, (ii) FSE S & G Limited and its subsidiaries, and (iii) FSE Ins Limited (formerly known as Double Luck Ventures Limited) and its subsidiaries, which have, upon completion of the Reorganisation, become subsidiaries (in case of the Joint Venture Target Entity, an associated company) of the Target Company

''Technical and Management

Services''

referring to the provision of mechanical and electrical engineering services, trading of building materials, construction project management services involving engineering and technology related work and provision of related design, engineering installation, testing and commissioning and consultancy services

''Top Line Investment''

Top Line Investment Limited (通能投資有限公司 ), a company incorporated in Hong Kong with limited liability and, as at the Latest Practicable Date, an indirect wholly-owned subsidiary of the Company

''%''

per cent

*

for identification purpose only

FSE SERVICES GROUP LIMITED ᔮସ؂ਕණྠϞࠢʮ̡

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 331)

Registered office:

(1) MAJOR AND CONNECTED TRANSACTION: PROPOSED ACQUISITION OF THE TARGET GROUP ENGAGED IN THE PROVISION OF SECURITY GUARDING & EVENT SERVICES,

INSURANCE SOLUTIONS AND LANDSCAPING SERVICES;

(2) MAJOR AND CONNECTED TRANSACTION:

DISPOSAL OF PROPERTIES;

(3) CONTINUING CONNECTED TRANSACTIONS:

2021 MASTER FACILITY AND RELATED SERVICES AGREEMENTS;

(4) PROPOSED CHANGE OF COMPANY NAME AND

STOCK SHORT NAME;

(5) RE-ELECTION OF THE RETIRING DIRECTOR;

AND

(6) NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

Reference is made to the Announcement in relation to, among other things, the Proposed Transactions, the 2021 Master Facility and Related Services Agreements, the Services Transactions contemplated thereunder, the Annual Cap and the Proposed Change of Company Name.

The Board is pleased to announce that on 26 February 2021 (after trading hours of the Stock Exchange), the Company, the Buyer Co and the Seller entered into a Sale and Purchase Agreement pursuant to which the Company has conditionally agreed to nominate the Buyer Co to acquire from the Seller the Sale Share at a total consideration of HK$840,600,000 (subject to adjustments, if any), comprising (i) a non-cash consideration of HK$442,650,000 settled through the Proposed Disposal of the Disposal Property and the entire issued share capital in the Property Holdcos to the Seller Group; and (ii) a cash consideration of HK$397,950,000 payable in cash by the Company.

The Target Group is principally engaged in the provision of Security Guarding & Event Services, Insurance Solutions and Landscaping Services.

Completion of the Proposed Acquisition and the Proposed Disposal shall take place simultaneously on the Completion Date, and the Completion is subject to the fulfilment (or, as the case may be, waiver) of the Conditions. Upon Completion, the Target Company will become an indirect wholly-owned subsidiary of the Company, and the Group will cease to hold any right, title and interest in the Property Holdcos and the Disposal Property.

Members of the Target Group, in their ordinary course of business, regularly entered into continuing transactions in relation to facility and related services including Security Guarding & Event Services, Insurance Solutions and Landscaping Services:

• (1) the provision of the Security Guarding & Event Services, Insurance Solutions and Landscaping Services to and receipt of the rental and related services from the Doo's Associates Group;

• (2) the provision of the Security Guarding & Event Services, the Insurance and Related Services and the Landscaping Services to and receipt of IT Support Services and Rental Services from the NWD Group; and

• (3) the provision of the Security Guarding & Event Services, Insurance Solutions and Landscaping Services to members of each of the NWS Group, the CTFE Group and the CTFJ Group and receipt of the rental and related services from the NWS Group, the CTFE Group and the CTFJ Group and receipt of convention and exhibition facilities and related functions and services and food and beverage catering services from the NWS Group.

It is expected that the above continuing transactions will continue after the completion of the Proposed Transactions. As the Target Company will become an indirect wholly-owned subsidiary of the Company upon completion of the Proposed Transactions, the continuing transactions entered into or to be entered into between the Group on one side, and each of the Doo's Associate Group, the NWD Group, the NWS Group, the CTFE Group or the CTFJ Group on the other will respectively become continuing connected transactions of the Company under the Listing Rules.

In order to streamline these continuing connected transactions in relation to the provision and receipt of the Services and facilitate the compliance with relevant requirements under the Listing Rules, the Company proposes to enter into the 2021 Master Facility and Related Services Agreements upon completion of the Proposed Transactions, the principal terms and conditions of which are set out in this Circular.

The Board also proposes to change the English and Chinese names of the Company in order to better identify the business of the Group. The stock short name of the Company is also proposed to be changed accordingly after the Proposed Change of Company Name becoming effective.

THE PROPOSED ACQUISITION AND THE PROPOSED DISPOSAL

The Sale and Purchase Agreement

The Buyer Co is a wholly-owned subsidiary of the Company. FSE Holdings, which holds 75% of the Ordinary Shares of the Company in issue as at the Latest Practicable Date, is a controlling shareholder of the Company. The Seller, being a wholly-owned subsidiary of FSE Holdings, is an associate of FSE Holdings, and therefore a connected person of the Company.

Assets to be acquired by the Group under the Sale and Purchase Agreement

Pursuant to the Sale and Purchase Agreement, the Company has conditionally agreed to nominate the Buyer Co to acquire from the Seller the Sale Share, representing the entire issued share capital of the Target Company.

The section below headed ''INFORMATION ON THE TARGET GROUP'' provides further information on the Target Group to be acquired by the Group.

Assets to be disposed of by the Group under the Sale and Purchase Agreement

As part of the Consideration for the Proposed Acquisition, pursuant to the Sale and Purchase Agreement, the Company has conditionally agreed to procure the relevant members of the Group to sell the entire share capital in the Property Holdcos and all right, title and interest in the Disposal Property to the Seller.

The section below headed ''INFORMATION ON THE PROPERTY HOLDCOS AND THE DISPOSAL PROPERTY AND THE FINANCIAL IMPACT OF THE PROPOSED DISPOSAL'' provides further information on the Property Holdcos and the Disposal Property to be disposed of by the Group.

The Consideration, its payment term and adjustment

The Consideration for the Proposed Acquisition is HK$840,600,000 (subject to adjustments, if any), which is based on arm's length negotiations between the Company and the Seller with reference to the Business Valuation. Pursuant to the business valuation report prepared by the independent professional valuer, the fair value of the Target Group (the ''Fair Value'') is HK$840,600,000 as at 31 December 2020 and was determined on basis of market approach. Such Consideration implies a P/E multiple of approximately 10.0x based on the normalized earnings of the Target Group for the financial year ended 30 June 2020.

The Target Group comprises three business segments, namely Security Guarding & Event Services, Insurance Solutions and Landscaping Services. The Board noted that the Fair Value was derived after due consideration of the following factors:

(1) The normalized earnings of the Target Group was approximately HK$83.7 million for the financial year ended 30 June 2020, which was composed of the normalized earnings of Security Guarding & Event Services, Insurance Solutions and Landscaping Services which respectively amounted to HK$47.6 million, HK$34.0 million and HK$2.1 million for the financial year ended 30 June 2020. Such amounts were determined based on the net profit attributable to equity holders of each of the business segments for the financial year ended 30 June 2020 after adjusting for non-recurring and non-operating charges and gains, and their tax effect from the respective segmental net profits, where appropriate, namely:

• (a) the management fee charged by the Seller to each of the business segments for the financial year ended 30 June 2020. After Completion, the existing management functions provided by the Seller in consideration of the management fee will be performed by the senior management team of the Company;

• (b) the donation made for the financial year ended 30 June 2020;

• (c) the exchange gain or loss incurred during currency translation of assets and liabilities located in the PRC for the financial year ended 30 June 2020;

• (d) the government grant including (i) one-off subsidy from the Anti-epidemic Fund, (ii) wage subsidies under Employment Support Scheme, and (iii) subsidy for phasing out pre-Euro IV diesel commercial vehicles under the Ex-gratia Payment Scheme for the financial year ended 30 June 2020;

• (e) the bank interest income for the financial year ended 30 June 2020;

• (f) the gain on disposal of property, plant and equipment for the financial year ended 30 June 2020; and

• (g) the tax effect of the adjustment (a) to (b) above for the financial year ended 30 June 2020.

The respective adjustment effect of the above factors (a) to (g) on the three business segments, namely Security Guarding & Event Services, Insurance Solutions and Landscaping Services, are set out below:

Security Guarding &

EventInsurance Landscaping

Services HK$'millionSolution HK$'millionServices HK$'million

• (a) the management fee charged by the Seller to each of the business segments for the financial year ended 30 June 2020

  2.2

  3.0

  0.5

• (b) the donation made for the financial year ended 30 June 2020

  1.5

  4.0

  -

• (c) the exchange gain or loss incurred during currency translation of assets and liabilities located in the PRC for the financial year ended 30 June 2020

  -

  (0.1)

  0.2

• (d) the government grant including (i) one-off subsidy from the Anti-epidemic Fund, (ii) wage subsidies under Employment Support Scheme, and (iii) subsidy for phasing out pre-Euro IV diesel commercial vehicles under the Ex-gratia Payment Scheme for the financial year ended 30 June 2020

  (18.3)

  (0.4)

  (0.8)

• (e) the bank interest income for the financial year ended 30 June 2020

  (0.4)

  (0.2)

  -

• (f) the gain on disposal of property, plant and equipment for the financial year ended 30 June 2020

  (8.2)

  -

  -

• (g) the tax effect of the above items (a) and (b)

(0.6)

(1.2)

(0.1)

(2) The implied P/E multiple of the Target Group is approximately 10.0x, which was the result of (i) the P/E multiples of Security Guarding & Event Services, Insurance Solutions and Landscaping Services segments adopted in the business valuation report prepared by the independent professional valuer, which was 10.7x, 15.3x and 9.1x, respectively. The selected comparable companies used in deriving the P/E multiples of each of the business segments were companies listed in mature stock markets; in the same industries as the business segments of Target Group being appraised; having positive earnings so as to infer meaningful multiples for comparison; and not being considered as observable outliers. The comparable companies in the security and insurance industries operate in various overseas countries as only one comparable company operating in the security industry inHong Kong and no comparable companies operating in the insurance industry in Hong Kong or PRC with similar business operations or meaningful P/E multiples (i.e. non-loss making) could be identified despite extensive research conducted by the independent valuer; while the independent valuer has identified comparable companies from Hong Kong and the PRC, where possible, for the landscaping services industry. However, it is noted by the independent valuer that all the comparable companies are considered to be fair and representative from valuation perspective taking into account their listing status in open and established markets, similarity in business operation models as those of the Target Group, and that a substantial portion of their revenue was generated from business comparable to those of the Target Group. In addition, adjustments were applied on the P/E multiples where appropriate, with reference to the market index of the relevant countries as suggested by valuation literatures to address the issue of difference in valuation among different countries; (ii) the adjustments in NTAV of each of Security Guarding & Event Services, Insurance Solutions and Landscaping Services as at 31 December 2020, including adjustments on idle cash, loan, non-operating asset and non-operating liabilities, where appropriate; (iii) applying a 30% discount for lack of marketability; and (iv) applying a 14.3% control premium which is derived based on the average value of an exhaustive list of acquisitions of majority control and/or privatizations on the Stock Exchange from 1 January 2018 to 31 December 2020 after removing certain observable outliers.

Based on the above, the Directors (excluding the independent non-executive Directors (whose views are set out in the Letter from the Independent Board Committee in this circular) and those Directors who are considered to have a material interest in the Proposed Transactions as set out in the paragraph headed ''Approval by the Board'') are of the view that (i) the selected comparable companies are fair and representative and (ii) the adjustments on the P/E multiples and the control premium of 14.3% are fair and reasonable.

Pursuant to the Sale and Purchase Agreement, the Consideration is subject to adjustment, if any, by reference to the amount of the NTAV of the Target Group as at the Completion Date as follows:

• (1) if the NTAV of the Target Group as at the Completion Date is greater than the NTAV of the Target Group as at 31 December 2020, 100% of the difference shall be payable in cash and added to the Consideration for the Sale Share; or

• (2) if the NTAV of the Target Group as at the Completion Date is smaller than the

  NTAV of the Target Group as at 31 December 2020, 100% of the difference shall be deducted from the cash portion of the Consideration for the Sale Share.

The NTAV of the Target Group as at 31 December 2020 was approximately HK$45.7 million.

At Completion, the cash portion of the Consideration will be funded by the Group's internal resources. The amount of the non-cash portion through the Proposed Disposal was agreed after arm's length negotiations between the Company and the Seller having taken intoconsideration the Property Valuation and is not subject to any write-up or write-down based on the latest market value of the properties held by the Property Holdcos and the Disposal Property as at the Completion Date. The Directors believe that using the Proposed Disposal of the Property Holdcos and the Disposal Property as part of the Consideration would also provide the Group more flexibility in managing its cashflow, maintain a good capital structure and better utilize less liquid assets in its balance sheet.

Conditions precedent to Completion

Pursuant to the Sale and Purchase Agreement, Completion is conditional upon:

• (1) all regulatory and corporate approvals of the Company and the Buyer Co as are necessary for the completion of the transaction contemplated under the Sale and Purchase Agreement, the Property Transfer Agreement and the 2021 Master Facility and Related Services Agreements having been obtained, including the approval by the Independent Shareholders at a general meeting of the Proposed Transactions and the approval by the Board of the 2021 Master Facility and Related Services Agreements;

• (2) the warranties provided by the Seller in the Sale and Purchase Agreement remaining true and accurate in all respects and not misleading in any respect as at Completion;

• (3) all consents, approvals, permits, authorisations or clearances (as the case may be) that the Seller reasonably considers necessary pursuant to applicable laws, regulations or rules (including but not limited to the consents from lenders of the relevant banking facilities) for its execution, implementation and completion of the Sale and Purchase Agreement and the property transfer agreement relating to the Disposal Property and the consents from counterparties of the relevant agreements having been obtained, and all such consents, approvals, permits, authorisations and clearances not having been revoked or withdrawn at any time before Completion; and

• (4) all consents, approvals, permits, authorisations or clearances that the Company reasonably considers necessary for the execution, implementation and completion of the Sale and Purchase Agreement, the Property Transfer Agreement and the 2021 Master Facility and Related Services Agreements having been obtained and not having been revoked or withdrawn at any time before Completion.

The Company shall use its reasonable endeavours to convene a general meeting of the Company to enable to the satisfaction of Condition (1), and use its reasonable endeavours to achieve satisfaction of Condition (4), not later than 5:00 p.m. on the Longstop Date.

The Seller shall use its reasonable endeavours to achieve satisfaction of Condition (3) not later than 5:00 p.m. on the Longstop Date.

The Company may at any time on or before 5:00 p.m. on the Longstop Date by notice in writing to the Seller waive the above Conditions (2) and (3) in whole or in part.

If the Conditions shall not be fulfilled (or, as the case may be, waived) by the prescribed date and time, either the Seller or the Company may by notice to the other elect that the Sale and Purchase Agreement shall terminate with immediate effect.

Completion

Subject to the fulfilment (or, as the case may be, waiver) of the Conditions, completion of the Proposed Acquisition and the Proposed Disposal shall take place simultaneously on the Completion Date.

Upon Completion, (i) the Target Company will become an indirect wholly-owned subsidiary of the Company and the financial results, assets and liabilities of the Target Group will be consolidated in the financial statements of the Company; and (ii) the Group will cease to hold any right, title and interest in the Property Holdcos and the Disposal Property and each of the Property Holdcos will cease to be a wholly-owned subsidiary of the Company.

Corporate guarantees and counter-indemnity

Prior to the execution of the Sale and Purchase Agreement, the Seller has provided certain corporate guarantees and undertaking (i) for securing the granting of credit facilities to certain members of the Target Group in favour of certain lending banks amounting to approximately HK$100.0 million and (ii) for performance of some contractual obligations by certain members of the Target Group in favour of contract counterparties of the Target Group, where the Seller indemnifies the contract counterparties of the Target Group in the event there is any breach of obligations by the Target Group. In order to allow time for the Company to replace the credit support required for the operation of the Target Group after Completion, pursuant to the Sale and Purchase Agreement, the existing corporate guarantees and undertaking provided by the Seller that are subsisting as at the Completion Date are to remain in place for a period of no longer than one year thereafter (or such other period as may be agreed between the Seller and the Company). In the event any such credit facilities or contracts guaranteed by the Seller expire and should be renewed, the Group will provide new guarantees as required by the lending banks or contract counterparties.

The Company shall use its reasonable endeavours to procure such existing corporate guarantees and undertaking provided by the Seller to be released and replaced by such new corporate guarantees provided by the Group as soon as practicable and not later than the expiration of the aforesaid one-year period or such other period as the Company and the Seller may agree.

At Completion, the Company and the Seller will enter into the deed of counter indemnity, pursuant to which the Company is to agree to counter-indemnify the Seller from and against any actions, claims, liabilities, damages, costs and expenses of whatever nature which may result or which the Seller may suffer, incur or sustain as a result of the enforcement of any of such existing corporate guarantees and undertaking after Completion until the earlier of (i) the expiry or release of the same; and (ii) the date which is one year from the date of the deed of counter indemnity.

INFORMATION ON THE TARGET GROUP

The following is a simplified group structure chart of the Target Group immediately after the completion of the Reorganisation:

100%FSE S &G Limited

100%

100%

20%100%

The Target Company is a limited company incorporated in the British Virgin Islands on 29 December 2020. The principal business of the Target Company is investment holding, and does not carry on any business other than its investment in the Target Entities as its sole investment upon completion of the Reorganisation.

As at the Latest Practicable Date, the Reorganisation has been duly completed. Upon completion of the Reorganisation, the Target Group will continue to be engaged in the provision of three different segments namely Security Guarding & Event Services, Insurance Solutions and Landscaping Services.

The Security Guarding & Event Services arm

The Target Group's Security Guarding & Event Services arm of business is ranked as the No. 2 in Type I securities services provider in Hong Kong in terms of revenue for the financial year ended 30 June 2020 according to Frost & Sullivan. It is operated through FSE S & G Limited and its subsidiaries, which is commonly known as ''General Security'' and mainly offers security guarding services such as physical guarding of property and person, security management and planning, and armoured transportation. Event services are also provided that combine security guarding services and customer services to optimize the guest experience without compromising the safety of event participants or the integrity of critical assets. Other related services include concierge services, alarm installation and maintenance.

The Insurance Solutions arm

The Target Group's Insurance Solutions arm of business is ranked as the No. 1 (among local insurance brokers) and No. 5 (among local and international insurance brokers) general insurance brokers in Hong Kong in terms of gross insurance brokerage income for the financial year ended 30 June 2020 according to Frost & Sullivan. It is operated through FSE Ins Limited (formerly known as Double Luck Ventures Limited) and its subsidiaries, which is more commonly known as ''Nova Insurance'' and mainly offers general insurances brokerage services related to property and casualty, construction project, and employee benefits. Other insurance brokerage services include director and officers liability, prospectus liability, cyber risk liabilities.

The Landscaping Services arm

The Target Group's Landscaping Services arm of business is a one of the more sizeable leaders in the fragmented industry in Hong Kong. It is operated through FSE C & L Limited and its subsidiaries, which is more commonly known as ''Hong Kong Island Landscape'' and offers services related to planting and maintenance of landscapes and sales of plants and related materials.

Financial information of the Target Group

Set out below is a summary of key combined financial information of the Target Group for the two financial years ended 30 June 2019 and 30 June 2020 and the six months ended 31 December 2020 respectively, which has been prepared in accordance with the accounting policies in compliance with Hong Kong Financial Reporting Standards issued by Hong Kong Institute of Certified Public Accountant.

As of 31 December 2020, the unaudited and combined net asset value of the Target Group was approximately HK$77.7 million. The fair value of the Target Group as at 31 December 2020 was HK$840,600,000, according to the Business Valuation based on historical financial performance of the Target Group.

Apart from revenue contribution from the Doo's Associate Group, the NWD Group, the NWS Group, the CTFE Group or the CTFJ Group, the Target Group also receives a stable revenue stream of approximately 63% to 67% from independent customers. The independent customer base of the Target Group consists of large and reputable customers in the relevantmarkets. For example, among the top 10 customers of the security guarding business of the Target Group for the financial year ended 30 June 2020, the revenue from independent customers amounted to HK$245.7 million (representing 68% of the total revenue generated from the top 10 customers of the Target Group for the financial year ended 30 June 2020 of approximately HK$357.8 million). This has demonstrated that the Target Group has a diversified customer base and strong ability to generate revenue streams from its independent customers.

Financial effect of the Proposed Transactions

Upon Completion, the earnings of the Enlarged Group is expected to be enhanced taking into account the net profit of the Group of HK$329.1 million and the Target Group of HK$142.3 million for the six months ended 31 December 2020, while the net asset value is expected to decrease mainly due to the net effect resulted from (i) the consolidation of the assets and liabilities of the Target Group of HK$77.7 million as at 31 December 2020; (ii) the decrease in cash and bank balances of HK$397.9 million arising from the cash settlement of part of the Consideration; and (iii) the disposal of the Disposal Property and the properties held by the Property Holdcos with total carrying values of HK$300.9 million as at 31 December 2020 as settlement of the remaining part of the Consideration.

Non-competition undertakings by the Seller

As disclosed in the Prospectus, the controlling shareholders of the Company (including the Seller) have given the Non-Compete Undertakings in favour of the Company pursuant to which the controlling shareholders have irrevocably undertaken, among other things, each of them shall not, and shall procure that their respective close associates and/or companies controlled by them (other than the Group) shall not, directly or indirectly be interested or involved or engaged in or acquire or hold any right or interest (in each case whether as a shareholder, partner, agent or otherwise and whether for profit, reward or otherwise) in any business which is or is about to be engaged in any business which competes or is likely to compete directly or indirectly with the businesses currently and from time to time engaged by our Group (including the provision of E&M engineering services and ancillary building materials trading and retail, and environmental engineering services) in Hong Kong and/or Macau and/or the PRC or any other country or jurisdiction in or to which our Group carries on business mentioned above from time to time.

As part of the Reorganization, the Seller has reorganized all of its entities engaged in Security Guarding & Event Services, Insurance Solutions and Landscaping Services, except that with respect to the Insurance Solutions arm, Brokerslink and Beijing Nova were retained in the Seller's group.

With respect to the Retained Insurance Business, there is a clear delineation between the Retained Insurance Business and the Insurance Solutions arm of the Target Group to be acquired by the Company in the Proposed Acquisition in terms of their geographical locations and target customers. As disclosed above, the Insurance Solutions arm of the Target Group is a leading general insurance broker in Hong Kong. On the other hand, Brokerslink is incorporated in the Switzerland, principally engaged in promoting the cooperation between its global network members on cross business referrals, and Beijing Nova is incorporated in the PRC,principally engaged in insurance broking business within the territory in the PRC only. Both companies are not the licensed insurance intermediaries in Hong Kong and are restricted from carrying out insurance broking insurance in accordance with the Insurance Ordinance (Cap. 41 of the Laws of Hong Kong). The geographical focus and target customers of the Insurance Solutions arm of the Target Group are distinctly different from those of the Retained Insurance Business. Furthermore, the Group currently has no intention to develop its Insurance Solutions arm into Switzerland and/or the PRC in the near term, nor will it expect the Enlarged Group to do so upon completion of the Proposed Acquisition.

Therefore, the Company is of the view that there is no competition issue between the Enlarged Group upon completion of the Proposed Transactions and the businesses of the Seller's group (including the Retained Insurance Business), and the Non-Compete Undertakings will continue to be complied with by the Company's controlling shareholders upon completion of the Proposed Transactions.

INFORMATION ON THE PROPERTY HOLDCOS AND THE DISPOSAL PROPERTY AND THE FINANCIAL IMPACT OF THE PROPOSED DISPOSAL

The following table sets out the details of the properties directly or indirectly held by the Property Holdcos and the Disposal Property to be disposed of by the Group as part of the Consideration for the Proposed Acquisition:

Properties held by the Property Holdcos to be transferred:

Property owner

Location of the property in No. Hong Kong

as at the Latest Practicable DateGross floor Property area use (square feet)

• 1. Unit A on 8/F, Chai Wan IndustrialTop Line Investment

  9,944 Industrial

  Centre, No. 20 Lee Chung Street, Hong Kong

• 2. Unit A on 19/F, Chai Wan IndustrialFultech Development

  9,944 Industrial

  Centre, No. 20 Lee Chung Street,

  Hong Kong

• 3. Portion B on 6/F, Hop Shi FactoryFSE Property (Hong

  5,000 Industrial

  Building, Nos. 29-31 Lee Chung

  Street & Nos. 22-24 Cheung Lee

  Street, Hong Kong

Kong) Limited, which is wholly owned by Heritage Star

Property ownerLocation of the property in No. Hong Kong

as at the Latest Practicable DateGross floor Property area use (square feet)

• 4. 17/F, Chevalier Commercial Centre,Ocean Front

  • 31,400 Office

• 8 Wang Hoi Road, Kowloon Bay, Hong Kong

  Investments Limited, which is wholly owned by Optimum Result

• 5. Em Macao, Rua Nova da Areia Preta

  Prime Star Investment

  • 1,962 Commercial

• No 456, Edf. Tong Wa Block XII, Rés-Do-Chão A

  Limited, which is wholly owned by Best Culture

• 6. Em Macao, Rua do Almirante Costa

  Prime Star Investment

  • 2,843 Commercial

  Cabral No S 17-17-A, Holland Garden (Phase 4), Rés-Do-Chão A (Com Sobreloja)

  Limited, which is wholly owned by Best Culture

• 7. Em Macao, Rua do Ouvidor Arriaga No Prime Star Investment

613 Residential

39, Holland Garden (Phase 4), 1o Andar A

Limited, which is wholly owned by Best Culture

The properties shown in the table above are directly or indirectly held by the Property Holdcos and will be transferred by the Group to the Seller Group by way of transfer of the entire share capital of the Property Holdcos (being the ultimate owner of such properties) pursuant to the Sale and Purchase Agreement.

Each of the Property Holdcos (namely, Top Line Investment, Fultech Development,

Heritage Star, Optimum Result and Best Culture) is an indirect wholly-owned subsidiary of the Company. Each of these Property Holdcos is principally engaged in investment holding.

Disposal Property to be transferred:

Property ownerLocation of the property in No. Hong Kong

as at the Latest Practicable DateGross floor Property area use (square feet)

1.

Unit D on 2/F including Flat Roof,Tridant Engineering

5,930 Industrial

Golden Bear Industrial Centre, Nos. 66-82 Chai Wan Kok Street, Tsuen Wan, New Territories, Hong Kong

Company Limited which is an indirect wholly owned subsidiary of the Company

The Disposal Property will be transferred by the Group to the Seller Group by way of a transfer of asset pursuant to the Sale and Purchase Agreement

As disclosed in the section headed ''THE PROPOSED ACQUISITION AND THE PROPOSED DISPOSAL'' above, the Proposed Disposal of the entire issued share capital in the Property Holdcos and the Disposal Property is used for settling part of the Consideration for the Proposed Acquisition.

The net book value (netted with related deferred tax) of the properties directly or indirectly held by the Property Holdcos and the Disposal Property as at 31 December 2020 amounted to approximately HK$294.7 million. The difference between the fair value and the net book value of the properties directly or indirectly held by the Property Holdcos and the Disposal Property is expected to be approximately HK$148.0 million. The carrying values of the Property Holdcos and Disposal Property amounted to approximately HK$294.7 million and the cash consideration of approximately HK$397.9 million, totalling approximately HK$692.6 million, will be recorded in the merger reserve of the Group as this is linked to the Proposed Acquisition, which is considered as a business combination under common control and will be accounted for using the principles of merger accounting in accordance with Accounting Guideline 5 ''Merger Accounting for Common Control Combinations'' issued by the Hong Kong Institute of Certified Public Accountants.

Shareholders and potential investors should note that the exact amount to be recorded in the consolidated financial statements of the Group for the financial year ending 30 June 2021 remains subject to audit and may therefore differ from the estimated amount set out above.

INFORMATION ON THE SELLER

The Seller is a limited liability company incorporated in Hong Kong, and a wholly-owned subsidiary of FSE Holdings. To the best knowledge of the Directors, the principal business of the Seller is investment holding.

FSE Holdings, which holds 75% of Ordinary Shares in issue in the Company as at the Latest Practicable Date, is a controlling shareholder of the Company. The Seller, being a wholly-owned subsidiary of FSE Holdings, is an associate of FSE Holdings, and therefore a connected person of the Company.

REASONS FOR AND THE BENEFITS OF THE PROPOSED TRANSACTIONS

The Group consistently seeks opportunities to increase its scale and profitability with the aim to optimize return for its Shareholders. The Directors believe that the Proposed Transactions would increase the Group's overall competitiveness and add to its growth momentum by expanding its service line offerings to meet the ever-changing demands which is crucial amid increasing competitions.

As a long-term development strategy, the Group has decided to re-position its business into a large scale and unique lifestyle services company which has the capability to offer a comprehensive range of services (e.g. property management services, essential services, technical and management services, etc.) to our clients including corporates and households, and become their ''go-to'' services provider whereby the Group can directly service their needs or provide them guidance to immediate solutions. Hence, the Directors believe that the Proposed Transactions would be a good complementary add on to such initiative and strengthen its service line offerings. Below sets forth the reasons for and the benefits of the Proposed Transaction:

Increase the Group's scale and profit, providing higher return to shareholders

• . The Group has achieved progressive growth in net profit through organic and acquisition growth which allowed it to distribute an increasing level of dividend for the Shareholders of the Company over the past few years. The Directors believe that the Proposed Acquisition will increase the Company's profit scale and expect to maintain the Company's dividend payout ratio of not less than 30%.

• . Throughout the years of successful integration from the previous acquisitions, the Group has shown a proven track record in utilizing its capital to invest in attractive acquisitions to increase Shareholder's return. The Directors believe that the Proposed Acquisition represents a good investment for the Group by utilizing its existing cash on hand, and leveraging on the Proposed Disposal of the Property Holdcos and the Disposal Property, which will allow the Group to engage in businesses that could enhance recurring profit in long term and lead to an accretion to the Company's earnings per share. The benefits of using the Proposed Disposal of the Property Holdcos and the Disposal Property as part of the Consideration would also provide the Group more flexibility in managing its cashflow, maintain a good capital structure and better utilize less liquid assets in its balance sheet.

• . The Target Group has a normalized net profit of approximately HK$83.7 million for the financial year ended 30 June 2020, which is approximately 27.0% of that of the Group during the same period.

Mitigate cyclical risks by diversifying revenue streams and expanding financial scale

• . The Directors believe that the Proposed Transactions would enable the Group to further mitigate cyclical risks typically associated with the E&M engineering segment by diversifying its revenue streams. Moreover, the Target Group has a diversified service line offerings and client base, which could potentially improve the stability of operation of the Enlarged Group with more diversified revenue streams.

• . The Target Group recorded a revenue of approximately HK$777.2 million and net profit of approximately HK$102.6 million for the financial year ended 30 June 2020. According to the Business Valuation, the normalized net profit was HK$83.7 million for the financial year ended 30 June 2020.

• . The Target Group recorded 15.4% and 5.0% revenue growth from the financial years of 2018 to 2019 and 2019 to 2020, respectively. Moreover, the Target Group recorded 14.8% and 31.5% net profit growth from the financial years of 2018 to 2019 and 2019 to 2020, respectively.

  • - the Security Guarding & Event Services arm of the Target Group has a proven track record of financial growth. During the period of the financial years of 2018 to 2020, the revenue increased from HK$537.0 million to HK$664.9 million, at a compounded annual growth rate of 11.3%; the net profit increased from HK$37.9 million to HK$71.5 million during the same period, at a compounded annual growth rate of 37.3%;

  • - the Insurance Solutions arm of the Target Group has demonstrated high client retention ratio of over 90% during the financial years of 2018 to 2020 and strong ability to expand into new business segments, including cyber security insurance, directors and officers liability insurance, employee benefits and international broker business. During the period of the financial years of 2018 to 2020, the revenue increased from HK$77.0 million to HK$86.2 million, at a compounded annual growth rate of 5.8%; the net profit increased from HK$27.5 million to HK$28.9 million during the same period, at a compounded annual growth rate of 2.5%; and

  • - the Landscaping Services arm of the Target Group is a stable business with revenue of HK$26.1 million and net profit of HK$2.3 million in the financial year of 2020.

• . With the integration of the Target Group, the Directors believe that the Proposed Transaction would bring in businesses with sustainable income and proven growth, further enhancing the financial performance of the Enlarged Group.

Increase cross-selling synergies and customer loyalty by providing integrated lifestyle services

.

By diversifying the range of services of the Group, the Directors believe that there will be more cross-selling synergies that would allow the Group to offer comprehensive ''one-stop-shop'' services that differentiate the Group from its competitors. The inclusion of the Security Guarding & Event Services, Insurance Solutions and Landscaping Services willdirectly enhance the Group's ability to provide high quality complementary services and create more cross-selling opportunities. The Proposed Transactions also allow the Enlarged Group to have better insights of the customer needs and would have unique capabilities to offer a wide range of services that our competitors could not match. For example, the Security Guarding & Event Services arm of the Target Group has been serving certain clients of the Property Management Services under the Group, and approximately 15% of total turnover of the Security Guarding & Event Services of Target Group originated from the Property Management Services of the Group in the financial year ended 30 June 2020. Moreover, the Insurance Solutions business of the Target Group has been serving certain clients of the E&M engineering business of the Group.

• . Upon Completion, the Enlarged Group will expand its client base with the addition of the clientele of the Target Group which will benefit the existing businesses of the Group. As the Enlarged Group will garner experience and expertise in all of the aforementioned business segments, the Enlarged Group will be able to offer ''one-stop-shop'' comprehensive solutions to clients, for example, our tender submissions may be considered more competitive and comprehensive than our competitors who are unable to provide such all rounded services.

• . The Enlarged Group would have staff members exceeding 18,000. The Directors believe that the Enlarged Group could have more flexibility to allocate human resources across more business lines after the Proposed Acquisition. In addition, we could also offer more flexibility in job opportunities for our employees and allow us to better retain our talent if they would like to pursue their career in other operations of the Group.

Enhance the Group's leading position by adding more market-leading player in its portfolio

.

The Target Group is recognised as leaders in its respective markets in Hong Kong, which would add value to the Group's diversified lifestyle services businesses by bringing various additional leading positions. According to Frost & Sullivan, the Target Group has achieved the following rankings:

• - No. 2 Type I security guarding services provider in Hong Kong in terms of revenue for the financial year ended 30 June 2020;

• - No. 1 (among local insurance brokers) and No. 5 (among local and international insurance brokers) general insurance brokers in Hong Kong in terms of gross insurance brokerage income for the financial year ended 30 June 2020; and

• - One of the more sizeable leaders in the fragmented landscaping services industry in Hong Kong.

.

The combination of the Group's existing business operations and the Target Group's business operations will allow the Enlarged Group to re-position itself as a leading diversified lifestyle services provider in Hong Kong with industry leading positions in different segments.

The Company has commissioned Frost & Sullivan, an independent market research consultant, to conduct market research concerning the (i) E&M engineering market, (ii) environmental hygiene services market, (iii) property management services market, (iv) insurance brokerage services market, (v) security guarding services market, and (vi) landscape services market as set forth as follows:

E&M engineering market

The Group's E&M engineering business is the top 2 player in the Hong Kong market in terms of revenue for the financial year ended 30 June 2020 with an estimated market share of approximately 4.5% during such period according to Frost & Sullivan. The Group has a long operating history and has been recognised as one of the reputable leaders in such industry. Frost & Sullivan also estimates that the market size will continue to grow at a CAGR of approximately 4.1% from 2020 to 2025, reaching HK$65.8 billion in 2025. The E&M engineering market in Hong Kong is relatively fragmented with the top five players contributing to about 19.3% market share in terms of revenue in the financial year ended 30 June 2020.

Market size of E&M engineering services market in Hong KongTop 5 E&M engineering services providers in Hong Kong by revenue

(HKD billion)

(HK$bn)

2015-2019 CAGR: 8.6% 2020E-2025E CAGR: 4.1%

54.3

55.5

53.8 53.8

56.6

59.3

62.3

65.8

49.9

44.9

40.0

• 32.9 33.0

  35.2

  36.9

  38.7

  40.9

  16.2

  18.6

  18.9

  20.6

  21.2

• 20.9 20.8

15

16

17

18

19 Public

20E

21E

22E Private

23E

24E

25E

Source: Frost & Sullivan

Environmental hygiene services market

The Group's cleaning services business is one of the top 3 players in the Hong Kong market in terms of revenue with an estimated market share of approximately 7.3% for the financial year ended 30 June 2020 according to Frost & Sullivan. Frost & Sullivan also estimates that the market size will continue to grow at a CAGR of approximately 7.1% from 2020 to 2025, reaching HK$22.9 billion in 2025. For the financial year ended 30 June 2020, the top five market players accounted for about 39.6% of the total market size which is relatively more consolidated.

2020E-2025E CAGR: 7.1%

22.9

21.4

13.3

14.4

15.2

16.2

17.5

18.7

19.9

10.8

11.6

15

16

17

18

19

20E

21E

22E

23E

24E

25E

Source: Frost & Sullivan

Property management services market

According to Frost & Sullivan, the market size of property management market in Hong Kong is estimated to grow at a CAGR of approximately 5.3% from 2020 to 2025, reaching HK$60.4 billion in 2025. The Property Management Services of the Group has achieved the following rankings in the Hong Kong property management services market:

• . No. 1 among all independent players and No. 2 among all players in the residential property management services market in Hong Kong in terms of units under management with an estimated market share of approximately 5.8% for the financial year ended 30 June 2020;

• . No. 1 among all independent players and No. 2 among all players in the non-residential (excluding car park) property management services market in Hong Kong in terms of area under management with an estimated market share of approximately 7.6% for the financial year ended 30 June 2020; and

• . No. 1 among all independent players and No. 3 among all players in the car park property management services market in Hong Kong in terms of units under management with an estimated market share of approximately 6.4% for the financial year ended 30 June 2020.

Market size of property management services market in Hong Kong

(HK$bn)

2015-2019 CAGR: 5.1% 2020E-2025E CAGR: 5.3%

37.0

38.5

40.7

42.8

45.0

46.7

48.5

51.1

53.9

57.1

60.4

15

16

17

18

19

20E

21E

22E

23E

24E

25E

by units

Source: Frost & Sullivan

Insurance brokerage services market

The Target Group's Insurance Solutions business, is the No.1 local insurance broker and the top 5 among all local and international insurance brokers in Hong Kong in terms of gross insurance brokerage income in general business line for the financial year ended 30 June 2020 according to Frost & Sullivan. Frost & Sullivan also estimates that the overall gross premium of general business in Hong Kong will continue to grow at a CAGR of approximately 6.5% from 2020 to 2025, reaching HK$83.4 billion in 2025.

Gross premium of general insurance business in Hong Kong

Top 5 insurance brokers in general insurance business in Hong Kong by revenue

(HKD million)

(HK$bn)

2015-2019 CAGR: 4.9% 2020E-2025E CAGR: 6.5%

83.4

78.3

73.5

69.0

64.8

60.8

53.6

55.7

46.0

45.6

48.1

15

16

17

18

19

20E

21E

22E

23E

24E

25E

Source: Frost & Sullivan

Security guarding services market

The Target Group's security guarding services business, is one of the top 2 players in the Hong Kong market in terms of revenue with an estimated market share of approximately 2.9% for the financial year ended 30 June 2020 according to Frost & Sullivan. For the financial year ended 30 June 2020, the top five market players accounted for about 13.0% of the total market size which is relatively fragmented. Frost & Sullivan also estimates that the market size will continue to grow at a CAGR of approximately 7.2% from 2020 to 2025, reaching HK$32.6 billion in 2025.

Market size of Type I security guarding services market in Hong KongTop 5 Type I security guarding services companies* in Hong Kong by revenue

(HKD million)

(HK$bn)

2015-2019 CAGR: 7.1% 2020E-2025E CAGR: 7.2%

16

17

18

19

20E

21E

22E

23E

24E

25E

Source: Frost & Sullivan

* According to the Hong Kong Security and Guarding Services Industry Authority, there are three types of licensed security companies engaged in different types of security work, while Type I refers to provision of security guarding services. Type I security work could be further classified into three categories, namely (i) general manned guarding services, (ii) event and crisis security services, and (iii) manpower support services.

Landscape services market

The Target Group's Landscaping Services business is one of the more sizeable leaders in the fragmented industry in Hong Kong. According to Frost & Sullivan, the market size of landscape services is estimated to grow at a CAGR of approximately 4.4% from 2020 to 2025, reaching HK$1.6 billion in 2025. The landscape services market is highly fragmented with no dominant players in Hong Kong.

Market size of landscaping services market in Hong Kong

(HK$mn)

2015-2019 CAGR: 3.5% 2020E-2025E CAGR: 4.4%

1,608

1,180 1,230 1,271 1,312 1,352 1,297 1,336 1,396 1,461 1,531

15

16

17

18

19

20E

21E

22E

23E

24E

25E

Unless otherwise specified, the market size and market data stated above refer to those for the financial year ended 30 June 2020.

Re-position the Group into a comprehensive lifestyle services company to reflect the Group's vision and long-term strategy

• . The Group's vision is to become the premier organization for the delivery of all aspects of lifestyle services to create aspirational and sustainable developments for the city community. The Group intends to re-categorize its business segments into Property Management Services, City Essential Services and Technical and Management Services going forward to better reflect the Group's business development.

• . The Proposed Transactions would enhance our service line offerings to differentiate us from our competitors to meet the industry's ever-changing lifestyle services demand. The Enlarged Group would also be able to offer our clients more comprehensive and integrated ''one-stop-shop'' high-quality services solutions through a collection of its market-leading branded subsidiaries. Moreover, the Enlarged Group will also become a comprehensive solution provider with in-house technical capabilities supporting our clients when such clients decide to outsource multiple services.

• . The Group's vision is to enhance the following company values through the Proposed Transactions:

  • - Comprehensive services - we take pride in our comprehensive services scope and our ability to offer clients multiple solutions that would go beyond their expectations. This would differentiate us from other services providers as we can proactively identify the needs of our clients.

  • - Commitment to quality - we provide high-quality and exceptional services to our clients with an aim to create value for their businesses through our industry leading subsidiaries, allowing the clients a peace of mind.

  • - Reliability - client's requirements are our priority. As such, we aim to keep our promises in terms of our services commitment, timing and objectives and communicate progress with our clients regularly in the different type of services we provide to reinforce our position as a one-stop-shop solution provider.

  • - Investment in people - Our employees are important assets to our operation and business. Our wide range of services operations allow our talents to achieve their goals and to expand their expertise in different development areas.

• . The Group's exposure in integrated services continue to increase over the years and has become an important growth driver of the Group with more significant profit contribution. The Proposed Acquisition would also further enhance the contribution of its integrated services business. In view of the Group's exposure in integrated services and its continued diversification in services related to servicing the city community, the Company proposed to change its name into FSE Lifestyle Services Limited (豐盛生活服務有限公司).

The Directors (excluding the independent non-executive Directors (whose views are set out in the Letter from the Independent Board Committee in this circular) and those who are considered to have a material interest in the Proposed Transactions as set out in the paragraph headed ''Approval by the Board'') consider the Proposed Transactions on terms of the Sale and Purchase Agreement and the transactions contemplated thereunder are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Risk factors associated with the business of the Target Group

The business of the Target Group is subject to a number of risks, including the following:

(1) Many of the service contracts of the Target Group are awarded through competitive tendering. There is no guarantee that the existing service contracts will be extended upon expiry or new service contracts will be awarded to the Target Group.

Many of the service contracts of the Target Group are awarded through competitive tendering. Extension of the existing service contracts is also subject to a set of criteria or matrix including the Target Group's performance and the quality of services which they provide. There is no guarantee that new service contracts will be awarded to the Target Group or that their existing service contracts will be extended upon expiry.

The customers of the Target Group evaluate tenders based on different financial and non-financial consideration, some customers maintain an evaluation system to ensure that the service providers meet certain standards of management, industrial expertise, financial capability, reputation and regulatory compliance which may change from time to time. There is no assurance that the Target Group will meet the tendering requirements or that their overall score under the customers' evaluation system can be maintained. In particular, the sectors of certain services provided by the Target Group remain to be highly unregulated with low barrier of entry, which leads to a large number of other market players competing with the Target Group in the service contracts tender awarding process and the Target Group may face pressure in terms of pricing and may not be able to compete with its competitor on financial consideration. In such events, the Target Group may not be awarded the tender.

Even if the Target Group is invited by potential customers to submit a tender, there is no assurance that (i) their tenders would be selected by the customers or (ii) the terms and conditions of the new service contracts would be comparable to the existing service contracts. In the competitive tendering process, the Target Group may have to lower their fees and charges or offer more favourable terms to the customers in order to increase the competitiveness of their tenders, and if they are unable to reduce their costs accordingly, their financial results and profitability would be adversely affected.

(2) Provision of services by the Target Group on a pre-determined and fixed lump sum basis could subject to losses

The Target Group generated a significant proportion of its business from pre-determined and fixed lump sum contracts. Under contracts which the Target Group charges on such basis, subject to a periodic fee adjustment mechanism, the Target Group generally rely on their costs assessment when they decide to submit tender for service contract. The Target Group has experienced and may continue to experience an increment in various costs, including but not limited to labour costs, material costs, rental costs (which contain under-market rent of certain premises or land used by the Target Group for operation) and other unforeseen costs. In the event that the amount of fees they collected is insufficient to cover all of the Target Group's costs incurred for the provision of the services stipulated in such service contracts, it is not entitled to collect the shortfall from the customers. If the Target Group fails to project the costs increment when they submit a tender for service contract or fail to implement its cost control measures to avoid cost overrun or cost fluctuation or the increase in costs outpaces the upward adjustment of its fee, the Target Group may suffer losses which could result in a material adverse effect on its profitability, financial position and results of operations.

(3) Any failure to deal with feedbacks and complaints from customers or adverse publicity about the Target Group could impact the Target Group's reputation, business and/or results of operations

The reputation of the Target Group is of paramount importance of its business, which is highly sensitive to its customer's perception of the Target Group. Therefore, any damage to or adverse publicity about the reputation of the Target Group could impact its business and/or results of operations. The Target Group receive complaints from its customers from time to time in its operation. There is no assurance that all its customers' feedback or complaint would be handled and resolved in a manner satisfying them. The Target Group can also be subject to negative publicity or news reports or allegations in printed and online media. Any such negative publicity may potentially affect customers' and the public's confidence in the Target Group and perception of its business, which could materially harm the Target Group's business, brand and results of operations. Significant numbers of complaints or claims against the Target Group could force them to divert management and other resources from other business concerns and could cause residents to lose confidence in the Target Group, which may adversely affect its business and operations.

(4) The Target Group's insurance policies may not be sufficient to cover all liabilities and its insurance premium may increase from time to time

The Target Group has taken out insurance policies in line with the terms of its service contract and as required by law to cover certain aspects of its business operations, including professional indemnity insurance in relation to the Target Group's Insurance Solutions business. However, certain types of risks are generally not insured because they are either uninsurable or it is not justifiable to insure against such risks. In the event that an uninsured liability arises, the Target Group may suffer losses which may adverselyaffect the Target Group's financial position. Even if the Target Group have taken out insurance policies, the insurance coverage may not be sufficient to cover any and all potential liabilities. The insurers may not fully compensate the Target Group for all potential losses, damages or liabilities relating to its business operations. Also, the Target Group cannot control if there is any reduction or limitation of insurance coverage by insurers upon the expiry of the current insurance policies. The Target Group cannot guarantee that the insurance premiums will not rise. Any significant increase in insurance costs (such as an increase in insurance premiums) or reduction in coverage in the future may materially and adversely affect the Target Group's business operations and financial results.

(5) The businesses of the Target Group are exposed to various potential liabilities, including but not limited to claims relating to work-related accidents and injuries and public liabilities relating to bodily injuries and property damages

The frontline workers of certain businesses of the Target Group are required to perform certain tasks such as working at height or on slippery floor, working in environments containing dust, dirt, viruses or bacteria, carrying heavy objects and operation of motor vehicles and cleaning machineries or work during extreme weather conditions. As such, such frontline workers are exposed to the risk of physical injuries, diseases or death arising from the course of employment. The Target Group has implemented internal guidance, such as workplace safety procedures, to minimize such risks, however, the Target Group cannot guarantee that its frontline workers will fully comply with such work procedure and guidelines. If they fail to comply with such work safety procedure and guidelines, the quality of services may be affected and the Target Group may face a higher risk of personal injuries, property damage or fatal accidents. Moreover, in the case of a failure on the part of the frontline workers of the Target Group to comply with safety measures, codes, ordinances, laws or regulations while performing their duties in the course of their employment with the Target Group and/or if any third parties get injured due to the frontline workers' misconducts, the Target Group may be held vicariously liable for, or face legal proceedings in connection with, the conducts of such frontline workers. This may adversely affect the Target Group's ability to obtain new service contracts or renew existing service contracts and therefore negatively impact its reputation, business operation and financial performance.

The Target Group has taken out insurance policies in relation to such potential liabilities, however, the such insurance policies may not cover all the risks or payments associated with the business of the Target Group. Furthermore, such frontline workers who suffer bodily injury or death as a result of accidents or occupational diseases arising out of and in the course of their employment with the Target Group may be entitled to claim statutory and common law damages against the Target Group.

(6) The Target Group may not be able to renew the necessary licences in conducting its

Insurance Solutions business and security guarding business

On 7 December 2015, the Insurance Authority was established under the Insurance

Companies (Amendment) Ordinance 2015 and on 23 September 2019, it took over the regulation of insurance intermediaries from the three original self-regulatory organisations, being the Insurance Agents Registration Board established under The Hong Kong Federation of Insurers, The Hong Kong Confederation of Insurance Brokers and Professional Insurance Brokers Association.

As an interim measure, all insurance intermediaries governed by the Insurance Authority are considered to be deemed licensees, therefore Nova Insurance Consultants Limited and International Reinsurance Management Limited were automatically regard as licensed insurance intermediaries under such new regulatory regime for the transitional period running from 23 September 2019 to 22 September 2022. All such insurance intermediaries would need to submit application to the Insurance Authority by batches and as instructed by the IA from early 2021 to apply for a renewal of the relevant insurance intermediary license, upon such approval and renewal, the Insurance Authority will grant the brokers a licence for a period of 3 years.

As of the Latest Practicable Date, both Nova Insurance Consultants Limited and International Reinsurance Management Limited have not been requested to submit applications to the Insurance Authority. Despite being one of the largest insurance broker in the market as illustrated by the market research conducted by Frost & Sullivan, there is no assurance that the Target Group would be able to renew the necessary licences. If the necessary licenses of Nova Insurance Consultants Limited and International Reinsurance Management Limited are not renewed by the Insurance Authority or if there is any delay in the application or approval for such licences, the Target Group may need to suspend or terminate its existing Insurance Solutions services.

According to the Security and Guarding Services Ordinance (Cap. 460), any bodies/ companies operate security business by supplying an individual to do any type of security work for another person should possess relevant security licenses specified by the Ordinance. General Security (H.K.) Limited and/or General Security Limited of the Target Group possess all requisite licenses including Type I, II & III but they are subject to a mandatory requirement to renew the requisite licenses annually.

Despite being one of the largest security companies in the market as illustrated by the market research conducted by Frost & Sullivan, there is no assurance that the Target Group would be able to renew the necessary licenses. If the necessary licenses of General Security (H.K.) Limited and/or General Security Limited are not renewed by the Commissioner of Police or if there is any delay in the application or approval for such licenses, the Target Group may need to suspend or terminate its existing Security Work services.

(7) The Target Group's business operation and financial performance have been and may continue to be affected by the outbreaks of the COVID-19 pandemic

Since early 2020, a growing number of countries and regions around the world, including Hong Kong, have encountered outbreaks of COVID-19, a highly contagious disease known to cause respiratory illness. On March 11, 2020, the World Health Organization made the assessment that COVID-19 can be characterized as a pandemic. COVID-19 has subsequently spread to over 100 countries and territories globally and the death toll and number of infected cases are continuing to rise. The outbreaks, as well as the various social distancing and travel restrictions implemented, have had an adverse impact on the economy of Hong Kong, particularly to the events/exhibitions and the hotels and hospitality industries. Such industries constitute a substantial number of the customers of the Target Group and the COVID-19 pandemic has adversely affected the Target Group's business with such customers. The worsened economic conditions caused by the outbreaks also increased the market competition and the pressure in profit margin and pricing of the Target Group's businesses as its competitors are more willing to lower their fees to attract more businesses and the Target Group may not be able to compete accordingly.

The outbreaks could also cause disruption to our suppliers, subcontractors and customers. The operations of such suppliers, subcontractors and customers could be disrupted by the labour absenteeism driven by the work-from-home recommendations issued by the Hong Kong Government, quarantines, or other travel or health-related restrictions as a result of the COVID-19 pandemic. If any of these suppliers, subcontractors and customers are so affected, they may experience difficulties in maintaining their financial strength and performing their obligations under their agreements with us, such as provision of services or payment obligations, the failure of which may adversely affect the business operation and financial performance of the Target Group.

The development of the COVID-19 pandemic is beyond the Target Group's control and the Target Group expects that if such pandemic continues for a prolonged period of time, the business operations and financial performance of the Target Group may be materially and adversely affected.

(8) The Insurance Solutions business of the Target Group may be affected by any potential downward trend in insurance premium as well as disintermediation in the insurance industry

The Target Group's Insurance Solutions business serves as an intermediary between the insurers and the end customers and a substantial part of its revenue arises from the commission received from the insurers based on a certain percentage of the premium paid by the end customers to the insurers. Therefore, any downward fluctuation in the year-over-year insurance premium due to a phenomenon referred to in the industry as ''a soft market'' where the insurance premiums are reduced, may in turn result in a reduction in commission received by, and adversely affect the financial performance of, the Target Group. Additionally, with the backdrop of a competitive and price sensitive insurancemarket, the insurers may further lower their premium in such soft market. Furthermore, more and more insurers are trying various ways to reduce their reliance on intermediaries such as insurance brokers and directly reach out to end customers. Such disintermediation trend may reduce the role of the insurance brokers in the future and result in a more competitive insurance brokerage market particularly in some of the more straightforward products such as travel insurance and motor insurance. It might also affect the breadth of Insurance Solutions that the Target Group provides. Such trends relating to the insurance premium in a soft market and disintermediation are beyond the Target Group's control and may adversely impact its business operation and financial performance.

(9) Economic, social and political environment

The state of the economy, social and political environment and the level of business activity in Hong Kong may affect the operation of some contracts or negatively impact the demand for the services provided by the Target Group. Any such economic slowdown or downturn, social instability or decrease in the level of business activity could have a material adverse impact on the business operation and financial performance of the Target Group.

Management expertise and experience of the Company

The directors and senior management of the Company have sufficient expertise and relevant experience in the property management services industry and are competent in managing and operating the Target Group after Completion of the Proposed Transactions. In particular:

• (1) Mr. Doo William Junior Guilherme, an executive Director of the Company, has served as a director of General Security (H.K.) Limited, Hong Kong Island Landscape Company Limited, International Reinsurance Management Limited and Nova Insurance Consultants Limited, the major operating companies of the Target Group, since June 2014, and is responsible for overall strategic planning, overseeing business development, and major management decisions of each company.

• (2) Mr. Lam Wai Hon, Patrick, an executive Director of the Company, has served as a director of General Security (H.K.) Limited, Hong Kong Island Landscape Company Limited, International Reinsurance Management Limited and Nova Insurance Consultants Limited, the major operating companies of the Target Group, since January 2016, and is responsible for overall strategic planning, overseeing business development and operational management, and major management decisions of each company.

• (3) Mr. Lee Kwok Bong, an executive Director of the Company, has served as a director of General Security (H.K.) Limited, International Reinsurance Management Limited and Nova Insurance Consultants Limited, the major operating companies of the Target Group, since July 2010 and August 2012 respectively, and is responsible for overall finance operation, financial reporting management and overseeing business development and operational management of each company.

THE 2021 MASTER FACILITY AND RELATED SERVICES AGREEMENTS

Members of the Target Group, in their ordinary course of business, regularly entered into continuing transactions in relation to:

• (1) the provision of the Security Guarding & Event Services, Insurance Solutions and Landscaping Services to and receipt of the rental and related services from the Doo's Associates Group;

• (2) the provision of the Security Guarding & Event Services, the Insurance and Related Services and the Landscaping Services to and receipt of IT Support Services and Rental Services from the NWD Group; and

• (3) the provision of the Security Guarding & Event Services, Insurance Solutions and Landscaping Services to members of each of the NWS Group, the CTFE Group and the CTFJ Group and receipt of the rental and related services from the NWS Group, the CTFE Group and the CTFJ Group and receipt of convention and exhibition facilities and related functions and services and food and beverage catering services from the NWS Group.

It is expected that the above continuing transactions will continue after the completion of the Proposed Transactions. As the Target Company will become an indirect wholly-owned subsidiary of the Company upon completion of the Proposed Acquisition, the continuing transactions entered into or to be entered into between the Group on one side, and each of the Doo's Associate Group, the NWD Group, the NWS Group, the CTFE Group or the CTFJ Group on the other will respectively become continuing connected transactions of the Company under the Listing Rules.

It is proposed that, upon Completion, written agreement(s) will be entered into by the Company and the relevant counterparties for the above continuing connected transactions in accordance with the requirements under the Listing Rules, details of which are set out below:

2021 FSE Master Facility and Related Services Agreement

The major terms of the 2021 FSE Master Facility and Related Services Agreement are set out below:

Subject to compliance with the applicable requirements of the Listing Rules at the relevant time, the 2021 FSE Master Facility and Related Services Agreement shall be automatically renewed at the end of its initial term for a successive period of three years (or such other period as required under the Listing Rules or by the Stock Exchange) upon expiration of its initial term or any subsequently renewed term.

Services to be provided by the Enlarged Group to Doo's Associates Group

• : Security Guarding & Event Services, Insurance Solutions and Landscaping Services and such other types of services as members of the Enlarged Group and members of the Doo's

  Associates Group may agree upon from time to time in writing.

  Services to be provided by Doo's Associates Group to the Enlarged Group

• : Rental and related services, and such other types of services as members of the Enlarged Group and members of the Doo's Associates Group may agree upon from time to time in writing. The Group has been using certain properties to be disposed under the Proposed Disposal for office premises, staff accommodation and industrial purposes. Upon completion of the Proposed Disposal, the Group will cease to hold any right, title and interest in the Property Holdcos and the Disposal Property. In order for the Enlarged Group to continue to use such properties, it is proposed that, upon Completion, the Seller will provide the rental related services to the Group and lease certain properties to the Enlarged Group. The premises to be leased by the Doo's Associates Group to the Enlarged Group include:

  • (1) Unit A on 8/F, Chai Wan Industrial Centre, No. 20 Lee Chung Street, Hong Kong;

  • (2) Portion B on 6/F, Hop Shi Factory Building, Nos. 29-31 Lee Chung Street & Nos. 22-24 Cheung Lee Street, Hong Kong;

  • (3) Unit D on 2/F including Flat Roof, Golden Bear Industrial Centre, Nos. 66-82 Chai Wan Kok Street, Tsuen Wan, New Territories, Hong Kong;

  • (4) 17/F., Chevalier Commercial Centre, 8 Wang Hoi Road, Kowloon Bay, Hong Kong;

  • (5) Em Macao, Rua Nova da Areia Preta No 456, Edf. Tong Wa Block XII, Rés-Do-Chão A;

• (6) Em Macao, Rua do Almirante Costa Cabral No S 17-17-A,

  Holland Garden (Phase 4), Rés-Do-Chão A (Com

  Sobreloja);

• (7) Em Macao, Rua do Ouvidor Arriaga No 39, Holland Garden (Phase 4), 1o Andar A;

and such other premises as members of the Enlarged Group and members of the Doo's Associates Group may agree upon from time to time in writing.

Definitive

Agreements

• : Members of the Enlarged Group and members of the Doo's Associates Group will, from time to time during the term of the 2021 FSE Master Facility and Related Services Agreement, enter into separate Definitive Agreements in respect of the Services Transactions contemplated thereunder which shall always be in compliance with the Listing Rules and the 2021 FSE Master Facility and Related Services Agreement.

  Pricing

• : On normal commercial terms, negotiated on arm's length basis and at prices and on terms no less favourable to the Enlarged Group than terms available to or from independent third parties.

2021 NWD Master Facility and Related Services Agreement

The major terms of the 2021 NWD Master Facility and Related Services Agreement are set out below:

: An initial term commencing on the Completion Date and ending on 30 June 2023 (both days inclusive).

Subject to compliance with the applicable requirements of the Listing Rules at the relevant time, the 2021 NWD Master Facility and Related Services Agreement may be automatically renewed at the end of its initial term for a successive period of three years (or such other period as required under the Listing Rules or by the Stock Exchange) upon expiration of its initial term or any subsequently renewed term.

2021 NWS Master Facility and Related Services Agreement

The major terms of the 2021 NWS Master Facility and Related Services Agreement are set out below:

An initial term commencing on the Completion Date and ending on 30 June 2023 (both days inclusive).

Subject to compliance with the applicable requirements of the Listing Rules at the relevant time, the 2021 NWS Master Facility and Related Services Agreement may be automatically renewed at the end of its initial term for a successive period of three years (or such other period as required under the Listing Rules or by the Stock Exchange) upon expiration of its initial term or any subsequently renewed term.

2021 CTFE Master Facility and Related Services Agreement

The major terms of the 2021 CTFE Master Facility and Related Services Agreement are set out below:

An initial term commencing on the Completion Date and ending on 30 June 2023 (both days inclusive).

Subject to compliance with the applicable requirements of the Listing Rules at the relevant time, the 2021 CTFE Master Facility and Related Services Agreement may be automatically renewed at the end of its initial term for a successive period of three years (or such other period as required under the Listing Rules or by the Stock Exchange) upon expiration of its initial term or any subsequently renewed term.

2021 CTFJ Master Facility and Related Services Agreement

The major terms of the 2021 CTFJ Master Facility and Related Services Agreement are set out below:

An initial term commencing on the Completion Date and ending on 30 June 2023 (both days inclusive).

Subject to compliance with the applicable requirements of the Listing Rules at the relevant time, the 2021 CTFJ Master Facility and Related Services Agreement may be automatically renewed at the end of its initial term for a successive period of three years (or such other period as required under the Listing Rules or by the Stock Exchange) upon expiration of its initial term or any subsequently renewed term.

QUALIFICATIONS OF ENGAGEMENT

The engagement to be made pursuant to each of the 2021 Master Facility and Related Services Agreements is subject to the following qualifications:

• (1) the engagement only applies to services required for businesses, projects and/or premises for which the relevant member(s) of the Enlarged Group or the counterparties to the 2021 Master Facility and Related Services Agreements (as the case may be) has (have) the right to select providers of the relevant Services;

• (2) the engagement is not contrary to the terms of contracts governing the relevant businesses, projects or premises or any applicable laws, regulations or administrative directives promulgated by competent authorities to which the businesses, projects and/or premises of the relevant members of the Enlarged Group or the counterparties to the 2021 Master Facility and Related Services Agreements (as the case may be) may relate; and

• (3) in the event that the provider of a particular Service is required to be selected through auction or tender or other similar process, the engagement shall only become effective as and when the relevant member(s) of the Enlarged Group or the counterparties to the 2021 Master Facility and Related Services Agreements (as the case may be) has (have) been selected by the relevant member(s) of the Enlarged

Group or counterparties to the 2021 Master Facility and Related Services Agreements (as the case may be) as the service provider as a result of the relevant auction or tender or other similar process.

Apart from the above, the engagement to be made pursuant to each of the 2021 CTFE Master Facility and Related Services Agreement and the 2021 CTFJ Master Facility and Related Services Agreement is also subject to the following qualifications apart from the above:

• (1) CTFE and CTFJ and each member of the CTFE Group and the CTFJ Group shall have the sole and absolute right and discretion to decide whether to engage any member of the Enlarged Group to provide the services stipulated under the 2021 CTFE Master Facility and Related Services Agreement and the 2021 CTFJ Master Facility and Related Services Agreement respectively, and neither CTFE or CTFJ nor any member of the CTFE Group or the CTFJ Group shall be under any obligation or commitment to engage or procure the engagement of any member of the Enlarged Group to provide such services; and

• (2) the Company shall have no claim or right whatsoever against CTFE or CTFJ and/or any member of the CTFE Group or the CTFJ Group in the event that any member(s) of the CTFE Group or the CTFJ Group does/do not engage any member(s) of the Enlarged Group to provide the services stipulated under the 2021 CTFE Master Facility and Related Services Agreement and the 2021 CTFJ Master Facility and Related Services Agreement respectively.

PRICING POLICIES

General principle

As a general principle, the prices and terms of the Definitive Agreements with respect to the Services Transactions to be entered into pursuant to each of the 2021 Master Facility and Related Services Agreements shall be determined in the ordinary and usual course of business of the Enlarged Group and counterparties to the 2021 Master Facility and Related Services Agreements, on normal commercial terms and negotiated on arm's length basis.

In addition, such prices and terms shall be:

(1) no less favourable to the Enlarged Group than those charged to independent third party customers of the Enlarged Group (in respect of the Security Guarding & Event Services, Insurance Solutions and Landscaping Services);

(2) no less favourable to the Enlarged Group than those paid to any other independent third party landlords of similar properties in similar locations (in respect of the rental and related services as well as the leasing/licensing services) or independent service providers of similar services (in respect of the IT Support Services and the convention and exhibition facilities and related functions and services and food and beverage catering services); and

(3) no less favourable to the counterparties to the 2021 Master Facility and Related

Services Agreements than those charged by and paid to their respective independent third party suppliers (in respect of the Security Guarding & Event Services, Insurance Solutions and Landscaping Services) or those charged and provided to their respective independent third party customers or tenants/licensees (in respect of the rental and related services as well as the leasing and licensing services).

Should the 2021 Master Facility and Related Services Agreements be renewed, the Company will comply with the requirements under Chapter 14A of the Listing Rules applicable at that time.

Pricing policy and procedures

Subject to the general principle above, the pricing policy and procedures adopted and applied by the Enlarged Group in setting the contract prices and terms of the Services Transactions with counterparties to the 2021 Master Facility and Related Services Agreements (as the case may be) are as follows:

• (1) as regards the rental and related services to be provided by members of the Doo's Associates Group to members of the Enlarged Group and the leasing/licensing services to be provided by members of the NWD Group, the NWS Group, the CTFE Group or the CTFJ Group to members of the Enlarged Group, the rental or leasing/ licensing fees payable by the Enlarged Group will be determined by reference to the market rental of the property concerned current at or close to the lease or license commencement date by reference to rentals comparable of similar properties in similar locations and where applicable, with comparable facilities, obtained from independent property agencies or parties;

• (2) as regards the IT Support Services to be provided by members of the NWD Group to members of the Enlarged Group, the fees payable by the Enlarged Group will be determined by reference to the fee quotation* provided to the Enlarged Group by other independent suppliers, taking into account factors including the nature and type of services to be rendered;

• (3) as regards the Security Guarding & Event Services, Insurance Solutions and Landscaping Services to be provided by members of the Enlarged Group to members of counterparties to the 2021 Master Facility and Related Services Agreements, the fees payable by the counterparties to the Group will be determined by reference to comparable of fee quotations* provided by the Enlarged Group to other independent customers, taking into account factors including the nature and type of services to be rendered; and

• (4) as regards the convention and exhibition facilities and related functions and services and food and beverage catering services and related services to be provided by members of the NWS Group to members of the Enlarged Group the fees payable by

*Note:

To determine the fees payable by the Enlarged Group, the Enlarged Group expects to obtain two quotations from other independent suppliers/customers.

the Group will be determined by reference to the market prices provided to the Group by other independent service providers, taking into account factors including the nature and type of services to be rendered.

The above policy and procedures ensures that the Enlarged Group will conduct a comparison of the terms of the Service Transactions (including the pricing terms) with the market terms before entering into such transactions and that the terms of Service Transactions will be comparable to market norm (or on terms more favourable than those available from independent third parties). In addition, the Company has established internal control measures for reporting and monitoring on continuing connected transactions, including the regular checks by the legal and company secretarial managers and the general managers of the Target Group to ensure the adherence to these policy and procedures, the annual assessment of the transactions conducted by internal audit department of the Group, etc., details of which are set out in the section headed ''Internal Control Measures'' below.

Therefore, the Directors are of the view that the above pricing methods and procedures can ensure that the Service Transactions will be conducted on normal commercial terms and in the interests of the Company and its Shareholders as a whole.

Payment Terms

The parties to each of the 2021 Master Facility and Related Services Agreements have not agreed on an overall payment mechanism (such as the manner and time of payment).

Based on the practice of previous transactions between the group members of the relevant parties to the 2021 Master Facility and Related Services Agreements, the payment terms for each type of Services are summarised as below, and the Company anticipates that the future transactions to be carried out pursuant to the 2021 Master Facility and Related Services Agreements will not significantly deviate from such past practice:

• (1) as regards the Security Guarding & Event Services, the relevant members of the Target Group usually issue invoice by the end of each month and require payment to be made in arrears by the relevant members of the counterparties to the 2021 Master Facility and Related Services Agreements. Depending on the terms of each contract, the Target Group allows no credit term for the services;

• (2) as regards the Insurance Solutions, debit notes are issued upon confirmation of the insurance placement and are due on presentation to the clients;

• (3) as regards the Landscaping Services, the relevant members of the Target Group usually issue invoice by the end of each month and require payment to be made in arrears by the relevant members of the counterparties to the CCT Agreement. In general, no credit period would grant for the customers; as regards the rental and related services, payment was usually made on a monthly basis in advance by the relevant members of the Target Group to the relevant members of the Doo's Associates Group at the beginning of each month;

• (4) as regards the IT Support Services, payment was usually made by the relevant members of the Target Group to the relevant members of the NWD Group upon receipt of invoice which was usually issued annually; and

• (5) as regards the leasing/licensing services, payment was usually made on a monthly basis in advance by the relevant members of the Target Group to the relevant members of the NWD Group, the NWS Group, the CTFE Group and the CTFJ Group at the beginning of each month.

Security Guarding & Event Services

As the Security Guarding & Event Services are usually provided as a sub-contractor service ancillary to other services such as property management services, the Target Group normally secures its contracts by working with main contractors or tenderers to submit tender through a competitive tendering process.

Where the Target Group participates in a tender alongside a main contractor or a tenderer, the Target Group would conduct a detailed analysis which begins with a throughout study of the tender requirements. Factors that the Target Group takes into account include the number of staff required for the project, the qualifications of the staff required for the project (both academic qualification and experience), the location of the project, the nature of work and the type of premises (such as whether it is a residential estate, a commercial complex or a public facility). The Target Group would then analyse such factors and tailor the specific solution applicable for the tender. Once such solutions are prepared, the Target Group would be able to assess the costs related to such project.

In assessing the costs of the project, the labour cost plays a significant factor given the Security Guarding & Event Services business is labour intensive. The Target Group would consider the prevailing statutory minimum wage level and the wages offered by itself or its competitors for similar type of projects. For certain projects in certain geographical area or projects that require higher service standard, additional allowance and wage adjustments would be taken into account in assessing the cost base of the tender. The Target Group would also consider other costs such as equipment and other overheads.

The Target Group would also consider the proposed profit margin for the projects before the tender submission, which would include factors such as the geographical area of the project, the contract duration, the nature of work, the complexity of the project, the expectation of the service level and the historical profit margin for similar type of projects. The Target Group would also consider the recent tender submissions by its competitors in order to remain competitive in the market.

The tender requirements are examined with inputs from operations and marketing staff of the Target Group, the latter will also prepare a costing with all costs elements and profit margins as illustrated above. The proposal, including the costing, will then be approved and signed by a general manager/assistant general manager of the relevant business group.

For non-tendering contracts where the Target Group's customers invite it to provide fee quotations, the Target Group will assess the work required and the costs in a similar manner in a tendering process before confirming the service fees and the terms of the contracts.

The client's requirements are examined with inputs from operations and marketing staff of the Target Group, the latter will also prepare a costing with all costs elements and profit margins. The costing will then be approved and signed by a general manager/assistant general manager of the relevant business group.

The Target Group adopts the same pricing policy and procedures in the determination of the service charge across all of its customers (whether to its connected persons or to independent third party customers) for its Security Guarding & Event Services business in order to ensure that the service charge as may be submitted by the Target Group to such connected persons of the Target Group will be fair and reasonable and no less favourable to the Target Group than those offered to the independent third party customers.

Insurance Solutions

In most circumstances, the Target Group serves as an intermediary between the insurers and the end customers and its revenue arises from the commission received from the insurers. The Target Group is remunerated for our services by the receipt of the brokerage paid by the insurer. It is generally a certain percentage of the premium paid by the end consumer. The brokerage rate received by the Target Group is in line with the normal level of commission paid in the insurance market. On this basis, the Target Group does not charge its customers in providing its Insurance Solutions. The commission received by the Target Group from the insurers depend on various factors, including, among others, the amount of premium, the type of the insurance policy and the insurance market practice.

After understanding the customers' needs, the Target Group would prepare the quotation slips with proposed insurable terms and conditions and invite insurers to submit quotations. The Target Group would present the quotations received to the customers with its recommendations. The customers would then make their own choices accordingly. The internal documents (including but not limited clients' proposal, quotation slips, confirmation slips and debit notes) are prepared by the relevant account manager or executive, the document will then be reviewed by his or her supervisors as per the Target Group's policy. Reviewing record is documented in the form of a checklist in order to minimize any errors and/or omission incurred. Depending on the premium level and total insured values, approval from senior staff is needed as per the signing authority matrix of the Target Group.

Generally speaking, the amount of insurance premium is determined by the insurer, normally as a certain percentage of the sum insured or a flat premium after consideration of the risk exposure by the underwriters.

Notwithstanding the above, certain customers of the Target Group instructs the Target Group to provide Insurance Solutions or consultancy services and the Target Group would charge such customers for such services based on the scope of services, the complexity of the instructions, the time and manpower required for the Target Group to provide such services.

The Target Group adopts the same pricing policy and procedures in the determination of the service charge across all of its customers (whether to its connected persons or to independent third party customers) for its Insurance Solutions business in order to ensure that the service charge as may be submitted by the Target Group to such connected persons of the Target Group will be fair and reasonable and no less favourable to the Target Group than those offered to the independent third party customers.

Landscaping Services

In assessing the service fees for its Landscaping Services, factors that the Target Group would consider include the relevant costs, the market reference and its strategic development in the relevant contracts.

For its cost analysis, the Target Group would consider the labour costs, administrative costs, the required materials and the costs of the plantations. If specific plants are required by the customer that are harder to source or are more perishable, it would increase the costs in sourcing, acquiring and maintaining such plantations. Further, the Target Group would also consider more case specific factors, including the location of services (such as whether such location is easily reachable) and the potential risk exposure associated with extreme weather conditions as some locations in Hong Kong are more susceptible to natural hazards such as typhoons.

For market reference, given the landscaping industry has low entry barrier and is very competitive, the Target Group will need to stay on top of the competition and consider if its quotation is attractive comparing to other market players while maintaining an acceptable profit margin. The Target Group would consider its historical fee quotations and profit margin for similar type of projects as well as the recent fees charged by its competitors in coming into a competitive quotation.

Strategic consideration is also important for the Target Group in assessing its services fees in the Landscaping Services business, it will consider the contract size, the length of the contract and any potential business growth (such as whether there will be future opportunities in other sites from the customers) from a strategic perspective. For our strategic customers that entered into service contracts with us for a longer period and/or for a number of locations, we may offer more attractive terms in securing and strengthening such business relationships.

Procedural wise, the deputy general manager would calculate the expected costs as the base line for the tender proposal, depending on the tender requirement and the background of customers, the changes offered for existing client with similar nature will be compared. In most cases, the charges offered to two existing clients will be compared if available. Other factors include but not limited to nature and complexity of the relevant project, the expected competitiveness of the tender based on the previous experience and the historical profit margin of similar type of existing contract. Finally, proposal for tender is concluded by the deputy general manager after consolidation of all information mentioned above and the proposal will then be reviewed by the senior management and approved by the general manager of such business.

The Target Group adopts the same pricing policy and procedures in the determination of the service charge across all of its customers (whether to its connected persons or to independent third party customers) for its Landscaping Services business in order to ensure that the service charge as may be submitted by the Target Group to such connected persons of the Target Group will be fair and reasonable and no less favourable to the Target Group than those offered to the independent third party customers.

Rental and related services

Rental is usually determined based on arm's length negotiations between the lessor and the lessee, taking into account factors including the market rental of the property concerned current at or close to the lease commencement date by reference to rentals comparables of similar properties in similar locations and where applicable, with comparable facilities, obtained from independent property agencies or parties.

IT Support Services

The service charges for the IT Support Services would usually be determined based on arm's length negotiations between the service provider and the service recipient, taking into account factors including the number of users, types of functions and the replacement costs of the relevant IT systems or software. It is expected that where comparables are available for the type of service concerned, they would also be taken into account when the service charges are determined.

Leasing and licensing services

Leasing and licensing fees are usually determined based on arm's length negotiations between the lessor/licensor and the lessee/licensee, taking into account factors including the market rental of the space/area (such as spare spaces or car parking spaces) concerned current at or close to the lease/license commencement date by reference to rentals comparables of similar spaces/areas in similar locations and where applicable, with comparable facilities, obtained from independent property agencies or parties.

HISTORICAL AGGREGATE TRANSACTION AMOUNTS

Historical transaction amounts in respect of the Services Transactions for the two years ended 30 June 2019 and 30 June 2020 and the six months ended 31 December 2020 respectively are set out below:

Transaction amounts

For the financial year

Services between the Target Group and the Doo's Associates Group Security Guarding & Event Services,

Insurance Solutions and Landscaping Services provided by the TargetGroup to the Doo's Associates Group Rental and related services provided by the Doo's Associates Group to the Target Group

2,341

4,769 2,702

3,844

3,855 2,144

Services between the Target Group and the NWD Group Security Guarding & Event Services, the Insurance and Related Services and the Landscaping Services provided by the Target Group to the

NWD Group

178,793

188,148 100,168

IT Support Services provided by the

NWD Group to the Target Group

31

31

15

Services between the Target Group and the NWS Group Security Guarding & Event Services, supply of security products, the Insurance Advisory Services and Landscaping Services provided by the

Target Group to the NWS Group 88,155

60,695

15,493

Transaction amounts

For the financial year

Services between the Target Group and the CTFE Group Security Guarding & Event Services,

Insurance Solutions and Landscaping Services provided by the Target

Group to the CTFE Group 3,042

Services between the Target Group and the CTFJ Group Security Guarding & Event Services,

Insurance Solutions and Landscaping Services provided by the Target 3,452

The proposed Annual Caps in respect of the Services Transactions contemplated under each of the 2021 Master Facility and Related Services Agreements for the period commencing from the Completion Date and ending on 30 June 2023 is as follows:

Proposed Annual Caps For the period from the For the financial year Completion Date ending 30 JuneCategories

to 30 June 2021* 2022 2023

(HK$'000) (HK$'000) (HK$'000)

Services between the Enlarged Group and the Doo's Associates Group Security Guarding & Event Services, Insurance

Solutions and Landscaping Services provided by the Enlarged Group to the Doo's AssociatesGroup

2,928

• 9,203 10,016

Rental and related services provided by the

Doo's Associates Group to the Enlarged Group . Rental and related services with lease term not exceeding 12 months . Rental and related services with lease term exceeding 12 months

4,106

-

11,257 56,530

899

-

Categories

Proposed Annual Caps For the period from the For the financial year Completion Date ending 30 June to 30 June 2021* 2022 2023

(HK$'000) (HK$'000) (HK$'000)

Services between the Enlarged Group and the NWD Group Security Guarding & Event Services, Insurance

Solutions and Landscaping Services provided by the Enlarged Group to the

NWD Group 60,346 IT Support Services and Rental Services provided by the NWD Group to the Target

Group of the Enlarged Group 2,144

by the Enlarged Group to NWS Group 16,864 Rental of properties, spare spaces, carparking spaces, vehicles and vessels and related services, provision of convention and exhibition facilities and related functions and services, and food and beverage catering services provided by the NWS

Group to the Enlarged Group 395

Group 2,811 Leasing or licensing of properties, including, without limitation, spare spaces, car parking spaces and related services to be provided

by the CTFE Group to the Enlarged Group 187

Categories

Proposed Annual Caps For the period from the For the financial year Completion Date ending 30 June to 30 June 2021* 2022 2023

(HK$'000) (HK$'000) (HK$'000)

Services between the Enlarged Group and the CTFJ Group Security Guarding & Event Services, Insurance

Solutions and Landscaping Services provided by the Enlarged Group to CTFJGroup

2,559

10,565

12,242

Leasing or licensing of properties, including, without limitation, spare spaces, car parking spaces and related services to be provided by the CTFJ Group to the Enlarged Group

20

80

80

*Note:

The proposed Annual Caps for the period commencing from the Completion Date and ending on 30

June 2021 is estimated on the estimation that Completion will take place on or after 9 April 2021.

Bases of determination of the Annual Caps

The proposed Annual Caps in respect of the Services Transactions contemplated under each of the 2021 Master Facility and Related Services Agreements are determined with reference to:

(1) in relation to the rental and related services to be provided by the Doo's Associates

Group to the Enlarged Group and the leasing/licensing services to be provided by members of the NWD Group, the NWS Group, the CTFE Group and the CTFJ Group to members of the Enlarged Group:

• a. as to the leasing/licensing services to be provided by members of the NWD Group, the NWS Group, the CTFE Group and the CTFJ Group and rental and related services to be provided by the Doo's Associates Group with lease term not exceeding 12 months, the expected rentals or licensing fees as may be paid by the Enlarged Group under each of the 2021 Master Facility and Related Services Agreements taking into account the current rentals/licensing fees and expected market rentals/licensing fees of similar properties in similar locations;

• b. as to the rental and related services to be provided by the Doo's Associates Group with lease term exceeding 12 months, the expected right-of-use assets to be recognized by the Enlarged Group for the renewal of tenancy agreements under the 2021 FSE Master Facility and Related Services Agreement;

• c. the Enlarged Group's demand in floor spaces for office premises, warehouse, car parking spaces, spare spaces, car parking spaces and other business uses of the Enlarged Group to cope with the Enlarged Group's business growth; and

d. the business environment and the historical and expected inflation.

• (2) in relation to the IT Support Services to be provided by the NWD Group to the Enlarged Group:

  • a. the historical annual or annualised amounts in respect of the IT Support Services provided by the NWD Group to the Target Group during the two years ended 30 June 2020 and the six months ended 31 December 2020; and

  • b. the projected annual or annualised amounts in respect of the IT Support Services to be provided by the NWD Group to the Enlarged Group during the period from the Completion Date and ending on 30 June 2021 and the years ending 30 June 2022 and 2023, having taken into account the following major factors:

    • i. the business growth and need of the Enlarged Group; and

    • ii. the estimated market prices of such services by reference to the current market prices after factoring into the expected increase in service costs as well as inflation.

• (3) in relation to the Security Guarding & Event Services, Insurance Solutions and Landscaping Services to be provided by the Enlarged Group to the counterparties to the 2021 Master Facility and Related services Agreements:

  • a. the historical annual or annualised amounts in respect of the Security Guarding & Event Services, Insurance Solutions and Landscaping Services provided by the Target Group to the respective counterparties of the 2021 Master Facility and Related Services Agreements during the two years ended 30 June 2020 and the six months ended 31 December 2020;

  • b. the existing contracts in progress; and

  • c. the projected annual or annualised amount in respect of the Security Guarding & Event Services, Insurance Solutions and Landscaping Services to be provided by the Enlarged Group to the respective counterparties of the 2021 Master Facility and Related Services Agreements during the period from the Completion Date and ending on 30 June 2021 and the years ending 30 June 2022 and 2023, having taken into account the following major factors:

    • i. the estimated future demand for the relevant Security Guarding & Event Services, Insurance Solutions and Landscaping Services by members of the relevant counterparties of the 2021 Master Facility and Related Services Agreements;

    • ii. and the estimated market prices of such services by reference to the current market prices after factoring into the expected increase in service costs as well as inflation.

The estimated increase in the Annual Caps as compared with their historical transaction amounts is mainly due to the estimated future demand for the Security Guarding & Event Services, Insurance Solutions and Landscaping Services from the counterparties' group members under the 2021 Master Facility and Related Services Agreements, with which the Target Group has a long-term business relationship. As members of the Enlarged Group are amongst the handful few of reputable contractors or service providers for the Security Guarding & Event Services, Insurance Solutions and Landscaping Services industries which have extensive experience of over 20 years in their respective industries, it is expected that the Enlarged Group has high chance in succeeding in obtaining the tender for the provision of the Security Guarding & Event Services, Insurance Solutions and Landscaping Services.

The forecasted increase in the Annual Caps is primarily due to a number of new and potential security guarding and event services contracts, which are expected to commence during FY2022 and FY2023, which mainly cover potential contracts of security guarding services at two residential estates in Yuen Long and Tuen Mun, a business and entertainment complex in Chek Lap Kok and a multi-purpose sports venue in Kai Tak.

In addition, when estimating the Annual Caps, the Company has also applied an increment on the service charges for estimated renewal of the existing Security Guarding & Event Services, Insurance Solutions and Landscaping Services contracts under each of the 2021 Master Facility and Related Services Agreements, based on historical percentage of increase as well as historical and future general inflation.

More specifically, the increment in each Annual Cap is determined based on the following considerations:

2021 FSE Master Facility and Related Services Agreement

Security Guarding & Event Services, Insurance Solutions and Landscaping Services provided by the Enlarged Group to the Doo's Associates Group

Regarding the Annual Cap for FY2021, the proposed Annual Cap of HK$2.9 million is estimated for a period of approximately three months from 9 April 2021 to 30 June 2021. The amount is based on the existing projects on hand and the historical transaction amounts for the six months ended 31 December 2020 of HK$2.7 million.

Regarding the Annual Caps for FY2022 and FY2023, the increase in Annual Caps is mainly due to potential sales of plants to members of the Doo's Associate Group with a transaction amount of approximately HK$1 million per financial year for FY2022 and FY2023.

Rental and related services provided by the Doo's Associates Group to the Enlarged Group

The Annual Caps for the rental and related services provided by the Doo's Associates Group to the Enlarged Group compose of (i) the rental expenses for FY2021, FY2022 and FY2023 in relation to the rental and related services with lease term not exceeding 12 months; and (ii) the total value of the addition of the right-of-use asset for FY2022 in relation to therental and related services with lease term exceeding 12 months. Regarding the Annual Caps for FY2021 (a period of approximately three months from 9 April 2021 to 30 June 2021) and FY2022, there would be new tenancy agreements in respect of the Disposal Property and the properties held by the Property Holdcos (except for one of the industrial premises in Chai Wan, Hong Kong) to be entered into in April 2021 at the market rent under a short-term lease of one year, for which the associated rental payments of HK$3.1 million and HK$10.4 million will be recognised as operating lease rental expenses when it is incurred in FY2021 and FY2022, respectively. Such new tenancy agreements of the Disposal Property and such properties held by the Property Holdcos are assumed to be renewed in April 2022 under a three-year lease term, which will result in the addition of right-of-use assets for the three-year lease of HK$45.7 million to be recognised by the Enlarged Group in FY2022. At the same time, two existing tenancy agreements between the Target Group and the Doo's Associates Group for the premises of two Target Entities will expire in June 2021 and are assumed to be renewed in July 2021, which will result in the addition of right-of-use assets for such renewal in sum of HK$10.8 million to be recognised by the Enlarged Group in FY2022.

2021 NWD Master Facility and Related Services Agreement

Security Guarding & Event Services, the Insurance and Related Services and Landscaping Services provided by the Enlarged Group to the NWD Group

Regarding the Annual Cap for FY2021, the proposed Annual Cap of HK$60.3 million is estimated for a period of approximately three months from 9 April 2021 to 30 June 2021. The amount is based on the existing projects on hand and the historical transaction amounts for the six months ended 31 December 2020 of HK$100.2 million.

Regarding the Annual Caps for FY2022 and FY2023, the increase in Annual Caps is mainly due to (i) the increment of approximately HK$9.6 million and HK$10.4 million for FY2022 and FY2023 respectively for secured contracts of security guarding services at three residential estates in Clear water Bay, Yuen Long and North Point, a residential estate and a shopping centre at Tsuen Wan, a commercial building at Central, a commercial building and shopping mall in Tsim Sha Tsui, a shopping centre in Tsim Sha Tsui and a youth activities complex in Chai Wan; and (ii) the increment of approximately HK$32.7 million and approximately HK$102.2 million for FY2022 and FY2023 respectively for potential contracts of security guarding services at two residential estates in Yuen Long and Tuen Mun, a business and entertainment complex in Chek Lap Kok and a multi-purpose sports venue in Kai Tak.

IT Support Services and Rental Services provided by NWD Group to the Target Group of the Enlarged Group

The Annual Caps for the Rental Services provided by the NWD Group to the Enlarged Group represent the rental expenses for FY2021, FY2022 and FY2023 in relation to such Rental Services with lease term not exceeding 12 months. Regarding the Annual Caps for FY2021 (for a period of approximately three months from 9 April 2021 to 30 June 2021), FY2022 and FY2023, the increase in Annual Caps is mainly due to potential rental of carparks, training places and store rooms at a residential estates and a shopping centre at Tsuen Wan,two commercial buildings in Central and North Point, a commercial building and a shopping mall in Tsim Sha Tsui for operation use, and the increment amounts to approximately HK$0.9 million, HK$3.0 million and HK$0.2 million for FY2021, FY2022 and FY2023 respectively.

2021 NWS Master Facility and Related Services Agreement

Security Guarding & Event Services, supply of security products, the Insurance Advisory Services and Landscaping Services provided by the Enlarged Group to the NWS Group

Regarding the Annual Cap for FY2021, the proposed Annual Cap of HK$16.9 million is estimated for a period of approximately three months from 9 April 2021 to 30 June 2021. The amount is based on the existing projects on hand and the historical transaction amounts for the six months ended 31 December 2020 of HK$15.5 million.

Regarding the Annual Caps for FY2022 and FY2023, the increase in Annual Caps is mainly due to (i) the increment of approximately HK$2.4 million and HK$1.0 million for FY2022 and FY2023 respectively for secured contracts of security guarding services at the convention and exhibition centre in Wanchai; and (ii) the increment of approximately HK$36.2 million and HK$4.0 million for FY2022 and FY2023 respectively for secured contracts of ad hoc event services under the existing service contracts at the convention and exhibition centre in Wanchai.

Rental of properties, spare spaces, carparking spaces, vehicles and vessels and related services, provision of convention and exhibition facilities and related functions and services, and food and beverage catering services provided by the NWS Group to the Enlarged Group

The Annual Caps for such rental services provided by the NWS Group to the Enlarged Group represent the rental expenses for FY2021, FY2022 and FY2023 in relation to such rental services with lease term not exceeding 12 months. Regarding the Annual Caps for FY2021 (estimated for a period of approximately three months from 9 April 2021 to 30 June 2021), FY2022 and FY2023, the increase in Annual Caps is mainly due to potential rental of the carpark, training places and store rooms at the convention and exhibition centre in Wanchai for operation use and the increment amounts to approximately HK$0.16 million, HK$0.54 million and HK$0.03 million for FY2021, FY2022 and FY2023 respectively.

2021 CTFE Master Facility and Related Services Agreement

Security Guarding & Event Services, Insurance Solutions and Landscaping Services provided by the Enlarged Group to the CTFE Group

Regarding the Annual Cap for FY2021, the proposed Annual Cap of HK$2.8 million is estimated for a period of approximately three months from 9 April 2021 to 30 June 2021. The amount is based on the existing projects on hand and the historical transaction amounts for the six months ended 31 December 2020 of HK$1.3 million.

Regarding the Annual Caps for FY2022 and FY2023, the increase in Annual Caps is mainly due to (i) the increment of approximately HK$1.2 million and HK$0.3 million for FY2022 and FY2023 respectively for secured contracts of security guarding services at acommercial and shopping centre in Mong Kok and eight private school at Western District, Causeway Bay, South Horizons, two in Kornhill, North Point, Homantin and Tak Kok Tsui; (ii) the increment of approximately HK$0.3 million and HK$0.2 million for FY2022 and FY2023 respectively for potential contracts of ad hoc event services at a commercial and shopping centre in Mong Kok.

Leasing or licensing of properties, including, without limitation, spare spaces, car parking spaces and related services to be provided by CTFE Group to the Enlarged Group

The Annual Caps for such leasing or licensing services provided by the CTFE Group to the Enlarged Group represent the rental expenses for FY2021, FY2022 and FY2023 in relation to such leasing or licensing services with a term of not exceeding 12 months. Regarding the Annual Caps for FY2021 (estimated for a period of approximately three months from 9 April 2021 to 30 June 2021), FY2022 and FY2023, the increase in Annual Caps is mainly due to potential rental of carparks, training places and store rooms at a commercial and shopping centre in Mong Kok for operation use and the increment amounts to approximately HK$0.16 million, HK$0.54 million and HK$0.03 million for FY2021, FY2022 and FY2023 respectively.

2021 CTFJ Master Facility and Related Services Agreement

Security Guarding & Event Services, Insurance Solutions and Landscaping Services provided by the Enlarged Group to the CTFJ Group

Regarding the Annual Cap for FY2021, the proposed Annual Cap of HK$2.6 million is estimated for a period of approximately three months from 9 April 2021 to 30 June 2021. The amount is based on the existing projects on hand and the historical transaction amounts for the six months ended 31 December 2020 of HK$1.6 million.

Regarding the Annual Caps for FY2022 and FY2023, the increase in Annual Caps is mainly due to (i) the increment of approximately HK$0.9 million and HK$0.3 million for FY2022 and FY2023 respectively for secured contracts of security guarding services and alarm security services at a commercial building in Kwai Chung and a retail jewelry group and its branches in Hong Kong; (ii) the increment of approximately HK$1.9 million and HK$0.7 million for FY2022 and FY2023 respectively for potential contracts of alarm security services and ad hoc event services at a commercial building in Kwai Chung and a retail jewelry group and its branches in Hong Kong.

Leasing and licensing of properties, including, without limitation, spare spaces, car parking spaces and related services provided by CTFJ Group to the Enlarged Group

The Annual Caps for such leasing and licensing services provided by the CTFJ Group to the Enlarged Group represent the rental expenses for FY2021, FY2022 and FY2023 in relation to such leasing and licensing services with a term of not exceeding 12 months. Regarding the Annual Caps for FY2021 (estimated for a period of approximately three months from 9 April 2021 to 30 June 2021) and FY2022, the increase in Annual Caps is mainly due to potential rental of carparks and store rooms at a commercial building in Kwai Chung and a retail jewelry group and its branches in Hong Kong and the increments amounts to approximately HK$0.2 million and HK$0.6 million for FY2021 and FY2022 respectively.

Shareholders and potential investors should note that the Annual Caps should not be construed as an assurance or forecast by the Company of the future revenues of the Enlarged Group.

REASONS FOR AND THE BENEFITS OF ENTERING INTO THE 2021 MASTER FACILITY AND RELATED SERVICES AGREEMENTS

The Services Transactions contemplated under each of the 2021 Master Facility and Related Services Agreements are of a recurrent nature and, subject to the Completion of the Proposed Transactions having taken place, will occur on a regular and continuing basis in the ordinary and usual course of business of the Enlarged Group and the respective counterparties to each of the 2021 Master Facility and Related Services Agreements.

In line with the market practice and the Company's past practice, the Company considered it necessary for Listing Rules compliance purposes and administrative convenience to enter into a framework agreement with each of the holding companies of the relevant contract counterparties in order to better document and manage these continuing connected transactions. The 2021 Master Facility and Related Services Agreements serve to streamline the Services Transactions arise due to the Proposed Transactions between members of the Enlarged Group and members of the Doo's Associates Group, the NWD Group, the NWS Group, the CTFE Group and the CTFJ Group respectively by providing a single basis upon which the Company could comply with the applicable reporting, announcement and (where applicable) independent shareholders' approval requirements under Chapter 14A of the Listing Rules and thereby reducing the administrative burden and costs of the Company in complying with these requirements.

Members of the Doo's Associates Group, the NWD Group, the NWS Group, the CTFE Group and the CTFJ Group are with profound experience and reputation in their respective areas of businesses or services and solid financial standing and have demonstrated themselves as reliable services providers or customers of the Target Group over the years. The Directors believe that the maintenance of the strategic business relationships with them will not only allow the realisation of synergies and economies of scale but will also continue to bring sustainable contribution to the Enlarged Group's growth in the long run.

The Directors (excluding the independent non-executive Directors (whose views are set out in the Letter from the Independent Board Committee in this circular) and those Directors who are considered to have a material interest in the Proposed Transactions as set out in the paragraph headed ''Approval by the Board'') are of the views that the terms of each of the 2021 Master Facility and Related Services Agreements as well as the proposed Annual Caps thereunder are fair and reasonable, on normal commercial terms or better and in the ordinary and usual course of business of the Group, and in the interests of the Company and the Shareholders as a whole.

INFORMATION ON THE PARTIES

The Group

The Company is an investment holding company and the holding company of the Group. The principal businesses of the Group are the provision of the Property and Management Services, City Essential Services and Technical and Management Services.

Doo's Associates Group

To the best knowledge of the Directors, the principal businesses of the Doo's Associates Group are property investment, the provision of property leasing, landscaping, project management, insurance consultancy and brokerage, and security and guarding services.

NWD Group

NWD is a company incorporated in Hong Kong with limited liability, the issued shares of which are listed on the main board of the Stock Exchange (stock code: 17). As at the Latest Practicable Date and based on publicly available information, CTFE and its subsidiaries were interested in approximately 44.55% of the total issued share capital of NWD.

To the best knowledge of the Directors, the NWD Group is principally engaged in property development, property investment and investment in and/or operation of roads, commercial aircraft leasing, construction, insurance, hotels and other strategic businesses.

NWS Group

NWS is a company incorporated in Bermuda with limited liability, the issued shares of which are listed on the main board of the Stock Exchange (stock code: 659). As at the Latest Practicable Date and based on publicly available information, NWD and its subsidiaries were interested in approximately 60.86% of the total issued share capital of NWS and CTFE was interested in approximately 2.48% of the total issued share capital of NWS.

To the best knowledge of the Directors, the principal businesses of the NWS Group include: (i) the development of, investment in and/or operation of roads, commercial aircraft leasing and construction; and (ii) the investment in and/or operation of environmental, logistics and facilities management projects.

CTFE Group

CTFE is a company incorporated in Hong Kong with limited liability. As at the Latest Practicable Date and based on publicly available information, CTFE is a wholly-owned subsidiary of Chow Tai Fook (Holding) Limited. Chow Tai Fook (Holding) Limited is a 81.03% owned subsidiary of Chow Tai Fook Capital Limited. Chow Tai Fook Capital Limited is owned as to 48.98% and 46.65% by Cheng Yu Tung Family (Holdings) Limited and Cheng Yu Tung Family (Holdings II) Limited, respectively.

To the best knowledge of the Directors, CTFE is principally engaged in investment holding.

CTFJ Group

CTFJ is a company incorporated in the Cayman Islands with limited liability, the issued shares of which are listed on the main board of the Stock Exchange (stock code: 1929). As at the Latest Practicable Date and based on publicly available information, Chow Tai Fook (Capital) Limited was interested in approximately 72.39% of the total issued share capital of CTFJ.

To the best knowledge of the Directors, the principal businesses of CTFJ and its subsidiaries include manufacturing and selling of high-end luxury, mass luxury and youth line jewellery products (including gem-set/platinum/karat gold jewellery and gold jewellery and products), and distributing watches of various brands.

INTERNAL CONTROL MEASURES

The Group has established internal control measures for reporting and monitoring on continuing connected transactions which will be complied by the Enlarged Group upon Completion to ensure the compliance with Chapter 14A of the Listing Rules.

According to the Group's prevailing internal accounting policy and procedure manual, the designated officer of operation department and supporting department, will immediately report to the legal and company secretarial manager and senior finance manager with details of the possible notifiable or connected transactions to be entered by the Group for review and checking in order to determine the appropriate type of disclosure in compliance with Chapter 14A of the Listing Rules. For a transaction that falls within the scope of continuing connected transactions in the ordinary and usual course of business of the Group, the legal and company secretarial manager will check with the actual monthly continuing connected transaction and ensure the transaction amounts of the potential connected transactions should not exceed the annual caps of the continued connected transaction.

Meanwhile, the internal audit department of the Group will carry out annual assessment of the continuing connected transactions conducted by the Group for each financial year and report to the board of Directors. One of the assessment objectives was to ensure that the continuing connected transactions were carried out at arm's length and the terms are comparable to those projects of independent third parties.

Furthermore, pursuant to Chapter 14A of the Listing Rules:

(1) the independent non-executive Directors of the Company shall, on an annual basis, review the transactions contemplated under the 2021 Master Facility and Related Services Agreements and confirm, among other matters, such transactions have been entered into according to the agreement governing them on terms that are fair and reasonable and in the interest of the Shareholders as a whole; and

(2) the external auditors of the Group shall, on an annual basis, report on the transactions contemplated under the 2021 Master Facility and Related Services Agreements and confirm, among other matters, whether anything has come to their attention that causes them to believe such transactions were not entered into, in all material respects, in accordance with the relevant agreement governing the transactions.

LISTING RULES IMPLICATIONS

The Proposed Acquisition

FSE Holdings, which holds 75% of the Ordinary Shares in issue in the Company as at the Latest Practicable Date thus constitutes a connected transaction for the Company.

As some of the applicable Percentage Ratios for the Proposed Acquisition exceed 5%, the Proposed Acquisition is subject to the reporting, announcement and Independent Shareholders' approval requirements pursuant to Chapter 14A of the Listing Rules.

Further, as some of the applicable Percentage Ratios in respect of the Proposed Acquisition are 25% or more but all of those ratios are below 100%, the Proposed Acquisition also constitutes a major transaction for the Company under Chapter 14 of the Listing Rules, and is subject to the reporting, announcement and Shareholders' approval requirements under Chapter 14 of the Listing Rules.

The Proposed Disposal

As FSE Holdings is a controlling shareholder of the Company and the Seller, being a wholly-owned subsidiary of FSE Holdings, is an associate of FSE Holdings, the Proposed Disposal also constitutes a connected transaction for the Company.

As some of the applicable Percentage Ratios for the Proposed Disposal exceed 5%, the Proposed Disposal is subject to the reporting, announcement and Independent Shareholders' approval requirements pursuant to Chapter 14A of the Listing Rules.

Further, as some of the applicable Percentage Ratios in respect of the Proposed Disposal are 25% or more but all of those ratios are below 100%, the Proposed Disposal also constitutes a major transaction for the Company under Chapter 14 of the Listing Rules, and is subject to the reporting, announcement and Shareholders' approval requirements under Chapter 14 of the Listing Rules.

The 2021 Master Facility and Related Services Agreements

Upon Completion of the Proposed Acquisition, each Target Entity (other than the Joint Venture Target Entity) will become an indirect wholly-owned subsidiary of the Company.

Dr. Cheng is a connected person of the Company. Dr. Cheng is also the brother-in-law of Mr. Doo, the uncle of Mr. Doo William Junior Guilherme (an executive Director) and is also the cousin of the spouse of Mr. Poon Lock Kee, Rocky (an executive Director and Chief Executive Officer). Dr. Cheng is a member of the Cheng family which holds or controls each of the NWD Group, the NWS Group, the CTFE Group and the CTFJ Group. As such, each of the NWD Group, the NWS Group, the CTFE Group and the CTFJ Group is therefore treated as a connected person of the Company.

Mr. Doo is a connected person of the Company as an ultimate controlling shareholder. Each of the members of the Doo's Associates Group is an associate of Mr. Doo and hence a connected person of the Company.

As the Target Company will become an indirect wholly-owned subsidiary of the Company upon completion of the Proposed Acquisition, the continuing transactions entered into or to be entered into between the Group on one side, and each of the Doo's Associate Group, the NWD Group, the NWS Group, the CTFE Group or the CTFJ Group on the other will respectively become continuing connected transactions of the Company under the Listing Rules.

As the highest of the applicable Percentage Ratios in respect of the proposed Annual Caps of each of the 2021 NWD Master Facility and Related Services Agreement and the 2021 NWS Master Facility and Related Services Agreement exceeds 5%, the transactions under these agreements and the proposed Annual Caps for the same are subject to the reporting, annual review and announcement requirements and the Independent Shareholders' approval requirement under Chapter 14A of the Listing Rules.

As the highest of the applicable Percentage Ratios in respect of the proposed Annual Caps of each of the 2021 FSE Master Facility and Related Services Agreement, 2021 CTFE Master Facility and Related Services Agreement and the 2021 CTFJ Master Facility and Related Services Agreement exceeds 0.1% but is below 5%, the transactions under these agreements and the proposed Annual Caps for the same are subject to the reporting, annual review and announcement requirements and exempt from the Independent Shareholders' approval requirement under Chapter 14A of the Listing Rules.

Notwithstanding the above, the Company with a view to adhering to enhanced corporate governance practices will seek Independent Shareholders' approval for each of the 2021 Master Facility and Related Services Agreements, the Services Transactions contemplated thereunder and the proposed Annual Caps for the same, at the EGM.

Voting at EGM

At the EGM, any Shareholders with a material interest in the Proposed Transactions and the 2021 Master Facility and Related Services Agreements are required to abstain from voting on the resolution approving the same at the EGM. As such, each of FSE Holdings and their respective associates is required to abstain from voting on the resolutions approving the same at the EGM. As at the Latest Practicable Date, among these persons who are required to abstain from voting at the EGM, FSE Holdings holds 75% of the Ordinary Shares in issue in the Company. FSE Holdings will therefore abstain from voting at the EGM.

To the best of knowledge, information and belief of the Directors, having made all reasonable enquiries, apart from FSE Holdings, no other Shareholders are materially interested in the Proposed Transactions and the 2021 Master Facility and Related Services Agreements who are required to abstain from voting on the resolutions to be proposed for approving the same at the EGM as aforesaid.

Approval by the Board

Each of the Directors whose names are set out opposite to the Proposed Transactions and each of the 2021 Master Facility and Related Services Agreements in the table below is or may be regarded as having a material interest or potential conflict of interest in the corresponding Proposed Transactions or the relevant 2021 Master Facility and Related Services Agreements and the transactions thereunder.

Proposed Transactions or Services Transactions contemplated under:

Director who is regarded as

having a material interest or potential conflict of interest in the Proposed Transactions or the relevant 2021 Master Facility and Related Services Agreements

Basis upon which the Director is regarded as having a material interest or potential conflict of interest

Proposed

Transactions

2021 FSE Master

Facility and Related Services Agreements

Mr. Doo William Junior

Guilherme

Mr. Lam Wai Hon, PatrickMr. Lee Kwok BongMr. Doo William Junior

Guilherme

• . He has interest in some members of the Doo's Associates Group

• . He is a director of some members of the Doo's Associates Group

• . He has interest in some members of the Doo's Associates Group

• . He is a director of some members of the Doo's Associates Group

• . He has interest in some members of the Doo's Associates Group

• . He is a director of some members of the Doo's Associates Group

• . He has interest in some members of the Doo's Associates Group

• . He is a director of some members of the Doo's Associates Group

  Mr. Lam Wai Hon, Patrick

• . He has interest in some members of the Doo's Associates Group

• . He is a director of some members of the Doo's Associates Group

Director who is regarded asProposed Transactions or Services Transactions contemplated under:

having a material interest or potential conflict of interest in the Proposed Transactions or the relevant 2021 Master Facility and Related Services Agreements

Basis upon which the Director is regarded as having a material interest or potential conflict of interest

Mr. Lee Kwok Bong

• . He has interest in some members of the Doo's Associates Group

• . He is a director of some members of the Doo's Associates Group

  2021 NWD Master

  Facility and Related Services Agreements

  Dr. Cheng

• . He is a director of NWD

• . He is a member of the Cheng family which holds or controls each of the NWD Group, the NWS Group, the CTFE Group and the CTFJ Group

  2021 NWS Master

  Facility and Related Services Agreements

  Dr. Cheng

• . He is a director of NWS

• . He is a member of the Cheng family which holds or controls each of the NWD Group, the NWS Group, the CTFE Group and the CTFJ Group

  Mr. Doo William Junior

  Guilherme

• . He is a non-executive director of NWS

  Mr. Lam Wai Hon, Patrick

• . He is an alternate director to Mr. Doo William Junior Guilherme of NWS

  Mr. Kwong Che Keung,

  Gordon

• . He is an independent non-executive director of NWS

  2021 CTFE Master

  Facility and Related Services Agreements

  Dr. Cheng

• . He is a director of CTFE

• . He is a member of the Cheng family which holds or controls each of the NWD Group, the NWS Group, the CTFE Group and the CTFJ Group

Director who is regarded as

Proposed Transactions or Services Transactions contemplated under:

having a material interest or potential conflict of interest in the Proposed Transactions or the relevant 2021 Master Facility and Related Services Agreements

Basis upon which the Director is regarded as having a material interest or potential conflict of interest

2021 CTFJ Master

Dr. Cheng

• . He is a director of CTFJ

  Facility and Related Services Agreements

• . He is a member of the Cheng family which holds or controls each of the NWD Group, the NWS Group, the CTFE Group and the CTFJ Group

  Mr. Kwong Che Keung,

  Gordon

• . He is an independent non-executive director of CTFJ

Each of the Directors named above who was present at the Board meeting approving the Proposed Transactions, the relevant 2021 Master Facility and Related Services Agreements had abstained from voting on the resolutions approving the Proposed Transactions, the relevant 2021 Master Facility and Related Services Agreements and the transactions and proposed Annual Caps contemplated thereunder in respect of which he is regarded as having a material interest (or as the case may be, a potential conflict of interest) as indicated in the table above. In addition to the above and for the practice of good corporate governance, Mr. Doo William Junior Guilherme, as the son of Mr. Doo, had voluntarily abstained from voting at the Board meeting on other resolutions abovementioned, though he does not have (nor his associate has) a material interest in the relevant transactions.

PROPOSED CHANGE OF COMPANY NAME AND STOCK SHORT NAME

Proposed Change of Company Name

The Group's exposure in integrated services continue to increase over the years and has become an important growth driver of the Group with more significant profit contribution. In view of the Group's exposure in integrated services and its continued diversification in services related to servicing the city community, the Company proposed to change its name into FSE Lifestyle Services Limited (豐盛生活服務有限公司).

Conditions to the Proposed Change of Company Name

The Proposed Change of Company name is conditional upon:

(1) the passing of a special resolution by the Shareholders at the EGM to approve the Proposed Change of Company name; and

(2) the Registrar of Companies in the Cayman Islands granting approval for the

Proposed Change of Company Name and entering the new names on the register of companies.

Subject to the satisfaction of the conditions set out above, the Proposed Change of Company Name will take effect on the date on which the Registrar of Companies in the Cayman Islands issues a Certificate of Incorporation on Change of Name confirming that the new names have been entered on the register of companies. The Company will then carry out the necessary filing procedures with the Registrar of Companies in Hong Kong.

Reasons for the Proposed Change of Company Name

The Group's exposure in integrated services continue to increase over the years and has become an important growth driver of the Group with more significant profit contribution. In view of the Group's exposure in integrated services and its continued diversification in services related to servicing the city community, the Company proposed to change its name into FSE Lifestyle Services Limited (豐盛生活服務有限公司).

The Board believes that the proposed new English and Chinese names will provide the Company with better identification of the business of the Group. As such, the Board is of the view that the Proposed Change of Company Name is in the interests of the Company and the Shareholders as a whole.

Effect of the Change of Company Name

The Proposed Change of Company Name will not affect any of the rights of the Shareholders. All existing share certificates in issue bearing the Company's existing name shall, after the Proposed Change of Company Name having become effective, continue to be evidence of the title of the shares of the Company and will continue to be valid for trading, settlement, registration and delivery purposes. There will not be any arrangements for free exchange of existing share certificates for new share certificates bearing the new names of the Company. Once the Proposed Change of Company Name has become effective, new share certificates will be issued only in the new names of the Company.

Change of stock short name

In addition, subject to the confirmation of the Stock Exchange, the stock short name for trading in the shares of the Company will also be changed after the Proposed Change of Company Name becoming effective.

PROPOSAL FOR RE-ELECTION OF THE RETIRING DIRECTOR

Pursuant to article 109 of the articles of association of the Company, the Directors shall have the power from time to time and at any time to appoint any person as a Director either to fill a casual vacancy on the Board or as an addition to the existing Board. Any Director so appointed by the Board shall hold office only until the next general meeting of the Companyand shall then be eligible for re-election at that meeting. Accordingly, Dr. Cheng Chun Fai, who was appointed as a Director on 1 January 2021, shall retire from office and, being eligible, shall offer himself for re-election at the EGM and his details are set out below:

Dr. Cheng Chun Fai (''Dr. C.F. Cheng''), aged 63, was appointed as an executive Director on 1 January 2021. He is also a member of the sustainability committee of the Board and the director of operations and corporate development of the Company. Dr. C.F. Cheng was a director of a laundry group, which became a member of the Group in April 2018, since February 2011. Dr. C.F. Cheng ceased to be a director of the laundry group when the Group subsequently disposed of the group in December 2020. Dr. C.F. Cheng is also a director of operations and corporate development in FSE Holdings, a controlling shareholder of the Company. He obtained a Master of Business Administration from the University of South Australia in 2008, a Master of Laws in Chinese Business Law from the Open University of Hong Kong in 2010 and a Doctor of Philosophy in Business Administration from the Bulacan State University in 2012. He has over 20 years' experience in operational management in different industries. He is also a chairman of The Council of Hong Kong Professional Associations and a member of the executive committee and vice chairperson of the committee on social enterprise and employment of The Hong Kong Society for Rehabilitation.

Dr. C.F. Cheng has entered into a service contract with the Company with a term of three years commenced from 1 January 2021 and renewable automatically for successive terms of one year upon expiry of the then current term of his appointment, unless terminated in accordance with the terms of his service contract. He is also subject to retirement by rotation and re-election in accordance with the provisions of the Company's articles of association. Pursuant to the service contract, Dr. C.F. Cheng receives a salary of HK$269,100 per month and such other emoluments and/or discretionary bonus as may be determined by, and at the discretion of, the Board from time to time. Dr. C.F. Cheng's emolument was determined and will be reviewed by the Board annually with reference to his qualifications, experience, duties and responsibilities with the Company, as well as the Company's performance and the prevailing market conditions.

Save as disclosed above, as at the Latest Practicable Date, Dr. C.F. Cheng:

• (a) did not hold any other position with the Company or other members of the Group;

• (b) did not hold any directorships in other listed public companies in Hong Kong or overseas in the three years immediately preceding the Latest Practicable Date;

• (c) does not have any relationships with any directors, senior management or substantial or controlling shareholders (as defined under the Rules Governing the Listing of Securities on the Stock Exchange (the ''Listing Rules'')) of the Company;

• (d) did not have any interests in the shares of the Company within the meaning of Part XV of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong); and

• (e) had not been involved in any of the matters mentioned under paragraphs (h) to (v) of Rules 13.51(2) of the Listing Rules.

RECOMMENDATION

Your attention is drawn to (i) the advice of the Independent Board Committee set out in its letter on pages 74 to 76 of this Circular, and (ii) the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders set out on pages 77 to 163 of this Circular in respect of the Proposed Transactions, the 2021 Master Facility and Related Services Agreements, the Services Transactions contemplated thereunder and the proposed Annual Caps for the same.

The Independent Board Committee, having taken into account the advice of the Independent Financial Adviser, considers that the terms of the Proposed Transactions (including the Consideration) on terms of the Sale and Purchase Agreement and the terms of each of the 2021 Master Facility and Related Services Agreements, the Services Transactions contemplated thereunder and the proposed Annual Caps for the same are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM to approve the Proposed Transactions, each of the 2021 Master Facility and Related Services Agreements, the Services Transactions contemplated thereunder and the proposed Annual Caps for the same.

The Directors also consider that the Proposed Change of Company Name and the proposed re-election of the retiring Director as set out in this Circular are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Proposed Change of Company Name and the proposed re-election of the retiring Director.

CLOSURE OF REGISTER OF MEMBERS

In order to determine entitlement of the Shareholders to attend and vote at the EGM (or at any adjournment thereof), the Company's branch register of members will be closed from Thursday, 1 April 2021 to Friday, 9 April 2021 (both days inclusive) during which period no transfer of Ordinary Shares will be effected. In order to be eligible to attend and vote at the EGM, all transfers accompanied by the relevant share certificates must be lodged with the Company's branch share registrar and transfer office in Hong Kong, Tricor Investor Services Limited, at Level 54, Hopewell Centre, 183 Queen's Road East, Hong Kong, for registration no later than 4:30 p.m. on Wednesday, 31 March 2021.

EGM

The EGM will be held at 17th Floor, Chevalier Commercial Centre, 8 Wang Hoi Road, Kowloon Bay, Kowloon, Hong Kong on Friday, 9 April 2021 at 4:30 p.m., to consider and, if thought fit, to approve the EGM Matters. A notice of the EGM is set out on pages EGM-1 to EGM-7 of this Circular.

The voting at the EGM will be taken by poll.

At the EGM, any Shareholders with a material interest in the Proposed Transactions are required to abstain from voting on the resolution approving the same at the EGM. As at the Latest Practicable Date, among these persons who are required to abstain from voting at the EGM, FSE Holdings holds 75% of Ordinary Shares in issues in the Company. FSE Holdings will therefore abstain from voting at the EGM.

To the best of knowledge, information and belief of the Directors, having made all reasonable enquiries, apart from FSE Holdings, no other Shareholders are materially interested in the Proposed Transactions who are required to abstain from voting on the resolutions approving the same at the EGM as aforesaid.

A form of proxy for use in connection with the EGM is also enclosed. Whether or not you are able to attend the EGM in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the branch share registrar of the Company in Hong Kong, Tricor Investor Services Limited, at Level 54, Hopewell Centre, 183 Queen's Road East, Hong Kong as soon as possible but in any event not later than 48 hours before the time appointed for holding of the EGM or any adjournment thereof. Completion and return of the form of proxy shall not preclude you from attending and voting at the EGM or any adjournment thereof if you so wish.

GENERAL

Completion of the Proposed Transactions is subject to the fulfilment (or, as the case may be, waiver) of the conditions precedent under the Sale and Purchase Agreement, respectively. As the Proposed Transactions may or may not proceed, Shareholders and potential investors of the Company are advised to exercise caution when dealing in the Shares.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to this Circular.

Yours faithfully

By order of the Board FSE Services Group Limited Dr. Cheng Kar Shun, Henry

Chairman

The following is a full text of the letter from the Independent Board Committee prepared for the purpose of inclusion in this Circular.

FSE SERVICES GROUP LIMITED ᔮସ؂ਕණྠϞࠢʮ̡

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 331)

19 March 2021

To the Independent Shareholders

Dear Sir or Madam,

(1) MAJOR AND CONNECTED TRANSACTION:

PROPOSED ACQUISITION OF THE TARGET GROUP ENGAGED IN THE PROVISION OF SECURITY GUARDING & EVENT SERVICES,

INSURANCE SOLUTIONS AND LANDSCAPING SERVICES;

(2) MAJOR AND CONNECTED TRANSACTION:

DISPOSAL OF PROPERTIES;

(3) CONTINUING CONNECTED TRANSACTIONS:

2021 MASTER FACILITY AND RELATED SERVICES AGREEMENTS;

(4) PROPOSED CHANGE OF COMPANY NAME AND

STOCK SHORT NAME;

(5) RE-ELECTION OF THE RETIRING DIRECTOR;

AND

(6) NOTICE OF EXTRAORDINARY GENERAL MEETING

We refer to the circular dated 19 March 2021 (the ''Circular'') of which this letter forms part. Terms defined in the Circular have the same meanings when used herein unless the context otherwise requires.

We have been appointed to form the Independent Board Committee to consider the Proposed Transactions, the 2021 Master Facility and Related Services Agreements, the Services Transactions contemplated under those agreements and the Annual Caps for the same, and to advise the Independent Shareholders as to whether, in our opinion, the Proposed Transactions (including the Consideration), the terms of each of the 2021 Master Facility and Related Services Agreements, the Services Transactions contemplated under those agreements and the Annual Caps for the same are on normal commercial terms and in the ordinary and usual course of business of the Enlarged Group, fair and reasonable in so far as the Company and the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

Ballas Capital Limited has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders on the fairness and reasonableness of the Proposed Transactions, the 2021 Master Facility and Services Agreements, the Services Transactions contemplated under these agreements and the AnnualCaps for the same and whether the Proposed Transactions are on normal commercial terms and in the ordinary and usual course of business of the Enlarged Group, in the interests of the Company and the Shareholders as a whole and to advise the Independent Shareholders on how to vote. We wish to draw your attention to the letter from the Board as set out on pages 11 to 73 of the Circular as well as the letter from the Independent Financial Adviser as set out on pages 77 to 163 of the Circular.

Mr. Kwong Che Keung, Gordon, Mr. Hui Chiu Chung, Stephen, Mr. Lee Kwan Hung, Eddie and Dr. Tong Yuk Lun, Paul, being the independent non-executive Directors who do not have a material interest in the Proposed Transactions, the 2021 FSE Master Facility and Related Services Agreement, the 2021 NWD Master Facility and Related Services Agreement, the 2021 CTFE Master Facility and Related Services Agreement and the Services Transactions contemplated under those agreements consider that:

• (1) the Proposed Transactions (including the Consideration) is not in the ordinary and usual course of business of the Group;

• (2) the 2021 FSE Master Facility and Related Services Agreement, the 2021 NWD Master Facility and Related Services Agreement, the 2021 CTFE Master Facility and Related Services Agreement, and the Services Transactions contemplated under those agreements are in the ordinary and usual course of business of the Enlarged Group;

• (3) having taken into account the advice of the Independent Financial Adviser, the Proposed Transactions (including the Consideration), the 2021 FSE Master Facility and Related Services Agreement, the 2021 NWD Master Facility and Related Services Agreement, the 2021 CTFE Master Facility and Related Services Agreement, the Services Transactions contemplated under those agreements and the Annual Caps for the same are:

  • i. on normal and commercial terms;

  • ii. fair and reasonable so far as the Company and the Independent Shareholders are concerned; and

  iii. in the interests of the Company and the Shareholders as a whole; and

• (4) accordingly, it is recommended that the Independent Shareholders should vote in favour of the ordinary resolutions to be proposed at the EGM in relation to the Proposed Transactions, the 2021 FSE Master Facility and Related Services Agreement, the 2021 NWD Master Facility and Related Services Agreement, the 2021 CTFE Master Facility and Related Services Agreement, the Services Transactions contemplated under those agreements and the Annual Caps for the same.

Mr. Hui Chiu Chung, Stephen, Mr. Lee Kwan Hung, Eddie and Dr. Tong Yuk Lun, Paul, being the independent non-executive Directors who do not have a material interest in the 2021 NWS Master Facility and Related Services Agreement and the 2021 CTFJ Master Facility and Related Services Agreement, and the Services Transactions contemplated under those agreements consider that:

• (1) the 2021 NWS Master Facility and Related Services Agreement and the 2021 CTFJ Master Facility and Related Services Agreement, and the Services Transactions contemplated under those agreements are in the ordinary and usual course of business of the Enlarged Group;

• (2) having taken into account the advice of the Independent Financial Adviser, the 2021 NWS Master Facility and Related Services Agreement and the 2021 CTFJ Master Facility and Related Services Agreement, the Services Transactions contemplated under those agreements and the Annual Caps for the same are:

  • i. on normal and commercial terms;

  • ii. fair and reasonable so far as the Company and the Independent Shareholders are concerned; and

  iii. in the interests of the Company and the Shareholders as a whole; and

• (3) accordingly, it is recommended that the Independent Shareholders should vote in favour of the ordinary resolutions to be proposed at the EGM in relation to the 2021 NWS Master Facility and Related Services Agreement and the 2021 CTFJ Master Facility and Related Services Agreement, the Services Transactions contemplated under those agreements and the Annual Caps for the same.

Yours faithfully

Independent Board Committee

Mr. Kwong Che Keung, Mr. Hui Chiu Chung, Mr. Lee Kwan Hung, Dr. Tong Yuk Lun,

Gordon Stephen Eddie Paul

Unit 1802, 18/F

1 Duddell Street

Central

Hong Kong

19 March 2021

To the Independent Board Committee and the Independent Shareholders

Dear Sir or Madam,

(1) MAJOR AND CONNECTED TRANSACTION:

PROPOSED ACQUISITION OF THE TARGET GROUP ENGAGED IN THE PROVISION OF SECURITY GUARDING & EVENT SERVICES,

INSURANCE SOLUTIONS AND LANDSCAPING SERVICES;

(2) MAJOR AND CONNECTED TRANSACTION:

DISPOSAL OF PROPERTIES;

AND

(3) CONTINUING CONNECTED TRANSACTIONS:

2021 MASTER FACILITY AND RELATED SERVICES AGREEMENTS

INTRODUCTION

We refer to our engagement as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Proposed Transactions, details of which are set out in the letter from the Board (the ''Letter from the Board'') contained in the circular of the Company (the ''Circular'') to the Shareholders dated 19 March 2021, of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless the context otherwise requires.

On 26 February 2021 (after trading hours of the Stock Exchange), the Company, the Buyer Co and the Seller entered into the Sale and Purchase Agreement pursuant to which the Company has conditionally agreed to nominate the Buyer Co to acquire from the Seller the Sale Share at a total consideration of HK$840,600,000 (subject to adjustments, if any), comprising (i) a non-cash consideration of HK$442,650,000 settled through the Proposed Disposal of the Disposal Property and the entire issued share capital in the Property Holdcos to the Seller Group; and (ii) a cash consideration of HK$397,950,000 payable in cash by the Company.

The Target Group is principally engaged in the provision of Security Guarding & Event Services, Insurance Solutions and Landscaping Services.

Completion of the Proposed Acquisition and the Proposed Disposal shall take place simultaneously on the Completion Date, and the Completion is subject to the fulfilment of the Conditions. Upon Completion, the Target Company will become an indirect wholly-owned subsidiary of the Company, and the Group will cease to hold any right, title and interest in the Property Holdcos and the Disposal Property and each of the Property Holdcos will cease to be a wholly-owned subsidiary of the Company.

The Buyer Co is a wholly-owned subsidiary of the Company. FSE Holdings, which holds 75% of the Ordinary Shares in issue in the Company as at the Latest Practicable Date, is a controlling shareholder of the Company under the Listing Rules. The Seller, being a wholly-owned subsidiary of FSE Holdings, is an associate of FSE Holdings, and therefore a connected person of the Company.

The Proposed Acquisition thus constitutes a connected transaction of the Company. As some of the applicable Percentage Ratios for the Proposed Acquisition exceed 5%, the Proposed Acquisition is subject to the reporting, announcement and Independent Shareholders' approval requirements pursuant to Chapter 14A of the Listing Rules. Further, as some of the applicable Percentage Ratios in respect of the Proposed Acquisition are 25% or more but all of those ratios are below 100%, the Proposed Acquisition also constitutes a major transaction for the Company under Chapter 14 of the Listing Rules, and is subject to the reporting, announcement and Shareholders' approval requirements under Chapter 14 of the Listing Rules.

In addition, the Proposed Disposal constitutes a connected transaction for the Company. As some of the applicable Percentage Ratios for the Proposed Disposal exceed 5%, the Proposed Disposal is subject to the reporting, announcement and Independent Shareholders' approval requirements pursuant to Chapter 14A of the Listing Rules. Further, as some of the applicable Percentage Ratios in respect of the Proposed Disposal are 25% or more but all of those ratios are below 100%, the Proposed Disposal also constitutes a major transaction for the Company under Chapter 14 of the Listing Rules, and is subject to the reporting, announcement and Shareholders' approval requirements under Chapter 14 of the Listing Rules.

Members of the Target Group, in their ordinary course of business, regularly entered into continuing transactions with the Doo's Associates Group, the NWD Group, the NWS Group, CTFE Group and the CTFJ Group in relation to facility and related services including Security Guarding & Event Services, Insurance Solutions and Landscaping Services. It is expected that such continuing transactions will continue after the completion of the Proposed Transactions. As the Target Company will become an indirect wholly-owned subsidiary of the Company upon completion of the Proposed Acquisition, the continuing transactions entered into or to be entered into between the Group on one side, and each of the Doo's Associate Group, the NWD Group, the NWS Group, the CTFE Group or the CTFJ Group on the other will respectively become continuing connected transactions of the Company under the Listing Rules.

As the highest of the applicable Percentage Ratios in respect of the proposed Annual Caps of each of the 2021 NWD Master Facility and Related Services Agreement and the 2021 NWS Master Facility and Related Services Agreement exceeds 5%, the transactions under theseagreements and the proposed Annual Caps for the same are subject to the reporting, annual review and announcement requirements and the Independent Shareholders' approval requirement under Chapter 14A of the Listing Rules.

As the highest of the applicable Percentage Ratios in respect of the proposed Annual Caps of each of the 2021 FSE Master Facility and Related Services Agreement, 2021 CTFE Master Facility and Related Services Agreement and the 2021 CTFJ Master Facility and Related Services Agreement exceeds 0.1% but is below 5%, the transactions under these agreements and the proposed Annual Caps for the same are subject to the reporting, annual review and announcement requirements and exempt from the Independent Shareholders' approval requirement under Chapter 14A of the Listing Rules.

Notwithstanding the above, the Company with a view to adhering to enhanced corporate governance practices will seek Independent Shareholders' approval for each of the 2021 Master Facility and Related Services Agreements, the Services Transactions contemplated thereunder and the proposed Annual Caps for the same, at the EGM.

The Independent Board Committee has been established to consider the terms of the Proposed Transactions, the 2021 Master Facility and Related Services Agreements, the Services Transactions contemplated under these agreements and the Annual Caps for the same, and to advise and provide recommendation to the Independent Shareholders as to whether the same are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole.

INDEPENDENCE DECLARATION

We are not associated or connected with the Company, the Buyer Co, the Seller, the Target Group or their respective core connected persons or associates. In the two years immediately preceding the Latest Practicable Date, save for the appointment as the independent financial adviser by the Company in relation to (i) the Company's continuing connected transactions regarding the building services in June 2019 and property services in October 2019 (which transactions were exempt from the Independent Shareholders' approval requirement under the Listing Rules); (ii) the revision of the annual caps for provision of cleaning and laundry services by the Group as disclosed in the Company's circular dated 8 November 2019; (iii) the Company's acquisition of the target entities engaged in the provision of property management services and the issue of convertible securities as disclosed in the Company's circular dated 15 November 2019; and (iv) the Group's sale of the subsidiaries engaged in the provision of cleaning and laundry services (which did not constitute a connected transaction or discloseable transaction) as disclosed in the announcement of the Company dated 31 December 2020; and (v) this appointment, we did not have any other relationship with or interests in the Company, the Buyer Co, the Seller, the Target Group or their respective core connected persons or associates. Apart from normal professional fees paid or payable to us in connection with the said appointments as the independent financial adviser, no other arrangements exist whereby we have received or will receive any fees or benefits from the Company or any other parties to the relevant transactions that could reasonably be regarded as relevant to our independence as defined under Rule 13.84 of the Listing Rules. Given the independence of the engagements, we consider we are eligible to give advice on theterms of the Proposed Transactions, the 2021 Master Facility and Related Services Agreements, the Services Transactions contemplated under these agreements and the Annual Caps for the same.

BASIS OF OUR OPINION

In formulating our recommendation, we have relied on the information and facts contained or referred to in the Circular as well as the representations made or provided by the Directors and the senior management of the Company.

The Directors have declared in a responsibility statement set out in the Circular that they collectively and individually accept full responsibility for the accuracy of the information contained and representations made in the Circular and that there are no other matters the omission of which would make any statement in the Circular misleading. We have also assumed that the information and the representations made by the Directors as contained or referred to in the Circular were true and accurate at the time they were made and continue to be so up to the date of the EGM. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors and the senior management of the Company. We have also been advised by the Directors and believe that no material facts have been omitted from the Circular.

We consider that we have reviewed sufficient information to reach an informed view, to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our recommendation. We have not, however, conducted an independent verification of the information nor have we conducted any form of in-depth investigation into the businesses and affairs or the prospects of the Company, the Buyer Co, the Seller, the Target Group or any of their respective subsidiaries or associates.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and advice to the Independent Board Committee and the Independent Shareholders, we have considered the following principal factors and reasons:

1. Information of the Group

1.1. Background of the Group

The Company is an investment holding company and the holding company of the Group. The principal business of the Group are the provision of the Property Management Services, City Essential Services and Technical and Management Services.

1.2. Historical financial performance of the Group

Set out below is a summary of the financial results of the Group for the years ended 30 June 2018, 2019 and 2020, and six months ended 31 December 2019 and 2020, as extracted from the (i) annual report of the Company for the year ended 30 June 2019 (the ''FY2019 Annual Report''); (ii) annual report of the Company for the year ended 30 June 2020 (the ''FY2020 Annual Report''); and (iii) interim results announcement for the six months ended 31 December 2020 (the ''6M2021 Interim Results Announcement''), respectively.

For the year ended

For the six months ended

30 June

2018

2019

2019

2020

31 December 2019 2020

(''FY2018 '') (''FY2019 '') (''FY2019 '') (''FY2020 '') (''6M2020 '') (''6M2021'')

HK$'million HK$'million HK$'million HK$'million HK$'million HK$'million

(restated)* (restated)**

(audited)

(audited)

(audited)

(audited)

(unaudited) (unaudited)Revenue

• - E&M engineering & environmental servicesN/AN/A

  3,736.9

  • 3,085.5 1,520.6

  1,777.6

• - Integrated property & facility services

• - E&M engineering

  N/A 3,694.2

  N/A 3,665.8

  1,685.8

  1,796.6

  N/A

  N/A

  899.7 N/A

  981.2 N/A

• - Environmental management services

• - Facility services

61.8 1,170.5

71.1 1,193.6

N/A N/A

N/A N/A

N/A N/A

N/A N/ATotal revenue Gross profit

4,926.5

4,930.5

Profit before taxation Profit for the period/year

591.0 288.3 236.8

599.8 297.5 247.5

5,422.7 769.5 368.6 307.4

4,882.1 760.4 363.5 309.6

2,420.3 2,758.8 372.9 553.9 176.2 352.3 144.0 329.1

*

As disclosed in the FY2020 Annual Report, comparative figures for FY2019 have been restated for the Group's application of merger accounting for business combinations under common control.

**

As disclosed in the 6M2021 Interim Results Announcement, the Group's 6M2020 corresponding segment information that is presented for comparative purpose has been restated due to the Group's chief operating decision-makers has reorganised the Group's business into E&M engineering & environmental services and integrated property & facility services following the acquisition of the property and facility management service business.

6M2021 vs 6M2020 (restated)

The Group's revenue increased by approximately HK$338.5 million, or approximately 14.0%, from approximately HK$2,420.3 million (restated) for

6M2020 to approximately HK$2,758.8 million for 6M2021. According to the

6M2021 Interim Results Announcement, such increase was attributable by the increase in revenue from the E&M engineering & environmental services segment of approximately HK$257.0 million, and the increase in revenue from the integrated property & facility services segment of approximately HK$81.5 million.

The Group's net profit increased significantly by approximately HK$185.1 million, or approximately 128.5%, from approximately HK$144.0 million (restated) for 6M2020 to approximately HK$329.1 million for 6M2021. As noted from the 6M2021 Interim Results Announcement, such increase mainly resulted from an increase in new contracts awarded in facility/property management, and ad-hoc cleaning and disinfection projects following the outbreak of COVID-19; and (ii) the receipt of subsidies under the Employment Support Scheme of the Hong Kong SAR Government; which are offset by (i) the loss recognised by the Group during the period under review in relation to its disposal of laundry business and (ii) a decrease in gross profit from the Group's E&M engineering installation projects in Hong Kong and Macau in the prior year which are not repeated in 6M2021. The net profit margin of the Group improved to 11.9% for 6M2021 from 6.0% for 6M2020.

FY2020 vs FY2019 (restated)

The Group's revenue decreased by approximately HK$540.6 million, or approximately 10.0%, from approximately HK$5,422.7 million (restated) for FY2019 to approximately HK$4,882.1 million for FY2020. According to the FY2020 Annual Report, such decrease mainly reflected the decrease in revenue from the E&M engineering & environmental services segment of approximately HK$651.4 million, partly mitigated by the increase in revenue from the integrated property & facility services segment of approximately HK$110.8 million.

The Group's net profit slightly increased by approximately HK$2.2 million, or approximately 0.7%, from approximately HK$307.4 million (restated) for FY2019 to approximately HK$309.6 million for FY2020. As noted from the FY2020 Annual Report, such increase mainly reflected the overall savings in general and administrative expenses and lower income tax expenses, partly offset by a slight decrease in gross profit contribution, an impairment loss on non-current assets of the Group's laundry business and one-off professional fees and finance costs incurred for the acquisition of the property and facility management services business.

FY2019 vs FY2018

The Group's revenue remained relatively stable at approximately HK$4,930.5 million for FY2019 as compared to that of HK$4,926.5 million for FY2018, with revenue from each segment remaining relatively stable.

The Group's net profit increased by approximately HK$10.7 million, or approximately 4.5%, from approximately HK$236.8 million for FY2018 to approximately HK$247.5 million for FY2019. As noted from the FY2019 Annual Report, such increase mainly reflected higher gross profit contribution mostly from the E&M engineering segment and the decrease in general and administrative expenses, which was partly offset by lower finance income.

1.3. Financial position of the Group

Set out below is a summary of the financial position of the Group as at 31 December 2020 as extracted from the 6M2021 Interim Results Announcement.

As at 31 December 2020, total assets of the Group amounted to approximately HK$3,158.3 million, which mainly comprised (i) trade and other receivables of approximately HK$1,451.3 million (representing approximately 46.0% of total assets); (ii) cash and bank balances of approximately HK$822.0 million (representing approximately 26.0% of total assets); (iii) contract assets of approximately HK$349.3 million (representing approximately 11.1% of total assets); and (iv) property, plant and equipment of approximately HK$331.9 million (representing approximately 10.5% of total assets).

As at 31 December 2020, total liabilities of the Group amounted to approximately HK$2,441.0 million, which mainly comprised (i) trade and other payables of approximately HK$1,605.5 million (representing approximately 65.8% of total liabilities); (ii) contract liabilities of approximately HK$422.1 million (representing approximately 17.3% of total liabilities); and (iii) borrowings of approximately HK$263.7 million (representing approximately 10.8% of total liabilities).

As at 31 December 2020, the Group recorded net assets of approximately HK$717.3 million.

2. Information of the Target Group

2.1. Background information of the Seller and the Target Group

The Seller

The Seller is a limited liability company incorporated in Hong Kong, and a wholly-owned subsidiary of FSE Holdings. To the best knowledge of the Directors, the principal business of the Seller is investment holding.

The Target Group

The Target Company is a limited company incorporated in the British Virgin Islands on 29 December 2020. The principal business of the Target Company is investment holding, and does not carry on any business other than its investment in the Target Entities as its sole investment upon completion of the Reorganisation. Upon completion of the Reorganisation, the Target Group is principally engaged in the provision of three different segments namely Security Guarding & Event Services (''Security Services Segment''), Insurance Solutions (''Insurance Solutions Segment'') and Landscaping Services (''Landscape Segment'').

For FY2018, FY2019, FY2020 and 6M2021, the respective revenue contribution of each of the Security Services Segment, Insurance Solutions Segment and the Landscape Segment to the Target Group are set out below:

Business of the Target Group - Security Services Segment

The Target Group's Security Guarding & Event Services arm of business is ranked as the No. 2 in Type I securities services provider in Hong Kong in terms of revenue for the financial year ended 30 June 2020 according to Frost & Sullivan. It is operated through FSE S & G Limited and its subsidiaries, which is commonly known as ''General Security'' and mainly offers security guarding services such as physical guarding of property and person, security management and planning, and armoured transportation. Event services are also provided that combine security guarding services and customer services to optimise the guest experience without compromising the safety of event participants or the integrity of critical assets. Other related services include concierge services, alarm installation and maintenance. The customers of the Security Services Segment mainly comprise public transport providers, property management companies, clubhouses and exhibition centers. The Target Group's Securities Services Segment has been in operation for approximately 43 years.

Business of the Target Group - Insurance Solutions Segment

The Target Group's Insurance Solutions arm of business is ranked as the No. 1 (among local insurance brokers) and No. 5 (among local and international insurance brokers) general insurance brokers in Hong Kong in terms of gross insurance brokerage income for the financial year ended 30 June 2020 according to Frost & Sullivan. It is operated through FSE Ins Limited (formerly known as Double Luck Ventures Limited) and its subsidiaries, which is more commonly known as ''Nova Insurance'' and mainly offers general insurances brokerage services related to property and casualty, construction projects, and employee benefits. Other insurance brokerage services include director and officers liability, prospectus liability, cyber risk liabilities. The customers of the Insurance Solutions Segment mainly comprise property developers, hotels, property management companies, and airport. The Target Group's Insurance Solutions Segment has been in operation for approximately 32 years.

Business of the Target Group - Landscape Segment

The Target Group's Landscaping Services arm of business is one of the more sizeable leaders in the fragmented industry in Hong Kong. It is operated through FSE C & L Limited and its subsidiaries, which is more commonly known as ''Hong Kong Island Landscape'' and offers services related to planting and maintenance of landscapes and sales of plants and related materials. The customers of the Landscape Segment mainly comprise exhibition centers, property management companies, hotels and international theme park. The Target Group 's Landscape Segment has been in operation for approximately 38 years.

2.2. Historical financial performance of the Target Group

Set out below is a summary of the key combined financial information of the Target Group for FY2018, FY2019, FY2020, 6M2020 and 6M2021 as extracted from Appendix II to this Circular:

Table 1

FY2018 HK$'000 (audited)FY2019 HK$'000 (audited)

FY2020 HK$'000

6M2020

6M2021

HK$'000

(audited) (unaudited)

HK$'000 (audited)

Adjustments for non-recurring and non-operating items:

• (1) Less: wage subsidies under the Employment Support Scheme

  -

  -

  (19,185)

  -

  (96,219)

• (2) Less/add: gain/loss on disposal of property, plant, equipment

  23

  125

  (8,240)

  (5)

  -

• (3) Less: bank interest income

  (30)

  (295)

  (629)

  • (159) (321)

• (4) Less: government grants

  -

  -

  (322)

  -

  -

• (5) Less/add: exchange gain/loss

  (725)

  (33)

  221

  192

  (508)

• (6) Add: management fee in relation to services provided by FSE Management (Note)

• (7) Add: donation

4,700 2,741

5,100 2,996

5,700 5,475

2,850

-

• 5,468 2,378

  Adjusted profit before income tax

  74,674

  85,899

  85,618

• 44,752 47,670

Note:

After Completion, the existing management functions provided by the Seller in consideration of the management fee will be performed by the senior management of the Company. Therefore, such management fee will not need to be paid after Completion.

6M2021 vs 6M2020

As illustrated in the table above, revenue generated from the Security Services Segment accounted for approximately 85.5% and 85.3% of the Target Group's revenue in 6M2020 and 6M2021, respectively. Revenue generated from the Insurance Solutions Segment accounted for approximately 11.2% and 11.3% of the Target Group's revenue in 6M2020 and 6M2021, respectively, whereas revenue generated from the Landscape Segment accounted for approximately 3.3% and 3.4% of the Target Group's revenue in 6M2020 and 6M2021, respectively.

The revenue of the Target Group was approximately HK$396.9 million in 6M2021, which remained relatively stable as compared to that of approximately HK$401.2 million in 6M2020. The revenue for each of the Security Services Segment, the Insurance Solutions Segment and the Landscape Segment all remained relatively stable for 6M2021.

The gross profit of the Target Group amounted to approximately HK$179.4 million for 6M2021, which represented a significant increase of approximately 116.1% as compared to that of approximately HK$83.0 million for 6M2020. Such significant increase in gross profit in 6M2021 was mainly due to the increase in gross profit margin from approximately 20.7% in 6M2020 to approximately 45.2% in 6M2021, which was a result of the significant decrease in cost of operations by approximately 31.7% from approximately HK$318.2 million for 6M2020 to approximately HK$217.4 million in 6M2021 mainly due to the significant decrease in staff costs of approximately HK$97.3 million, or approximately 32.0%, from approximately HK$303.9 million in 6M2020 to approximately HK$206.6 million in 6M2021. Such significant decrease in staff cost in 6M2021 was mainly attributable to the wage subsidies of approximately HK$93.9 million received by the Target Group under the Employment Support Scheme in 6M2021. Excluding such one-off wage subsidies, the Target Group would have recorded cost of operations and gross profit of approximately HK$311.3 million and HK$85.5 million, respectively in 6M2021, being similar to the amount of cost of operations and gross profit recorded in 6M2020, and the Target Group would have recorded gross profit margin of approximately 21.5% in 6M2021, being similar to that of 20.7% in 6M2020.

The net profit of the Target Group increased by approximately HK$105.9 million, or approximately 290.9% from approximately HK$36.4 million in 6M2020 to approximately HK$142.3 million in 6M2021. Such significant increase in net profit was mainly due to the significant increase in net profit of Security Services Segment of approximately HK$97.7 million, or approximately 478.5%, from approximately HK$20.4 million in 6M2020 to HK$118.1 million in 6M2021 mainly as a result of the wage subsidies received under the Employment Support Scheme as mentioned above. As illustrated in Table 1, excluding the adjustments for non-recurring and non-operating items, the Target Group would have recorded adjusted profit before tax of approximately HK$47.7 million in 6M2021, representing an increase of approximately 6.5% as compared to the adjusted profit before tax of approximately HK$44.8 million in 6M2020.

FY2020 vs FY2019

As illustrated in the table above, revenue generated from the Security Services Segment accounted for approximately 83.6% and 85.5% of the Target Group's revenue in FY2019 and FY2020, respectively. Revenue generated from the Insurance Solutions Segment accounted for approximately 12.2% and 11.1% of the Target Group's revenue in FY2019 and FY2020, respectively, whereas revenue generated from the Landscape Segment accounted for approximately 4.2% and 3.4% of the Target Group's revenue in FY2019 and FY2020, respectively.

The revenue of the Target Group was approximately HK$777.2 million in FY2020, representing a slight increase of approximately 5.0% from approximately HK$740.4 million in FY2019. Such increase was the net effect of (i) the increase in revenue attributable to the Security Services Segment by approximately HK$46.0 million, or approximately 7.4%, from approximately HK$618.8 million in FY2019 to approximately HK$664.9 million in FY2020 mainly due to the increase in Security Guarding & Event Services income as a result of the award of new contracts and price increment of existing contracts; (ii) the decrease in revenue attributable to the Landscape Segment by approximately HK$5.3 million, or approximately 16.9%, from approximately HK$31.4 million in FY2019 to approximately HK$26.1 million in FY2020 mainly due to the decrease in Landscaping Services income as a result of the increase in ad-hoc services required for emergency tree pruning and repairing services due to the bad weather in FY2019; and (iii) the decrease in revenue attributable to the Insurance Solutions Segment by approximately HK$3.9 million, or approximately 4.3%, from approximately HK$90.1 million in FY2019 to approximately HK$86.2 million in FY2020 mainly due to the decrease in insurance brokerage service as a result of the award of certain construction related contracts in FY2019.

The gross profit of the Target Group amounted to approximately HK$182.4 million for FY2020, which represented an increase of approximately 11.5% as compared to that of approximately HK$163.6 million for FY2019. Such increase in gross profit was mainly due to the increase in revenue of the Target Group for FY2020 and the slight improvement in gross profit margin for the Target Group from approximately 22.1% for FY2019 to approximately 23.5% for FY2020, which was contributed by the wage subsidies of approximately HK$18.7 million received by the Target Group under the Employment Support Scheme in FY2020 which reduced the Target Group's cost of operations in FY2020. Excluding the wage subsidies received by the Target Group in FY2020, the Target Group would have recorded gross profit margin of approximately 21.1% in FY2020.

The net profit of the Target Group increased by approximately HK$24.6 million, or approximately 31.5%, from approximately HK$78.0 million in FY2019 to approximately HK$102.6 million in FY2020, which was mainly due to (i) the increase in revenue and gross profit as mentioned above; (ii) the other income of approximately HK$8.7 million in FY2020 (as compared to other income of approximately HK$0.1 million in FY2019) which mainly related to gain on disposal of property, plant and equipment for the Security Services Segment of approximately HK$8.2 million in FY2020. As illustrated in Table 1, excluding the adjustments for non-recurring and non-operating items, the Target Group would have recorded adjusted profit before tax of approximately HK$85.6 million in FY2020, which is comparable to the adjusted profit before tax of approximately HK$85.9 million in FY2019.

FY2019 vs FY2018

As illustrated in the table above, revenue generated from the Security Services Segment accounted for approximately 83.7% and 83.6% of the Target Group's revenue in FY2018 and FY2019, respectively. Revenue generated from the Insurance Solutions Segment accounted for approximately 12.0% and 12.2% of the Target Group's revenue in FY2018 and FY2019, respectively, whereas revenue generated from the Landscape Segment accounted for approximately 4.3% and 4.2% of the Target Group's revenue in FY2018 and FY2019, respectively.

The revenue of the Target Group was approximately HK$740.4 million in FY2019, representing an increase of approximately 15.4% from approximately HK$641.8 million in FY2018. Such increase was the combined effect of (i) the increase in revenue attributable to the Security Services Segment by approximately HK$81.8 million, or approximately 15.2% from approximately HK$537.0 million in FY2018 to approximately HK$618.8 million in FY2019 mainly due to the increase in Security Guarding & Event Services income due to new contracts and price increment of existing contracts, and the increase in concierge services income due to new contracts; (ii) the increase in revenue attributable to the Insurance Solutions Segment by approximately HK$13.1 million, or approximately 17.1% from approximately HK$77.0 million in FY2018 to approximately HK$90.1 million in FY2019 mainly due to the increase in insurance brokerage service income as a result of the award of certain construction related contracts in FY2019; and (iii) the increase in revenue attributable to the Landscape Segment by approximately HK$3.6 million, or approximately 12.8%, from approximately HK$27.9 million in FY2018 to approximately HK$31.4 million in FY2019 mainly due to the increase in Landscaping Services income as a result of the increase in ad-hoc services required for emergency tree pruning and repairing services due to the bad weather in FY2019.

The gross profit of the Target Group amounted to approximately HK$163.6 million for FY2019, which represented an increase of approximately 11.7% as compared to that of approximately HK$146.4 million for FY2018. Such increase in gross profit was mainly due to the increase in revenue of the Target Group for FY2019. The gross profit margin of the Target Group remained stable at approximately 22.8% and 22.1% for FY2018 and FY2019, respectively.

The net profit of the Target Group increased by approximately HK$10.0 million, or approximately 14.8%, from approximately HK$68.0 million in FY2018 to approximately HK$78.0 million in FY2019, which was mainly due to increase in revenue and gross profit as mentioned above. As illustrated in Table 1, excluding the adjustments for non-recurring and non-operating items, the Target Group would have recorded adjusted profit before tax ofapproximately HK$85.9 million in FY2019, representing an increase of approximately 15.0% as compared to the adjusted profit before tax of approximately HK$74.7 million in FY2018.

2.3. Financial position of the Target Group

Set out below is a summary of the financial position of the Target Group as at 31 December 2020 as extracted from Appendix II to this circular.

As at 31 December 2020, the Target Group recorded net assets of approximately HK$77.7 million.

The assets of the Target Group mainly comprised (i) trade and other receivables, net of approximately HK$248.3 million (representing approximately 51.4% of total assets); (ii) cash and cash equivalents of approximately HK$161.2 million (representing approximately 33.4% of total assets); (iii) amount due from FSE Management Company Limited of approximately HK$33.0 million (representing approximately 6.8% of total assets) relating to the Insurance Solutions Segment and the Landscape Segment; and (iv) other intangible assets of approximately HK$32.1 million (representing approximately 6.6% of total assets) representing goodwill of approximately HK$16.8 million and trademarks and brand names of approximately HK$15.2 million.

The liabilities of the Target Group mainly comprised (i) trade and other payables and receipt in advance/contract liabilities of approximately HK$209.8 million (representing approximately 51.8% of total liabilities); and (ii) amount due to FSE Management Company Limited of approximately HK$166.3 million (representing approximately 41.1% of total liabilities) relating to the Security Services Segment.

3. Industry overview

3.1. Suitability and qualification of Frost & Sullivan

In preparing the industry overview of the (i) security guarding services market in Hong Kong, (ii) insurance brokerage services market in Hong Kong, and (iii) landscape services market in Hong Kong, we have relied on the industry report (the ''Industry Report'') prepared by Frost & Sullivan with market research on the security guarding services market in Hong Kong, the insurance brokerage services market in Hong Kong and landscape services market in Hong Kong (collectively, the ''Market Research''). We have reviewed the Industry Report and interviewed the relevant team members of Frost & Sullivan with particular attention to: (i) the terms of engagement of Frost & Sullivan with the Company; and (ii) the experience of Frost & Sullivan and the qualifications of their team members. Based on our review of the engagement letter between the Company and Frost & Sullivan, we are satisfied that the scope of work performed by Frost & Sullivan provides the market research on the respective markets of the Target Group. We are not aware of any limitation on the scope of work which might have a negative impact on the Market Research provided by Frost & Sullivan. Frost & Sullivan has confirmed that it is independent from the Company, the Target Group and the Seller. The person-in-charge of the Market Research has over 10 years in conducting industry research to a wide range of clients in different industries. We also note that Frost & Sullivan mainly conducted its own market research and has relied on public information obtained through its own research as well as the financial information provided by the Management.

In light of the above, we are not aware of any matters that would cause us to question Frost & Sullivan's competence and independence and we consider that Frost & Sullivan has sufficient expertise and is independent to provide the Market Research.

3.2. Security guarding services market in Hong Kong

The security and guarding services industry in Hong Kong is regulated by the Security and Guarding Services Industry Authority. Security work is categorised mainly into three categories, namely (i) Type 1: provision of security guarding services; (ii) Type 2: provision of armoured transportation services; and (iii) Type 3: installation, maintenance and/or repairing security devices.

The Security Service Segment of the Target Group is mainly engaged in Type 1 security guarding services. Set out below is the chart showing the market size of Type 1 security guarding services market in Hong Kong by revenue from 2015 to 2025.

Market Size of Type I Security Guarding Services (Hong Kong), 2015-2025E

(HK$bn)

40 2015-2019 CAGR: 7.1% 2020E-2025E CAGR: 7.2%

18.5

19.7

21.2

22.8

24.5

23.0

24.9

26.7

28.6

30.5

32.6

20

0

15

16

17

18

19

20E

21E

22E

23E

24E

25E

Source: Frost & Sullivan

Note: Market size above is aligned with the financial year ended 30 June.

Steady growth in the security services market

Type 1 security service market in Hong Kong has witnessed a steady growth in the past years. The total revenue of the security guarding services industry in Hong Kong was approximately HK$18.5 billion in 2015 and experienced a compound annual growth rate (''CAGR'') of approximately 7.1% to approximately HK$24.5 billion in 2019.

Due to the outbreak of COVID-19, the demand of manned guarding and event management has diminished due to temporarily closure of facilities, and therefore the Hong Kong Type 1 security guarding service market is expected to experience a slight decrease from approximately HK$24.5 billion in 2019 to approximately HK$23.0 billion in 2020. The market size is projected to expand and reach approximately HK$32.6 billion by 2025, representing a CAGR of approximately 7.2% from 2020 to 2025, attributable to continuous development of property market, higher requirement on security guarding services and the increasing awareness on safety and security services.

Competitive landscape

According to Frost & Sullivan, the Security Guarding Services Segment of the Target Group is ranked as the No. 2 in securities services provider in Hong Kong in terms of revenue with an estimated market share of approximately 2.9% for the year ended 30 June 2020. The top 5 players in the security services market in Hong Kong for the year ended 30 June 2020 in aggregate accounted for approximately 13.0% of total market share.

3.3. Insurance brokerage market in Hong Kong

Insurance products are primarily distributed through insurance intermediaries including (i) agents and banks; and (ii) brokers in Hong Kong, which in aggregate accounted for over 99% of premium of direct individual new business of long-term business in Hong Kong.

The types of insurance could typically be broken down into (i) long term business of which accounted for approximately 90%; and (ii) general business of which accounted for approximately 10% of the Hong Kong insurance market in terms of total premiums in 2019.

3.4. General insurance market size in Hong Kong

As the Target Group mainly engages in offering general insurances brokerage services, we focus on analysing the general insurance market. Set out below is the chart showing the market size of general business market in Hong Kong by total premium from 2015 to 2025.

Gross premium of general business (Hong Kong), 2015-2025E

(HK$bn)

90

2015-2019 CAGR: 4.9% 2020E-2025E CAGR: 6.5%

80

83.4

78.3

70

73.5

69.0

60

60.8

64.8

50

53.6

55.7

46.0

45.6

48.1

40

30

20

10

0

15

16

17

18

19

20E

21E

22E

23E

24E

25E

Source: Frost & Sullivan

Note: Market size above is aligned with the financial year ended 30 June.

Along with the steady growth of population and economy in Hong Kong, the gross premium of general insurance business in Hong Kong increased from approximately HK$46.0 billion in 2015 to HK$55.7 billion in 2019, representing a CAGR of approximately 4.9%. The outbreak of COVID-19 in early 2020 has accelerated the growth in the general business market in 2020, which contributed to (i) a surge of approximately 65.4% in pecuniary loss business; and (ii) an increase of approximately 27.3% in property damage business (with all corresponding period). In particular, the social unrest incidences in Hong Kong and the overall rise in rates in coverage of global losses of insurer and reinsurers has attributed to the increase in property damage premium rates. In addition, the new profits tax concessions for insurance-related business to be commenced on 19 March 2021 is expected to have a positive impact towards the insurance brokerage industry by reducing profits tax rate by 50% to 8.25% on selected businesses and corporations. By 2025, the gross premium of general business in Hong Kong is projected to increase to HK$83.4 billion at a CAGR of approximately 6.5% from 2020 to 2025 based on Frost & Sullivan.

Competitive landscape

According to Frost & Sullivan, the Insurance Solutions Segment of the Target Group is ranked as the No. 1 (among local insurance brokers) and No. 5 (among local and international insurance brokers) general insurance brokers in Hong Kong in terms of gross insurance brokerage income with a gross insurance brokerage income of approximately HK$86.2 million for the financial year ended 30 June 2020. The participants which ranked from first to fourth among general insurance brokers in Hong Kong in terms of gross insurance brokerage income are insurance brokerage companies based overseas which have expanded their business to Hong Kong. Of the top 5 general insurance brokers in Hong Kong, the Target Group's general insurance brokerage segment is the only company founded and based in Hong Kong. The top 5 participants among general insurance brokers in Hong Kong for the financial year ended 30 June 2020 recorded in aggregate of approximately HK$1,508.2 million in terms of gross insurance brokerage income.

3.5. Landscaping services market size in Hong Kong

Set out below is the chart showing the market size of the landscaping services market in Hong Kong by revenue from 2015 to 2025.

Market Size of Landscaping Services (Hong Kong), 2015-2025E

(HK$mn)

2,000

2015-2019 CAGR: 3.5%

2020E-2025E CAGR: 4.4% 1,460.51,530.8 1,607.6

1,500

1,180.0 1,229.7 1,270.7 1,311.5 1,352.2 1,290.5 1,335.81,396.2

1,000

500

0

15

16

17

18

19

20E

21E

22E

23E

24E

25E

Source: Frost & Sullivan

Note: Market size above is aligned with the financial year ended 30 June.

The total revenue of the landscaping services industry in Hong Kong was approximately HK$1,180.0 million in 2015 and experienced a CAGR of approximately 3.5% to HK$1,352.2 million in 2019. It benefited from the continuous rollout of new town development and urban renewal projects initiated by government, including Kai Tak Development Area, Kwu Tung North, Fanling North etc. The market size is expected to further expand and reach HK$1,607.6 million by 2025, representing a CAGR of approximately 4.4% from 2020 to 2025.

4. Reasons for and benefits of the Proposed Transactions

The principal businesses of the Group are the provision of the Property Management Services, City Essential Services and Technical and Management Services. As stated in the Letter of the Board, the Group consistently seeks opportunities to increase its scale and profitability with the aim to optimise return for its Shareholders. The Directors believe that the Proposed Transactions would increase the Group's overall competitiveness and add to its growth momentum by expanding its service line offerings to meet the ever-changing demands which is crucial amid increasing competitions.

As a long-term development strategy, the Group has decided to re-position its business into a large scale and unique lifestyle services company which has have the capability to offer a comprehensive range of services (e.g. property management services, essential services, technical services, etc.) to its clients including corporate and household, and become their ''go-to'' services provider whereby the Group can directly service their needs or provide them guidance to immediate solutions. Hence, the Directors believe that the Proposed Transactions would be a good complementary add on to such initiative and strengthen its service line offerings. Below sets forth the reasons for and the benefits of the Proposed Transaction:

(i) Increase the Group's scale and profit

As stated in the Letter from the Board, the Directors believe that the Proposed Acquisition represents a good investment for the Group by utilising its existing cash on hand, and leveraging on the Proposed Disposal of the Property Holdcos and the Disposal Property, which will allow the Group to engage in businesses that could enhance recurring profit in long term and lead to an accretion to the Company's earnings per share. The benefits of using the Proposed Disposal of the Property Holdcos and the Disposal property as part of the Consideration would also provide the Group more flexibility in managing its cashflow, maintain a good capital structure and better utilise less liquid assets in its balance sheet.

(ii) Mitigate cyclical risks by diversifying revenue streams and expanding financial scale

As stated in the Letter from the Board, the Directors believe that the Proposed

Transactions would enable the Group to further mitigate cyclical risks typically associated with the E&M engineering segment by diversifying its revenue streams. Moreover, the Target Group has a diversified service line offerings and client base, which could potentially improve the stability of operation of the Enlarged Group with more diversified revenue streams.

Based on the financial information of the Target Group as illustrated in the above section ''B. Information of the Target Group'', we note that the Target Group as a whole has recorded steady revenue growth from approximately HK$641.8 million in FY2018 to approximately HK$740.4 million in FY2019, which further increased to approximately HK$777.2 million in FY2020. The Target Group maintained stable revenue of approximately HK$396.9 million in 6M2021 ascompared to that of approximately HK$401.2 million in 6M2020. We note that the Target Group generates its revenue from a diversified customer base, with its business segments comprising customer base including public transport providers, property management companies, exhibition centers, hotels and property developers. The Target Group had also been profitable in each of FY2018, FY2019, FY2020 and 6M2021, recording growing net profit of approximately HK$68.0 million, HK$78.0 million, HK$102.6 million and HK$142.3 million, respectively. After adjusting for non-recurring and non-operating items, which mainly represented wage subsidies under employment support scheme and gain on disposal of property plant and equipment, the Target Group still recorded strong adjusted profit before income tax of approximately HK$74.7 million, HK$85.9 million, HK$85.6 million and HK$47.7 million, in each of FY2018, FY2019, FY2020 and 6M2021, respectively. In view of the stable and positive market outlook of each of the security services market, general insurance market and landscaping market in Hong Kong, being the principal markets the Target Group engages in, we concur with the Director's view that the Proposed Transactions would bring in businesses with sustainable income and proven growth, further enhancing the financial performance of the Enlarged Group.

(iii) Increase cross-selling synergies and customer loyalty

As stated in the Letter from the Board, the Directors believe that there will be more cross-selling synergies that would allow the Group to offer comprehensive ''one-stop-shop'' services that differentiate the Group from its competitors. The inclusion of the Security Guarding & Event Services, Insurance Solutions and Landscaping Services will directly enhance the Group's ability to provide high quality complementary services and create more cross-selling opportunities. The Proposed Transactions also allow the Enlarged Group to have better insights of the customer needs and would have unique capabilities to offer a wide range of services that its competitors could not match. Upon Completion, the Enlarged Group will expand its client base with the addition of the clientele of the Target Group which will benefit the existing businesses of the Group. As the Enlarged Group will garner experience and expertise in all of the aforementioned business segments, the Enlarged Group will be able to offer ''one-stop-shop'' comprehensive solutions to clients.

(iv) Enhance the Group's leading position

The combination of the Group's existing business operations and the Target Group's business operations will allow the Enlarged Group to re-position itself as a leading diversified lifestyle services provider in Hong Kong with industry leading positions in different segments. According to Frost & Sullivan, the Target Group is (i) ranked No.2 in Type I security services provider in Hong Kong in terms of revenue for FY2020; (ii) ranked No. 1 (among local insurance brokers) and No. 5 (among local and international insurance brokers) amongst general business line insurance provider in Hong Kong in terms of gross insurance brokerage income forFY2020; and (iii) one of the more sizeable leaders in the fragmented industry in Hong Kong. Please refer to the section headed ''3. Industry Overview'' in this letter for more information on the industry of the Target Group.

(v) Re-position the Group into a comprehensive lifestyle services company

The Proposed Transactions would enhance the Group's service line offering to differentiate the Group from its competitors to meet the industry's ever-changing lifestyle services demand. The Enlarged Group would also be able to offer the clients more comprehensive and integrated ''one-stop-shop'' high-quality services solutions through a collection of its market-leading branded subsidiaries. Moreover, the Enlarged Group will become a comprehensive solution provider with in-house technical capabilities supporting its clients when such clients decide to outsource multiple services. As the Target Group comprises the Security Services Segment, Insurance Solutions Segment and the Landscape Segment, all being lifestyle services, we concur with management of the Group that addition of such businesses would enhance the Group's service line offerings.

Our view

Having considered the above, although the Proposed Acquisition does not fall within the ordinary and usual course of business of the Group, given the aforesaid benefits expected to be accrued to the Group and the stable financial performance and market outlook of the Target Group, we concur with the view of the Directors that the Proposed Acquisition is beneficial and in the interests of the Company and the Shareholders as a whole.

5. Principal terms of the Sale and Purchase Agreement

Date and parties involved

Assets to be acquired by the Group

Pursuant to the Sale and Purchase Agreement, the Company has conditionally agreed to nominate the Buyer Co to acquire from the Seller the Sale Share, representing the entire issued share capital of the Target Company.

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