Xinji Shaxi : DISCLOSEABLE TRANSACTION - ACQUISITION OF 60% EQUITY INTEREST IN THE TARGET COMPANY

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, 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 announcement.

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 3603)

DISCLOSEABLE TRANSACTION

ACQUISITION OF 60% EQUITY INTEREST IN

THE TARGET COMPANY

THE AGREEMENT

The Board is pleased to announce that on 24 July 2020, the Purchaser (an indirect wholly- owned subsidiary of the Company) entered into the Agreement with the Vendor, pursuant to which the Purchaser agreed to acquire, and the Vendor agreed to sell, the Equity Interest in the Target Company at the Consideration of RMB78.0 million. The Target Company, which was established for the purpose of operating the Guangzhou Shopping Mall, is holding the Operation Right pursuant to the Cooperation Agreement.

LISTING RULES IMPLICATIONS

As the highest applicable percentage ratios (as defined under the Listing Rules) in respect of the Acquisition is more than 5% but less than 25%, the Acquisition constitutes a discloseable transaction of the Company under the Listing Rules and is therefore subject to the notification and announcement requirements under Chapter 14 of the Listing Rules.

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THE AGREEMENT

The Board is pleased to announce that on 24 July 2020, the Purchaser (an indirect wholly- owned subsidiary of the Company) entered into the Agreement with the Vendor, the principal terms of which are as follows:

Subject matter:	The Purchaser agreed to purchase, and the Vendor
	agreed to sell, the Equity Interest (representing 60%
	of equity interest in the Target Company).
Payment Terms:	The Consideration of RMB78.0 million shall be
	paid by the Purchaser to the Vendor in cash in the
	following manner:
	(a) R M B 3 0 . 0 m i l l i o n s h a l l b e p a i d w i t h i n
	five working days upon execution of the
	Agreement; and
	(b) RMB48.0 million, being the balance of the
	Consideration, shall be paid upon completion
	of the registration procedure in relation to the
	Acquisition with the relevant industrial and
	commercial administration authority of the
	PRC.
Liabilities for breach of	If a party to the Agreement fails to perform or
the Agreement:	seriously breach any clause of the Agreement,
	the defaulting party is required to compensate all
	economic loss suffered by the observant party.
	Unless otherwise stated in the Agreement, the
	observant party shall have the right to terminate the
	Agreement and claim for all actual economic loss
	suffered as a result of the party's default against the
	defaulting party.
	In the event that the Purchaser fails to settle the
	Consideration in accordance with the agreed terms,
	the Purchaser shall be liable to pay to the Vendor
	a late fee equivalent to 0.3% of the outstanding
	amount of Consideration on a daily basis. If the
	Vendor suffers any loss due to the Purchaser's
	breach of the Agreement in excess of such late fee,
	the payment of the late fee shall not preclude the
	Vendor from claiming such damages against the
	Purchaser.

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Completion:	The Purchaser and the Vendor agreed to file the
	relevant documents in relation to the Acquisition
	with the relevant authority(ies) in the PRC for
	business registration within 10 working days upon
	execution of the Agreement.
	The Acquisition will be considered as completed
	upon the completion of business registration
	procedures in the PRC for the transfer of the Equity
	Interest.
Basis of the Consideration

The Consideration was determined after arm's length negotiations between the Purchaser and the Vendor with reference to, among others, (i) the anticipated business development opportunity and prospects of the Target Company; (ii) the unaudited management accounts of the Target Company for the period from 1 May 2020 to 20 July 2020 provided by the Vendor; and (iii) a valuation report issued by the Independent Valuer appraising the value of the Equity Interest as at 20 July 2020 adopting the asset-based approach. The Consideration will be fully funded by the portion of the IPO Net Proceeds which was reallocated for the Guangzhou Project.

INFORMATION ON THE TARGET COMPANY

The Target Company is a company established in the PRC with limited liability on 29 April 2020 for the purpose of operating the Guangzhou Shopping Mall.

As at the date of this announcement, the equity interest in the Target Company are held as to 60% and 40% by the Vendor and Mr. Huang Liming* (黃利明), respectively. Upon completion of the Acquisition, the equity interest in the Target Company will be held as to 60% and 40% by the Purchaser and Mr. Huang Liming, respectively.

To the best of the Directors' knowledge, information and belief and having made all reasonable enquiries, Mr. Huang Liming is an Independent Third Party.

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Financial information of the Target Company

As the Target Company was newly established, no financial information for the past two financial years is available as at the date of this announcement.

Set out below is the key financial information of the Target Company extracted from its unaudited management accounts for the period from 1 May 2020 to 20 July 2020:

	From 1 May 2020
	to 20 July 2020
	(RMB)
Profit before taxation	577,956.8
Profit after taxation	433,467.6

The unaudited net asset value of the Target Company as at 20 July 2020 was approximately RMB130.4 million. The fair value of the Equity Interest as appraised by the Independent Valuer as at 20 July 2020 was approximately RMB78.4 million. Upon completion of the Acquisition, the Target Company will become an indirect non-wholly owned subsidiary of the Company and the financial information of the Target Company will be consolidated into the consolidated financial statements of the Group.

Information on the Operation Right

The Target Company has obtained the Operation Right through entering into the Cooperation Agreement, the principal terms of which are as follows:

Term:	18 years from 1 May 2020 to 30 April 2038
	The Target Company shall have the priority right
	of obtaining the Operation Right upon expiry of the
	Cooperation Agreement.
Cooperation on the	(a)	the Target Company shall be responsible for
Guangzhou Shopping Mall:		the overall operation and management of
		the Guangzhou Shopping Mall and the costs
		of operating the Guangzhou Shopping Mall
		(such as public utilities charges and repair and
		maintenance costs); and
	(b)	the Mall Developer shall not participate in the
		operation and management of the Guangzhou
		Shopping Mall and shall be entitled to the
		Distributable Profits in accordance with the
		agreed terms.

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Profit sharing:	T h e T a r g e t C o m p a n y s h a l l p a y 2 0 % o f t h e
	Distributable Profits on a monthly basis to a bank
	account designated by the Mall Developer starting
	from 1 November 2020.
Liabilities for breach of	If the Target Company fails to pay the Distributable
the Cooperation Agreement:	Profits to the Mall Developer in accordance with the
	agreed terms, the Target Company shall pay to the
	Mall Developer damages which is accrued on a daily
	basis and calculated with reference to the then bank
	loan interest rate.

BASIC INFORMATION ON THE GUANGZHOU SHOPPING MALL

The Guangzhou Shopping Mall, with leasable area of 88,070 square metres, is currently operating as a shopping mall mainly for hospitality supplies and secondarily for home furnishings. Based on information obtained by the Group, the occupancy rate of the Guangzhou Shopping Mall as at 20 July 2020 is approximately 47%. The tenants of the Guangzhou Shopping Mall mainly engaged in supplying hospitality supplies and household building materials, such as glass products, cloth grass, stainless steel products, coffee equipment, furniture and kitchen utensils, building ceramics and sanitary ware.

REASONS FOR AND BENEFITS OF THE ACQUISITION

As disclosed in the announcement of the Company dated 6 July 2020 in relation to, among others, the reallocation of the IPO Net Proceeds to the Guangzhou Project, the Directors believe that (i) the Guangzhou Project offers an excellent market opportunity for the Group to develop an unique high-end and situational hospitality supplies mall in Guangzhou taken into account, among others, the superior location and large size of the Guangzhou Shopping Mall; and (ii) the prospects of the Guangzhou Project are promising as the Group plans to increase the existing tenant occupancy rate (and thereby increasing rental income of the Group) by offering rent preferential policies, leveraging on its brand name and established relationships with China Hotel Supplies Association (中國酒店用品協會) and national brand manufacturers and providing value-added services. As such, the Directors consider that obtaining the Operation Right of the Guangzhou Shopping Mall, which is part and parcel of the Guangzhou Project, through the Acquisition, will enhance the market share and brand influence of the Group, and enable the Group to maintain its leading position in the hospitality supplies industry in the PRC.

Taking into consideration of the aforesaid, the Directors consider that the Acquisition is fair and reasonable, on normal commercial terms and are in the interests of the Company and the Shareholders as a whole.

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GENERAL INFORMATION ON THE PARTIES TO THE ACQUISITION

The Vendor

The Vendor is a company established in the PRC with limited liability and is principally engaged in wholesale of cleaning supplies, kitchen equipment and kitchen supplies, sanitary equipment, daily utensils and daily groceries, etc.

To the best knowledge, information and belief of the Directors having made all reasonable enquiries, each of the Vendor and its ultimate beneficial owner, being Ms. Li Hong* (李虹), is an Independent Third Party.

The Group and the Purchaser

The Company is incorporated in the Cayman Islands with limited liability, the shares of which are listed on the Main Board of the Stock Exchange. The Group is principally engaged in the operation of shopping malls for hospitality supplies and home supplies in the PRC.

The Purchaser is a company established in the PRC with limited liability and is an indirect wholly-owned subsidiary of the Company. It is principally engaged in the operation of shopping mall for hospitality supplies in Guangzhou, the PRC.

LISTING RULES IMPLICATIONS

As the highest applicable percentage ratios (as defined under the Listing Rules) in respect of the Acquisition is more than 5% but less than 25%, the Acquisition constitutes a discloseable transaction of the Company under the Listing Rules and is therefore subject to the notification and announcement requirements under Chapter 14 of the Listing Rules.

DEFINITIONS

In this announcement, unless the context otherwise requires, the following words and expressions shall have the meaning ascribed to them below:

"Acquisition"	the acquisition of the Equity Interest by the
	Purchaser pursuant to the Agreement
"Agreement"	the equity transfer agreement dated 24 July 2020
	entered into between the Purchaser and the Vendor
	in relation to the Acquisition
"Board"	the board of Directors
"Company"	Xinji Shaxi Group Co., Ltd (信基沙溪集團股份有
	限公司), a company incorporated in the Cayman
	Islands with limited liability whose shares are listed
	on the Main Board of the Stock Exchange (Stock
	Code: 3603)

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"Consideration"	RMB78.0 million, being the consideration of the
	Acquisition
"Cooperation Agreement"	the cooperative operation agreement dated 18 June
	2020 entered into among the Mall Developer, an
	Independent Third Party (as the previous entity
	operating the Guangzhou Shopping Mall) and the
	Target Company in respect of the operation and
	management of the Guangzhou Shopping Mall
"Director(s)"	the director(s) of the Company
"Distributable Profit(s)"	the net profit(s) arising from the operation and
	management of the Guangzhou Shopping Mall
	which is available for distribution after deducting all
	expenses including but not limited to management
	fee(s), public utilities charges and repair and
	maintenance cost(s) incurred by the Target Company
	in the operation of the Guangzhou Shopping Mall
"Equity Interest"	60% of equity interest in the Target Company
	and owned by the Vendor as at the date of this
	announcement
"Group"	the Company and its subsidiaries
"Guangzhou Project"	the project to develop the Guangzhou Shopping Mall
"Guangzhou Shopping Mall"	a shopping mall currently known as "Bohuang
	International Hospitality Supplies Procurement
	Centre*" (博皇國際酒店用品採購中心), which
	is located at No.2 Xiahua Road, Baiyun District,
	Guangzhou, the PRC
"Hong Kong"	the Hong Kong Special Administrative Region of
	the PRC
"Independent Third Party"	a third party independent of and not connected to the
	Company and its connected persons
"Independent Valuer"	A V I S T A V a l u a t i o n A d v i s o r y L i m i t e d , a n
	independent valuer engaged by the Group in respect
	of the Acquisition

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"IPO Net Proceeds"	the net proceeds received by the Company from its
	initial public offering on the Stock Exchange on
	8 November 2019, the intended use of which was
	further amended and disclosed in the announcement
	of the Company dated 6 July 2020
"Listing Rules"	the Rules Governing the Listing of Securities on the
	Stock Exchange
"Mall Developer"	Guangzhou Datong Real Estate Development
	L i m i t e d * ( 廣州大通房地產開發有限公司) , a
	company established in the PRC with limited
	liability and an Independent Third Party, being the
	developer of the Guangzhou Shopping Mall
"Operation Right"	the right of overall operation and management of the
	Guangzhou Shopping Mall
"PRC"	the People's Republic of China, which for the
	purpose of this announcement only, excludes Hong
	Kong, the Macau Special Administrative Region of
	the PRC and Taiwan
"Purchaser"	Guangzhou Shaxi International Hospitality Supplies
	City Company Limited* (廣州沙溪國際酒店用品
	城有限公司), a company established in the PRC
	with limited liability and an indirect wholly-owned
	subsidiary of the Company
"RMB"	Renminbi, the lawful currency of the PRC
"Shareholder(s)"	holder(s) of the share(s) in the Company
"Stock Exchange"	The Stock Exchange of Hong Kong Limited
"Target Company"	Guangzhou Zhicheng Commercial Operation
	Limited* (廣州智誠商業運營有限公司), a company
	established in the PRC with limited liability

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"Vendor"	Guangzhou Chaoying Trade Limited* (廣州朝盈
	貿易有限公司), a company established in the PRC
	with limited liability
"%"	per cent.
	By order of the Board
	Xinji Shaxi Group Co., Ltd
	Cheung Hon Chuen
	Chairman
Guangzhou, the PRC, 24 July 2020

As at the date of this announcement, the Board comprises Mr. Cheung Hon Chuen as chairman and executive Director; Mr. Mei Zuoting, Mr. Zhang Weixin and Ms. Jin Chunyan as executive Directors; Mr. Yu Xuecong, Mr. Wu Jianxun and Mr. Lin Lie as non-executive Directors; and Dr. Liu Eping, Mr. Chen Tusheng, Mr. Tan Michael Zhen Shan and Mr. Zheng Decheng as independent non-executive Directors.

• For identification purpose only

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