Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. Tsann Kuen (China) Enterprise Co., Ltd. Report for the First Quarter of 2018 April 2018 1 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. Section I Important Statements The Board of Directors, the Supervisory Committee as well as all directors, supervisors and senior management staff of Tsann Kuen (China) Enterprise Co., Ltd. (hereinafter referred to as “the Company”) warrant that this report is factual, accurate and complete without any false record, misleading statement or material omission. And they shall be jointly and severally liable for that. All directors attended the board session for reviewing this report. Mr. Pan Zhirong, company principal, and Mr. Feng Zhiqing, head of the accounting work & the accounting division (head of accounting) jointly declare that the financial statements carried in this report are factual, accurate and complete. This Report is prepared in both Chinese and English. Should there be any discrepancy between the two versions, the Chinese version shall prevail. 2 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. Section II Company Profile I Key financial results Whether the Company performed any retroactive adjustments to or restatement of its accounting data due to changes of accounting policies or correction of accounting errors □ Yes √ No Unit: RMB Item January-March 2018 January-March 2017 +/-% Operating revenues 319,364,654.64 454,378,577.36 -29.71 Net profit attributable to shareholders of the Company -21,878,234.79 6,800,900.65 -421.70 Net profit attributable to shareholders of the Company -27,785,628.47 5,620,130.15 -594.39 before exceptional profit and loss Net operating cash flow -8,842,593.74 3,169,455.03 -378.99 Basic earnings per share (RMB/share) -0.12 0.04 -400.00 Diluted earnings per share (RMB/share) -0.12 0.04 -400.00 Weighted average return on equity (%) -0.04 1.10 -1.14 Item 31 March 2018 31 December 2017 +/-% Total assets 1,625,804,755.14 1,778,825,153.51 -8.60 Net assets attributable to shareholders of the 586,422,273.11 610,814,327.77 -3.99 Company Total share capital up to the former trading date before the disclosure: Total share capital up to the former trading date before the disclosure (share) 185,391,680 Fully diluted EPS calculated by the newest share capital (RMB/share) -0.12 Exceptional profit and loss √ Applicable □ Not applicable Unit: RMB Item January-March 2018 Note Profit/loss on disposal of non-current assets (including offset amount of 327,372.40 asset impairment provisions) Tax rebates, reductions and exemptions due to approval beyond authority or the lack of official approval documents Government grants charged to the profit/loss for the Reporting Period 1,255,697.00 (except for the government grants closely related to the business of the 3 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. Item January-March 2018 Note Company and given at a fixed quota or amount in accordance with the State’s uniform standards) Capital occupation charges on non-financial enterprises that are charged to the profit/loss for the Reporting Period Profit due to the situation where investment costs for the Company to obtain subsidiaries, associates and joint ventures are lower than the enjoyable fair value of identifiable net assets of investees when making investments Profit/loss on non-monetary asset swap Profit/loss on entrusting others with investments or asset management Asset impairment provisions due to acts of God such as natural disasters Profit/loss on debt restructuring Restructuring costs in staff arrangement, integration, etc. Profit/loss on the part over the fair value due to transactions with distinctly unfair prices Reporting Period net profit/loss of subsidiaries acquired through business mergers under the same control from period-beginnings to merger dates Profit/loss on contingencies irrelevant to the Company’s normal business activities Mainly the investment income of sales of forward Profit/loss on fair value changes of transactional financial assets and foreign exchange contract, liabilities & investment profit on disposal of transactional financial income from changes in assets and liabilities as well as financial assets available for sale, except 7,426,504.29 fair value, and other for effectively hedging business related to normal business operations current assets income of the Company from wealth management products Impairment provision reversal for accounts receivable on which the impairment test is carried out separately Profit/loss on entrusted loans Profit/loss on fair value changes in investing properties of which the subsequent measurement is carried out adopting the fair value method Effect on Reporting Period profit/loss when a one-off adjustment is made to Reporting Period profit/Loss according to requirements of taxation, accounting and other relevant laws and regulations 4 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. Item January-March 2018 Note Custody fee income when entrusted with operations Non-operating income and expense other than the above 251,523.42 Other profit/loss that meet the definition of exceptional profit/loss Less: Income tax effects 1,388,031.68 Minority interests effects (after tax) 1,965,671.75 Total 5,907,393.68 Explanation of why the Company classified an item as exceptional profit/loss according to the definition in the Explanatory Announcement No. 1 on Information Disclosure for Companies Offering Their Securities to the Public—Exceptional Profit and Loss, or reclassified any exceptional profit/loss item given as an example in the said explanatory announcement to recurrent profit/loss □ Applicable √ Not applicable II Total number of shareholders at the period-end and shareholdings of top ten shareholders 1. Numbers of common shareholders and preference shareholders with resumed voting rights as well as shareholdings of top ten shareholders Unit: share Total number of common Total number of preference shareholders with 16,646 0 shareholders at the period-end resumed voting rights at the period-end Shareholdings of top ten shareholders Shareholdin Number of Pledged or frozen shares Nature of Number of Name of shareholder g percentage non-circulating Status of Number of shareholder shares held (%) shares held shares shares FORDCHEE DEVELOPMENT Foreign 29.10% 53,940,530 0 N/A 0 LIMITED corporation EUPA INDUSTRY Foreign 13.09% 24,268,840 0 N/A 0 CORPORATION LIMITED corporation GUOTAI JUNAN Foreign SECURITIES(HONGKONG) 4.96% 9,196,449 0 N/A 0 corporation LIMITED FILLMAN INVESTMENTS Foreign 2.49% 4,621,596 0 N/A 0 LIMITED corporation CHINA EVERBRIGHT Foreign 1.06% 1,972,523 0 N/A 0 SECURITIES (HONGKONG) CO., corporation 5 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. LTD. SHENWAN HONGYUAN Foreign 1.06% 1,956,752 0 N/A 0 SECURITIES (HK) CO., LTD. corporation Domestic CHEN YONGQUAN 1.02% 1,897,343 0 N/A 0 individual Foreign CHEN YONGQING 0.80% 1,488,949 0 N/A 0 individual Foreign CHEN LIJUAN 0.72% 1,330,434 0 N/A 0 individual Domestic DING XIAOLUN 0.59% 1,103,000 0 N/A 0 individual Shareholdings of top ten circulating shareholders Number of listed circulating Variety of shares Name of shareholder shares held Variety Number Domestically listed FORDCHEE DEVELOPMENT LIMITED 53,940,530 53,940,530 foreign shares EUPA INDUSTRY CORPORATION Domestically listed 24,268,840 24,268,840 LIMITED foreign shares GUOTAI JUNAN Domestically listed 9,196,449 9,196,449 SECURITIES(HONGKONG) LIMITED foreign shares Domestically listed FILLMAN INVESTMENTS LIMITED 4,621,596 4,621,596 foreign shares CHINA EVERBRIGHT SECURITIES Domestically listed 1,972,523 1,972,523 (HONGKONG) CO., LTD. foreign shares SHENWAN HONGYUAN SECURITIES Domestically listed 1,956,752 1,956,752 (HK) CO., LTD. foreign shares Domestically listed CHEN YONGQUAN 1,897,343 1,897,343 foreign shares Domestically listed CHEN YONGQING 1,488,949 1,488,949 foreign shares Domestically listed CHEN LIJUAN 1,330,434 1,330,434 foreign shares Domestically listed DING XIAOLUN 1,103,000 1,103,000 foreign shares The first, the second and the fourth largest shareholders are the Company’s corporate controlling shareholders. It is unknown to the Company whether there exists associated Related or acting-in-concert parties among relationship among the shareholders above or they are acting-in-concert entities as the above shareholders stipulated in the Administrative Measures on Information Disclosure of Changes in Shareholding of Listed Companies. 6 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. Did any of the top ten common shareholders or the top ten non-restricted common shareholders of the Company conduct any promissory repo during the Reporting Period? □ Yea √ No No such cases in the Reporting Period. 2. Total number of preference shareholders and shareholdings of the top ten of them □ Applicable √ Not applicable 7 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. Section III Significant Events I Changes in major accounting statement items and financial indicators for the Reporting Period, as well as reasons for such changes √ Applicable □ Not applicable Unit: RMB Item 31 March 2018 31 December 2017 +/-% Main reason for change Financial assets measured at fair value with fair value changes Evaluated gains on forward foreign exchange contracts in 5,449,550.00 3,925,850.00 38.81 included in the profit and loss for current period the Reporting Period Accounts receivable 166,051,743.35 270,052,420.89 -38.51 Decrease in operating revenues in current period Interest receivable 1,529,753.57 0.00 100.00 Interest receivable on term deposits in current period Other accounts receivable 23,508,562.57 35,318,724.60 -33.44 Decrease in export tax rebates in current period Construction in progress 4,119,696.54 2,059,623.18 100.02 Plant renovation awaiting acceptance Increase in amortized expenditure on plant renovation in Long-term deferred expenses 6,047,050.35 4,388,248.42 37.80 current period Short-term borrowings 15,564,600.41 10,832,951.89 43.68 Increase in bank borrowings in current period Notes payable 29,532,657.35 20,024,149.15 47.49 Increase in bank acceptance bills in current period Accounts received in advance 24,918,125.10 11,661,974.88 113.67 Increase in advances from customers in current period Taxes and fares payable 3,864,727.20 2,824,721.65 36.82 Increase in VAT payable in current period Increase in interest payable resulted from increased bank Interest payable 16,244.36 1,448.76 1,021.26 borrowings in current period Decrease in income from translation of Other comprehensive income 2,106,001.00 4,619,820.87 -54.41 foreign-currency-denominated financial statements in current period January-March Item January-March 2017 +/-% Main reason for change 2018 Operating revenues 319,364,654.64 454,378,577.36 -29.71 Decrease in operating revenues in current period Increase in unrealized, evaluated foreign exchange loss in Finance costs 11,665,399.89 1,738,365.97 571.06 current period Increase in reversed portion of allowance for doubtful Asset impairment loss -1,776,486.26 -1,181,070.83 50.41 accounts resulted from collection of payments from customers in current period No forward foreign exchange contracts in same period of Gains on fair value changes 1,523,700.00 0.00 100.00 last year Gains on delivered forward foreign exchange contracts in Investment income 5,902,804.29 213,698.63 2,662.21 current period Asset disposal income 327,372.40 172,996.23 89.24 Increase in income from sale of assets in current period Other income 1,255,697.00 516,075.00 143.32 Increase in government subsidies in current period Same period of last year seeing receipt of wind damage Non-operating revenue 281,354.88 1,000,457.93 -71.88 compensation and TKS Phase III receiving default compensation as lessee Non-operating expense 29,831.46 56,900.45 -47.57 Same period of last year seeing donations to students Corporate income tax 348,766.94 3,622,669.95 -90.37 Decrease in profit in current period Net operating cash flow -8,842,593.74 3,169,455.03 -378.99 Decrease in operating revenues in current period Same period of last year seeing a higher amount of Net financing cash flow -6,164,673.70 21,832,513.50 -128.24 borrowings 8 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. II Progress of significant events and analysis & explanations on their influence and solutions √ Applicable □ Not applicable (I) Contingencies (1) As MTN Products, Inc. / Water Solutions (Hong Kong) Ltd. ("MTN / WSL") did not pay the relevant payment in time and fulfill the order according to the contract, the subsidiary of the Company, TsannKuen (Zhangzhou) Enterprise Co., Ltd. submitted the indictment to the SUPERIOR COURT OF CALIFORNIA COUNTY OF LOS ANGELES on 23 November2016to sue MTN / WSL for payment of USD707,522.92 and USD1,402,940 for reserve losses, totaling USD2,110,462.92. As of the reporting date, the case is still pending. (2) As Philips Lighting (China) Investment Co., Ltd. ("Philips Lighting") did not pay the relevant payment in accordance with the relevant agreement, the Company's subsidiary TsannKuen (Zhangzhou) Enterprise Co., Ltd. (hereafter, TKL), submitted the indictment on 23 November 2016 to Longhai City People's Court, requesting the payment of CNY2,499,658.4. On 12 January 2018, TKL received the first instance judgment from the court that Philips should pay CNY 423,345.63 and overdue interest to TKL. TKL has filed an appeal. (3) TSANN KUEN (CHINA) ENTERPRISE CO., LTD. (therefore "TKC") and Tian Yuan (Xiamen) Asset Management Co., Ltd. (therefore "Tianyuan") signed the "Land Lease Contract (Northwest Corner)" and “Housing Lease Contract (North Building) "on 26 June 2013, signed the "LandLease Contract (southeast corner) "," Housing Lease Contract (Huarong Road 23) "(part of the house) on 29 July 2013. TKCleased the part of the land and house on Xinglong Road 88 to Tianyuan for business activities, part of the site and housing leased to Tian Yuan Company for business activities. As Tianyuan did not pay the rent in accordance with the contract in time and unauthorized use of the leased property, TKC filed a lawsuit in Xiamen Huli District People's Court to pay the relevant rent. On 29 December 2015, People's Court of Huli District of Xiamen City ruled that the four cases will be merged. On 30 May 2017 People's Court of Huli District of Xiamen City made a ruling of first instance: It ruled that Tianyuan Company paid liquidated damages of overdue payment of the Company. Tianyuan Company filed an appeal. As of the reporting date, the case is still pending. (4) The subsidiary of the Company - TsannKuen (Zhangzhou) Enterprise Co., Ltd. (hereafter, TKL) signed the < Product Supply Agreement> with Xinda Electro mechanics Co., Ltd. (hereafter, Xinda) on 20 July 2009. The validity of the contract is from 1 July 2009 to 30 June 2012. Furthermore, on 1 January 2011, they signed theand relevant , and other agreements. According to those agreements, TKL should purchase products from Xinda. TKL rejected to pay for the purchase and terminated those agreements due to the poor quality products from Xinda. On 23 December 2011, Xinda lodged petition for civil litigation to the Intermediate People’s Court of Zhangzhou for the order of Intermediate People’s Court of Zhangzhou that TKL pay for purchase from Xinda amounting to USD 479,089.06 (CNY 3,071,535.78) immediately together with the liquidated damages for delay payment and resume performance of the agreement (the value of the unperformed agreement amounting to USD 189,423.25). On 8 January 2012, TKL lodged counterclaim to the Court claiming that due to unsatisfactory quality of goods supplied by Xinda, 9 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. goods supplied by TKL had been returned from clients and orders cancelled, resulting in substantial financial loss and reputation damage suffered by the TKL. TKL therefore petitioned for the court order for relief of agreement and that Xinda shall pay to TKL liquidated damage amounting to CNY 1 million together with financial loss amounting to CNY 7.6216 million. Intermediate People’s Court of Zhangzhou made the judgment on 15 August 2013 as follow: a. TKL should pay goods payments amount USD479,089.06 to plaintiff Xinda within 15 days from the date on which the judgment becomes effective, equivalent to CNY3,071,535.78. b. Plaintiff Xinda and the third party BoLuo Lianyuan industry Co., Ltd. (hereafter Lianyuan) should jointly pay the laquidated damage for CNY1,233,399.70 to TKL within 15 days from the date on which the judgment becomes effective. c. Unperformed 10 orders entered into by TKL, Xinda and Lianyuan are declared cancelled. d. Reject other claims partitioned by the plaintiff Xinda. e. Reject other claims partitioned by TKL. After the first judgment, both parties appealed against the judgment. Higher People's Court of Fujian Province made the final judgment on 15 December 2016 with the following verdict:: a. Verdict c,d,e from the first judgment remain unchanged. b. Verdict a from the first judgment changed as: TKL should pay goods payments amount CNY2,375,547.92 Xinda within 15 days from the date on which the judgment becomes effective. c. Verdict b from the first judgment changed as: Xinda and BoLuo Lianyuan industry Co., Ltd. Should jointly pay TKL the laquidated damage for CNY537,411.84 within 15 days from the date on which the judgement becomes effective. The flawed motor supplied by Xinda and Lianyuan totalled 103,638, 23,035 of them was picked out in (2012) Zhangminchuzi Case No.8, the Company conducted another notary pick out on the remaining flawed motors during the second instance, totalled 80,603. TKL lodged petition for civil litigation on 18 January 2017, based on the judgments from (2012) Zhangminchuzi Case No.8, TKL asks for the order of that Xinda and Lianyuan return the corresponding goods payments of the 80,603 flawed motors, along with compensation for other losses caused by this. The case is still pending. (II) Progress of capital increase from TKL to its sub-subsidiary Tsannkuen Edge Intelligence Resolution on the 1st Special Meeting of Board of Directors for 2018 convened on February 1, 2018 by the Company approved the capital increase from controlling subsidiary TKL to its sub-subsidiary Tsannkuen Edge Intelligence. For details, see Announcement on the Capital Increase from Controlling Subsidiary TKL to its Sub-subsidiary Tsannkuen Edge Intelligence published on Securities Times and Hong Kong Ta Kung Pao, and http://www.cninfo.com.cn on February 2, 2018. (III) Progress of changes in usage of original part of capital increase of its sub-subsidiary Pt.Star Comgistic Indonesia by TKL Resolution on the 1st Special Meeting of Board of Directors for 2018 convened on February 1, 2018 by the Company approved the Usage of original part of capital increase of its sub-subsidiary Pt.Star Comgistic Indonesia (referred to as “SCI”) by the changes of controlling subsidiary. For details, see Announcement on the Usage of Original Part of Capital Increase of its Sub-subsidiary SCI by 10 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. the Changes of Controlling Subsidiary TKL published on Securities Times and Hong Kong Ta Kung Pao, and http://www.cninfo.com.cn on February 2, 2018. It is in the process of approval now. (IV) Establishing Subsidiary The Controlling Subsidiary TKL planned to established wholly-owned subsidiary TsannKuen (Zhangzhou) Investment Co., Ltd. For details, see Announcement on the Planning for Establishment of Wholly-owned Subsidiary by Controlling Subsidiary TKL published on Securities Times and Hong Kong Ta Kung Pao, and http://www.cninfo.com.cn on April 28, 2018. Website where the relevant current Overview of significant event Disclosure date announcement is disclosed Announcement on the Capital Increase from Controlling Subsidiary TKL to its Sub-subsidiary Tsannkuen Edge 2 February 2018 www.cninfo.com.cn Intelligence Announcement on the Usage of Original Part of Capital Increase of its Sub-subsidiary SCI by the Changes of 2 February 2018 www.cninfo.com.cn Controlling Subsidiary TKL Announcement on the Planning for Establishment of 28 April 2018 www.cninfo.com.cn Wholly-owned Subsidiary by Controlling Subsidiary TKL III Commitments of the Company’s actual controller, shareholders, related parties and acquirer, as well as the Company and other commitment makers, unfulfilled in this reporting period √ Applicable □ Not applicable Time of Period Commitmen Commitm making of Commitment Contents Fulfillment t maker ent type commitme comm nt itment Commitment on share reform Commitment in the acquisition report or the report on equity changes Commitments made upon the assets replacement Commitments made upon first issuance or refinance Commitment on equity incentive Based on the confidence on the The Company’s continuous and stable development of the stocks resumed Company, it committed to increase the trading on Commitm shareholding if the Company’s stock price December 31, 2012, FILLMAN Other commitments ent on lower than HKD2.40 per share after the Longs but the Company’s INVESTME December made to minority shareholdi implementation of the shares contraction tandin stock price hasn’t NTS 28, 2012 shareholders ng and trading resumption, and it would g met the condition LIMITED increase increase no more than 2% shares (i.e. for shareholding 3.7078 million shares) of the total shares increase since the issued by the Company within one year date of trading since the date of initial shareholding resumption, 11 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. Time of Period Commitmen Commitm making of Commitment Contents Fulfillment t maker ent type commitme comm nt itment increase. If the plan on increasing holding FILLMAN 2% shares of the total shares is Investment Limited completed, if the stock price hasn’t hasn’t implemented reached the target price, it will perform the shareholding relevant approval procedures, and increase plan. propose to CSRC on continuous implementation of shareholding increase by exemption of offering. Executed on time or not Yes No such cases in the reporting period. IV Operating result forecast for January-June 2018 Forecast of a possible deficit or considerable YoY change in the accumulative net profit made during the period from the beginning of the year to the end of the next reporting period, as well as explanation of why: □Applicable √ Not applicable V Securities investments □ Applicable √ Not applicable No such cases in the Reporting Period. 12 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. VI Investments in derivative financial instruments √ Applicable □ Not applicable Unit: RMB’0,000 Ratio of Investment investment Type of amount at Pursed in Investment amount at the Related-party investment in Initial Sold in this Amount Actual amount end of the period profit/loss Operating Commencement the this provided Relation transaction derivative investment Termination date beginning reporting reporting at the end of to the Company's for the party date period for or not financial amount of the period impairment the period net asset at the period instruments period end of the period (%) Forward Bank Non-related No 36,551.81 January 1, 2018 March 31, 2018 18,662.79 11,561.68 19,656.78 16,895.03 0.29 797.45 forex Total 36,551.81 18,662.79 11,561.68 19,656.78 16,895.03 0.29 797.45 Source of investment funds All from the Company's own funds Lawsuits No lawsuits Disclosure date of the announcement about the 2013-03-12 board’s consent for the investment Disclosure date of the announcement about the 2013-05-18 general meeting’s consent for the investment 1. Analysis on risks from holding of derivative products: gains or losses from difference between contracted exchange rate and market exchange rate on value date. 2. Control measures: (1) Principle: The purpose of the financial derivative operation is to avoid risks. The Company shall not conduct transactional operation for other purposes than risk avoidance. The Company shall not conduct complex derivative trading above the actual operation needs and shall not speculate in derivative trading with hedging as an excuse. The overall contractual amount for risk avoidance of the Company shall not exceed the summation of the net risk exposure of the existing assets and liabilities and the net risk exposure of assets and liabilities arising from the operation of the Risk analysis and risk control measures for positions Company in the coming year. held in derivatives in this reporting period (including (2) Staff requirements: Personnel taking part in the investment shall all fully understand the risks of derivative investment and strictly execute the but not limited to market risk, liquidity risk, credit business operation and risk management mechanisms for derivative investment. risk, operational risk, legal risk, etc.) (3) Operation standardization: Before making a derivative investment, the Company shall rationally equip itself with professional personnel for investment decision-making, business operation, risk control, etc. It shall also inquire and compare among various markets and products. Besides, it shall strictly control the variety and size of derivative investment and try to choose derivative trading on exchange as much as possible. (4) Periodic evaluation: Derivative investments shall be evaluated at least twice for a month and the evaluation report shall be sent to a high-ranking executive authorized by the Board of Directors. And a derivative investment report shall be sent to the Board of Directors annually. The Company and its subsidiaries only need to submit to the Board of Directors of the subsidiaries. (5) Loss limit: The investment loss on a single derivative and all the investment loss shall not exceed 20% of the total investment amount. (6) Audit system: The audit department audits derivative product trading periodically and submits audit reports to relevant units. 13 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. (1) Gains on delivered derivatives in the Reporting Period were RMB 6.4508 million, and assessed gains on those undelivered were RMB 1.5237 Changes in market price or fair value of derivatives million, of which, the rotation of forwards assessed gains on undelivered derivatives in the last year was RMB 3.9259 million. invested in this reporting period (specific methods used and relevant assumption and parameter settings (2) The former contracted bank provided monthly sheets of estimated exchange rates for the undue contracted forward exchanges on the last trading shall be disclosed for analysis of fair value of day of the month. derivatives) (3) The profit and loss from fair value changes of the derivative was confirmed according to the difference between the contracted amount undue by the month*the estimated exchange rate and the currency amount when bought in. Significant changes in the Company’s accounting policies and specific accounting principles for No significant changes derivatives in this reporting period as compared to the prior period Special opinions expressed by independent The Company has carried out a strict internal assessment for the financial derivative business and has established a corresponding supervision directors concerning the Company’s derivatives mechanism. We are of the opinion that the financial derivative business conducted by the Company is fairly necessary in its routine operation and is investment and risk control in compliance with relevant laws and regulations, with the risks controllable. 14 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. VII Visits paid to the Company in the Reporting Period for purposes of research, communication, interview, etc. √ Applicable □ Not applicable Date of visit Way of visit Type of visitor Index to main inquiry information Inquired of the operation of the 2018-01-08 Telephone communication Individual Company Inquired of the operation of the 2018-01-16 Telephone communication Individual Company Inquired of the forecast loss of the 2018-03-20 Telephone communication Individual annual report and first quarter report , and the reform of B-share Inquired of the operation of the 2018-03-20 Telephone communication Individual Company Inquired of the operation of the 2018-03-22 Telephone communication Individual Company, and the reform of B-share VIII Illegal provision of guarantees for external parties □ Applicable √ Not applicable IX Occupation of the Company’s funds by the controlling shareholder or its related parties for non-operating purposes □ Applicable √ Not applicable 15 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. Section IV Financial Statements I Financial statements 1. Consolidated balance sheet Prepared by TSANN KUEN (CHINA) ENTERPRISE CO., LTD. Unit: RMB Item Closing amount Opening amount Current assets: Monetary funds 535,842,553.36 564,381,960.88 Settlement reserves Lendings to banks and other financial institutions Financial assets measured at fair value with fair value changes 5,449,550.00 3,925,850.00 included in the profit and loss for the Reporting Period Derivative financial assets Notes receivable Accounts receivable 166,051,743.35 270,052,420.89 Accounts paid in advance 13,061,982.14 10,939,777.79 Premiums receivable Reinsurance premiums receivable Receivable reinsurance contract reserves Interest receivable 1,529,753.57 Dividends receivable Other accounts receivable 23,508,562.57 35,318,724.60 Financial assets purchased under agreement to resell Inventories 188,071,614.03 195,711,505.29 Assets held for sale Non-current assets due within one year Other current assets 406,003,086.95 413,119,671.14 Total current assets 1,339,518,845.97 1,493,449,910.59 Non-current assets: Loans and advances to customers Available-for-sale financial assets 40,000.00 40,000.00 Held-to-maturity investments Long-term accounts receivable Long-term equity investments Investment property 31,268,117.72 32,125,408.51 Fixed assets 169,048,296.12 173,361,312.05 Construction in progress 4,119,696.54 2,059,623.18 16 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. Item Closing amount Opening amount Engineering materials Disposal of fixed assets Productive living assets Oil-gas assets Intangible assets 28,303,564.06 29,501,389.01 R&D expense Goodwill Long-term deferred expenses 6,047,050.35 4,388,248.42 Deferred income tax assets 22,564,665.12 22,682,483.17 Other non-current assets 24,894,519.26 21,216,778.58 Total non-current assets 286,285,909.17 285,375,242.92 Total assets 1,625,804,755.14 1,778,825,153.51 Current liabilities: Short-term borrowings 15,564,600.41 10,832,951.89 Borrowings from the Central Bank Money deposits accepted and inter-bank deposits Loans from banks and other financial institutions Financial liabilities measured at fair value with fair value changes included in the profit and loss for the Reporting Period Derivative financial liabilities Notes payable 29,532,657.35 20,024,149.15 Accounts payable 452,358,259.77 583,540,229.36 Accounts received in advance 24,918,125.10 11,661,974.88 Financial assets sold for repurchase Handling charges and commissions payable Payroll payable 34,137,337.87 44,803,501.77 Taxes and fares payable 3,864,727.20 2,824,721.65 Interest payable 16,244.36 1,448.76 Dividends payable Other accounts payable 55,519,017.68 51,138,758.51 Reinsurance premiums payable Insurance contract reserves Payables for acting trading of securities Payables for acting underwriting of securities Liabilities held for sale Non-current liabilities due within one year Other current liabilities Total current liabilities 615,910,969.74 724,827,735.97 Non-current liabilities: Long-term borrowings 17 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. Item Closing amount Opening amount Bonds payable Of which: Preference shares Perpetual bonds Long-term accounts payable Long-term payroll payable 169,856.55 156,540.09 Special payables 109,137,778.28 109,137,778.28 Estimated liabilities Deferred income Deferred income tax liabilities 1,739,945.92 1,431,505.08 Other non-current liabilities Total non-current liabilities 111,047,580.75 110,725,823.45 Total liabilities 726,958,550.49 835,553,559.42 Owners’ equity: Share capital 185,391,680.00 185,391,680.00 Other equity instruments Of which: Preference shares Perpetual bonds Capital reserves 296,808,965.79 296,808,965.79 Less: Treasury stock Other composite income 2,106,001.00 4,619,820.87 Special reserves Surplus reserves 33,888,636.90 33,888,636.90 Provisions for general risks Retained profit 68,226,989.42 90,105,224.21 Total equity attributable to owners of the Company 586,422,273.11 610,814,327.77 Minority interests 312,423,931.54 332,457,266.32 Total owners’ equity 898,846,204.65 943,271,594.09 Total liabilities and owners’ equity 1,625,804,755.14 1,778,825,153.51 Legal representative: Pan Zhirong Chief of the accounting work: Feng Zhiqing Chief of the accounting organ: Feng Zhiqing 18 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. 2. Balance sheet of the Company Unit: RMB Item Closing balance Opening balance Current Assets: Monetary funds 22,156,283.70 5,342,389.95 Financial assets measured at fair value with fair value changes included in the profit and loss for the Reporting Period Derivative financial assets Notes receivable Accounts receivable 14,528,037.12 20,741,059.08 Accounts paid in advance 215,712.00 443,847.00 Interest receivable Dividends receivable Other accounts receivable 287,598.90 472,467.07 Inventories 12,870,257.68 16,130,234.05 Assets held for sale Non-current assets due within one year Other current assets 1,023,556.88 Total current assets 50,057,889.40 44,153,554.03 Non-current assets: Available-for-sale financial assets 40,000.00 40,000.00 Held-to-maturity investments Long-term accounts receivable Long-term equity investments 922,914,701.56 922,914,701.56 Investment property 31,818,440.40 32,598,504.60 Fixed assets 1,470,769.30 1,568,125.72 Construction in progress Engineering materials Disposal of fixed assets Productive living assets Oil-gas assets Intangible assets 49,499.99 56,249.99 R&D expense Goodwill Long-term deferred expenses 8,799.82 18,932.97 Deferred income tax assets 10,475,642.18 10,492,468.50 Other non-current assets Total non-current assets 966,777,853.25 967,688,983.34 Total assets 1,016,835,742.65 1,011,842,537.37 Current liabilities: Short-term borrowings Financial liabilities measured at fair value with fair value changes included in the profit and loss for the Reporting Period Derivative financial liabilities Notes payable 19 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. Item Closing balance Opening balance Accounts payable 46,405,172.40 71,274,018.34 Accounts received in advance 3,828,526.06 1,664,602.93 Payroll payable 3,678,923.53 2,981,548.19 Taxes and fares payable 963,673.38 894,510.08 Interest payable Dividends payable Other accounts payable 280,839,107.52 288,656,915.61 Liabilities held for sale Non-current liabilities due within one year Other current liabilities Total current liabilities 335,715,402.89 365,471,595.15 Non-current liabilities: Long-term borrowings Bonds payable Of which: Preference shares Perpetual bonds Long-term payables Long-term payroll payables Special payables Estimated liabilities Deferred income Deferred income tax liabilities Other non-current liabilities Total non-current liabilities Total liabilities 335,715,402.89 365,471,595.15 Owners’ equity: Share capital 185,391,680.00 185,391,680.00 Other equity instruments Of which: Preference shares Perpetual bonds Capital reserves 271,490,289.82 271,490,289.82 Less: Treasury stock Other composite income Special reserves Surplus reserves 33,888,636.90 33,888,636.90 Retained profit 190,349,733.04 155,600,335.50 Total owners’ equity 681,120,339.76 646,370,942.22 Total liabilities and owners’ equity 1,016,835,742.65 1,011,842,537.37 Legal representative: Pan Zhirong Chief of the accounting work: Feng Zhiqing Chief of the accounting organ: Feng Zhiqing 20 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. 3. Consolidated income statement Unit: RMB Item January-March 2018 January-March 2017 1. Operating revenues 319,364,654.64 454,378,577.36 Including: Sales revenue 319,364,654.64 454,378,577.36 Interest revenue Premium revenue Handling charge and commission revenue 2. Total operating costs 358,168,095.81 444,388,401.44 Including: Cost of sales 293,239,451.95 387,349,957.02 Interest expenses Handling charge and commission expenses Surrenders Net claims paid Net amount provided as insurance contract reserves Expenditure on policy dividends Reinsurance premium Taxes and surtaxes 3,143,568.77 3,337,174.29 Selling expenses 13,638,807.57 17,801,039.57 Administrative expenses 38,257,353.89 35,342,935.42 Finance costs 11,665,399.89 1,738,365.97 Asset impairment loss -1,776,486.26 -1,181,070.83 Add: Profit/loss on fair value changes (“-” means loss) 1,523,700.00 Profit/loss on investment (“-” means loss) 5,902,804.29 213,698.63 Including: Share of profit in associates and joint ventures Foreign exchange profit (“-” means loss) Income arising from disposal of assets (“-” means loss) 327,372.40 172,996.23 Other income 1,255,697.00 516,075.00 3. Operating profit (“-” means loss) -29,793,867.48 10,892,945.78 Add: Non-operating revenue 281,354.88 1,000,457.93 Including: Profit on damage and scrapping of non-current assets Less: Non-operating expense 29,831.46 56,900.45 Including: Loss on damage and scrapping of non-current assets 5,199.46 6,900.45 4. Total profit (“-” means loss) -29,542,344.06 11,836,503.26 Less: Corporate income tax 348,766.94 3,622,669.95 5. Net profit (“-” means loss) -29,891,111.00 8,213,833.31 5.1 Net profit from going concern (“-” means net loss) -29,891,111.00 8,213,833.31 5.2 Net profit from discontinued operation (“-” means net loss) Net profit attributable to owners of the Company -21,878,234.79 6,800,900.65 21 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. Item January-March 2018 January-March 2017 Minority shareholders’ income -8,012,876.21 1,412,932.66 6. After-tax net amount of other composite income -3,351,759.83 211,819.25 After-tax net amount of other composite income attributable to owners of the -2,513,819.87 158,864.44 Company 6.1 Other composite income that will not be reclassified into profit and loss 6.1.1 Changes in net liabilities or assets with a defined benefit plan upon re-measurement 6.1.2 Enjoyable share in other comprehensive income in investees that cannot be reclassified into profit and loss under the equity method 6.2 Other composite income that will be reclassified into profit and loss -2,513,819.87 158,864.44 6.2.1 Enjoyable share in other composite income in investees that will be reclassified into profit and loss under the equity method 6.2.2 Profit and loss on fair value changes of available-for-sale financial assets 6.2.3 Profit and loss on reclassifying held-to-maturity investments into available-for-sale financial assets 6.2.4 Effective hedging profit and loss on cash flow 6.2.5 Foreign-currency financial statement translation difference -2,513,819.87 158,864.44 6.2.6 Other After-tax net amount of other composite income attributable to minority -837,939.96 52,954.81 shareholders 7. Total composite income -33,242,870.83 8,425,652.56 Attributable to owners of the Company -24,392,054.66 6,959,765.09 Attributable to minority shareholders -8,850,816.17 1,465,887.47 8. Earnings per share 8.1 Basic earnings per share -0.12 0.04 8.2 Diluted earnings per share -0.12 0.04 Where business mergers under the same control occurred in the Reporting Period, net profit achieved by the merged parties before the business mergers was RMB 0.00, with the corresponding amount for the same period of last year being RMB0.00. Legal representative: Pan Zhirong Chief of the accounting work: Feng Zhiqing Chief of the accounting organ: Feng Zhiqing 22 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. 4. Income statement of the Company Unit: RMB January-March January-March Item 2018 2017 1. Operating revenues 25,078,057.17 21,002,892.18 Less: Operating costs 20,332,971.17 15,142,772.24 Taxes and surtaxes 605,071.88 729,157.30 Selling expenses 1,754,858.63 2,156,628.15 Administrative expenses 1,433,363.89 2,943,317.20 Financial costs -1,065.19 -15,902.72 Asset impairment loss -251,973.27 -1,150,303.33 Add: profit/loss on fair value changes (“-” means loss) Profit/loss on investment (“-” means loss) 33,547,555.83 30,310,250.78 Including: Income from investment on associates and joint ventures Income arising from disposal of assets (“-” means loss) Other income 2. Operating profit (“-” means loss) 34,752,385.89 31,507,474.12 Add: Non-operating revenue 18,469.97 41,647.63 Including: Profit on damage and scrapping of non-current assets Less: Non-operating expense 4,632.00 Including: Loss on damage and scrapping of non-current assets 3. Total profit (“-” means loss) 34,766,223.86 31,549,121.75 Less: Corporate income tax 16,826.32 266,215.77 4. Net profit (“-” means loss) 34,749,397.54 31,282,905.98 4.1 Net profit from going concern (“-” means net loss) 34,749,397.54 31,282,905.98 4.2 Net profit from discontinued operation (“-” means net loss) 5. After-tax net amount of other composite income 5.1 Other composite income that will not be reclassified into profit and loss 5.1.1 Changes in net liabilities or assets with a defined benefit plan upon re-measurement 5.1.2 Enjoyable share in other composite income in investees that cannot be reclassified into profit and loss under the equity method 5.2 Other composite income that will be reclassified into profit and loss 5.2.1 Enjoyable share in other composite income in investees that will be reclassified into profit and loss under the equity method 5.2.2 Profit and loss on fair value changes of available-for-sale financial assets 5.2.3 Profit and loss on reclassifying held-to-maturity investments into available-for-sale financial assets 5.2.4 Effective hedging profit and loss on cash flow 5.2.5 Foreign-currency financial statement translation difference 5.2.6 Other 6. Total composite income 34,749,397.54 31,282,905.98 Legal representative: Pan Zhirong Chief of the accounting work: Feng Zhiqing Chief of the accounting organ: Feng Zhiqing 23 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. 5. Consolidated cash flow statement Unit: RMB January-March January-March Item 2018 2017 1. Operating cash flow: Cash received from sale of commodities and rendering of service 421,714,037.46 491,298,063.61 Net increase in money deposits from customers and inter-bank placements Net increase in loans from the Central Bank Net increase in funds borrowed from other financial institutions Cash received from premium of original insurance contracts Net cash received from reinsurance business Net increase in deposits of policy holders and investment fund Net increase in disposal of financial assets measured at fair value with fair value changes included in the profit and loss for the Reporting Period Cash received from interest, handling charges and commissions Net increase in loans from banks and other financial institutions Net increase in funds in repurchase business Tax refunds received 54,253,887.28 50,899,572.11 Other operating cash received 8,917,968.49 19,055,478.67 Subtotal of operating cash inflow 484,885,893.23 561,253,114.39 Cash paid for goods and services 388,927,995.77 421,536,510.47 Net increase in loans and advances to customers Net increase in funds deposited in the Central Bank and inter-bank placements Cash for paying claims of original insurance contracts Cash for paying interest, handling charges and commissions Cash for paying policy dividends Cash paid to and for employees 66,421,877.12 71,049,721.91 Taxes and fares paid 3,866,015.63 16,287,373.30 Other cash payment relating to operating activities 34,512,598.45 49,210,053.68 Subtotal of operating cash outflow 493,728,486.97 558,083,659.36 Net operating cash flow -8,842,593.74 3,169,455.03 2. Investment cash flow: Cash received from retraction of investments 46,450,800.00 32,729,887.43 Cash received from return on investments 1,396,650.10 229,280.83 Net cash received from disposal of fixed assets, intangible assets and other long-term 287,716.15 1,882,588.00 assets Net cash received from disposal of subsidiaries or other business units Other cash received relating to investment activities 62,300,000.00 9,819,374.14 Subtotal of investment cash inflow 110,435,166.25 44,661,130.40 Cash paid to acquire fixed assets, intangible assets and other long-term assets 13,979,813.74 18,968,169.49 Cash paid for investment 40,000,000.00 192,047,415.57 24 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. January-March January-March Item 2018 2017 Net increase in pledged loans Net cash paid to acquire subsidiaries and other business units Other cash payments relating to investment activities 358,264,600.00 134,062,797.79 Subtotal of investment cash outflow 412,244,413.74 345,078,382.85 Net investment cash flow -301,809,247.49 -300,417,252.45 3. Financing cash flow: Cash received from capital contributions Including: Cash received from minority shareholder investments by subsidiaries Cash received as borrowings 5,108,330.63 25,036,648.00 Cash received from issuance of bonds Other financing cash received 6,899,282.43 Subtotal of financing cash inflow 5,108,330.63 31,935,930.43 Repayment of borrowings Cash paid for interest expenses and distribution of dividends or profit 11,273,004.33 10,103,416.93 Including: dividends or profit paid by subsidiaries to minority shareholders 11,182,518.61 10,103,416.93 Other cash payments relating to financing activities Sub-total of financing cash outflow 11,273,004.33 10,103,416.93 Net financing cash flow -6,164,673.70 21,832,513.50 4. Effect of foreign exchange rate changes on cash and cash equivalents -7,687,492.59 -2,285,644.08 5. Net increase in cash and cash equivalents -324,504,007.52 -277,700,928.00 Add: Opening balance of cash and cash equivalents 564,381,960.88 738,195,729.53 6. Closing balance of cash and cash equivalents 239,877,953.36 460,494,801.53 Legal representative: Pan Zhirong Chief of the accounting work: Feng Zhiqing Chief of the accounting organ: Feng Zhiqing 25 Report for the First Quarter of 2018 of Tsann Kuen (China) Enterprise Co., Ltd. 6. Cash flow statement of the Company Unit: RMB Item January-March 2018 January-March 2017 1. Operating cash flow: Cash received from sale of commodities and rendering of service 22,858,389.74 35,261,061.42 Tax refunds received Other operating cash received 10,659,931.71 14,251,817.18 Subtotal of operating cash inflow 33,518,321.45 49,512,878.60 Cash paid for goods and services 35,107,058.89 38,935,020.23 Cash paid to and for employees 704,419.01 4,595,972.16 Taxes and fares paid 1,021,402.40 1,423,553.61 Other operating cash payments 13,419,027.17 9,177,813.37 Subtotal of operating cash outflow 50,251,907.47 54,132,359.37 Net operating cash flow -16,733,586.02 -4,619,480.77 2. Investment cash flow: Cash received from retraction of investments Cash received from return on investments 33,547,555.83 30,310,250.78 Net cash received from disposal of fixed assets, intangible assets and other long-term assets Net cash received from disposal of subsidiaries or other business units Other cash received relating to investment activities Subtotal of investment cash inflow 33,547,555.83 30,310,250.78 Cash paid to acquire fixed assets, intangible assets and other long-term assets 22,950.00 Cash paid for investment Net cash paid to acquire subsidiaries and other business units Other investment cash payments Subtotal of investment cash outflow 0.00 22,950.00 Net investment cash flow 33,547,555.83 30,287,300.78 3. Financing cash flow: Cash received from capital contributions Cash received as borrowings Cash received from issuance of bonds Other financing cash received Subtotal of financing cash inflow Repayment of borrowings Cash paid for interest expenses and distribution of dividends or profit Other cash payments relating to financing activities Sub-total of financing cash outflow Net financing cash flow 4. Effect of foreign exchange rate changes on cash and cash equivalents -76.06 21.99 5. Net increase in cash and cash equivalents 16,813,893.75 25,667,842.00 Add: Opening balance of cash and cash equivalents 5,342,389.95 6,668,219.24 6. Closing balance of cash and cash equivalents 22,156,283.70 32,336,061.24 Legal representative: Pan Zhirong Chief of the accounting work: Feng Zhiqing Chief of the accounting organ: Feng Zhiqing II Auditor’s report Is this Report audited? □ Yes √ No This Report is not audited. 26