information memorandum - dcsx.cwthis information memorandum for listing has been approved by...
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Dutch Caribbean Securities Exchange Listing Advisor
荷兰加勒证券交易所上市保荐机构
Information Memorandum For the Listing of Kanghong International Trade Co Ltd
Incorporated under the laws of BVI Business Companies Act 2004 (No 16 of 2004)
on May 2nd 2018 with BVI company number 1977961
wwwchinacccgcom
1
Table of Contents
1 Summary of Certain Defined Terms 2
2 Important Information and Notices 3
3 Issuer and the List of Institutions Related to the Listing 6
4 Company Overview 7
41 Business Structure 7
42 About the Company 8
43 Companyrsquos Operation 8
5 Terms of the Issuance and Investment Overview 10
6 Business Overview 12
61 Executive Summary 12
62 Products and Services 13
63 Marketing Strategy 15
64 Development Strategy 17
65 Business Partners 19
66 Permit and License 20
67 Related Parties 22
68 Main Competitors 29
7 Company Advantages and Investment Highlights 31
71 Strong Market Demand 31
72 Wide Product Offerings 31
73 Great Brand Reputation 31
74 Promising Expansion Plan 31
8 Directors and Senior Management 32
9 Financial Statements 36
10 Material Contract and Agreement 78
11 Risk Factors and Litigation 79
2
1 Summary of Certain Defined Terms
ldquoThe Company Kanghongrdquo
Kanghong International Trade Co Ltd (BVI Company Number 1977961) a company incorporated under the
laws of the British Virgin Islands and having its registered address at the offices of Vistra Corporate Services
Centre Wickhams Cay II Road Town Tortola VG1110 British Virgin Islands is the holding company that
indirectly owns 100 of the outstanding shares of Shidian Kanghong Agricultural Technology Development Co
Ltd
ldquoKHrdquo
Shidian Kanghong Agricultural Technology Development Co Ltd a company incorporated under the laws of
Peoplersquos Republic of China and having its registered address at Jiaochangba Wanxing Village Wanxing Town
Shidian County Baoshan City Yunnan Province China and an indirect wholly-owned subsidiary of the Company
ldquoDCSXrdquo
The Dutch Caribbean Securities Exchange
ldquoACTrdquo
The BVI Business Companies Act 2004 (No 16 of 2004) including any modification extension re-enactment or
renewal thereof and any regulations made thereunder
ldquoIFRSrdquo
International Financial Reporting Standards the set of international accounting standards stating how particular
types of transactions and other events should be reported in financial statements
ldquoLADrdquo
Listing Advisor
ldquoChucheng Capitalrdquo
Shanghai Chucheng Investment Management Co Ltd
ldquoListing Rulesrdquo
The Listing Rules of the DCSX
3
2 Important Information and Notices
Dear investors
This Information Memorandum for listing has been approved by Kanghong International Trade Co Ltd (BVI
Company Number 1977961 the ldquoCompanyrdquo) The sole purpose of this Information Memorandum is to list the
presently outstanding ordinary shares of the Company on the Dutch Caribbean Securities Exchange NV (ldquoDCSXrdquo)
in Curacao (Dutch Caribbean) Curacao is a country within the Kingdom of the Netherlands The listed shares will
be replaced on a one to one basis by listed Depository Receipts (DRrsquos) upon completion of the official issuance of
such DRrsquos in full accordance with the legal and procedural requirements of the issuance and listing of such DRrsquos
as demanded by the DCSX
This Information Memorandum does not contain all the information that a future investor should consider before
investing Potential investors should not regard the content of this Information Memorandum as advice on any
matters relating to the investment including but not limited to issues of legality taxation or finance nor as
recommendation instruction for the subscription purchase holding or disposition of the securities Every potential
investor should consult his or her independent professional advisor to evaluate the strengths and risks of investing
in the Company You and your advisors must rely on your investigations about the Companys stocks and listing
clauses to assess the advantages and risks
This Information Memorandum does not constitute or form any offer or invitation to sell or issue or any solicitation
of any offer to purchase or subscribe to any securities Neither this Information Memorandum nor the publication
of the information contained herein is intended to be any inducement to sign any contract and in no event shall it
be construed so in any jurisdiction This Information Memorandum may be withdrawn at any time before the
proposed listing This Information Memorandum is intended to provide information to prospective investors in their
evaluation of the investment and should only be used for this purpose The Company may consider future (initial)
public offering in which case the Company will make more information available to investors in due course and
as appropriate
The Company expressly reserves the right to reject any or all tender offer or proposed investment in its sole
discretion and at any time to notify any potential investor to terminate the discussion Furthermore the Company
reserves the right to withdraw supplement alter modify sort or reduce the scope of or the content of this
Information Memorandum in each case subject to the rules and regulations of the DCSX
This Information Memorandum contains forward-looking statements concerning plans objectives goals strategies
presented by the Company in the form of projections or expectations of revenues income (or loss) earnings (or
loss) per share or other financial projections These statements include the words such as ldquobelieverdquo ldquoestimaterdquo
ldquoexpectrdquo ldquointendrdquo ldquomayrdquo ldquowillrdquo ldquoshallrdquo ldquomayrdquo or ldquoshouldrdquo and other expressions of similar nature and they
address matters that involve risks and uncertainties Forward-looking statements are based on an assessment of the
economic developments operating conditions and certain assumptions regarding the future events and actions that
are current views of the Company andor the Directors as of the date of this Information Memorandum As a result
these forward-looking statements are not the guarantees of future performance and many known and unknown
risks unexpected uncertainties assumptions and other important factors other than the Company the Directors and
the Management of the Company could cause actual results to differ materially from those expressed in or implied
by these forward-looking statements Investors should be aware not to exclusively rely on such forward-looking
statements The Company does not undertake any obligation to update or revise any of the forward-looking
statements contained in this Information Memorandum whether as a result of new information future events or
otherwise The Company does not make any representation warranty or prediction that results anticipated by such
forward-looking statements will be achieved All subsequent written and forward-looking oral statements are based
on the above and the cautionary statements contained in this Information Memorandum
4
Certain statements estimates and financial projections included in this Information Memorandum are based on a
variety of assumptions which may or may not prove to be accurate or may be subject to disputes Each potential
investor should independently investigate and analyze the statements estimates and financial projections in the
document The Company does not have any obligation to provide any other information to the recipient of this
Information Memorandum This Information Memorandum does not constitute a recommendation endorsement or
confirmation of the value of the securities being offered
In certain jurisdictions there may be restrictions on the distribution of this Information Memorandum and issuance
of securities Any person who reviews this Information Memorandum and wishes to invest in the securities is
responsible for his or her understanding and compliance with all applicable laws and regulations of any relevant
jurisdictions The potential investors should also understand and ensure compliance with the relevant foreign
exchange and tax regulations applicable to them considering their citizenships residences and other relevant
factors
The Ministry of Finance in Curacao Dutch Caribbean the Central Bank of Curaccedilao and Sint Maarten and the
Dutch Caribbean Securities Exchange (DCSX) or any other countrygovernment authority andor agency of
Curacao are not responsible for any information contained in this Information Memorandum and they do not make
any representations or guarantees to the accuracy or completeness of the Information Memorandum Moreover
neither the content nor the publication of this Information Memorandum is to be taken as an indication of any
approval authorization warranty commitment statement or certification of any countrygovernment
The Company and its Directors and Senior Management are responsible for the authenticity accuracy and
completeness of the content of this Information Memorandum The Listing Advisor (LAD) Shanghai Chucheng
Investment Management Co Ltd mentioned in this Information Memorandum shall not take any responsibility
for the authenticity accuracy or completeness of any information (finance law or other) contained in this
Information Memorandum and does not make any representation or provide any approval commitment statement
certification or guarantee with respect to any information in this Information Memorandum
For the sake of completeness it is reiterated that the securities to be listed by the Company through this Information
Memorandum are the outstanding shares of the Company These shares may and can be replaced on a one to one
basis by listed Depository Receipts (DRrsquos) upon completion of the official issuance of such DRrsquos in full accordance
with the legal and procedural requirements of the issuance and listing of such DRrsquos as demanded by the DCSX
Each Depository Receipt represents one share and each Depository Receipt enjoys all the beneficial rights to each
corresponding share or stock The Depository Receipt is a security that has the same rights in all respects as the
Companys share A separate contract must be agreed upon between the Company and the shareholders specifying
the provisions for Depository Receipt holders and their detailed rights All shares owned by the shareholders of the
Company will be registered as Depository Receipts on the DCSX and in the Brokersrsquo system The Company and
all the shareholders shall undertake the responsibility of submitting all the information and details about shares and
Depository Receipts accurately and completely to the DCSX and Brokers
The DR holders will enjoy benefits on their holdings as if they were shareholders The Companys Depository
Receipt numbers will be consistent with the number of shares Depository Receipts will be reserved in the form of
electronic data The DCSX and Brokers do not have the obligation to issue any Depository Receipts certificates to
the shareholders Only when the shareholders convert their shares to Depository Receipts these can become
tradeable on the DCSX and Brokersrsquo system The DCSX and Brokers will register and manage the Depository
Receipts under the relevant rules The Company promises that during the listing of the Company the DCSX and
its Brokersrsquo records shall prevail
Potential investors should read the full text of this document and be aware that investing in the Company involves
a certain degree of risk Potential investors should also pay special attention to the ldquoRisk Factors and Litigationrdquo
5
section of this Information Memorandum Prospective investors before deciding to invest should carefully
consider all of their risks including financial and tax issues and consult professional advice from their accountants
lawyers and other professional advisors The Company is not in any capacity to recommend or decide whether the
investors can or should invest in the Company For such advice each prospective investor must contact their
independent professional consultant
If you need any further information please consult with your stock brokers and other professional advisors
The date of this Information Memorandum is on September 7th 2018
6
3 Issuer and the List of Institutions Related to the Listing
Issuer
Kanghong International Trade Co Ltd
Vistra Corporate Services Centre
Wickhams Cay II Road Town
Tortola VG1110 British Virgin Islands
Contact Person Chun Wang
Tel +86-0875-8867026
E-mail sdkhnykjfzyxgs163com
Operating Entity in China
Shidian Kanghong Agricultural Technology Development Co Ltd
Huaxing Industrial Area Youwang Town
Shidian County Baoshan City Yunnan Province China
Contact Person Chun Wang
Tel +86-0875-8867026
E-mail sdkhnykjfzyxgs163com
Listing Advisor
Shanghai Chucheng Investment Management Co Ltd
Room 601 Huaneng Union Tower
Lane No 958 Lu Jiazui Ring Road Pudong District
Shanghai China
Contact Person Houhai Li
Tel +86-021-31663586
E-mail lihouhaichuchengcapitalcom
Lawyer
Beijing Yingke Law Firm Shanghai Office
Yingke Law Building 181
Jiangchang No3 Road Jing an District
Shanghai China
Contact Person Zhihua Wang
Tel +86-021-36697980
Fax +86-021-36697889
E-mail wangzhihuayingkelawyercom
Auditor
Shanghai Shunzheng CPAs LP
Room 1220 No28 Yuanwen Road
Shanghai China
Contact Person Fengshan Liu
Tel +86-021-62122672
E-mail liufengshan139com
7
4 Company Overview
41 Business Structure
Kanghong International Trade Co Ltd a company incorporated under the laws of the British Virgin Islands is
the company seeking to be listed on DCSX Kanghong International Trade Co Ltd is the owner of 100 of the
outstanding shares of Kanghong International Trade (HK) Co Limited a company incorporated under the laws of
Hong Kong which in turn is the owner of 100 of the outstanding shares of Shanghai Erxing Biotechnology Co
Ltd a company incorporated and organized under the laws of China as a Wholly Owned Foreign Entity (ldquoWOFErdquo)
Shanghai Erxing Biotechnology Co Ltd owns 100 of the outstanding shares of Shidian Kanghong Agricultural
Technology Development Co Ltd (ldquoKHrdquo) which is the operating company in China with assets and business
operations
Kanghong International Trade Co Ltd
(Incorporated in the British Virgin Islands
BVI Company Number 1977961)
Kanghong International Trade (HK) Co Limited (Incorporated in Hong Kong)
Shanghai Erxing Biotechnology Co Ltd (Incorporated in Shanghai City China)
Shidian Kanghong Agricultural Technology Development Co Ltd
(Incorporated in Yunnan Province China)
100 Holding
100 Holding
100 Holding
8
42 About the Company
ldquoShidian Kanghong Agricultural Technology Development Co Ltdrdquo is wholly owned by ldquoKanghong International
Trade Co Ltdrdquo a company incorporated and registered under the laws of the British Virgin Islands ldquoShidian
Kanghong Agricultural Technology Development Co Ltdrdquo is a company incorporated and organized under the
laws of China on January 24th 2013
ldquoShidian Kanghong Agricultural Technology Development Co Ltdrdquo holds a valid business license (Uniformed
Social Credit Code 9153052106555747L) issued by the Bureau of Market Supervision and Administration of
Shidian Town Baoshan City Yunnan Province China on June 27th 2016
Company Name Shidian Kanghong Agricultural Technology Development Co Ltd
Type of Company Limited liability company (Natural person investment or holding)
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Registered Capital RMB 2 million
Date of Establishment January 24th 2013
Operating Period January 24th 2013 to January 24th 2043
Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily
groceries and building materials Import and export trading (Projects need to be approved under the laws and can
only be operated after being approved by relevant governmental authorities)
43 Companyrsquos Operation
Kanghong International Trade Co Ltd through its wholly-owned subsidiary Shidian Kanghong Agricultural
Technology Development Co Ltd (hereafter referred as ldquoKHrdquo) is engaged in the research processing and sales
of edible fungi and fungal products KH cultivates the fungal strains sells and delivers the strains to contracted
growers purchases the fungi and then sells the selected fungi and processed products More details about the
Company can be found in Section 6 ldquoBusiness Overviewrdquo of this Information Memorandum Detailed background
information of the Directors and Senior Management Team can be found in Section 8 of this Information
Memorandum
9
Picture 1 The company site of KH
10
5 Terms of the Issuance and Investment Overview
The information provided in this section is a summary of highlights contained elsewhere in this Information
Memorandum and should be reviewed carefully together with other sections before an investment decision is made
Company Nature
The Company is a limited liability company incorporated under the laws in the British Virgin Islands on May 2nd
2018 The Company owns 100 of the shares of its operating entity in China Shidian Kanghong Agricultural
Technology Development Co Ltd As of the submission date of this Information Memorandum the Companyrsquos
shares are not listed on any other stock exchanges The Companyrsquos securities to be listed will be the Depository
Receipts as explained in this Information Memorandum Investing in shares or Depository Receipts or other
securities involves risks and investors should consider the risks involved
Listing Advisor (LAD)
Shanghai Chucheng Investment Management Co Ltd is a Chinese company and has been licensed as a DCSX
Listing Advisor (LAD) by the DCSX The Company has appointed Shanghai Chucheng Investment Management
Co Ltd as its Listing Advisor (LAD) under the Listing Rules of the DCSX The mission of Shanghai Chucheng
Investment Management Co Ltd is to assist the Company in listing the securities of the Company on the DCSX
Shanghai Chucheng Investment Management Co Ltd is not responsible for the authenticity accuracy or
completeness of any information (financial legal or other) contained in this Information Memorandum and it
doesnrsquot make any representation or provide any approval commitment statement certification or guarantee to the
content of this Information Memorandum
Listing on the DCSX and Fund-raising Purposes
As aforementioned the Company intends to apply for listing via issuing Depository Receipts that will replace the
listed shares on a one to one basis With the listing of ultimately the Depository Receipts no new shares will be
issued at this stage In other words the Company is not to raise or receive new funds in connection with this listing
As indicated in the box below the Company may wish to raise funds in the future through an issuance and listing
of its new securities The Company andor its shareholders may in the future wish to trade the Depository Receipts
corresponding to their existing shares through the DCSX The authorized capital of the Company is 100000000
ordinary shares the nominal value of the ordinary shares is 00005 USD per share and the listing price of the shares
is expected to be 04 USD per share The market value of the Company is therefore estimated to be 40000000
USD Projections and calculation on which the market value is based can be found in the second and third parts of
Section 9 (ldquoFinancial Statementsrdquo) of this Information Memorandum
The Company does not preclude the possibility of raising funds through the issuance of new shares in the
future in which case the Company will prepare and publish the relevant and necessary documents and
procedures under the laws or listing rules including the submission of a new Information Memorandum
Sales Period Commitment
Currently Directors on the Companyrsquos Board collectively hold a total of 4335 shares of the outstanding ordinary
shares of the Company To provide potential investors with certain level of comfort toward the long-term
expectation of the Company all Directors of the Company (hereinafter referred to as the ldquorestricted shareholdersrdquo)
have agreed not to trade any of their shares or other securities (if any) of the Company held by them in any form
within 12 months from the date of listing of the Companyrsquos shares on the DCSX andor such shares being able to
11
trade (once converted to Depository Receipts) To ensure compliance of the foregoing agreement and the applicable
laws each restricted shareholder will agree not to sell or distribute the Companyrsquos shares or other securities publicly
or privately and not to convert or exchange the shares or other securities held by them into any other securities
options or rights during the restricted period
However as to the Companyrsquos total issued share capital the restricted commitment mentioned above will not
apply to a possible tender offer An offer to purchase more than 4335 of the Companyrsquos outstanding share
capital will be regarded as a buyout offer and if the Board of Directors decides to accept such offer the share
or other security transaction that the Company and the restricted shareholders enter into therewith will be
exempt from the above commitment provided that such a buyout is approved first by the DCSX
The Stock Options
On the issuing date of this Information Memorandum neither the Company nor the group has any other unrevealed
stock option commitment that has not been disclosed
The RegistrationTransaction of the Depository Receipts
The Company will eventually through a yet to be appointed issuer (a Financial Institution acceptable to the DCSX)
issue Depository Receipts corresponding to the issued and outstanding ordinary shares of the Company though the
DRs will not be evidenced by any certificates With the listing of the Companyrsquos Depository Receipts on the DCSX
the DCSX and its Brokers will register and manage the trading of the DRs The DRs may be traded in the market
but the Company will not and cannot provide any guarantee with respect to their liquidity The Company agrees
that the Company and all the shareholders will submit the complete and accurate information about the shares and
the required Depository Receipts to the Financial Institution that will issue the DRrsquos After the listing the
registration and trading of the Depository Receipts must comply with the laws and regulations of the DCSX and
other relevant regulators
The Company agrees that the Depository Receipt holders have the same rights as registered ordinary shareholders
Meanwhile when the Company holds a general meeting of shareholders the Depository Receipt holders should
also be notified and allowed to exercise the same voting rights as holders of ordinary shares
Listing Cost
The listing fees and all other directly attributed costs (including audit fees legal fees and other professional costs)
associated with the listing are or will be paid by the Company using existing funds
Inquiry
Any inquiry on regarding this Information Memorandum about listings should be directed to the Listing Advisor
(LAD) Shanghai Chucheng Investment Management Co Ltd
12
6 Business Overview
61 Executive Summary
Shidian Kanghong Agricultural Technology Development Co Ltd (hereafter referred as ldquoKHrdquo) is registered in
Shidian Town Baoshan City Yunnan Province China established on January 24th 2013 with the registered capital
of RMB 2 million
KHrsquos main business is to cultivate fungal strains process edible fungi sell fungi and processed products KH
cooperates with local farmers It provides fungal strains to contracted growers who then plant the strains After
harvesting with preliminary processing such as drying KH purchases the dried fungi from the growers The dried
fungi are ready for sale or will be further processed into products such as black fungus noodle and black fungus
powder etc
Through the cooperation with growers KH not only decreases its business cost but also promotes the local
economy At its very inception KH set up a great goal of ldquoleading the entire village to a better liferdquo Through the
years KH hass consistently pursued this goal by helping local farmers to learn advanced agricultural technology
providing them with good fungal species funding local schools and improving local facilities
KH has won several important recognitions and awards as a result of its professional and outstanding performance
in the field of edible fungi production It was identified as a ldquoScientific amp Technological Small amp Medium
Enterprise of Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named
as ldquothe Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in
2015 The plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial
departments and has been used as the research center for experts from Chinese Academy of Sciences and Yunnan
Province
KH attaches great importance to product quality and innovation as well as brand development KH holds 1 patent
for invention 2 patents for package designing and 8 patents for practical innovation One of its products Mulberry
Branch Black Fungus has been recognized as an ldquoImportant Innovative Product of Yunnan Provincerdquo by Yunnan
Provincial Science and Technology Department since 2015 KH also holds a registered trademark ldquoFatty Surdquo
(Registered Number 14219423) for its products KH aims to develop ldquoFatty Surdquo to a well-known fungus brand in
China and ensure that customers from all over China could enjoy ldquothe gift from nature and the taste of forestrdquo
Adhering to the core values of ldquoPersistence Integrity Hard-working and Sticking to the original goalrdquo and the
operation principle of ldquoEnsuring the company employees growers and customers to all benefit from our businessrdquo
KH is consistently developing itself to become a better company with greater social responsibility
Development History
Throughout its development history KH has been expanding its business step by step
On January 24th 2013 Mr Yan Su and Mr Guangbiao Wu established and incorporated Shidian Kanghong
Agricultural Technology Development Co Ltd aiming to lead the whole village to a better life At the very
beginning KH only had a temporary factory without much equipment or facilities for large-scale production
Lacking experience and technical supervision the first batch of black fungal strains were infected and did not result
in any fungi
In 2014 after the above setback Mr Su and Mr Wu borrowed money from their families and friends to build
13
factories and install facilities They also hired two technicians from Zhejiang Province to supervise the entire
production process However due to a flood in the planting base and extreme weathers 157 million fungal strains
were heavily damaged The direct economic loss was up to RMB 52 million
Having learnt from past failures Mr Su realized that the most important aspect in fungal planting is technology
Therefore in 2015 Mr Su did considerable researches in the black fungi industry sought and received great
support from Kunming Edible Fungi Research Institute and hired experienced experts to form a technology team
The team successfully cultivated a black fungal strain that suits the climate and weather conditions in Yunnan and
won the Third Place Award in the Agriculture Group of Yunnan Innovative Entrepreneur Competition
Backed by a solid technology team KH has gradually grown from a start-up to a big company that shoulders
significant social responsibility as well as offers a variety of products
62 Products and Services
Auricularia auricula-judae commonly known as Jewrsquos ear wood ear jelly ear or black fungus is a species of
edible fungus which is widely consumed in China as it is used in both Chinese cuisine and Chinese medicine Black
fungus has a mild flavor and is rich in protein carbohydrates and minerals Several researches also indicated that
two glucans isolated from black fungus showed potent antitumor properties Black fungus can be dried and
rehydrated Dried fungi can be preserved for a long period of time and still retain nutritional contents and the
original flavor once rehydrated It can also be used as an ingredient to produce other popular food products
Shidian Town lies at the southern part of Hengduan Mountains next to Nujiang River With favorable climate and
abundant natural resources Shidian is a great place to grow black fungus and to set up plantations KH takes great
advantage of these conditions and has built up its business there
KH provides a range of fungal products to consumers including 1) Mulberry Branch Black Fungus 2) Black
Fungus Essence Powder and 3) Black Fungus Noodle
Mulberry Branch Black Fungus
Mulberry Branch Black Fungus is the organic black fungus growing from mulberry trees without using any
fertilizers or pesticides According to two quality tests conducted by Supervision and Testing Center for Edible
Fungi Quality (Shanghai) Ministry of Agriculture (Test Report Number 2014-W2560G 2014-W2561G)
compared with black fungi growing from other common wood (containing 141g of protein and 741g of glucan
per 100g sample) mulberry branch black fungus has higher nutritional value for it contains more protein and
glucans (147g of protein and 82g of glucan per 100g sample) For this product KH offers several different
packages such as gift box and paper bag to cater to different customer groups This product is produced by KH at
its own facilities
Picture 2 Mulberry Branch Black Fungus
14
Black Fungus Essence Powder
Ground to a grain size of 48 microm by ultra-micro grinder under the temperature of -27degC black fungi are turned to
essence powder Since this method breaks down the cell walls of black fungi the nutritional contents are fully
released Since this process is operated under an extremely low temperature the nutritional value is very well
preserved Therefore consumers can take in the nutrients of black fungi more easily by taking this essence powder
This product is produced by Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) and has
passed the quality test conducted by Yunnan Yunce Quality Testing Co Ltd (Test Report Number YC1803217)
KH has signed a contract with Zhongyuan KH provides raw materials and pays the processing fee to Zhongyuan
Picture 3 Black Fungus Essence Powder
Black Fungus Noodle
Black fungus noodle is made from black fungus powder and high-quality wheat flour Noodle is a common staple
for Chinese consumers Since this product contains black fungus powder it has higher nutritional value compared
with ordinary noodles and has therefore become popular among consumers This product is produced by Longyang
Yongda Food Product Processing Factory (hereafter referred as Yongda) and has passed the quality test conducted
by Yunnan Institute of Product Quality Supervision amp Inspection (Test Report Number SP201800470) KH has
signed a contract with Yongda under which KH provides raw materials and pays the processing fee to Yongda
Picture 4 Black Fungus Noodle
15
63 Marketing Strategy
KHrsquos basic marketing principles are ldquoTo spread knowledge and green concepts To provide well-rounded product
series and To stay up-to-date and innovativerdquo
Specifically first KH not only sells its products but also actively spread the knowledge about the medical and
nutritional functions of black fungus and the idea of sustainable development to the public via multiple channels
Second KH has identified different customer groups according to their preferences and consumption habits and
provide different types of products to each group For example ordinary housewives prefer products with low
prices wealthy people prefer well-packaged and high-end products elderly people are more interested in products
that will be beneficial to their health KHrsquos products also have different packages and prices to cater to different
situation For example products in normal size and normal package are targeted at customers who will consume
the products themselves products in delicate packages could be a great gift to clients and guests products in large
packages are targeted at restaurants and canteens
Third KH employs three types of sales channels which not only cover the traditional approaches but also innovative
ones The first type is the traditional channel KH cooperates with distributors and sales agents to sell products KH
also cooperates with several local schools to provide nutritious lunch for students In this way KH has built up a
good reputation which indirectly promotes its brand and sales The second type is the online channel KH has built
up partnership with ulecom to distribute its products and is setting up its online store and a platform on its official
account of WeChat Also KH is actively contacting Tmallcom and jdcom to get access to a bigger customer group
The third type is new retail channel KH will set up experience restaurants called ldquoWood Ear Societyrdquo to further
promote its products and health concepts In these restaurants customers could not only purchase the products
mentioned in the previous part but also could taste more food and dishes cooked with black fungi such as black
fungus noodle black fungus pho black fungus dumpling and black fungus steam bun Customers could dine in
take away the food they order or have it delivered to their homes These dishes will be cooked in a centralized
kitchen and then delivered to each restaurant which will ensure food quality and food safety
Picture 5 KHrsquos Online Store
Forth KH has also set up an after-sale service system to maintain customer relationship KH will invite each
customer to register in its system and then analyze their consumption habits in order to gain a better understanding
of their preferences and apply personalized promotion strategies Also KH will organize training for its sales staff
16
distributors and sales agents on which they would not only learn product information but also nutrition knowledge
and the idea of sustainable development
Fifth KH has drawn up a promotion plan to promote its brand ldquoFatty Surdquo in three stages The first stage is Warm-
up which is from January 2018 to December 2018 In this stage KH will introduce the concept of ldquoHealthy Liferdquo
to customers and the public via advertisements on mass media The second stage is Heat-up which is expected to
be from January 2019 to December 2019 In this stage KH will continuously promote the brand and the concept
by employing more advertising channels and platforms for example advertisements in railway stations airports
and TV programs The third stage is Heat-preserving which is expected to start from January 2020 In this stage
KH will keep the brand image active by regular promotion
In short KH applies multi-tiered plans and strategies to expand the market more efficiently and quickly
Picture 6 the Design Sketch of ldquoWood Ear Societyrdquo
17
64 Development Strategy
As a company with strong sense of social responsibility KH not only aims to develop itself but also strives to
promote the economic growth in Shidian Town To achieve these two goals KH engages local farmers as its
contracted growers and pre-sells the growers at a low price the fungal strains which could be used to grow black
fungi To ensure the quality and the quantity of fungi KH also provides free technical guidance to growers via local
cooperatives (branches of KH which help KH to coordinate production recruit growers and communicate with
growers) The operation structure is illustrated in the flow chart below
Chart 1 KHrsquos Operation Structure
Through this structure KH gets connected with local farmers (growers) and therefore could lead them to develop
altogether By providing and distributing unified fungal strains the growers KH therefore ensures the purity and
quality of product In addition this structure creates more than 300 jobs in Shidian thereby greatly enhancing the
local economy
To expand its business enlarge its product offerings and lead the local economy further KH has several plans
which are briefly described below
First KH is expanding its production capability by building new factories and plantations KH signed the
Agreement on Investing and Developing the Construction Project of Sangzhi Black Fungal Strains with Annual
Production of 30 million and Fine Processing with Shidian Government on September 11th 2015 By June 30th
2018 the infrastructures and factories were completed and the facilities to produce fungal strains was near
completion In 2019 and 2020 KH will continue the construction and related facilities
KH (overall managing providing strains
and equipment selling products)
Cooperatives (coordinating production recruiting
growers distributing strains providing support)
Growers (using fungal strains to
grow fungi pre-processing fungi)
Consumers
Selected and processed fungi
Raw fungi
18
Picture 7 KHrsquos Factory
Second KH is to enlarge its product offerings by developing more products KH signed the Cooperation Agreement
on Product Development with Kunming Edible Fungi Research Institute on September 2nd 2017 The institute is
expected to complete the development of Black Fungus Tablet Black Fungus Drink and so on by the end of 2018
and complete Black Fungus Capsule by the end of 2019 KH is also studying other edible fungi for example lingzhi
mushroom and will develop products like lingzhi Mushroom Spore Powder and lingzhi Mushroom Spore Oil KH
has successfully planted lingzhi mushroom in its plantation which has built up solid foundation for further
production Moreover KH also has the plan to cooperate with cosmetics RampD institutes and pharmaceutical
institutes to study more effects and values of black fungi and lingzhi mushrooms and develop skincare products
and medicines using black fungi and lingzhi mushrooms as ingredients
Picture 8 Lingzhi Mushroom in KHrsquos Plantation
19
65 Business Partners
KH has established partnerships with the following institutes and companies to develop or produce products
bull Kunming Edible Fungi Research Institute
bull Yunnan Yunjun Technology (Group) Co Ltd
bull Lijiang Zhongyuan Green Food Co Ltd
bull Longyang Yongda Food Product Processing Factory
bull Kunming Jinmo Trade Co Ltd
bull Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
bull China Post Shidian Town Branch
Kunming Edible Fungi Research Institute
Kunming Edible Fungi Research Institute (hereafter referred as KM Institute) is a professional agent researching
and studying edible fungi and developing fungal products KM Institute provides professional guidance on
technology to KH and develops deep-processed fungal products according to KHrsquos requirement while KH is
responsible for market analysis and research funds
Yunnan Yunjun Technology (Group) Co Ltd
Yunnan Yunjun Technology (Group) Co Ltd (hereafter referred as Yunjun) is a company researching developing
and processing fungal products Yunjun provides technical support and professional training to KH and cooperates
with KH to develop fungal products while KH is responsible for market analysis product promotion research
equipment research materials and research funds
Lijiang Zhongyuan Green Food Co Ltd
Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) is a company processing and selling
fungal products and agricultural products KH provides black fungi to Zhongyuan and contracts with Zhongyuan
to process Black Fungus Essence Powder
Longyang Yongda Food Product Processing Factory
Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) is a company processing
agricultural products and food products KH provides black fungi to Yongda and contracts with Yongda to process
Black Fungus Noodles
Kunming Jinmo Trade Co Ltd
Kunming Jinmo Trade Co Ltd (hereafter referred as Jinmo) is a company designing and producing packages and
commercial brochures KH contracts with Jinmo to design and produce packages for its products including the
packing boxes gift boxes commercial brochures plastic packages and so on
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch) (hereafter referred as Anzhi) is a
company providing delivering services KH has got the franchise from Anzhi to set up an express delivery station
in its own company to distribute its products at a low cost
China Post Shidian Town Branch
China Post is a state-owned company providing posting and delivering services It owns an online shopping
platform ndash ulecom with a huge customer base KH promotes and sells its products on ulecom
20
66 Permit and License
Business License
(Duplicate copy) Uniform Social Credit Code 9153052106555747L a) Company Name Shidian Kanghong Agricultural Technology Development Co Ltd b) Type of Company Limited liability company (Foreign Enterprise Legal Person Sole Proprietorship) c) Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province China d) Legal Representative Yan Su e) Registered Capital RMB 2 million f) Date of Establishment January 24th 2013 g) Operating Period January 24th 2013 to January 24th 2043 h) Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily groceries
and building materials Import and export trading (Projects needed to be approved under the laws can be operated after approved by relevant departments)
Issued by Bureau of Market Supervision and Administration of Shidian County on August 14th 2018
21
Food Business Operation License
(Duplicate Copy)
a) Operator Name Shidian Kanghong
Agricultural Technology Development
Co Ltd
b) Social Credit Code (Identity Card
Number) 9153052106555747L
c) Legal representative (Person in
Charge) Yan Su
d) Address No23 Group 2 Jiucheng
Community Jiucheng County Shidian
Town Baoshan City Yunnan Province
e) Operation Address
Zhaojia Village Huaxing Community
Youwang County Shidian Town
Baoshan City Yunnan Province
f) Main Body Type
Food Business Operator
g) Food Type
Sales of pre-packaged food (exclude
frozen food) sales of bulk food (exclude
frozen food)
Valid until July 24th 2021
Description
1 Food Business Operation License is the legitimate certificate of the permit for food business
that an operator gets
2 The License has original and duplicate copies which have the same legal effect The
original License should be hung or placed on a prominent position at the operating site
3 The License must not be forged modified resold leased lent or transferred in any other
illegal forms
4 The operator should carry out business within the approved scope
5 The operator should accept the supervision and management of the Food and Drug
Supervision and Administration Department
6 The operator should apply to change the License when the permitted items are changed
7 The operator should timely apply for an extension at the former department in 30 working
days before the License expires
h) License Number JY15305210013112
i) Daily Supervision Management Organization Market Supervision
Administration Bureau of Youwang County
j) Daily Supervisors Shaode Duan Shaoming Qian
k) Complain Call12331
l) License Issuing Authority Market Supervision Administration Bureau of Shidian
County
m) Issuer Shaoming Qian
July 25th 2018
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
1
Table of Contents
1 Summary of Certain Defined Terms 2
2 Important Information and Notices 3
3 Issuer and the List of Institutions Related to the Listing 6
4 Company Overview 7
41 Business Structure 7
42 About the Company 8
43 Companyrsquos Operation 8
5 Terms of the Issuance and Investment Overview 10
6 Business Overview 12
61 Executive Summary 12
62 Products and Services 13
63 Marketing Strategy 15
64 Development Strategy 17
65 Business Partners 19
66 Permit and License 20
67 Related Parties 22
68 Main Competitors 29
7 Company Advantages and Investment Highlights 31
71 Strong Market Demand 31
72 Wide Product Offerings 31
73 Great Brand Reputation 31
74 Promising Expansion Plan 31
8 Directors and Senior Management 32
9 Financial Statements 36
10 Material Contract and Agreement 78
11 Risk Factors and Litigation 79
2
1 Summary of Certain Defined Terms
ldquoThe Company Kanghongrdquo
Kanghong International Trade Co Ltd (BVI Company Number 1977961) a company incorporated under the
laws of the British Virgin Islands and having its registered address at the offices of Vistra Corporate Services
Centre Wickhams Cay II Road Town Tortola VG1110 British Virgin Islands is the holding company that
indirectly owns 100 of the outstanding shares of Shidian Kanghong Agricultural Technology Development Co
Ltd
ldquoKHrdquo
Shidian Kanghong Agricultural Technology Development Co Ltd a company incorporated under the laws of
Peoplersquos Republic of China and having its registered address at Jiaochangba Wanxing Village Wanxing Town
Shidian County Baoshan City Yunnan Province China and an indirect wholly-owned subsidiary of the Company
ldquoDCSXrdquo
The Dutch Caribbean Securities Exchange
ldquoACTrdquo
The BVI Business Companies Act 2004 (No 16 of 2004) including any modification extension re-enactment or
renewal thereof and any regulations made thereunder
ldquoIFRSrdquo
International Financial Reporting Standards the set of international accounting standards stating how particular
types of transactions and other events should be reported in financial statements
ldquoLADrdquo
Listing Advisor
ldquoChucheng Capitalrdquo
Shanghai Chucheng Investment Management Co Ltd
ldquoListing Rulesrdquo
The Listing Rules of the DCSX
3
2 Important Information and Notices
Dear investors
This Information Memorandum for listing has been approved by Kanghong International Trade Co Ltd (BVI
Company Number 1977961 the ldquoCompanyrdquo) The sole purpose of this Information Memorandum is to list the
presently outstanding ordinary shares of the Company on the Dutch Caribbean Securities Exchange NV (ldquoDCSXrdquo)
in Curacao (Dutch Caribbean) Curacao is a country within the Kingdom of the Netherlands The listed shares will
be replaced on a one to one basis by listed Depository Receipts (DRrsquos) upon completion of the official issuance of
such DRrsquos in full accordance with the legal and procedural requirements of the issuance and listing of such DRrsquos
as demanded by the DCSX
This Information Memorandum does not contain all the information that a future investor should consider before
investing Potential investors should not regard the content of this Information Memorandum as advice on any
matters relating to the investment including but not limited to issues of legality taxation or finance nor as
recommendation instruction for the subscription purchase holding or disposition of the securities Every potential
investor should consult his or her independent professional advisor to evaluate the strengths and risks of investing
in the Company You and your advisors must rely on your investigations about the Companys stocks and listing
clauses to assess the advantages and risks
This Information Memorandum does not constitute or form any offer or invitation to sell or issue or any solicitation
of any offer to purchase or subscribe to any securities Neither this Information Memorandum nor the publication
of the information contained herein is intended to be any inducement to sign any contract and in no event shall it
be construed so in any jurisdiction This Information Memorandum may be withdrawn at any time before the
proposed listing This Information Memorandum is intended to provide information to prospective investors in their
evaluation of the investment and should only be used for this purpose The Company may consider future (initial)
public offering in which case the Company will make more information available to investors in due course and
as appropriate
The Company expressly reserves the right to reject any or all tender offer or proposed investment in its sole
discretion and at any time to notify any potential investor to terminate the discussion Furthermore the Company
reserves the right to withdraw supplement alter modify sort or reduce the scope of or the content of this
Information Memorandum in each case subject to the rules and regulations of the DCSX
This Information Memorandum contains forward-looking statements concerning plans objectives goals strategies
presented by the Company in the form of projections or expectations of revenues income (or loss) earnings (or
loss) per share or other financial projections These statements include the words such as ldquobelieverdquo ldquoestimaterdquo
ldquoexpectrdquo ldquointendrdquo ldquomayrdquo ldquowillrdquo ldquoshallrdquo ldquomayrdquo or ldquoshouldrdquo and other expressions of similar nature and they
address matters that involve risks and uncertainties Forward-looking statements are based on an assessment of the
economic developments operating conditions and certain assumptions regarding the future events and actions that
are current views of the Company andor the Directors as of the date of this Information Memorandum As a result
these forward-looking statements are not the guarantees of future performance and many known and unknown
risks unexpected uncertainties assumptions and other important factors other than the Company the Directors and
the Management of the Company could cause actual results to differ materially from those expressed in or implied
by these forward-looking statements Investors should be aware not to exclusively rely on such forward-looking
statements The Company does not undertake any obligation to update or revise any of the forward-looking
statements contained in this Information Memorandum whether as a result of new information future events or
otherwise The Company does not make any representation warranty or prediction that results anticipated by such
forward-looking statements will be achieved All subsequent written and forward-looking oral statements are based
on the above and the cautionary statements contained in this Information Memorandum
4
Certain statements estimates and financial projections included in this Information Memorandum are based on a
variety of assumptions which may or may not prove to be accurate or may be subject to disputes Each potential
investor should independently investigate and analyze the statements estimates and financial projections in the
document The Company does not have any obligation to provide any other information to the recipient of this
Information Memorandum This Information Memorandum does not constitute a recommendation endorsement or
confirmation of the value of the securities being offered
In certain jurisdictions there may be restrictions on the distribution of this Information Memorandum and issuance
of securities Any person who reviews this Information Memorandum and wishes to invest in the securities is
responsible for his or her understanding and compliance with all applicable laws and regulations of any relevant
jurisdictions The potential investors should also understand and ensure compliance with the relevant foreign
exchange and tax regulations applicable to them considering their citizenships residences and other relevant
factors
The Ministry of Finance in Curacao Dutch Caribbean the Central Bank of Curaccedilao and Sint Maarten and the
Dutch Caribbean Securities Exchange (DCSX) or any other countrygovernment authority andor agency of
Curacao are not responsible for any information contained in this Information Memorandum and they do not make
any representations or guarantees to the accuracy or completeness of the Information Memorandum Moreover
neither the content nor the publication of this Information Memorandum is to be taken as an indication of any
approval authorization warranty commitment statement or certification of any countrygovernment
The Company and its Directors and Senior Management are responsible for the authenticity accuracy and
completeness of the content of this Information Memorandum The Listing Advisor (LAD) Shanghai Chucheng
Investment Management Co Ltd mentioned in this Information Memorandum shall not take any responsibility
for the authenticity accuracy or completeness of any information (finance law or other) contained in this
Information Memorandum and does not make any representation or provide any approval commitment statement
certification or guarantee with respect to any information in this Information Memorandum
For the sake of completeness it is reiterated that the securities to be listed by the Company through this Information
Memorandum are the outstanding shares of the Company These shares may and can be replaced on a one to one
basis by listed Depository Receipts (DRrsquos) upon completion of the official issuance of such DRrsquos in full accordance
with the legal and procedural requirements of the issuance and listing of such DRrsquos as demanded by the DCSX
Each Depository Receipt represents one share and each Depository Receipt enjoys all the beneficial rights to each
corresponding share or stock The Depository Receipt is a security that has the same rights in all respects as the
Companys share A separate contract must be agreed upon between the Company and the shareholders specifying
the provisions for Depository Receipt holders and their detailed rights All shares owned by the shareholders of the
Company will be registered as Depository Receipts on the DCSX and in the Brokersrsquo system The Company and
all the shareholders shall undertake the responsibility of submitting all the information and details about shares and
Depository Receipts accurately and completely to the DCSX and Brokers
The DR holders will enjoy benefits on their holdings as if they were shareholders The Companys Depository
Receipt numbers will be consistent with the number of shares Depository Receipts will be reserved in the form of
electronic data The DCSX and Brokers do not have the obligation to issue any Depository Receipts certificates to
the shareholders Only when the shareholders convert their shares to Depository Receipts these can become
tradeable on the DCSX and Brokersrsquo system The DCSX and Brokers will register and manage the Depository
Receipts under the relevant rules The Company promises that during the listing of the Company the DCSX and
its Brokersrsquo records shall prevail
Potential investors should read the full text of this document and be aware that investing in the Company involves
a certain degree of risk Potential investors should also pay special attention to the ldquoRisk Factors and Litigationrdquo
5
section of this Information Memorandum Prospective investors before deciding to invest should carefully
consider all of their risks including financial and tax issues and consult professional advice from their accountants
lawyers and other professional advisors The Company is not in any capacity to recommend or decide whether the
investors can or should invest in the Company For such advice each prospective investor must contact their
independent professional consultant
If you need any further information please consult with your stock brokers and other professional advisors
The date of this Information Memorandum is on September 7th 2018
6
3 Issuer and the List of Institutions Related to the Listing
Issuer
Kanghong International Trade Co Ltd
Vistra Corporate Services Centre
Wickhams Cay II Road Town
Tortola VG1110 British Virgin Islands
Contact Person Chun Wang
Tel +86-0875-8867026
E-mail sdkhnykjfzyxgs163com
Operating Entity in China
Shidian Kanghong Agricultural Technology Development Co Ltd
Huaxing Industrial Area Youwang Town
Shidian County Baoshan City Yunnan Province China
Contact Person Chun Wang
Tel +86-0875-8867026
E-mail sdkhnykjfzyxgs163com
Listing Advisor
Shanghai Chucheng Investment Management Co Ltd
Room 601 Huaneng Union Tower
Lane No 958 Lu Jiazui Ring Road Pudong District
Shanghai China
Contact Person Houhai Li
Tel +86-021-31663586
E-mail lihouhaichuchengcapitalcom
Lawyer
Beijing Yingke Law Firm Shanghai Office
Yingke Law Building 181
Jiangchang No3 Road Jing an District
Shanghai China
Contact Person Zhihua Wang
Tel +86-021-36697980
Fax +86-021-36697889
E-mail wangzhihuayingkelawyercom
Auditor
Shanghai Shunzheng CPAs LP
Room 1220 No28 Yuanwen Road
Shanghai China
Contact Person Fengshan Liu
Tel +86-021-62122672
E-mail liufengshan139com
7
4 Company Overview
41 Business Structure
Kanghong International Trade Co Ltd a company incorporated under the laws of the British Virgin Islands is
the company seeking to be listed on DCSX Kanghong International Trade Co Ltd is the owner of 100 of the
outstanding shares of Kanghong International Trade (HK) Co Limited a company incorporated under the laws of
Hong Kong which in turn is the owner of 100 of the outstanding shares of Shanghai Erxing Biotechnology Co
Ltd a company incorporated and organized under the laws of China as a Wholly Owned Foreign Entity (ldquoWOFErdquo)
Shanghai Erxing Biotechnology Co Ltd owns 100 of the outstanding shares of Shidian Kanghong Agricultural
Technology Development Co Ltd (ldquoKHrdquo) which is the operating company in China with assets and business
operations
Kanghong International Trade Co Ltd
(Incorporated in the British Virgin Islands
BVI Company Number 1977961)
Kanghong International Trade (HK) Co Limited (Incorporated in Hong Kong)
Shanghai Erxing Biotechnology Co Ltd (Incorporated in Shanghai City China)
Shidian Kanghong Agricultural Technology Development Co Ltd
(Incorporated in Yunnan Province China)
100 Holding
100 Holding
100 Holding
8
42 About the Company
ldquoShidian Kanghong Agricultural Technology Development Co Ltdrdquo is wholly owned by ldquoKanghong International
Trade Co Ltdrdquo a company incorporated and registered under the laws of the British Virgin Islands ldquoShidian
Kanghong Agricultural Technology Development Co Ltdrdquo is a company incorporated and organized under the
laws of China on January 24th 2013
ldquoShidian Kanghong Agricultural Technology Development Co Ltdrdquo holds a valid business license (Uniformed
Social Credit Code 9153052106555747L) issued by the Bureau of Market Supervision and Administration of
Shidian Town Baoshan City Yunnan Province China on June 27th 2016
Company Name Shidian Kanghong Agricultural Technology Development Co Ltd
Type of Company Limited liability company (Natural person investment or holding)
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Registered Capital RMB 2 million
Date of Establishment January 24th 2013
Operating Period January 24th 2013 to January 24th 2043
Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily
groceries and building materials Import and export trading (Projects need to be approved under the laws and can
only be operated after being approved by relevant governmental authorities)
43 Companyrsquos Operation
Kanghong International Trade Co Ltd through its wholly-owned subsidiary Shidian Kanghong Agricultural
Technology Development Co Ltd (hereafter referred as ldquoKHrdquo) is engaged in the research processing and sales
of edible fungi and fungal products KH cultivates the fungal strains sells and delivers the strains to contracted
growers purchases the fungi and then sells the selected fungi and processed products More details about the
Company can be found in Section 6 ldquoBusiness Overviewrdquo of this Information Memorandum Detailed background
information of the Directors and Senior Management Team can be found in Section 8 of this Information
Memorandum
9
Picture 1 The company site of KH
10
5 Terms of the Issuance and Investment Overview
The information provided in this section is a summary of highlights contained elsewhere in this Information
Memorandum and should be reviewed carefully together with other sections before an investment decision is made
Company Nature
The Company is a limited liability company incorporated under the laws in the British Virgin Islands on May 2nd
2018 The Company owns 100 of the shares of its operating entity in China Shidian Kanghong Agricultural
Technology Development Co Ltd As of the submission date of this Information Memorandum the Companyrsquos
shares are not listed on any other stock exchanges The Companyrsquos securities to be listed will be the Depository
Receipts as explained in this Information Memorandum Investing in shares or Depository Receipts or other
securities involves risks and investors should consider the risks involved
Listing Advisor (LAD)
Shanghai Chucheng Investment Management Co Ltd is a Chinese company and has been licensed as a DCSX
Listing Advisor (LAD) by the DCSX The Company has appointed Shanghai Chucheng Investment Management
Co Ltd as its Listing Advisor (LAD) under the Listing Rules of the DCSX The mission of Shanghai Chucheng
Investment Management Co Ltd is to assist the Company in listing the securities of the Company on the DCSX
Shanghai Chucheng Investment Management Co Ltd is not responsible for the authenticity accuracy or
completeness of any information (financial legal or other) contained in this Information Memorandum and it
doesnrsquot make any representation or provide any approval commitment statement certification or guarantee to the
content of this Information Memorandum
Listing on the DCSX and Fund-raising Purposes
As aforementioned the Company intends to apply for listing via issuing Depository Receipts that will replace the
listed shares on a one to one basis With the listing of ultimately the Depository Receipts no new shares will be
issued at this stage In other words the Company is not to raise or receive new funds in connection with this listing
As indicated in the box below the Company may wish to raise funds in the future through an issuance and listing
of its new securities The Company andor its shareholders may in the future wish to trade the Depository Receipts
corresponding to their existing shares through the DCSX The authorized capital of the Company is 100000000
ordinary shares the nominal value of the ordinary shares is 00005 USD per share and the listing price of the shares
is expected to be 04 USD per share The market value of the Company is therefore estimated to be 40000000
USD Projections and calculation on which the market value is based can be found in the second and third parts of
Section 9 (ldquoFinancial Statementsrdquo) of this Information Memorandum
The Company does not preclude the possibility of raising funds through the issuance of new shares in the
future in which case the Company will prepare and publish the relevant and necessary documents and
procedures under the laws or listing rules including the submission of a new Information Memorandum
Sales Period Commitment
Currently Directors on the Companyrsquos Board collectively hold a total of 4335 shares of the outstanding ordinary
shares of the Company To provide potential investors with certain level of comfort toward the long-term
expectation of the Company all Directors of the Company (hereinafter referred to as the ldquorestricted shareholdersrdquo)
have agreed not to trade any of their shares or other securities (if any) of the Company held by them in any form
within 12 months from the date of listing of the Companyrsquos shares on the DCSX andor such shares being able to
11
trade (once converted to Depository Receipts) To ensure compliance of the foregoing agreement and the applicable
laws each restricted shareholder will agree not to sell or distribute the Companyrsquos shares or other securities publicly
or privately and not to convert or exchange the shares or other securities held by them into any other securities
options or rights during the restricted period
However as to the Companyrsquos total issued share capital the restricted commitment mentioned above will not
apply to a possible tender offer An offer to purchase more than 4335 of the Companyrsquos outstanding share
capital will be regarded as a buyout offer and if the Board of Directors decides to accept such offer the share
or other security transaction that the Company and the restricted shareholders enter into therewith will be
exempt from the above commitment provided that such a buyout is approved first by the DCSX
The Stock Options
On the issuing date of this Information Memorandum neither the Company nor the group has any other unrevealed
stock option commitment that has not been disclosed
The RegistrationTransaction of the Depository Receipts
The Company will eventually through a yet to be appointed issuer (a Financial Institution acceptable to the DCSX)
issue Depository Receipts corresponding to the issued and outstanding ordinary shares of the Company though the
DRs will not be evidenced by any certificates With the listing of the Companyrsquos Depository Receipts on the DCSX
the DCSX and its Brokers will register and manage the trading of the DRs The DRs may be traded in the market
but the Company will not and cannot provide any guarantee with respect to their liquidity The Company agrees
that the Company and all the shareholders will submit the complete and accurate information about the shares and
the required Depository Receipts to the Financial Institution that will issue the DRrsquos After the listing the
registration and trading of the Depository Receipts must comply with the laws and regulations of the DCSX and
other relevant regulators
The Company agrees that the Depository Receipt holders have the same rights as registered ordinary shareholders
Meanwhile when the Company holds a general meeting of shareholders the Depository Receipt holders should
also be notified and allowed to exercise the same voting rights as holders of ordinary shares
Listing Cost
The listing fees and all other directly attributed costs (including audit fees legal fees and other professional costs)
associated with the listing are or will be paid by the Company using existing funds
Inquiry
Any inquiry on regarding this Information Memorandum about listings should be directed to the Listing Advisor
(LAD) Shanghai Chucheng Investment Management Co Ltd
12
6 Business Overview
61 Executive Summary
Shidian Kanghong Agricultural Technology Development Co Ltd (hereafter referred as ldquoKHrdquo) is registered in
Shidian Town Baoshan City Yunnan Province China established on January 24th 2013 with the registered capital
of RMB 2 million
KHrsquos main business is to cultivate fungal strains process edible fungi sell fungi and processed products KH
cooperates with local farmers It provides fungal strains to contracted growers who then plant the strains After
harvesting with preliminary processing such as drying KH purchases the dried fungi from the growers The dried
fungi are ready for sale or will be further processed into products such as black fungus noodle and black fungus
powder etc
Through the cooperation with growers KH not only decreases its business cost but also promotes the local
economy At its very inception KH set up a great goal of ldquoleading the entire village to a better liferdquo Through the
years KH hass consistently pursued this goal by helping local farmers to learn advanced agricultural technology
providing them with good fungal species funding local schools and improving local facilities
KH has won several important recognitions and awards as a result of its professional and outstanding performance
in the field of edible fungi production It was identified as a ldquoScientific amp Technological Small amp Medium
Enterprise of Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named
as ldquothe Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in
2015 The plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial
departments and has been used as the research center for experts from Chinese Academy of Sciences and Yunnan
Province
KH attaches great importance to product quality and innovation as well as brand development KH holds 1 patent
for invention 2 patents for package designing and 8 patents for practical innovation One of its products Mulberry
Branch Black Fungus has been recognized as an ldquoImportant Innovative Product of Yunnan Provincerdquo by Yunnan
Provincial Science and Technology Department since 2015 KH also holds a registered trademark ldquoFatty Surdquo
(Registered Number 14219423) for its products KH aims to develop ldquoFatty Surdquo to a well-known fungus brand in
China and ensure that customers from all over China could enjoy ldquothe gift from nature and the taste of forestrdquo
Adhering to the core values of ldquoPersistence Integrity Hard-working and Sticking to the original goalrdquo and the
operation principle of ldquoEnsuring the company employees growers and customers to all benefit from our businessrdquo
KH is consistently developing itself to become a better company with greater social responsibility
Development History
Throughout its development history KH has been expanding its business step by step
On January 24th 2013 Mr Yan Su and Mr Guangbiao Wu established and incorporated Shidian Kanghong
Agricultural Technology Development Co Ltd aiming to lead the whole village to a better life At the very
beginning KH only had a temporary factory without much equipment or facilities for large-scale production
Lacking experience and technical supervision the first batch of black fungal strains were infected and did not result
in any fungi
In 2014 after the above setback Mr Su and Mr Wu borrowed money from their families and friends to build
13
factories and install facilities They also hired two technicians from Zhejiang Province to supervise the entire
production process However due to a flood in the planting base and extreme weathers 157 million fungal strains
were heavily damaged The direct economic loss was up to RMB 52 million
Having learnt from past failures Mr Su realized that the most important aspect in fungal planting is technology
Therefore in 2015 Mr Su did considerable researches in the black fungi industry sought and received great
support from Kunming Edible Fungi Research Institute and hired experienced experts to form a technology team
The team successfully cultivated a black fungal strain that suits the climate and weather conditions in Yunnan and
won the Third Place Award in the Agriculture Group of Yunnan Innovative Entrepreneur Competition
Backed by a solid technology team KH has gradually grown from a start-up to a big company that shoulders
significant social responsibility as well as offers a variety of products
62 Products and Services
Auricularia auricula-judae commonly known as Jewrsquos ear wood ear jelly ear or black fungus is a species of
edible fungus which is widely consumed in China as it is used in both Chinese cuisine and Chinese medicine Black
fungus has a mild flavor and is rich in protein carbohydrates and minerals Several researches also indicated that
two glucans isolated from black fungus showed potent antitumor properties Black fungus can be dried and
rehydrated Dried fungi can be preserved for a long period of time and still retain nutritional contents and the
original flavor once rehydrated It can also be used as an ingredient to produce other popular food products
Shidian Town lies at the southern part of Hengduan Mountains next to Nujiang River With favorable climate and
abundant natural resources Shidian is a great place to grow black fungus and to set up plantations KH takes great
advantage of these conditions and has built up its business there
KH provides a range of fungal products to consumers including 1) Mulberry Branch Black Fungus 2) Black
Fungus Essence Powder and 3) Black Fungus Noodle
Mulberry Branch Black Fungus
Mulberry Branch Black Fungus is the organic black fungus growing from mulberry trees without using any
fertilizers or pesticides According to two quality tests conducted by Supervision and Testing Center for Edible
Fungi Quality (Shanghai) Ministry of Agriculture (Test Report Number 2014-W2560G 2014-W2561G)
compared with black fungi growing from other common wood (containing 141g of protein and 741g of glucan
per 100g sample) mulberry branch black fungus has higher nutritional value for it contains more protein and
glucans (147g of protein and 82g of glucan per 100g sample) For this product KH offers several different
packages such as gift box and paper bag to cater to different customer groups This product is produced by KH at
its own facilities
Picture 2 Mulberry Branch Black Fungus
14
Black Fungus Essence Powder
Ground to a grain size of 48 microm by ultra-micro grinder under the temperature of -27degC black fungi are turned to
essence powder Since this method breaks down the cell walls of black fungi the nutritional contents are fully
released Since this process is operated under an extremely low temperature the nutritional value is very well
preserved Therefore consumers can take in the nutrients of black fungi more easily by taking this essence powder
This product is produced by Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) and has
passed the quality test conducted by Yunnan Yunce Quality Testing Co Ltd (Test Report Number YC1803217)
KH has signed a contract with Zhongyuan KH provides raw materials and pays the processing fee to Zhongyuan
Picture 3 Black Fungus Essence Powder
Black Fungus Noodle
Black fungus noodle is made from black fungus powder and high-quality wheat flour Noodle is a common staple
for Chinese consumers Since this product contains black fungus powder it has higher nutritional value compared
with ordinary noodles and has therefore become popular among consumers This product is produced by Longyang
Yongda Food Product Processing Factory (hereafter referred as Yongda) and has passed the quality test conducted
by Yunnan Institute of Product Quality Supervision amp Inspection (Test Report Number SP201800470) KH has
signed a contract with Yongda under which KH provides raw materials and pays the processing fee to Yongda
Picture 4 Black Fungus Noodle
15
63 Marketing Strategy
KHrsquos basic marketing principles are ldquoTo spread knowledge and green concepts To provide well-rounded product
series and To stay up-to-date and innovativerdquo
Specifically first KH not only sells its products but also actively spread the knowledge about the medical and
nutritional functions of black fungus and the idea of sustainable development to the public via multiple channels
Second KH has identified different customer groups according to their preferences and consumption habits and
provide different types of products to each group For example ordinary housewives prefer products with low
prices wealthy people prefer well-packaged and high-end products elderly people are more interested in products
that will be beneficial to their health KHrsquos products also have different packages and prices to cater to different
situation For example products in normal size and normal package are targeted at customers who will consume
the products themselves products in delicate packages could be a great gift to clients and guests products in large
packages are targeted at restaurants and canteens
Third KH employs three types of sales channels which not only cover the traditional approaches but also innovative
ones The first type is the traditional channel KH cooperates with distributors and sales agents to sell products KH
also cooperates with several local schools to provide nutritious lunch for students In this way KH has built up a
good reputation which indirectly promotes its brand and sales The second type is the online channel KH has built
up partnership with ulecom to distribute its products and is setting up its online store and a platform on its official
account of WeChat Also KH is actively contacting Tmallcom and jdcom to get access to a bigger customer group
The third type is new retail channel KH will set up experience restaurants called ldquoWood Ear Societyrdquo to further
promote its products and health concepts In these restaurants customers could not only purchase the products
mentioned in the previous part but also could taste more food and dishes cooked with black fungi such as black
fungus noodle black fungus pho black fungus dumpling and black fungus steam bun Customers could dine in
take away the food they order or have it delivered to their homes These dishes will be cooked in a centralized
kitchen and then delivered to each restaurant which will ensure food quality and food safety
Picture 5 KHrsquos Online Store
Forth KH has also set up an after-sale service system to maintain customer relationship KH will invite each
customer to register in its system and then analyze their consumption habits in order to gain a better understanding
of their preferences and apply personalized promotion strategies Also KH will organize training for its sales staff
16
distributors and sales agents on which they would not only learn product information but also nutrition knowledge
and the idea of sustainable development
Fifth KH has drawn up a promotion plan to promote its brand ldquoFatty Surdquo in three stages The first stage is Warm-
up which is from January 2018 to December 2018 In this stage KH will introduce the concept of ldquoHealthy Liferdquo
to customers and the public via advertisements on mass media The second stage is Heat-up which is expected to
be from January 2019 to December 2019 In this stage KH will continuously promote the brand and the concept
by employing more advertising channels and platforms for example advertisements in railway stations airports
and TV programs The third stage is Heat-preserving which is expected to start from January 2020 In this stage
KH will keep the brand image active by regular promotion
In short KH applies multi-tiered plans and strategies to expand the market more efficiently and quickly
Picture 6 the Design Sketch of ldquoWood Ear Societyrdquo
17
64 Development Strategy
As a company with strong sense of social responsibility KH not only aims to develop itself but also strives to
promote the economic growth in Shidian Town To achieve these two goals KH engages local farmers as its
contracted growers and pre-sells the growers at a low price the fungal strains which could be used to grow black
fungi To ensure the quality and the quantity of fungi KH also provides free technical guidance to growers via local
cooperatives (branches of KH which help KH to coordinate production recruit growers and communicate with
growers) The operation structure is illustrated in the flow chart below
Chart 1 KHrsquos Operation Structure
Through this structure KH gets connected with local farmers (growers) and therefore could lead them to develop
altogether By providing and distributing unified fungal strains the growers KH therefore ensures the purity and
quality of product In addition this structure creates more than 300 jobs in Shidian thereby greatly enhancing the
local economy
To expand its business enlarge its product offerings and lead the local economy further KH has several plans
which are briefly described below
First KH is expanding its production capability by building new factories and plantations KH signed the
Agreement on Investing and Developing the Construction Project of Sangzhi Black Fungal Strains with Annual
Production of 30 million and Fine Processing with Shidian Government on September 11th 2015 By June 30th
2018 the infrastructures and factories were completed and the facilities to produce fungal strains was near
completion In 2019 and 2020 KH will continue the construction and related facilities
KH (overall managing providing strains
and equipment selling products)
Cooperatives (coordinating production recruiting
growers distributing strains providing support)
Growers (using fungal strains to
grow fungi pre-processing fungi)
Consumers
Selected and processed fungi
Raw fungi
18
Picture 7 KHrsquos Factory
Second KH is to enlarge its product offerings by developing more products KH signed the Cooperation Agreement
on Product Development with Kunming Edible Fungi Research Institute on September 2nd 2017 The institute is
expected to complete the development of Black Fungus Tablet Black Fungus Drink and so on by the end of 2018
and complete Black Fungus Capsule by the end of 2019 KH is also studying other edible fungi for example lingzhi
mushroom and will develop products like lingzhi Mushroom Spore Powder and lingzhi Mushroom Spore Oil KH
has successfully planted lingzhi mushroom in its plantation which has built up solid foundation for further
production Moreover KH also has the plan to cooperate with cosmetics RampD institutes and pharmaceutical
institutes to study more effects and values of black fungi and lingzhi mushrooms and develop skincare products
and medicines using black fungi and lingzhi mushrooms as ingredients
Picture 8 Lingzhi Mushroom in KHrsquos Plantation
19
65 Business Partners
KH has established partnerships with the following institutes and companies to develop or produce products
bull Kunming Edible Fungi Research Institute
bull Yunnan Yunjun Technology (Group) Co Ltd
bull Lijiang Zhongyuan Green Food Co Ltd
bull Longyang Yongda Food Product Processing Factory
bull Kunming Jinmo Trade Co Ltd
bull Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
bull China Post Shidian Town Branch
Kunming Edible Fungi Research Institute
Kunming Edible Fungi Research Institute (hereafter referred as KM Institute) is a professional agent researching
and studying edible fungi and developing fungal products KM Institute provides professional guidance on
technology to KH and develops deep-processed fungal products according to KHrsquos requirement while KH is
responsible for market analysis and research funds
Yunnan Yunjun Technology (Group) Co Ltd
Yunnan Yunjun Technology (Group) Co Ltd (hereafter referred as Yunjun) is a company researching developing
and processing fungal products Yunjun provides technical support and professional training to KH and cooperates
with KH to develop fungal products while KH is responsible for market analysis product promotion research
equipment research materials and research funds
Lijiang Zhongyuan Green Food Co Ltd
Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) is a company processing and selling
fungal products and agricultural products KH provides black fungi to Zhongyuan and contracts with Zhongyuan
to process Black Fungus Essence Powder
Longyang Yongda Food Product Processing Factory
Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) is a company processing
agricultural products and food products KH provides black fungi to Yongda and contracts with Yongda to process
Black Fungus Noodles
Kunming Jinmo Trade Co Ltd
Kunming Jinmo Trade Co Ltd (hereafter referred as Jinmo) is a company designing and producing packages and
commercial brochures KH contracts with Jinmo to design and produce packages for its products including the
packing boxes gift boxes commercial brochures plastic packages and so on
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch) (hereafter referred as Anzhi) is a
company providing delivering services KH has got the franchise from Anzhi to set up an express delivery station
in its own company to distribute its products at a low cost
China Post Shidian Town Branch
China Post is a state-owned company providing posting and delivering services It owns an online shopping
platform ndash ulecom with a huge customer base KH promotes and sells its products on ulecom
20
66 Permit and License
Business License
(Duplicate copy) Uniform Social Credit Code 9153052106555747L a) Company Name Shidian Kanghong Agricultural Technology Development Co Ltd b) Type of Company Limited liability company (Foreign Enterprise Legal Person Sole Proprietorship) c) Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province China d) Legal Representative Yan Su e) Registered Capital RMB 2 million f) Date of Establishment January 24th 2013 g) Operating Period January 24th 2013 to January 24th 2043 h) Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily groceries
and building materials Import and export trading (Projects needed to be approved under the laws can be operated after approved by relevant departments)
Issued by Bureau of Market Supervision and Administration of Shidian County on August 14th 2018
21
Food Business Operation License
(Duplicate Copy)
a) Operator Name Shidian Kanghong
Agricultural Technology Development
Co Ltd
b) Social Credit Code (Identity Card
Number) 9153052106555747L
c) Legal representative (Person in
Charge) Yan Su
d) Address No23 Group 2 Jiucheng
Community Jiucheng County Shidian
Town Baoshan City Yunnan Province
e) Operation Address
Zhaojia Village Huaxing Community
Youwang County Shidian Town
Baoshan City Yunnan Province
f) Main Body Type
Food Business Operator
g) Food Type
Sales of pre-packaged food (exclude
frozen food) sales of bulk food (exclude
frozen food)
Valid until July 24th 2021
Description
1 Food Business Operation License is the legitimate certificate of the permit for food business
that an operator gets
2 The License has original and duplicate copies which have the same legal effect The
original License should be hung or placed on a prominent position at the operating site
3 The License must not be forged modified resold leased lent or transferred in any other
illegal forms
4 The operator should carry out business within the approved scope
5 The operator should accept the supervision and management of the Food and Drug
Supervision and Administration Department
6 The operator should apply to change the License when the permitted items are changed
7 The operator should timely apply for an extension at the former department in 30 working
days before the License expires
h) License Number JY15305210013112
i) Daily Supervision Management Organization Market Supervision
Administration Bureau of Youwang County
j) Daily Supervisors Shaode Duan Shaoming Qian
k) Complain Call12331
l) License Issuing Authority Market Supervision Administration Bureau of Shidian
County
m) Issuer Shaoming Qian
July 25th 2018
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
2
1 Summary of Certain Defined Terms
ldquoThe Company Kanghongrdquo
Kanghong International Trade Co Ltd (BVI Company Number 1977961) a company incorporated under the
laws of the British Virgin Islands and having its registered address at the offices of Vistra Corporate Services
Centre Wickhams Cay II Road Town Tortola VG1110 British Virgin Islands is the holding company that
indirectly owns 100 of the outstanding shares of Shidian Kanghong Agricultural Technology Development Co
Ltd
ldquoKHrdquo
Shidian Kanghong Agricultural Technology Development Co Ltd a company incorporated under the laws of
Peoplersquos Republic of China and having its registered address at Jiaochangba Wanxing Village Wanxing Town
Shidian County Baoshan City Yunnan Province China and an indirect wholly-owned subsidiary of the Company
ldquoDCSXrdquo
The Dutch Caribbean Securities Exchange
ldquoACTrdquo
The BVI Business Companies Act 2004 (No 16 of 2004) including any modification extension re-enactment or
renewal thereof and any regulations made thereunder
ldquoIFRSrdquo
International Financial Reporting Standards the set of international accounting standards stating how particular
types of transactions and other events should be reported in financial statements
ldquoLADrdquo
Listing Advisor
ldquoChucheng Capitalrdquo
Shanghai Chucheng Investment Management Co Ltd
ldquoListing Rulesrdquo
The Listing Rules of the DCSX
3
2 Important Information and Notices
Dear investors
This Information Memorandum for listing has been approved by Kanghong International Trade Co Ltd (BVI
Company Number 1977961 the ldquoCompanyrdquo) The sole purpose of this Information Memorandum is to list the
presently outstanding ordinary shares of the Company on the Dutch Caribbean Securities Exchange NV (ldquoDCSXrdquo)
in Curacao (Dutch Caribbean) Curacao is a country within the Kingdom of the Netherlands The listed shares will
be replaced on a one to one basis by listed Depository Receipts (DRrsquos) upon completion of the official issuance of
such DRrsquos in full accordance with the legal and procedural requirements of the issuance and listing of such DRrsquos
as demanded by the DCSX
This Information Memorandum does not contain all the information that a future investor should consider before
investing Potential investors should not regard the content of this Information Memorandum as advice on any
matters relating to the investment including but not limited to issues of legality taxation or finance nor as
recommendation instruction for the subscription purchase holding or disposition of the securities Every potential
investor should consult his or her independent professional advisor to evaluate the strengths and risks of investing
in the Company You and your advisors must rely on your investigations about the Companys stocks and listing
clauses to assess the advantages and risks
This Information Memorandum does not constitute or form any offer or invitation to sell or issue or any solicitation
of any offer to purchase or subscribe to any securities Neither this Information Memorandum nor the publication
of the information contained herein is intended to be any inducement to sign any contract and in no event shall it
be construed so in any jurisdiction This Information Memorandum may be withdrawn at any time before the
proposed listing This Information Memorandum is intended to provide information to prospective investors in their
evaluation of the investment and should only be used for this purpose The Company may consider future (initial)
public offering in which case the Company will make more information available to investors in due course and
as appropriate
The Company expressly reserves the right to reject any or all tender offer or proposed investment in its sole
discretion and at any time to notify any potential investor to terminate the discussion Furthermore the Company
reserves the right to withdraw supplement alter modify sort or reduce the scope of or the content of this
Information Memorandum in each case subject to the rules and regulations of the DCSX
This Information Memorandum contains forward-looking statements concerning plans objectives goals strategies
presented by the Company in the form of projections or expectations of revenues income (or loss) earnings (or
loss) per share or other financial projections These statements include the words such as ldquobelieverdquo ldquoestimaterdquo
ldquoexpectrdquo ldquointendrdquo ldquomayrdquo ldquowillrdquo ldquoshallrdquo ldquomayrdquo or ldquoshouldrdquo and other expressions of similar nature and they
address matters that involve risks and uncertainties Forward-looking statements are based on an assessment of the
economic developments operating conditions and certain assumptions regarding the future events and actions that
are current views of the Company andor the Directors as of the date of this Information Memorandum As a result
these forward-looking statements are not the guarantees of future performance and many known and unknown
risks unexpected uncertainties assumptions and other important factors other than the Company the Directors and
the Management of the Company could cause actual results to differ materially from those expressed in or implied
by these forward-looking statements Investors should be aware not to exclusively rely on such forward-looking
statements The Company does not undertake any obligation to update or revise any of the forward-looking
statements contained in this Information Memorandum whether as a result of new information future events or
otherwise The Company does not make any representation warranty or prediction that results anticipated by such
forward-looking statements will be achieved All subsequent written and forward-looking oral statements are based
on the above and the cautionary statements contained in this Information Memorandum
4
Certain statements estimates and financial projections included in this Information Memorandum are based on a
variety of assumptions which may or may not prove to be accurate or may be subject to disputes Each potential
investor should independently investigate and analyze the statements estimates and financial projections in the
document The Company does not have any obligation to provide any other information to the recipient of this
Information Memorandum This Information Memorandum does not constitute a recommendation endorsement or
confirmation of the value of the securities being offered
In certain jurisdictions there may be restrictions on the distribution of this Information Memorandum and issuance
of securities Any person who reviews this Information Memorandum and wishes to invest in the securities is
responsible for his or her understanding and compliance with all applicable laws and regulations of any relevant
jurisdictions The potential investors should also understand and ensure compliance with the relevant foreign
exchange and tax regulations applicable to them considering their citizenships residences and other relevant
factors
The Ministry of Finance in Curacao Dutch Caribbean the Central Bank of Curaccedilao and Sint Maarten and the
Dutch Caribbean Securities Exchange (DCSX) or any other countrygovernment authority andor agency of
Curacao are not responsible for any information contained in this Information Memorandum and they do not make
any representations or guarantees to the accuracy or completeness of the Information Memorandum Moreover
neither the content nor the publication of this Information Memorandum is to be taken as an indication of any
approval authorization warranty commitment statement or certification of any countrygovernment
The Company and its Directors and Senior Management are responsible for the authenticity accuracy and
completeness of the content of this Information Memorandum The Listing Advisor (LAD) Shanghai Chucheng
Investment Management Co Ltd mentioned in this Information Memorandum shall not take any responsibility
for the authenticity accuracy or completeness of any information (finance law or other) contained in this
Information Memorandum and does not make any representation or provide any approval commitment statement
certification or guarantee with respect to any information in this Information Memorandum
For the sake of completeness it is reiterated that the securities to be listed by the Company through this Information
Memorandum are the outstanding shares of the Company These shares may and can be replaced on a one to one
basis by listed Depository Receipts (DRrsquos) upon completion of the official issuance of such DRrsquos in full accordance
with the legal and procedural requirements of the issuance and listing of such DRrsquos as demanded by the DCSX
Each Depository Receipt represents one share and each Depository Receipt enjoys all the beneficial rights to each
corresponding share or stock The Depository Receipt is a security that has the same rights in all respects as the
Companys share A separate contract must be agreed upon between the Company and the shareholders specifying
the provisions for Depository Receipt holders and their detailed rights All shares owned by the shareholders of the
Company will be registered as Depository Receipts on the DCSX and in the Brokersrsquo system The Company and
all the shareholders shall undertake the responsibility of submitting all the information and details about shares and
Depository Receipts accurately and completely to the DCSX and Brokers
The DR holders will enjoy benefits on their holdings as if they were shareholders The Companys Depository
Receipt numbers will be consistent with the number of shares Depository Receipts will be reserved in the form of
electronic data The DCSX and Brokers do not have the obligation to issue any Depository Receipts certificates to
the shareholders Only when the shareholders convert their shares to Depository Receipts these can become
tradeable on the DCSX and Brokersrsquo system The DCSX and Brokers will register and manage the Depository
Receipts under the relevant rules The Company promises that during the listing of the Company the DCSX and
its Brokersrsquo records shall prevail
Potential investors should read the full text of this document and be aware that investing in the Company involves
a certain degree of risk Potential investors should also pay special attention to the ldquoRisk Factors and Litigationrdquo
5
section of this Information Memorandum Prospective investors before deciding to invest should carefully
consider all of their risks including financial and tax issues and consult professional advice from their accountants
lawyers and other professional advisors The Company is not in any capacity to recommend or decide whether the
investors can or should invest in the Company For such advice each prospective investor must contact their
independent professional consultant
If you need any further information please consult with your stock brokers and other professional advisors
The date of this Information Memorandum is on September 7th 2018
6
3 Issuer and the List of Institutions Related to the Listing
Issuer
Kanghong International Trade Co Ltd
Vistra Corporate Services Centre
Wickhams Cay II Road Town
Tortola VG1110 British Virgin Islands
Contact Person Chun Wang
Tel +86-0875-8867026
E-mail sdkhnykjfzyxgs163com
Operating Entity in China
Shidian Kanghong Agricultural Technology Development Co Ltd
Huaxing Industrial Area Youwang Town
Shidian County Baoshan City Yunnan Province China
Contact Person Chun Wang
Tel +86-0875-8867026
E-mail sdkhnykjfzyxgs163com
Listing Advisor
Shanghai Chucheng Investment Management Co Ltd
Room 601 Huaneng Union Tower
Lane No 958 Lu Jiazui Ring Road Pudong District
Shanghai China
Contact Person Houhai Li
Tel +86-021-31663586
E-mail lihouhaichuchengcapitalcom
Lawyer
Beijing Yingke Law Firm Shanghai Office
Yingke Law Building 181
Jiangchang No3 Road Jing an District
Shanghai China
Contact Person Zhihua Wang
Tel +86-021-36697980
Fax +86-021-36697889
E-mail wangzhihuayingkelawyercom
Auditor
Shanghai Shunzheng CPAs LP
Room 1220 No28 Yuanwen Road
Shanghai China
Contact Person Fengshan Liu
Tel +86-021-62122672
E-mail liufengshan139com
7
4 Company Overview
41 Business Structure
Kanghong International Trade Co Ltd a company incorporated under the laws of the British Virgin Islands is
the company seeking to be listed on DCSX Kanghong International Trade Co Ltd is the owner of 100 of the
outstanding shares of Kanghong International Trade (HK) Co Limited a company incorporated under the laws of
Hong Kong which in turn is the owner of 100 of the outstanding shares of Shanghai Erxing Biotechnology Co
Ltd a company incorporated and organized under the laws of China as a Wholly Owned Foreign Entity (ldquoWOFErdquo)
Shanghai Erxing Biotechnology Co Ltd owns 100 of the outstanding shares of Shidian Kanghong Agricultural
Technology Development Co Ltd (ldquoKHrdquo) which is the operating company in China with assets and business
operations
Kanghong International Trade Co Ltd
(Incorporated in the British Virgin Islands
BVI Company Number 1977961)
Kanghong International Trade (HK) Co Limited (Incorporated in Hong Kong)
Shanghai Erxing Biotechnology Co Ltd (Incorporated in Shanghai City China)
Shidian Kanghong Agricultural Technology Development Co Ltd
(Incorporated in Yunnan Province China)
100 Holding
100 Holding
100 Holding
8
42 About the Company
ldquoShidian Kanghong Agricultural Technology Development Co Ltdrdquo is wholly owned by ldquoKanghong International
Trade Co Ltdrdquo a company incorporated and registered under the laws of the British Virgin Islands ldquoShidian
Kanghong Agricultural Technology Development Co Ltdrdquo is a company incorporated and organized under the
laws of China on January 24th 2013
ldquoShidian Kanghong Agricultural Technology Development Co Ltdrdquo holds a valid business license (Uniformed
Social Credit Code 9153052106555747L) issued by the Bureau of Market Supervision and Administration of
Shidian Town Baoshan City Yunnan Province China on June 27th 2016
Company Name Shidian Kanghong Agricultural Technology Development Co Ltd
Type of Company Limited liability company (Natural person investment or holding)
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Registered Capital RMB 2 million
Date of Establishment January 24th 2013
Operating Period January 24th 2013 to January 24th 2043
Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily
groceries and building materials Import and export trading (Projects need to be approved under the laws and can
only be operated after being approved by relevant governmental authorities)
43 Companyrsquos Operation
Kanghong International Trade Co Ltd through its wholly-owned subsidiary Shidian Kanghong Agricultural
Technology Development Co Ltd (hereafter referred as ldquoKHrdquo) is engaged in the research processing and sales
of edible fungi and fungal products KH cultivates the fungal strains sells and delivers the strains to contracted
growers purchases the fungi and then sells the selected fungi and processed products More details about the
Company can be found in Section 6 ldquoBusiness Overviewrdquo of this Information Memorandum Detailed background
information of the Directors and Senior Management Team can be found in Section 8 of this Information
Memorandum
9
Picture 1 The company site of KH
10
5 Terms of the Issuance and Investment Overview
The information provided in this section is a summary of highlights contained elsewhere in this Information
Memorandum and should be reviewed carefully together with other sections before an investment decision is made
Company Nature
The Company is a limited liability company incorporated under the laws in the British Virgin Islands on May 2nd
2018 The Company owns 100 of the shares of its operating entity in China Shidian Kanghong Agricultural
Technology Development Co Ltd As of the submission date of this Information Memorandum the Companyrsquos
shares are not listed on any other stock exchanges The Companyrsquos securities to be listed will be the Depository
Receipts as explained in this Information Memorandum Investing in shares or Depository Receipts or other
securities involves risks and investors should consider the risks involved
Listing Advisor (LAD)
Shanghai Chucheng Investment Management Co Ltd is a Chinese company and has been licensed as a DCSX
Listing Advisor (LAD) by the DCSX The Company has appointed Shanghai Chucheng Investment Management
Co Ltd as its Listing Advisor (LAD) under the Listing Rules of the DCSX The mission of Shanghai Chucheng
Investment Management Co Ltd is to assist the Company in listing the securities of the Company on the DCSX
Shanghai Chucheng Investment Management Co Ltd is not responsible for the authenticity accuracy or
completeness of any information (financial legal or other) contained in this Information Memorandum and it
doesnrsquot make any representation or provide any approval commitment statement certification or guarantee to the
content of this Information Memorandum
Listing on the DCSX and Fund-raising Purposes
As aforementioned the Company intends to apply for listing via issuing Depository Receipts that will replace the
listed shares on a one to one basis With the listing of ultimately the Depository Receipts no new shares will be
issued at this stage In other words the Company is not to raise or receive new funds in connection with this listing
As indicated in the box below the Company may wish to raise funds in the future through an issuance and listing
of its new securities The Company andor its shareholders may in the future wish to trade the Depository Receipts
corresponding to their existing shares through the DCSX The authorized capital of the Company is 100000000
ordinary shares the nominal value of the ordinary shares is 00005 USD per share and the listing price of the shares
is expected to be 04 USD per share The market value of the Company is therefore estimated to be 40000000
USD Projections and calculation on which the market value is based can be found in the second and third parts of
Section 9 (ldquoFinancial Statementsrdquo) of this Information Memorandum
The Company does not preclude the possibility of raising funds through the issuance of new shares in the
future in which case the Company will prepare and publish the relevant and necessary documents and
procedures under the laws or listing rules including the submission of a new Information Memorandum
Sales Period Commitment
Currently Directors on the Companyrsquos Board collectively hold a total of 4335 shares of the outstanding ordinary
shares of the Company To provide potential investors with certain level of comfort toward the long-term
expectation of the Company all Directors of the Company (hereinafter referred to as the ldquorestricted shareholdersrdquo)
have agreed not to trade any of their shares or other securities (if any) of the Company held by them in any form
within 12 months from the date of listing of the Companyrsquos shares on the DCSX andor such shares being able to
11
trade (once converted to Depository Receipts) To ensure compliance of the foregoing agreement and the applicable
laws each restricted shareholder will agree not to sell or distribute the Companyrsquos shares or other securities publicly
or privately and not to convert or exchange the shares or other securities held by them into any other securities
options or rights during the restricted period
However as to the Companyrsquos total issued share capital the restricted commitment mentioned above will not
apply to a possible tender offer An offer to purchase more than 4335 of the Companyrsquos outstanding share
capital will be regarded as a buyout offer and if the Board of Directors decides to accept such offer the share
or other security transaction that the Company and the restricted shareholders enter into therewith will be
exempt from the above commitment provided that such a buyout is approved first by the DCSX
The Stock Options
On the issuing date of this Information Memorandum neither the Company nor the group has any other unrevealed
stock option commitment that has not been disclosed
The RegistrationTransaction of the Depository Receipts
The Company will eventually through a yet to be appointed issuer (a Financial Institution acceptable to the DCSX)
issue Depository Receipts corresponding to the issued and outstanding ordinary shares of the Company though the
DRs will not be evidenced by any certificates With the listing of the Companyrsquos Depository Receipts on the DCSX
the DCSX and its Brokers will register and manage the trading of the DRs The DRs may be traded in the market
but the Company will not and cannot provide any guarantee with respect to their liquidity The Company agrees
that the Company and all the shareholders will submit the complete and accurate information about the shares and
the required Depository Receipts to the Financial Institution that will issue the DRrsquos After the listing the
registration and trading of the Depository Receipts must comply with the laws and regulations of the DCSX and
other relevant regulators
The Company agrees that the Depository Receipt holders have the same rights as registered ordinary shareholders
Meanwhile when the Company holds a general meeting of shareholders the Depository Receipt holders should
also be notified and allowed to exercise the same voting rights as holders of ordinary shares
Listing Cost
The listing fees and all other directly attributed costs (including audit fees legal fees and other professional costs)
associated with the listing are or will be paid by the Company using existing funds
Inquiry
Any inquiry on regarding this Information Memorandum about listings should be directed to the Listing Advisor
(LAD) Shanghai Chucheng Investment Management Co Ltd
12
6 Business Overview
61 Executive Summary
Shidian Kanghong Agricultural Technology Development Co Ltd (hereafter referred as ldquoKHrdquo) is registered in
Shidian Town Baoshan City Yunnan Province China established on January 24th 2013 with the registered capital
of RMB 2 million
KHrsquos main business is to cultivate fungal strains process edible fungi sell fungi and processed products KH
cooperates with local farmers It provides fungal strains to contracted growers who then plant the strains After
harvesting with preliminary processing such as drying KH purchases the dried fungi from the growers The dried
fungi are ready for sale or will be further processed into products such as black fungus noodle and black fungus
powder etc
Through the cooperation with growers KH not only decreases its business cost but also promotes the local
economy At its very inception KH set up a great goal of ldquoleading the entire village to a better liferdquo Through the
years KH hass consistently pursued this goal by helping local farmers to learn advanced agricultural technology
providing them with good fungal species funding local schools and improving local facilities
KH has won several important recognitions and awards as a result of its professional and outstanding performance
in the field of edible fungi production It was identified as a ldquoScientific amp Technological Small amp Medium
Enterprise of Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named
as ldquothe Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in
2015 The plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial
departments and has been used as the research center for experts from Chinese Academy of Sciences and Yunnan
Province
KH attaches great importance to product quality and innovation as well as brand development KH holds 1 patent
for invention 2 patents for package designing and 8 patents for practical innovation One of its products Mulberry
Branch Black Fungus has been recognized as an ldquoImportant Innovative Product of Yunnan Provincerdquo by Yunnan
Provincial Science and Technology Department since 2015 KH also holds a registered trademark ldquoFatty Surdquo
(Registered Number 14219423) for its products KH aims to develop ldquoFatty Surdquo to a well-known fungus brand in
China and ensure that customers from all over China could enjoy ldquothe gift from nature and the taste of forestrdquo
Adhering to the core values of ldquoPersistence Integrity Hard-working and Sticking to the original goalrdquo and the
operation principle of ldquoEnsuring the company employees growers and customers to all benefit from our businessrdquo
KH is consistently developing itself to become a better company with greater social responsibility
Development History
Throughout its development history KH has been expanding its business step by step
On January 24th 2013 Mr Yan Su and Mr Guangbiao Wu established and incorporated Shidian Kanghong
Agricultural Technology Development Co Ltd aiming to lead the whole village to a better life At the very
beginning KH only had a temporary factory without much equipment or facilities for large-scale production
Lacking experience and technical supervision the first batch of black fungal strains were infected and did not result
in any fungi
In 2014 after the above setback Mr Su and Mr Wu borrowed money from their families and friends to build
13
factories and install facilities They also hired two technicians from Zhejiang Province to supervise the entire
production process However due to a flood in the planting base and extreme weathers 157 million fungal strains
were heavily damaged The direct economic loss was up to RMB 52 million
Having learnt from past failures Mr Su realized that the most important aspect in fungal planting is technology
Therefore in 2015 Mr Su did considerable researches in the black fungi industry sought and received great
support from Kunming Edible Fungi Research Institute and hired experienced experts to form a technology team
The team successfully cultivated a black fungal strain that suits the climate and weather conditions in Yunnan and
won the Third Place Award in the Agriculture Group of Yunnan Innovative Entrepreneur Competition
Backed by a solid technology team KH has gradually grown from a start-up to a big company that shoulders
significant social responsibility as well as offers a variety of products
62 Products and Services
Auricularia auricula-judae commonly known as Jewrsquos ear wood ear jelly ear or black fungus is a species of
edible fungus which is widely consumed in China as it is used in both Chinese cuisine and Chinese medicine Black
fungus has a mild flavor and is rich in protein carbohydrates and minerals Several researches also indicated that
two glucans isolated from black fungus showed potent antitumor properties Black fungus can be dried and
rehydrated Dried fungi can be preserved for a long period of time and still retain nutritional contents and the
original flavor once rehydrated It can also be used as an ingredient to produce other popular food products
Shidian Town lies at the southern part of Hengduan Mountains next to Nujiang River With favorable climate and
abundant natural resources Shidian is a great place to grow black fungus and to set up plantations KH takes great
advantage of these conditions and has built up its business there
KH provides a range of fungal products to consumers including 1) Mulberry Branch Black Fungus 2) Black
Fungus Essence Powder and 3) Black Fungus Noodle
Mulberry Branch Black Fungus
Mulberry Branch Black Fungus is the organic black fungus growing from mulberry trees without using any
fertilizers or pesticides According to two quality tests conducted by Supervision and Testing Center for Edible
Fungi Quality (Shanghai) Ministry of Agriculture (Test Report Number 2014-W2560G 2014-W2561G)
compared with black fungi growing from other common wood (containing 141g of protein and 741g of glucan
per 100g sample) mulberry branch black fungus has higher nutritional value for it contains more protein and
glucans (147g of protein and 82g of glucan per 100g sample) For this product KH offers several different
packages such as gift box and paper bag to cater to different customer groups This product is produced by KH at
its own facilities
Picture 2 Mulberry Branch Black Fungus
14
Black Fungus Essence Powder
Ground to a grain size of 48 microm by ultra-micro grinder under the temperature of -27degC black fungi are turned to
essence powder Since this method breaks down the cell walls of black fungi the nutritional contents are fully
released Since this process is operated under an extremely low temperature the nutritional value is very well
preserved Therefore consumers can take in the nutrients of black fungi more easily by taking this essence powder
This product is produced by Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) and has
passed the quality test conducted by Yunnan Yunce Quality Testing Co Ltd (Test Report Number YC1803217)
KH has signed a contract with Zhongyuan KH provides raw materials and pays the processing fee to Zhongyuan
Picture 3 Black Fungus Essence Powder
Black Fungus Noodle
Black fungus noodle is made from black fungus powder and high-quality wheat flour Noodle is a common staple
for Chinese consumers Since this product contains black fungus powder it has higher nutritional value compared
with ordinary noodles and has therefore become popular among consumers This product is produced by Longyang
Yongda Food Product Processing Factory (hereafter referred as Yongda) and has passed the quality test conducted
by Yunnan Institute of Product Quality Supervision amp Inspection (Test Report Number SP201800470) KH has
signed a contract with Yongda under which KH provides raw materials and pays the processing fee to Yongda
Picture 4 Black Fungus Noodle
15
63 Marketing Strategy
KHrsquos basic marketing principles are ldquoTo spread knowledge and green concepts To provide well-rounded product
series and To stay up-to-date and innovativerdquo
Specifically first KH not only sells its products but also actively spread the knowledge about the medical and
nutritional functions of black fungus and the idea of sustainable development to the public via multiple channels
Second KH has identified different customer groups according to their preferences and consumption habits and
provide different types of products to each group For example ordinary housewives prefer products with low
prices wealthy people prefer well-packaged and high-end products elderly people are more interested in products
that will be beneficial to their health KHrsquos products also have different packages and prices to cater to different
situation For example products in normal size and normal package are targeted at customers who will consume
the products themselves products in delicate packages could be a great gift to clients and guests products in large
packages are targeted at restaurants and canteens
Third KH employs three types of sales channels which not only cover the traditional approaches but also innovative
ones The first type is the traditional channel KH cooperates with distributors and sales agents to sell products KH
also cooperates with several local schools to provide nutritious lunch for students In this way KH has built up a
good reputation which indirectly promotes its brand and sales The second type is the online channel KH has built
up partnership with ulecom to distribute its products and is setting up its online store and a platform on its official
account of WeChat Also KH is actively contacting Tmallcom and jdcom to get access to a bigger customer group
The third type is new retail channel KH will set up experience restaurants called ldquoWood Ear Societyrdquo to further
promote its products and health concepts In these restaurants customers could not only purchase the products
mentioned in the previous part but also could taste more food and dishes cooked with black fungi such as black
fungus noodle black fungus pho black fungus dumpling and black fungus steam bun Customers could dine in
take away the food they order or have it delivered to their homes These dishes will be cooked in a centralized
kitchen and then delivered to each restaurant which will ensure food quality and food safety
Picture 5 KHrsquos Online Store
Forth KH has also set up an after-sale service system to maintain customer relationship KH will invite each
customer to register in its system and then analyze their consumption habits in order to gain a better understanding
of their preferences and apply personalized promotion strategies Also KH will organize training for its sales staff
16
distributors and sales agents on which they would not only learn product information but also nutrition knowledge
and the idea of sustainable development
Fifth KH has drawn up a promotion plan to promote its brand ldquoFatty Surdquo in three stages The first stage is Warm-
up which is from January 2018 to December 2018 In this stage KH will introduce the concept of ldquoHealthy Liferdquo
to customers and the public via advertisements on mass media The second stage is Heat-up which is expected to
be from January 2019 to December 2019 In this stage KH will continuously promote the brand and the concept
by employing more advertising channels and platforms for example advertisements in railway stations airports
and TV programs The third stage is Heat-preserving which is expected to start from January 2020 In this stage
KH will keep the brand image active by regular promotion
In short KH applies multi-tiered plans and strategies to expand the market more efficiently and quickly
Picture 6 the Design Sketch of ldquoWood Ear Societyrdquo
17
64 Development Strategy
As a company with strong sense of social responsibility KH not only aims to develop itself but also strives to
promote the economic growth in Shidian Town To achieve these two goals KH engages local farmers as its
contracted growers and pre-sells the growers at a low price the fungal strains which could be used to grow black
fungi To ensure the quality and the quantity of fungi KH also provides free technical guidance to growers via local
cooperatives (branches of KH which help KH to coordinate production recruit growers and communicate with
growers) The operation structure is illustrated in the flow chart below
Chart 1 KHrsquos Operation Structure
Through this structure KH gets connected with local farmers (growers) and therefore could lead them to develop
altogether By providing and distributing unified fungal strains the growers KH therefore ensures the purity and
quality of product In addition this structure creates more than 300 jobs in Shidian thereby greatly enhancing the
local economy
To expand its business enlarge its product offerings and lead the local economy further KH has several plans
which are briefly described below
First KH is expanding its production capability by building new factories and plantations KH signed the
Agreement on Investing and Developing the Construction Project of Sangzhi Black Fungal Strains with Annual
Production of 30 million and Fine Processing with Shidian Government on September 11th 2015 By June 30th
2018 the infrastructures and factories were completed and the facilities to produce fungal strains was near
completion In 2019 and 2020 KH will continue the construction and related facilities
KH (overall managing providing strains
and equipment selling products)
Cooperatives (coordinating production recruiting
growers distributing strains providing support)
Growers (using fungal strains to
grow fungi pre-processing fungi)
Consumers
Selected and processed fungi
Raw fungi
18
Picture 7 KHrsquos Factory
Second KH is to enlarge its product offerings by developing more products KH signed the Cooperation Agreement
on Product Development with Kunming Edible Fungi Research Institute on September 2nd 2017 The institute is
expected to complete the development of Black Fungus Tablet Black Fungus Drink and so on by the end of 2018
and complete Black Fungus Capsule by the end of 2019 KH is also studying other edible fungi for example lingzhi
mushroom and will develop products like lingzhi Mushroom Spore Powder and lingzhi Mushroom Spore Oil KH
has successfully planted lingzhi mushroom in its plantation which has built up solid foundation for further
production Moreover KH also has the plan to cooperate with cosmetics RampD institutes and pharmaceutical
institutes to study more effects and values of black fungi and lingzhi mushrooms and develop skincare products
and medicines using black fungi and lingzhi mushrooms as ingredients
Picture 8 Lingzhi Mushroom in KHrsquos Plantation
19
65 Business Partners
KH has established partnerships with the following institutes and companies to develop or produce products
bull Kunming Edible Fungi Research Institute
bull Yunnan Yunjun Technology (Group) Co Ltd
bull Lijiang Zhongyuan Green Food Co Ltd
bull Longyang Yongda Food Product Processing Factory
bull Kunming Jinmo Trade Co Ltd
bull Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
bull China Post Shidian Town Branch
Kunming Edible Fungi Research Institute
Kunming Edible Fungi Research Institute (hereafter referred as KM Institute) is a professional agent researching
and studying edible fungi and developing fungal products KM Institute provides professional guidance on
technology to KH and develops deep-processed fungal products according to KHrsquos requirement while KH is
responsible for market analysis and research funds
Yunnan Yunjun Technology (Group) Co Ltd
Yunnan Yunjun Technology (Group) Co Ltd (hereafter referred as Yunjun) is a company researching developing
and processing fungal products Yunjun provides technical support and professional training to KH and cooperates
with KH to develop fungal products while KH is responsible for market analysis product promotion research
equipment research materials and research funds
Lijiang Zhongyuan Green Food Co Ltd
Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) is a company processing and selling
fungal products and agricultural products KH provides black fungi to Zhongyuan and contracts with Zhongyuan
to process Black Fungus Essence Powder
Longyang Yongda Food Product Processing Factory
Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) is a company processing
agricultural products and food products KH provides black fungi to Yongda and contracts with Yongda to process
Black Fungus Noodles
Kunming Jinmo Trade Co Ltd
Kunming Jinmo Trade Co Ltd (hereafter referred as Jinmo) is a company designing and producing packages and
commercial brochures KH contracts with Jinmo to design and produce packages for its products including the
packing boxes gift boxes commercial brochures plastic packages and so on
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch) (hereafter referred as Anzhi) is a
company providing delivering services KH has got the franchise from Anzhi to set up an express delivery station
in its own company to distribute its products at a low cost
China Post Shidian Town Branch
China Post is a state-owned company providing posting and delivering services It owns an online shopping
platform ndash ulecom with a huge customer base KH promotes and sells its products on ulecom
20
66 Permit and License
Business License
(Duplicate copy) Uniform Social Credit Code 9153052106555747L a) Company Name Shidian Kanghong Agricultural Technology Development Co Ltd b) Type of Company Limited liability company (Foreign Enterprise Legal Person Sole Proprietorship) c) Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province China d) Legal Representative Yan Su e) Registered Capital RMB 2 million f) Date of Establishment January 24th 2013 g) Operating Period January 24th 2013 to January 24th 2043 h) Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily groceries
and building materials Import and export trading (Projects needed to be approved under the laws can be operated after approved by relevant departments)
Issued by Bureau of Market Supervision and Administration of Shidian County on August 14th 2018
21
Food Business Operation License
(Duplicate Copy)
a) Operator Name Shidian Kanghong
Agricultural Technology Development
Co Ltd
b) Social Credit Code (Identity Card
Number) 9153052106555747L
c) Legal representative (Person in
Charge) Yan Su
d) Address No23 Group 2 Jiucheng
Community Jiucheng County Shidian
Town Baoshan City Yunnan Province
e) Operation Address
Zhaojia Village Huaxing Community
Youwang County Shidian Town
Baoshan City Yunnan Province
f) Main Body Type
Food Business Operator
g) Food Type
Sales of pre-packaged food (exclude
frozen food) sales of bulk food (exclude
frozen food)
Valid until July 24th 2021
Description
1 Food Business Operation License is the legitimate certificate of the permit for food business
that an operator gets
2 The License has original and duplicate copies which have the same legal effect The
original License should be hung or placed on a prominent position at the operating site
3 The License must not be forged modified resold leased lent or transferred in any other
illegal forms
4 The operator should carry out business within the approved scope
5 The operator should accept the supervision and management of the Food and Drug
Supervision and Administration Department
6 The operator should apply to change the License when the permitted items are changed
7 The operator should timely apply for an extension at the former department in 30 working
days before the License expires
h) License Number JY15305210013112
i) Daily Supervision Management Organization Market Supervision
Administration Bureau of Youwang County
j) Daily Supervisors Shaode Duan Shaoming Qian
k) Complain Call12331
l) License Issuing Authority Market Supervision Administration Bureau of Shidian
County
m) Issuer Shaoming Qian
July 25th 2018
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
3
2 Important Information and Notices
Dear investors
This Information Memorandum for listing has been approved by Kanghong International Trade Co Ltd (BVI
Company Number 1977961 the ldquoCompanyrdquo) The sole purpose of this Information Memorandum is to list the
presently outstanding ordinary shares of the Company on the Dutch Caribbean Securities Exchange NV (ldquoDCSXrdquo)
in Curacao (Dutch Caribbean) Curacao is a country within the Kingdom of the Netherlands The listed shares will
be replaced on a one to one basis by listed Depository Receipts (DRrsquos) upon completion of the official issuance of
such DRrsquos in full accordance with the legal and procedural requirements of the issuance and listing of such DRrsquos
as demanded by the DCSX
This Information Memorandum does not contain all the information that a future investor should consider before
investing Potential investors should not regard the content of this Information Memorandum as advice on any
matters relating to the investment including but not limited to issues of legality taxation or finance nor as
recommendation instruction for the subscription purchase holding or disposition of the securities Every potential
investor should consult his or her independent professional advisor to evaluate the strengths and risks of investing
in the Company You and your advisors must rely on your investigations about the Companys stocks and listing
clauses to assess the advantages and risks
This Information Memorandum does not constitute or form any offer or invitation to sell or issue or any solicitation
of any offer to purchase or subscribe to any securities Neither this Information Memorandum nor the publication
of the information contained herein is intended to be any inducement to sign any contract and in no event shall it
be construed so in any jurisdiction This Information Memorandum may be withdrawn at any time before the
proposed listing This Information Memorandum is intended to provide information to prospective investors in their
evaluation of the investment and should only be used for this purpose The Company may consider future (initial)
public offering in which case the Company will make more information available to investors in due course and
as appropriate
The Company expressly reserves the right to reject any or all tender offer or proposed investment in its sole
discretion and at any time to notify any potential investor to terminate the discussion Furthermore the Company
reserves the right to withdraw supplement alter modify sort or reduce the scope of or the content of this
Information Memorandum in each case subject to the rules and regulations of the DCSX
This Information Memorandum contains forward-looking statements concerning plans objectives goals strategies
presented by the Company in the form of projections or expectations of revenues income (or loss) earnings (or
loss) per share or other financial projections These statements include the words such as ldquobelieverdquo ldquoestimaterdquo
ldquoexpectrdquo ldquointendrdquo ldquomayrdquo ldquowillrdquo ldquoshallrdquo ldquomayrdquo or ldquoshouldrdquo and other expressions of similar nature and they
address matters that involve risks and uncertainties Forward-looking statements are based on an assessment of the
economic developments operating conditions and certain assumptions regarding the future events and actions that
are current views of the Company andor the Directors as of the date of this Information Memorandum As a result
these forward-looking statements are not the guarantees of future performance and many known and unknown
risks unexpected uncertainties assumptions and other important factors other than the Company the Directors and
the Management of the Company could cause actual results to differ materially from those expressed in or implied
by these forward-looking statements Investors should be aware not to exclusively rely on such forward-looking
statements The Company does not undertake any obligation to update or revise any of the forward-looking
statements contained in this Information Memorandum whether as a result of new information future events or
otherwise The Company does not make any representation warranty or prediction that results anticipated by such
forward-looking statements will be achieved All subsequent written and forward-looking oral statements are based
on the above and the cautionary statements contained in this Information Memorandum
4
Certain statements estimates and financial projections included in this Information Memorandum are based on a
variety of assumptions which may or may not prove to be accurate or may be subject to disputes Each potential
investor should independently investigate and analyze the statements estimates and financial projections in the
document The Company does not have any obligation to provide any other information to the recipient of this
Information Memorandum This Information Memorandum does not constitute a recommendation endorsement or
confirmation of the value of the securities being offered
In certain jurisdictions there may be restrictions on the distribution of this Information Memorandum and issuance
of securities Any person who reviews this Information Memorandum and wishes to invest in the securities is
responsible for his or her understanding and compliance with all applicable laws and regulations of any relevant
jurisdictions The potential investors should also understand and ensure compliance with the relevant foreign
exchange and tax regulations applicable to them considering their citizenships residences and other relevant
factors
The Ministry of Finance in Curacao Dutch Caribbean the Central Bank of Curaccedilao and Sint Maarten and the
Dutch Caribbean Securities Exchange (DCSX) or any other countrygovernment authority andor agency of
Curacao are not responsible for any information contained in this Information Memorandum and they do not make
any representations or guarantees to the accuracy or completeness of the Information Memorandum Moreover
neither the content nor the publication of this Information Memorandum is to be taken as an indication of any
approval authorization warranty commitment statement or certification of any countrygovernment
The Company and its Directors and Senior Management are responsible for the authenticity accuracy and
completeness of the content of this Information Memorandum The Listing Advisor (LAD) Shanghai Chucheng
Investment Management Co Ltd mentioned in this Information Memorandum shall not take any responsibility
for the authenticity accuracy or completeness of any information (finance law or other) contained in this
Information Memorandum and does not make any representation or provide any approval commitment statement
certification or guarantee with respect to any information in this Information Memorandum
For the sake of completeness it is reiterated that the securities to be listed by the Company through this Information
Memorandum are the outstanding shares of the Company These shares may and can be replaced on a one to one
basis by listed Depository Receipts (DRrsquos) upon completion of the official issuance of such DRrsquos in full accordance
with the legal and procedural requirements of the issuance and listing of such DRrsquos as demanded by the DCSX
Each Depository Receipt represents one share and each Depository Receipt enjoys all the beneficial rights to each
corresponding share or stock The Depository Receipt is a security that has the same rights in all respects as the
Companys share A separate contract must be agreed upon between the Company and the shareholders specifying
the provisions for Depository Receipt holders and their detailed rights All shares owned by the shareholders of the
Company will be registered as Depository Receipts on the DCSX and in the Brokersrsquo system The Company and
all the shareholders shall undertake the responsibility of submitting all the information and details about shares and
Depository Receipts accurately and completely to the DCSX and Brokers
The DR holders will enjoy benefits on their holdings as if they were shareholders The Companys Depository
Receipt numbers will be consistent with the number of shares Depository Receipts will be reserved in the form of
electronic data The DCSX and Brokers do not have the obligation to issue any Depository Receipts certificates to
the shareholders Only when the shareholders convert their shares to Depository Receipts these can become
tradeable on the DCSX and Brokersrsquo system The DCSX and Brokers will register and manage the Depository
Receipts under the relevant rules The Company promises that during the listing of the Company the DCSX and
its Brokersrsquo records shall prevail
Potential investors should read the full text of this document and be aware that investing in the Company involves
a certain degree of risk Potential investors should also pay special attention to the ldquoRisk Factors and Litigationrdquo
5
section of this Information Memorandum Prospective investors before deciding to invest should carefully
consider all of their risks including financial and tax issues and consult professional advice from their accountants
lawyers and other professional advisors The Company is not in any capacity to recommend or decide whether the
investors can or should invest in the Company For such advice each prospective investor must contact their
independent professional consultant
If you need any further information please consult with your stock brokers and other professional advisors
The date of this Information Memorandum is on September 7th 2018
6
3 Issuer and the List of Institutions Related to the Listing
Issuer
Kanghong International Trade Co Ltd
Vistra Corporate Services Centre
Wickhams Cay II Road Town
Tortola VG1110 British Virgin Islands
Contact Person Chun Wang
Tel +86-0875-8867026
E-mail sdkhnykjfzyxgs163com
Operating Entity in China
Shidian Kanghong Agricultural Technology Development Co Ltd
Huaxing Industrial Area Youwang Town
Shidian County Baoshan City Yunnan Province China
Contact Person Chun Wang
Tel +86-0875-8867026
E-mail sdkhnykjfzyxgs163com
Listing Advisor
Shanghai Chucheng Investment Management Co Ltd
Room 601 Huaneng Union Tower
Lane No 958 Lu Jiazui Ring Road Pudong District
Shanghai China
Contact Person Houhai Li
Tel +86-021-31663586
E-mail lihouhaichuchengcapitalcom
Lawyer
Beijing Yingke Law Firm Shanghai Office
Yingke Law Building 181
Jiangchang No3 Road Jing an District
Shanghai China
Contact Person Zhihua Wang
Tel +86-021-36697980
Fax +86-021-36697889
E-mail wangzhihuayingkelawyercom
Auditor
Shanghai Shunzheng CPAs LP
Room 1220 No28 Yuanwen Road
Shanghai China
Contact Person Fengshan Liu
Tel +86-021-62122672
E-mail liufengshan139com
7
4 Company Overview
41 Business Structure
Kanghong International Trade Co Ltd a company incorporated under the laws of the British Virgin Islands is
the company seeking to be listed on DCSX Kanghong International Trade Co Ltd is the owner of 100 of the
outstanding shares of Kanghong International Trade (HK) Co Limited a company incorporated under the laws of
Hong Kong which in turn is the owner of 100 of the outstanding shares of Shanghai Erxing Biotechnology Co
Ltd a company incorporated and organized under the laws of China as a Wholly Owned Foreign Entity (ldquoWOFErdquo)
Shanghai Erxing Biotechnology Co Ltd owns 100 of the outstanding shares of Shidian Kanghong Agricultural
Technology Development Co Ltd (ldquoKHrdquo) which is the operating company in China with assets and business
operations
Kanghong International Trade Co Ltd
(Incorporated in the British Virgin Islands
BVI Company Number 1977961)
Kanghong International Trade (HK) Co Limited (Incorporated in Hong Kong)
Shanghai Erxing Biotechnology Co Ltd (Incorporated in Shanghai City China)
Shidian Kanghong Agricultural Technology Development Co Ltd
(Incorporated in Yunnan Province China)
100 Holding
100 Holding
100 Holding
8
42 About the Company
ldquoShidian Kanghong Agricultural Technology Development Co Ltdrdquo is wholly owned by ldquoKanghong International
Trade Co Ltdrdquo a company incorporated and registered under the laws of the British Virgin Islands ldquoShidian
Kanghong Agricultural Technology Development Co Ltdrdquo is a company incorporated and organized under the
laws of China on January 24th 2013
ldquoShidian Kanghong Agricultural Technology Development Co Ltdrdquo holds a valid business license (Uniformed
Social Credit Code 9153052106555747L) issued by the Bureau of Market Supervision and Administration of
Shidian Town Baoshan City Yunnan Province China on June 27th 2016
Company Name Shidian Kanghong Agricultural Technology Development Co Ltd
Type of Company Limited liability company (Natural person investment or holding)
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Registered Capital RMB 2 million
Date of Establishment January 24th 2013
Operating Period January 24th 2013 to January 24th 2043
Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily
groceries and building materials Import and export trading (Projects need to be approved under the laws and can
only be operated after being approved by relevant governmental authorities)
43 Companyrsquos Operation
Kanghong International Trade Co Ltd through its wholly-owned subsidiary Shidian Kanghong Agricultural
Technology Development Co Ltd (hereafter referred as ldquoKHrdquo) is engaged in the research processing and sales
of edible fungi and fungal products KH cultivates the fungal strains sells and delivers the strains to contracted
growers purchases the fungi and then sells the selected fungi and processed products More details about the
Company can be found in Section 6 ldquoBusiness Overviewrdquo of this Information Memorandum Detailed background
information of the Directors and Senior Management Team can be found in Section 8 of this Information
Memorandum
9
Picture 1 The company site of KH
10
5 Terms of the Issuance and Investment Overview
The information provided in this section is a summary of highlights contained elsewhere in this Information
Memorandum and should be reviewed carefully together with other sections before an investment decision is made
Company Nature
The Company is a limited liability company incorporated under the laws in the British Virgin Islands on May 2nd
2018 The Company owns 100 of the shares of its operating entity in China Shidian Kanghong Agricultural
Technology Development Co Ltd As of the submission date of this Information Memorandum the Companyrsquos
shares are not listed on any other stock exchanges The Companyrsquos securities to be listed will be the Depository
Receipts as explained in this Information Memorandum Investing in shares or Depository Receipts or other
securities involves risks and investors should consider the risks involved
Listing Advisor (LAD)
Shanghai Chucheng Investment Management Co Ltd is a Chinese company and has been licensed as a DCSX
Listing Advisor (LAD) by the DCSX The Company has appointed Shanghai Chucheng Investment Management
Co Ltd as its Listing Advisor (LAD) under the Listing Rules of the DCSX The mission of Shanghai Chucheng
Investment Management Co Ltd is to assist the Company in listing the securities of the Company on the DCSX
Shanghai Chucheng Investment Management Co Ltd is not responsible for the authenticity accuracy or
completeness of any information (financial legal or other) contained in this Information Memorandum and it
doesnrsquot make any representation or provide any approval commitment statement certification or guarantee to the
content of this Information Memorandum
Listing on the DCSX and Fund-raising Purposes
As aforementioned the Company intends to apply for listing via issuing Depository Receipts that will replace the
listed shares on a one to one basis With the listing of ultimately the Depository Receipts no new shares will be
issued at this stage In other words the Company is not to raise or receive new funds in connection with this listing
As indicated in the box below the Company may wish to raise funds in the future through an issuance and listing
of its new securities The Company andor its shareholders may in the future wish to trade the Depository Receipts
corresponding to their existing shares through the DCSX The authorized capital of the Company is 100000000
ordinary shares the nominal value of the ordinary shares is 00005 USD per share and the listing price of the shares
is expected to be 04 USD per share The market value of the Company is therefore estimated to be 40000000
USD Projections and calculation on which the market value is based can be found in the second and third parts of
Section 9 (ldquoFinancial Statementsrdquo) of this Information Memorandum
The Company does not preclude the possibility of raising funds through the issuance of new shares in the
future in which case the Company will prepare and publish the relevant and necessary documents and
procedures under the laws or listing rules including the submission of a new Information Memorandum
Sales Period Commitment
Currently Directors on the Companyrsquos Board collectively hold a total of 4335 shares of the outstanding ordinary
shares of the Company To provide potential investors with certain level of comfort toward the long-term
expectation of the Company all Directors of the Company (hereinafter referred to as the ldquorestricted shareholdersrdquo)
have agreed not to trade any of their shares or other securities (if any) of the Company held by them in any form
within 12 months from the date of listing of the Companyrsquos shares on the DCSX andor such shares being able to
11
trade (once converted to Depository Receipts) To ensure compliance of the foregoing agreement and the applicable
laws each restricted shareholder will agree not to sell or distribute the Companyrsquos shares or other securities publicly
or privately and not to convert or exchange the shares or other securities held by them into any other securities
options or rights during the restricted period
However as to the Companyrsquos total issued share capital the restricted commitment mentioned above will not
apply to a possible tender offer An offer to purchase more than 4335 of the Companyrsquos outstanding share
capital will be regarded as a buyout offer and if the Board of Directors decides to accept such offer the share
or other security transaction that the Company and the restricted shareholders enter into therewith will be
exempt from the above commitment provided that such a buyout is approved first by the DCSX
The Stock Options
On the issuing date of this Information Memorandum neither the Company nor the group has any other unrevealed
stock option commitment that has not been disclosed
The RegistrationTransaction of the Depository Receipts
The Company will eventually through a yet to be appointed issuer (a Financial Institution acceptable to the DCSX)
issue Depository Receipts corresponding to the issued and outstanding ordinary shares of the Company though the
DRs will not be evidenced by any certificates With the listing of the Companyrsquos Depository Receipts on the DCSX
the DCSX and its Brokers will register and manage the trading of the DRs The DRs may be traded in the market
but the Company will not and cannot provide any guarantee with respect to their liquidity The Company agrees
that the Company and all the shareholders will submit the complete and accurate information about the shares and
the required Depository Receipts to the Financial Institution that will issue the DRrsquos After the listing the
registration and trading of the Depository Receipts must comply with the laws and regulations of the DCSX and
other relevant regulators
The Company agrees that the Depository Receipt holders have the same rights as registered ordinary shareholders
Meanwhile when the Company holds a general meeting of shareholders the Depository Receipt holders should
also be notified and allowed to exercise the same voting rights as holders of ordinary shares
Listing Cost
The listing fees and all other directly attributed costs (including audit fees legal fees and other professional costs)
associated with the listing are or will be paid by the Company using existing funds
Inquiry
Any inquiry on regarding this Information Memorandum about listings should be directed to the Listing Advisor
(LAD) Shanghai Chucheng Investment Management Co Ltd
12
6 Business Overview
61 Executive Summary
Shidian Kanghong Agricultural Technology Development Co Ltd (hereafter referred as ldquoKHrdquo) is registered in
Shidian Town Baoshan City Yunnan Province China established on January 24th 2013 with the registered capital
of RMB 2 million
KHrsquos main business is to cultivate fungal strains process edible fungi sell fungi and processed products KH
cooperates with local farmers It provides fungal strains to contracted growers who then plant the strains After
harvesting with preliminary processing such as drying KH purchases the dried fungi from the growers The dried
fungi are ready for sale or will be further processed into products such as black fungus noodle and black fungus
powder etc
Through the cooperation with growers KH not only decreases its business cost but also promotes the local
economy At its very inception KH set up a great goal of ldquoleading the entire village to a better liferdquo Through the
years KH hass consistently pursued this goal by helping local farmers to learn advanced agricultural technology
providing them with good fungal species funding local schools and improving local facilities
KH has won several important recognitions and awards as a result of its professional and outstanding performance
in the field of edible fungi production It was identified as a ldquoScientific amp Technological Small amp Medium
Enterprise of Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named
as ldquothe Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in
2015 The plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial
departments and has been used as the research center for experts from Chinese Academy of Sciences and Yunnan
Province
KH attaches great importance to product quality and innovation as well as brand development KH holds 1 patent
for invention 2 patents for package designing and 8 patents for practical innovation One of its products Mulberry
Branch Black Fungus has been recognized as an ldquoImportant Innovative Product of Yunnan Provincerdquo by Yunnan
Provincial Science and Technology Department since 2015 KH also holds a registered trademark ldquoFatty Surdquo
(Registered Number 14219423) for its products KH aims to develop ldquoFatty Surdquo to a well-known fungus brand in
China and ensure that customers from all over China could enjoy ldquothe gift from nature and the taste of forestrdquo
Adhering to the core values of ldquoPersistence Integrity Hard-working and Sticking to the original goalrdquo and the
operation principle of ldquoEnsuring the company employees growers and customers to all benefit from our businessrdquo
KH is consistently developing itself to become a better company with greater social responsibility
Development History
Throughout its development history KH has been expanding its business step by step
On January 24th 2013 Mr Yan Su and Mr Guangbiao Wu established and incorporated Shidian Kanghong
Agricultural Technology Development Co Ltd aiming to lead the whole village to a better life At the very
beginning KH only had a temporary factory without much equipment or facilities for large-scale production
Lacking experience and technical supervision the first batch of black fungal strains were infected and did not result
in any fungi
In 2014 after the above setback Mr Su and Mr Wu borrowed money from their families and friends to build
13
factories and install facilities They also hired two technicians from Zhejiang Province to supervise the entire
production process However due to a flood in the planting base and extreme weathers 157 million fungal strains
were heavily damaged The direct economic loss was up to RMB 52 million
Having learnt from past failures Mr Su realized that the most important aspect in fungal planting is technology
Therefore in 2015 Mr Su did considerable researches in the black fungi industry sought and received great
support from Kunming Edible Fungi Research Institute and hired experienced experts to form a technology team
The team successfully cultivated a black fungal strain that suits the climate and weather conditions in Yunnan and
won the Third Place Award in the Agriculture Group of Yunnan Innovative Entrepreneur Competition
Backed by a solid technology team KH has gradually grown from a start-up to a big company that shoulders
significant social responsibility as well as offers a variety of products
62 Products and Services
Auricularia auricula-judae commonly known as Jewrsquos ear wood ear jelly ear or black fungus is a species of
edible fungus which is widely consumed in China as it is used in both Chinese cuisine and Chinese medicine Black
fungus has a mild flavor and is rich in protein carbohydrates and minerals Several researches also indicated that
two glucans isolated from black fungus showed potent antitumor properties Black fungus can be dried and
rehydrated Dried fungi can be preserved for a long period of time and still retain nutritional contents and the
original flavor once rehydrated It can also be used as an ingredient to produce other popular food products
Shidian Town lies at the southern part of Hengduan Mountains next to Nujiang River With favorable climate and
abundant natural resources Shidian is a great place to grow black fungus and to set up plantations KH takes great
advantage of these conditions and has built up its business there
KH provides a range of fungal products to consumers including 1) Mulberry Branch Black Fungus 2) Black
Fungus Essence Powder and 3) Black Fungus Noodle
Mulberry Branch Black Fungus
Mulberry Branch Black Fungus is the organic black fungus growing from mulberry trees without using any
fertilizers or pesticides According to two quality tests conducted by Supervision and Testing Center for Edible
Fungi Quality (Shanghai) Ministry of Agriculture (Test Report Number 2014-W2560G 2014-W2561G)
compared with black fungi growing from other common wood (containing 141g of protein and 741g of glucan
per 100g sample) mulberry branch black fungus has higher nutritional value for it contains more protein and
glucans (147g of protein and 82g of glucan per 100g sample) For this product KH offers several different
packages such as gift box and paper bag to cater to different customer groups This product is produced by KH at
its own facilities
Picture 2 Mulberry Branch Black Fungus
14
Black Fungus Essence Powder
Ground to a grain size of 48 microm by ultra-micro grinder under the temperature of -27degC black fungi are turned to
essence powder Since this method breaks down the cell walls of black fungi the nutritional contents are fully
released Since this process is operated under an extremely low temperature the nutritional value is very well
preserved Therefore consumers can take in the nutrients of black fungi more easily by taking this essence powder
This product is produced by Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) and has
passed the quality test conducted by Yunnan Yunce Quality Testing Co Ltd (Test Report Number YC1803217)
KH has signed a contract with Zhongyuan KH provides raw materials and pays the processing fee to Zhongyuan
Picture 3 Black Fungus Essence Powder
Black Fungus Noodle
Black fungus noodle is made from black fungus powder and high-quality wheat flour Noodle is a common staple
for Chinese consumers Since this product contains black fungus powder it has higher nutritional value compared
with ordinary noodles and has therefore become popular among consumers This product is produced by Longyang
Yongda Food Product Processing Factory (hereafter referred as Yongda) and has passed the quality test conducted
by Yunnan Institute of Product Quality Supervision amp Inspection (Test Report Number SP201800470) KH has
signed a contract with Yongda under which KH provides raw materials and pays the processing fee to Yongda
Picture 4 Black Fungus Noodle
15
63 Marketing Strategy
KHrsquos basic marketing principles are ldquoTo spread knowledge and green concepts To provide well-rounded product
series and To stay up-to-date and innovativerdquo
Specifically first KH not only sells its products but also actively spread the knowledge about the medical and
nutritional functions of black fungus and the idea of sustainable development to the public via multiple channels
Second KH has identified different customer groups according to their preferences and consumption habits and
provide different types of products to each group For example ordinary housewives prefer products with low
prices wealthy people prefer well-packaged and high-end products elderly people are more interested in products
that will be beneficial to their health KHrsquos products also have different packages and prices to cater to different
situation For example products in normal size and normal package are targeted at customers who will consume
the products themselves products in delicate packages could be a great gift to clients and guests products in large
packages are targeted at restaurants and canteens
Third KH employs three types of sales channels which not only cover the traditional approaches but also innovative
ones The first type is the traditional channel KH cooperates with distributors and sales agents to sell products KH
also cooperates with several local schools to provide nutritious lunch for students In this way KH has built up a
good reputation which indirectly promotes its brand and sales The second type is the online channel KH has built
up partnership with ulecom to distribute its products and is setting up its online store and a platform on its official
account of WeChat Also KH is actively contacting Tmallcom and jdcom to get access to a bigger customer group
The third type is new retail channel KH will set up experience restaurants called ldquoWood Ear Societyrdquo to further
promote its products and health concepts In these restaurants customers could not only purchase the products
mentioned in the previous part but also could taste more food and dishes cooked with black fungi such as black
fungus noodle black fungus pho black fungus dumpling and black fungus steam bun Customers could dine in
take away the food they order or have it delivered to their homes These dishes will be cooked in a centralized
kitchen and then delivered to each restaurant which will ensure food quality and food safety
Picture 5 KHrsquos Online Store
Forth KH has also set up an after-sale service system to maintain customer relationship KH will invite each
customer to register in its system and then analyze their consumption habits in order to gain a better understanding
of their preferences and apply personalized promotion strategies Also KH will organize training for its sales staff
16
distributors and sales agents on which they would not only learn product information but also nutrition knowledge
and the idea of sustainable development
Fifth KH has drawn up a promotion plan to promote its brand ldquoFatty Surdquo in three stages The first stage is Warm-
up which is from January 2018 to December 2018 In this stage KH will introduce the concept of ldquoHealthy Liferdquo
to customers and the public via advertisements on mass media The second stage is Heat-up which is expected to
be from January 2019 to December 2019 In this stage KH will continuously promote the brand and the concept
by employing more advertising channels and platforms for example advertisements in railway stations airports
and TV programs The third stage is Heat-preserving which is expected to start from January 2020 In this stage
KH will keep the brand image active by regular promotion
In short KH applies multi-tiered plans and strategies to expand the market more efficiently and quickly
Picture 6 the Design Sketch of ldquoWood Ear Societyrdquo
17
64 Development Strategy
As a company with strong sense of social responsibility KH not only aims to develop itself but also strives to
promote the economic growth in Shidian Town To achieve these two goals KH engages local farmers as its
contracted growers and pre-sells the growers at a low price the fungal strains which could be used to grow black
fungi To ensure the quality and the quantity of fungi KH also provides free technical guidance to growers via local
cooperatives (branches of KH which help KH to coordinate production recruit growers and communicate with
growers) The operation structure is illustrated in the flow chart below
Chart 1 KHrsquos Operation Structure
Through this structure KH gets connected with local farmers (growers) and therefore could lead them to develop
altogether By providing and distributing unified fungal strains the growers KH therefore ensures the purity and
quality of product In addition this structure creates more than 300 jobs in Shidian thereby greatly enhancing the
local economy
To expand its business enlarge its product offerings and lead the local economy further KH has several plans
which are briefly described below
First KH is expanding its production capability by building new factories and plantations KH signed the
Agreement on Investing and Developing the Construction Project of Sangzhi Black Fungal Strains with Annual
Production of 30 million and Fine Processing with Shidian Government on September 11th 2015 By June 30th
2018 the infrastructures and factories were completed and the facilities to produce fungal strains was near
completion In 2019 and 2020 KH will continue the construction and related facilities
KH (overall managing providing strains
and equipment selling products)
Cooperatives (coordinating production recruiting
growers distributing strains providing support)
Growers (using fungal strains to
grow fungi pre-processing fungi)
Consumers
Selected and processed fungi
Raw fungi
18
Picture 7 KHrsquos Factory
Second KH is to enlarge its product offerings by developing more products KH signed the Cooperation Agreement
on Product Development with Kunming Edible Fungi Research Institute on September 2nd 2017 The institute is
expected to complete the development of Black Fungus Tablet Black Fungus Drink and so on by the end of 2018
and complete Black Fungus Capsule by the end of 2019 KH is also studying other edible fungi for example lingzhi
mushroom and will develop products like lingzhi Mushroom Spore Powder and lingzhi Mushroom Spore Oil KH
has successfully planted lingzhi mushroom in its plantation which has built up solid foundation for further
production Moreover KH also has the plan to cooperate with cosmetics RampD institutes and pharmaceutical
institutes to study more effects and values of black fungi and lingzhi mushrooms and develop skincare products
and medicines using black fungi and lingzhi mushrooms as ingredients
Picture 8 Lingzhi Mushroom in KHrsquos Plantation
19
65 Business Partners
KH has established partnerships with the following institutes and companies to develop or produce products
bull Kunming Edible Fungi Research Institute
bull Yunnan Yunjun Technology (Group) Co Ltd
bull Lijiang Zhongyuan Green Food Co Ltd
bull Longyang Yongda Food Product Processing Factory
bull Kunming Jinmo Trade Co Ltd
bull Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
bull China Post Shidian Town Branch
Kunming Edible Fungi Research Institute
Kunming Edible Fungi Research Institute (hereafter referred as KM Institute) is a professional agent researching
and studying edible fungi and developing fungal products KM Institute provides professional guidance on
technology to KH and develops deep-processed fungal products according to KHrsquos requirement while KH is
responsible for market analysis and research funds
Yunnan Yunjun Technology (Group) Co Ltd
Yunnan Yunjun Technology (Group) Co Ltd (hereafter referred as Yunjun) is a company researching developing
and processing fungal products Yunjun provides technical support and professional training to KH and cooperates
with KH to develop fungal products while KH is responsible for market analysis product promotion research
equipment research materials and research funds
Lijiang Zhongyuan Green Food Co Ltd
Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) is a company processing and selling
fungal products and agricultural products KH provides black fungi to Zhongyuan and contracts with Zhongyuan
to process Black Fungus Essence Powder
Longyang Yongda Food Product Processing Factory
Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) is a company processing
agricultural products and food products KH provides black fungi to Yongda and contracts with Yongda to process
Black Fungus Noodles
Kunming Jinmo Trade Co Ltd
Kunming Jinmo Trade Co Ltd (hereafter referred as Jinmo) is a company designing and producing packages and
commercial brochures KH contracts with Jinmo to design and produce packages for its products including the
packing boxes gift boxes commercial brochures plastic packages and so on
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch) (hereafter referred as Anzhi) is a
company providing delivering services KH has got the franchise from Anzhi to set up an express delivery station
in its own company to distribute its products at a low cost
China Post Shidian Town Branch
China Post is a state-owned company providing posting and delivering services It owns an online shopping
platform ndash ulecom with a huge customer base KH promotes and sells its products on ulecom
20
66 Permit and License
Business License
(Duplicate copy) Uniform Social Credit Code 9153052106555747L a) Company Name Shidian Kanghong Agricultural Technology Development Co Ltd b) Type of Company Limited liability company (Foreign Enterprise Legal Person Sole Proprietorship) c) Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province China d) Legal Representative Yan Su e) Registered Capital RMB 2 million f) Date of Establishment January 24th 2013 g) Operating Period January 24th 2013 to January 24th 2043 h) Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily groceries
and building materials Import and export trading (Projects needed to be approved under the laws can be operated after approved by relevant departments)
Issued by Bureau of Market Supervision and Administration of Shidian County on August 14th 2018
21
Food Business Operation License
(Duplicate Copy)
a) Operator Name Shidian Kanghong
Agricultural Technology Development
Co Ltd
b) Social Credit Code (Identity Card
Number) 9153052106555747L
c) Legal representative (Person in
Charge) Yan Su
d) Address No23 Group 2 Jiucheng
Community Jiucheng County Shidian
Town Baoshan City Yunnan Province
e) Operation Address
Zhaojia Village Huaxing Community
Youwang County Shidian Town
Baoshan City Yunnan Province
f) Main Body Type
Food Business Operator
g) Food Type
Sales of pre-packaged food (exclude
frozen food) sales of bulk food (exclude
frozen food)
Valid until July 24th 2021
Description
1 Food Business Operation License is the legitimate certificate of the permit for food business
that an operator gets
2 The License has original and duplicate copies which have the same legal effect The
original License should be hung or placed on a prominent position at the operating site
3 The License must not be forged modified resold leased lent or transferred in any other
illegal forms
4 The operator should carry out business within the approved scope
5 The operator should accept the supervision and management of the Food and Drug
Supervision and Administration Department
6 The operator should apply to change the License when the permitted items are changed
7 The operator should timely apply for an extension at the former department in 30 working
days before the License expires
h) License Number JY15305210013112
i) Daily Supervision Management Organization Market Supervision
Administration Bureau of Youwang County
j) Daily Supervisors Shaode Duan Shaoming Qian
k) Complain Call12331
l) License Issuing Authority Market Supervision Administration Bureau of Shidian
County
m) Issuer Shaoming Qian
July 25th 2018
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
4
Certain statements estimates and financial projections included in this Information Memorandum are based on a
variety of assumptions which may or may not prove to be accurate or may be subject to disputes Each potential
investor should independently investigate and analyze the statements estimates and financial projections in the
document The Company does not have any obligation to provide any other information to the recipient of this
Information Memorandum This Information Memorandum does not constitute a recommendation endorsement or
confirmation of the value of the securities being offered
In certain jurisdictions there may be restrictions on the distribution of this Information Memorandum and issuance
of securities Any person who reviews this Information Memorandum and wishes to invest in the securities is
responsible for his or her understanding and compliance with all applicable laws and regulations of any relevant
jurisdictions The potential investors should also understand and ensure compliance with the relevant foreign
exchange and tax regulations applicable to them considering their citizenships residences and other relevant
factors
The Ministry of Finance in Curacao Dutch Caribbean the Central Bank of Curaccedilao and Sint Maarten and the
Dutch Caribbean Securities Exchange (DCSX) or any other countrygovernment authority andor agency of
Curacao are not responsible for any information contained in this Information Memorandum and they do not make
any representations or guarantees to the accuracy or completeness of the Information Memorandum Moreover
neither the content nor the publication of this Information Memorandum is to be taken as an indication of any
approval authorization warranty commitment statement or certification of any countrygovernment
The Company and its Directors and Senior Management are responsible for the authenticity accuracy and
completeness of the content of this Information Memorandum The Listing Advisor (LAD) Shanghai Chucheng
Investment Management Co Ltd mentioned in this Information Memorandum shall not take any responsibility
for the authenticity accuracy or completeness of any information (finance law or other) contained in this
Information Memorandum and does not make any representation or provide any approval commitment statement
certification or guarantee with respect to any information in this Information Memorandum
For the sake of completeness it is reiterated that the securities to be listed by the Company through this Information
Memorandum are the outstanding shares of the Company These shares may and can be replaced on a one to one
basis by listed Depository Receipts (DRrsquos) upon completion of the official issuance of such DRrsquos in full accordance
with the legal and procedural requirements of the issuance and listing of such DRrsquos as demanded by the DCSX
Each Depository Receipt represents one share and each Depository Receipt enjoys all the beneficial rights to each
corresponding share or stock The Depository Receipt is a security that has the same rights in all respects as the
Companys share A separate contract must be agreed upon between the Company and the shareholders specifying
the provisions for Depository Receipt holders and their detailed rights All shares owned by the shareholders of the
Company will be registered as Depository Receipts on the DCSX and in the Brokersrsquo system The Company and
all the shareholders shall undertake the responsibility of submitting all the information and details about shares and
Depository Receipts accurately and completely to the DCSX and Brokers
The DR holders will enjoy benefits on their holdings as if they were shareholders The Companys Depository
Receipt numbers will be consistent with the number of shares Depository Receipts will be reserved in the form of
electronic data The DCSX and Brokers do not have the obligation to issue any Depository Receipts certificates to
the shareholders Only when the shareholders convert their shares to Depository Receipts these can become
tradeable on the DCSX and Brokersrsquo system The DCSX and Brokers will register and manage the Depository
Receipts under the relevant rules The Company promises that during the listing of the Company the DCSX and
its Brokersrsquo records shall prevail
Potential investors should read the full text of this document and be aware that investing in the Company involves
a certain degree of risk Potential investors should also pay special attention to the ldquoRisk Factors and Litigationrdquo
5
section of this Information Memorandum Prospective investors before deciding to invest should carefully
consider all of their risks including financial and tax issues and consult professional advice from their accountants
lawyers and other professional advisors The Company is not in any capacity to recommend or decide whether the
investors can or should invest in the Company For such advice each prospective investor must contact their
independent professional consultant
If you need any further information please consult with your stock brokers and other professional advisors
The date of this Information Memorandum is on September 7th 2018
6
3 Issuer and the List of Institutions Related to the Listing
Issuer
Kanghong International Trade Co Ltd
Vistra Corporate Services Centre
Wickhams Cay II Road Town
Tortola VG1110 British Virgin Islands
Contact Person Chun Wang
Tel +86-0875-8867026
E-mail sdkhnykjfzyxgs163com
Operating Entity in China
Shidian Kanghong Agricultural Technology Development Co Ltd
Huaxing Industrial Area Youwang Town
Shidian County Baoshan City Yunnan Province China
Contact Person Chun Wang
Tel +86-0875-8867026
E-mail sdkhnykjfzyxgs163com
Listing Advisor
Shanghai Chucheng Investment Management Co Ltd
Room 601 Huaneng Union Tower
Lane No 958 Lu Jiazui Ring Road Pudong District
Shanghai China
Contact Person Houhai Li
Tel +86-021-31663586
E-mail lihouhaichuchengcapitalcom
Lawyer
Beijing Yingke Law Firm Shanghai Office
Yingke Law Building 181
Jiangchang No3 Road Jing an District
Shanghai China
Contact Person Zhihua Wang
Tel +86-021-36697980
Fax +86-021-36697889
E-mail wangzhihuayingkelawyercom
Auditor
Shanghai Shunzheng CPAs LP
Room 1220 No28 Yuanwen Road
Shanghai China
Contact Person Fengshan Liu
Tel +86-021-62122672
E-mail liufengshan139com
7
4 Company Overview
41 Business Structure
Kanghong International Trade Co Ltd a company incorporated under the laws of the British Virgin Islands is
the company seeking to be listed on DCSX Kanghong International Trade Co Ltd is the owner of 100 of the
outstanding shares of Kanghong International Trade (HK) Co Limited a company incorporated under the laws of
Hong Kong which in turn is the owner of 100 of the outstanding shares of Shanghai Erxing Biotechnology Co
Ltd a company incorporated and organized under the laws of China as a Wholly Owned Foreign Entity (ldquoWOFErdquo)
Shanghai Erxing Biotechnology Co Ltd owns 100 of the outstanding shares of Shidian Kanghong Agricultural
Technology Development Co Ltd (ldquoKHrdquo) which is the operating company in China with assets and business
operations
Kanghong International Trade Co Ltd
(Incorporated in the British Virgin Islands
BVI Company Number 1977961)
Kanghong International Trade (HK) Co Limited (Incorporated in Hong Kong)
Shanghai Erxing Biotechnology Co Ltd (Incorporated in Shanghai City China)
Shidian Kanghong Agricultural Technology Development Co Ltd
(Incorporated in Yunnan Province China)
100 Holding
100 Holding
100 Holding
8
42 About the Company
ldquoShidian Kanghong Agricultural Technology Development Co Ltdrdquo is wholly owned by ldquoKanghong International
Trade Co Ltdrdquo a company incorporated and registered under the laws of the British Virgin Islands ldquoShidian
Kanghong Agricultural Technology Development Co Ltdrdquo is a company incorporated and organized under the
laws of China on January 24th 2013
ldquoShidian Kanghong Agricultural Technology Development Co Ltdrdquo holds a valid business license (Uniformed
Social Credit Code 9153052106555747L) issued by the Bureau of Market Supervision and Administration of
Shidian Town Baoshan City Yunnan Province China on June 27th 2016
Company Name Shidian Kanghong Agricultural Technology Development Co Ltd
Type of Company Limited liability company (Natural person investment or holding)
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Registered Capital RMB 2 million
Date of Establishment January 24th 2013
Operating Period January 24th 2013 to January 24th 2043
Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily
groceries and building materials Import and export trading (Projects need to be approved under the laws and can
only be operated after being approved by relevant governmental authorities)
43 Companyrsquos Operation
Kanghong International Trade Co Ltd through its wholly-owned subsidiary Shidian Kanghong Agricultural
Technology Development Co Ltd (hereafter referred as ldquoKHrdquo) is engaged in the research processing and sales
of edible fungi and fungal products KH cultivates the fungal strains sells and delivers the strains to contracted
growers purchases the fungi and then sells the selected fungi and processed products More details about the
Company can be found in Section 6 ldquoBusiness Overviewrdquo of this Information Memorandum Detailed background
information of the Directors and Senior Management Team can be found in Section 8 of this Information
Memorandum
9
Picture 1 The company site of KH
10
5 Terms of the Issuance and Investment Overview
The information provided in this section is a summary of highlights contained elsewhere in this Information
Memorandum and should be reviewed carefully together with other sections before an investment decision is made
Company Nature
The Company is a limited liability company incorporated under the laws in the British Virgin Islands on May 2nd
2018 The Company owns 100 of the shares of its operating entity in China Shidian Kanghong Agricultural
Technology Development Co Ltd As of the submission date of this Information Memorandum the Companyrsquos
shares are not listed on any other stock exchanges The Companyrsquos securities to be listed will be the Depository
Receipts as explained in this Information Memorandum Investing in shares or Depository Receipts or other
securities involves risks and investors should consider the risks involved
Listing Advisor (LAD)
Shanghai Chucheng Investment Management Co Ltd is a Chinese company and has been licensed as a DCSX
Listing Advisor (LAD) by the DCSX The Company has appointed Shanghai Chucheng Investment Management
Co Ltd as its Listing Advisor (LAD) under the Listing Rules of the DCSX The mission of Shanghai Chucheng
Investment Management Co Ltd is to assist the Company in listing the securities of the Company on the DCSX
Shanghai Chucheng Investment Management Co Ltd is not responsible for the authenticity accuracy or
completeness of any information (financial legal or other) contained in this Information Memorandum and it
doesnrsquot make any representation or provide any approval commitment statement certification or guarantee to the
content of this Information Memorandum
Listing on the DCSX and Fund-raising Purposes
As aforementioned the Company intends to apply for listing via issuing Depository Receipts that will replace the
listed shares on a one to one basis With the listing of ultimately the Depository Receipts no new shares will be
issued at this stage In other words the Company is not to raise or receive new funds in connection with this listing
As indicated in the box below the Company may wish to raise funds in the future through an issuance and listing
of its new securities The Company andor its shareholders may in the future wish to trade the Depository Receipts
corresponding to their existing shares through the DCSX The authorized capital of the Company is 100000000
ordinary shares the nominal value of the ordinary shares is 00005 USD per share and the listing price of the shares
is expected to be 04 USD per share The market value of the Company is therefore estimated to be 40000000
USD Projections and calculation on which the market value is based can be found in the second and third parts of
Section 9 (ldquoFinancial Statementsrdquo) of this Information Memorandum
The Company does not preclude the possibility of raising funds through the issuance of new shares in the
future in which case the Company will prepare and publish the relevant and necessary documents and
procedures under the laws or listing rules including the submission of a new Information Memorandum
Sales Period Commitment
Currently Directors on the Companyrsquos Board collectively hold a total of 4335 shares of the outstanding ordinary
shares of the Company To provide potential investors with certain level of comfort toward the long-term
expectation of the Company all Directors of the Company (hereinafter referred to as the ldquorestricted shareholdersrdquo)
have agreed not to trade any of their shares or other securities (if any) of the Company held by them in any form
within 12 months from the date of listing of the Companyrsquos shares on the DCSX andor such shares being able to
11
trade (once converted to Depository Receipts) To ensure compliance of the foregoing agreement and the applicable
laws each restricted shareholder will agree not to sell or distribute the Companyrsquos shares or other securities publicly
or privately and not to convert or exchange the shares or other securities held by them into any other securities
options or rights during the restricted period
However as to the Companyrsquos total issued share capital the restricted commitment mentioned above will not
apply to a possible tender offer An offer to purchase more than 4335 of the Companyrsquos outstanding share
capital will be regarded as a buyout offer and if the Board of Directors decides to accept such offer the share
or other security transaction that the Company and the restricted shareholders enter into therewith will be
exempt from the above commitment provided that such a buyout is approved first by the DCSX
The Stock Options
On the issuing date of this Information Memorandum neither the Company nor the group has any other unrevealed
stock option commitment that has not been disclosed
The RegistrationTransaction of the Depository Receipts
The Company will eventually through a yet to be appointed issuer (a Financial Institution acceptable to the DCSX)
issue Depository Receipts corresponding to the issued and outstanding ordinary shares of the Company though the
DRs will not be evidenced by any certificates With the listing of the Companyrsquos Depository Receipts on the DCSX
the DCSX and its Brokers will register and manage the trading of the DRs The DRs may be traded in the market
but the Company will not and cannot provide any guarantee with respect to their liquidity The Company agrees
that the Company and all the shareholders will submit the complete and accurate information about the shares and
the required Depository Receipts to the Financial Institution that will issue the DRrsquos After the listing the
registration and trading of the Depository Receipts must comply with the laws and regulations of the DCSX and
other relevant regulators
The Company agrees that the Depository Receipt holders have the same rights as registered ordinary shareholders
Meanwhile when the Company holds a general meeting of shareholders the Depository Receipt holders should
also be notified and allowed to exercise the same voting rights as holders of ordinary shares
Listing Cost
The listing fees and all other directly attributed costs (including audit fees legal fees and other professional costs)
associated with the listing are or will be paid by the Company using existing funds
Inquiry
Any inquiry on regarding this Information Memorandum about listings should be directed to the Listing Advisor
(LAD) Shanghai Chucheng Investment Management Co Ltd
12
6 Business Overview
61 Executive Summary
Shidian Kanghong Agricultural Technology Development Co Ltd (hereafter referred as ldquoKHrdquo) is registered in
Shidian Town Baoshan City Yunnan Province China established on January 24th 2013 with the registered capital
of RMB 2 million
KHrsquos main business is to cultivate fungal strains process edible fungi sell fungi and processed products KH
cooperates with local farmers It provides fungal strains to contracted growers who then plant the strains After
harvesting with preliminary processing such as drying KH purchases the dried fungi from the growers The dried
fungi are ready for sale or will be further processed into products such as black fungus noodle and black fungus
powder etc
Through the cooperation with growers KH not only decreases its business cost but also promotes the local
economy At its very inception KH set up a great goal of ldquoleading the entire village to a better liferdquo Through the
years KH hass consistently pursued this goal by helping local farmers to learn advanced agricultural technology
providing them with good fungal species funding local schools and improving local facilities
KH has won several important recognitions and awards as a result of its professional and outstanding performance
in the field of edible fungi production It was identified as a ldquoScientific amp Technological Small amp Medium
Enterprise of Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named
as ldquothe Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in
2015 The plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial
departments and has been used as the research center for experts from Chinese Academy of Sciences and Yunnan
Province
KH attaches great importance to product quality and innovation as well as brand development KH holds 1 patent
for invention 2 patents for package designing and 8 patents for practical innovation One of its products Mulberry
Branch Black Fungus has been recognized as an ldquoImportant Innovative Product of Yunnan Provincerdquo by Yunnan
Provincial Science and Technology Department since 2015 KH also holds a registered trademark ldquoFatty Surdquo
(Registered Number 14219423) for its products KH aims to develop ldquoFatty Surdquo to a well-known fungus brand in
China and ensure that customers from all over China could enjoy ldquothe gift from nature and the taste of forestrdquo
Adhering to the core values of ldquoPersistence Integrity Hard-working and Sticking to the original goalrdquo and the
operation principle of ldquoEnsuring the company employees growers and customers to all benefit from our businessrdquo
KH is consistently developing itself to become a better company with greater social responsibility
Development History
Throughout its development history KH has been expanding its business step by step
On January 24th 2013 Mr Yan Su and Mr Guangbiao Wu established and incorporated Shidian Kanghong
Agricultural Technology Development Co Ltd aiming to lead the whole village to a better life At the very
beginning KH only had a temporary factory without much equipment or facilities for large-scale production
Lacking experience and technical supervision the first batch of black fungal strains were infected and did not result
in any fungi
In 2014 after the above setback Mr Su and Mr Wu borrowed money from their families and friends to build
13
factories and install facilities They also hired two technicians from Zhejiang Province to supervise the entire
production process However due to a flood in the planting base and extreme weathers 157 million fungal strains
were heavily damaged The direct economic loss was up to RMB 52 million
Having learnt from past failures Mr Su realized that the most important aspect in fungal planting is technology
Therefore in 2015 Mr Su did considerable researches in the black fungi industry sought and received great
support from Kunming Edible Fungi Research Institute and hired experienced experts to form a technology team
The team successfully cultivated a black fungal strain that suits the climate and weather conditions in Yunnan and
won the Third Place Award in the Agriculture Group of Yunnan Innovative Entrepreneur Competition
Backed by a solid technology team KH has gradually grown from a start-up to a big company that shoulders
significant social responsibility as well as offers a variety of products
62 Products and Services
Auricularia auricula-judae commonly known as Jewrsquos ear wood ear jelly ear or black fungus is a species of
edible fungus which is widely consumed in China as it is used in both Chinese cuisine and Chinese medicine Black
fungus has a mild flavor and is rich in protein carbohydrates and minerals Several researches also indicated that
two glucans isolated from black fungus showed potent antitumor properties Black fungus can be dried and
rehydrated Dried fungi can be preserved for a long period of time and still retain nutritional contents and the
original flavor once rehydrated It can also be used as an ingredient to produce other popular food products
Shidian Town lies at the southern part of Hengduan Mountains next to Nujiang River With favorable climate and
abundant natural resources Shidian is a great place to grow black fungus and to set up plantations KH takes great
advantage of these conditions and has built up its business there
KH provides a range of fungal products to consumers including 1) Mulberry Branch Black Fungus 2) Black
Fungus Essence Powder and 3) Black Fungus Noodle
Mulberry Branch Black Fungus
Mulberry Branch Black Fungus is the organic black fungus growing from mulberry trees without using any
fertilizers or pesticides According to two quality tests conducted by Supervision and Testing Center for Edible
Fungi Quality (Shanghai) Ministry of Agriculture (Test Report Number 2014-W2560G 2014-W2561G)
compared with black fungi growing from other common wood (containing 141g of protein and 741g of glucan
per 100g sample) mulberry branch black fungus has higher nutritional value for it contains more protein and
glucans (147g of protein and 82g of glucan per 100g sample) For this product KH offers several different
packages such as gift box and paper bag to cater to different customer groups This product is produced by KH at
its own facilities
Picture 2 Mulberry Branch Black Fungus
14
Black Fungus Essence Powder
Ground to a grain size of 48 microm by ultra-micro grinder under the temperature of -27degC black fungi are turned to
essence powder Since this method breaks down the cell walls of black fungi the nutritional contents are fully
released Since this process is operated under an extremely low temperature the nutritional value is very well
preserved Therefore consumers can take in the nutrients of black fungi more easily by taking this essence powder
This product is produced by Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) and has
passed the quality test conducted by Yunnan Yunce Quality Testing Co Ltd (Test Report Number YC1803217)
KH has signed a contract with Zhongyuan KH provides raw materials and pays the processing fee to Zhongyuan
Picture 3 Black Fungus Essence Powder
Black Fungus Noodle
Black fungus noodle is made from black fungus powder and high-quality wheat flour Noodle is a common staple
for Chinese consumers Since this product contains black fungus powder it has higher nutritional value compared
with ordinary noodles and has therefore become popular among consumers This product is produced by Longyang
Yongda Food Product Processing Factory (hereafter referred as Yongda) and has passed the quality test conducted
by Yunnan Institute of Product Quality Supervision amp Inspection (Test Report Number SP201800470) KH has
signed a contract with Yongda under which KH provides raw materials and pays the processing fee to Yongda
Picture 4 Black Fungus Noodle
15
63 Marketing Strategy
KHrsquos basic marketing principles are ldquoTo spread knowledge and green concepts To provide well-rounded product
series and To stay up-to-date and innovativerdquo
Specifically first KH not only sells its products but also actively spread the knowledge about the medical and
nutritional functions of black fungus and the idea of sustainable development to the public via multiple channels
Second KH has identified different customer groups according to their preferences and consumption habits and
provide different types of products to each group For example ordinary housewives prefer products with low
prices wealthy people prefer well-packaged and high-end products elderly people are more interested in products
that will be beneficial to their health KHrsquos products also have different packages and prices to cater to different
situation For example products in normal size and normal package are targeted at customers who will consume
the products themselves products in delicate packages could be a great gift to clients and guests products in large
packages are targeted at restaurants and canteens
Third KH employs three types of sales channels which not only cover the traditional approaches but also innovative
ones The first type is the traditional channel KH cooperates with distributors and sales agents to sell products KH
also cooperates with several local schools to provide nutritious lunch for students In this way KH has built up a
good reputation which indirectly promotes its brand and sales The second type is the online channel KH has built
up partnership with ulecom to distribute its products and is setting up its online store and a platform on its official
account of WeChat Also KH is actively contacting Tmallcom and jdcom to get access to a bigger customer group
The third type is new retail channel KH will set up experience restaurants called ldquoWood Ear Societyrdquo to further
promote its products and health concepts In these restaurants customers could not only purchase the products
mentioned in the previous part but also could taste more food and dishes cooked with black fungi such as black
fungus noodle black fungus pho black fungus dumpling and black fungus steam bun Customers could dine in
take away the food they order or have it delivered to their homes These dishes will be cooked in a centralized
kitchen and then delivered to each restaurant which will ensure food quality and food safety
Picture 5 KHrsquos Online Store
Forth KH has also set up an after-sale service system to maintain customer relationship KH will invite each
customer to register in its system and then analyze their consumption habits in order to gain a better understanding
of their preferences and apply personalized promotion strategies Also KH will organize training for its sales staff
16
distributors and sales agents on which they would not only learn product information but also nutrition knowledge
and the idea of sustainable development
Fifth KH has drawn up a promotion plan to promote its brand ldquoFatty Surdquo in three stages The first stage is Warm-
up which is from January 2018 to December 2018 In this stage KH will introduce the concept of ldquoHealthy Liferdquo
to customers and the public via advertisements on mass media The second stage is Heat-up which is expected to
be from January 2019 to December 2019 In this stage KH will continuously promote the brand and the concept
by employing more advertising channels and platforms for example advertisements in railway stations airports
and TV programs The third stage is Heat-preserving which is expected to start from January 2020 In this stage
KH will keep the brand image active by regular promotion
In short KH applies multi-tiered plans and strategies to expand the market more efficiently and quickly
Picture 6 the Design Sketch of ldquoWood Ear Societyrdquo
17
64 Development Strategy
As a company with strong sense of social responsibility KH not only aims to develop itself but also strives to
promote the economic growth in Shidian Town To achieve these two goals KH engages local farmers as its
contracted growers and pre-sells the growers at a low price the fungal strains which could be used to grow black
fungi To ensure the quality and the quantity of fungi KH also provides free technical guidance to growers via local
cooperatives (branches of KH which help KH to coordinate production recruit growers and communicate with
growers) The operation structure is illustrated in the flow chart below
Chart 1 KHrsquos Operation Structure
Through this structure KH gets connected with local farmers (growers) and therefore could lead them to develop
altogether By providing and distributing unified fungal strains the growers KH therefore ensures the purity and
quality of product In addition this structure creates more than 300 jobs in Shidian thereby greatly enhancing the
local economy
To expand its business enlarge its product offerings and lead the local economy further KH has several plans
which are briefly described below
First KH is expanding its production capability by building new factories and plantations KH signed the
Agreement on Investing and Developing the Construction Project of Sangzhi Black Fungal Strains with Annual
Production of 30 million and Fine Processing with Shidian Government on September 11th 2015 By June 30th
2018 the infrastructures and factories were completed and the facilities to produce fungal strains was near
completion In 2019 and 2020 KH will continue the construction and related facilities
KH (overall managing providing strains
and equipment selling products)
Cooperatives (coordinating production recruiting
growers distributing strains providing support)
Growers (using fungal strains to
grow fungi pre-processing fungi)
Consumers
Selected and processed fungi
Raw fungi
18
Picture 7 KHrsquos Factory
Second KH is to enlarge its product offerings by developing more products KH signed the Cooperation Agreement
on Product Development with Kunming Edible Fungi Research Institute on September 2nd 2017 The institute is
expected to complete the development of Black Fungus Tablet Black Fungus Drink and so on by the end of 2018
and complete Black Fungus Capsule by the end of 2019 KH is also studying other edible fungi for example lingzhi
mushroom and will develop products like lingzhi Mushroom Spore Powder and lingzhi Mushroom Spore Oil KH
has successfully planted lingzhi mushroom in its plantation which has built up solid foundation for further
production Moreover KH also has the plan to cooperate with cosmetics RampD institutes and pharmaceutical
institutes to study more effects and values of black fungi and lingzhi mushrooms and develop skincare products
and medicines using black fungi and lingzhi mushrooms as ingredients
Picture 8 Lingzhi Mushroom in KHrsquos Plantation
19
65 Business Partners
KH has established partnerships with the following institutes and companies to develop or produce products
bull Kunming Edible Fungi Research Institute
bull Yunnan Yunjun Technology (Group) Co Ltd
bull Lijiang Zhongyuan Green Food Co Ltd
bull Longyang Yongda Food Product Processing Factory
bull Kunming Jinmo Trade Co Ltd
bull Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
bull China Post Shidian Town Branch
Kunming Edible Fungi Research Institute
Kunming Edible Fungi Research Institute (hereafter referred as KM Institute) is a professional agent researching
and studying edible fungi and developing fungal products KM Institute provides professional guidance on
technology to KH and develops deep-processed fungal products according to KHrsquos requirement while KH is
responsible for market analysis and research funds
Yunnan Yunjun Technology (Group) Co Ltd
Yunnan Yunjun Technology (Group) Co Ltd (hereafter referred as Yunjun) is a company researching developing
and processing fungal products Yunjun provides technical support and professional training to KH and cooperates
with KH to develop fungal products while KH is responsible for market analysis product promotion research
equipment research materials and research funds
Lijiang Zhongyuan Green Food Co Ltd
Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) is a company processing and selling
fungal products and agricultural products KH provides black fungi to Zhongyuan and contracts with Zhongyuan
to process Black Fungus Essence Powder
Longyang Yongda Food Product Processing Factory
Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) is a company processing
agricultural products and food products KH provides black fungi to Yongda and contracts with Yongda to process
Black Fungus Noodles
Kunming Jinmo Trade Co Ltd
Kunming Jinmo Trade Co Ltd (hereafter referred as Jinmo) is a company designing and producing packages and
commercial brochures KH contracts with Jinmo to design and produce packages for its products including the
packing boxes gift boxes commercial brochures plastic packages and so on
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch) (hereafter referred as Anzhi) is a
company providing delivering services KH has got the franchise from Anzhi to set up an express delivery station
in its own company to distribute its products at a low cost
China Post Shidian Town Branch
China Post is a state-owned company providing posting and delivering services It owns an online shopping
platform ndash ulecom with a huge customer base KH promotes and sells its products on ulecom
20
66 Permit and License
Business License
(Duplicate copy) Uniform Social Credit Code 9153052106555747L a) Company Name Shidian Kanghong Agricultural Technology Development Co Ltd b) Type of Company Limited liability company (Foreign Enterprise Legal Person Sole Proprietorship) c) Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province China d) Legal Representative Yan Su e) Registered Capital RMB 2 million f) Date of Establishment January 24th 2013 g) Operating Period January 24th 2013 to January 24th 2043 h) Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily groceries
and building materials Import and export trading (Projects needed to be approved under the laws can be operated after approved by relevant departments)
Issued by Bureau of Market Supervision and Administration of Shidian County on August 14th 2018
21
Food Business Operation License
(Duplicate Copy)
a) Operator Name Shidian Kanghong
Agricultural Technology Development
Co Ltd
b) Social Credit Code (Identity Card
Number) 9153052106555747L
c) Legal representative (Person in
Charge) Yan Su
d) Address No23 Group 2 Jiucheng
Community Jiucheng County Shidian
Town Baoshan City Yunnan Province
e) Operation Address
Zhaojia Village Huaxing Community
Youwang County Shidian Town
Baoshan City Yunnan Province
f) Main Body Type
Food Business Operator
g) Food Type
Sales of pre-packaged food (exclude
frozen food) sales of bulk food (exclude
frozen food)
Valid until July 24th 2021
Description
1 Food Business Operation License is the legitimate certificate of the permit for food business
that an operator gets
2 The License has original and duplicate copies which have the same legal effect The
original License should be hung or placed on a prominent position at the operating site
3 The License must not be forged modified resold leased lent or transferred in any other
illegal forms
4 The operator should carry out business within the approved scope
5 The operator should accept the supervision and management of the Food and Drug
Supervision and Administration Department
6 The operator should apply to change the License when the permitted items are changed
7 The operator should timely apply for an extension at the former department in 30 working
days before the License expires
h) License Number JY15305210013112
i) Daily Supervision Management Organization Market Supervision
Administration Bureau of Youwang County
j) Daily Supervisors Shaode Duan Shaoming Qian
k) Complain Call12331
l) License Issuing Authority Market Supervision Administration Bureau of Shidian
County
m) Issuer Shaoming Qian
July 25th 2018
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
5
section of this Information Memorandum Prospective investors before deciding to invest should carefully
consider all of their risks including financial and tax issues and consult professional advice from their accountants
lawyers and other professional advisors The Company is not in any capacity to recommend or decide whether the
investors can or should invest in the Company For such advice each prospective investor must contact their
independent professional consultant
If you need any further information please consult with your stock brokers and other professional advisors
The date of this Information Memorandum is on September 7th 2018
6
3 Issuer and the List of Institutions Related to the Listing
Issuer
Kanghong International Trade Co Ltd
Vistra Corporate Services Centre
Wickhams Cay II Road Town
Tortola VG1110 British Virgin Islands
Contact Person Chun Wang
Tel +86-0875-8867026
E-mail sdkhnykjfzyxgs163com
Operating Entity in China
Shidian Kanghong Agricultural Technology Development Co Ltd
Huaxing Industrial Area Youwang Town
Shidian County Baoshan City Yunnan Province China
Contact Person Chun Wang
Tel +86-0875-8867026
E-mail sdkhnykjfzyxgs163com
Listing Advisor
Shanghai Chucheng Investment Management Co Ltd
Room 601 Huaneng Union Tower
Lane No 958 Lu Jiazui Ring Road Pudong District
Shanghai China
Contact Person Houhai Li
Tel +86-021-31663586
E-mail lihouhaichuchengcapitalcom
Lawyer
Beijing Yingke Law Firm Shanghai Office
Yingke Law Building 181
Jiangchang No3 Road Jing an District
Shanghai China
Contact Person Zhihua Wang
Tel +86-021-36697980
Fax +86-021-36697889
E-mail wangzhihuayingkelawyercom
Auditor
Shanghai Shunzheng CPAs LP
Room 1220 No28 Yuanwen Road
Shanghai China
Contact Person Fengshan Liu
Tel +86-021-62122672
E-mail liufengshan139com
7
4 Company Overview
41 Business Structure
Kanghong International Trade Co Ltd a company incorporated under the laws of the British Virgin Islands is
the company seeking to be listed on DCSX Kanghong International Trade Co Ltd is the owner of 100 of the
outstanding shares of Kanghong International Trade (HK) Co Limited a company incorporated under the laws of
Hong Kong which in turn is the owner of 100 of the outstanding shares of Shanghai Erxing Biotechnology Co
Ltd a company incorporated and organized under the laws of China as a Wholly Owned Foreign Entity (ldquoWOFErdquo)
Shanghai Erxing Biotechnology Co Ltd owns 100 of the outstanding shares of Shidian Kanghong Agricultural
Technology Development Co Ltd (ldquoKHrdquo) which is the operating company in China with assets and business
operations
Kanghong International Trade Co Ltd
(Incorporated in the British Virgin Islands
BVI Company Number 1977961)
Kanghong International Trade (HK) Co Limited (Incorporated in Hong Kong)
Shanghai Erxing Biotechnology Co Ltd (Incorporated in Shanghai City China)
Shidian Kanghong Agricultural Technology Development Co Ltd
(Incorporated in Yunnan Province China)
100 Holding
100 Holding
100 Holding
8
42 About the Company
ldquoShidian Kanghong Agricultural Technology Development Co Ltdrdquo is wholly owned by ldquoKanghong International
Trade Co Ltdrdquo a company incorporated and registered under the laws of the British Virgin Islands ldquoShidian
Kanghong Agricultural Technology Development Co Ltdrdquo is a company incorporated and organized under the
laws of China on January 24th 2013
ldquoShidian Kanghong Agricultural Technology Development Co Ltdrdquo holds a valid business license (Uniformed
Social Credit Code 9153052106555747L) issued by the Bureau of Market Supervision and Administration of
Shidian Town Baoshan City Yunnan Province China on June 27th 2016
Company Name Shidian Kanghong Agricultural Technology Development Co Ltd
Type of Company Limited liability company (Natural person investment or holding)
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Registered Capital RMB 2 million
Date of Establishment January 24th 2013
Operating Period January 24th 2013 to January 24th 2043
Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily
groceries and building materials Import and export trading (Projects need to be approved under the laws and can
only be operated after being approved by relevant governmental authorities)
43 Companyrsquos Operation
Kanghong International Trade Co Ltd through its wholly-owned subsidiary Shidian Kanghong Agricultural
Technology Development Co Ltd (hereafter referred as ldquoKHrdquo) is engaged in the research processing and sales
of edible fungi and fungal products KH cultivates the fungal strains sells and delivers the strains to contracted
growers purchases the fungi and then sells the selected fungi and processed products More details about the
Company can be found in Section 6 ldquoBusiness Overviewrdquo of this Information Memorandum Detailed background
information of the Directors and Senior Management Team can be found in Section 8 of this Information
Memorandum
9
Picture 1 The company site of KH
10
5 Terms of the Issuance and Investment Overview
The information provided in this section is a summary of highlights contained elsewhere in this Information
Memorandum and should be reviewed carefully together with other sections before an investment decision is made
Company Nature
The Company is a limited liability company incorporated under the laws in the British Virgin Islands on May 2nd
2018 The Company owns 100 of the shares of its operating entity in China Shidian Kanghong Agricultural
Technology Development Co Ltd As of the submission date of this Information Memorandum the Companyrsquos
shares are not listed on any other stock exchanges The Companyrsquos securities to be listed will be the Depository
Receipts as explained in this Information Memorandum Investing in shares or Depository Receipts or other
securities involves risks and investors should consider the risks involved
Listing Advisor (LAD)
Shanghai Chucheng Investment Management Co Ltd is a Chinese company and has been licensed as a DCSX
Listing Advisor (LAD) by the DCSX The Company has appointed Shanghai Chucheng Investment Management
Co Ltd as its Listing Advisor (LAD) under the Listing Rules of the DCSX The mission of Shanghai Chucheng
Investment Management Co Ltd is to assist the Company in listing the securities of the Company on the DCSX
Shanghai Chucheng Investment Management Co Ltd is not responsible for the authenticity accuracy or
completeness of any information (financial legal or other) contained in this Information Memorandum and it
doesnrsquot make any representation or provide any approval commitment statement certification or guarantee to the
content of this Information Memorandum
Listing on the DCSX and Fund-raising Purposes
As aforementioned the Company intends to apply for listing via issuing Depository Receipts that will replace the
listed shares on a one to one basis With the listing of ultimately the Depository Receipts no new shares will be
issued at this stage In other words the Company is not to raise or receive new funds in connection with this listing
As indicated in the box below the Company may wish to raise funds in the future through an issuance and listing
of its new securities The Company andor its shareholders may in the future wish to trade the Depository Receipts
corresponding to their existing shares through the DCSX The authorized capital of the Company is 100000000
ordinary shares the nominal value of the ordinary shares is 00005 USD per share and the listing price of the shares
is expected to be 04 USD per share The market value of the Company is therefore estimated to be 40000000
USD Projections and calculation on which the market value is based can be found in the second and third parts of
Section 9 (ldquoFinancial Statementsrdquo) of this Information Memorandum
The Company does not preclude the possibility of raising funds through the issuance of new shares in the
future in which case the Company will prepare and publish the relevant and necessary documents and
procedures under the laws or listing rules including the submission of a new Information Memorandum
Sales Period Commitment
Currently Directors on the Companyrsquos Board collectively hold a total of 4335 shares of the outstanding ordinary
shares of the Company To provide potential investors with certain level of comfort toward the long-term
expectation of the Company all Directors of the Company (hereinafter referred to as the ldquorestricted shareholdersrdquo)
have agreed not to trade any of their shares or other securities (if any) of the Company held by them in any form
within 12 months from the date of listing of the Companyrsquos shares on the DCSX andor such shares being able to
11
trade (once converted to Depository Receipts) To ensure compliance of the foregoing agreement and the applicable
laws each restricted shareholder will agree not to sell or distribute the Companyrsquos shares or other securities publicly
or privately and not to convert or exchange the shares or other securities held by them into any other securities
options or rights during the restricted period
However as to the Companyrsquos total issued share capital the restricted commitment mentioned above will not
apply to a possible tender offer An offer to purchase more than 4335 of the Companyrsquos outstanding share
capital will be regarded as a buyout offer and if the Board of Directors decides to accept such offer the share
or other security transaction that the Company and the restricted shareholders enter into therewith will be
exempt from the above commitment provided that such a buyout is approved first by the DCSX
The Stock Options
On the issuing date of this Information Memorandum neither the Company nor the group has any other unrevealed
stock option commitment that has not been disclosed
The RegistrationTransaction of the Depository Receipts
The Company will eventually through a yet to be appointed issuer (a Financial Institution acceptable to the DCSX)
issue Depository Receipts corresponding to the issued and outstanding ordinary shares of the Company though the
DRs will not be evidenced by any certificates With the listing of the Companyrsquos Depository Receipts on the DCSX
the DCSX and its Brokers will register and manage the trading of the DRs The DRs may be traded in the market
but the Company will not and cannot provide any guarantee with respect to their liquidity The Company agrees
that the Company and all the shareholders will submit the complete and accurate information about the shares and
the required Depository Receipts to the Financial Institution that will issue the DRrsquos After the listing the
registration and trading of the Depository Receipts must comply with the laws and regulations of the DCSX and
other relevant regulators
The Company agrees that the Depository Receipt holders have the same rights as registered ordinary shareholders
Meanwhile when the Company holds a general meeting of shareholders the Depository Receipt holders should
also be notified and allowed to exercise the same voting rights as holders of ordinary shares
Listing Cost
The listing fees and all other directly attributed costs (including audit fees legal fees and other professional costs)
associated with the listing are or will be paid by the Company using existing funds
Inquiry
Any inquiry on regarding this Information Memorandum about listings should be directed to the Listing Advisor
(LAD) Shanghai Chucheng Investment Management Co Ltd
12
6 Business Overview
61 Executive Summary
Shidian Kanghong Agricultural Technology Development Co Ltd (hereafter referred as ldquoKHrdquo) is registered in
Shidian Town Baoshan City Yunnan Province China established on January 24th 2013 with the registered capital
of RMB 2 million
KHrsquos main business is to cultivate fungal strains process edible fungi sell fungi and processed products KH
cooperates with local farmers It provides fungal strains to contracted growers who then plant the strains After
harvesting with preliminary processing such as drying KH purchases the dried fungi from the growers The dried
fungi are ready for sale or will be further processed into products such as black fungus noodle and black fungus
powder etc
Through the cooperation with growers KH not only decreases its business cost but also promotes the local
economy At its very inception KH set up a great goal of ldquoleading the entire village to a better liferdquo Through the
years KH hass consistently pursued this goal by helping local farmers to learn advanced agricultural technology
providing them with good fungal species funding local schools and improving local facilities
KH has won several important recognitions and awards as a result of its professional and outstanding performance
in the field of edible fungi production It was identified as a ldquoScientific amp Technological Small amp Medium
Enterprise of Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named
as ldquothe Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in
2015 The plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial
departments and has been used as the research center for experts from Chinese Academy of Sciences and Yunnan
Province
KH attaches great importance to product quality and innovation as well as brand development KH holds 1 patent
for invention 2 patents for package designing and 8 patents for practical innovation One of its products Mulberry
Branch Black Fungus has been recognized as an ldquoImportant Innovative Product of Yunnan Provincerdquo by Yunnan
Provincial Science and Technology Department since 2015 KH also holds a registered trademark ldquoFatty Surdquo
(Registered Number 14219423) for its products KH aims to develop ldquoFatty Surdquo to a well-known fungus brand in
China and ensure that customers from all over China could enjoy ldquothe gift from nature and the taste of forestrdquo
Adhering to the core values of ldquoPersistence Integrity Hard-working and Sticking to the original goalrdquo and the
operation principle of ldquoEnsuring the company employees growers and customers to all benefit from our businessrdquo
KH is consistently developing itself to become a better company with greater social responsibility
Development History
Throughout its development history KH has been expanding its business step by step
On January 24th 2013 Mr Yan Su and Mr Guangbiao Wu established and incorporated Shidian Kanghong
Agricultural Technology Development Co Ltd aiming to lead the whole village to a better life At the very
beginning KH only had a temporary factory without much equipment or facilities for large-scale production
Lacking experience and technical supervision the first batch of black fungal strains were infected and did not result
in any fungi
In 2014 after the above setback Mr Su and Mr Wu borrowed money from their families and friends to build
13
factories and install facilities They also hired two technicians from Zhejiang Province to supervise the entire
production process However due to a flood in the planting base and extreme weathers 157 million fungal strains
were heavily damaged The direct economic loss was up to RMB 52 million
Having learnt from past failures Mr Su realized that the most important aspect in fungal planting is technology
Therefore in 2015 Mr Su did considerable researches in the black fungi industry sought and received great
support from Kunming Edible Fungi Research Institute and hired experienced experts to form a technology team
The team successfully cultivated a black fungal strain that suits the climate and weather conditions in Yunnan and
won the Third Place Award in the Agriculture Group of Yunnan Innovative Entrepreneur Competition
Backed by a solid technology team KH has gradually grown from a start-up to a big company that shoulders
significant social responsibility as well as offers a variety of products
62 Products and Services
Auricularia auricula-judae commonly known as Jewrsquos ear wood ear jelly ear or black fungus is a species of
edible fungus which is widely consumed in China as it is used in both Chinese cuisine and Chinese medicine Black
fungus has a mild flavor and is rich in protein carbohydrates and minerals Several researches also indicated that
two glucans isolated from black fungus showed potent antitumor properties Black fungus can be dried and
rehydrated Dried fungi can be preserved for a long period of time and still retain nutritional contents and the
original flavor once rehydrated It can also be used as an ingredient to produce other popular food products
Shidian Town lies at the southern part of Hengduan Mountains next to Nujiang River With favorable climate and
abundant natural resources Shidian is a great place to grow black fungus and to set up plantations KH takes great
advantage of these conditions and has built up its business there
KH provides a range of fungal products to consumers including 1) Mulberry Branch Black Fungus 2) Black
Fungus Essence Powder and 3) Black Fungus Noodle
Mulberry Branch Black Fungus
Mulberry Branch Black Fungus is the organic black fungus growing from mulberry trees without using any
fertilizers or pesticides According to two quality tests conducted by Supervision and Testing Center for Edible
Fungi Quality (Shanghai) Ministry of Agriculture (Test Report Number 2014-W2560G 2014-W2561G)
compared with black fungi growing from other common wood (containing 141g of protein and 741g of glucan
per 100g sample) mulberry branch black fungus has higher nutritional value for it contains more protein and
glucans (147g of protein and 82g of glucan per 100g sample) For this product KH offers several different
packages such as gift box and paper bag to cater to different customer groups This product is produced by KH at
its own facilities
Picture 2 Mulberry Branch Black Fungus
14
Black Fungus Essence Powder
Ground to a grain size of 48 microm by ultra-micro grinder under the temperature of -27degC black fungi are turned to
essence powder Since this method breaks down the cell walls of black fungi the nutritional contents are fully
released Since this process is operated under an extremely low temperature the nutritional value is very well
preserved Therefore consumers can take in the nutrients of black fungi more easily by taking this essence powder
This product is produced by Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) and has
passed the quality test conducted by Yunnan Yunce Quality Testing Co Ltd (Test Report Number YC1803217)
KH has signed a contract with Zhongyuan KH provides raw materials and pays the processing fee to Zhongyuan
Picture 3 Black Fungus Essence Powder
Black Fungus Noodle
Black fungus noodle is made from black fungus powder and high-quality wheat flour Noodle is a common staple
for Chinese consumers Since this product contains black fungus powder it has higher nutritional value compared
with ordinary noodles and has therefore become popular among consumers This product is produced by Longyang
Yongda Food Product Processing Factory (hereafter referred as Yongda) and has passed the quality test conducted
by Yunnan Institute of Product Quality Supervision amp Inspection (Test Report Number SP201800470) KH has
signed a contract with Yongda under which KH provides raw materials and pays the processing fee to Yongda
Picture 4 Black Fungus Noodle
15
63 Marketing Strategy
KHrsquos basic marketing principles are ldquoTo spread knowledge and green concepts To provide well-rounded product
series and To stay up-to-date and innovativerdquo
Specifically first KH not only sells its products but also actively spread the knowledge about the medical and
nutritional functions of black fungus and the idea of sustainable development to the public via multiple channels
Second KH has identified different customer groups according to their preferences and consumption habits and
provide different types of products to each group For example ordinary housewives prefer products with low
prices wealthy people prefer well-packaged and high-end products elderly people are more interested in products
that will be beneficial to their health KHrsquos products also have different packages and prices to cater to different
situation For example products in normal size and normal package are targeted at customers who will consume
the products themselves products in delicate packages could be a great gift to clients and guests products in large
packages are targeted at restaurants and canteens
Third KH employs three types of sales channels which not only cover the traditional approaches but also innovative
ones The first type is the traditional channel KH cooperates with distributors and sales agents to sell products KH
also cooperates with several local schools to provide nutritious lunch for students In this way KH has built up a
good reputation which indirectly promotes its brand and sales The second type is the online channel KH has built
up partnership with ulecom to distribute its products and is setting up its online store and a platform on its official
account of WeChat Also KH is actively contacting Tmallcom and jdcom to get access to a bigger customer group
The third type is new retail channel KH will set up experience restaurants called ldquoWood Ear Societyrdquo to further
promote its products and health concepts In these restaurants customers could not only purchase the products
mentioned in the previous part but also could taste more food and dishes cooked with black fungi such as black
fungus noodle black fungus pho black fungus dumpling and black fungus steam bun Customers could dine in
take away the food they order or have it delivered to their homes These dishes will be cooked in a centralized
kitchen and then delivered to each restaurant which will ensure food quality and food safety
Picture 5 KHrsquos Online Store
Forth KH has also set up an after-sale service system to maintain customer relationship KH will invite each
customer to register in its system and then analyze their consumption habits in order to gain a better understanding
of their preferences and apply personalized promotion strategies Also KH will organize training for its sales staff
16
distributors and sales agents on which they would not only learn product information but also nutrition knowledge
and the idea of sustainable development
Fifth KH has drawn up a promotion plan to promote its brand ldquoFatty Surdquo in three stages The first stage is Warm-
up which is from January 2018 to December 2018 In this stage KH will introduce the concept of ldquoHealthy Liferdquo
to customers and the public via advertisements on mass media The second stage is Heat-up which is expected to
be from January 2019 to December 2019 In this stage KH will continuously promote the brand and the concept
by employing more advertising channels and platforms for example advertisements in railway stations airports
and TV programs The third stage is Heat-preserving which is expected to start from January 2020 In this stage
KH will keep the brand image active by regular promotion
In short KH applies multi-tiered plans and strategies to expand the market more efficiently and quickly
Picture 6 the Design Sketch of ldquoWood Ear Societyrdquo
17
64 Development Strategy
As a company with strong sense of social responsibility KH not only aims to develop itself but also strives to
promote the economic growth in Shidian Town To achieve these two goals KH engages local farmers as its
contracted growers and pre-sells the growers at a low price the fungal strains which could be used to grow black
fungi To ensure the quality and the quantity of fungi KH also provides free technical guidance to growers via local
cooperatives (branches of KH which help KH to coordinate production recruit growers and communicate with
growers) The operation structure is illustrated in the flow chart below
Chart 1 KHrsquos Operation Structure
Through this structure KH gets connected with local farmers (growers) and therefore could lead them to develop
altogether By providing and distributing unified fungal strains the growers KH therefore ensures the purity and
quality of product In addition this structure creates more than 300 jobs in Shidian thereby greatly enhancing the
local economy
To expand its business enlarge its product offerings and lead the local economy further KH has several plans
which are briefly described below
First KH is expanding its production capability by building new factories and plantations KH signed the
Agreement on Investing and Developing the Construction Project of Sangzhi Black Fungal Strains with Annual
Production of 30 million and Fine Processing with Shidian Government on September 11th 2015 By June 30th
2018 the infrastructures and factories were completed and the facilities to produce fungal strains was near
completion In 2019 and 2020 KH will continue the construction and related facilities
KH (overall managing providing strains
and equipment selling products)
Cooperatives (coordinating production recruiting
growers distributing strains providing support)
Growers (using fungal strains to
grow fungi pre-processing fungi)
Consumers
Selected and processed fungi
Raw fungi
18
Picture 7 KHrsquos Factory
Second KH is to enlarge its product offerings by developing more products KH signed the Cooperation Agreement
on Product Development with Kunming Edible Fungi Research Institute on September 2nd 2017 The institute is
expected to complete the development of Black Fungus Tablet Black Fungus Drink and so on by the end of 2018
and complete Black Fungus Capsule by the end of 2019 KH is also studying other edible fungi for example lingzhi
mushroom and will develop products like lingzhi Mushroom Spore Powder and lingzhi Mushroom Spore Oil KH
has successfully planted lingzhi mushroom in its plantation which has built up solid foundation for further
production Moreover KH also has the plan to cooperate with cosmetics RampD institutes and pharmaceutical
institutes to study more effects and values of black fungi and lingzhi mushrooms and develop skincare products
and medicines using black fungi and lingzhi mushrooms as ingredients
Picture 8 Lingzhi Mushroom in KHrsquos Plantation
19
65 Business Partners
KH has established partnerships with the following institutes and companies to develop or produce products
bull Kunming Edible Fungi Research Institute
bull Yunnan Yunjun Technology (Group) Co Ltd
bull Lijiang Zhongyuan Green Food Co Ltd
bull Longyang Yongda Food Product Processing Factory
bull Kunming Jinmo Trade Co Ltd
bull Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
bull China Post Shidian Town Branch
Kunming Edible Fungi Research Institute
Kunming Edible Fungi Research Institute (hereafter referred as KM Institute) is a professional agent researching
and studying edible fungi and developing fungal products KM Institute provides professional guidance on
technology to KH and develops deep-processed fungal products according to KHrsquos requirement while KH is
responsible for market analysis and research funds
Yunnan Yunjun Technology (Group) Co Ltd
Yunnan Yunjun Technology (Group) Co Ltd (hereafter referred as Yunjun) is a company researching developing
and processing fungal products Yunjun provides technical support and professional training to KH and cooperates
with KH to develop fungal products while KH is responsible for market analysis product promotion research
equipment research materials and research funds
Lijiang Zhongyuan Green Food Co Ltd
Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) is a company processing and selling
fungal products and agricultural products KH provides black fungi to Zhongyuan and contracts with Zhongyuan
to process Black Fungus Essence Powder
Longyang Yongda Food Product Processing Factory
Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) is a company processing
agricultural products and food products KH provides black fungi to Yongda and contracts with Yongda to process
Black Fungus Noodles
Kunming Jinmo Trade Co Ltd
Kunming Jinmo Trade Co Ltd (hereafter referred as Jinmo) is a company designing and producing packages and
commercial brochures KH contracts with Jinmo to design and produce packages for its products including the
packing boxes gift boxes commercial brochures plastic packages and so on
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch) (hereafter referred as Anzhi) is a
company providing delivering services KH has got the franchise from Anzhi to set up an express delivery station
in its own company to distribute its products at a low cost
China Post Shidian Town Branch
China Post is a state-owned company providing posting and delivering services It owns an online shopping
platform ndash ulecom with a huge customer base KH promotes and sells its products on ulecom
20
66 Permit and License
Business License
(Duplicate copy) Uniform Social Credit Code 9153052106555747L a) Company Name Shidian Kanghong Agricultural Technology Development Co Ltd b) Type of Company Limited liability company (Foreign Enterprise Legal Person Sole Proprietorship) c) Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province China d) Legal Representative Yan Su e) Registered Capital RMB 2 million f) Date of Establishment January 24th 2013 g) Operating Period January 24th 2013 to January 24th 2043 h) Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily groceries
and building materials Import and export trading (Projects needed to be approved under the laws can be operated after approved by relevant departments)
Issued by Bureau of Market Supervision and Administration of Shidian County on August 14th 2018
21
Food Business Operation License
(Duplicate Copy)
a) Operator Name Shidian Kanghong
Agricultural Technology Development
Co Ltd
b) Social Credit Code (Identity Card
Number) 9153052106555747L
c) Legal representative (Person in
Charge) Yan Su
d) Address No23 Group 2 Jiucheng
Community Jiucheng County Shidian
Town Baoshan City Yunnan Province
e) Operation Address
Zhaojia Village Huaxing Community
Youwang County Shidian Town
Baoshan City Yunnan Province
f) Main Body Type
Food Business Operator
g) Food Type
Sales of pre-packaged food (exclude
frozen food) sales of bulk food (exclude
frozen food)
Valid until July 24th 2021
Description
1 Food Business Operation License is the legitimate certificate of the permit for food business
that an operator gets
2 The License has original and duplicate copies which have the same legal effect The
original License should be hung or placed on a prominent position at the operating site
3 The License must not be forged modified resold leased lent or transferred in any other
illegal forms
4 The operator should carry out business within the approved scope
5 The operator should accept the supervision and management of the Food and Drug
Supervision and Administration Department
6 The operator should apply to change the License when the permitted items are changed
7 The operator should timely apply for an extension at the former department in 30 working
days before the License expires
h) License Number JY15305210013112
i) Daily Supervision Management Organization Market Supervision
Administration Bureau of Youwang County
j) Daily Supervisors Shaode Duan Shaoming Qian
k) Complain Call12331
l) License Issuing Authority Market Supervision Administration Bureau of Shidian
County
m) Issuer Shaoming Qian
July 25th 2018
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
6
3 Issuer and the List of Institutions Related to the Listing
Issuer
Kanghong International Trade Co Ltd
Vistra Corporate Services Centre
Wickhams Cay II Road Town
Tortola VG1110 British Virgin Islands
Contact Person Chun Wang
Tel +86-0875-8867026
E-mail sdkhnykjfzyxgs163com
Operating Entity in China
Shidian Kanghong Agricultural Technology Development Co Ltd
Huaxing Industrial Area Youwang Town
Shidian County Baoshan City Yunnan Province China
Contact Person Chun Wang
Tel +86-0875-8867026
E-mail sdkhnykjfzyxgs163com
Listing Advisor
Shanghai Chucheng Investment Management Co Ltd
Room 601 Huaneng Union Tower
Lane No 958 Lu Jiazui Ring Road Pudong District
Shanghai China
Contact Person Houhai Li
Tel +86-021-31663586
E-mail lihouhaichuchengcapitalcom
Lawyer
Beijing Yingke Law Firm Shanghai Office
Yingke Law Building 181
Jiangchang No3 Road Jing an District
Shanghai China
Contact Person Zhihua Wang
Tel +86-021-36697980
Fax +86-021-36697889
E-mail wangzhihuayingkelawyercom
Auditor
Shanghai Shunzheng CPAs LP
Room 1220 No28 Yuanwen Road
Shanghai China
Contact Person Fengshan Liu
Tel +86-021-62122672
E-mail liufengshan139com
7
4 Company Overview
41 Business Structure
Kanghong International Trade Co Ltd a company incorporated under the laws of the British Virgin Islands is
the company seeking to be listed on DCSX Kanghong International Trade Co Ltd is the owner of 100 of the
outstanding shares of Kanghong International Trade (HK) Co Limited a company incorporated under the laws of
Hong Kong which in turn is the owner of 100 of the outstanding shares of Shanghai Erxing Biotechnology Co
Ltd a company incorporated and organized under the laws of China as a Wholly Owned Foreign Entity (ldquoWOFErdquo)
Shanghai Erxing Biotechnology Co Ltd owns 100 of the outstanding shares of Shidian Kanghong Agricultural
Technology Development Co Ltd (ldquoKHrdquo) which is the operating company in China with assets and business
operations
Kanghong International Trade Co Ltd
(Incorporated in the British Virgin Islands
BVI Company Number 1977961)
Kanghong International Trade (HK) Co Limited (Incorporated in Hong Kong)
Shanghai Erxing Biotechnology Co Ltd (Incorporated in Shanghai City China)
Shidian Kanghong Agricultural Technology Development Co Ltd
(Incorporated in Yunnan Province China)
100 Holding
100 Holding
100 Holding
8
42 About the Company
ldquoShidian Kanghong Agricultural Technology Development Co Ltdrdquo is wholly owned by ldquoKanghong International
Trade Co Ltdrdquo a company incorporated and registered under the laws of the British Virgin Islands ldquoShidian
Kanghong Agricultural Technology Development Co Ltdrdquo is a company incorporated and organized under the
laws of China on January 24th 2013
ldquoShidian Kanghong Agricultural Technology Development Co Ltdrdquo holds a valid business license (Uniformed
Social Credit Code 9153052106555747L) issued by the Bureau of Market Supervision and Administration of
Shidian Town Baoshan City Yunnan Province China on June 27th 2016
Company Name Shidian Kanghong Agricultural Technology Development Co Ltd
Type of Company Limited liability company (Natural person investment or holding)
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Registered Capital RMB 2 million
Date of Establishment January 24th 2013
Operating Period January 24th 2013 to January 24th 2043
Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily
groceries and building materials Import and export trading (Projects need to be approved under the laws and can
only be operated after being approved by relevant governmental authorities)
43 Companyrsquos Operation
Kanghong International Trade Co Ltd through its wholly-owned subsidiary Shidian Kanghong Agricultural
Technology Development Co Ltd (hereafter referred as ldquoKHrdquo) is engaged in the research processing and sales
of edible fungi and fungal products KH cultivates the fungal strains sells and delivers the strains to contracted
growers purchases the fungi and then sells the selected fungi and processed products More details about the
Company can be found in Section 6 ldquoBusiness Overviewrdquo of this Information Memorandum Detailed background
information of the Directors and Senior Management Team can be found in Section 8 of this Information
Memorandum
9
Picture 1 The company site of KH
10
5 Terms of the Issuance and Investment Overview
The information provided in this section is a summary of highlights contained elsewhere in this Information
Memorandum and should be reviewed carefully together with other sections before an investment decision is made
Company Nature
The Company is a limited liability company incorporated under the laws in the British Virgin Islands on May 2nd
2018 The Company owns 100 of the shares of its operating entity in China Shidian Kanghong Agricultural
Technology Development Co Ltd As of the submission date of this Information Memorandum the Companyrsquos
shares are not listed on any other stock exchanges The Companyrsquos securities to be listed will be the Depository
Receipts as explained in this Information Memorandum Investing in shares or Depository Receipts or other
securities involves risks and investors should consider the risks involved
Listing Advisor (LAD)
Shanghai Chucheng Investment Management Co Ltd is a Chinese company and has been licensed as a DCSX
Listing Advisor (LAD) by the DCSX The Company has appointed Shanghai Chucheng Investment Management
Co Ltd as its Listing Advisor (LAD) under the Listing Rules of the DCSX The mission of Shanghai Chucheng
Investment Management Co Ltd is to assist the Company in listing the securities of the Company on the DCSX
Shanghai Chucheng Investment Management Co Ltd is not responsible for the authenticity accuracy or
completeness of any information (financial legal or other) contained in this Information Memorandum and it
doesnrsquot make any representation or provide any approval commitment statement certification or guarantee to the
content of this Information Memorandum
Listing on the DCSX and Fund-raising Purposes
As aforementioned the Company intends to apply for listing via issuing Depository Receipts that will replace the
listed shares on a one to one basis With the listing of ultimately the Depository Receipts no new shares will be
issued at this stage In other words the Company is not to raise or receive new funds in connection with this listing
As indicated in the box below the Company may wish to raise funds in the future through an issuance and listing
of its new securities The Company andor its shareholders may in the future wish to trade the Depository Receipts
corresponding to their existing shares through the DCSX The authorized capital of the Company is 100000000
ordinary shares the nominal value of the ordinary shares is 00005 USD per share and the listing price of the shares
is expected to be 04 USD per share The market value of the Company is therefore estimated to be 40000000
USD Projections and calculation on which the market value is based can be found in the second and third parts of
Section 9 (ldquoFinancial Statementsrdquo) of this Information Memorandum
The Company does not preclude the possibility of raising funds through the issuance of new shares in the
future in which case the Company will prepare and publish the relevant and necessary documents and
procedures under the laws or listing rules including the submission of a new Information Memorandum
Sales Period Commitment
Currently Directors on the Companyrsquos Board collectively hold a total of 4335 shares of the outstanding ordinary
shares of the Company To provide potential investors with certain level of comfort toward the long-term
expectation of the Company all Directors of the Company (hereinafter referred to as the ldquorestricted shareholdersrdquo)
have agreed not to trade any of their shares or other securities (if any) of the Company held by them in any form
within 12 months from the date of listing of the Companyrsquos shares on the DCSX andor such shares being able to
11
trade (once converted to Depository Receipts) To ensure compliance of the foregoing agreement and the applicable
laws each restricted shareholder will agree not to sell or distribute the Companyrsquos shares or other securities publicly
or privately and not to convert or exchange the shares or other securities held by them into any other securities
options or rights during the restricted period
However as to the Companyrsquos total issued share capital the restricted commitment mentioned above will not
apply to a possible tender offer An offer to purchase more than 4335 of the Companyrsquos outstanding share
capital will be regarded as a buyout offer and if the Board of Directors decides to accept such offer the share
or other security transaction that the Company and the restricted shareholders enter into therewith will be
exempt from the above commitment provided that such a buyout is approved first by the DCSX
The Stock Options
On the issuing date of this Information Memorandum neither the Company nor the group has any other unrevealed
stock option commitment that has not been disclosed
The RegistrationTransaction of the Depository Receipts
The Company will eventually through a yet to be appointed issuer (a Financial Institution acceptable to the DCSX)
issue Depository Receipts corresponding to the issued and outstanding ordinary shares of the Company though the
DRs will not be evidenced by any certificates With the listing of the Companyrsquos Depository Receipts on the DCSX
the DCSX and its Brokers will register and manage the trading of the DRs The DRs may be traded in the market
but the Company will not and cannot provide any guarantee with respect to their liquidity The Company agrees
that the Company and all the shareholders will submit the complete and accurate information about the shares and
the required Depository Receipts to the Financial Institution that will issue the DRrsquos After the listing the
registration and trading of the Depository Receipts must comply with the laws and regulations of the DCSX and
other relevant regulators
The Company agrees that the Depository Receipt holders have the same rights as registered ordinary shareholders
Meanwhile when the Company holds a general meeting of shareholders the Depository Receipt holders should
also be notified and allowed to exercise the same voting rights as holders of ordinary shares
Listing Cost
The listing fees and all other directly attributed costs (including audit fees legal fees and other professional costs)
associated with the listing are or will be paid by the Company using existing funds
Inquiry
Any inquiry on regarding this Information Memorandum about listings should be directed to the Listing Advisor
(LAD) Shanghai Chucheng Investment Management Co Ltd
12
6 Business Overview
61 Executive Summary
Shidian Kanghong Agricultural Technology Development Co Ltd (hereafter referred as ldquoKHrdquo) is registered in
Shidian Town Baoshan City Yunnan Province China established on January 24th 2013 with the registered capital
of RMB 2 million
KHrsquos main business is to cultivate fungal strains process edible fungi sell fungi and processed products KH
cooperates with local farmers It provides fungal strains to contracted growers who then plant the strains After
harvesting with preliminary processing such as drying KH purchases the dried fungi from the growers The dried
fungi are ready for sale or will be further processed into products such as black fungus noodle and black fungus
powder etc
Through the cooperation with growers KH not only decreases its business cost but also promotes the local
economy At its very inception KH set up a great goal of ldquoleading the entire village to a better liferdquo Through the
years KH hass consistently pursued this goal by helping local farmers to learn advanced agricultural technology
providing them with good fungal species funding local schools and improving local facilities
KH has won several important recognitions and awards as a result of its professional and outstanding performance
in the field of edible fungi production It was identified as a ldquoScientific amp Technological Small amp Medium
Enterprise of Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named
as ldquothe Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in
2015 The plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial
departments and has been used as the research center for experts from Chinese Academy of Sciences and Yunnan
Province
KH attaches great importance to product quality and innovation as well as brand development KH holds 1 patent
for invention 2 patents for package designing and 8 patents for practical innovation One of its products Mulberry
Branch Black Fungus has been recognized as an ldquoImportant Innovative Product of Yunnan Provincerdquo by Yunnan
Provincial Science and Technology Department since 2015 KH also holds a registered trademark ldquoFatty Surdquo
(Registered Number 14219423) for its products KH aims to develop ldquoFatty Surdquo to a well-known fungus brand in
China and ensure that customers from all over China could enjoy ldquothe gift from nature and the taste of forestrdquo
Adhering to the core values of ldquoPersistence Integrity Hard-working and Sticking to the original goalrdquo and the
operation principle of ldquoEnsuring the company employees growers and customers to all benefit from our businessrdquo
KH is consistently developing itself to become a better company with greater social responsibility
Development History
Throughout its development history KH has been expanding its business step by step
On January 24th 2013 Mr Yan Su and Mr Guangbiao Wu established and incorporated Shidian Kanghong
Agricultural Technology Development Co Ltd aiming to lead the whole village to a better life At the very
beginning KH only had a temporary factory without much equipment or facilities for large-scale production
Lacking experience and technical supervision the first batch of black fungal strains were infected and did not result
in any fungi
In 2014 after the above setback Mr Su and Mr Wu borrowed money from their families and friends to build
13
factories and install facilities They also hired two technicians from Zhejiang Province to supervise the entire
production process However due to a flood in the planting base and extreme weathers 157 million fungal strains
were heavily damaged The direct economic loss was up to RMB 52 million
Having learnt from past failures Mr Su realized that the most important aspect in fungal planting is technology
Therefore in 2015 Mr Su did considerable researches in the black fungi industry sought and received great
support from Kunming Edible Fungi Research Institute and hired experienced experts to form a technology team
The team successfully cultivated a black fungal strain that suits the climate and weather conditions in Yunnan and
won the Third Place Award in the Agriculture Group of Yunnan Innovative Entrepreneur Competition
Backed by a solid technology team KH has gradually grown from a start-up to a big company that shoulders
significant social responsibility as well as offers a variety of products
62 Products and Services
Auricularia auricula-judae commonly known as Jewrsquos ear wood ear jelly ear or black fungus is a species of
edible fungus which is widely consumed in China as it is used in both Chinese cuisine and Chinese medicine Black
fungus has a mild flavor and is rich in protein carbohydrates and minerals Several researches also indicated that
two glucans isolated from black fungus showed potent antitumor properties Black fungus can be dried and
rehydrated Dried fungi can be preserved for a long period of time and still retain nutritional contents and the
original flavor once rehydrated It can also be used as an ingredient to produce other popular food products
Shidian Town lies at the southern part of Hengduan Mountains next to Nujiang River With favorable climate and
abundant natural resources Shidian is a great place to grow black fungus and to set up plantations KH takes great
advantage of these conditions and has built up its business there
KH provides a range of fungal products to consumers including 1) Mulberry Branch Black Fungus 2) Black
Fungus Essence Powder and 3) Black Fungus Noodle
Mulberry Branch Black Fungus
Mulberry Branch Black Fungus is the organic black fungus growing from mulberry trees without using any
fertilizers or pesticides According to two quality tests conducted by Supervision and Testing Center for Edible
Fungi Quality (Shanghai) Ministry of Agriculture (Test Report Number 2014-W2560G 2014-W2561G)
compared with black fungi growing from other common wood (containing 141g of protein and 741g of glucan
per 100g sample) mulberry branch black fungus has higher nutritional value for it contains more protein and
glucans (147g of protein and 82g of glucan per 100g sample) For this product KH offers several different
packages such as gift box and paper bag to cater to different customer groups This product is produced by KH at
its own facilities
Picture 2 Mulberry Branch Black Fungus
14
Black Fungus Essence Powder
Ground to a grain size of 48 microm by ultra-micro grinder under the temperature of -27degC black fungi are turned to
essence powder Since this method breaks down the cell walls of black fungi the nutritional contents are fully
released Since this process is operated under an extremely low temperature the nutritional value is very well
preserved Therefore consumers can take in the nutrients of black fungi more easily by taking this essence powder
This product is produced by Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) and has
passed the quality test conducted by Yunnan Yunce Quality Testing Co Ltd (Test Report Number YC1803217)
KH has signed a contract with Zhongyuan KH provides raw materials and pays the processing fee to Zhongyuan
Picture 3 Black Fungus Essence Powder
Black Fungus Noodle
Black fungus noodle is made from black fungus powder and high-quality wheat flour Noodle is a common staple
for Chinese consumers Since this product contains black fungus powder it has higher nutritional value compared
with ordinary noodles and has therefore become popular among consumers This product is produced by Longyang
Yongda Food Product Processing Factory (hereafter referred as Yongda) and has passed the quality test conducted
by Yunnan Institute of Product Quality Supervision amp Inspection (Test Report Number SP201800470) KH has
signed a contract with Yongda under which KH provides raw materials and pays the processing fee to Yongda
Picture 4 Black Fungus Noodle
15
63 Marketing Strategy
KHrsquos basic marketing principles are ldquoTo spread knowledge and green concepts To provide well-rounded product
series and To stay up-to-date and innovativerdquo
Specifically first KH not only sells its products but also actively spread the knowledge about the medical and
nutritional functions of black fungus and the idea of sustainable development to the public via multiple channels
Second KH has identified different customer groups according to their preferences and consumption habits and
provide different types of products to each group For example ordinary housewives prefer products with low
prices wealthy people prefer well-packaged and high-end products elderly people are more interested in products
that will be beneficial to their health KHrsquos products also have different packages and prices to cater to different
situation For example products in normal size and normal package are targeted at customers who will consume
the products themselves products in delicate packages could be a great gift to clients and guests products in large
packages are targeted at restaurants and canteens
Third KH employs three types of sales channels which not only cover the traditional approaches but also innovative
ones The first type is the traditional channel KH cooperates with distributors and sales agents to sell products KH
also cooperates with several local schools to provide nutritious lunch for students In this way KH has built up a
good reputation which indirectly promotes its brand and sales The second type is the online channel KH has built
up partnership with ulecom to distribute its products and is setting up its online store and a platform on its official
account of WeChat Also KH is actively contacting Tmallcom and jdcom to get access to a bigger customer group
The third type is new retail channel KH will set up experience restaurants called ldquoWood Ear Societyrdquo to further
promote its products and health concepts In these restaurants customers could not only purchase the products
mentioned in the previous part but also could taste more food and dishes cooked with black fungi such as black
fungus noodle black fungus pho black fungus dumpling and black fungus steam bun Customers could dine in
take away the food they order or have it delivered to their homes These dishes will be cooked in a centralized
kitchen and then delivered to each restaurant which will ensure food quality and food safety
Picture 5 KHrsquos Online Store
Forth KH has also set up an after-sale service system to maintain customer relationship KH will invite each
customer to register in its system and then analyze their consumption habits in order to gain a better understanding
of their preferences and apply personalized promotion strategies Also KH will organize training for its sales staff
16
distributors and sales agents on which they would not only learn product information but also nutrition knowledge
and the idea of sustainable development
Fifth KH has drawn up a promotion plan to promote its brand ldquoFatty Surdquo in three stages The first stage is Warm-
up which is from January 2018 to December 2018 In this stage KH will introduce the concept of ldquoHealthy Liferdquo
to customers and the public via advertisements on mass media The second stage is Heat-up which is expected to
be from January 2019 to December 2019 In this stage KH will continuously promote the brand and the concept
by employing more advertising channels and platforms for example advertisements in railway stations airports
and TV programs The third stage is Heat-preserving which is expected to start from January 2020 In this stage
KH will keep the brand image active by regular promotion
In short KH applies multi-tiered plans and strategies to expand the market more efficiently and quickly
Picture 6 the Design Sketch of ldquoWood Ear Societyrdquo
17
64 Development Strategy
As a company with strong sense of social responsibility KH not only aims to develop itself but also strives to
promote the economic growth in Shidian Town To achieve these two goals KH engages local farmers as its
contracted growers and pre-sells the growers at a low price the fungal strains which could be used to grow black
fungi To ensure the quality and the quantity of fungi KH also provides free technical guidance to growers via local
cooperatives (branches of KH which help KH to coordinate production recruit growers and communicate with
growers) The operation structure is illustrated in the flow chart below
Chart 1 KHrsquos Operation Structure
Through this structure KH gets connected with local farmers (growers) and therefore could lead them to develop
altogether By providing and distributing unified fungal strains the growers KH therefore ensures the purity and
quality of product In addition this structure creates more than 300 jobs in Shidian thereby greatly enhancing the
local economy
To expand its business enlarge its product offerings and lead the local economy further KH has several plans
which are briefly described below
First KH is expanding its production capability by building new factories and plantations KH signed the
Agreement on Investing and Developing the Construction Project of Sangzhi Black Fungal Strains with Annual
Production of 30 million and Fine Processing with Shidian Government on September 11th 2015 By June 30th
2018 the infrastructures and factories were completed and the facilities to produce fungal strains was near
completion In 2019 and 2020 KH will continue the construction and related facilities
KH (overall managing providing strains
and equipment selling products)
Cooperatives (coordinating production recruiting
growers distributing strains providing support)
Growers (using fungal strains to
grow fungi pre-processing fungi)
Consumers
Selected and processed fungi
Raw fungi
18
Picture 7 KHrsquos Factory
Second KH is to enlarge its product offerings by developing more products KH signed the Cooperation Agreement
on Product Development with Kunming Edible Fungi Research Institute on September 2nd 2017 The institute is
expected to complete the development of Black Fungus Tablet Black Fungus Drink and so on by the end of 2018
and complete Black Fungus Capsule by the end of 2019 KH is also studying other edible fungi for example lingzhi
mushroom and will develop products like lingzhi Mushroom Spore Powder and lingzhi Mushroom Spore Oil KH
has successfully planted lingzhi mushroom in its plantation which has built up solid foundation for further
production Moreover KH also has the plan to cooperate with cosmetics RampD institutes and pharmaceutical
institutes to study more effects and values of black fungi and lingzhi mushrooms and develop skincare products
and medicines using black fungi and lingzhi mushrooms as ingredients
Picture 8 Lingzhi Mushroom in KHrsquos Plantation
19
65 Business Partners
KH has established partnerships with the following institutes and companies to develop or produce products
bull Kunming Edible Fungi Research Institute
bull Yunnan Yunjun Technology (Group) Co Ltd
bull Lijiang Zhongyuan Green Food Co Ltd
bull Longyang Yongda Food Product Processing Factory
bull Kunming Jinmo Trade Co Ltd
bull Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
bull China Post Shidian Town Branch
Kunming Edible Fungi Research Institute
Kunming Edible Fungi Research Institute (hereafter referred as KM Institute) is a professional agent researching
and studying edible fungi and developing fungal products KM Institute provides professional guidance on
technology to KH and develops deep-processed fungal products according to KHrsquos requirement while KH is
responsible for market analysis and research funds
Yunnan Yunjun Technology (Group) Co Ltd
Yunnan Yunjun Technology (Group) Co Ltd (hereafter referred as Yunjun) is a company researching developing
and processing fungal products Yunjun provides technical support and professional training to KH and cooperates
with KH to develop fungal products while KH is responsible for market analysis product promotion research
equipment research materials and research funds
Lijiang Zhongyuan Green Food Co Ltd
Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) is a company processing and selling
fungal products and agricultural products KH provides black fungi to Zhongyuan and contracts with Zhongyuan
to process Black Fungus Essence Powder
Longyang Yongda Food Product Processing Factory
Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) is a company processing
agricultural products and food products KH provides black fungi to Yongda and contracts with Yongda to process
Black Fungus Noodles
Kunming Jinmo Trade Co Ltd
Kunming Jinmo Trade Co Ltd (hereafter referred as Jinmo) is a company designing and producing packages and
commercial brochures KH contracts with Jinmo to design and produce packages for its products including the
packing boxes gift boxes commercial brochures plastic packages and so on
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch) (hereafter referred as Anzhi) is a
company providing delivering services KH has got the franchise from Anzhi to set up an express delivery station
in its own company to distribute its products at a low cost
China Post Shidian Town Branch
China Post is a state-owned company providing posting and delivering services It owns an online shopping
platform ndash ulecom with a huge customer base KH promotes and sells its products on ulecom
20
66 Permit and License
Business License
(Duplicate copy) Uniform Social Credit Code 9153052106555747L a) Company Name Shidian Kanghong Agricultural Technology Development Co Ltd b) Type of Company Limited liability company (Foreign Enterprise Legal Person Sole Proprietorship) c) Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province China d) Legal Representative Yan Su e) Registered Capital RMB 2 million f) Date of Establishment January 24th 2013 g) Operating Period January 24th 2013 to January 24th 2043 h) Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily groceries
and building materials Import and export trading (Projects needed to be approved under the laws can be operated after approved by relevant departments)
Issued by Bureau of Market Supervision and Administration of Shidian County on August 14th 2018
21
Food Business Operation License
(Duplicate Copy)
a) Operator Name Shidian Kanghong
Agricultural Technology Development
Co Ltd
b) Social Credit Code (Identity Card
Number) 9153052106555747L
c) Legal representative (Person in
Charge) Yan Su
d) Address No23 Group 2 Jiucheng
Community Jiucheng County Shidian
Town Baoshan City Yunnan Province
e) Operation Address
Zhaojia Village Huaxing Community
Youwang County Shidian Town
Baoshan City Yunnan Province
f) Main Body Type
Food Business Operator
g) Food Type
Sales of pre-packaged food (exclude
frozen food) sales of bulk food (exclude
frozen food)
Valid until July 24th 2021
Description
1 Food Business Operation License is the legitimate certificate of the permit for food business
that an operator gets
2 The License has original and duplicate copies which have the same legal effect The
original License should be hung or placed on a prominent position at the operating site
3 The License must not be forged modified resold leased lent or transferred in any other
illegal forms
4 The operator should carry out business within the approved scope
5 The operator should accept the supervision and management of the Food and Drug
Supervision and Administration Department
6 The operator should apply to change the License when the permitted items are changed
7 The operator should timely apply for an extension at the former department in 30 working
days before the License expires
h) License Number JY15305210013112
i) Daily Supervision Management Organization Market Supervision
Administration Bureau of Youwang County
j) Daily Supervisors Shaode Duan Shaoming Qian
k) Complain Call12331
l) License Issuing Authority Market Supervision Administration Bureau of Shidian
County
m) Issuer Shaoming Qian
July 25th 2018
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
7
4 Company Overview
41 Business Structure
Kanghong International Trade Co Ltd a company incorporated under the laws of the British Virgin Islands is
the company seeking to be listed on DCSX Kanghong International Trade Co Ltd is the owner of 100 of the
outstanding shares of Kanghong International Trade (HK) Co Limited a company incorporated under the laws of
Hong Kong which in turn is the owner of 100 of the outstanding shares of Shanghai Erxing Biotechnology Co
Ltd a company incorporated and organized under the laws of China as a Wholly Owned Foreign Entity (ldquoWOFErdquo)
Shanghai Erxing Biotechnology Co Ltd owns 100 of the outstanding shares of Shidian Kanghong Agricultural
Technology Development Co Ltd (ldquoKHrdquo) which is the operating company in China with assets and business
operations
Kanghong International Trade Co Ltd
(Incorporated in the British Virgin Islands
BVI Company Number 1977961)
Kanghong International Trade (HK) Co Limited (Incorporated in Hong Kong)
Shanghai Erxing Biotechnology Co Ltd (Incorporated in Shanghai City China)
Shidian Kanghong Agricultural Technology Development Co Ltd
(Incorporated in Yunnan Province China)
100 Holding
100 Holding
100 Holding
8
42 About the Company
ldquoShidian Kanghong Agricultural Technology Development Co Ltdrdquo is wholly owned by ldquoKanghong International
Trade Co Ltdrdquo a company incorporated and registered under the laws of the British Virgin Islands ldquoShidian
Kanghong Agricultural Technology Development Co Ltdrdquo is a company incorporated and organized under the
laws of China on January 24th 2013
ldquoShidian Kanghong Agricultural Technology Development Co Ltdrdquo holds a valid business license (Uniformed
Social Credit Code 9153052106555747L) issued by the Bureau of Market Supervision and Administration of
Shidian Town Baoshan City Yunnan Province China on June 27th 2016
Company Name Shidian Kanghong Agricultural Technology Development Co Ltd
Type of Company Limited liability company (Natural person investment or holding)
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Registered Capital RMB 2 million
Date of Establishment January 24th 2013
Operating Period January 24th 2013 to January 24th 2043
Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily
groceries and building materials Import and export trading (Projects need to be approved under the laws and can
only be operated after being approved by relevant governmental authorities)
43 Companyrsquos Operation
Kanghong International Trade Co Ltd through its wholly-owned subsidiary Shidian Kanghong Agricultural
Technology Development Co Ltd (hereafter referred as ldquoKHrdquo) is engaged in the research processing and sales
of edible fungi and fungal products KH cultivates the fungal strains sells and delivers the strains to contracted
growers purchases the fungi and then sells the selected fungi and processed products More details about the
Company can be found in Section 6 ldquoBusiness Overviewrdquo of this Information Memorandum Detailed background
information of the Directors and Senior Management Team can be found in Section 8 of this Information
Memorandum
9
Picture 1 The company site of KH
10
5 Terms of the Issuance and Investment Overview
The information provided in this section is a summary of highlights contained elsewhere in this Information
Memorandum and should be reviewed carefully together with other sections before an investment decision is made
Company Nature
The Company is a limited liability company incorporated under the laws in the British Virgin Islands on May 2nd
2018 The Company owns 100 of the shares of its operating entity in China Shidian Kanghong Agricultural
Technology Development Co Ltd As of the submission date of this Information Memorandum the Companyrsquos
shares are not listed on any other stock exchanges The Companyrsquos securities to be listed will be the Depository
Receipts as explained in this Information Memorandum Investing in shares or Depository Receipts or other
securities involves risks and investors should consider the risks involved
Listing Advisor (LAD)
Shanghai Chucheng Investment Management Co Ltd is a Chinese company and has been licensed as a DCSX
Listing Advisor (LAD) by the DCSX The Company has appointed Shanghai Chucheng Investment Management
Co Ltd as its Listing Advisor (LAD) under the Listing Rules of the DCSX The mission of Shanghai Chucheng
Investment Management Co Ltd is to assist the Company in listing the securities of the Company on the DCSX
Shanghai Chucheng Investment Management Co Ltd is not responsible for the authenticity accuracy or
completeness of any information (financial legal or other) contained in this Information Memorandum and it
doesnrsquot make any representation or provide any approval commitment statement certification or guarantee to the
content of this Information Memorandum
Listing on the DCSX and Fund-raising Purposes
As aforementioned the Company intends to apply for listing via issuing Depository Receipts that will replace the
listed shares on a one to one basis With the listing of ultimately the Depository Receipts no new shares will be
issued at this stage In other words the Company is not to raise or receive new funds in connection with this listing
As indicated in the box below the Company may wish to raise funds in the future through an issuance and listing
of its new securities The Company andor its shareholders may in the future wish to trade the Depository Receipts
corresponding to their existing shares through the DCSX The authorized capital of the Company is 100000000
ordinary shares the nominal value of the ordinary shares is 00005 USD per share and the listing price of the shares
is expected to be 04 USD per share The market value of the Company is therefore estimated to be 40000000
USD Projections and calculation on which the market value is based can be found in the second and third parts of
Section 9 (ldquoFinancial Statementsrdquo) of this Information Memorandum
The Company does not preclude the possibility of raising funds through the issuance of new shares in the
future in which case the Company will prepare and publish the relevant and necessary documents and
procedures under the laws or listing rules including the submission of a new Information Memorandum
Sales Period Commitment
Currently Directors on the Companyrsquos Board collectively hold a total of 4335 shares of the outstanding ordinary
shares of the Company To provide potential investors with certain level of comfort toward the long-term
expectation of the Company all Directors of the Company (hereinafter referred to as the ldquorestricted shareholdersrdquo)
have agreed not to trade any of their shares or other securities (if any) of the Company held by them in any form
within 12 months from the date of listing of the Companyrsquos shares on the DCSX andor such shares being able to
11
trade (once converted to Depository Receipts) To ensure compliance of the foregoing agreement and the applicable
laws each restricted shareholder will agree not to sell or distribute the Companyrsquos shares or other securities publicly
or privately and not to convert or exchange the shares or other securities held by them into any other securities
options or rights during the restricted period
However as to the Companyrsquos total issued share capital the restricted commitment mentioned above will not
apply to a possible tender offer An offer to purchase more than 4335 of the Companyrsquos outstanding share
capital will be regarded as a buyout offer and if the Board of Directors decides to accept such offer the share
or other security transaction that the Company and the restricted shareholders enter into therewith will be
exempt from the above commitment provided that such a buyout is approved first by the DCSX
The Stock Options
On the issuing date of this Information Memorandum neither the Company nor the group has any other unrevealed
stock option commitment that has not been disclosed
The RegistrationTransaction of the Depository Receipts
The Company will eventually through a yet to be appointed issuer (a Financial Institution acceptable to the DCSX)
issue Depository Receipts corresponding to the issued and outstanding ordinary shares of the Company though the
DRs will not be evidenced by any certificates With the listing of the Companyrsquos Depository Receipts on the DCSX
the DCSX and its Brokers will register and manage the trading of the DRs The DRs may be traded in the market
but the Company will not and cannot provide any guarantee with respect to their liquidity The Company agrees
that the Company and all the shareholders will submit the complete and accurate information about the shares and
the required Depository Receipts to the Financial Institution that will issue the DRrsquos After the listing the
registration and trading of the Depository Receipts must comply with the laws and regulations of the DCSX and
other relevant regulators
The Company agrees that the Depository Receipt holders have the same rights as registered ordinary shareholders
Meanwhile when the Company holds a general meeting of shareholders the Depository Receipt holders should
also be notified and allowed to exercise the same voting rights as holders of ordinary shares
Listing Cost
The listing fees and all other directly attributed costs (including audit fees legal fees and other professional costs)
associated with the listing are or will be paid by the Company using existing funds
Inquiry
Any inquiry on regarding this Information Memorandum about listings should be directed to the Listing Advisor
(LAD) Shanghai Chucheng Investment Management Co Ltd
12
6 Business Overview
61 Executive Summary
Shidian Kanghong Agricultural Technology Development Co Ltd (hereafter referred as ldquoKHrdquo) is registered in
Shidian Town Baoshan City Yunnan Province China established on January 24th 2013 with the registered capital
of RMB 2 million
KHrsquos main business is to cultivate fungal strains process edible fungi sell fungi and processed products KH
cooperates with local farmers It provides fungal strains to contracted growers who then plant the strains After
harvesting with preliminary processing such as drying KH purchases the dried fungi from the growers The dried
fungi are ready for sale or will be further processed into products such as black fungus noodle and black fungus
powder etc
Through the cooperation with growers KH not only decreases its business cost but also promotes the local
economy At its very inception KH set up a great goal of ldquoleading the entire village to a better liferdquo Through the
years KH hass consistently pursued this goal by helping local farmers to learn advanced agricultural technology
providing them with good fungal species funding local schools and improving local facilities
KH has won several important recognitions and awards as a result of its professional and outstanding performance
in the field of edible fungi production It was identified as a ldquoScientific amp Technological Small amp Medium
Enterprise of Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named
as ldquothe Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in
2015 The plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial
departments and has been used as the research center for experts from Chinese Academy of Sciences and Yunnan
Province
KH attaches great importance to product quality and innovation as well as brand development KH holds 1 patent
for invention 2 patents for package designing and 8 patents for practical innovation One of its products Mulberry
Branch Black Fungus has been recognized as an ldquoImportant Innovative Product of Yunnan Provincerdquo by Yunnan
Provincial Science and Technology Department since 2015 KH also holds a registered trademark ldquoFatty Surdquo
(Registered Number 14219423) for its products KH aims to develop ldquoFatty Surdquo to a well-known fungus brand in
China and ensure that customers from all over China could enjoy ldquothe gift from nature and the taste of forestrdquo
Adhering to the core values of ldquoPersistence Integrity Hard-working and Sticking to the original goalrdquo and the
operation principle of ldquoEnsuring the company employees growers and customers to all benefit from our businessrdquo
KH is consistently developing itself to become a better company with greater social responsibility
Development History
Throughout its development history KH has been expanding its business step by step
On January 24th 2013 Mr Yan Su and Mr Guangbiao Wu established and incorporated Shidian Kanghong
Agricultural Technology Development Co Ltd aiming to lead the whole village to a better life At the very
beginning KH only had a temporary factory without much equipment or facilities for large-scale production
Lacking experience and technical supervision the first batch of black fungal strains were infected and did not result
in any fungi
In 2014 after the above setback Mr Su and Mr Wu borrowed money from their families and friends to build
13
factories and install facilities They also hired two technicians from Zhejiang Province to supervise the entire
production process However due to a flood in the planting base and extreme weathers 157 million fungal strains
were heavily damaged The direct economic loss was up to RMB 52 million
Having learnt from past failures Mr Su realized that the most important aspect in fungal planting is technology
Therefore in 2015 Mr Su did considerable researches in the black fungi industry sought and received great
support from Kunming Edible Fungi Research Institute and hired experienced experts to form a technology team
The team successfully cultivated a black fungal strain that suits the climate and weather conditions in Yunnan and
won the Third Place Award in the Agriculture Group of Yunnan Innovative Entrepreneur Competition
Backed by a solid technology team KH has gradually grown from a start-up to a big company that shoulders
significant social responsibility as well as offers a variety of products
62 Products and Services
Auricularia auricula-judae commonly known as Jewrsquos ear wood ear jelly ear or black fungus is a species of
edible fungus which is widely consumed in China as it is used in both Chinese cuisine and Chinese medicine Black
fungus has a mild flavor and is rich in protein carbohydrates and minerals Several researches also indicated that
two glucans isolated from black fungus showed potent antitumor properties Black fungus can be dried and
rehydrated Dried fungi can be preserved for a long period of time and still retain nutritional contents and the
original flavor once rehydrated It can also be used as an ingredient to produce other popular food products
Shidian Town lies at the southern part of Hengduan Mountains next to Nujiang River With favorable climate and
abundant natural resources Shidian is a great place to grow black fungus and to set up plantations KH takes great
advantage of these conditions and has built up its business there
KH provides a range of fungal products to consumers including 1) Mulberry Branch Black Fungus 2) Black
Fungus Essence Powder and 3) Black Fungus Noodle
Mulberry Branch Black Fungus
Mulberry Branch Black Fungus is the organic black fungus growing from mulberry trees without using any
fertilizers or pesticides According to two quality tests conducted by Supervision and Testing Center for Edible
Fungi Quality (Shanghai) Ministry of Agriculture (Test Report Number 2014-W2560G 2014-W2561G)
compared with black fungi growing from other common wood (containing 141g of protein and 741g of glucan
per 100g sample) mulberry branch black fungus has higher nutritional value for it contains more protein and
glucans (147g of protein and 82g of glucan per 100g sample) For this product KH offers several different
packages such as gift box and paper bag to cater to different customer groups This product is produced by KH at
its own facilities
Picture 2 Mulberry Branch Black Fungus
14
Black Fungus Essence Powder
Ground to a grain size of 48 microm by ultra-micro grinder under the temperature of -27degC black fungi are turned to
essence powder Since this method breaks down the cell walls of black fungi the nutritional contents are fully
released Since this process is operated under an extremely low temperature the nutritional value is very well
preserved Therefore consumers can take in the nutrients of black fungi more easily by taking this essence powder
This product is produced by Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) and has
passed the quality test conducted by Yunnan Yunce Quality Testing Co Ltd (Test Report Number YC1803217)
KH has signed a contract with Zhongyuan KH provides raw materials and pays the processing fee to Zhongyuan
Picture 3 Black Fungus Essence Powder
Black Fungus Noodle
Black fungus noodle is made from black fungus powder and high-quality wheat flour Noodle is a common staple
for Chinese consumers Since this product contains black fungus powder it has higher nutritional value compared
with ordinary noodles and has therefore become popular among consumers This product is produced by Longyang
Yongda Food Product Processing Factory (hereafter referred as Yongda) and has passed the quality test conducted
by Yunnan Institute of Product Quality Supervision amp Inspection (Test Report Number SP201800470) KH has
signed a contract with Yongda under which KH provides raw materials and pays the processing fee to Yongda
Picture 4 Black Fungus Noodle
15
63 Marketing Strategy
KHrsquos basic marketing principles are ldquoTo spread knowledge and green concepts To provide well-rounded product
series and To stay up-to-date and innovativerdquo
Specifically first KH not only sells its products but also actively spread the knowledge about the medical and
nutritional functions of black fungus and the idea of sustainable development to the public via multiple channels
Second KH has identified different customer groups according to their preferences and consumption habits and
provide different types of products to each group For example ordinary housewives prefer products with low
prices wealthy people prefer well-packaged and high-end products elderly people are more interested in products
that will be beneficial to their health KHrsquos products also have different packages and prices to cater to different
situation For example products in normal size and normal package are targeted at customers who will consume
the products themselves products in delicate packages could be a great gift to clients and guests products in large
packages are targeted at restaurants and canteens
Third KH employs three types of sales channels which not only cover the traditional approaches but also innovative
ones The first type is the traditional channel KH cooperates with distributors and sales agents to sell products KH
also cooperates with several local schools to provide nutritious lunch for students In this way KH has built up a
good reputation which indirectly promotes its brand and sales The second type is the online channel KH has built
up partnership with ulecom to distribute its products and is setting up its online store and a platform on its official
account of WeChat Also KH is actively contacting Tmallcom and jdcom to get access to a bigger customer group
The third type is new retail channel KH will set up experience restaurants called ldquoWood Ear Societyrdquo to further
promote its products and health concepts In these restaurants customers could not only purchase the products
mentioned in the previous part but also could taste more food and dishes cooked with black fungi such as black
fungus noodle black fungus pho black fungus dumpling and black fungus steam bun Customers could dine in
take away the food they order or have it delivered to their homes These dishes will be cooked in a centralized
kitchen and then delivered to each restaurant which will ensure food quality and food safety
Picture 5 KHrsquos Online Store
Forth KH has also set up an after-sale service system to maintain customer relationship KH will invite each
customer to register in its system and then analyze their consumption habits in order to gain a better understanding
of their preferences and apply personalized promotion strategies Also KH will organize training for its sales staff
16
distributors and sales agents on which they would not only learn product information but also nutrition knowledge
and the idea of sustainable development
Fifth KH has drawn up a promotion plan to promote its brand ldquoFatty Surdquo in three stages The first stage is Warm-
up which is from January 2018 to December 2018 In this stage KH will introduce the concept of ldquoHealthy Liferdquo
to customers and the public via advertisements on mass media The second stage is Heat-up which is expected to
be from January 2019 to December 2019 In this stage KH will continuously promote the brand and the concept
by employing more advertising channels and platforms for example advertisements in railway stations airports
and TV programs The third stage is Heat-preserving which is expected to start from January 2020 In this stage
KH will keep the brand image active by regular promotion
In short KH applies multi-tiered plans and strategies to expand the market more efficiently and quickly
Picture 6 the Design Sketch of ldquoWood Ear Societyrdquo
17
64 Development Strategy
As a company with strong sense of social responsibility KH not only aims to develop itself but also strives to
promote the economic growth in Shidian Town To achieve these two goals KH engages local farmers as its
contracted growers and pre-sells the growers at a low price the fungal strains which could be used to grow black
fungi To ensure the quality and the quantity of fungi KH also provides free technical guidance to growers via local
cooperatives (branches of KH which help KH to coordinate production recruit growers and communicate with
growers) The operation structure is illustrated in the flow chart below
Chart 1 KHrsquos Operation Structure
Through this structure KH gets connected with local farmers (growers) and therefore could lead them to develop
altogether By providing and distributing unified fungal strains the growers KH therefore ensures the purity and
quality of product In addition this structure creates more than 300 jobs in Shidian thereby greatly enhancing the
local economy
To expand its business enlarge its product offerings and lead the local economy further KH has several plans
which are briefly described below
First KH is expanding its production capability by building new factories and plantations KH signed the
Agreement on Investing and Developing the Construction Project of Sangzhi Black Fungal Strains with Annual
Production of 30 million and Fine Processing with Shidian Government on September 11th 2015 By June 30th
2018 the infrastructures and factories were completed and the facilities to produce fungal strains was near
completion In 2019 and 2020 KH will continue the construction and related facilities
KH (overall managing providing strains
and equipment selling products)
Cooperatives (coordinating production recruiting
growers distributing strains providing support)
Growers (using fungal strains to
grow fungi pre-processing fungi)
Consumers
Selected and processed fungi
Raw fungi
18
Picture 7 KHrsquos Factory
Second KH is to enlarge its product offerings by developing more products KH signed the Cooperation Agreement
on Product Development with Kunming Edible Fungi Research Institute on September 2nd 2017 The institute is
expected to complete the development of Black Fungus Tablet Black Fungus Drink and so on by the end of 2018
and complete Black Fungus Capsule by the end of 2019 KH is also studying other edible fungi for example lingzhi
mushroom and will develop products like lingzhi Mushroom Spore Powder and lingzhi Mushroom Spore Oil KH
has successfully planted lingzhi mushroom in its plantation which has built up solid foundation for further
production Moreover KH also has the plan to cooperate with cosmetics RampD institutes and pharmaceutical
institutes to study more effects and values of black fungi and lingzhi mushrooms and develop skincare products
and medicines using black fungi and lingzhi mushrooms as ingredients
Picture 8 Lingzhi Mushroom in KHrsquos Plantation
19
65 Business Partners
KH has established partnerships with the following institutes and companies to develop or produce products
bull Kunming Edible Fungi Research Institute
bull Yunnan Yunjun Technology (Group) Co Ltd
bull Lijiang Zhongyuan Green Food Co Ltd
bull Longyang Yongda Food Product Processing Factory
bull Kunming Jinmo Trade Co Ltd
bull Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
bull China Post Shidian Town Branch
Kunming Edible Fungi Research Institute
Kunming Edible Fungi Research Institute (hereafter referred as KM Institute) is a professional agent researching
and studying edible fungi and developing fungal products KM Institute provides professional guidance on
technology to KH and develops deep-processed fungal products according to KHrsquos requirement while KH is
responsible for market analysis and research funds
Yunnan Yunjun Technology (Group) Co Ltd
Yunnan Yunjun Technology (Group) Co Ltd (hereafter referred as Yunjun) is a company researching developing
and processing fungal products Yunjun provides technical support and professional training to KH and cooperates
with KH to develop fungal products while KH is responsible for market analysis product promotion research
equipment research materials and research funds
Lijiang Zhongyuan Green Food Co Ltd
Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) is a company processing and selling
fungal products and agricultural products KH provides black fungi to Zhongyuan and contracts with Zhongyuan
to process Black Fungus Essence Powder
Longyang Yongda Food Product Processing Factory
Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) is a company processing
agricultural products and food products KH provides black fungi to Yongda and contracts with Yongda to process
Black Fungus Noodles
Kunming Jinmo Trade Co Ltd
Kunming Jinmo Trade Co Ltd (hereafter referred as Jinmo) is a company designing and producing packages and
commercial brochures KH contracts with Jinmo to design and produce packages for its products including the
packing boxes gift boxes commercial brochures plastic packages and so on
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch) (hereafter referred as Anzhi) is a
company providing delivering services KH has got the franchise from Anzhi to set up an express delivery station
in its own company to distribute its products at a low cost
China Post Shidian Town Branch
China Post is a state-owned company providing posting and delivering services It owns an online shopping
platform ndash ulecom with a huge customer base KH promotes and sells its products on ulecom
20
66 Permit and License
Business License
(Duplicate copy) Uniform Social Credit Code 9153052106555747L a) Company Name Shidian Kanghong Agricultural Technology Development Co Ltd b) Type of Company Limited liability company (Foreign Enterprise Legal Person Sole Proprietorship) c) Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province China d) Legal Representative Yan Su e) Registered Capital RMB 2 million f) Date of Establishment January 24th 2013 g) Operating Period January 24th 2013 to January 24th 2043 h) Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily groceries
and building materials Import and export trading (Projects needed to be approved under the laws can be operated after approved by relevant departments)
Issued by Bureau of Market Supervision and Administration of Shidian County on August 14th 2018
21
Food Business Operation License
(Duplicate Copy)
a) Operator Name Shidian Kanghong
Agricultural Technology Development
Co Ltd
b) Social Credit Code (Identity Card
Number) 9153052106555747L
c) Legal representative (Person in
Charge) Yan Su
d) Address No23 Group 2 Jiucheng
Community Jiucheng County Shidian
Town Baoshan City Yunnan Province
e) Operation Address
Zhaojia Village Huaxing Community
Youwang County Shidian Town
Baoshan City Yunnan Province
f) Main Body Type
Food Business Operator
g) Food Type
Sales of pre-packaged food (exclude
frozen food) sales of bulk food (exclude
frozen food)
Valid until July 24th 2021
Description
1 Food Business Operation License is the legitimate certificate of the permit for food business
that an operator gets
2 The License has original and duplicate copies which have the same legal effect The
original License should be hung or placed on a prominent position at the operating site
3 The License must not be forged modified resold leased lent or transferred in any other
illegal forms
4 The operator should carry out business within the approved scope
5 The operator should accept the supervision and management of the Food and Drug
Supervision and Administration Department
6 The operator should apply to change the License when the permitted items are changed
7 The operator should timely apply for an extension at the former department in 30 working
days before the License expires
h) License Number JY15305210013112
i) Daily Supervision Management Organization Market Supervision
Administration Bureau of Youwang County
j) Daily Supervisors Shaode Duan Shaoming Qian
k) Complain Call12331
l) License Issuing Authority Market Supervision Administration Bureau of Shidian
County
m) Issuer Shaoming Qian
July 25th 2018
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
8
42 About the Company
ldquoShidian Kanghong Agricultural Technology Development Co Ltdrdquo is wholly owned by ldquoKanghong International
Trade Co Ltdrdquo a company incorporated and registered under the laws of the British Virgin Islands ldquoShidian
Kanghong Agricultural Technology Development Co Ltdrdquo is a company incorporated and organized under the
laws of China on January 24th 2013
ldquoShidian Kanghong Agricultural Technology Development Co Ltdrdquo holds a valid business license (Uniformed
Social Credit Code 9153052106555747L) issued by the Bureau of Market Supervision and Administration of
Shidian Town Baoshan City Yunnan Province China on June 27th 2016
Company Name Shidian Kanghong Agricultural Technology Development Co Ltd
Type of Company Limited liability company (Natural person investment or holding)
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Registered Capital RMB 2 million
Date of Establishment January 24th 2013
Operating Period January 24th 2013 to January 24th 2043
Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily
groceries and building materials Import and export trading (Projects need to be approved under the laws and can
only be operated after being approved by relevant governmental authorities)
43 Companyrsquos Operation
Kanghong International Trade Co Ltd through its wholly-owned subsidiary Shidian Kanghong Agricultural
Technology Development Co Ltd (hereafter referred as ldquoKHrdquo) is engaged in the research processing and sales
of edible fungi and fungal products KH cultivates the fungal strains sells and delivers the strains to contracted
growers purchases the fungi and then sells the selected fungi and processed products More details about the
Company can be found in Section 6 ldquoBusiness Overviewrdquo of this Information Memorandum Detailed background
information of the Directors and Senior Management Team can be found in Section 8 of this Information
Memorandum
9
Picture 1 The company site of KH
10
5 Terms of the Issuance and Investment Overview
The information provided in this section is a summary of highlights contained elsewhere in this Information
Memorandum and should be reviewed carefully together with other sections before an investment decision is made
Company Nature
The Company is a limited liability company incorporated under the laws in the British Virgin Islands on May 2nd
2018 The Company owns 100 of the shares of its operating entity in China Shidian Kanghong Agricultural
Technology Development Co Ltd As of the submission date of this Information Memorandum the Companyrsquos
shares are not listed on any other stock exchanges The Companyrsquos securities to be listed will be the Depository
Receipts as explained in this Information Memorandum Investing in shares or Depository Receipts or other
securities involves risks and investors should consider the risks involved
Listing Advisor (LAD)
Shanghai Chucheng Investment Management Co Ltd is a Chinese company and has been licensed as a DCSX
Listing Advisor (LAD) by the DCSX The Company has appointed Shanghai Chucheng Investment Management
Co Ltd as its Listing Advisor (LAD) under the Listing Rules of the DCSX The mission of Shanghai Chucheng
Investment Management Co Ltd is to assist the Company in listing the securities of the Company on the DCSX
Shanghai Chucheng Investment Management Co Ltd is not responsible for the authenticity accuracy or
completeness of any information (financial legal or other) contained in this Information Memorandum and it
doesnrsquot make any representation or provide any approval commitment statement certification or guarantee to the
content of this Information Memorandum
Listing on the DCSX and Fund-raising Purposes
As aforementioned the Company intends to apply for listing via issuing Depository Receipts that will replace the
listed shares on a one to one basis With the listing of ultimately the Depository Receipts no new shares will be
issued at this stage In other words the Company is not to raise or receive new funds in connection with this listing
As indicated in the box below the Company may wish to raise funds in the future through an issuance and listing
of its new securities The Company andor its shareholders may in the future wish to trade the Depository Receipts
corresponding to their existing shares through the DCSX The authorized capital of the Company is 100000000
ordinary shares the nominal value of the ordinary shares is 00005 USD per share and the listing price of the shares
is expected to be 04 USD per share The market value of the Company is therefore estimated to be 40000000
USD Projections and calculation on which the market value is based can be found in the second and third parts of
Section 9 (ldquoFinancial Statementsrdquo) of this Information Memorandum
The Company does not preclude the possibility of raising funds through the issuance of new shares in the
future in which case the Company will prepare and publish the relevant and necessary documents and
procedures under the laws or listing rules including the submission of a new Information Memorandum
Sales Period Commitment
Currently Directors on the Companyrsquos Board collectively hold a total of 4335 shares of the outstanding ordinary
shares of the Company To provide potential investors with certain level of comfort toward the long-term
expectation of the Company all Directors of the Company (hereinafter referred to as the ldquorestricted shareholdersrdquo)
have agreed not to trade any of their shares or other securities (if any) of the Company held by them in any form
within 12 months from the date of listing of the Companyrsquos shares on the DCSX andor such shares being able to
11
trade (once converted to Depository Receipts) To ensure compliance of the foregoing agreement and the applicable
laws each restricted shareholder will agree not to sell or distribute the Companyrsquos shares or other securities publicly
or privately and not to convert or exchange the shares or other securities held by them into any other securities
options or rights during the restricted period
However as to the Companyrsquos total issued share capital the restricted commitment mentioned above will not
apply to a possible tender offer An offer to purchase more than 4335 of the Companyrsquos outstanding share
capital will be regarded as a buyout offer and if the Board of Directors decides to accept such offer the share
or other security transaction that the Company and the restricted shareholders enter into therewith will be
exempt from the above commitment provided that such a buyout is approved first by the DCSX
The Stock Options
On the issuing date of this Information Memorandum neither the Company nor the group has any other unrevealed
stock option commitment that has not been disclosed
The RegistrationTransaction of the Depository Receipts
The Company will eventually through a yet to be appointed issuer (a Financial Institution acceptable to the DCSX)
issue Depository Receipts corresponding to the issued and outstanding ordinary shares of the Company though the
DRs will not be evidenced by any certificates With the listing of the Companyrsquos Depository Receipts on the DCSX
the DCSX and its Brokers will register and manage the trading of the DRs The DRs may be traded in the market
but the Company will not and cannot provide any guarantee with respect to their liquidity The Company agrees
that the Company and all the shareholders will submit the complete and accurate information about the shares and
the required Depository Receipts to the Financial Institution that will issue the DRrsquos After the listing the
registration and trading of the Depository Receipts must comply with the laws and regulations of the DCSX and
other relevant regulators
The Company agrees that the Depository Receipt holders have the same rights as registered ordinary shareholders
Meanwhile when the Company holds a general meeting of shareholders the Depository Receipt holders should
also be notified and allowed to exercise the same voting rights as holders of ordinary shares
Listing Cost
The listing fees and all other directly attributed costs (including audit fees legal fees and other professional costs)
associated with the listing are or will be paid by the Company using existing funds
Inquiry
Any inquiry on regarding this Information Memorandum about listings should be directed to the Listing Advisor
(LAD) Shanghai Chucheng Investment Management Co Ltd
12
6 Business Overview
61 Executive Summary
Shidian Kanghong Agricultural Technology Development Co Ltd (hereafter referred as ldquoKHrdquo) is registered in
Shidian Town Baoshan City Yunnan Province China established on January 24th 2013 with the registered capital
of RMB 2 million
KHrsquos main business is to cultivate fungal strains process edible fungi sell fungi and processed products KH
cooperates with local farmers It provides fungal strains to contracted growers who then plant the strains After
harvesting with preliminary processing such as drying KH purchases the dried fungi from the growers The dried
fungi are ready for sale or will be further processed into products such as black fungus noodle and black fungus
powder etc
Through the cooperation with growers KH not only decreases its business cost but also promotes the local
economy At its very inception KH set up a great goal of ldquoleading the entire village to a better liferdquo Through the
years KH hass consistently pursued this goal by helping local farmers to learn advanced agricultural technology
providing them with good fungal species funding local schools and improving local facilities
KH has won several important recognitions and awards as a result of its professional and outstanding performance
in the field of edible fungi production It was identified as a ldquoScientific amp Technological Small amp Medium
Enterprise of Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named
as ldquothe Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in
2015 The plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial
departments and has been used as the research center for experts from Chinese Academy of Sciences and Yunnan
Province
KH attaches great importance to product quality and innovation as well as brand development KH holds 1 patent
for invention 2 patents for package designing and 8 patents for practical innovation One of its products Mulberry
Branch Black Fungus has been recognized as an ldquoImportant Innovative Product of Yunnan Provincerdquo by Yunnan
Provincial Science and Technology Department since 2015 KH also holds a registered trademark ldquoFatty Surdquo
(Registered Number 14219423) for its products KH aims to develop ldquoFatty Surdquo to a well-known fungus brand in
China and ensure that customers from all over China could enjoy ldquothe gift from nature and the taste of forestrdquo
Adhering to the core values of ldquoPersistence Integrity Hard-working and Sticking to the original goalrdquo and the
operation principle of ldquoEnsuring the company employees growers and customers to all benefit from our businessrdquo
KH is consistently developing itself to become a better company with greater social responsibility
Development History
Throughout its development history KH has been expanding its business step by step
On January 24th 2013 Mr Yan Su and Mr Guangbiao Wu established and incorporated Shidian Kanghong
Agricultural Technology Development Co Ltd aiming to lead the whole village to a better life At the very
beginning KH only had a temporary factory without much equipment or facilities for large-scale production
Lacking experience and technical supervision the first batch of black fungal strains were infected and did not result
in any fungi
In 2014 after the above setback Mr Su and Mr Wu borrowed money from their families and friends to build
13
factories and install facilities They also hired two technicians from Zhejiang Province to supervise the entire
production process However due to a flood in the planting base and extreme weathers 157 million fungal strains
were heavily damaged The direct economic loss was up to RMB 52 million
Having learnt from past failures Mr Su realized that the most important aspect in fungal planting is technology
Therefore in 2015 Mr Su did considerable researches in the black fungi industry sought and received great
support from Kunming Edible Fungi Research Institute and hired experienced experts to form a technology team
The team successfully cultivated a black fungal strain that suits the climate and weather conditions in Yunnan and
won the Third Place Award in the Agriculture Group of Yunnan Innovative Entrepreneur Competition
Backed by a solid technology team KH has gradually grown from a start-up to a big company that shoulders
significant social responsibility as well as offers a variety of products
62 Products and Services
Auricularia auricula-judae commonly known as Jewrsquos ear wood ear jelly ear or black fungus is a species of
edible fungus which is widely consumed in China as it is used in both Chinese cuisine and Chinese medicine Black
fungus has a mild flavor and is rich in protein carbohydrates and minerals Several researches also indicated that
two glucans isolated from black fungus showed potent antitumor properties Black fungus can be dried and
rehydrated Dried fungi can be preserved for a long period of time and still retain nutritional contents and the
original flavor once rehydrated It can also be used as an ingredient to produce other popular food products
Shidian Town lies at the southern part of Hengduan Mountains next to Nujiang River With favorable climate and
abundant natural resources Shidian is a great place to grow black fungus and to set up plantations KH takes great
advantage of these conditions and has built up its business there
KH provides a range of fungal products to consumers including 1) Mulberry Branch Black Fungus 2) Black
Fungus Essence Powder and 3) Black Fungus Noodle
Mulberry Branch Black Fungus
Mulberry Branch Black Fungus is the organic black fungus growing from mulberry trees without using any
fertilizers or pesticides According to two quality tests conducted by Supervision and Testing Center for Edible
Fungi Quality (Shanghai) Ministry of Agriculture (Test Report Number 2014-W2560G 2014-W2561G)
compared with black fungi growing from other common wood (containing 141g of protein and 741g of glucan
per 100g sample) mulberry branch black fungus has higher nutritional value for it contains more protein and
glucans (147g of protein and 82g of glucan per 100g sample) For this product KH offers several different
packages such as gift box and paper bag to cater to different customer groups This product is produced by KH at
its own facilities
Picture 2 Mulberry Branch Black Fungus
14
Black Fungus Essence Powder
Ground to a grain size of 48 microm by ultra-micro grinder under the temperature of -27degC black fungi are turned to
essence powder Since this method breaks down the cell walls of black fungi the nutritional contents are fully
released Since this process is operated under an extremely low temperature the nutritional value is very well
preserved Therefore consumers can take in the nutrients of black fungi more easily by taking this essence powder
This product is produced by Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) and has
passed the quality test conducted by Yunnan Yunce Quality Testing Co Ltd (Test Report Number YC1803217)
KH has signed a contract with Zhongyuan KH provides raw materials and pays the processing fee to Zhongyuan
Picture 3 Black Fungus Essence Powder
Black Fungus Noodle
Black fungus noodle is made from black fungus powder and high-quality wheat flour Noodle is a common staple
for Chinese consumers Since this product contains black fungus powder it has higher nutritional value compared
with ordinary noodles and has therefore become popular among consumers This product is produced by Longyang
Yongda Food Product Processing Factory (hereafter referred as Yongda) and has passed the quality test conducted
by Yunnan Institute of Product Quality Supervision amp Inspection (Test Report Number SP201800470) KH has
signed a contract with Yongda under which KH provides raw materials and pays the processing fee to Yongda
Picture 4 Black Fungus Noodle
15
63 Marketing Strategy
KHrsquos basic marketing principles are ldquoTo spread knowledge and green concepts To provide well-rounded product
series and To stay up-to-date and innovativerdquo
Specifically first KH not only sells its products but also actively spread the knowledge about the medical and
nutritional functions of black fungus and the idea of sustainable development to the public via multiple channels
Second KH has identified different customer groups according to their preferences and consumption habits and
provide different types of products to each group For example ordinary housewives prefer products with low
prices wealthy people prefer well-packaged and high-end products elderly people are more interested in products
that will be beneficial to their health KHrsquos products also have different packages and prices to cater to different
situation For example products in normal size and normal package are targeted at customers who will consume
the products themselves products in delicate packages could be a great gift to clients and guests products in large
packages are targeted at restaurants and canteens
Third KH employs three types of sales channels which not only cover the traditional approaches but also innovative
ones The first type is the traditional channel KH cooperates with distributors and sales agents to sell products KH
also cooperates with several local schools to provide nutritious lunch for students In this way KH has built up a
good reputation which indirectly promotes its brand and sales The second type is the online channel KH has built
up partnership with ulecom to distribute its products and is setting up its online store and a platform on its official
account of WeChat Also KH is actively contacting Tmallcom and jdcom to get access to a bigger customer group
The third type is new retail channel KH will set up experience restaurants called ldquoWood Ear Societyrdquo to further
promote its products and health concepts In these restaurants customers could not only purchase the products
mentioned in the previous part but also could taste more food and dishes cooked with black fungi such as black
fungus noodle black fungus pho black fungus dumpling and black fungus steam bun Customers could dine in
take away the food they order or have it delivered to their homes These dishes will be cooked in a centralized
kitchen and then delivered to each restaurant which will ensure food quality and food safety
Picture 5 KHrsquos Online Store
Forth KH has also set up an after-sale service system to maintain customer relationship KH will invite each
customer to register in its system and then analyze their consumption habits in order to gain a better understanding
of their preferences and apply personalized promotion strategies Also KH will organize training for its sales staff
16
distributors and sales agents on which they would not only learn product information but also nutrition knowledge
and the idea of sustainable development
Fifth KH has drawn up a promotion plan to promote its brand ldquoFatty Surdquo in three stages The first stage is Warm-
up which is from January 2018 to December 2018 In this stage KH will introduce the concept of ldquoHealthy Liferdquo
to customers and the public via advertisements on mass media The second stage is Heat-up which is expected to
be from January 2019 to December 2019 In this stage KH will continuously promote the brand and the concept
by employing more advertising channels and platforms for example advertisements in railway stations airports
and TV programs The third stage is Heat-preserving which is expected to start from January 2020 In this stage
KH will keep the brand image active by regular promotion
In short KH applies multi-tiered plans and strategies to expand the market more efficiently and quickly
Picture 6 the Design Sketch of ldquoWood Ear Societyrdquo
17
64 Development Strategy
As a company with strong sense of social responsibility KH not only aims to develop itself but also strives to
promote the economic growth in Shidian Town To achieve these two goals KH engages local farmers as its
contracted growers and pre-sells the growers at a low price the fungal strains which could be used to grow black
fungi To ensure the quality and the quantity of fungi KH also provides free technical guidance to growers via local
cooperatives (branches of KH which help KH to coordinate production recruit growers and communicate with
growers) The operation structure is illustrated in the flow chart below
Chart 1 KHrsquos Operation Structure
Through this structure KH gets connected with local farmers (growers) and therefore could lead them to develop
altogether By providing and distributing unified fungal strains the growers KH therefore ensures the purity and
quality of product In addition this structure creates more than 300 jobs in Shidian thereby greatly enhancing the
local economy
To expand its business enlarge its product offerings and lead the local economy further KH has several plans
which are briefly described below
First KH is expanding its production capability by building new factories and plantations KH signed the
Agreement on Investing and Developing the Construction Project of Sangzhi Black Fungal Strains with Annual
Production of 30 million and Fine Processing with Shidian Government on September 11th 2015 By June 30th
2018 the infrastructures and factories were completed and the facilities to produce fungal strains was near
completion In 2019 and 2020 KH will continue the construction and related facilities
KH (overall managing providing strains
and equipment selling products)
Cooperatives (coordinating production recruiting
growers distributing strains providing support)
Growers (using fungal strains to
grow fungi pre-processing fungi)
Consumers
Selected and processed fungi
Raw fungi
18
Picture 7 KHrsquos Factory
Second KH is to enlarge its product offerings by developing more products KH signed the Cooperation Agreement
on Product Development with Kunming Edible Fungi Research Institute on September 2nd 2017 The institute is
expected to complete the development of Black Fungus Tablet Black Fungus Drink and so on by the end of 2018
and complete Black Fungus Capsule by the end of 2019 KH is also studying other edible fungi for example lingzhi
mushroom and will develop products like lingzhi Mushroom Spore Powder and lingzhi Mushroom Spore Oil KH
has successfully planted lingzhi mushroom in its plantation which has built up solid foundation for further
production Moreover KH also has the plan to cooperate with cosmetics RampD institutes and pharmaceutical
institutes to study more effects and values of black fungi and lingzhi mushrooms and develop skincare products
and medicines using black fungi and lingzhi mushrooms as ingredients
Picture 8 Lingzhi Mushroom in KHrsquos Plantation
19
65 Business Partners
KH has established partnerships with the following institutes and companies to develop or produce products
bull Kunming Edible Fungi Research Institute
bull Yunnan Yunjun Technology (Group) Co Ltd
bull Lijiang Zhongyuan Green Food Co Ltd
bull Longyang Yongda Food Product Processing Factory
bull Kunming Jinmo Trade Co Ltd
bull Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
bull China Post Shidian Town Branch
Kunming Edible Fungi Research Institute
Kunming Edible Fungi Research Institute (hereafter referred as KM Institute) is a professional agent researching
and studying edible fungi and developing fungal products KM Institute provides professional guidance on
technology to KH and develops deep-processed fungal products according to KHrsquos requirement while KH is
responsible for market analysis and research funds
Yunnan Yunjun Technology (Group) Co Ltd
Yunnan Yunjun Technology (Group) Co Ltd (hereafter referred as Yunjun) is a company researching developing
and processing fungal products Yunjun provides technical support and professional training to KH and cooperates
with KH to develop fungal products while KH is responsible for market analysis product promotion research
equipment research materials and research funds
Lijiang Zhongyuan Green Food Co Ltd
Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) is a company processing and selling
fungal products and agricultural products KH provides black fungi to Zhongyuan and contracts with Zhongyuan
to process Black Fungus Essence Powder
Longyang Yongda Food Product Processing Factory
Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) is a company processing
agricultural products and food products KH provides black fungi to Yongda and contracts with Yongda to process
Black Fungus Noodles
Kunming Jinmo Trade Co Ltd
Kunming Jinmo Trade Co Ltd (hereafter referred as Jinmo) is a company designing and producing packages and
commercial brochures KH contracts with Jinmo to design and produce packages for its products including the
packing boxes gift boxes commercial brochures plastic packages and so on
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch) (hereafter referred as Anzhi) is a
company providing delivering services KH has got the franchise from Anzhi to set up an express delivery station
in its own company to distribute its products at a low cost
China Post Shidian Town Branch
China Post is a state-owned company providing posting and delivering services It owns an online shopping
platform ndash ulecom with a huge customer base KH promotes and sells its products on ulecom
20
66 Permit and License
Business License
(Duplicate copy) Uniform Social Credit Code 9153052106555747L a) Company Name Shidian Kanghong Agricultural Technology Development Co Ltd b) Type of Company Limited liability company (Foreign Enterprise Legal Person Sole Proprietorship) c) Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province China d) Legal Representative Yan Su e) Registered Capital RMB 2 million f) Date of Establishment January 24th 2013 g) Operating Period January 24th 2013 to January 24th 2043 h) Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily groceries
and building materials Import and export trading (Projects needed to be approved under the laws can be operated after approved by relevant departments)
Issued by Bureau of Market Supervision and Administration of Shidian County on August 14th 2018
21
Food Business Operation License
(Duplicate Copy)
a) Operator Name Shidian Kanghong
Agricultural Technology Development
Co Ltd
b) Social Credit Code (Identity Card
Number) 9153052106555747L
c) Legal representative (Person in
Charge) Yan Su
d) Address No23 Group 2 Jiucheng
Community Jiucheng County Shidian
Town Baoshan City Yunnan Province
e) Operation Address
Zhaojia Village Huaxing Community
Youwang County Shidian Town
Baoshan City Yunnan Province
f) Main Body Type
Food Business Operator
g) Food Type
Sales of pre-packaged food (exclude
frozen food) sales of bulk food (exclude
frozen food)
Valid until July 24th 2021
Description
1 Food Business Operation License is the legitimate certificate of the permit for food business
that an operator gets
2 The License has original and duplicate copies which have the same legal effect The
original License should be hung or placed on a prominent position at the operating site
3 The License must not be forged modified resold leased lent or transferred in any other
illegal forms
4 The operator should carry out business within the approved scope
5 The operator should accept the supervision and management of the Food and Drug
Supervision and Administration Department
6 The operator should apply to change the License when the permitted items are changed
7 The operator should timely apply for an extension at the former department in 30 working
days before the License expires
h) License Number JY15305210013112
i) Daily Supervision Management Organization Market Supervision
Administration Bureau of Youwang County
j) Daily Supervisors Shaode Duan Shaoming Qian
k) Complain Call12331
l) License Issuing Authority Market Supervision Administration Bureau of Shidian
County
m) Issuer Shaoming Qian
July 25th 2018
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
9
Picture 1 The company site of KH
10
5 Terms of the Issuance and Investment Overview
The information provided in this section is a summary of highlights contained elsewhere in this Information
Memorandum and should be reviewed carefully together with other sections before an investment decision is made
Company Nature
The Company is a limited liability company incorporated under the laws in the British Virgin Islands on May 2nd
2018 The Company owns 100 of the shares of its operating entity in China Shidian Kanghong Agricultural
Technology Development Co Ltd As of the submission date of this Information Memorandum the Companyrsquos
shares are not listed on any other stock exchanges The Companyrsquos securities to be listed will be the Depository
Receipts as explained in this Information Memorandum Investing in shares or Depository Receipts or other
securities involves risks and investors should consider the risks involved
Listing Advisor (LAD)
Shanghai Chucheng Investment Management Co Ltd is a Chinese company and has been licensed as a DCSX
Listing Advisor (LAD) by the DCSX The Company has appointed Shanghai Chucheng Investment Management
Co Ltd as its Listing Advisor (LAD) under the Listing Rules of the DCSX The mission of Shanghai Chucheng
Investment Management Co Ltd is to assist the Company in listing the securities of the Company on the DCSX
Shanghai Chucheng Investment Management Co Ltd is not responsible for the authenticity accuracy or
completeness of any information (financial legal or other) contained in this Information Memorandum and it
doesnrsquot make any representation or provide any approval commitment statement certification or guarantee to the
content of this Information Memorandum
Listing on the DCSX and Fund-raising Purposes
As aforementioned the Company intends to apply for listing via issuing Depository Receipts that will replace the
listed shares on a one to one basis With the listing of ultimately the Depository Receipts no new shares will be
issued at this stage In other words the Company is not to raise or receive new funds in connection with this listing
As indicated in the box below the Company may wish to raise funds in the future through an issuance and listing
of its new securities The Company andor its shareholders may in the future wish to trade the Depository Receipts
corresponding to their existing shares through the DCSX The authorized capital of the Company is 100000000
ordinary shares the nominal value of the ordinary shares is 00005 USD per share and the listing price of the shares
is expected to be 04 USD per share The market value of the Company is therefore estimated to be 40000000
USD Projections and calculation on which the market value is based can be found in the second and third parts of
Section 9 (ldquoFinancial Statementsrdquo) of this Information Memorandum
The Company does not preclude the possibility of raising funds through the issuance of new shares in the
future in which case the Company will prepare and publish the relevant and necessary documents and
procedures under the laws or listing rules including the submission of a new Information Memorandum
Sales Period Commitment
Currently Directors on the Companyrsquos Board collectively hold a total of 4335 shares of the outstanding ordinary
shares of the Company To provide potential investors with certain level of comfort toward the long-term
expectation of the Company all Directors of the Company (hereinafter referred to as the ldquorestricted shareholdersrdquo)
have agreed not to trade any of their shares or other securities (if any) of the Company held by them in any form
within 12 months from the date of listing of the Companyrsquos shares on the DCSX andor such shares being able to
11
trade (once converted to Depository Receipts) To ensure compliance of the foregoing agreement and the applicable
laws each restricted shareholder will agree not to sell or distribute the Companyrsquos shares or other securities publicly
or privately and not to convert or exchange the shares or other securities held by them into any other securities
options or rights during the restricted period
However as to the Companyrsquos total issued share capital the restricted commitment mentioned above will not
apply to a possible tender offer An offer to purchase more than 4335 of the Companyrsquos outstanding share
capital will be regarded as a buyout offer and if the Board of Directors decides to accept such offer the share
or other security transaction that the Company and the restricted shareholders enter into therewith will be
exempt from the above commitment provided that such a buyout is approved first by the DCSX
The Stock Options
On the issuing date of this Information Memorandum neither the Company nor the group has any other unrevealed
stock option commitment that has not been disclosed
The RegistrationTransaction of the Depository Receipts
The Company will eventually through a yet to be appointed issuer (a Financial Institution acceptable to the DCSX)
issue Depository Receipts corresponding to the issued and outstanding ordinary shares of the Company though the
DRs will not be evidenced by any certificates With the listing of the Companyrsquos Depository Receipts on the DCSX
the DCSX and its Brokers will register and manage the trading of the DRs The DRs may be traded in the market
but the Company will not and cannot provide any guarantee with respect to their liquidity The Company agrees
that the Company and all the shareholders will submit the complete and accurate information about the shares and
the required Depository Receipts to the Financial Institution that will issue the DRrsquos After the listing the
registration and trading of the Depository Receipts must comply with the laws and regulations of the DCSX and
other relevant regulators
The Company agrees that the Depository Receipt holders have the same rights as registered ordinary shareholders
Meanwhile when the Company holds a general meeting of shareholders the Depository Receipt holders should
also be notified and allowed to exercise the same voting rights as holders of ordinary shares
Listing Cost
The listing fees and all other directly attributed costs (including audit fees legal fees and other professional costs)
associated with the listing are or will be paid by the Company using existing funds
Inquiry
Any inquiry on regarding this Information Memorandum about listings should be directed to the Listing Advisor
(LAD) Shanghai Chucheng Investment Management Co Ltd
12
6 Business Overview
61 Executive Summary
Shidian Kanghong Agricultural Technology Development Co Ltd (hereafter referred as ldquoKHrdquo) is registered in
Shidian Town Baoshan City Yunnan Province China established on January 24th 2013 with the registered capital
of RMB 2 million
KHrsquos main business is to cultivate fungal strains process edible fungi sell fungi and processed products KH
cooperates with local farmers It provides fungal strains to contracted growers who then plant the strains After
harvesting with preliminary processing such as drying KH purchases the dried fungi from the growers The dried
fungi are ready for sale or will be further processed into products such as black fungus noodle and black fungus
powder etc
Through the cooperation with growers KH not only decreases its business cost but also promotes the local
economy At its very inception KH set up a great goal of ldquoleading the entire village to a better liferdquo Through the
years KH hass consistently pursued this goal by helping local farmers to learn advanced agricultural technology
providing them with good fungal species funding local schools and improving local facilities
KH has won several important recognitions and awards as a result of its professional and outstanding performance
in the field of edible fungi production It was identified as a ldquoScientific amp Technological Small amp Medium
Enterprise of Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named
as ldquothe Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in
2015 The plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial
departments and has been used as the research center for experts from Chinese Academy of Sciences and Yunnan
Province
KH attaches great importance to product quality and innovation as well as brand development KH holds 1 patent
for invention 2 patents for package designing and 8 patents for practical innovation One of its products Mulberry
Branch Black Fungus has been recognized as an ldquoImportant Innovative Product of Yunnan Provincerdquo by Yunnan
Provincial Science and Technology Department since 2015 KH also holds a registered trademark ldquoFatty Surdquo
(Registered Number 14219423) for its products KH aims to develop ldquoFatty Surdquo to a well-known fungus brand in
China and ensure that customers from all over China could enjoy ldquothe gift from nature and the taste of forestrdquo
Adhering to the core values of ldquoPersistence Integrity Hard-working and Sticking to the original goalrdquo and the
operation principle of ldquoEnsuring the company employees growers and customers to all benefit from our businessrdquo
KH is consistently developing itself to become a better company with greater social responsibility
Development History
Throughout its development history KH has been expanding its business step by step
On January 24th 2013 Mr Yan Su and Mr Guangbiao Wu established and incorporated Shidian Kanghong
Agricultural Technology Development Co Ltd aiming to lead the whole village to a better life At the very
beginning KH only had a temporary factory without much equipment or facilities for large-scale production
Lacking experience and technical supervision the first batch of black fungal strains were infected and did not result
in any fungi
In 2014 after the above setback Mr Su and Mr Wu borrowed money from their families and friends to build
13
factories and install facilities They also hired two technicians from Zhejiang Province to supervise the entire
production process However due to a flood in the planting base and extreme weathers 157 million fungal strains
were heavily damaged The direct economic loss was up to RMB 52 million
Having learnt from past failures Mr Su realized that the most important aspect in fungal planting is technology
Therefore in 2015 Mr Su did considerable researches in the black fungi industry sought and received great
support from Kunming Edible Fungi Research Institute and hired experienced experts to form a technology team
The team successfully cultivated a black fungal strain that suits the climate and weather conditions in Yunnan and
won the Third Place Award in the Agriculture Group of Yunnan Innovative Entrepreneur Competition
Backed by a solid technology team KH has gradually grown from a start-up to a big company that shoulders
significant social responsibility as well as offers a variety of products
62 Products and Services
Auricularia auricula-judae commonly known as Jewrsquos ear wood ear jelly ear or black fungus is a species of
edible fungus which is widely consumed in China as it is used in both Chinese cuisine and Chinese medicine Black
fungus has a mild flavor and is rich in protein carbohydrates and minerals Several researches also indicated that
two glucans isolated from black fungus showed potent antitumor properties Black fungus can be dried and
rehydrated Dried fungi can be preserved for a long period of time and still retain nutritional contents and the
original flavor once rehydrated It can also be used as an ingredient to produce other popular food products
Shidian Town lies at the southern part of Hengduan Mountains next to Nujiang River With favorable climate and
abundant natural resources Shidian is a great place to grow black fungus and to set up plantations KH takes great
advantage of these conditions and has built up its business there
KH provides a range of fungal products to consumers including 1) Mulberry Branch Black Fungus 2) Black
Fungus Essence Powder and 3) Black Fungus Noodle
Mulberry Branch Black Fungus
Mulberry Branch Black Fungus is the organic black fungus growing from mulberry trees without using any
fertilizers or pesticides According to two quality tests conducted by Supervision and Testing Center for Edible
Fungi Quality (Shanghai) Ministry of Agriculture (Test Report Number 2014-W2560G 2014-W2561G)
compared with black fungi growing from other common wood (containing 141g of protein and 741g of glucan
per 100g sample) mulberry branch black fungus has higher nutritional value for it contains more protein and
glucans (147g of protein and 82g of glucan per 100g sample) For this product KH offers several different
packages such as gift box and paper bag to cater to different customer groups This product is produced by KH at
its own facilities
Picture 2 Mulberry Branch Black Fungus
14
Black Fungus Essence Powder
Ground to a grain size of 48 microm by ultra-micro grinder under the temperature of -27degC black fungi are turned to
essence powder Since this method breaks down the cell walls of black fungi the nutritional contents are fully
released Since this process is operated under an extremely low temperature the nutritional value is very well
preserved Therefore consumers can take in the nutrients of black fungi more easily by taking this essence powder
This product is produced by Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) and has
passed the quality test conducted by Yunnan Yunce Quality Testing Co Ltd (Test Report Number YC1803217)
KH has signed a contract with Zhongyuan KH provides raw materials and pays the processing fee to Zhongyuan
Picture 3 Black Fungus Essence Powder
Black Fungus Noodle
Black fungus noodle is made from black fungus powder and high-quality wheat flour Noodle is a common staple
for Chinese consumers Since this product contains black fungus powder it has higher nutritional value compared
with ordinary noodles and has therefore become popular among consumers This product is produced by Longyang
Yongda Food Product Processing Factory (hereafter referred as Yongda) and has passed the quality test conducted
by Yunnan Institute of Product Quality Supervision amp Inspection (Test Report Number SP201800470) KH has
signed a contract with Yongda under which KH provides raw materials and pays the processing fee to Yongda
Picture 4 Black Fungus Noodle
15
63 Marketing Strategy
KHrsquos basic marketing principles are ldquoTo spread knowledge and green concepts To provide well-rounded product
series and To stay up-to-date and innovativerdquo
Specifically first KH not only sells its products but also actively spread the knowledge about the medical and
nutritional functions of black fungus and the idea of sustainable development to the public via multiple channels
Second KH has identified different customer groups according to their preferences and consumption habits and
provide different types of products to each group For example ordinary housewives prefer products with low
prices wealthy people prefer well-packaged and high-end products elderly people are more interested in products
that will be beneficial to their health KHrsquos products also have different packages and prices to cater to different
situation For example products in normal size and normal package are targeted at customers who will consume
the products themselves products in delicate packages could be a great gift to clients and guests products in large
packages are targeted at restaurants and canteens
Third KH employs three types of sales channels which not only cover the traditional approaches but also innovative
ones The first type is the traditional channel KH cooperates with distributors and sales agents to sell products KH
also cooperates with several local schools to provide nutritious lunch for students In this way KH has built up a
good reputation which indirectly promotes its brand and sales The second type is the online channel KH has built
up partnership with ulecom to distribute its products and is setting up its online store and a platform on its official
account of WeChat Also KH is actively contacting Tmallcom and jdcom to get access to a bigger customer group
The third type is new retail channel KH will set up experience restaurants called ldquoWood Ear Societyrdquo to further
promote its products and health concepts In these restaurants customers could not only purchase the products
mentioned in the previous part but also could taste more food and dishes cooked with black fungi such as black
fungus noodle black fungus pho black fungus dumpling and black fungus steam bun Customers could dine in
take away the food they order or have it delivered to their homes These dishes will be cooked in a centralized
kitchen and then delivered to each restaurant which will ensure food quality and food safety
Picture 5 KHrsquos Online Store
Forth KH has also set up an after-sale service system to maintain customer relationship KH will invite each
customer to register in its system and then analyze their consumption habits in order to gain a better understanding
of their preferences and apply personalized promotion strategies Also KH will organize training for its sales staff
16
distributors and sales agents on which they would not only learn product information but also nutrition knowledge
and the idea of sustainable development
Fifth KH has drawn up a promotion plan to promote its brand ldquoFatty Surdquo in three stages The first stage is Warm-
up which is from January 2018 to December 2018 In this stage KH will introduce the concept of ldquoHealthy Liferdquo
to customers and the public via advertisements on mass media The second stage is Heat-up which is expected to
be from January 2019 to December 2019 In this stage KH will continuously promote the brand and the concept
by employing more advertising channels and platforms for example advertisements in railway stations airports
and TV programs The third stage is Heat-preserving which is expected to start from January 2020 In this stage
KH will keep the brand image active by regular promotion
In short KH applies multi-tiered plans and strategies to expand the market more efficiently and quickly
Picture 6 the Design Sketch of ldquoWood Ear Societyrdquo
17
64 Development Strategy
As a company with strong sense of social responsibility KH not only aims to develop itself but also strives to
promote the economic growth in Shidian Town To achieve these two goals KH engages local farmers as its
contracted growers and pre-sells the growers at a low price the fungal strains which could be used to grow black
fungi To ensure the quality and the quantity of fungi KH also provides free technical guidance to growers via local
cooperatives (branches of KH which help KH to coordinate production recruit growers and communicate with
growers) The operation structure is illustrated in the flow chart below
Chart 1 KHrsquos Operation Structure
Through this structure KH gets connected with local farmers (growers) and therefore could lead them to develop
altogether By providing and distributing unified fungal strains the growers KH therefore ensures the purity and
quality of product In addition this structure creates more than 300 jobs in Shidian thereby greatly enhancing the
local economy
To expand its business enlarge its product offerings and lead the local economy further KH has several plans
which are briefly described below
First KH is expanding its production capability by building new factories and plantations KH signed the
Agreement on Investing and Developing the Construction Project of Sangzhi Black Fungal Strains with Annual
Production of 30 million and Fine Processing with Shidian Government on September 11th 2015 By June 30th
2018 the infrastructures and factories were completed and the facilities to produce fungal strains was near
completion In 2019 and 2020 KH will continue the construction and related facilities
KH (overall managing providing strains
and equipment selling products)
Cooperatives (coordinating production recruiting
growers distributing strains providing support)
Growers (using fungal strains to
grow fungi pre-processing fungi)
Consumers
Selected and processed fungi
Raw fungi
18
Picture 7 KHrsquos Factory
Second KH is to enlarge its product offerings by developing more products KH signed the Cooperation Agreement
on Product Development with Kunming Edible Fungi Research Institute on September 2nd 2017 The institute is
expected to complete the development of Black Fungus Tablet Black Fungus Drink and so on by the end of 2018
and complete Black Fungus Capsule by the end of 2019 KH is also studying other edible fungi for example lingzhi
mushroom and will develop products like lingzhi Mushroom Spore Powder and lingzhi Mushroom Spore Oil KH
has successfully planted lingzhi mushroom in its plantation which has built up solid foundation for further
production Moreover KH also has the plan to cooperate with cosmetics RampD institutes and pharmaceutical
institutes to study more effects and values of black fungi and lingzhi mushrooms and develop skincare products
and medicines using black fungi and lingzhi mushrooms as ingredients
Picture 8 Lingzhi Mushroom in KHrsquos Plantation
19
65 Business Partners
KH has established partnerships with the following institutes and companies to develop or produce products
bull Kunming Edible Fungi Research Institute
bull Yunnan Yunjun Technology (Group) Co Ltd
bull Lijiang Zhongyuan Green Food Co Ltd
bull Longyang Yongda Food Product Processing Factory
bull Kunming Jinmo Trade Co Ltd
bull Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
bull China Post Shidian Town Branch
Kunming Edible Fungi Research Institute
Kunming Edible Fungi Research Institute (hereafter referred as KM Institute) is a professional agent researching
and studying edible fungi and developing fungal products KM Institute provides professional guidance on
technology to KH and develops deep-processed fungal products according to KHrsquos requirement while KH is
responsible for market analysis and research funds
Yunnan Yunjun Technology (Group) Co Ltd
Yunnan Yunjun Technology (Group) Co Ltd (hereafter referred as Yunjun) is a company researching developing
and processing fungal products Yunjun provides technical support and professional training to KH and cooperates
with KH to develop fungal products while KH is responsible for market analysis product promotion research
equipment research materials and research funds
Lijiang Zhongyuan Green Food Co Ltd
Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) is a company processing and selling
fungal products and agricultural products KH provides black fungi to Zhongyuan and contracts with Zhongyuan
to process Black Fungus Essence Powder
Longyang Yongda Food Product Processing Factory
Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) is a company processing
agricultural products and food products KH provides black fungi to Yongda and contracts with Yongda to process
Black Fungus Noodles
Kunming Jinmo Trade Co Ltd
Kunming Jinmo Trade Co Ltd (hereafter referred as Jinmo) is a company designing and producing packages and
commercial brochures KH contracts with Jinmo to design and produce packages for its products including the
packing boxes gift boxes commercial brochures plastic packages and so on
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch) (hereafter referred as Anzhi) is a
company providing delivering services KH has got the franchise from Anzhi to set up an express delivery station
in its own company to distribute its products at a low cost
China Post Shidian Town Branch
China Post is a state-owned company providing posting and delivering services It owns an online shopping
platform ndash ulecom with a huge customer base KH promotes and sells its products on ulecom
20
66 Permit and License
Business License
(Duplicate copy) Uniform Social Credit Code 9153052106555747L a) Company Name Shidian Kanghong Agricultural Technology Development Co Ltd b) Type of Company Limited liability company (Foreign Enterprise Legal Person Sole Proprietorship) c) Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province China d) Legal Representative Yan Su e) Registered Capital RMB 2 million f) Date of Establishment January 24th 2013 g) Operating Period January 24th 2013 to January 24th 2043 h) Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily groceries
and building materials Import and export trading (Projects needed to be approved under the laws can be operated after approved by relevant departments)
Issued by Bureau of Market Supervision and Administration of Shidian County on August 14th 2018
21
Food Business Operation License
(Duplicate Copy)
a) Operator Name Shidian Kanghong
Agricultural Technology Development
Co Ltd
b) Social Credit Code (Identity Card
Number) 9153052106555747L
c) Legal representative (Person in
Charge) Yan Su
d) Address No23 Group 2 Jiucheng
Community Jiucheng County Shidian
Town Baoshan City Yunnan Province
e) Operation Address
Zhaojia Village Huaxing Community
Youwang County Shidian Town
Baoshan City Yunnan Province
f) Main Body Type
Food Business Operator
g) Food Type
Sales of pre-packaged food (exclude
frozen food) sales of bulk food (exclude
frozen food)
Valid until July 24th 2021
Description
1 Food Business Operation License is the legitimate certificate of the permit for food business
that an operator gets
2 The License has original and duplicate copies which have the same legal effect The
original License should be hung or placed on a prominent position at the operating site
3 The License must not be forged modified resold leased lent or transferred in any other
illegal forms
4 The operator should carry out business within the approved scope
5 The operator should accept the supervision and management of the Food and Drug
Supervision and Administration Department
6 The operator should apply to change the License when the permitted items are changed
7 The operator should timely apply for an extension at the former department in 30 working
days before the License expires
h) License Number JY15305210013112
i) Daily Supervision Management Organization Market Supervision
Administration Bureau of Youwang County
j) Daily Supervisors Shaode Duan Shaoming Qian
k) Complain Call12331
l) License Issuing Authority Market Supervision Administration Bureau of Shidian
County
m) Issuer Shaoming Qian
July 25th 2018
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
10
5 Terms of the Issuance and Investment Overview
The information provided in this section is a summary of highlights contained elsewhere in this Information
Memorandum and should be reviewed carefully together with other sections before an investment decision is made
Company Nature
The Company is a limited liability company incorporated under the laws in the British Virgin Islands on May 2nd
2018 The Company owns 100 of the shares of its operating entity in China Shidian Kanghong Agricultural
Technology Development Co Ltd As of the submission date of this Information Memorandum the Companyrsquos
shares are not listed on any other stock exchanges The Companyrsquos securities to be listed will be the Depository
Receipts as explained in this Information Memorandum Investing in shares or Depository Receipts or other
securities involves risks and investors should consider the risks involved
Listing Advisor (LAD)
Shanghai Chucheng Investment Management Co Ltd is a Chinese company and has been licensed as a DCSX
Listing Advisor (LAD) by the DCSX The Company has appointed Shanghai Chucheng Investment Management
Co Ltd as its Listing Advisor (LAD) under the Listing Rules of the DCSX The mission of Shanghai Chucheng
Investment Management Co Ltd is to assist the Company in listing the securities of the Company on the DCSX
Shanghai Chucheng Investment Management Co Ltd is not responsible for the authenticity accuracy or
completeness of any information (financial legal or other) contained in this Information Memorandum and it
doesnrsquot make any representation or provide any approval commitment statement certification or guarantee to the
content of this Information Memorandum
Listing on the DCSX and Fund-raising Purposes
As aforementioned the Company intends to apply for listing via issuing Depository Receipts that will replace the
listed shares on a one to one basis With the listing of ultimately the Depository Receipts no new shares will be
issued at this stage In other words the Company is not to raise or receive new funds in connection with this listing
As indicated in the box below the Company may wish to raise funds in the future through an issuance and listing
of its new securities The Company andor its shareholders may in the future wish to trade the Depository Receipts
corresponding to their existing shares through the DCSX The authorized capital of the Company is 100000000
ordinary shares the nominal value of the ordinary shares is 00005 USD per share and the listing price of the shares
is expected to be 04 USD per share The market value of the Company is therefore estimated to be 40000000
USD Projections and calculation on which the market value is based can be found in the second and third parts of
Section 9 (ldquoFinancial Statementsrdquo) of this Information Memorandum
The Company does not preclude the possibility of raising funds through the issuance of new shares in the
future in which case the Company will prepare and publish the relevant and necessary documents and
procedures under the laws or listing rules including the submission of a new Information Memorandum
Sales Period Commitment
Currently Directors on the Companyrsquos Board collectively hold a total of 4335 shares of the outstanding ordinary
shares of the Company To provide potential investors with certain level of comfort toward the long-term
expectation of the Company all Directors of the Company (hereinafter referred to as the ldquorestricted shareholdersrdquo)
have agreed not to trade any of their shares or other securities (if any) of the Company held by them in any form
within 12 months from the date of listing of the Companyrsquos shares on the DCSX andor such shares being able to
11
trade (once converted to Depository Receipts) To ensure compliance of the foregoing agreement and the applicable
laws each restricted shareholder will agree not to sell or distribute the Companyrsquos shares or other securities publicly
or privately and not to convert or exchange the shares or other securities held by them into any other securities
options or rights during the restricted period
However as to the Companyrsquos total issued share capital the restricted commitment mentioned above will not
apply to a possible tender offer An offer to purchase more than 4335 of the Companyrsquos outstanding share
capital will be regarded as a buyout offer and if the Board of Directors decides to accept such offer the share
or other security transaction that the Company and the restricted shareholders enter into therewith will be
exempt from the above commitment provided that such a buyout is approved first by the DCSX
The Stock Options
On the issuing date of this Information Memorandum neither the Company nor the group has any other unrevealed
stock option commitment that has not been disclosed
The RegistrationTransaction of the Depository Receipts
The Company will eventually through a yet to be appointed issuer (a Financial Institution acceptable to the DCSX)
issue Depository Receipts corresponding to the issued and outstanding ordinary shares of the Company though the
DRs will not be evidenced by any certificates With the listing of the Companyrsquos Depository Receipts on the DCSX
the DCSX and its Brokers will register and manage the trading of the DRs The DRs may be traded in the market
but the Company will not and cannot provide any guarantee with respect to their liquidity The Company agrees
that the Company and all the shareholders will submit the complete and accurate information about the shares and
the required Depository Receipts to the Financial Institution that will issue the DRrsquos After the listing the
registration and trading of the Depository Receipts must comply with the laws and regulations of the DCSX and
other relevant regulators
The Company agrees that the Depository Receipt holders have the same rights as registered ordinary shareholders
Meanwhile when the Company holds a general meeting of shareholders the Depository Receipt holders should
also be notified and allowed to exercise the same voting rights as holders of ordinary shares
Listing Cost
The listing fees and all other directly attributed costs (including audit fees legal fees and other professional costs)
associated with the listing are or will be paid by the Company using existing funds
Inquiry
Any inquiry on regarding this Information Memorandum about listings should be directed to the Listing Advisor
(LAD) Shanghai Chucheng Investment Management Co Ltd
12
6 Business Overview
61 Executive Summary
Shidian Kanghong Agricultural Technology Development Co Ltd (hereafter referred as ldquoKHrdquo) is registered in
Shidian Town Baoshan City Yunnan Province China established on January 24th 2013 with the registered capital
of RMB 2 million
KHrsquos main business is to cultivate fungal strains process edible fungi sell fungi and processed products KH
cooperates with local farmers It provides fungal strains to contracted growers who then plant the strains After
harvesting with preliminary processing such as drying KH purchases the dried fungi from the growers The dried
fungi are ready for sale or will be further processed into products such as black fungus noodle and black fungus
powder etc
Through the cooperation with growers KH not only decreases its business cost but also promotes the local
economy At its very inception KH set up a great goal of ldquoleading the entire village to a better liferdquo Through the
years KH hass consistently pursued this goal by helping local farmers to learn advanced agricultural technology
providing them with good fungal species funding local schools and improving local facilities
KH has won several important recognitions and awards as a result of its professional and outstanding performance
in the field of edible fungi production It was identified as a ldquoScientific amp Technological Small amp Medium
Enterprise of Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named
as ldquothe Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in
2015 The plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial
departments and has been used as the research center for experts from Chinese Academy of Sciences and Yunnan
Province
KH attaches great importance to product quality and innovation as well as brand development KH holds 1 patent
for invention 2 patents for package designing and 8 patents for practical innovation One of its products Mulberry
Branch Black Fungus has been recognized as an ldquoImportant Innovative Product of Yunnan Provincerdquo by Yunnan
Provincial Science and Technology Department since 2015 KH also holds a registered trademark ldquoFatty Surdquo
(Registered Number 14219423) for its products KH aims to develop ldquoFatty Surdquo to a well-known fungus brand in
China and ensure that customers from all over China could enjoy ldquothe gift from nature and the taste of forestrdquo
Adhering to the core values of ldquoPersistence Integrity Hard-working and Sticking to the original goalrdquo and the
operation principle of ldquoEnsuring the company employees growers and customers to all benefit from our businessrdquo
KH is consistently developing itself to become a better company with greater social responsibility
Development History
Throughout its development history KH has been expanding its business step by step
On January 24th 2013 Mr Yan Su and Mr Guangbiao Wu established and incorporated Shidian Kanghong
Agricultural Technology Development Co Ltd aiming to lead the whole village to a better life At the very
beginning KH only had a temporary factory without much equipment or facilities for large-scale production
Lacking experience and technical supervision the first batch of black fungal strains were infected and did not result
in any fungi
In 2014 after the above setback Mr Su and Mr Wu borrowed money from their families and friends to build
13
factories and install facilities They also hired two technicians from Zhejiang Province to supervise the entire
production process However due to a flood in the planting base and extreme weathers 157 million fungal strains
were heavily damaged The direct economic loss was up to RMB 52 million
Having learnt from past failures Mr Su realized that the most important aspect in fungal planting is technology
Therefore in 2015 Mr Su did considerable researches in the black fungi industry sought and received great
support from Kunming Edible Fungi Research Institute and hired experienced experts to form a technology team
The team successfully cultivated a black fungal strain that suits the climate and weather conditions in Yunnan and
won the Third Place Award in the Agriculture Group of Yunnan Innovative Entrepreneur Competition
Backed by a solid technology team KH has gradually grown from a start-up to a big company that shoulders
significant social responsibility as well as offers a variety of products
62 Products and Services
Auricularia auricula-judae commonly known as Jewrsquos ear wood ear jelly ear or black fungus is a species of
edible fungus which is widely consumed in China as it is used in both Chinese cuisine and Chinese medicine Black
fungus has a mild flavor and is rich in protein carbohydrates and minerals Several researches also indicated that
two glucans isolated from black fungus showed potent antitumor properties Black fungus can be dried and
rehydrated Dried fungi can be preserved for a long period of time and still retain nutritional contents and the
original flavor once rehydrated It can also be used as an ingredient to produce other popular food products
Shidian Town lies at the southern part of Hengduan Mountains next to Nujiang River With favorable climate and
abundant natural resources Shidian is a great place to grow black fungus and to set up plantations KH takes great
advantage of these conditions and has built up its business there
KH provides a range of fungal products to consumers including 1) Mulberry Branch Black Fungus 2) Black
Fungus Essence Powder and 3) Black Fungus Noodle
Mulberry Branch Black Fungus
Mulberry Branch Black Fungus is the organic black fungus growing from mulberry trees without using any
fertilizers or pesticides According to two quality tests conducted by Supervision and Testing Center for Edible
Fungi Quality (Shanghai) Ministry of Agriculture (Test Report Number 2014-W2560G 2014-W2561G)
compared with black fungi growing from other common wood (containing 141g of protein and 741g of glucan
per 100g sample) mulberry branch black fungus has higher nutritional value for it contains more protein and
glucans (147g of protein and 82g of glucan per 100g sample) For this product KH offers several different
packages such as gift box and paper bag to cater to different customer groups This product is produced by KH at
its own facilities
Picture 2 Mulberry Branch Black Fungus
14
Black Fungus Essence Powder
Ground to a grain size of 48 microm by ultra-micro grinder under the temperature of -27degC black fungi are turned to
essence powder Since this method breaks down the cell walls of black fungi the nutritional contents are fully
released Since this process is operated under an extremely low temperature the nutritional value is very well
preserved Therefore consumers can take in the nutrients of black fungi more easily by taking this essence powder
This product is produced by Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) and has
passed the quality test conducted by Yunnan Yunce Quality Testing Co Ltd (Test Report Number YC1803217)
KH has signed a contract with Zhongyuan KH provides raw materials and pays the processing fee to Zhongyuan
Picture 3 Black Fungus Essence Powder
Black Fungus Noodle
Black fungus noodle is made from black fungus powder and high-quality wheat flour Noodle is a common staple
for Chinese consumers Since this product contains black fungus powder it has higher nutritional value compared
with ordinary noodles and has therefore become popular among consumers This product is produced by Longyang
Yongda Food Product Processing Factory (hereafter referred as Yongda) and has passed the quality test conducted
by Yunnan Institute of Product Quality Supervision amp Inspection (Test Report Number SP201800470) KH has
signed a contract with Yongda under which KH provides raw materials and pays the processing fee to Yongda
Picture 4 Black Fungus Noodle
15
63 Marketing Strategy
KHrsquos basic marketing principles are ldquoTo spread knowledge and green concepts To provide well-rounded product
series and To stay up-to-date and innovativerdquo
Specifically first KH not only sells its products but also actively spread the knowledge about the medical and
nutritional functions of black fungus and the idea of sustainable development to the public via multiple channels
Second KH has identified different customer groups according to their preferences and consumption habits and
provide different types of products to each group For example ordinary housewives prefer products with low
prices wealthy people prefer well-packaged and high-end products elderly people are more interested in products
that will be beneficial to their health KHrsquos products also have different packages and prices to cater to different
situation For example products in normal size and normal package are targeted at customers who will consume
the products themselves products in delicate packages could be a great gift to clients and guests products in large
packages are targeted at restaurants and canteens
Third KH employs three types of sales channels which not only cover the traditional approaches but also innovative
ones The first type is the traditional channel KH cooperates with distributors and sales agents to sell products KH
also cooperates with several local schools to provide nutritious lunch for students In this way KH has built up a
good reputation which indirectly promotes its brand and sales The second type is the online channel KH has built
up partnership with ulecom to distribute its products and is setting up its online store and a platform on its official
account of WeChat Also KH is actively contacting Tmallcom and jdcom to get access to a bigger customer group
The third type is new retail channel KH will set up experience restaurants called ldquoWood Ear Societyrdquo to further
promote its products and health concepts In these restaurants customers could not only purchase the products
mentioned in the previous part but also could taste more food and dishes cooked with black fungi such as black
fungus noodle black fungus pho black fungus dumpling and black fungus steam bun Customers could dine in
take away the food they order or have it delivered to their homes These dishes will be cooked in a centralized
kitchen and then delivered to each restaurant which will ensure food quality and food safety
Picture 5 KHrsquos Online Store
Forth KH has also set up an after-sale service system to maintain customer relationship KH will invite each
customer to register in its system and then analyze their consumption habits in order to gain a better understanding
of their preferences and apply personalized promotion strategies Also KH will organize training for its sales staff
16
distributors and sales agents on which they would not only learn product information but also nutrition knowledge
and the idea of sustainable development
Fifth KH has drawn up a promotion plan to promote its brand ldquoFatty Surdquo in three stages The first stage is Warm-
up which is from January 2018 to December 2018 In this stage KH will introduce the concept of ldquoHealthy Liferdquo
to customers and the public via advertisements on mass media The second stage is Heat-up which is expected to
be from January 2019 to December 2019 In this stage KH will continuously promote the brand and the concept
by employing more advertising channels and platforms for example advertisements in railway stations airports
and TV programs The third stage is Heat-preserving which is expected to start from January 2020 In this stage
KH will keep the brand image active by regular promotion
In short KH applies multi-tiered plans and strategies to expand the market more efficiently and quickly
Picture 6 the Design Sketch of ldquoWood Ear Societyrdquo
17
64 Development Strategy
As a company with strong sense of social responsibility KH not only aims to develop itself but also strives to
promote the economic growth in Shidian Town To achieve these two goals KH engages local farmers as its
contracted growers and pre-sells the growers at a low price the fungal strains which could be used to grow black
fungi To ensure the quality and the quantity of fungi KH also provides free technical guidance to growers via local
cooperatives (branches of KH which help KH to coordinate production recruit growers and communicate with
growers) The operation structure is illustrated in the flow chart below
Chart 1 KHrsquos Operation Structure
Through this structure KH gets connected with local farmers (growers) and therefore could lead them to develop
altogether By providing and distributing unified fungal strains the growers KH therefore ensures the purity and
quality of product In addition this structure creates more than 300 jobs in Shidian thereby greatly enhancing the
local economy
To expand its business enlarge its product offerings and lead the local economy further KH has several plans
which are briefly described below
First KH is expanding its production capability by building new factories and plantations KH signed the
Agreement on Investing and Developing the Construction Project of Sangzhi Black Fungal Strains with Annual
Production of 30 million and Fine Processing with Shidian Government on September 11th 2015 By June 30th
2018 the infrastructures and factories were completed and the facilities to produce fungal strains was near
completion In 2019 and 2020 KH will continue the construction and related facilities
KH (overall managing providing strains
and equipment selling products)
Cooperatives (coordinating production recruiting
growers distributing strains providing support)
Growers (using fungal strains to
grow fungi pre-processing fungi)
Consumers
Selected and processed fungi
Raw fungi
18
Picture 7 KHrsquos Factory
Second KH is to enlarge its product offerings by developing more products KH signed the Cooperation Agreement
on Product Development with Kunming Edible Fungi Research Institute on September 2nd 2017 The institute is
expected to complete the development of Black Fungus Tablet Black Fungus Drink and so on by the end of 2018
and complete Black Fungus Capsule by the end of 2019 KH is also studying other edible fungi for example lingzhi
mushroom and will develop products like lingzhi Mushroom Spore Powder and lingzhi Mushroom Spore Oil KH
has successfully planted lingzhi mushroom in its plantation which has built up solid foundation for further
production Moreover KH also has the plan to cooperate with cosmetics RampD institutes and pharmaceutical
institutes to study more effects and values of black fungi and lingzhi mushrooms and develop skincare products
and medicines using black fungi and lingzhi mushrooms as ingredients
Picture 8 Lingzhi Mushroom in KHrsquos Plantation
19
65 Business Partners
KH has established partnerships with the following institutes and companies to develop or produce products
bull Kunming Edible Fungi Research Institute
bull Yunnan Yunjun Technology (Group) Co Ltd
bull Lijiang Zhongyuan Green Food Co Ltd
bull Longyang Yongda Food Product Processing Factory
bull Kunming Jinmo Trade Co Ltd
bull Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
bull China Post Shidian Town Branch
Kunming Edible Fungi Research Institute
Kunming Edible Fungi Research Institute (hereafter referred as KM Institute) is a professional agent researching
and studying edible fungi and developing fungal products KM Institute provides professional guidance on
technology to KH and develops deep-processed fungal products according to KHrsquos requirement while KH is
responsible for market analysis and research funds
Yunnan Yunjun Technology (Group) Co Ltd
Yunnan Yunjun Technology (Group) Co Ltd (hereafter referred as Yunjun) is a company researching developing
and processing fungal products Yunjun provides technical support and professional training to KH and cooperates
with KH to develop fungal products while KH is responsible for market analysis product promotion research
equipment research materials and research funds
Lijiang Zhongyuan Green Food Co Ltd
Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) is a company processing and selling
fungal products and agricultural products KH provides black fungi to Zhongyuan and contracts with Zhongyuan
to process Black Fungus Essence Powder
Longyang Yongda Food Product Processing Factory
Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) is a company processing
agricultural products and food products KH provides black fungi to Yongda and contracts with Yongda to process
Black Fungus Noodles
Kunming Jinmo Trade Co Ltd
Kunming Jinmo Trade Co Ltd (hereafter referred as Jinmo) is a company designing and producing packages and
commercial brochures KH contracts with Jinmo to design and produce packages for its products including the
packing boxes gift boxes commercial brochures plastic packages and so on
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch) (hereafter referred as Anzhi) is a
company providing delivering services KH has got the franchise from Anzhi to set up an express delivery station
in its own company to distribute its products at a low cost
China Post Shidian Town Branch
China Post is a state-owned company providing posting and delivering services It owns an online shopping
platform ndash ulecom with a huge customer base KH promotes and sells its products on ulecom
20
66 Permit and License
Business License
(Duplicate copy) Uniform Social Credit Code 9153052106555747L a) Company Name Shidian Kanghong Agricultural Technology Development Co Ltd b) Type of Company Limited liability company (Foreign Enterprise Legal Person Sole Proprietorship) c) Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province China d) Legal Representative Yan Su e) Registered Capital RMB 2 million f) Date of Establishment January 24th 2013 g) Operating Period January 24th 2013 to January 24th 2043 h) Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily groceries
and building materials Import and export trading (Projects needed to be approved under the laws can be operated after approved by relevant departments)
Issued by Bureau of Market Supervision and Administration of Shidian County on August 14th 2018
21
Food Business Operation License
(Duplicate Copy)
a) Operator Name Shidian Kanghong
Agricultural Technology Development
Co Ltd
b) Social Credit Code (Identity Card
Number) 9153052106555747L
c) Legal representative (Person in
Charge) Yan Su
d) Address No23 Group 2 Jiucheng
Community Jiucheng County Shidian
Town Baoshan City Yunnan Province
e) Operation Address
Zhaojia Village Huaxing Community
Youwang County Shidian Town
Baoshan City Yunnan Province
f) Main Body Type
Food Business Operator
g) Food Type
Sales of pre-packaged food (exclude
frozen food) sales of bulk food (exclude
frozen food)
Valid until July 24th 2021
Description
1 Food Business Operation License is the legitimate certificate of the permit for food business
that an operator gets
2 The License has original and duplicate copies which have the same legal effect The
original License should be hung or placed on a prominent position at the operating site
3 The License must not be forged modified resold leased lent or transferred in any other
illegal forms
4 The operator should carry out business within the approved scope
5 The operator should accept the supervision and management of the Food and Drug
Supervision and Administration Department
6 The operator should apply to change the License when the permitted items are changed
7 The operator should timely apply for an extension at the former department in 30 working
days before the License expires
h) License Number JY15305210013112
i) Daily Supervision Management Organization Market Supervision
Administration Bureau of Youwang County
j) Daily Supervisors Shaode Duan Shaoming Qian
k) Complain Call12331
l) License Issuing Authority Market Supervision Administration Bureau of Shidian
County
m) Issuer Shaoming Qian
July 25th 2018
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
11
trade (once converted to Depository Receipts) To ensure compliance of the foregoing agreement and the applicable
laws each restricted shareholder will agree not to sell or distribute the Companyrsquos shares or other securities publicly
or privately and not to convert or exchange the shares or other securities held by them into any other securities
options or rights during the restricted period
However as to the Companyrsquos total issued share capital the restricted commitment mentioned above will not
apply to a possible tender offer An offer to purchase more than 4335 of the Companyrsquos outstanding share
capital will be regarded as a buyout offer and if the Board of Directors decides to accept such offer the share
or other security transaction that the Company and the restricted shareholders enter into therewith will be
exempt from the above commitment provided that such a buyout is approved first by the DCSX
The Stock Options
On the issuing date of this Information Memorandum neither the Company nor the group has any other unrevealed
stock option commitment that has not been disclosed
The RegistrationTransaction of the Depository Receipts
The Company will eventually through a yet to be appointed issuer (a Financial Institution acceptable to the DCSX)
issue Depository Receipts corresponding to the issued and outstanding ordinary shares of the Company though the
DRs will not be evidenced by any certificates With the listing of the Companyrsquos Depository Receipts on the DCSX
the DCSX and its Brokers will register and manage the trading of the DRs The DRs may be traded in the market
but the Company will not and cannot provide any guarantee with respect to their liquidity The Company agrees
that the Company and all the shareholders will submit the complete and accurate information about the shares and
the required Depository Receipts to the Financial Institution that will issue the DRrsquos After the listing the
registration and trading of the Depository Receipts must comply with the laws and regulations of the DCSX and
other relevant regulators
The Company agrees that the Depository Receipt holders have the same rights as registered ordinary shareholders
Meanwhile when the Company holds a general meeting of shareholders the Depository Receipt holders should
also be notified and allowed to exercise the same voting rights as holders of ordinary shares
Listing Cost
The listing fees and all other directly attributed costs (including audit fees legal fees and other professional costs)
associated with the listing are or will be paid by the Company using existing funds
Inquiry
Any inquiry on regarding this Information Memorandum about listings should be directed to the Listing Advisor
(LAD) Shanghai Chucheng Investment Management Co Ltd
12
6 Business Overview
61 Executive Summary
Shidian Kanghong Agricultural Technology Development Co Ltd (hereafter referred as ldquoKHrdquo) is registered in
Shidian Town Baoshan City Yunnan Province China established on January 24th 2013 with the registered capital
of RMB 2 million
KHrsquos main business is to cultivate fungal strains process edible fungi sell fungi and processed products KH
cooperates with local farmers It provides fungal strains to contracted growers who then plant the strains After
harvesting with preliminary processing such as drying KH purchases the dried fungi from the growers The dried
fungi are ready for sale or will be further processed into products such as black fungus noodle and black fungus
powder etc
Through the cooperation with growers KH not only decreases its business cost but also promotes the local
economy At its very inception KH set up a great goal of ldquoleading the entire village to a better liferdquo Through the
years KH hass consistently pursued this goal by helping local farmers to learn advanced agricultural technology
providing them with good fungal species funding local schools and improving local facilities
KH has won several important recognitions and awards as a result of its professional and outstanding performance
in the field of edible fungi production It was identified as a ldquoScientific amp Technological Small amp Medium
Enterprise of Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named
as ldquothe Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in
2015 The plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial
departments and has been used as the research center for experts from Chinese Academy of Sciences and Yunnan
Province
KH attaches great importance to product quality and innovation as well as brand development KH holds 1 patent
for invention 2 patents for package designing and 8 patents for practical innovation One of its products Mulberry
Branch Black Fungus has been recognized as an ldquoImportant Innovative Product of Yunnan Provincerdquo by Yunnan
Provincial Science and Technology Department since 2015 KH also holds a registered trademark ldquoFatty Surdquo
(Registered Number 14219423) for its products KH aims to develop ldquoFatty Surdquo to a well-known fungus brand in
China and ensure that customers from all over China could enjoy ldquothe gift from nature and the taste of forestrdquo
Adhering to the core values of ldquoPersistence Integrity Hard-working and Sticking to the original goalrdquo and the
operation principle of ldquoEnsuring the company employees growers and customers to all benefit from our businessrdquo
KH is consistently developing itself to become a better company with greater social responsibility
Development History
Throughout its development history KH has been expanding its business step by step
On January 24th 2013 Mr Yan Su and Mr Guangbiao Wu established and incorporated Shidian Kanghong
Agricultural Technology Development Co Ltd aiming to lead the whole village to a better life At the very
beginning KH only had a temporary factory without much equipment or facilities for large-scale production
Lacking experience and technical supervision the first batch of black fungal strains were infected and did not result
in any fungi
In 2014 after the above setback Mr Su and Mr Wu borrowed money from their families and friends to build
13
factories and install facilities They also hired two technicians from Zhejiang Province to supervise the entire
production process However due to a flood in the planting base and extreme weathers 157 million fungal strains
were heavily damaged The direct economic loss was up to RMB 52 million
Having learnt from past failures Mr Su realized that the most important aspect in fungal planting is technology
Therefore in 2015 Mr Su did considerable researches in the black fungi industry sought and received great
support from Kunming Edible Fungi Research Institute and hired experienced experts to form a technology team
The team successfully cultivated a black fungal strain that suits the climate and weather conditions in Yunnan and
won the Third Place Award in the Agriculture Group of Yunnan Innovative Entrepreneur Competition
Backed by a solid technology team KH has gradually grown from a start-up to a big company that shoulders
significant social responsibility as well as offers a variety of products
62 Products and Services
Auricularia auricula-judae commonly known as Jewrsquos ear wood ear jelly ear or black fungus is a species of
edible fungus which is widely consumed in China as it is used in both Chinese cuisine and Chinese medicine Black
fungus has a mild flavor and is rich in protein carbohydrates and minerals Several researches also indicated that
two glucans isolated from black fungus showed potent antitumor properties Black fungus can be dried and
rehydrated Dried fungi can be preserved for a long period of time and still retain nutritional contents and the
original flavor once rehydrated It can also be used as an ingredient to produce other popular food products
Shidian Town lies at the southern part of Hengduan Mountains next to Nujiang River With favorable climate and
abundant natural resources Shidian is a great place to grow black fungus and to set up plantations KH takes great
advantage of these conditions and has built up its business there
KH provides a range of fungal products to consumers including 1) Mulberry Branch Black Fungus 2) Black
Fungus Essence Powder and 3) Black Fungus Noodle
Mulberry Branch Black Fungus
Mulberry Branch Black Fungus is the organic black fungus growing from mulberry trees without using any
fertilizers or pesticides According to two quality tests conducted by Supervision and Testing Center for Edible
Fungi Quality (Shanghai) Ministry of Agriculture (Test Report Number 2014-W2560G 2014-W2561G)
compared with black fungi growing from other common wood (containing 141g of protein and 741g of glucan
per 100g sample) mulberry branch black fungus has higher nutritional value for it contains more protein and
glucans (147g of protein and 82g of glucan per 100g sample) For this product KH offers several different
packages such as gift box and paper bag to cater to different customer groups This product is produced by KH at
its own facilities
Picture 2 Mulberry Branch Black Fungus
14
Black Fungus Essence Powder
Ground to a grain size of 48 microm by ultra-micro grinder under the temperature of -27degC black fungi are turned to
essence powder Since this method breaks down the cell walls of black fungi the nutritional contents are fully
released Since this process is operated under an extremely low temperature the nutritional value is very well
preserved Therefore consumers can take in the nutrients of black fungi more easily by taking this essence powder
This product is produced by Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) and has
passed the quality test conducted by Yunnan Yunce Quality Testing Co Ltd (Test Report Number YC1803217)
KH has signed a contract with Zhongyuan KH provides raw materials and pays the processing fee to Zhongyuan
Picture 3 Black Fungus Essence Powder
Black Fungus Noodle
Black fungus noodle is made from black fungus powder and high-quality wheat flour Noodle is a common staple
for Chinese consumers Since this product contains black fungus powder it has higher nutritional value compared
with ordinary noodles and has therefore become popular among consumers This product is produced by Longyang
Yongda Food Product Processing Factory (hereafter referred as Yongda) and has passed the quality test conducted
by Yunnan Institute of Product Quality Supervision amp Inspection (Test Report Number SP201800470) KH has
signed a contract with Yongda under which KH provides raw materials and pays the processing fee to Yongda
Picture 4 Black Fungus Noodle
15
63 Marketing Strategy
KHrsquos basic marketing principles are ldquoTo spread knowledge and green concepts To provide well-rounded product
series and To stay up-to-date and innovativerdquo
Specifically first KH not only sells its products but also actively spread the knowledge about the medical and
nutritional functions of black fungus and the idea of sustainable development to the public via multiple channels
Second KH has identified different customer groups according to their preferences and consumption habits and
provide different types of products to each group For example ordinary housewives prefer products with low
prices wealthy people prefer well-packaged and high-end products elderly people are more interested in products
that will be beneficial to their health KHrsquos products also have different packages and prices to cater to different
situation For example products in normal size and normal package are targeted at customers who will consume
the products themselves products in delicate packages could be a great gift to clients and guests products in large
packages are targeted at restaurants and canteens
Third KH employs three types of sales channels which not only cover the traditional approaches but also innovative
ones The first type is the traditional channel KH cooperates with distributors and sales agents to sell products KH
also cooperates with several local schools to provide nutritious lunch for students In this way KH has built up a
good reputation which indirectly promotes its brand and sales The second type is the online channel KH has built
up partnership with ulecom to distribute its products and is setting up its online store and a platform on its official
account of WeChat Also KH is actively contacting Tmallcom and jdcom to get access to a bigger customer group
The third type is new retail channel KH will set up experience restaurants called ldquoWood Ear Societyrdquo to further
promote its products and health concepts In these restaurants customers could not only purchase the products
mentioned in the previous part but also could taste more food and dishes cooked with black fungi such as black
fungus noodle black fungus pho black fungus dumpling and black fungus steam bun Customers could dine in
take away the food they order or have it delivered to their homes These dishes will be cooked in a centralized
kitchen and then delivered to each restaurant which will ensure food quality and food safety
Picture 5 KHrsquos Online Store
Forth KH has also set up an after-sale service system to maintain customer relationship KH will invite each
customer to register in its system and then analyze their consumption habits in order to gain a better understanding
of their preferences and apply personalized promotion strategies Also KH will organize training for its sales staff
16
distributors and sales agents on which they would not only learn product information but also nutrition knowledge
and the idea of sustainable development
Fifth KH has drawn up a promotion plan to promote its brand ldquoFatty Surdquo in three stages The first stage is Warm-
up which is from January 2018 to December 2018 In this stage KH will introduce the concept of ldquoHealthy Liferdquo
to customers and the public via advertisements on mass media The second stage is Heat-up which is expected to
be from January 2019 to December 2019 In this stage KH will continuously promote the brand and the concept
by employing more advertising channels and platforms for example advertisements in railway stations airports
and TV programs The third stage is Heat-preserving which is expected to start from January 2020 In this stage
KH will keep the brand image active by regular promotion
In short KH applies multi-tiered plans and strategies to expand the market more efficiently and quickly
Picture 6 the Design Sketch of ldquoWood Ear Societyrdquo
17
64 Development Strategy
As a company with strong sense of social responsibility KH not only aims to develop itself but also strives to
promote the economic growth in Shidian Town To achieve these two goals KH engages local farmers as its
contracted growers and pre-sells the growers at a low price the fungal strains which could be used to grow black
fungi To ensure the quality and the quantity of fungi KH also provides free technical guidance to growers via local
cooperatives (branches of KH which help KH to coordinate production recruit growers and communicate with
growers) The operation structure is illustrated in the flow chart below
Chart 1 KHrsquos Operation Structure
Through this structure KH gets connected with local farmers (growers) and therefore could lead them to develop
altogether By providing and distributing unified fungal strains the growers KH therefore ensures the purity and
quality of product In addition this structure creates more than 300 jobs in Shidian thereby greatly enhancing the
local economy
To expand its business enlarge its product offerings and lead the local economy further KH has several plans
which are briefly described below
First KH is expanding its production capability by building new factories and plantations KH signed the
Agreement on Investing and Developing the Construction Project of Sangzhi Black Fungal Strains with Annual
Production of 30 million and Fine Processing with Shidian Government on September 11th 2015 By June 30th
2018 the infrastructures and factories were completed and the facilities to produce fungal strains was near
completion In 2019 and 2020 KH will continue the construction and related facilities
KH (overall managing providing strains
and equipment selling products)
Cooperatives (coordinating production recruiting
growers distributing strains providing support)
Growers (using fungal strains to
grow fungi pre-processing fungi)
Consumers
Selected and processed fungi
Raw fungi
18
Picture 7 KHrsquos Factory
Second KH is to enlarge its product offerings by developing more products KH signed the Cooperation Agreement
on Product Development with Kunming Edible Fungi Research Institute on September 2nd 2017 The institute is
expected to complete the development of Black Fungus Tablet Black Fungus Drink and so on by the end of 2018
and complete Black Fungus Capsule by the end of 2019 KH is also studying other edible fungi for example lingzhi
mushroom and will develop products like lingzhi Mushroom Spore Powder and lingzhi Mushroom Spore Oil KH
has successfully planted lingzhi mushroom in its plantation which has built up solid foundation for further
production Moreover KH also has the plan to cooperate with cosmetics RampD institutes and pharmaceutical
institutes to study more effects and values of black fungi and lingzhi mushrooms and develop skincare products
and medicines using black fungi and lingzhi mushrooms as ingredients
Picture 8 Lingzhi Mushroom in KHrsquos Plantation
19
65 Business Partners
KH has established partnerships with the following institutes and companies to develop or produce products
bull Kunming Edible Fungi Research Institute
bull Yunnan Yunjun Technology (Group) Co Ltd
bull Lijiang Zhongyuan Green Food Co Ltd
bull Longyang Yongda Food Product Processing Factory
bull Kunming Jinmo Trade Co Ltd
bull Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
bull China Post Shidian Town Branch
Kunming Edible Fungi Research Institute
Kunming Edible Fungi Research Institute (hereafter referred as KM Institute) is a professional agent researching
and studying edible fungi and developing fungal products KM Institute provides professional guidance on
technology to KH and develops deep-processed fungal products according to KHrsquos requirement while KH is
responsible for market analysis and research funds
Yunnan Yunjun Technology (Group) Co Ltd
Yunnan Yunjun Technology (Group) Co Ltd (hereafter referred as Yunjun) is a company researching developing
and processing fungal products Yunjun provides technical support and professional training to KH and cooperates
with KH to develop fungal products while KH is responsible for market analysis product promotion research
equipment research materials and research funds
Lijiang Zhongyuan Green Food Co Ltd
Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) is a company processing and selling
fungal products and agricultural products KH provides black fungi to Zhongyuan and contracts with Zhongyuan
to process Black Fungus Essence Powder
Longyang Yongda Food Product Processing Factory
Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) is a company processing
agricultural products and food products KH provides black fungi to Yongda and contracts with Yongda to process
Black Fungus Noodles
Kunming Jinmo Trade Co Ltd
Kunming Jinmo Trade Co Ltd (hereafter referred as Jinmo) is a company designing and producing packages and
commercial brochures KH contracts with Jinmo to design and produce packages for its products including the
packing boxes gift boxes commercial brochures plastic packages and so on
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch) (hereafter referred as Anzhi) is a
company providing delivering services KH has got the franchise from Anzhi to set up an express delivery station
in its own company to distribute its products at a low cost
China Post Shidian Town Branch
China Post is a state-owned company providing posting and delivering services It owns an online shopping
platform ndash ulecom with a huge customer base KH promotes and sells its products on ulecom
20
66 Permit and License
Business License
(Duplicate copy) Uniform Social Credit Code 9153052106555747L a) Company Name Shidian Kanghong Agricultural Technology Development Co Ltd b) Type of Company Limited liability company (Foreign Enterprise Legal Person Sole Proprietorship) c) Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province China d) Legal Representative Yan Su e) Registered Capital RMB 2 million f) Date of Establishment January 24th 2013 g) Operating Period January 24th 2013 to January 24th 2043 h) Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily groceries
and building materials Import and export trading (Projects needed to be approved under the laws can be operated after approved by relevant departments)
Issued by Bureau of Market Supervision and Administration of Shidian County on August 14th 2018
21
Food Business Operation License
(Duplicate Copy)
a) Operator Name Shidian Kanghong
Agricultural Technology Development
Co Ltd
b) Social Credit Code (Identity Card
Number) 9153052106555747L
c) Legal representative (Person in
Charge) Yan Su
d) Address No23 Group 2 Jiucheng
Community Jiucheng County Shidian
Town Baoshan City Yunnan Province
e) Operation Address
Zhaojia Village Huaxing Community
Youwang County Shidian Town
Baoshan City Yunnan Province
f) Main Body Type
Food Business Operator
g) Food Type
Sales of pre-packaged food (exclude
frozen food) sales of bulk food (exclude
frozen food)
Valid until July 24th 2021
Description
1 Food Business Operation License is the legitimate certificate of the permit for food business
that an operator gets
2 The License has original and duplicate copies which have the same legal effect The
original License should be hung or placed on a prominent position at the operating site
3 The License must not be forged modified resold leased lent or transferred in any other
illegal forms
4 The operator should carry out business within the approved scope
5 The operator should accept the supervision and management of the Food and Drug
Supervision and Administration Department
6 The operator should apply to change the License when the permitted items are changed
7 The operator should timely apply for an extension at the former department in 30 working
days before the License expires
h) License Number JY15305210013112
i) Daily Supervision Management Organization Market Supervision
Administration Bureau of Youwang County
j) Daily Supervisors Shaode Duan Shaoming Qian
k) Complain Call12331
l) License Issuing Authority Market Supervision Administration Bureau of Shidian
County
m) Issuer Shaoming Qian
July 25th 2018
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
12
6 Business Overview
61 Executive Summary
Shidian Kanghong Agricultural Technology Development Co Ltd (hereafter referred as ldquoKHrdquo) is registered in
Shidian Town Baoshan City Yunnan Province China established on January 24th 2013 with the registered capital
of RMB 2 million
KHrsquos main business is to cultivate fungal strains process edible fungi sell fungi and processed products KH
cooperates with local farmers It provides fungal strains to contracted growers who then plant the strains After
harvesting with preliminary processing such as drying KH purchases the dried fungi from the growers The dried
fungi are ready for sale or will be further processed into products such as black fungus noodle and black fungus
powder etc
Through the cooperation with growers KH not only decreases its business cost but also promotes the local
economy At its very inception KH set up a great goal of ldquoleading the entire village to a better liferdquo Through the
years KH hass consistently pursued this goal by helping local farmers to learn advanced agricultural technology
providing them with good fungal species funding local schools and improving local facilities
KH has won several important recognitions and awards as a result of its professional and outstanding performance
in the field of edible fungi production It was identified as a ldquoScientific amp Technological Small amp Medium
Enterprise of Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named
as ldquothe Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in
2015 The plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial
departments and has been used as the research center for experts from Chinese Academy of Sciences and Yunnan
Province
KH attaches great importance to product quality and innovation as well as brand development KH holds 1 patent
for invention 2 patents for package designing and 8 patents for practical innovation One of its products Mulberry
Branch Black Fungus has been recognized as an ldquoImportant Innovative Product of Yunnan Provincerdquo by Yunnan
Provincial Science and Technology Department since 2015 KH also holds a registered trademark ldquoFatty Surdquo
(Registered Number 14219423) for its products KH aims to develop ldquoFatty Surdquo to a well-known fungus brand in
China and ensure that customers from all over China could enjoy ldquothe gift from nature and the taste of forestrdquo
Adhering to the core values of ldquoPersistence Integrity Hard-working and Sticking to the original goalrdquo and the
operation principle of ldquoEnsuring the company employees growers and customers to all benefit from our businessrdquo
KH is consistently developing itself to become a better company with greater social responsibility
Development History
Throughout its development history KH has been expanding its business step by step
On January 24th 2013 Mr Yan Su and Mr Guangbiao Wu established and incorporated Shidian Kanghong
Agricultural Technology Development Co Ltd aiming to lead the whole village to a better life At the very
beginning KH only had a temporary factory without much equipment or facilities for large-scale production
Lacking experience and technical supervision the first batch of black fungal strains were infected and did not result
in any fungi
In 2014 after the above setback Mr Su and Mr Wu borrowed money from their families and friends to build
13
factories and install facilities They also hired two technicians from Zhejiang Province to supervise the entire
production process However due to a flood in the planting base and extreme weathers 157 million fungal strains
were heavily damaged The direct economic loss was up to RMB 52 million
Having learnt from past failures Mr Su realized that the most important aspect in fungal planting is technology
Therefore in 2015 Mr Su did considerable researches in the black fungi industry sought and received great
support from Kunming Edible Fungi Research Institute and hired experienced experts to form a technology team
The team successfully cultivated a black fungal strain that suits the climate and weather conditions in Yunnan and
won the Third Place Award in the Agriculture Group of Yunnan Innovative Entrepreneur Competition
Backed by a solid technology team KH has gradually grown from a start-up to a big company that shoulders
significant social responsibility as well as offers a variety of products
62 Products and Services
Auricularia auricula-judae commonly known as Jewrsquos ear wood ear jelly ear or black fungus is a species of
edible fungus which is widely consumed in China as it is used in both Chinese cuisine and Chinese medicine Black
fungus has a mild flavor and is rich in protein carbohydrates and minerals Several researches also indicated that
two glucans isolated from black fungus showed potent antitumor properties Black fungus can be dried and
rehydrated Dried fungi can be preserved for a long period of time and still retain nutritional contents and the
original flavor once rehydrated It can also be used as an ingredient to produce other popular food products
Shidian Town lies at the southern part of Hengduan Mountains next to Nujiang River With favorable climate and
abundant natural resources Shidian is a great place to grow black fungus and to set up plantations KH takes great
advantage of these conditions and has built up its business there
KH provides a range of fungal products to consumers including 1) Mulberry Branch Black Fungus 2) Black
Fungus Essence Powder and 3) Black Fungus Noodle
Mulberry Branch Black Fungus
Mulberry Branch Black Fungus is the organic black fungus growing from mulberry trees without using any
fertilizers or pesticides According to two quality tests conducted by Supervision and Testing Center for Edible
Fungi Quality (Shanghai) Ministry of Agriculture (Test Report Number 2014-W2560G 2014-W2561G)
compared with black fungi growing from other common wood (containing 141g of protein and 741g of glucan
per 100g sample) mulberry branch black fungus has higher nutritional value for it contains more protein and
glucans (147g of protein and 82g of glucan per 100g sample) For this product KH offers several different
packages such as gift box and paper bag to cater to different customer groups This product is produced by KH at
its own facilities
Picture 2 Mulberry Branch Black Fungus
14
Black Fungus Essence Powder
Ground to a grain size of 48 microm by ultra-micro grinder under the temperature of -27degC black fungi are turned to
essence powder Since this method breaks down the cell walls of black fungi the nutritional contents are fully
released Since this process is operated under an extremely low temperature the nutritional value is very well
preserved Therefore consumers can take in the nutrients of black fungi more easily by taking this essence powder
This product is produced by Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) and has
passed the quality test conducted by Yunnan Yunce Quality Testing Co Ltd (Test Report Number YC1803217)
KH has signed a contract with Zhongyuan KH provides raw materials and pays the processing fee to Zhongyuan
Picture 3 Black Fungus Essence Powder
Black Fungus Noodle
Black fungus noodle is made from black fungus powder and high-quality wheat flour Noodle is a common staple
for Chinese consumers Since this product contains black fungus powder it has higher nutritional value compared
with ordinary noodles and has therefore become popular among consumers This product is produced by Longyang
Yongda Food Product Processing Factory (hereafter referred as Yongda) and has passed the quality test conducted
by Yunnan Institute of Product Quality Supervision amp Inspection (Test Report Number SP201800470) KH has
signed a contract with Yongda under which KH provides raw materials and pays the processing fee to Yongda
Picture 4 Black Fungus Noodle
15
63 Marketing Strategy
KHrsquos basic marketing principles are ldquoTo spread knowledge and green concepts To provide well-rounded product
series and To stay up-to-date and innovativerdquo
Specifically first KH not only sells its products but also actively spread the knowledge about the medical and
nutritional functions of black fungus and the idea of sustainable development to the public via multiple channels
Second KH has identified different customer groups according to their preferences and consumption habits and
provide different types of products to each group For example ordinary housewives prefer products with low
prices wealthy people prefer well-packaged and high-end products elderly people are more interested in products
that will be beneficial to their health KHrsquos products also have different packages and prices to cater to different
situation For example products in normal size and normal package are targeted at customers who will consume
the products themselves products in delicate packages could be a great gift to clients and guests products in large
packages are targeted at restaurants and canteens
Third KH employs three types of sales channels which not only cover the traditional approaches but also innovative
ones The first type is the traditional channel KH cooperates with distributors and sales agents to sell products KH
also cooperates with several local schools to provide nutritious lunch for students In this way KH has built up a
good reputation which indirectly promotes its brand and sales The second type is the online channel KH has built
up partnership with ulecom to distribute its products and is setting up its online store and a platform on its official
account of WeChat Also KH is actively contacting Tmallcom and jdcom to get access to a bigger customer group
The third type is new retail channel KH will set up experience restaurants called ldquoWood Ear Societyrdquo to further
promote its products and health concepts In these restaurants customers could not only purchase the products
mentioned in the previous part but also could taste more food and dishes cooked with black fungi such as black
fungus noodle black fungus pho black fungus dumpling and black fungus steam bun Customers could dine in
take away the food they order or have it delivered to their homes These dishes will be cooked in a centralized
kitchen and then delivered to each restaurant which will ensure food quality and food safety
Picture 5 KHrsquos Online Store
Forth KH has also set up an after-sale service system to maintain customer relationship KH will invite each
customer to register in its system and then analyze their consumption habits in order to gain a better understanding
of their preferences and apply personalized promotion strategies Also KH will organize training for its sales staff
16
distributors and sales agents on which they would not only learn product information but also nutrition knowledge
and the idea of sustainable development
Fifth KH has drawn up a promotion plan to promote its brand ldquoFatty Surdquo in three stages The first stage is Warm-
up which is from January 2018 to December 2018 In this stage KH will introduce the concept of ldquoHealthy Liferdquo
to customers and the public via advertisements on mass media The second stage is Heat-up which is expected to
be from January 2019 to December 2019 In this stage KH will continuously promote the brand and the concept
by employing more advertising channels and platforms for example advertisements in railway stations airports
and TV programs The third stage is Heat-preserving which is expected to start from January 2020 In this stage
KH will keep the brand image active by regular promotion
In short KH applies multi-tiered plans and strategies to expand the market more efficiently and quickly
Picture 6 the Design Sketch of ldquoWood Ear Societyrdquo
17
64 Development Strategy
As a company with strong sense of social responsibility KH not only aims to develop itself but also strives to
promote the economic growth in Shidian Town To achieve these two goals KH engages local farmers as its
contracted growers and pre-sells the growers at a low price the fungal strains which could be used to grow black
fungi To ensure the quality and the quantity of fungi KH also provides free technical guidance to growers via local
cooperatives (branches of KH which help KH to coordinate production recruit growers and communicate with
growers) The operation structure is illustrated in the flow chart below
Chart 1 KHrsquos Operation Structure
Through this structure KH gets connected with local farmers (growers) and therefore could lead them to develop
altogether By providing and distributing unified fungal strains the growers KH therefore ensures the purity and
quality of product In addition this structure creates more than 300 jobs in Shidian thereby greatly enhancing the
local economy
To expand its business enlarge its product offerings and lead the local economy further KH has several plans
which are briefly described below
First KH is expanding its production capability by building new factories and plantations KH signed the
Agreement on Investing and Developing the Construction Project of Sangzhi Black Fungal Strains with Annual
Production of 30 million and Fine Processing with Shidian Government on September 11th 2015 By June 30th
2018 the infrastructures and factories were completed and the facilities to produce fungal strains was near
completion In 2019 and 2020 KH will continue the construction and related facilities
KH (overall managing providing strains
and equipment selling products)
Cooperatives (coordinating production recruiting
growers distributing strains providing support)
Growers (using fungal strains to
grow fungi pre-processing fungi)
Consumers
Selected and processed fungi
Raw fungi
18
Picture 7 KHrsquos Factory
Second KH is to enlarge its product offerings by developing more products KH signed the Cooperation Agreement
on Product Development with Kunming Edible Fungi Research Institute on September 2nd 2017 The institute is
expected to complete the development of Black Fungus Tablet Black Fungus Drink and so on by the end of 2018
and complete Black Fungus Capsule by the end of 2019 KH is also studying other edible fungi for example lingzhi
mushroom and will develop products like lingzhi Mushroom Spore Powder and lingzhi Mushroom Spore Oil KH
has successfully planted lingzhi mushroom in its plantation which has built up solid foundation for further
production Moreover KH also has the plan to cooperate with cosmetics RampD institutes and pharmaceutical
institutes to study more effects and values of black fungi and lingzhi mushrooms and develop skincare products
and medicines using black fungi and lingzhi mushrooms as ingredients
Picture 8 Lingzhi Mushroom in KHrsquos Plantation
19
65 Business Partners
KH has established partnerships with the following institutes and companies to develop or produce products
bull Kunming Edible Fungi Research Institute
bull Yunnan Yunjun Technology (Group) Co Ltd
bull Lijiang Zhongyuan Green Food Co Ltd
bull Longyang Yongda Food Product Processing Factory
bull Kunming Jinmo Trade Co Ltd
bull Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
bull China Post Shidian Town Branch
Kunming Edible Fungi Research Institute
Kunming Edible Fungi Research Institute (hereafter referred as KM Institute) is a professional agent researching
and studying edible fungi and developing fungal products KM Institute provides professional guidance on
technology to KH and develops deep-processed fungal products according to KHrsquos requirement while KH is
responsible for market analysis and research funds
Yunnan Yunjun Technology (Group) Co Ltd
Yunnan Yunjun Technology (Group) Co Ltd (hereafter referred as Yunjun) is a company researching developing
and processing fungal products Yunjun provides technical support and professional training to KH and cooperates
with KH to develop fungal products while KH is responsible for market analysis product promotion research
equipment research materials and research funds
Lijiang Zhongyuan Green Food Co Ltd
Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) is a company processing and selling
fungal products and agricultural products KH provides black fungi to Zhongyuan and contracts with Zhongyuan
to process Black Fungus Essence Powder
Longyang Yongda Food Product Processing Factory
Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) is a company processing
agricultural products and food products KH provides black fungi to Yongda and contracts with Yongda to process
Black Fungus Noodles
Kunming Jinmo Trade Co Ltd
Kunming Jinmo Trade Co Ltd (hereafter referred as Jinmo) is a company designing and producing packages and
commercial brochures KH contracts with Jinmo to design and produce packages for its products including the
packing boxes gift boxes commercial brochures plastic packages and so on
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch) (hereafter referred as Anzhi) is a
company providing delivering services KH has got the franchise from Anzhi to set up an express delivery station
in its own company to distribute its products at a low cost
China Post Shidian Town Branch
China Post is a state-owned company providing posting and delivering services It owns an online shopping
platform ndash ulecom with a huge customer base KH promotes and sells its products on ulecom
20
66 Permit and License
Business License
(Duplicate copy) Uniform Social Credit Code 9153052106555747L a) Company Name Shidian Kanghong Agricultural Technology Development Co Ltd b) Type of Company Limited liability company (Foreign Enterprise Legal Person Sole Proprietorship) c) Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province China d) Legal Representative Yan Su e) Registered Capital RMB 2 million f) Date of Establishment January 24th 2013 g) Operating Period January 24th 2013 to January 24th 2043 h) Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily groceries
and building materials Import and export trading (Projects needed to be approved under the laws can be operated after approved by relevant departments)
Issued by Bureau of Market Supervision and Administration of Shidian County on August 14th 2018
21
Food Business Operation License
(Duplicate Copy)
a) Operator Name Shidian Kanghong
Agricultural Technology Development
Co Ltd
b) Social Credit Code (Identity Card
Number) 9153052106555747L
c) Legal representative (Person in
Charge) Yan Su
d) Address No23 Group 2 Jiucheng
Community Jiucheng County Shidian
Town Baoshan City Yunnan Province
e) Operation Address
Zhaojia Village Huaxing Community
Youwang County Shidian Town
Baoshan City Yunnan Province
f) Main Body Type
Food Business Operator
g) Food Type
Sales of pre-packaged food (exclude
frozen food) sales of bulk food (exclude
frozen food)
Valid until July 24th 2021
Description
1 Food Business Operation License is the legitimate certificate of the permit for food business
that an operator gets
2 The License has original and duplicate copies which have the same legal effect The
original License should be hung or placed on a prominent position at the operating site
3 The License must not be forged modified resold leased lent or transferred in any other
illegal forms
4 The operator should carry out business within the approved scope
5 The operator should accept the supervision and management of the Food and Drug
Supervision and Administration Department
6 The operator should apply to change the License when the permitted items are changed
7 The operator should timely apply for an extension at the former department in 30 working
days before the License expires
h) License Number JY15305210013112
i) Daily Supervision Management Organization Market Supervision
Administration Bureau of Youwang County
j) Daily Supervisors Shaode Duan Shaoming Qian
k) Complain Call12331
l) License Issuing Authority Market Supervision Administration Bureau of Shidian
County
m) Issuer Shaoming Qian
July 25th 2018
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
13
factories and install facilities They also hired two technicians from Zhejiang Province to supervise the entire
production process However due to a flood in the planting base and extreme weathers 157 million fungal strains
were heavily damaged The direct economic loss was up to RMB 52 million
Having learnt from past failures Mr Su realized that the most important aspect in fungal planting is technology
Therefore in 2015 Mr Su did considerable researches in the black fungi industry sought and received great
support from Kunming Edible Fungi Research Institute and hired experienced experts to form a technology team
The team successfully cultivated a black fungal strain that suits the climate and weather conditions in Yunnan and
won the Third Place Award in the Agriculture Group of Yunnan Innovative Entrepreneur Competition
Backed by a solid technology team KH has gradually grown from a start-up to a big company that shoulders
significant social responsibility as well as offers a variety of products
62 Products and Services
Auricularia auricula-judae commonly known as Jewrsquos ear wood ear jelly ear or black fungus is a species of
edible fungus which is widely consumed in China as it is used in both Chinese cuisine and Chinese medicine Black
fungus has a mild flavor and is rich in protein carbohydrates and minerals Several researches also indicated that
two glucans isolated from black fungus showed potent antitumor properties Black fungus can be dried and
rehydrated Dried fungi can be preserved for a long period of time and still retain nutritional contents and the
original flavor once rehydrated It can also be used as an ingredient to produce other popular food products
Shidian Town lies at the southern part of Hengduan Mountains next to Nujiang River With favorable climate and
abundant natural resources Shidian is a great place to grow black fungus and to set up plantations KH takes great
advantage of these conditions and has built up its business there
KH provides a range of fungal products to consumers including 1) Mulberry Branch Black Fungus 2) Black
Fungus Essence Powder and 3) Black Fungus Noodle
Mulberry Branch Black Fungus
Mulberry Branch Black Fungus is the organic black fungus growing from mulberry trees without using any
fertilizers or pesticides According to two quality tests conducted by Supervision and Testing Center for Edible
Fungi Quality (Shanghai) Ministry of Agriculture (Test Report Number 2014-W2560G 2014-W2561G)
compared with black fungi growing from other common wood (containing 141g of protein and 741g of glucan
per 100g sample) mulberry branch black fungus has higher nutritional value for it contains more protein and
glucans (147g of protein and 82g of glucan per 100g sample) For this product KH offers several different
packages such as gift box and paper bag to cater to different customer groups This product is produced by KH at
its own facilities
Picture 2 Mulberry Branch Black Fungus
14
Black Fungus Essence Powder
Ground to a grain size of 48 microm by ultra-micro grinder under the temperature of -27degC black fungi are turned to
essence powder Since this method breaks down the cell walls of black fungi the nutritional contents are fully
released Since this process is operated under an extremely low temperature the nutritional value is very well
preserved Therefore consumers can take in the nutrients of black fungi more easily by taking this essence powder
This product is produced by Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) and has
passed the quality test conducted by Yunnan Yunce Quality Testing Co Ltd (Test Report Number YC1803217)
KH has signed a contract with Zhongyuan KH provides raw materials and pays the processing fee to Zhongyuan
Picture 3 Black Fungus Essence Powder
Black Fungus Noodle
Black fungus noodle is made from black fungus powder and high-quality wheat flour Noodle is a common staple
for Chinese consumers Since this product contains black fungus powder it has higher nutritional value compared
with ordinary noodles and has therefore become popular among consumers This product is produced by Longyang
Yongda Food Product Processing Factory (hereafter referred as Yongda) and has passed the quality test conducted
by Yunnan Institute of Product Quality Supervision amp Inspection (Test Report Number SP201800470) KH has
signed a contract with Yongda under which KH provides raw materials and pays the processing fee to Yongda
Picture 4 Black Fungus Noodle
15
63 Marketing Strategy
KHrsquos basic marketing principles are ldquoTo spread knowledge and green concepts To provide well-rounded product
series and To stay up-to-date and innovativerdquo
Specifically first KH not only sells its products but also actively spread the knowledge about the medical and
nutritional functions of black fungus and the idea of sustainable development to the public via multiple channels
Second KH has identified different customer groups according to their preferences and consumption habits and
provide different types of products to each group For example ordinary housewives prefer products with low
prices wealthy people prefer well-packaged and high-end products elderly people are more interested in products
that will be beneficial to their health KHrsquos products also have different packages and prices to cater to different
situation For example products in normal size and normal package are targeted at customers who will consume
the products themselves products in delicate packages could be a great gift to clients and guests products in large
packages are targeted at restaurants and canteens
Third KH employs three types of sales channels which not only cover the traditional approaches but also innovative
ones The first type is the traditional channel KH cooperates with distributors and sales agents to sell products KH
also cooperates with several local schools to provide nutritious lunch for students In this way KH has built up a
good reputation which indirectly promotes its brand and sales The second type is the online channel KH has built
up partnership with ulecom to distribute its products and is setting up its online store and a platform on its official
account of WeChat Also KH is actively contacting Tmallcom and jdcom to get access to a bigger customer group
The third type is new retail channel KH will set up experience restaurants called ldquoWood Ear Societyrdquo to further
promote its products and health concepts In these restaurants customers could not only purchase the products
mentioned in the previous part but also could taste more food and dishes cooked with black fungi such as black
fungus noodle black fungus pho black fungus dumpling and black fungus steam bun Customers could dine in
take away the food they order or have it delivered to their homes These dishes will be cooked in a centralized
kitchen and then delivered to each restaurant which will ensure food quality and food safety
Picture 5 KHrsquos Online Store
Forth KH has also set up an after-sale service system to maintain customer relationship KH will invite each
customer to register in its system and then analyze their consumption habits in order to gain a better understanding
of their preferences and apply personalized promotion strategies Also KH will organize training for its sales staff
16
distributors and sales agents on which they would not only learn product information but also nutrition knowledge
and the idea of sustainable development
Fifth KH has drawn up a promotion plan to promote its brand ldquoFatty Surdquo in three stages The first stage is Warm-
up which is from January 2018 to December 2018 In this stage KH will introduce the concept of ldquoHealthy Liferdquo
to customers and the public via advertisements on mass media The second stage is Heat-up which is expected to
be from January 2019 to December 2019 In this stage KH will continuously promote the brand and the concept
by employing more advertising channels and platforms for example advertisements in railway stations airports
and TV programs The third stage is Heat-preserving which is expected to start from January 2020 In this stage
KH will keep the brand image active by regular promotion
In short KH applies multi-tiered plans and strategies to expand the market more efficiently and quickly
Picture 6 the Design Sketch of ldquoWood Ear Societyrdquo
17
64 Development Strategy
As a company with strong sense of social responsibility KH not only aims to develop itself but also strives to
promote the economic growth in Shidian Town To achieve these two goals KH engages local farmers as its
contracted growers and pre-sells the growers at a low price the fungal strains which could be used to grow black
fungi To ensure the quality and the quantity of fungi KH also provides free technical guidance to growers via local
cooperatives (branches of KH which help KH to coordinate production recruit growers and communicate with
growers) The operation structure is illustrated in the flow chart below
Chart 1 KHrsquos Operation Structure
Through this structure KH gets connected with local farmers (growers) and therefore could lead them to develop
altogether By providing and distributing unified fungal strains the growers KH therefore ensures the purity and
quality of product In addition this structure creates more than 300 jobs in Shidian thereby greatly enhancing the
local economy
To expand its business enlarge its product offerings and lead the local economy further KH has several plans
which are briefly described below
First KH is expanding its production capability by building new factories and plantations KH signed the
Agreement on Investing and Developing the Construction Project of Sangzhi Black Fungal Strains with Annual
Production of 30 million and Fine Processing with Shidian Government on September 11th 2015 By June 30th
2018 the infrastructures and factories were completed and the facilities to produce fungal strains was near
completion In 2019 and 2020 KH will continue the construction and related facilities
KH (overall managing providing strains
and equipment selling products)
Cooperatives (coordinating production recruiting
growers distributing strains providing support)
Growers (using fungal strains to
grow fungi pre-processing fungi)
Consumers
Selected and processed fungi
Raw fungi
18
Picture 7 KHrsquos Factory
Second KH is to enlarge its product offerings by developing more products KH signed the Cooperation Agreement
on Product Development with Kunming Edible Fungi Research Institute on September 2nd 2017 The institute is
expected to complete the development of Black Fungus Tablet Black Fungus Drink and so on by the end of 2018
and complete Black Fungus Capsule by the end of 2019 KH is also studying other edible fungi for example lingzhi
mushroom and will develop products like lingzhi Mushroom Spore Powder and lingzhi Mushroom Spore Oil KH
has successfully planted lingzhi mushroom in its plantation which has built up solid foundation for further
production Moreover KH also has the plan to cooperate with cosmetics RampD institutes and pharmaceutical
institutes to study more effects and values of black fungi and lingzhi mushrooms and develop skincare products
and medicines using black fungi and lingzhi mushrooms as ingredients
Picture 8 Lingzhi Mushroom in KHrsquos Plantation
19
65 Business Partners
KH has established partnerships with the following institutes and companies to develop or produce products
bull Kunming Edible Fungi Research Institute
bull Yunnan Yunjun Technology (Group) Co Ltd
bull Lijiang Zhongyuan Green Food Co Ltd
bull Longyang Yongda Food Product Processing Factory
bull Kunming Jinmo Trade Co Ltd
bull Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
bull China Post Shidian Town Branch
Kunming Edible Fungi Research Institute
Kunming Edible Fungi Research Institute (hereafter referred as KM Institute) is a professional agent researching
and studying edible fungi and developing fungal products KM Institute provides professional guidance on
technology to KH and develops deep-processed fungal products according to KHrsquos requirement while KH is
responsible for market analysis and research funds
Yunnan Yunjun Technology (Group) Co Ltd
Yunnan Yunjun Technology (Group) Co Ltd (hereafter referred as Yunjun) is a company researching developing
and processing fungal products Yunjun provides technical support and professional training to KH and cooperates
with KH to develop fungal products while KH is responsible for market analysis product promotion research
equipment research materials and research funds
Lijiang Zhongyuan Green Food Co Ltd
Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) is a company processing and selling
fungal products and agricultural products KH provides black fungi to Zhongyuan and contracts with Zhongyuan
to process Black Fungus Essence Powder
Longyang Yongda Food Product Processing Factory
Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) is a company processing
agricultural products and food products KH provides black fungi to Yongda and contracts with Yongda to process
Black Fungus Noodles
Kunming Jinmo Trade Co Ltd
Kunming Jinmo Trade Co Ltd (hereafter referred as Jinmo) is a company designing and producing packages and
commercial brochures KH contracts with Jinmo to design and produce packages for its products including the
packing boxes gift boxes commercial brochures plastic packages and so on
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch) (hereafter referred as Anzhi) is a
company providing delivering services KH has got the franchise from Anzhi to set up an express delivery station
in its own company to distribute its products at a low cost
China Post Shidian Town Branch
China Post is a state-owned company providing posting and delivering services It owns an online shopping
platform ndash ulecom with a huge customer base KH promotes and sells its products on ulecom
20
66 Permit and License
Business License
(Duplicate copy) Uniform Social Credit Code 9153052106555747L a) Company Name Shidian Kanghong Agricultural Technology Development Co Ltd b) Type of Company Limited liability company (Foreign Enterprise Legal Person Sole Proprietorship) c) Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province China d) Legal Representative Yan Su e) Registered Capital RMB 2 million f) Date of Establishment January 24th 2013 g) Operating Period January 24th 2013 to January 24th 2043 h) Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily groceries
and building materials Import and export trading (Projects needed to be approved under the laws can be operated after approved by relevant departments)
Issued by Bureau of Market Supervision and Administration of Shidian County on August 14th 2018
21
Food Business Operation License
(Duplicate Copy)
a) Operator Name Shidian Kanghong
Agricultural Technology Development
Co Ltd
b) Social Credit Code (Identity Card
Number) 9153052106555747L
c) Legal representative (Person in
Charge) Yan Su
d) Address No23 Group 2 Jiucheng
Community Jiucheng County Shidian
Town Baoshan City Yunnan Province
e) Operation Address
Zhaojia Village Huaxing Community
Youwang County Shidian Town
Baoshan City Yunnan Province
f) Main Body Type
Food Business Operator
g) Food Type
Sales of pre-packaged food (exclude
frozen food) sales of bulk food (exclude
frozen food)
Valid until July 24th 2021
Description
1 Food Business Operation License is the legitimate certificate of the permit for food business
that an operator gets
2 The License has original and duplicate copies which have the same legal effect The
original License should be hung or placed on a prominent position at the operating site
3 The License must not be forged modified resold leased lent or transferred in any other
illegal forms
4 The operator should carry out business within the approved scope
5 The operator should accept the supervision and management of the Food and Drug
Supervision and Administration Department
6 The operator should apply to change the License when the permitted items are changed
7 The operator should timely apply for an extension at the former department in 30 working
days before the License expires
h) License Number JY15305210013112
i) Daily Supervision Management Organization Market Supervision
Administration Bureau of Youwang County
j) Daily Supervisors Shaode Duan Shaoming Qian
k) Complain Call12331
l) License Issuing Authority Market Supervision Administration Bureau of Shidian
County
m) Issuer Shaoming Qian
July 25th 2018
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
14
Black Fungus Essence Powder
Ground to a grain size of 48 microm by ultra-micro grinder under the temperature of -27degC black fungi are turned to
essence powder Since this method breaks down the cell walls of black fungi the nutritional contents are fully
released Since this process is operated under an extremely low temperature the nutritional value is very well
preserved Therefore consumers can take in the nutrients of black fungi more easily by taking this essence powder
This product is produced by Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) and has
passed the quality test conducted by Yunnan Yunce Quality Testing Co Ltd (Test Report Number YC1803217)
KH has signed a contract with Zhongyuan KH provides raw materials and pays the processing fee to Zhongyuan
Picture 3 Black Fungus Essence Powder
Black Fungus Noodle
Black fungus noodle is made from black fungus powder and high-quality wheat flour Noodle is a common staple
for Chinese consumers Since this product contains black fungus powder it has higher nutritional value compared
with ordinary noodles and has therefore become popular among consumers This product is produced by Longyang
Yongda Food Product Processing Factory (hereafter referred as Yongda) and has passed the quality test conducted
by Yunnan Institute of Product Quality Supervision amp Inspection (Test Report Number SP201800470) KH has
signed a contract with Yongda under which KH provides raw materials and pays the processing fee to Yongda
Picture 4 Black Fungus Noodle
15
63 Marketing Strategy
KHrsquos basic marketing principles are ldquoTo spread knowledge and green concepts To provide well-rounded product
series and To stay up-to-date and innovativerdquo
Specifically first KH not only sells its products but also actively spread the knowledge about the medical and
nutritional functions of black fungus and the idea of sustainable development to the public via multiple channels
Second KH has identified different customer groups according to their preferences and consumption habits and
provide different types of products to each group For example ordinary housewives prefer products with low
prices wealthy people prefer well-packaged and high-end products elderly people are more interested in products
that will be beneficial to their health KHrsquos products also have different packages and prices to cater to different
situation For example products in normal size and normal package are targeted at customers who will consume
the products themselves products in delicate packages could be a great gift to clients and guests products in large
packages are targeted at restaurants and canteens
Third KH employs three types of sales channels which not only cover the traditional approaches but also innovative
ones The first type is the traditional channel KH cooperates with distributors and sales agents to sell products KH
also cooperates with several local schools to provide nutritious lunch for students In this way KH has built up a
good reputation which indirectly promotes its brand and sales The second type is the online channel KH has built
up partnership with ulecom to distribute its products and is setting up its online store and a platform on its official
account of WeChat Also KH is actively contacting Tmallcom and jdcom to get access to a bigger customer group
The third type is new retail channel KH will set up experience restaurants called ldquoWood Ear Societyrdquo to further
promote its products and health concepts In these restaurants customers could not only purchase the products
mentioned in the previous part but also could taste more food and dishes cooked with black fungi such as black
fungus noodle black fungus pho black fungus dumpling and black fungus steam bun Customers could dine in
take away the food they order or have it delivered to their homes These dishes will be cooked in a centralized
kitchen and then delivered to each restaurant which will ensure food quality and food safety
Picture 5 KHrsquos Online Store
Forth KH has also set up an after-sale service system to maintain customer relationship KH will invite each
customer to register in its system and then analyze their consumption habits in order to gain a better understanding
of their preferences and apply personalized promotion strategies Also KH will organize training for its sales staff
16
distributors and sales agents on which they would not only learn product information but also nutrition knowledge
and the idea of sustainable development
Fifth KH has drawn up a promotion plan to promote its brand ldquoFatty Surdquo in three stages The first stage is Warm-
up which is from January 2018 to December 2018 In this stage KH will introduce the concept of ldquoHealthy Liferdquo
to customers and the public via advertisements on mass media The second stage is Heat-up which is expected to
be from January 2019 to December 2019 In this stage KH will continuously promote the brand and the concept
by employing more advertising channels and platforms for example advertisements in railway stations airports
and TV programs The third stage is Heat-preserving which is expected to start from January 2020 In this stage
KH will keep the brand image active by regular promotion
In short KH applies multi-tiered plans and strategies to expand the market more efficiently and quickly
Picture 6 the Design Sketch of ldquoWood Ear Societyrdquo
17
64 Development Strategy
As a company with strong sense of social responsibility KH not only aims to develop itself but also strives to
promote the economic growth in Shidian Town To achieve these two goals KH engages local farmers as its
contracted growers and pre-sells the growers at a low price the fungal strains which could be used to grow black
fungi To ensure the quality and the quantity of fungi KH also provides free technical guidance to growers via local
cooperatives (branches of KH which help KH to coordinate production recruit growers and communicate with
growers) The operation structure is illustrated in the flow chart below
Chart 1 KHrsquos Operation Structure
Through this structure KH gets connected with local farmers (growers) and therefore could lead them to develop
altogether By providing and distributing unified fungal strains the growers KH therefore ensures the purity and
quality of product In addition this structure creates more than 300 jobs in Shidian thereby greatly enhancing the
local economy
To expand its business enlarge its product offerings and lead the local economy further KH has several plans
which are briefly described below
First KH is expanding its production capability by building new factories and plantations KH signed the
Agreement on Investing and Developing the Construction Project of Sangzhi Black Fungal Strains with Annual
Production of 30 million and Fine Processing with Shidian Government on September 11th 2015 By June 30th
2018 the infrastructures and factories were completed and the facilities to produce fungal strains was near
completion In 2019 and 2020 KH will continue the construction and related facilities
KH (overall managing providing strains
and equipment selling products)
Cooperatives (coordinating production recruiting
growers distributing strains providing support)
Growers (using fungal strains to
grow fungi pre-processing fungi)
Consumers
Selected and processed fungi
Raw fungi
18
Picture 7 KHrsquos Factory
Second KH is to enlarge its product offerings by developing more products KH signed the Cooperation Agreement
on Product Development with Kunming Edible Fungi Research Institute on September 2nd 2017 The institute is
expected to complete the development of Black Fungus Tablet Black Fungus Drink and so on by the end of 2018
and complete Black Fungus Capsule by the end of 2019 KH is also studying other edible fungi for example lingzhi
mushroom and will develop products like lingzhi Mushroom Spore Powder and lingzhi Mushroom Spore Oil KH
has successfully planted lingzhi mushroom in its plantation which has built up solid foundation for further
production Moreover KH also has the plan to cooperate with cosmetics RampD institutes and pharmaceutical
institutes to study more effects and values of black fungi and lingzhi mushrooms and develop skincare products
and medicines using black fungi and lingzhi mushrooms as ingredients
Picture 8 Lingzhi Mushroom in KHrsquos Plantation
19
65 Business Partners
KH has established partnerships with the following institutes and companies to develop or produce products
bull Kunming Edible Fungi Research Institute
bull Yunnan Yunjun Technology (Group) Co Ltd
bull Lijiang Zhongyuan Green Food Co Ltd
bull Longyang Yongda Food Product Processing Factory
bull Kunming Jinmo Trade Co Ltd
bull Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
bull China Post Shidian Town Branch
Kunming Edible Fungi Research Institute
Kunming Edible Fungi Research Institute (hereafter referred as KM Institute) is a professional agent researching
and studying edible fungi and developing fungal products KM Institute provides professional guidance on
technology to KH and develops deep-processed fungal products according to KHrsquos requirement while KH is
responsible for market analysis and research funds
Yunnan Yunjun Technology (Group) Co Ltd
Yunnan Yunjun Technology (Group) Co Ltd (hereafter referred as Yunjun) is a company researching developing
and processing fungal products Yunjun provides technical support and professional training to KH and cooperates
with KH to develop fungal products while KH is responsible for market analysis product promotion research
equipment research materials and research funds
Lijiang Zhongyuan Green Food Co Ltd
Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) is a company processing and selling
fungal products and agricultural products KH provides black fungi to Zhongyuan and contracts with Zhongyuan
to process Black Fungus Essence Powder
Longyang Yongda Food Product Processing Factory
Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) is a company processing
agricultural products and food products KH provides black fungi to Yongda and contracts with Yongda to process
Black Fungus Noodles
Kunming Jinmo Trade Co Ltd
Kunming Jinmo Trade Co Ltd (hereafter referred as Jinmo) is a company designing and producing packages and
commercial brochures KH contracts with Jinmo to design and produce packages for its products including the
packing boxes gift boxes commercial brochures plastic packages and so on
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch) (hereafter referred as Anzhi) is a
company providing delivering services KH has got the franchise from Anzhi to set up an express delivery station
in its own company to distribute its products at a low cost
China Post Shidian Town Branch
China Post is a state-owned company providing posting and delivering services It owns an online shopping
platform ndash ulecom with a huge customer base KH promotes and sells its products on ulecom
20
66 Permit and License
Business License
(Duplicate copy) Uniform Social Credit Code 9153052106555747L a) Company Name Shidian Kanghong Agricultural Technology Development Co Ltd b) Type of Company Limited liability company (Foreign Enterprise Legal Person Sole Proprietorship) c) Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province China d) Legal Representative Yan Su e) Registered Capital RMB 2 million f) Date of Establishment January 24th 2013 g) Operating Period January 24th 2013 to January 24th 2043 h) Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily groceries
and building materials Import and export trading (Projects needed to be approved under the laws can be operated after approved by relevant departments)
Issued by Bureau of Market Supervision and Administration of Shidian County on August 14th 2018
21
Food Business Operation License
(Duplicate Copy)
a) Operator Name Shidian Kanghong
Agricultural Technology Development
Co Ltd
b) Social Credit Code (Identity Card
Number) 9153052106555747L
c) Legal representative (Person in
Charge) Yan Su
d) Address No23 Group 2 Jiucheng
Community Jiucheng County Shidian
Town Baoshan City Yunnan Province
e) Operation Address
Zhaojia Village Huaxing Community
Youwang County Shidian Town
Baoshan City Yunnan Province
f) Main Body Type
Food Business Operator
g) Food Type
Sales of pre-packaged food (exclude
frozen food) sales of bulk food (exclude
frozen food)
Valid until July 24th 2021
Description
1 Food Business Operation License is the legitimate certificate of the permit for food business
that an operator gets
2 The License has original and duplicate copies which have the same legal effect The
original License should be hung or placed on a prominent position at the operating site
3 The License must not be forged modified resold leased lent or transferred in any other
illegal forms
4 The operator should carry out business within the approved scope
5 The operator should accept the supervision and management of the Food and Drug
Supervision and Administration Department
6 The operator should apply to change the License when the permitted items are changed
7 The operator should timely apply for an extension at the former department in 30 working
days before the License expires
h) License Number JY15305210013112
i) Daily Supervision Management Organization Market Supervision
Administration Bureau of Youwang County
j) Daily Supervisors Shaode Duan Shaoming Qian
k) Complain Call12331
l) License Issuing Authority Market Supervision Administration Bureau of Shidian
County
m) Issuer Shaoming Qian
July 25th 2018
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
15
63 Marketing Strategy
KHrsquos basic marketing principles are ldquoTo spread knowledge and green concepts To provide well-rounded product
series and To stay up-to-date and innovativerdquo
Specifically first KH not only sells its products but also actively spread the knowledge about the medical and
nutritional functions of black fungus and the idea of sustainable development to the public via multiple channels
Second KH has identified different customer groups according to their preferences and consumption habits and
provide different types of products to each group For example ordinary housewives prefer products with low
prices wealthy people prefer well-packaged and high-end products elderly people are more interested in products
that will be beneficial to their health KHrsquos products also have different packages and prices to cater to different
situation For example products in normal size and normal package are targeted at customers who will consume
the products themselves products in delicate packages could be a great gift to clients and guests products in large
packages are targeted at restaurants and canteens
Third KH employs three types of sales channels which not only cover the traditional approaches but also innovative
ones The first type is the traditional channel KH cooperates with distributors and sales agents to sell products KH
also cooperates with several local schools to provide nutritious lunch for students In this way KH has built up a
good reputation which indirectly promotes its brand and sales The second type is the online channel KH has built
up partnership with ulecom to distribute its products and is setting up its online store and a platform on its official
account of WeChat Also KH is actively contacting Tmallcom and jdcom to get access to a bigger customer group
The third type is new retail channel KH will set up experience restaurants called ldquoWood Ear Societyrdquo to further
promote its products and health concepts In these restaurants customers could not only purchase the products
mentioned in the previous part but also could taste more food and dishes cooked with black fungi such as black
fungus noodle black fungus pho black fungus dumpling and black fungus steam bun Customers could dine in
take away the food they order or have it delivered to their homes These dishes will be cooked in a centralized
kitchen and then delivered to each restaurant which will ensure food quality and food safety
Picture 5 KHrsquos Online Store
Forth KH has also set up an after-sale service system to maintain customer relationship KH will invite each
customer to register in its system and then analyze their consumption habits in order to gain a better understanding
of their preferences and apply personalized promotion strategies Also KH will organize training for its sales staff
16
distributors and sales agents on which they would not only learn product information but also nutrition knowledge
and the idea of sustainable development
Fifth KH has drawn up a promotion plan to promote its brand ldquoFatty Surdquo in three stages The first stage is Warm-
up which is from January 2018 to December 2018 In this stage KH will introduce the concept of ldquoHealthy Liferdquo
to customers and the public via advertisements on mass media The second stage is Heat-up which is expected to
be from January 2019 to December 2019 In this stage KH will continuously promote the brand and the concept
by employing more advertising channels and platforms for example advertisements in railway stations airports
and TV programs The third stage is Heat-preserving which is expected to start from January 2020 In this stage
KH will keep the brand image active by regular promotion
In short KH applies multi-tiered plans and strategies to expand the market more efficiently and quickly
Picture 6 the Design Sketch of ldquoWood Ear Societyrdquo
17
64 Development Strategy
As a company with strong sense of social responsibility KH not only aims to develop itself but also strives to
promote the economic growth in Shidian Town To achieve these two goals KH engages local farmers as its
contracted growers and pre-sells the growers at a low price the fungal strains which could be used to grow black
fungi To ensure the quality and the quantity of fungi KH also provides free technical guidance to growers via local
cooperatives (branches of KH which help KH to coordinate production recruit growers and communicate with
growers) The operation structure is illustrated in the flow chart below
Chart 1 KHrsquos Operation Structure
Through this structure KH gets connected with local farmers (growers) and therefore could lead them to develop
altogether By providing and distributing unified fungal strains the growers KH therefore ensures the purity and
quality of product In addition this structure creates more than 300 jobs in Shidian thereby greatly enhancing the
local economy
To expand its business enlarge its product offerings and lead the local economy further KH has several plans
which are briefly described below
First KH is expanding its production capability by building new factories and plantations KH signed the
Agreement on Investing and Developing the Construction Project of Sangzhi Black Fungal Strains with Annual
Production of 30 million and Fine Processing with Shidian Government on September 11th 2015 By June 30th
2018 the infrastructures and factories were completed and the facilities to produce fungal strains was near
completion In 2019 and 2020 KH will continue the construction and related facilities
KH (overall managing providing strains
and equipment selling products)
Cooperatives (coordinating production recruiting
growers distributing strains providing support)
Growers (using fungal strains to
grow fungi pre-processing fungi)
Consumers
Selected and processed fungi
Raw fungi
18
Picture 7 KHrsquos Factory
Second KH is to enlarge its product offerings by developing more products KH signed the Cooperation Agreement
on Product Development with Kunming Edible Fungi Research Institute on September 2nd 2017 The institute is
expected to complete the development of Black Fungus Tablet Black Fungus Drink and so on by the end of 2018
and complete Black Fungus Capsule by the end of 2019 KH is also studying other edible fungi for example lingzhi
mushroom and will develop products like lingzhi Mushroom Spore Powder and lingzhi Mushroom Spore Oil KH
has successfully planted lingzhi mushroom in its plantation which has built up solid foundation for further
production Moreover KH also has the plan to cooperate with cosmetics RampD institutes and pharmaceutical
institutes to study more effects and values of black fungi and lingzhi mushrooms and develop skincare products
and medicines using black fungi and lingzhi mushrooms as ingredients
Picture 8 Lingzhi Mushroom in KHrsquos Plantation
19
65 Business Partners
KH has established partnerships with the following institutes and companies to develop or produce products
bull Kunming Edible Fungi Research Institute
bull Yunnan Yunjun Technology (Group) Co Ltd
bull Lijiang Zhongyuan Green Food Co Ltd
bull Longyang Yongda Food Product Processing Factory
bull Kunming Jinmo Trade Co Ltd
bull Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
bull China Post Shidian Town Branch
Kunming Edible Fungi Research Institute
Kunming Edible Fungi Research Institute (hereafter referred as KM Institute) is a professional agent researching
and studying edible fungi and developing fungal products KM Institute provides professional guidance on
technology to KH and develops deep-processed fungal products according to KHrsquos requirement while KH is
responsible for market analysis and research funds
Yunnan Yunjun Technology (Group) Co Ltd
Yunnan Yunjun Technology (Group) Co Ltd (hereafter referred as Yunjun) is a company researching developing
and processing fungal products Yunjun provides technical support and professional training to KH and cooperates
with KH to develop fungal products while KH is responsible for market analysis product promotion research
equipment research materials and research funds
Lijiang Zhongyuan Green Food Co Ltd
Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) is a company processing and selling
fungal products and agricultural products KH provides black fungi to Zhongyuan and contracts with Zhongyuan
to process Black Fungus Essence Powder
Longyang Yongda Food Product Processing Factory
Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) is a company processing
agricultural products and food products KH provides black fungi to Yongda and contracts with Yongda to process
Black Fungus Noodles
Kunming Jinmo Trade Co Ltd
Kunming Jinmo Trade Co Ltd (hereafter referred as Jinmo) is a company designing and producing packages and
commercial brochures KH contracts with Jinmo to design and produce packages for its products including the
packing boxes gift boxes commercial brochures plastic packages and so on
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch) (hereafter referred as Anzhi) is a
company providing delivering services KH has got the franchise from Anzhi to set up an express delivery station
in its own company to distribute its products at a low cost
China Post Shidian Town Branch
China Post is a state-owned company providing posting and delivering services It owns an online shopping
platform ndash ulecom with a huge customer base KH promotes and sells its products on ulecom
20
66 Permit and License
Business License
(Duplicate copy) Uniform Social Credit Code 9153052106555747L a) Company Name Shidian Kanghong Agricultural Technology Development Co Ltd b) Type of Company Limited liability company (Foreign Enterprise Legal Person Sole Proprietorship) c) Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province China d) Legal Representative Yan Su e) Registered Capital RMB 2 million f) Date of Establishment January 24th 2013 g) Operating Period January 24th 2013 to January 24th 2043 h) Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily groceries
and building materials Import and export trading (Projects needed to be approved under the laws can be operated after approved by relevant departments)
Issued by Bureau of Market Supervision and Administration of Shidian County on August 14th 2018
21
Food Business Operation License
(Duplicate Copy)
a) Operator Name Shidian Kanghong
Agricultural Technology Development
Co Ltd
b) Social Credit Code (Identity Card
Number) 9153052106555747L
c) Legal representative (Person in
Charge) Yan Su
d) Address No23 Group 2 Jiucheng
Community Jiucheng County Shidian
Town Baoshan City Yunnan Province
e) Operation Address
Zhaojia Village Huaxing Community
Youwang County Shidian Town
Baoshan City Yunnan Province
f) Main Body Type
Food Business Operator
g) Food Type
Sales of pre-packaged food (exclude
frozen food) sales of bulk food (exclude
frozen food)
Valid until July 24th 2021
Description
1 Food Business Operation License is the legitimate certificate of the permit for food business
that an operator gets
2 The License has original and duplicate copies which have the same legal effect The
original License should be hung or placed on a prominent position at the operating site
3 The License must not be forged modified resold leased lent or transferred in any other
illegal forms
4 The operator should carry out business within the approved scope
5 The operator should accept the supervision and management of the Food and Drug
Supervision and Administration Department
6 The operator should apply to change the License when the permitted items are changed
7 The operator should timely apply for an extension at the former department in 30 working
days before the License expires
h) License Number JY15305210013112
i) Daily Supervision Management Organization Market Supervision
Administration Bureau of Youwang County
j) Daily Supervisors Shaode Duan Shaoming Qian
k) Complain Call12331
l) License Issuing Authority Market Supervision Administration Bureau of Shidian
County
m) Issuer Shaoming Qian
July 25th 2018
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
16
distributors and sales agents on which they would not only learn product information but also nutrition knowledge
and the idea of sustainable development
Fifth KH has drawn up a promotion plan to promote its brand ldquoFatty Surdquo in three stages The first stage is Warm-
up which is from January 2018 to December 2018 In this stage KH will introduce the concept of ldquoHealthy Liferdquo
to customers and the public via advertisements on mass media The second stage is Heat-up which is expected to
be from January 2019 to December 2019 In this stage KH will continuously promote the brand and the concept
by employing more advertising channels and platforms for example advertisements in railway stations airports
and TV programs The third stage is Heat-preserving which is expected to start from January 2020 In this stage
KH will keep the brand image active by regular promotion
In short KH applies multi-tiered plans and strategies to expand the market more efficiently and quickly
Picture 6 the Design Sketch of ldquoWood Ear Societyrdquo
17
64 Development Strategy
As a company with strong sense of social responsibility KH not only aims to develop itself but also strives to
promote the economic growth in Shidian Town To achieve these two goals KH engages local farmers as its
contracted growers and pre-sells the growers at a low price the fungal strains which could be used to grow black
fungi To ensure the quality and the quantity of fungi KH also provides free technical guidance to growers via local
cooperatives (branches of KH which help KH to coordinate production recruit growers and communicate with
growers) The operation structure is illustrated in the flow chart below
Chart 1 KHrsquos Operation Structure
Through this structure KH gets connected with local farmers (growers) and therefore could lead them to develop
altogether By providing and distributing unified fungal strains the growers KH therefore ensures the purity and
quality of product In addition this structure creates more than 300 jobs in Shidian thereby greatly enhancing the
local economy
To expand its business enlarge its product offerings and lead the local economy further KH has several plans
which are briefly described below
First KH is expanding its production capability by building new factories and plantations KH signed the
Agreement on Investing and Developing the Construction Project of Sangzhi Black Fungal Strains with Annual
Production of 30 million and Fine Processing with Shidian Government on September 11th 2015 By June 30th
2018 the infrastructures and factories were completed and the facilities to produce fungal strains was near
completion In 2019 and 2020 KH will continue the construction and related facilities
KH (overall managing providing strains
and equipment selling products)
Cooperatives (coordinating production recruiting
growers distributing strains providing support)
Growers (using fungal strains to
grow fungi pre-processing fungi)
Consumers
Selected and processed fungi
Raw fungi
18
Picture 7 KHrsquos Factory
Second KH is to enlarge its product offerings by developing more products KH signed the Cooperation Agreement
on Product Development with Kunming Edible Fungi Research Institute on September 2nd 2017 The institute is
expected to complete the development of Black Fungus Tablet Black Fungus Drink and so on by the end of 2018
and complete Black Fungus Capsule by the end of 2019 KH is also studying other edible fungi for example lingzhi
mushroom and will develop products like lingzhi Mushroom Spore Powder and lingzhi Mushroom Spore Oil KH
has successfully planted lingzhi mushroom in its plantation which has built up solid foundation for further
production Moreover KH also has the plan to cooperate with cosmetics RampD institutes and pharmaceutical
institutes to study more effects and values of black fungi and lingzhi mushrooms and develop skincare products
and medicines using black fungi and lingzhi mushrooms as ingredients
Picture 8 Lingzhi Mushroom in KHrsquos Plantation
19
65 Business Partners
KH has established partnerships with the following institutes and companies to develop or produce products
bull Kunming Edible Fungi Research Institute
bull Yunnan Yunjun Technology (Group) Co Ltd
bull Lijiang Zhongyuan Green Food Co Ltd
bull Longyang Yongda Food Product Processing Factory
bull Kunming Jinmo Trade Co Ltd
bull Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
bull China Post Shidian Town Branch
Kunming Edible Fungi Research Institute
Kunming Edible Fungi Research Institute (hereafter referred as KM Institute) is a professional agent researching
and studying edible fungi and developing fungal products KM Institute provides professional guidance on
technology to KH and develops deep-processed fungal products according to KHrsquos requirement while KH is
responsible for market analysis and research funds
Yunnan Yunjun Technology (Group) Co Ltd
Yunnan Yunjun Technology (Group) Co Ltd (hereafter referred as Yunjun) is a company researching developing
and processing fungal products Yunjun provides technical support and professional training to KH and cooperates
with KH to develop fungal products while KH is responsible for market analysis product promotion research
equipment research materials and research funds
Lijiang Zhongyuan Green Food Co Ltd
Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) is a company processing and selling
fungal products and agricultural products KH provides black fungi to Zhongyuan and contracts with Zhongyuan
to process Black Fungus Essence Powder
Longyang Yongda Food Product Processing Factory
Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) is a company processing
agricultural products and food products KH provides black fungi to Yongda and contracts with Yongda to process
Black Fungus Noodles
Kunming Jinmo Trade Co Ltd
Kunming Jinmo Trade Co Ltd (hereafter referred as Jinmo) is a company designing and producing packages and
commercial brochures KH contracts with Jinmo to design and produce packages for its products including the
packing boxes gift boxes commercial brochures plastic packages and so on
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch) (hereafter referred as Anzhi) is a
company providing delivering services KH has got the franchise from Anzhi to set up an express delivery station
in its own company to distribute its products at a low cost
China Post Shidian Town Branch
China Post is a state-owned company providing posting and delivering services It owns an online shopping
platform ndash ulecom with a huge customer base KH promotes and sells its products on ulecom
20
66 Permit and License
Business License
(Duplicate copy) Uniform Social Credit Code 9153052106555747L a) Company Name Shidian Kanghong Agricultural Technology Development Co Ltd b) Type of Company Limited liability company (Foreign Enterprise Legal Person Sole Proprietorship) c) Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province China d) Legal Representative Yan Su e) Registered Capital RMB 2 million f) Date of Establishment January 24th 2013 g) Operating Period January 24th 2013 to January 24th 2043 h) Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily groceries
and building materials Import and export trading (Projects needed to be approved under the laws can be operated after approved by relevant departments)
Issued by Bureau of Market Supervision and Administration of Shidian County on August 14th 2018
21
Food Business Operation License
(Duplicate Copy)
a) Operator Name Shidian Kanghong
Agricultural Technology Development
Co Ltd
b) Social Credit Code (Identity Card
Number) 9153052106555747L
c) Legal representative (Person in
Charge) Yan Su
d) Address No23 Group 2 Jiucheng
Community Jiucheng County Shidian
Town Baoshan City Yunnan Province
e) Operation Address
Zhaojia Village Huaxing Community
Youwang County Shidian Town
Baoshan City Yunnan Province
f) Main Body Type
Food Business Operator
g) Food Type
Sales of pre-packaged food (exclude
frozen food) sales of bulk food (exclude
frozen food)
Valid until July 24th 2021
Description
1 Food Business Operation License is the legitimate certificate of the permit for food business
that an operator gets
2 The License has original and duplicate copies which have the same legal effect The
original License should be hung or placed on a prominent position at the operating site
3 The License must not be forged modified resold leased lent or transferred in any other
illegal forms
4 The operator should carry out business within the approved scope
5 The operator should accept the supervision and management of the Food and Drug
Supervision and Administration Department
6 The operator should apply to change the License when the permitted items are changed
7 The operator should timely apply for an extension at the former department in 30 working
days before the License expires
h) License Number JY15305210013112
i) Daily Supervision Management Organization Market Supervision
Administration Bureau of Youwang County
j) Daily Supervisors Shaode Duan Shaoming Qian
k) Complain Call12331
l) License Issuing Authority Market Supervision Administration Bureau of Shidian
County
m) Issuer Shaoming Qian
July 25th 2018
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
17
64 Development Strategy
As a company with strong sense of social responsibility KH not only aims to develop itself but also strives to
promote the economic growth in Shidian Town To achieve these two goals KH engages local farmers as its
contracted growers and pre-sells the growers at a low price the fungal strains which could be used to grow black
fungi To ensure the quality and the quantity of fungi KH also provides free technical guidance to growers via local
cooperatives (branches of KH which help KH to coordinate production recruit growers and communicate with
growers) The operation structure is illustrated in the flow chart below
Chart 1 KHrsquos Operation Structure
Through this structure KH gets connected with local farmers (growers) and therefore could lead them to develop
altogether By providing and distributing unified fungal strains the growers KH therefore ensures the purity and
quality of product In addition this structure creates more than 300 jobs in Shidian thereby greatly enhancing the
local economy
To expand its business enlarge its product offerings and lead the local economy further KH has several plans
which are briefly described below
First KH is expanding its production capability by building new factories and plantations KH signed the
Agreement on Investing and Developing the Construction Project of Sangzhi Black Fungal Strains with Annual
Production of 30 million and Fine Processing with Shidian Government on September 11th 2015 By June 30th
2018 the infrastructures and factories were completed and the facilities to produce fungal strains was near
completion In 2019 and 2020 KH will continue the construction and related facilities
KH (overall managing providing strains
and equipment selling products)
Cooperatives (coordinating production recruiting
growers distributing strains providing support)
Growers (using fungal strains to
grow fungi pre-processing fungi)
Consumers
Selected and processed fungi
Raw fungi
18
Picture 7 KHrsquos Factory
Second KH is to enlarge its product offerings by developing more products KH signed the Cooperation Agreement
on Product Development with Kunming Edible Fungi Research Institute on September 2nd 2017 The institute is
expected to complete the development of Black Fungus Tablet Black Fungus Drink and so on by the end of 2018
and complete Black Fungus Capsule by the end of 2019 KH is also studying other edible fungi for example lingzhi
mushroom and will develop products like lingzhi Mushroom Spore Powder and lingzhi Mushroom Spore Oil KH
has successfully planted lingzhi mushroom in its plantation which has built up solid foundation for further
production Moreover KH also has the plan to cooperate with cosmetics RampD institutes and pharmaceutical
institutes to study more effects and values of black fungi and lingzhi mushrooms and develop skincare products
and medicines using black fungi and lingzhi mushrooms as ingredients
Picture 8 Lingzhi Mushroom in KHrsquos Plantation
19
65 Business Partners
KH has established partnerships with the following institutes and companies to develop or produce products
bull Kunming Edible Fungi Research Institute
bull Yunnan Yunjun Technology (Group) Co Ltd
bull Lijiang Zhongyuan Green Food Co Ltd
bull Longyang Yongda Food Product Processing Factory
bull Kunming Jinmo Trade Co Ltd
bull Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
bull China Post Shidian Town Branch
Kunming Edible Fungi Research Institute
Kunming Edible Fungi Research Institute (hereafter referred as KM Institute) is a professional agent researching
and studying edible fungi and developing fungal products KM Institute provides professional guidance on
technology to KH and develops deep-processed fungal products according to KHrsquos requirement while KH is
responsible for market analysis and research funds
Yunnan Yunjun Technology (Group) Co Ltd
Yunnan Yunjun Technology (Group) Co Ltd (hereafter referred as Yunjun) is a company researching developing
and processing fungal products Yunjun provides technical support and professional training to KH and cooperates
with KH to develop fungal products while KH is responsible for market analysis product promotion research
equipment research materials and research funds
Lijiang Zhongyuan Green Food Co Ltd
Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) is a company processing and selling
fungal products and agricultural products KH provides black fungi to Zhongyuan and contracts with Zhongyuan
to process Black Fungus Essence Powder
Longyang Yongda Food Product Processing Factory
Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) is a company processing
agricultural products and food products KH provides black fungi to Yongda and contracts with Yongda to process
Black Fungus Noodles
Kunming Jinmo Trade Co Ltd
Kunming Jinmo Trade Co Ltd (hereafter referred as Jinmo) is a company designing and producing packages and
commercial brochures KH contracts with Jinmo to design and produce packages for its products including the
packing boxes gift boxes commercial brochures plastic packages and so on
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch) (hereafter referred as Anzhi) is a
company providing delivering services KH has got the franchise from Anzhi to set up an express delivery station
in its own company to distribute its products at a low cost
China Post Shidian Town Branch
China Post is a state-owned company providing posting and delivering services It owns an online shopping
platform ndash ulecom with a huge customer base KH promotes and sells its products on ulecom
20
66 Permit and License
Business License
(Duplicate copy) Uniform Social Credit Code 9153052106555747L a) Company Name Shidian Kanghong Agricultural Technology Development Co Ltd b) Type of Company Limited liability company (Foreign Enterprise Legal Person Sole Proprietorship) c) Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province China d) Legal Representative Yan Su e) Registered Capital RMB 2 million f) Date of Establishment January 24th 2013 g) Operating Period January 24th 2013 to January 24th 2043 h) Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily groceries
and building materials Import and export trading (Projects needed to be approved under the laws can be operated after approved by relevant departments)
Issued by Bureau of Market Supervision and Administration of Shidian County on August 14th 2018
21
Food Business Operation License
(Duplicate Copy)
a) Operator Name Shidian Kanghong
Agricultural Technology Development
Co Ltd
b) Social Credit Code (Identity Card
Number) 9153052106555747L
c) Legal representative (Person in
Charge) Yan Su
d) Address No23 Group 2 Jiucheng
Community Jiucheng County Shidian
Town Baoshan City Yunnan Province
e) Operation Address
Zhaojia Village Huaxing Community
Youwang County Shidian Town
Baoshan City Yunnan Province
f) Main Body Type
Food Business Operator
g) Food Type
Sales of pre-packaged food (exclude
frozen food) sales of bulk food (exclude
frozen food)
Valid until July 24th 2021
Description
1 Food Business Operation License is the legitimate certificate of the permit for food business
that an operator gets
2 The License has original and duplicate copies which have the same legal effect The
original License should be hung or placed on a prominent position at the operating site
3 The License must not be forged modified resold leased lent or transferred in any other
illegal forms
4 The operator should carry out business within the approved scope
5 The operator should accept the supervision and management of the Food and Drug
Supervision and Administration Department
6 The operator should apply to change the License when the permitted items are changed
7 The operator should timely apply for an extension at the former department in 30 working
days before the License expires
h) License Number JY15305210013112
i) Daily Supervision Management Organization Market Supervision
Administration Bureau of Youwang County
j) Daily Supervisors Shaode Duan Shaoming Qian
k) Complain Call12331
l) License Issuing Authority Market Supervision Administration Bureau of Shidian
County
m) Issuer Shaoming Qian
July 25th 2018
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
18
Picture 7 KHrsquos Factory
Second KH is to enlarge its product offerings by developing more products KH signed the Cooperation Agreement
on Product Development with Kunming Edible Fungi Research Institute on September 2nd 2017 The institute is
expected to complete the development of Black Fungus Tablet Black Fungus Drink and so on by the end of 2018
and complete Black Fungus Capsule by the end of 2019 KH is also studying other edible fungi for example lingzhi
mushroom and will develop products like lingzhi Mushroom Spore Powder and lingzhi Mushroom Spore Oil KH
has successfully planted lingzhi mushroom in its plantation which has built up solid foundation for further
production Moreover KH also has the plan to cooperate with cosmetics RampD institutes and pharmaceutical
institutes to study more effects and values of black fungi and lingzhi mushrooms and develop skincare products
and medicines using black fungi and lingzhi mushrooms as ingredients
Picture 8 Lingzhi Mushroom in KHrsquos Plantation
19
65 Business Partners
KH has established partnerships with the following institutes and companies to develop or produce products
bull Kunming Edible Fungi Research Institute
bull Yunnan Yunjun Technology (Group) Co Ltd
bull Lijiang Zhongyuan Green Food Co Ltd
bull Longyang Yongda Food Product Processing Factory
bull Kunming Jinmo Trade Co Ltd
bull Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
bull China Post Shidian Town Branch
Kunming Edible Fungi Research Institute
Kunming Edible Fungi Research Institute (hereafter referred as KM Institute) is a professional agent researching
and studying edible fungi and developing fungal products KM Institute provides professional guidance on
technology to KH and develops deep-processed fungal products according to KHrsquos requirement while KH is
responsible for market analysis and research funds
Yunnan Yunjun Technology (Group) Co Ltd
Yunnan Yunjun Technology (Group) Co Ltd (hereafter referred as Yunjun) is a company researching developing
and processing fungal products Yunjun provides technical support and professional training to KH and cooperates
with KH to develop fungal products while KH is responsible for market analysis product promotion research
equipment research materials and research funds
Lijiang Zhongyuan Green Food Co Ltd
Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) is a company processing and selling
fungal products and agricultural products KH provides black fungi to Zhongyuan and contracts with Zhongyuan
to process Black Fungus Essence Powder
Longyang Yongda Food Product Processing Factory
Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) is a company processing
agricultural products and food products KH provides black fungi to Yongda and contracts with Yongda to process
Black Fungus Noodles
Kunming Jinmo Trade Co Ltd
Kunming Jinmo Trade Co Ltd (hereafter referred as Jinmo) is a company designing and producing packages and
commercial brochures KH contracts with Jinmo to design and produce packages for its products including the
packing boxes gift boxes commercial brochures plastic packages and so on
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch) (hereafter referred as Anzhi) is a
company providing delivering services KH has got the franchise from Anzhi to set up an express delivery station
in its own company to distribute its products at a low cost
China Post Shidian Town Branch
China Post is a state-owned company providing posting and delivering services It owns an online shopping
platform ndash ulecom with a huge customer base KH promotes and sells its products on ulecom
20
66 Permit and License
Business License
(Duplicate copy) Uniform Social Credit Code 9153052106555747L a) Company Name Shidian Kanghong Agricultural Technology Development Co Ltd b) Type of Company Limited liability company (Foreign Enterprise Legal Person Sole Proprietorship) c) Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province China d) Legal Representative Yan Su e) Registered Capital RMB 2 million f) Date of Establishment January 24th 2013 g) Operating Period January 24th 2013 to January 24th 2043 h) Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily groceries
and building materials Import and export trading (Projects needed to be approved under the laws can be operated after approved by relevant departments)
Issued by Bureau of Market Supervision and Administration of Shidian County on August 14th 2018
21
Food Business Operation License
(Duplicate Copy)
a) Operator Name Shidian Kanghong
Agricultural Technology Development
Co Ltd
b) Social Credit Code (Identity Card
Number) 9153052106555747L
c) Legal representative (Person in
Charge) Yan Su
d) Address No23 Group 2 Jiucheng
Community Jiucheng County Shidian
Town Baoshan City Yunnan Province
e) Operation Address
Zhaojia Village Huaxing Community
Youwang County Shidian Town
Baoshan City Yunnan Province
f) Main Body Type
Food Business Operator
g) Food Type
Sales of pre-packaged food (exclude
frozen food) sales of bulk food (exclude
frozen food)
Valid until July 24th 2021
Description
1 Food Business Operation License is the legitimate certificate of the permit for food business
that an operator gets
2 The License has original and duplicate copies which have the same legal effect The
original License should be hung or placed on a prominent position at the operating site
3 The License must not be forged modified resold leased lent or transferred in any other
illegal forms
4 The operator should carry out business within the approved scope
5 The operator should accept the supervision and management of the Food and Drug
Supervision and Administration Department
6 The operator should apply to change the License when the permitted items are changed
7 The operator should timely apply for an extension at the former department in 30 working
days before the License expires
h) License Number JY15305210013112
i) Daily Supervision Management Organization Market Supervision
Administration Bureau of Youwang County
j) Daily Supervisors Shaode Duan Shaoming Qian
k) Complain Call12331
l) License Issuing Authority Market Supervision Administration Bureau of Shidian
County
m) Issuer Shaoming Qian
July 25th 2018
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
19
65 Business Partners
KH has established partnerships with the following institutes and companies to develop or produce products
bull Kunming Edible Fungi Research Institute
bull Yunnan Yunjun Technology (Group) Co Ltd
bull Lijiang Zhongyuan Green Food Co Ltd
bull Longyang Yongda Food Product Processing Factory
bull Kunming Jinmo Trade Co Ltd
bull Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
bull China Post Shidian Town Branch
Kunming Edible Fungi Research Institute
Kunming Edible Fungi Research Institute (hereafter referred as KM Institute) is a professional agent researching
and studying edible fungi and developing fungal products KM Institute provides professional guidance on
technology to KH and develops deep-processed fungal products according to KHrsquos requirement while KH is
responsible for market analysis and research funds
Yunnan Yunjun Technology (Group) Co Ltd
Yunnan Yunjun Technology (Group) Co Ltd (hereafter referred as Yunjun) is a company researching developing
and processing fungal products Yunjun provides technical support and professional training to KH and cooperates
with KH to develop fungal products while KH is responsible for market analysis product promotion research
equipment research materials and research funds
Lijiang Zhongyuan Green Food Co Ltd
Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as Zhongyuan) is a company processing and selling
fungal products and agricultural products KH provides black fungi to Zhongyuan and contracts with Zhongyuan
to process Black Fungus Essence Powder
Longyang Yongda Food Product Processing Factory
Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) is a company processing
agricultural products and food products KH provides black fungi to Yongda and contracts with Yongda to process
Black Fungus Noodles
Kunming Jinmo Trade Co Ltd
Kunming Jinmo Trade Co Ltd (hereafter referred as Jinmo) is a company designing and producing packages and
commercial brochures KH contracts with Jinmo to design and produce packages for its products including the
packing boxes gift boxes commercial brochures plastic packages and so on
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch)
Yunnan Anzhi Express Co Ltd (Gto Express Company Yunnan Branch) (hereafter referred as Anzhi) is a
company providing delivering services KH has got the franchise from Anzhi to set up an express delivery station
in its own company to distribute its products at a low cost
China Post Shidian Town Branch
China Post is a state-owned company providing posting and delivering services It owns an online shopping
platform ndash ulecom with a huge customer base KH promotes and sells its products on ulecom
20
66 Permit and License
Business License
(Duplicate copy) Uniform Social Credit Code 9153052106555747L a) Company Name Shidian Kanghong Agricultural Technology Development Co Ltd b) Type of Company Limited liability company (Foreign Enterprise Legal Person Sole Proprietorship) c) Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province China d) Legal Representative Yan Su e) Registered Capital RMB 2 million f) Date of Establishment January 24th 2013 g) Operating Period January 24th 2013 to January 24th 2043 h) Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily groceries
and building materials Import and export trading (Projects needed to be approved under the laws can be operated after approved by relevant departments)
Issued by Bureau of Market Supervision and Administration of Shidian County on August 14th 2018
21
Food Business Operation License
(Duplicate Copy)
a) Operator Name Shidian Kanghong
Agricultural Technology Development
Co Ltd
b) Social Credit Code (Identity Card
Number) 9153052106555747L
c) Legal representative (Person in
Charge) Yan Su
d) Address No23 Group 2 Jiucheng
Community Jiucheng County Shidian
Town Baoshan City Yunnan Province
e) Operation Address
Zhaojia Village Huaxing Community
Youwang County Shidian Town
Baoshan City Yunnan Province
f) Main Body Type
Food Business Operator
g) Food Type
Sales of pre-packaged food (exclude
frozen food) sales of bulk food (exclude
frozen food)
Valid until July 24th 2021
Description
1 Food Business Operation License is the legitimate certificate of the permit for food business
that an operator gets
2 The License has original and duplicate copies which have the same legal effect The
original License should be hung or placed on a prominent position at the operating site
3 The License must not be forged modified resold leased lent or transferred in any other
illegal forms
4 The operator should carry out business within the approved scope
5 The operator should accept the supervision and management of the Food and Drug
Supervision and Administration Department
6 The operator should apply to change the License when the permitted items are changed
7 The operator should timely apply for an extension at the former department in 30 working
days before the License expires
h) License Number JY15305210013112
i) Daily Supervision Management Organization Market Supervision
Administration Bureau of Youwang County
j) Daily Supervisors Shaode Duan Shaoming Qian
k) Complain Call12331
l) License Issuing Authority Market Supervision Administration Bureau of Shidian
County
m) Issuer Shaoming Qian
July 25th 2018
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
20
66 Permit and License
Business License
(Duplicate copy) Uniform Social Credit Code 9153052106555747L a) Company Name Shidian Kanghong Agricultural Technology Development Co Ltd b) Type of Company Limited liability company (Foreign Enterprise Legal Person Sole Proprietorship) c) Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province China d) Legal Representative Yan Su e) Registered Capital RMB 2 million f) Date of Establishment January 24th 2013 g) Operating Period January 24th 2013 to January 24th 2043 h) Business Scope Planting primary processing and sales of edible fungi and agricultural products Sales of daily groceries
and building materials Import and export trading (Projects needed to be approved under the laws can be operated after approved by relevant departments)
Issued by Bureau of Market Supervision and Administration of Shidian County on August 14th 2018
21
Food Business Operation License
(Duplicate Copy)
a) Operator Name Shidian Kanghong
Agricultural Technology Development
Co Ltd
b) Social Credit Code (Identity Card
Number) 9153052106555747L
c) Legal representative (Person in
Charge) Yan Su
d) Address No23 Group 2 Jiucheng
Community Jiucheng County Shidian
Town Baoshan City Yunnan Province
e) Operation Address
Zhaojia Village Huaxing Community
Youwang County Shidian Town
Baoshan City Yunnan Province
f) Main Body Type
Food Business Operator
g) Food Type
Sales of pre-packaged food (exclude
frozen food) sales of bulk food (exclude
frozen food)
Valid until July 24th 2021
Description
1 Food Business Operation License is the legitimate certificate of the permit for food business
that an operator gets
2 The License has original and duplicate copies which have the same legal effect The
original License should be hung or placed on a prominent position at the operating site
3 The License must not be forged modified resold leased lent or transferred in any other
illegal forms
4 The operator should carry out business within the approved scope
5 The operator should accept the supervision and management of the Food and Drug
Supervision and Administration Department
6 The operator should apply to change the License when the permitted items are changed
7 The operator should timely apply for an extension at the former department in 30 working
days before the License expires
h) License Number JY15305210013112
i) Daily Supervision Management Organization Market Supervision
Administration Bureau of Youwang County
j) Daily Supervisors Shaode Duan Shaoming Qian
k) Complain Call12331
l) License Issuing Authority Market Supervision Administration Bureau of Shidian
County
m) Issuer Shaoming Qian
July 25th 2018
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
21
Food Business Operation License
(Duplicate Copy)
a) Operator Name Shidian Kanghong
Agricultural Technology Development
Co Ltd
b) Social Credit Code (Identity Card
Number) 9153052106555747L
c) Legal representative (Person in
Charge) Yan Su
d) Address No23 Group 2 Jiucheng
Community Jiucheng County Shidian
Town Baoshan City Yunnan Province
e) Operation Address
Zhaojia Village Huaxing Community
Youwang County Shidian Town
Baoshan City Yunnan Province
f) Main Body Type
Food Business Operator
g) Food Type
Sales of pre-packaged food (exclude
frozen food) sales of bulk food (exclude
frozen food)
Valid until July 24th 2021
Description
1 Food Business Operation License is the legitimate certificate of the permit for food business
that an operator gets
2 The License has original and duplicate copies which have the same legal effect The
original License should be hung or placed on a prominent position at the operating site
3 The License must not be forged modified resold leased lent or transferred in any other
illegal forms
4 The operator should carry out business within the approved scope
5 The operator should accept the supervision and management of the Food and Drug
Supervision and Administration Department
6 The operator should apply to change the License when the permitted items are changed
7 The operator should timely apply for an extension at the former department in 30 working
days before the License expires
h) License Number JY15305210013112
i) Daily Supervision Management Organization Market Supervision
Administration Bureau of Youwang County
j) Daily Supervisors Shaode Duan Shaoming Qian
k) Complain Call12331
l) License Issuing Authority Market Supervision Administration Bureau of Shidian
County
m) Issuer Shaoming Qian
July 25th 2018
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
22
67 Related Parties
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
Yunnan Erguan Biotechnology Co Ltd
Yunnan Erguan Biotechnology Co Ltd is the subsidiary company of KH Mr Xincheng Wang the Executive
Director of the Company is the shareholder and general manager of this company Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Yunnan Erguan Biotechnology Co Ltd
Uniform Social Credit Code 91530102MA6N79511C
Type of Company Other Limited Liability Company
Address No 102-507 Block 1 Jinding Technology Area No 690 Xuefu Road Wuhua District Kunming City
Yunnan Province
Legal Representative Jianneng He
Registered Capital RMB 1 Million
Date of Establishment May 30th 2018
Operating Period May 30th 2018 to non-limited date
Business Scope Research and development application and technological consulting of biotechnology and
agricultural technology domestic trading goods distributing online selling goods and technology import and
export (excluding goods and technologies prohibited to be imported exported or operated by the State) (Projects
needed to be approved under the laws can be operated after approved by the relevant departments)
Although Yunnan Erguan Biotechnology Co Ltd has partly overlapping business scope with KH 90 of its
shares are held by KH and its operation is under KHrsquos management Therefore these two companies are not in
competition
Yunnan Fatty Su Trading Co Ltd
Yunnan Fatty Su Trading Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the Executive Director
of the Company is the director of this company
Company Name Yunnan Fatty Su Trading Co Ltd
Uniform Social Credit Code 91530521MA6KWUTE13
Type of Company Limited Liability Company (Natural investment or holding)
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Shunli Zeng
Registered Capital RMB 1 Million
Date of Establishment August 3rd 2017
Operating Period August 3rd 2017 to non-limited date
Business Scope Planting processing and selling edible fungi tea coffee wholesale and retail of food healthcare
food nutrient supplements agriculture products cosmetics groceries construction materials machineries and
electronic products export and import trading company management and technological services consulting
courtesy services public relation planning (Projects needed to be approved under the laws can be operated after
approved by the relevant departments)
Although Yunnan Fatty Su Trading Co Ltd has partly overlapping business scope with KH 90 of its shares are
held by KH and its operation is under KHrsquos management Therefore these two companies are not in competition
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
23
Baoshan Yaotong Agricultural Development Co Ltd
Baoshan Yaotong Agricultural Development Co Ltd is the subsidiary company of KH Ms Chun Wang the
Executive Director of the Company is the legal representative shareholder and director of this company Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Baoshan Yaotong Agricultural Development Co Ltd
Uniform Social Credit Code 91530502MA6KGH3L0X
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1302 Block 5 Baolong Longtingyuan West side north part of Yongchang Road Longyang Distirct
Baoshan City Yunnan Province
Legal Representative Chun Wang
Registered Capital RMB 1 Million
Date of Establishment April 11th 2017
Operating Period April 11th 2017 to April 10th 2037
Business Scope Planting processing and selling agricultural products and edible fungi Sales of groceries
construction materials (excluding metal materials) (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Baoshan Yaotong Agricultural Development Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
Honghe Kanghong Agricultural Technology Co Ltd
Honghe Kanghong Agricultural Technology Co Ltd is the subsidiary company of KH Mr Guangbiao Wu the
Executive Director of the Company is the director of this company
Company Name Honghe Kanghong Agricultural Technology Co Ltd
Uniform Social Credit Code 91532523MA6KCBKGXA
Type of Company Limited Liability Company (Natural investment or holding)
Address Tangxiang New District Pinbian Miao Autonomous County Honghe Hani and Yi Autonomous
Prefecture Yunnan Province
Legal Representative Tianliang Zhou
Registered Capital RMB 1 Million
Date of Establishment March 1st 2017
Operating Period March 1st 2017 to February 28th 2037
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Although Honghe Kanghong Agricultural Technology Co Ltd has partly overlapping business scope with KH
90 of its shares are held by KH and its operation is under KHrsquos management Therefore these two companies are
not in competition
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
24
Lincang Kanghong Agricultural Technology Development Co Ltd
Lincang Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr
Guangbiao Wu the Executive Director of the Company is the director of this company
Company Name Lincang Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530924MA6K9LTB7W
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Jingdianruncheng Guangshan Road Nansan Town Zhenkang County Lincang City Yunnan
Province
Legal Representative Biyuan Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period December 30th 2016 to non-limited date
Business Scope Planting processing and selling edible fungi Research and development of edible fungi planting
technology Technical exchange and training services Purchasing and selling edible fungi and agricultural
products Sales of edible fungi equipment utensils metal materials groceries construction materials home
appliance Goods and technologies export and import (excluding goods and technologies that the State prohibits to
import or export or that can only be operated by limited companies) (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Although Lincang Kanghong Agricultural Technology Development Co Ltd has partly overlapping business
scope with KH 90 of its shares are held by KH and its operation is under KHrsquos management Therefore these
two companies are not in competition
Puer Kanghong Agricultural Technology Development Co Ltd
Puer Kanghong Agricultural Technology Development Co Ltd is the subsidiary company of KH Mr Yan Su
the Chairman of the Board of the Company is the Chairman of this company Mr Guangbiao Wu the Executive
Director of the Company is the director of this company
Company Name Puer Kanghong Agricultural Technology Development Co Ltd
Uniform Social Credit Code 91530826MA6K52FQ7J
Type of Company Limited Liability Company (Natural investment or holding)
Address No111 Laobaizhai Luojie Village Guoqing County Jiangcheng Hani and Yi Autonomous County Puer
City Yunnan Province
Legal Representative Shaolin Duan
Registered Capital RMB 1 Million
Date of Establishment December 30th 2016
Operating Period March 18th 2016 to March 17th 2046
Business Scope Planting pre-processing and selling agricultural products and edible fungi Sales of groceries
construction materials Import and export trading (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Although Puer Kanghong Agricultural Technology Development Co Ltd has partly overlapping business scope
with KH 70 of its shares are held by KH and its operation is under KHrsquos management Therefore these two
companies are not in competition
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
25
Shidian Haihang Agriculture Planting Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the legal representative of this cooperative
Company Name Shidian Haihang Agriculture Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K5C2D5H
Type of Company Farmer Cooperative
Address Jiaochangba Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Yan Su
Membersrsquo Capital RMB 26 Million
Date of Establishment December 12th 2014
Business Scope Helping members to carry out business activities coordinating the supply and sales among
members providing pre-production during-production and post-production services coordinating and guiding
brand promotion activities technical services products sales and so on (Projects needed to be approved under the
laws can be operated after approved by the relevant departments)
Shidian Haihang Agriculture Planting Professional Cooperative does not have overlapping business scope with KH
and its operation is actually beneficial to KH Therefore these two companies are not in competition
Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Mr Yan Su the Chairman of the Board of the Company is the director of this cooperative
Company Name Shidian Wanfeng Agricultural Machinery Service Professional Cooperative
Uniform Social Credit Code 9353052159711320XE
Type of Company Farmer Cooperative
Address Sujia Village Renhe Town Shidian County Baoshan City Yunnan Province
Legal Representative Yingbao Li
Membersrsquo Capital RMB 309 Million
Date of Establishment May 22nd 2012
Business Scope Providing agricultural machinery to agricultural production carrying out technical training
exchange and consulting services planting agricultural products organizing to purchase and sell products produced
by the members (Projects needed to be approved under the laws can be operated after approved by the relevant
departments)
Although Shidian Wanfeng Agricultural Machinery Service Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on agricultural machinery services and its operation is actually beneficial
to KH Therefore these two companies are not in competition
Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Mr Guangbiao Wu the Executive Director of the Company is the director of this cooperative Mr Zongren Li the
Vice Present of the Company is the legal representative and director of this cooperative Ms Ping Zhang the Chief
Administrative Officer of the Company is the director of this cooperative
Company Name Baoshan Kanghong Agricultural Products Planting Professional Cooperative
Uniform Social Credit Code 93530521064284030T
Type of Company Farmer Cooperative
Address Huaxing Industrial Area Youwang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
26
Membersrsquo Capital RMB 241 Million
Date of Establishment April 1st 2013
Business Scope Organizing members to plant vegetables and fruits packing agricultural products purchasing and
selling products of members organizing to purchase and supply fertilizers to members introducing new
technologies new species and carrying out technical training technology exchange and consulting services related
to agricultural production (Projects needed to be approved under the laws can be operated after approved by the
relevant departments)
Although Baoshan Kanghong Agricultural Products Planting Professional Cooperative has partly overlapping
business scope with KH it mainly focuses on organizing members and its operation is actually beneficial to KH
Therefore these two companies are not in competition
Shidian Fuqun Black Fungus Planting Professional Cooperative
Mr Zongren Li the Vice Present of the Company is the legal representative and director of this cooperative
Company Name Shidian Fuqun Black Fungus Planting Professional Cooperative
Uniform Social Credit Code 93530521MA6K68EY8B
Type of Company Farmer Cooperative
Address Yanzijiao Longtang Group Meiziqing Jiufang Town Shidian County Baoshan City Yunnan Province
Legal Representative Zongren Li
Membersrsquo Capital RMB 135 Million
Date of Establishment May 23rd 2016
Business Scope Organizing members to plant and sell black fungi (Projects needed to be approved under the laws
can be operated after approved by the relevant departments)
Although Shidian Fuqun Black Fungus Planting Professional Cooperative has partly overlapping business scope
with KH it mainly focuses on organizing members and its operation is actually beneficial to KH Therefore these
two companies are not in competition
Yunnan Yibu Science and Technology Co Ltd
Ms Chun Wang the Executive Director of the Company is the shareholder and director of this company
Company Name Yunnan Yibu Science and Technology Co Ltd
Uniform Social Credit Code 91530102688590650K
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1-1705 17th Floor Block B Xiaochenggushi No 250 North Huancheng Road Panlong District
Kunming City Yunnan Province
Legal Representative Xingwen Yang
Registered Capital RMB 1 Million
Date of Establishment June 10th 2009
Operating Period June 10th 2009 to June 9th 2019
Business Scope Development application and technical consulting of computer software and hardware sales of
computer appliances electronic products and groceries (Projects needed to be approved under the laws can be
operated after approved by the relevant departments)
Yunnan Yibu Science and Technology Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
27
Shidian Zhuzhule Pig Farm
Ms Ping Zhang the Chief Administrative Officer of the Company is the legal representative shareholder and
director of this farm
Company Name Shidian Zhuzhule Pig Farm
Uniform Social Credit Code 91530521MA6K54J48Q
Type of Company Individual Holding Company
Address Shazipo Group Wanxing Village Wanxing Town Shidian County Baoshan City Yunnan Province
Legal Representative Ping Zhang
Date of Establishment March 22nd 2016
Business Scope Breeding and selling pigs selling groceries and construction materials (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Shidian Zhuzhule Pig Farm does not have overlapping business scope with KH and therefore these two companies
are not in competition
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Ms Yiyun Chen the Chief Financial Officer of the Company is the shareholder of this company
Company Name Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd
Uniform Social Credit Code 91532526MA6K73L49G
Type of Company Limited Liability Company (Natural investment or holding)
Address No 344 (2nd Floor) Tuobai Village Putian Community Miyang County Mile City Honghe Hani and Yi
Autonomous Prefecture Yunnan Province
Legal Representative Yongjian Huang
Registered Capital RMB 8 Million
Date of Establishment July 26th 2016
Operating Period July 26th 2016 to July 25th 2036
Business Scope Fire prevention facility project Designing installing and maintaining of intellectualized building
project and mechanical and electrical facilities (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
Honghe Tianyu Fire Prevention and Safety Technology Engineering Co Ltd does not have overlapping business
scope with KH and therefore these two companies are not in competition
Yunnan Daoji Equity Investment and Fund Management Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the legal representative shareholder
director and general manager of this company
Company Name Yunnan Daoji Equity Investment and Fund Management Co Ltd
Uniform Social Credit Code 9153010308041232X0
Type of Company Limited Liability Company (Natural investment or holding)
Address No 1912 Block B Shishangjiayuan Panlong District Kunming City Yunnan Province
Legal Representative Jie Ma
Registered Capital RMB 5 Million
Date of Establishment October 21st 2013
Operating Period October 21st 2013 to October 20th 2023
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
28
Business Scope Setting up equity investment companies raising equity investment fund being entrusted to manage
equity investment fund being engaged in financial management and relevant consulting services and other
business that are approved or allowed by register department (Projects needed to be approved under the laws can
be operated after approved by the relevant departments)
Yunnan Daoji Equity Investment and Fund Management Co Ltd does not have overlapping business scope with
KH and therefore these two companies are not in competition
Kunming Miaoyou Financial Consulting Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the shareholder and director of this
company
Company Name Kunming Miaoyou Financial Consulting Co Ltd
Uniform Social Credit Code 9153010367362036X7
Type of Company Limited Liability Company (Natural investment or holding)
Address No 501 Unit 2 Block 3 Area A Yitai Jinse Avenue Panlong District Kunming City Yunnan Province
Legal Representative Ruihan Yan
Registered Capital RMB 100 Thousand
Date of Establishment April 21st 2008
Operating Period April 21st 2008 to non-limited date
Business Scope Bookkeeping (business should be operated within the scope defined by certificates and licenses)
economic information consulting (1 Without the approval of relevant departments fund shall not be raised
publicly 2 Deals about securities products and financial products shall not be carried out publicly 3 Loan shall
not be released 4 The company shall not guarantee for other companies except the invested companies 5 The
company shall not promise investors a loss-free investment or the minimum income) (Projects needed to be
approved under the laws can be operated after approved by the relevant departments)
Kunming Miaoyou Financial Consulting Co Ltd does not have overlapping business scope with KH and therefore
these two companies are not in competition
Kunming Huaxin Civil Financing and Registering Services Co Ltd
Mr Jie Ma the Independent Non-Executive Director of the Company is the director of this company
Company Name Kunming Huaxin Civil Financing and Registering Services Co Ltd
Uniform Social Credit Code 915301003162614859
Type of Company Limited Liability Company (Natural investment or holding)
Address No C09 Block 1C Tianyuhuayan Putao Street Wanhua Road Panlong District Kunming City Yunnan
Province
Legal Representative Lyu Zhao
Registered Capital RMB 5 Million
Date of Establishment September 16th 2014
Operating Period September 16th 2014 to September 16th 2024
Business Scope Registering publishing investment and finance information Connecting civil investors and parties
that has financial requirements like small and medium enterprises individual merchants and so on Financial
intermediary services providing business consulting financing planning supervision and so on equity transfer
intermediary services financial consulting services (Projects needed to be approved under the laws can be operated
after approved by the relevant departments)
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
29
Kunming Huaxin Civil Financing and Registering Services Co Ltd does not have overlapping business scope
with KH and therefore these two companies are not in competition
68 Main Competitors
Information below is provided by China National Enterprise Credit Information Publicity System and updated by
wwwqichachacom (Updated by September 7th 2018)
KHrsquos main competitors are listed below
Heilongjiang Beiwei Fungus Technology Group Co Ltd
Company Name Heilongjiang Beiwei Fungus Technology Group Co Ltd
Uniform Social Credit Code 91231000669045331C
Type of Company Other Limited Liability Company (Unlisted)
Address No 01 First Floor Community 1 North Xinhua Hailin City Heilongjiang Province
Legal Representative Zhenhua Qi
Registered Capital RMB 13856 Million
Date of Establishment March 11th 2008
Operating Period March 11th 2008 to March 10th 2028
Business Scope Processing and selling other aquatic products (seasoning fish products) other food products [grain
products (packed) ground grain products (packed) rice (packed) pastry (bakery mooncakes)] vegetable product
[edible fungus products (dried edible fungi seasoning edible fungi) pickle] candy products (candy) dried fruit
soya sauce purchasing fungi and vegetables goods export and import food whole-sale and retail producing and
selling beverage starch and starch products starch (packed)
Heilongjiang Weiduobao Food Co Ltd
Company Name Heilongjiang Weiduobao Food Co Ltd
Uniform Social Credit Code 91231081X06392201W
Type of Company Limited Liability Company (Unlisted Natural investment or holding)
Address No 200 Yingxin Street Suifenhe City Mudanjiang City Heilongjiang Province
Legal Representative Shaoli Yang
Registered Capital RMB 24 Million
Date of Establishment February 26th 1997
Operating Period February 26th 1997 to non-limited date
Business Scope Sales of food products seasonings tea and tea products vegetable products fruit products fried
food and nut products aquatic products and bean products (the aforementioned items can be operated after the
permit is achieved) Planting and selling edible fungi Socioeconomic information consulting selling pre-processed
agricultural products Goods export and import technology export and import carrying out export and import
business by the means of small amount deals with neighboring countries and areas (excluding goods and
technologies that are limited or prohibited to export or import by the State)
Heilongjiang Beidahuang Land Reclamation Group Corporation
Company Name Heilongjiang Beidahuang Land Reclamation Group Corporation
Uniform Social Credit Code 9123300071107724XC
Type of Company Ownership by the Whole People
Address No 8 Qianshan Road Nangang District Harbin Heilongjiang Province
Legal Representative Shoucong Wang
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
30
Registered Capital RMB 10215 Billion
Date of Establishment April 10th 1994
Operating Period April 10th 1994 to non-limited date
Business Scope Agriculture forestry animal husbandry fishery mining production processing transportation
construction engineering real estate development material supply and marketing warehousing finance and
insurance culture education and health social services contracting overseas agricultural engineering and
international bidding projects at home export of equipment and materials needed for the above overseas projects
sending labor needed for agricultural industries to the foreign countries exhibition wholesale import and export
of cereals beans and potatoes wholesale import and export of rice flour products and cooking oil
These three companies are very competitive in the edible fungus industry for their great production capabilities
good brand reputations and wide product ranges However KH has several advantages that set it apart from these
competitors and make it a more desirable choice to potential customers
Competitive Advantages
I Good Reputation with Official Recognitions
KH is the leading company in the edible fungus industry of Yunnan Province and has achieved several important
recognitions and awards KH was identified as a ldquoScientific amp Technological Small amp Medium Enterprise of
Yunnan Provincerdquo by Yunnan Provincial Science and Technology Department in 2014 and was named as ldquothe
Leading Industrial Enterprise of Baoshan Cityrdquo by Baoshan Industrial Agriculture Development Team in 2015 The
plant base of KH has also been identified as a ldquoDemonstration Baserdquo by municipal and provincial departments and
has been used as the research center for experts from Chinese Academy of Sciences and Yunnan Province These
titles and awards have made KH a more trustworthy company
II Strong Product Development Capability
KH has worked with professional institutes and companies to develop products that can satisfy different customersrsquo
needs KH also has several innovative products that have no competitiors in the market for now for example Black
Fungus Essence Powder and Black Fungus Noodle KH is also developing more unique products such as Black
Fungus Tablet so as to broaden its product range and enhance its competitiveness
III Advantageous Geographic Location
KH is located in Shidian Town Yunnan Province Shidian Town lies at the southern part of Hengduan Mountains
next to Nujiang River The favorable climate and abundant natural resources including forests and water make
Shidian a perfect place to grow fungi Also Yunnan has historically been an strategically important place in Asia
connecting China and South Asia which provides possibilities for KH to expand its business overseas
IV Well-built Logistics System
KH has set up its own logistics services through cooperating with Yunnan Anzhi Express Co Ltd which has access
to the logistics system of Gto Express a nation-wide delivery company This has greatly expedited the delivery of
products from KH to its distributors as well as to the end consumers Therefore KH will gradually expand its
business out of Yunnan Province and become a well-known brand in China
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
31
7 Company Advantages and Investment Highlights
71 Strong Market Demand
Chinese people have a long history of eating black fungi and therefore there is a strong demand in the market
According to the statistics from China Edible Fungi Association the business volume of black fungi rose from 111
million tons in 2007 to 680 million tons in 2016 With Chinese food culture being introduced to other countries
the consumption of black fungi in the overseas market has also increased KH is well positioned to tap this strong
market demand
72 Wide Product Offerings
In the market most of the black fungi are sold as dried black fungi However KH has cooperated with several
institutes and companies to develop various black fungi products in order to enrich the product offerings and
provide more options to customers In addition black fungus is not merely a kind of food but also has medicinal
values KH is researching on developing more products of black fungi to widen its product range and therefore
staying competitive in the market
73 Great Brand Reputation
Most black fungi in the market do not have any brand and many companies that process and sell black fungi are
not aware of the importance of brand reputation However KH has attached great importance to its brand
establishment KHrsquos brand ldquoFatty Surdquo has achieved a great reputation due to the satisfying product quality wide
product range and multitiered brand promotion KH hopes when customers consider buying black fungi products
they will think of ldquoFatty Surdquo when they see ldquoFatty Surdquo they will think of quality black fungi products Building
upon the good brand reputation KH aims to take a bigger market share and attract more customers
74 Promising Expansion Plan
By the end of 2017 KH had 340 contracted growers with 867000 m2 planting area yielding 845 tons of black fungi
per year KH plans to set up cooperatives in more villages and recruit more growers to expand its business scale
and KH is actively negotiating with local governments According to KHrsquos plan the number of contracted growers
will gradually grow to 1000 by the end of 2020 with 2400000 m2 planting area yielding 2340 tons of black fungi
per year Such a great yield will ensure KH could have enough materials to develop more processed products which
will bring more revenues and profits
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
32
8 Directors and Senior Management
Directors
Name Position
Mr Yan Su Chairman of Board of Directors
Mr Xincheng Wang Executive Director
Ms Chun Wang Executive Director
Mr Guangbiao Wu Executive Director
Mr Jie Ma Independent Non-Executive Director
Mr Guanshi Gao Independent Non-Executive Director
Mr Yan Su Chairman of Board of Directors
Mr Yan Su is the Chairman of Board of Directors of the Company Mr Su graduated
from the Open University of China majoring in Administrative Management He worked
as the manager in the Peoplersquos Insurance Company of China Limited from 2008 to 2012
Then he founded KH with his partners in 2013 In 2017 Mr Su was selected as the
representative of the 4th National Peoplersquos Congress of Baoshan City and joined the 9th
Shidian Town Committee of the Chinese Peoplersquos Political Consultative Conference In
the same year Mr Su was also employed by Yunnan Province Edible Fungi Association
as the vice-president Mr Su is good at company management and development planning
Mr Xincheng Wang Executive Director
Mr Xincheng Wang is the Executive Director of the Company Mr Wang has over 30
yearsrsquo work experience He has worked in various companies in Beijing and Yunnan and
gained rich experience in purchasing sales manufacturing management public
relationship maintenance and company management In 2008 Mr Wang finished
Executive Master of Business Administration in Tsinghua University In 2018 Mr Wang
joined KH and took the duty of Chief Executive Officer responsible for overall
management
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
33
Ms Chun Wang Executive Director
Ms Chun Wang is the Executive Director of the Company Ms Wang graduated from
Beijing Institute of Technology majoring in Chemical Engineering and Technology Ms
Wang has over 15 years of experience in administrative work company management staff
training and client relationship maintenance In 2017 she joined Baoshan Yaotong
Agricultural Development Co Ltd the subsidiary of KH responsible for overall
management and strategy planning In 2018 Ms Wang was promoted to be the Chief
Operating Officer of KH
Mr Guangbiao Wu Executive Director
Mr Guangbiao Wu is the Executive Director of the Company Mr Wu graduated from
Yunnan Trade and Economics School studying Processing and Marketing of Edible Fungi
After graduation he worked as the assistant agronomist in Kunming Edible Fungi
Research Institute for 5 years responsible for developing planting and promoting new
fungi species managing planting base and studying wild fungi species In 2014 he worked
as Technology Director in KH responsible for managing and leading the technology team
training staff and farmers Mr Wu holds the Intermediate Edible Fungi Professional
Qualification Certificate Advanced Fungi Gardener Certificate Professional Farmer
Training Certificate and Food Security Director Training Certificate
Mr Jie Ma Independent Non-Executive Director
Mr Jie Ma is the Independent Non-Executive Director of the Company Mr Ma graduated
from Kunming University of Science and Technology majoring in Mechanical
Manufacturing After graduation he worked as business manager customer manager
accountant director and bank director in the Bank of China Kunming Nanyao Branch for
12 years Then he entered the field of investment in 2003 and worked as general manager
investment consultant in several companies Mr Ma has rich experience in investment
bank business and company management also holds a Certificate of Accounting
Professional
Mr Guanshi Gao Independent Non-Executive Director
Mr Guanshi Gao is the Independent Non-Executive Director of the Company Mr Gao
graduated from Sichuan University majoring in Organic Chemistry After graduation
Mr Gao worked as a researcher in Kunming Edible Fungi Research Institute and then
Yunnan Supply and Marketing Cooperatives Science Institute for 36 years responsible
for studying fungi extracting processing and analyzing functional chemicals in fungi Mr
Gao has hosted 8 national and provincial science and research projects taken part in over
10 science and research projects published over 20 research papers and holds 6 certified
patents He is also the member of Expert Committee of Yunnan Edible Fungi Association
and technology consultant for over 10 companies Mr Gao is able to provide valuable
suggestions to the Company
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
34
Senior Management
Name Position
Mr Xincheng Wang Chief Executive Officer CEO
Mr Zongren Li Vice President
Ms Ping Zhang Chief Administrative Officer CAO
Ms Yiyun Chen Chief Financial Officer CFO
the Board Secretary
Ms Chun Wang Chief Operating Officer COO
Mr Xincheng Wang Chief Executive Officer
Mr Xincheng Wang is the Chief Executive Officer of the Company Mr Wang worked as
the sales manager in Beijing Building Materials Factory from 1985 to 1991 then worked
as the vice general manager in Beijing Fengtai Overseas Trading Company from 1992 to
1993 responsible for sales management After that Mr Wang worked as a free trader for
12 years Then he joined Yunnan Wanjiahuan Group Limited responsible for public
relationship maintenance in which he gained rich experience in contacting government
banks and other departments In the January of 2018 Mr Wang joined KH With versatile
skills and rich experience Mr Wang is best-positioned to lead the Company go further
Mr Zongren Li Vice President
Mr Zongren Li is the Vice President of the Company Mr Li graduated from Kunming
University of Science and Technology majoring in Metallurgy After graduation he
worked as the chief of section in Yunnan Yunlvrunxin Aluminum Industry Co Ltd
responsible for manufacturing management In 2016 he joined KH and took the duty of
vice president responsible for overall management
Ms Ping Zhang Chief Administrative Officer
Ms Ping Zhang is the Chief Administrative Officer of the Company Ms Zhang graduated
from Yunnan Normal University majoring in Security Investment After graduation she
worked as the pension manager in the government of Wanxing Village Shidian Town
Baoshan City Yunnan Province for 5 years In 2013 Ms Zhang joined KH and worked as
the chairwoman of the labor union and administrative officer responsible for hosting
activities in the labor union maintaining the relationship with the government and
administrative work
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
35
Ms Yiyun Chen Chief Financial Officer the Board Secretary
Ms Yiyun Chen is the Chief Financial Officer and the Board Secretary of the Company
Ms Chen graduated from Yunnan University of Finance and Economics majoring in
Finance Ms Chen has over 20 years of experience in finance and has worked as CFO for
several companies Ms Chen is the Certified Internal Auditor Certified Public Accountant
and Certified Project Data Analyst She also holds the certificate of Senior Accountant and
Senior Credit Risk Manager With rich experience and certified qualifications Ms Chen
is able to manage the financial issues of the Company With great communication skills
and wide connections Ms Chen is also able to deal with secretary work
Ms Chun Wang Chief Operating Officer
Ms Chun Wang is the Chief Operating Officer of the Company After graduation she
worked as the manager assistant in Beijing Yongyou Software Co Ltd Yunnan Branch
for 4 years responsible for administrative work Then she worked as vice general manager
in Yunnan Langchao Software Co Ltd for 6 years responsible for client relationship
maintenance After that she worked as manager in Peoplersquos Insurance Company of China
Limited for 3 years With rich experience and well-built connections Ms Wang is able to
manage the Companyrsquos operation very well
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
36
9 Financial Statements
Auditorrsquos Report
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
61
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
62
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
63
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
64
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
65
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
66
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
67
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
68
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
69
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
70
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
71
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
72
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
73
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
74
Three-Year Projection
Summary of Three-Year Projection (in RMB)
Unit Million RMB
2018 2019 2020
Total Liabilities 1276 1820 2405
Net Asset 6719 7205 8171
Total Asset 7995 9025 10576
Asset-liability Ratio 1596 2017 2274
Revenue 3738 6450 10236
Net Profit 344 686 1266
Three-Year Projected Profit Composition (in RMB)
Unit Million RMB
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 384 077 094 210 000 000 765
2019 720 385 753 000 092 051 2001
2020 1008 513 1205 000 154 193 3073
Summary of Three-Year Probjection (in USD)
Unit Million USD
2018 2019 2020
Total Liabilities 187 266 352
Net Asset 982 1053 1194
Total Asset 1169 1319 1546
Asset-liability Ratio 1596 2017 2274
Revenue 546 943 1496
Net Profit 050 100 185
Three-Year Projected Profit Composition (in USD)
Unit Million USD
Profit from
Selected Dried
Black Fungi
Profit from
Black Fungus
Noodle
Profit from Black
Fungus Essence
Powder
Profit from
Ordinary Dried
Black Fungi
Profit from
New
Products
Profit from
Wood Ear
Society
Gross Profit
2018 056 011 014 031 000 000 112
2019 105 056 110 000 014 008 293
2020 148 075 176 000 023 028 450
Note This projection in USD is based on the exchange ratio between USD and RMB on August 2nd 2018 1
US Dollar equals 683 RMB
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
75
Basis for Profit Projection
According to the Auditorrsquos Report the net profit of KH in 2017 is RMB 355 million which is about 194 times of
the net profit in 2016 (RMB 183 million) Due to the fact that the first season is not the harvest time the net profit
of KH in the first season of 2018 is only up to RMB 043 million
Since KH has invested in developing new products expanding the product range and establishing new sales
channels the total net profit in 2018 is projected to stay at the same level as the net profit in 2017 that is RMB 344
million However as more products are introduced to the market the product range becomes wider and the new
sales channels come into use KH will achieve more revenue and therefore the net profit will increase accordingly
It is projected that the net profit will be RMB 686 million in 2019 and RMB 1266 in 2020 and the increase rate
is about 185 and 199 times
KHrsquos profit mainly consists of 6 parts selected dried black fungi black fungus noodle black fungus essence powder
ordinary dried black fungi new products and Wood Ear Society
The selected dried black fungi are better than ordinary dried black fungi in quality and therefore have higher value
and margin which will the bring gross profit of RMB 384 million in 2018 As KH will set up more organic
plantations recruit more growers and therefore expand the planting area the yield of black fungi will increase In
2019 the gross profit brought by selected black fungi is projected to be RMB 72 million and in 2020 it will climb
to RMB 1008 million
Black fungus noodle is projected to bring the profit of RMB 077 million in 2018 With the establishment of ldquoWood
Ear Societyrdquo a restaurant brand that sells black fungus products the sales of Black fungus noodle are believed to
increase sharply in 2019 and 2020 which will bring profit of RMB 385 million in 2019 and RMB 513 million in
2020
Black fungus essence powder is projected to bring the profit of RMB 094 million in 2018 Since this product has
a high margin KH will promote actively in its sales channels The projected profit of this product is RMB 753
million in 2019 and RMB 1205 million in 2020
Ordinary dried black fungi are a traditional product of KH but has low margin It is projected that this product will
bring profit of RMB 210 million in 2018 However since KH is planning to use black fungi to develop and
manufacture more innovative products with higher value and margin the sales of this product will be stopped in
2019 and 2020
In 2018 KH is actively developing more new products like black fungus tablet black fungus drink and black fungus
capsule These products will be promoted actively and will bring actual profits from 2019 The projected profit is
RMB 092 million in 2019 and RMB 154 million in 2020
KH is also actively establishing its chain restaurants ldquoWood Ear Societyrdquo and is expected to gain profit from this
business from 2019 The projected profit is RMB 051 million in 2019 and RMB 193 in 2020
In total the gross profit of KH is projected to be RMB 765 million in 2018 RMB 2001 million in 2019 and RMB
3073 million in 2020 The net profit is projected to be RMB 344 million in 2018 RMB 686 million in 2019 and
RMB 1266 million in 2020
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
76
Market Value
According to the Companys three-year projection the total number of shares will be 100 million each share will
be 040 USD and the total market value of the Company will be 4044 million USD The projection of the market
value of the Company will be described in this section
Methodology
The discounted cash flow method (DCF) is adopted to project the market value DCF is a method that uses the
concept of time value of money to value a project company or assets This method is suitable for the Company
which has great development potential and strong core competitiveness Therefore DCF is the method applied to
project the market value of the Company
Approach
The calculation process of the market value consists of two sections one is the total profit of three years the other
one is the present value of perpetual annuity which equals the profit of product sales and other services The formula
is shown below ldquoPrdquo stands for the present value of perpetual annuity ldquoArdquo stands for the annual return and ldquoirdquo
stands for the interest rate
The present value of perpetual annuity
Analysis
The formula for market value [(Total three-year projected net profit) + P (A i)] RE
Input
Symbol Description Data
F2018 Projected net profit in 2018 RMB 344 million
F2019 Projected net profit in 2019 RMB 686 million
F2020 Projected net profit in 2020 RMB 1266 million
ldquoArdquo For the calculation the profit in 2020 will be
regarded as the annual return for the present
value of perpetual annuity
RMB 1266 million
ldquoirdquo For ldquoirdquo the rational interest rate is used referred
to the interest rate from the bank financial
products
50
ldquoRErdquo The exchange ratio on August 2nd 2018 from
USD to RMB used by the Company
683
Calculation for Market Value
[(344+686+1266) + P (1266 50)]683= 4044 million USD
Calculation for Share Price
4044 million USD 100 million shares =040 USD per share
Limitation
This projection has its limitation due to potential biases in the calculation process because it lacks consideration of
risks and other uncertainties Meanwhile some unpredictable factors can also affect the result such as the changing
exchange ratio and inflation Therefore limitation of this projection should be made aware of to the decision makers
Conclusion
Based on the concept of the time value of money the market value is calculated on the total projected profit from
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
77
2018 to 2020 and the perpetual annuity which uses the projected profit in 2020 with the rational interest rate referred
to the interest rate of the bank financial products The market value is around 4044 million USD with 100 million
shares (the total number of shares listed in this company) and the share price is 040 USD
Disclaimer
Above projections are based on data and information provided by the Company which might contain biases from
the unilateral subjective projection of the Board of Directors and the management team The projections are also
based on the macroeconomic and social environment the specific industryrsquos situation market situation and the
Companyrsquos current position Hence the above projections do not provide any warranty Therefore the listing
advisor lawyer and auditor will also not be liable for these projections The Company and the management team
want to pursue an excellent financial condition but the risks and uncertainties can affect the result Therefore the
Company cannot guarantee the outcome would be the same as the above projections Consequently all investors
should be aware of these risks and uncertainties and should not solely rely on these predictions when making their
decisions Investors must carry out independent analysis and judgments
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
78
10 Material Contract and Agreement
According to the information provided by the Company the Companyrsquos performance and completion of the major
contracts during the reporting period are shown below
Loan Contract
KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative
loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan
to purchase black fungi from growers
Contracts with Growers
KH has signed contracts with 340 growers According to the contract KH provides fungal strains basic equipment
and technical guidance to growers and purchase dried black fungi at the price of RMB 65 Yuan (before the Spring
Festival) or RMB 60 Yuan (after the Spring Festival) while growers should sell all the harvested black fungi to
KH and provide records and relevant data to KH for further research and analysis
Strategic Partnership Agreements
KH has signed strategic partnership agreements with Madeng Town Jianchuan County Government Jiufang Town
Shidian County Government Guoqing Town Jiangcheng County Government and Wanxing Town Shidian
County Government According to the agreements KH provides fungal strains basic equipment and technical
guidance to growers recruited by the governments while the governments assist KH to promote the business to
recruit more growers and provide necessary financial support for growers in need
Product Development Contracts
KH has signed product development contracts with Kunming Edible Fungi Research Institute and Yunnan Yunjun
Technology (Group) Co Ltd According to the contracts KH provides market analysis and research funds while
Kunming Edible Fungi Research Institute and Yunnan Yunjun Technology (Group) Co Ltd are responsible to
develop innovative products according to KHrsquos requirements
Product Processing Contracts
KH has signed product processing contracts with Lijiang Zhongyuan Green Food Co Ltd (hereafter referred as
Zhongyuan) and Longyang Yongda Food Product Processing Factory (hereafter referred as Yongda) Zhongyuan
is responsible to produce Black Fungus Essence Powder with the black fungi provided by KH Yongda is
responsible to produce Black Fungus Noodles with the black fungi provided by KH
Other Cooperation Contracts
KH has also signed several cooperation contracts on different business with other companies Kunming Jinmo
Trade Co Ltd provides package designing and producing services to KH Yunnan Anzhi Express Co Ltd has
franchised KH to set up an express delivery station and use its delivery system China Post Shidian Town Branch
has franchised KH to promote and sell products on its online shopping platform ulecom
Other Receivables and Payables
According to the relevant information provided by the Company and the Auditorrsquos Report other receivables and
payables of the Company are legitimate valid and related due to regular production and business activities
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
79
11 Risk Factors and Litigation
Investors to buy our securities should consider the risks below
Business Risks
(a) Operational risks The Directors and Senior Management team of the Company is responsible for the
development direction of the Company There is a risk that they may fail to make proper decisions to ensure
the Company is on the right course Also KH connects with growers via cooperatives There is a risk that the
cooperatives fail to carry out the business activities well which may cause loss to the Company However the
Company is open to suggestions from staff and clients and is actively enhancing the connection with
cooperatives and growers so as to lower the aforementioned risks
(b) Risks related to products KH has developed and is developing some unique products that no other companies
have However there is a risk that these products may not be widely accepted by consumers which may cause
loss to the Company Also some products are produced by KHrsquos partners There is a risk that these partners
might produce poor-quality products However KH has several plans to lower such risks First KH has
conducted thorough market researches and collected customersrsquo feedbacks Second KH will introduce a new
product in its restaurants to test the popularity before producing and promoting it in large scale Third KH will
employ the third party to conduct quality tests before products are sold or distributed
Market Risks
Insufficient analysis of market demand and fierce market competition might result in declines in sales of the
Companyrsquos products However the Companyrsquos senior management will set up and improve the risk assessment
mechanism to ensure this kind of risks under control
Environmental Risks
Planting bags are used to grow fungi 80 of the used bags are burnt as fuels 10 are processed to organic
fertilizers and 10 are deserted which has caused environmental problems to local ecological system which
indirectly affects the Companyrsquos operation The Company is actively studying how to process wasted planting bags
to poultry feed so as to lower such risks
Risks Related to Natural Disasters
The production of black fungi is directly related to climate and weather Natural disasters such as flood drought
typhoon and so on could decrease the yield of black fungi and directly affect the Companyrsquos business The Company
is actively cooperating with research institutes to develop species of higher anti-adversity so as to resist some
natural disasters
Risks Related to National Policy
The Chinese government is currently exercising a reform and gradually opening our market to the world this means
our national economy policies taxation system and so on will also experience changes gradually The changes in
policy might affect the operation and performance of the Company
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
80
Stock Market Risks
The risks of stock market are ever presenting and the fluctuation of stock prices may result loss to investors There
are numerous factors that can affect stock prices including our companyrsquos performance changes in national
economy policies changes in the national financial situation changes in interest rate inflation and deflation and
other unpredictable factors Investors should be aware of the risks of the stock market before buying our securities
Other Risks
Investments
Investing involves certain risk considerations including currency fluctuations lack of liquidity and price volatility
of the stock markets government involvement and influence on the private sector political and economic factors
leverage and other factors These might adversely affect the Companyrsquos activities and the value of its investments
There are particular risks relating to the investment and trading of equity and debt instruments which include the
uncertainties involved in trading in emerging markets The ability to trade profitably in emerging markets may be
affected by world events changes in foreign policies and other economic and political factors that are outside the
control of the Company Set forth below are certain factors which should be taken into consideration before
investors make the decision to buy shares of the Company While the Management believes the following to be
comprehensive it is not intended to include all of the risks that may be encountered Accordingly potential
investors are advised to consult their financial advisors before buying any shares of the Company
General
The transactions that the Company will engage in may involve risks Growing competition in the market may limit
the ability to take advantage of opportunities No assurance can be given that the Company strategies employed
will be successful or that shareholders will realize net profits on their respective investments
General Uncertainty and Risks
There are some unpredictable factors that might affect the business The previous sales cannot be the guaranteed
indicator for the future Sales might increase or decrease in the future
Economic Conditions
The success of any investment activity may be affected by general economic conditions
Exchange Rate Fluctuations
The Companyrsquos accounts are denominated in US Dollars Investments of the Company may be in currencies other
than the US Dollars such as the Chinese RMB Similarly certain expenses of the Company including
organizational offering operating expenses and the fees of the Management and service providers will incur in
Chinese RMB Accordingly the Company is at risk and liable for any gain or loss incurred due to the exchange
rate fluctuation for example the investment for automation equipment brand development and human resources
as referred in Section 6 Thus shareholders and investors should realize the risk of exchange rate-fluctuations
Litigation
The Company might be named as a defendant in a lawsuit or in a regulatory action stemming from the conduct of
its business and activities of a company personnel In the event that such litigation occurs the Company would bear
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
81
the costs of defending itself and understands the risk of unsuccessful results of the litigation It should be noted
that the Company and Management have consulted with lawyers accountants and other experts regarding the
constitution of the Company and the business of its subsidiaries Each prospective investor should consult his own
legal tax and financial advisors regarding their desire to make an investment in the Company
IN VIEW OF THE COMPLEXITIES OF APPLICABLE TAX LAWS EACH PROSPECTIVE FUTURE
INVESTOR SHAREHOLDER OF SHARES OF THE COMPANY IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISORS ON THE POSSIBLE TAX CONSEQUENCES OF BUYING HOLDING SELLING
OR TRANSFERRING SHARES UNDER THE LAWS OF THEIR COUNTRY OF CITZENSHIP RESIDENCE
OR DOMICILE
The Companyrsquos litigation arbitration or administrative penalties
According to the ldquoChina Judgements Onlinerdquo httpwenshucourtgovcn by August 17th 2018 Shidian
Kanghong Agricultural Technology Development Co Ltd does not have any litigation record
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
82
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
83
Dutch Caribbean Securities Exchange
Listing Advisor
荷兰加勒证券交易所上市保荐机构
This is the last page of the IM document (Back Cover) There is no more content below
- For the Listing of Kanghong
- International Trade Co Ltd
- Table of Contents
- 1 Summary of Certain Defined Terms
-
- ldquoThe Company Kanghongrdquo
- ldquoKHrdquo
- ldquoDCSXrdquo
-
- The Dutch Caribbean Securities Exchange
-
- ldquoACTrdquo
- ldquoIFRSrdquo
-
- International Financial Reporting Standards the set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
-
- ldquoLADrdquo
-
- Listing Advisor
-
- ldquoChucheng Capitalrdquo
-
- Shanghai Chucheng Investment Management Co Ltd
-
- ldquoListing Rulesrdquo
-
- The Listing Rules of the DCSX
-
- 3 Issuer and the List of Institutions Related to the Listing
- Issuer
- Operating Entity in China
- Listing Advisor
- Lawyer
- Auditor
-
- 5 Terms of the Issuance and Investment Overview
-
- Company Nature
- Listing Advisor (LAD)
- Listing on the DCSX and Fund-raising Purposes
- Sales Period Commitment
-
- The Stock Options
-
- The RegistrationTransaction of the Depository Receipts
- Listing Cost
- Inquiry
-
- 6 Business Overview
- 8 Directors and Senior Management
-
- Directors
-
- Mr Yan Su Chairman of Board of Directors
- Mr Xincheng Wang Executive Director
- Mr Jie Ma Independent Non-Executive Director
- Mr Guanshi Gao Independent Non-Executive Director
-
- Senior Management
-
- Mr Xincheng Wang Chief Executive Officer
- Auditorrsquos Report
- Three-Year Projection
- Market Value
-
- Loan Contract
-
- KH has signed a loan contract with Shidian Rural Credit Cooperative According to the contract the Cooperative loans up to RMB 6 Million to the Company from November 24th 2016 to November 24th 2019 KH uses the loan to purchase black fungi from gro
-
- Contracts with Growers
- Strategic Partnership Agreements
- Product Development Contracts
- Product Processing Contracts
- Other Cooperation Contracts
- Other Receivables and Payables
-
- The success of any investment activity may be affected by general economic conditions
-
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