financial information...approximately 18.4% according to the frost &sullivan report. see...

You should read the following discussion and analysis with our combined financial

information, including the notes thereto, included in the Accountants’ Report in Appendix I

to this document. Our combined financial information has been prepared in accordance with

IFRS, which may differ in material aspects from generally accepted accounting principles in

other jurisdictions.

The following discussion and analysis contains forward-looking statements that reflect

our current views with respect to future events and financial performance. These statements

are based on our assumptions and analysis in light of our experience and perception of

historical trends, current conditions and expected future developments, as well as other

factors we believe are appropriate under the circumstances. However, whether actual

outcomes and developments will meet our expectations and predictions depends on a number

of risks and uncertainties. In evaluating our business, you should carefully consider the

information provided in this document, including ‘‘Risk Factors’’ and ‘‘Business’’.

For the purpose of this section, unless the context otherwise requires, references to

2017, 2018 and 2019 refer to our financial years ended 31 December of such years. Unless

the context otherwise requires, financial information described in this section is on a

consolidated basis.

OVERVIEW

We are a well-recognised contemporary Chinese painting trading platform in China. In

2019, we ranked second among all artworks trading platforms in China with a market share

of 13.7%, in terms of transaction value of contemporary Chinese paintings of

approximately RMB635.6 million, according to the Frost & Sullivan Report.

We act as an agent by matching the needs of sellers of contemporary Chinese paintings

to those of purchasers using our offline-to-online platform. We provide comprehensive

Agency Services, including (i) First Hand Painting Agency Services (i.e. offering our agency

services to artists to sell first hand contemporary Chinese paintings created by them); and

(ii) Second Hand Painting Agency Services (i.e. offering our agency services to painting

owners who are not the artists that create the contemporary Chinese paintings to resell their

second hand contemporary Chinese paintings). In addition to our Agency Services, we

provide ancillary services, including planning, managing and organizing art-related

activities for corporations and providing training services to our external sales. We

derive revenue mainly by charging commission from sellers for our Agency Services. We

also charge our customers services fee for the ancillary services provided to them.

FINANCIAL INFORMATION

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE

INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED ‘‘WARNING’’ ON

THE COVER OF THIS DOCUMENT.

In order to facilitate our Agency Services, we have implemented our Tyfon Art

Blockchain in our offline-to-online platform. Our Tyfon Art Blockchain provides

purchasers with a secured and encrypted platform with detailed information regarding

contemporary Chinese paintings ranging from artists (such as qualifications,

professionalism, influence, collection value, etc.), particulars (such as type of

contemporary Chinese paintings, specifications, techniques, etc.) to details of transaction

history (including date, identities of sellers and purchasers and sale price).

We achieved a robust increase in our revenue during the Track Record Period which

was in line with the increase in the number of customers and the number of contemporary

Chinese paintings sold through our offline-to-online platform. Our revenue grew from

approximately RMB42.7 million for the year ended 31 December 2017 to approximately

RMB119.4 million for the year ended 31 December 2019 at a CAGR of approximately

167.3%. Our profit and total comprehensive income for the year were approximately

RMB12.6 million, RMB25.2 million and RMB45.7 million, respectively, during the Track

Record Period.

FACTORS AFFECTING OUR RESULTS OF OPERATIONS

The following factors are the principal factors that have affected and, we expect, will

continue to affect our business, financial condition, results of operations and prospects.

Growth of the contemporary Chinese painting market in China

Fluctuations in China’s economic development and volatility in the contemporary

Chinese painting market will have an effect on our operations. Benefiting from the rapid

growth of the PRC economy and per capita disposable income, favourable government

policies and increasing capital investment, the contemporary Chinese painting industry in

China has seen significant growth. By transaction value, the market size of China artworks

platform rose from approximately RMB3,657.7 million in 2015 to approximately

RMB13,436.5 million in 2019, representing a CAGR of approximately 38.4%, and is

expected to reach approximately RMB31,116.1 million in 2024 with a CAGR of

approximately 18.4% according to the Frost & Sullivan Report. See ‘‘Industry Overview’’

in this document for more details. When the economy grows rapidly and the art market is

flush with liquidity, art tends to become popular consumer products and ideal investment

targets. As a result, market prices of artwork will increase and the potential purchasers and

sellers become more willing to carry out transactions, which would in turn result in higher

commission income for us. On the other hand, during economic downturns or political

uncertainties, potential purchasers and sellers may lack incentive to purchase and sell

artwork. As a result, our commission income could decrease. For example, although our

revenue grew by approximately 56.3% from approximately RMB76.4 million for the year

ended 31 December 2018 to approximately RMB119.4 million for the year ended 31

December 2019, our Directors expect that, subject to the latest status of COVID-19, such

epidemic might temporarily have an adverse effect on the business, results of operations and

financial position of our Group as we did not host and conduct exhibitions and other sales

and marketing activities during the first quarter of 2020 in order to prevent the spread of

the disease. As such, we expect the economic conditions in China and the continuously


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changing market demand for art has caused and will continue to affect our results of

operations. In addition, the growth of the artworks platform market in China is also driven

by advanced technologies, more informed artwork interested parties and the influx of

financial capital.

Improvements in purchase experience of potential purchasers

We began developing our offline-to-online platform, Tyfon Art Gallery Website and

Tyfon Art Gallery App, in 2018 and our customers began to utilize our offline-to-online

platform for purchases in August 2019. Our offline-to-online platform has improved our

turnover and customer engagement for our Agency Services which has led to a growth in

our customer base for our Agency Services from 1,404 to 1,741 customers and in turn

contributed to our increase in revenue in Agency Services from approximately RMB76.3

million for the year ended 31 December 2018 to approximately RMB118.7 million for the

year ended 31 December 2019. We believe that our offline-to-online platform will allow us

to continue to grow steadily and to expand to additional markets.

Over the years, we have also improved our purchase experience by increasing the

involvement of our artists in our exhibitions and by enhancing the training of our sales

personnel, which has also increased our sales and conversion. For the three years ended 31

December 2019, the average number of attendees per exhibition was approximately 74, 74,

80, respectively.

The size of our customers (i.e. sellers of paintings) and purchasers’ bases

The success of our operations and sustainable development depend upon our ability to

develop and maintain relationships with our customers (i.e. sellers of paintings) and

potential purchasers. For the three years ended 31 December 2019, we had 873, 1,406 and

1,749 total number of customers for our Agency Services and ancillary services. We had

998, 1,632 and 1,911 purchasers for the three years ended 31 December 2017, 2018 and 2019,

respectively.

In managing our contemporary Chinese painting trading platform, our revenue,

profitability and operating cash flow are affected by the size and activity levels of our

customers and purchasers’ bases, and our ability to develop and maintain relationships with

them. Over years, we have devoted ourselves to developing a large customers and

purchasers’ bases. We intend to continue maintaining and further developing our customers

and purchasers’ bases in Suzhou and throughout China. If we are unable to maintain and

develop our relationships with them, our business could be materially and adversely

affected.

As such, our relationships with customers and potential purchasers have a significant

effect on our business growth.


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Competition

The artworks platform industry is highly competitive and relatively concentrated in

nature. The artwork platform market is characterized by new business models and

technological advances that have substantially increased the capabilities and use of online

sales channels and other technologies. We compete with a variety of players, including those

who trade in both original and reproduced paintings, as well as competitors who trade

artwork but are not focused on artwork sales. We have been focused on the trading of

contemporary Chinese paintings through our offline-to-online platform. Our main

competitors include auction houses, art e-commerce sites and art galleries. Competition

may affect our ability to attract sellers to consign their attractive contemporary Chinese

paintings to us, as well as to successfully complete transactions at the target prices.

Our revenue mix

Our results of operations are affected by the services we offer. We initially focused on

First Hand Painting Agency Services. Starting in the middle of 2017, we began to offer

Second Hand Painting Agency Services. During the Track Record Period, we derived

approximately 69.4%, 80.0% and 71.7% of our revenue from the First Hand Painting

Agency Services and approximately 30.1%, 19.9% and 27.7% of our revenue from the

Second Hand Painting Agency Services, respectively. We expect to continue to increase our

revenue generated from the Second Hand Painting Agency Services. We expect our Second

Hand Painting Agency Services to grow and gradually take up a larger percentage of our

revenue, which is in line with the expected growth of the second-hand Chinese paintings

market in China as its market size is estimated to rise from approximately RMB14,761.2

million in 2020 to approximately RMB30,082.5 million in 2024, representing a CAGR of

approximately 19.5% according to the Frost & Sullivan Report.

BASIS OF PRESENTATION

Our consolidated financial statements have been prepared in accordance with IFRS

and comply with the applicable disclosures required by the Listing Rules.

Pursuant to the Reorganisation as more fully explained in the paragraph headed

‘‘Reorganisation’’ in ‘‘History, Reorganisation and Corporate Structure’’ in the document,

the Company was incorporated on 25 November 2019 and became the holding company of

the companies now comprising our Group on 21 May 2020. The companies now comprising

our Group were under the common control of the Controlling Shareholder before and after

the Reorganisation. Accordingly, our consolidated financial statements have been prepared

on a combined basis by applying the principles of merger accounting as if the

Reorganisation had been completed at the beginning of the relevant periods.

The combined statements of profit or loss and other comprehensive income, statements

of changes in equity and statements of cash flows of our Group for the Track Record Period

include the results and cash flows of all companies now comprising our Group from the

earliest date presented or since the date when the subsidiaries and/or businesses first came

under the common control of the Controlling Shareholder, where this is a shorter period.

The combined statements of financial position of our Group as at 31 December 2017, 2018


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and 2019 have been prepared to present the assets and liabilities of the subsidiaries and/or

businesses using the existing book values from the Controlling Shareholder’s perspective.

No adjustments are made to reflect fair values, or recognise any new assets or liabilities as a

result of the Reorganisation.

Equity interests in subsidiaries and/or businesses held by parties other than the

Controlling Shareholder prior to the Reorganisation are presented as non-controlling

interests in equity in applying the principles of merger accounting.

All intra-group transactions and balances have been eliminated on combination.

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

The Accountant’s Report in Appendix I to this document sets forth certain significant

accounting policies in note 2, which are important for understanding our financial

condition and results of operations.

Some of our accounting policies involve subjective assumptions, estimates and

judgments that are discussed in note 2 of the Accountant’s Report in Appendix I to this

document. The preparation of historical financial information in conformity with IFRSs

requires management to make judgments, estimates and assumptions that affect the

application of accounting policies and reported amounts of assets, liabilities, income and

expenses. The estimates and associated assumptions are based on historical experience and

various other factors that are believed to be reasonable under the circumstances, the results

of which form the basis of making the estimates about carrying values of assets and

liabilities that are not readily apparent from other sources. Actual results may differ from

these estimates.

The estimates and underlying assumptions are reviewed on an on-going basis.

Revisions to accounting estimates are recognised in the period in which the estimate is

revised if the revision affects only that period, or in the period of the revision and future

years if the revision affects both current and future years.

Our estimates and underlying assumptions are reviewed by our management on an on-

going basis. See note 2 of the Accountant’s Report in Appendix I to this document.

Revenue recognition

Revenue from contracts with customers

Revenue from contracts with customers is recognised when control of services is

transferred to the customers at an amount that reflects the consideration to which our

Group expects to be entitled in exchange for those services.


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When the consideration in a contract includes a variable amount, the amount of

consideration is estimated to which our Group will be entitled in exchange for transferring

the services to the customer. The variable consideration is estimated at contract inception

and constrained until it is highly probable that a significant revenue reversal in the amount

of cumulative revenue recognised will not occur when the associated uncertainty with the

variable consideration is subsequently resolved.

When the contract contains a financing component which provides the customer with a

significant benefit of financing the transfer of services to the customer for more than one

year, revenue is measured at the present value of the amount receivable, discounted using

the discount rate that would be reflected in a separate financing transaction between our

Group and the customer at contract inception. When the contract contains a financing

component which provides our Group a significant financial benefit for more than one year,

revenue recognised under the contract includes the interest expense accreted on the contract

liability under the effective interest method. For a contract where the period between the

payment by the customer and the transfer of the promised services is one year or less, the

transaction price is not adjusted for the effects of a significant financing component, using

the practical expedient in IFRS 15.

Revenue is recognised when specific criteria have been met for each of our Group’s

activities on the following bases:

(a) Agency services of Chinese painting

Revenue from the agency services of Chinese painting is recognised at the point in

time when the legal title of the Chinese painting is transferred from the assignor to the

buyer.

(b) Provision of ancillary services

Ancillary services include planning and organising art-related activities for

corporations and providing training services to our external sales. Revenue from the

provision of ancillary services is recognised over the contract period on a straight-line

basis as the customer simultaneously receives and consumes the benefits provided by

our Group.

Impairment of financial assets

Our Group recognised an allowance for expected credit losses (‘‘ECLs’’) for all debt

instruments not held at fair value through profit or loss. ECLs are based on the difference

between the contractual cash flows due in accordance with the contract and all the cash

flows that our Group expects to receive, discounted at an approximation of the original

effective interest rate. The expected cash flows will include cash flows from the sale of

collateral held or other credit enhancements that are integral to the contractual terms.


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General approach

ECLs are recognised in two stages. For credit exposures for which there has not been a

significant increase in credit risk since initial recognition, ECLs are provided for credit

losses that result from default events that are possible within the next 12 months (a 12-

month ECL). For those credit exposures for which there has been a significant increase in

credit risk since initial recognition, a loss allowance is required for credit losses expected

over the remaining life of the exposure, irrespective of the timing of the default (a lifetime

ECL).

At the end of each of the Relevant Periods, our Group assesses whether the credit risk

on a financial instrument has increased significantly since initial recognition. When making

the assessment, our Group compares the risk of a default occurring on the financial

instrument as at the end of each of the Relevant Periods with the risk of a default occurring

on the financial instrument as at the date of initial recognition and considers reasonable and

supportable information that is available without undue cost or effort, including historical

and forward-looking information.

Our Group considers a financial asset in default when contractual payments are 90

days past due. However, in certain cases, our Group may also consider a financial asset to

be in default when internal or external information indicates that our Group is unlikely to

receive the outstanding contractual amounts in full before taking into account any credit

enhancements held by our Group. A financial asset is written off when there is no

reasonable expectation of recovering the contractual cash flows and it is generally the case

when contractual payments are 1 year past due.

Financial assets at amortised cost are subject to impairment under the general

approach and they are classified within the following stages for measurement of ECLs

except for trade receivables and contract assets which apply the simplified approach as

detailed below.

Stage 1 — Financial instruments for which credit risk has not increased

significantly since initial recognition and for which the loss allowance

is measured at an amount equal to 12-month ECLs

Stage 2 — Financial instruments for which credit risk has increased significantly

since initial recognition but that are not credit-impaired financial assets

and for which the loss allowance is measured at an amount equal to

lifetime ECLs

Stage 3 — Financial assets that are credit-impaired at the end of each of the

Relevant Periods (but that are not purchased or originated credit-

impaired) and for which the loss allowance is measured at an amount

equal to lifetime ECLs


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Simplified approach

For trade receivables and contract assets that do not contain a significant financing

component or when our Group applies the practical expedient of not adjusting the effect of

a significant financing component, our Group applies the simplified approach in calculating

ECLs. Under the simplified approach, our Group does not track changes in credit risk, but

instead recognises a loss allowance based on lifetime ECLs at the end of each of the

Relevant Periods.

Leases

Our Group assesses at contract inception whether a contract is, or contains, a lease. A

contract is, or contains, a lease if the contract conveys the right to control the use of an

identified asset for a period of time in exchange for consideration.

Group as a lessee

Our Group applies a single recognition and measurement approach for all leases,

except for short-term leases and leases of low-value assets. Our Group recognises lease

liabilities to make lease payments and right-of-use assets representing the right to use the

underlying assets.

(a) Right-of-use assets

Right-of-use assets are recognised at the commencement date of the lease (that is the

date the underlying asset is available for use). Right-of-use assets are measured at cost, less

any accumulated depreciation and any impairment losses, and adjusted for any

remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of

lease liabilities recognised, initial direct costs incurred, and lease payments made at or

before the commencement date less any lease incentives received. Where applicable, the cost

of a right-of-use asset also includes an estimate of costs to dismantle and remove the

underlying asset or to restore the underlying asset or the site on which it is located. Right-

of-use assets are depreciated on a straight-line basis over the shorter of the lease terms and

the estimated useful lives of the assets as follows:

Buildings 2 to 5 years

If ownership of the leased asset transfers to our Group by the end of the lease term or

the cost reflects the exercise of a purchase option, depreciation is calculated using the

estimated useful life of the asset.

(b) Lease liabilities

Lease liabilities are recognised at the commencement date of the lease at the present

value of lease payments to be made over the lease term. The lease payments include fixed

payments (including in-substance fixed payments) less any lease incentives receivable,

variable lease payments that depend on an index or a rate, and amounts expected to be paid

under residual value guarantees. The lease payments also include the exercise price of a


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purchase option reasonably certain to be exercised by our Group and payments of penalties

for termination of a lease, if the lease term reflects our Group exercising the option to

terminate. The variable lease payments that do not depend on an index or a rate are

recognised as an expense in the period in which the event or condition that triggers the

payment occurs.

In calculating the present value of lease payments, our Group uses its incremental

borrowing rate at the lease commencement date because the interest rate implicit in the

lease is not readily determinable. After the commencement date, the amount of lease

liabilities is increased to reflect the accretion of interest and reduced for the lease payments

made. In addition, the carrying amount of lease liabilities is remeasured if there is a

modification, a change in the lease term, a change in lease payments (e.g., a change to future

lease payments resulting from a change in an index or rate) or a change in assessment of an

option to purchase the underlying asset.

(c) Short-term leases and leases of low-value assets

Our Group applies the short-term lease recognition exemption to its short-term leases

of machinery and equipment (that is those leases that have a lease term of 12 months or less

from the commencement date and do not contain a purchase option). It also applies the

recognition exemption for leases of low-value assets to leases of office equipment and

laptop computers that are considered to be of low value. Lease payments on short-term

leases and leases of low-value assets are recognised as an expense on a straight-line basis

over the lease term.

Share-based payments

Taifeng Cultural Communication, a subsidiary of the Company operates a share

option scheme for the purpose of providing incentives and rewards to eligible participants

who contribute to the success of our Group’s operations. Employees (including directors) of

our Group receive remuneration in the form of share-based payments, whereby employees

render services as consideration for equity instruments (‘‘equity-settled transactions’’).

The cost of equity-settled transactions with employees for grants after 7 November

2002 is measured by reference to the fair value at the date at which they are granted. The

fair value is determined by an external valuer using a binomial model, further details of

which are given in note 23 to the Historical Financial Information.

The cost of equity-settled transactions is recognised in employee benefit expense,

together with a corresponding increase in equity, over the period in which the performance

and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled

transactions at the end of each reporting period until the vesting date reflects the extent to

which the vesting period has expired and our Group’s best estimate of the number of equity

instruments that will ultimately vest. The charge or credit to profit or loss for a period

represents the movement in the cumulative expense recognised as at the beginning and end

of that period.


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Service and non-market performance conditions are not taken into account when

determining the grant date fair value of awards, but the likelihood of the conditions being

met is assessed as part of our Group’s best estimate of the number of equity instruments

that will ultimately vest. Market performance conditions are reflected within the grant date

fair value. Any other conditions attached to an award, but without an associated service

requirement, are considered to be non-vesting conditions. Non-vesting conditions are

reflected in the fair value of an award and lead to an immediate expensing of an award

unless there are also service and/or performance conditions.

For awards that do not ultimately vest because non-market performance and/or service

conditions have not been met, no expense is recognised. Where awards include a market or

non-vesting condition, the transactions are treated as vesting irrespective of whether the

market or non-vesting condition is satisfied, provided that all other performance and/or

service conditions are satisfied.

Where the terms of an equity-settled award are modified, as a minimum an expense is

recognised as if the terms had not been modified, if the original terms of the award are met.

In addition, an expense is recognised for any modification that increases the total fair value

of the share-based payments, or is otherwise beneficial to the employee as measured at the

date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date

of cancellation, and any expense not yet recognised for the award is recognised

immediately. This includes any award where non-vesting conditions within the control of

either our Group or the employee are not met. However, if a new award is substituted for

the cancelled award, and is designated as a replacement award on the date that it is granted,

the cancelled and new awards are treated as if they were a modification of the original

award, as described in the previous paragraph.


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COMBINED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE

INCOME

The following table sets forth a summary of our combined statements of profit or loss

and other comprehensive income for the periods indicated:

Year ended 31 December

2017 2018 2019

RMB’000

Revenue 42,661 76,383 119,351

Cost of sales (11,811) (21,889) (30,390)

Gross profit 30,850 54,494 88,961

Other income and gains 2,635 1,895 3,096

Selling and distribution expenses (8,576) (11,334) (10,789)

Administrative expenses (8,328) (10,468) (18,563)

Impairment losses on financial assets (81) (277) (226)

Research and development expenses — (557) (3,228)

Other expenses — (4) (8)

Finance costs (46) (127) (556)

PROFIT BEFORE TAX 16,454 33,622 58,687

Income tax expense (3,876) (8,427) (13,019)

PROFIT AND TOTAL

COMPREHENSIVE INCOME FOR

THE YEAR ATTRIBUTABLE TO: 12,578 25,195 45,668

Owners of the parent 11,000 22,863 41,579

Non-controlling interests 1,578 2,332 4,089

The following discussion describes and compares the major components of our results

of operations for the years ended 31 December 2017, 2018 and 2019.

Revenue

We derived revenue primarily through providing Agency Services for contemporary

Chinese paintings in first hand and second hand markets.

Under our First Hand Painting Agency Services business, we primarily act as agent for

the sale and purchase of first hand contemporary Chinese paintings between sellers (who

are artists of first hand paintings) to those of purchasers. We receive commissions as our

revenue from sellers upon settlement of contemporary Chinese painting sales. The

commissions we charge for our First Hand Painting Agency Services is typically based on

the difference between sale price and reserve price.


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Under our Second Hand Painting Agency Services business, we primarily act as agent

for the sale and purchase of second hand contemporary Chinese paintings between the

painting owners who are not the artists that create the contemporary Chinese paintings to

those of purchasers. Similar to the First Hand Painting Agency Services, we receive

commissions as our revenue upon settlement of contemporary Chinese painting sales.

During the Track Record Period, the commission we charged for our Second Hand Painting

Agency Services is based on the difference between sale price and reserve price.

We also generate revenue from rendering ancillary services to our customers, including

(i) providing training services to our external sales; and (ii) planning and organizing art-

related activities for corporations. There are two types of customers for our ancillary

services, namely external sales and corporations.

The following table sets forth the details of our revenue by business segments for the

periods indicated:


2017 2018 2019

RMB’000 % RMB’000 % RMB’000 %

Agency Services(note) 42,451 99.5 76,332 99.9 118,652 99.4

Ancillary services 210 0.5 51 0.1 699 0.6

Total 42,661 100.0 76,383 100.0 119,351 100.0

Note:

The following table sets forth the details of our revenue by nature of painting sold and as percentage

to our total revenue from Agency Services for the periods indicated:


2017 2018 2019

RMB’000 RMB’000 RMB’000

Revenue from Agency Services for

First hand painting 29,621 61,097 85,571

Second hand painting 12,830 15,235 33,081

Total 42,451 76,332 118,652

Comparison between 2018 and 2019. Our total revenue increased by approximately

56.3% from approximately RMB76.4 million for the year ended 31 December 2018 to

approximately RMB119.4 million for the year ended 31 December 2019. The increase was

primarily due to the increase of approximately RMB24.5 million and approximately

RMB17.8 million in the revenue generated from our First Hand Painting Agency Services

and Second Hand Painting Agency Services, respectively.


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The revenue from our First Hand Painting Agency Services increased by

approximately 40.1% from approximately RMB61.1 million for the year ended 31

December 2018 to approximately RMB85.6 million for the year ended 31 December

2019. Such increase was primarily due to the increase in gross transaction value on our

platform. Following the launch of our Tyfon Art Gallery Website and Tyfon Art Gallery

App in February 2019 and June 2019, respectively, and the growth of our sales force, we

expanded our customer base, which in turn led to the increase in the number of paintings

sold on our platform and the corresponding gross transaction value. The number of

paintings sold on our platform under First Hand Painting Agency Services increased from

1,643 in 2018 to 2,694 in 2019, the corresponding gross transaction value under our First

Hand Painting Agency Services increased from approximately RMB71.5 million for the

year ended 31 December 2019 to approximately RMB98.4 million for the year ended 31

December 2019.

The revenue from our Second Hand Painting Agency Services increased significantly

from approximately RMB15.2 million for the year ended 31 December 2018 to

approximately RMB33.1 million for the year ended 31 December 2019. Such increase was

primarily due to the greater amount of sales commission we received from our sellers

attributable to the increase of gross transaction value in our Second Hand Painting Agency

Services. Following the launch of our Tyfon Art Gallery Platform in 2019, the gross

transaction value of our Second Hand Painting Agency Services increased from


RMB537.2 million for the year ended 31 December 2019, which was primarily attributable

to the increase in number of transactions on our platform from 6,240 in 2018 to 8,505 in

2019, which involved 4,211 and 5,811 pieces of paintings in 2018 and 2019, respectively.

After the rapid development of our Second Hand Painting Agency Services in 2018, we

increased such commission in 2019 to improve the profitability of our Second Hand

Painting Agency Services business, which also contributed to the increase in revenue from

Second Hand Market Agency Services.

Our ancillary services also increased from approximately RMB51,000 to

approximately RMB699,000, primarily due to organising more art-related activities.

Comparison between 2017 and 2018. Our total revenue increased by approximately


approximately RMB76.4 million for the year ended 31 December 2018, which was primarily

due to the increases in the revenue generated from our First Hand Painting Agency Services

and Second Hand Painting Agency Services.

The revenue from our First Hand Painting Agency Services increased by


December 2017 to approximately RMB61.1 million for the year ended 31 December 2018.

Such increase was primarily attributable to (i) the increase in gross transaction value of our

First Hand Painting Agency Services from approximately RMB40.3 million for the year

ended 31 December 2017 to approximately RMB71.5 million for the year ended 31

December 2018, mainly reflected by the increase in number of paintings sold on our

platform from 635 in 2017 to [1,643] in 2018, which was primarily due to the additional


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sales efforts we made to generate publicity for our Group in the contemporary Chinese

painting market following the full deployment of our Second Hand Painting Agency

Services (which was officially launched in July 2017); and (ii) the increase in our ratio of

commission to gross transaction value from 73.4% for the year ended 31 December 2017 to

85.5% for the year ended 31 December 2018.

The revenue from our Second Hand Painting Agency Services business increased by


December 2017 to approximately RMB15.2 million for the year ended 31 December

2018. This increase was mainly due to the increase in gross transaction value of our Second

Hand Painting Agency Services which increased from approximately RMB143.2 million for

the year ended 31 December 2017 to approximately RMB367.2 million for the year ended 31

December 2018, which was primarily attributable to the increase in number of transactions

from 2,773 in 2017 to 6,240 in 2018 on our platform, which involved 2,574 and 4,211 pieces

of paintings in 2017 and 2018, respectively mainly as a result of the official launch of our

Second Hand Painting Agency Services in July 2017.

Such increase was partially offset by the decrease in the ratio of commission to gross

transaction value from 9.0% for the year ended 31 December 2017 to 4.1% for the year

ended 31 December 2018 due to our strategic decision to reduce the commission charged to

our sellers in order to attract more sellers to consign their paintings to us for sale on our

platform.

Our ancillary services decreased from approximately RMB210,000 to approximately

RMB51,000.

Cost of Sales

Our cost of sales consists of direct labor costs, commission paid to our external sales,

and others. For the three years ended 31 December 2017, 2018 and 2019, our cost of sales

accounted for approximately 27.7%, 28.7% and 25.5% of our revenue, respectively.

The following table sets forth the components of our cost of sales for the periods

indicated:


2017 2018 2019

RMB’000

Direct labor costs 11,811 20,537 27,518

Commission paid to our external sales — 1,352 2,080

Others — — 792

Total 11,811 21,889 30,390


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Comparison between 2018 and 2019. Our cost of sales increased by approximately

38.8% to approximately RMB30.4 million for the year ended 31 December 2019 from

approximately RMB21.9 million for the year ended 31 December 2018, primarily reflecting

(i) an increase of approximately RMB7.0 million in direct labour costs, which is in line with

the increase of our revenue, primarily due to the increase in number of employees and

performance bonus paid to certain of our employees; and (ii) an increase of approximately

RMB0.8 million in others, attributable to the direct costs arising from the organization and

management of certain public events.

Comparison between 2017 and 2018. Our cost of sales increased by approximately

85.6% to approximately RMB21.9 million for the year ended 31 December 2018 from

approximately RMB11.8 million for the year ended 31 December 2017, primarily reflecting

(i) an increase of approximately RMB8.7 million in direct labour costs, primarily due to the

increase in number of employees and performance bonus paid to certain of our employees;

and (ii) the increase in commissions we paid to external sales for their services in 2018 of

approximately RMB1.4 million as we started to engage external sales to help us promote the

paintings consigned to us.

SENSITIVITY ANALYSIS

Our cost of sales, which mainly consisted of direct labour costs, commissions paid to

our external sales. Since most of our cost of sales are comprised of staff costs, any changes

to our cost of sales is primarily affected by the fluctuations of our staff costs.

The following table sets forth a sensitivity analysis illustrating the impact of

hypothetical fluctuations of our staff costs, with all other variables held constant, on our

net profit during the Track Record Period.

Hypothetical fluctuation

of the staff costs +15% +10% +5% –5% –10% –15%

Increase/(Decrease) in

net profit (RMB’000)

For the year ended

31 December 2017 1,354 902 451 (451) (902) (1,354)

For the year ended

31 December 2018 2,308 1,538 768 (768) (1,538) (2,308)

For the year ended

31 December 2019 3,210 2,139 1,069 (1,069) (2,139) (3,210)

During the Track Record Period, the fluctuations of staff costs were mainly

attributable to the fluctuations of their performance fee, which were consistent with the

fluctuations of gross transaction value. Our ability to control our staff costs when we

expand our customer base and the number of consigned paintings sold may significantly

affect our profitability.


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Gross profit and gross profit margin

The following table shows gross profit and gross profit margin of our business

segments for the periods indicated:


2017 2018 2019

Grossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginRMB’000 % RMB’000 % RMB’000 %

Agency Services 30,640 72.2 54.443 71.3 89,054 75.1Ancillary services 210 100.0 51 100.0 (93) (13.3)

Total 30,850 72.3 54,494 71.3 88,961 74.5

During the Track Record Period, almost all of our gross profit was contributed by our

Agency Services, which recorded gross profit margins of approximately 72.3%, 71.3% and

74.5% for the three years ended 31 December 2019, respectively. The increase in our gross

profit during the Track Record Period was primarily due to the expansion of our customer

base, which in turn led to the increase in the number of paintings sold on our platform and

the corresponding gross transaction value.

Comparison between 2018 and 2019. Our total gross profit increased by approximately


approximately RMB88.9 million for the year ended 31 December 2019 primarily due to the

increase in gross profit of our Agency Services business attributable to the launch of our

Tyfon Art Gallery Platform in 2019 which in turn led to the increase of our customer base,

the number of paintings sold on our platform and the corresponding gross transaction

value. Due to the economy of scale, gross profit margin of our Agency Services increased

slightly from 71.3% to 75.1% during the same period, which in turn led to the increase in

our overall gross profit margin.

Comparison between 2017 and 2018. Our total gross profit increased by approximately


approximately RMB54.5 million for the year ended 31 December 2018 primarily due to the

increase in the gross profit of our Agency Services business mainly because we established

various branch offices in 2017 leading to an increase of our customer base, the number of

paintings sold on our platform and the corresponding gross transaction value. Our overall

gross profit margin remained stable for the year ended 31 December 2018 as compared to

2017.

Other income and gains

Our other income and gains primarily includes government grants, bank interest

income and others. Government grants are typically one-off awards provided by

administrative authorities recognizing our operating results and positive social influences,


– 246 –




including tax subsidies, an award for Suzhou AI and Big Data Application Demonstration

Enterprise, an award for listing on the NEEQ and awards for enterprises in Yuanhe Sub-

district, Xiangcheng, Suzhou.

The following table sets forth our other income and gains for the periods indicated:


2017 2018 2019

RMB’000

Government grants 2,580 1,744 2,830Bank interest income 37 50 60Others 18 101 206

Total 2,635 1,895 3,096

Comparison between 2018 and 2019. Our other income and gains increased by

approximately 63.4% to approximately RMB3.1 million for the year ended 31 December

2019 from approximately RMB1.9 million for the year ended 31 December 2018, primarily

due to an approximately RMB1.1 million increase in government grants. Government

grants obtained in 2019 represented tax subsidy of approximately RMB2.3 million and an

award for Suzhou AI and Big Data Application Demonstration Enterprise of

approximately RMB0.5 million in 2019. Government grants obtained in 2018 primarily

represented awards for enterprises in Yuanhe Sub-district, Xiangcheng, Suzhou of

approximately RMB1.0 million and tax subsidy of approximately RMB0.7 million.

Comparison between 2017 and 2018. Our other income and gains decreased by

approximately 28.1% to approximately RMB1.9 million for the year ended 31 December

2018 from approximately RMB2.6 million for the year ended 31 December 2017, primarily

due to an approximately RMB0.8 million decrease in government grants. We were awarded

a government grant of approximately RMB2.3 million in 2017 because we were successfully

listed on the NEEQ in 2017.

Selling and distribution expenses

Selling and distribution expenses primarily include staff costs, business publicity

expenses and exhibition fees. For the three years ended 31 December 2019, our selling and

distribution expenses accounted for approximately 20.1%, 14.8% and 9.0% of our revenue,

respectively.


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The following table sets forth the components of our selling and distribution expenses

for the periods indicated:


2017 2018 2019

RMB’000

Staff costs 5,451 6,183 8,555Business publicity expenses 152 1,289 683Exhibition fees 2,915 3,808 1,495Others 58 54 56

Total 8,576 11,334 10,789

Comparison between 2018 and 2019. Our selling and distribution expenses remained

relatively stable between the years ended 31 December 2018 and 2019. Following the launch

of our Tyfon Art Gallery Platform in February 2019, we reduced the expenses incurred in

advertising our business through offline sales channels and focused our marketing efforts

on our offline-to-online platform instead. As a result, there is a decrease of approximately

RMB0.6 million in our business publicity expense from approximately RMB1.3 million for


December 2019; and (ii) approximately RMB2.3 million in our exhibition fees from


RMB1.5 million for the year ended 31 December 2019. Despite the increase in the number

of exhibitions from 137 in 2018 to 143 in 2019, the decrease in exhibitions fees from the year

ended 31 December 2018 to the year ended 31 December 2019 was primarily because of our

strategic decision to adopt more cost effective information technology systems to assist in

the management and operation of our exhibitions as opposed to traditional means of

marketing at our exhibitions.

Comparison between 2017 and 2018. Our selling and distribution expenses increased to

approximately RMB11.3 million for the year ended 31 December 2018 from approximately

RMB8.6 million for the year ended 31 December 2017, primarily due to an increase of

approximately RMB0.7 million in our staff costs from approximately RMB5.5 million for


December 2018 from hiring additional art managers to handle our growing customer base

and an increase of approximately RMB1.1 million in our business publicity expense from


RMB1.3 million for the year ended 31 December 2018 which is in line with the increase in

our revenue. In addition, there is an increase of approximately RMB0.9 million in our

exhibition fees from approximately RMB2.9 million for the year ended 31 December 2017

to RMB3.8 million for the year ended 31 December 2018 which is in line with our business

expansion.


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Administrative expenses

Administrative expenses primarily include staff costs, consultation service fees,

depreciation and amortisation, office expenses, business entertainment expenses, lease

and property fees, travelling and transportation expenses and [REDACTED]. During the

Track Record Period, our administrative expenses accounted for approximately 19.5%,

13.7% and 15.6% of our revenue, respectively.

The following table sets forth the components of our administrative expenses for the

periods indicated:


2017 2018 2019

RMB’000

Staff costs 3,447 4,570 5,634

Depreciation and amortization 1,283 1,457 1,983

Business and office expenses 1,542 1,448 1,681

Consultation service fees 869 1,356 1,668

Lease and property fees 490 610 624

Travelling and transportation expenses 264 308 472

[REDACTED] [REDACTED] [REDACTED] [REDACTED]

Bank charges 186 507 609

Others 247 212 60

Total 8,328 10,468 18,563

Comparison between 2018 and 2019. Our administrative expenses increased by

approximately 77.3% to approximately RMB18.6 million for the year ended 31

December 2019 from approximately RMB10.5 million for the year ended 31 December

2018, primarily due to an increase of [REDACTED] of approximately [REDACTED] and an

increase of approximately RMB1.0 million in staff costs from approximately RMB4.6

million for the year ended 31 December 2018 to approximately RMB5.6 million for the year

ended 31 December 2019, mainly reflecting an increase in number of managerial staff.

Comparison between 2017 and 2018. Our administrative expenses increased by

approximately 25.7% to approximately RMB10.5 million for the year ended 31

December 2018 from approximately RMB8.3 million for the year ended 31 December

2017, primarily due to an increase of approximately RMB1.2 million in staff costs from


RMB4.6 million for the year ended 31 December 2018, primarily because we recruited more

high-calibre administrative talents to support our rapid business growth.


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Impairment losses on financial assets

Impairment losses on financial assets primarily include expected credit losses on

consignment deposits with assignors and artists. The probability of default and loss given

default are estimated based on the credit rating of the customer and industry benchmarks.

For the three years ended 31 December 2019, our impairment losses on financial assets

accounted for approximately 0.2%, 0.4% and 0.2% of our revenue, respectively.

Research and development expenses

Research and development expenses primarily include the research and development of

our Tyfon Art Gallery Platform, Tyfon Art Blockchain and their relevant software systems.

For the three years ended 31 December 2019, our research and development expenses

amounted to approximately nil, 0.6 million and 3.2 million, respectively.

We began to conduct our research and development activities in 2018. Our research

and development expenses mainly consist of staff costs and consultancy fees paid to

professional third parties.

Finance costs

Finance costs primarily include interest on bank borrowings and interest on lease

liabilities. For the three years ended 31 December 2019, our finance costs accounted for

approximately 0.1%, 0.2% and 0.5% of our revenue, respectively.

For more details on our interest-bearing bank and other borrowings. See the

paragraph headed ‘‘Indebtedness’’ below.

Profit Before Tax

Comparison between 2018 and 2019. As a result of the foregoing factors, our profits

before tax increased by approximately 74.5% to approximately RMB58.7 million for the

year ended 31 December 2019 from approximately RMB33.6 million for the year ended 31

December 2018.

Comparison between 2017 and 2018. As a result of the foregoing factors, our profits

before tax increased by approximately 104.3% to approximately RMB33.6 million for the

year ended 31 December 2018 from approximately RMB16.5 million for the year ended 31

December 2017.


– 250 –




Income tax expense

Our income tax primarily consists of PRC enterprise income tax (EIT) and deferred

income tax during the same year. The following table sets forth the breakdown of our

income tax for the periods indicated:


2017 2018 2019

RMB’000

Current

— Charge for the year 4,506 9,894 14,901

— Overprovision in prior years (74) (5) 23

Deferred (556) (1,462) (1,905)

Total 3,876 8,427 13,019

Under the EIT Law and the Implementation Regulations of the EIT Law, our PRC

subsidiaries, Taifeng Cultural Communication and Yangfeng Art Exchange, have been

subject to the EIT rate of 25% during the Track Record Period. Other subsidiaries were

subject to the preferential EIT rate of 20% applicable to small low-profit enterprises and

enjoyed a preferential tax treatment of 50% to 75% deduction of the enterprise annual

taxable income during the Track Record Period. Pursuant to the rules and regulations of

the Cayman Islands and BVI, we were not subject to any income tax in the Cayman Islands

and BVI during the Track Record Period. We were not liable for income tax in Hong Kong

as we did not have any assessable profits arising in Hong Kong during the Track Record

Period. For the three years ended 31 December 2019, our income tax was approximately

RMB3.9 million, RMB8.4 million and RMB13.0 million, and our effective income tax rate

was approximately 23.6%, 25.1% and 22.2%, respectively.

During the Track Record Period and up to the Latest Practicable Date, we had fulfilled

all our tax obligations and did not have any unresolved tax disputes.

LIQUIDITY AND CAPITAL RESOURCES

We have historically met our funding requirements primarily with cash inflows

generated from our operating activities and borrowings. We expect to continue to fund our

operations mainly rely on our cash flow from operations to fund our working capital needs

and will use the [REDACTED] from the [REDACTED] to finance part of our business

expansion. See ‘‘Future Plans and Use of [REDACTED]’’ in this document for more details.


– 251 –




Cash flow

The following table sets forth a summary of our cash flows during the Track Record

Period:


2017 2018 2019

RMB’000

Net cash flows from/(used in) operating

activities 8,614 (1,089) 32,132

Net cash flows used in investing activities (712) (1,183) (1,317)

Net cash flows (used in)/from financing

activities (2,034) 4,911 (19,516)

Net increase in cash and cash equivalents 5,868 2,639 11,299

Cash and cash equivalents at beginning of

year 7,192 13,060 15,699

Cash and cash equivalents at end of year 13,060 15,699 26,988

Operating activities

Our cash flow generated from or used in operating activities are primarily affected by

our profit before tax, increase in prepayments, deposits and other receivables, increase in

other payables, income tax paid, and equity-settled share option expense.

Comparison between 2018 and 2019. Net cash flows from operating activities was

approximately RMB32.1 million for the year ended 31 December 2019 compared to net cash

flows used in operating activities of approximately RMB1.1 million for the year ended 31

December 2018 which primarily reflected the combined effects of (i) an increase in our

profit before tax of approximately RMB25.1 million; (ii) a greater increase in other

payables and accruals of approximately RMB4.1 million for the year ended 31 December

2018 as compared to approximately RMB11.1 million for the year ended 31 December 2019;

(iii) a lesser increase in prepayments, deposits and other receivables of approximately

RMB34.7 million for the year ended 31 December 2018 as compared to approximately

RMB30.0 million for the year ended 31 December 2019; (iv) an approximately RMB2.4

million increase in income tax paid; and (v) an approximately RMB2.1 million decrease in

equity-settled share option expense.

Comparison between 2017 and 2018. We had net cash flows used in operating activities

of approximately RMB1.1 million for the year ended 31 December 2018 as compared to net

cash flows from operating activities of approximately RMB8.6 million for the year ended 31

December 2017 which primarily reflected the combined effects of (i) a greater increase in

prepayments, deposits and other receivables of approximately RMB10.3 million for the year

ended 31 December 2017 as compared to approximately RMB34.7 million for the year


– 252 –




ended 31 December 2018, primarily because the number of paintings entrusted to us by

sellers increased in 2018; (ii) an approximately RMB4.7 million increase in income tax paid;

(iii) an approximately RMB17.2 million increase in profits before tax; and (iv) an

approximately RMB2.1 million increase in equity-settled share option expense.

Investing activities

Our investing activities primarily include purchases of items of property, plant and

equipment.

Comparison between 2018 and 2019. Net cash flow used in investing activities decreased

by approximately 11.3% to approximately RMB1.3 million for the year ended 31 December

2019 from approximately RMB1.2 million for the year ended 31 December 2018.

Comparison between 2017 and 2018. Net cash flow used in investing activities increased

by approximately 66.2% to approximately RMB1.2 million for the year ended 31 December

2018 from approximately RMB0.7 million for the year ended 31 December 2017. The

increase in net cash flow used in investing activities was primarily due to an approximately

RMB0.5 million increase in purchases of items of property, plant and equipment, primarily

because of the large amount of cash we invested in 2018 to purchase office equipment and

fixtures.

Financing activities

Our financing activities primarily include dividend paid, repayments of interest-

bearing bank borrowings, new interest-bearing bank borrowings and principal portion of

lease liabilities.

Comparison between 2018 and 2019. We had net cash flows used in financing activities

of RMB19.5 million for the year ended 31 December 2019 compared to net cash from

financing activities of approximately RMB4.9 million for the year ended 31 December 2018.

This change was primarily due to the payment of dividend in the amount of approximately

RMB19.3 million in 2019.

Comparison between 2017 and 2018. We had net cash from financing activities of

approximately RMB4.9 million for the year ended 31 December 2018 compared to net cash

used in financing activities of approximately RMB2.0 million for the year ended 31

December 2017. This change was primarily due to approximately RMB8.0 million of new

interest-bearing bank borrowings in 2018 to fund our working capital.


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Working Capital

We are of the opinion that, taking into account the [REDACTED] from the

[REDACTED] and the financial resource available to us, including cash and bank

balances, cash flows from operating activities, and proceeds from financing instruments,

our Directors believe that we have sufficient working capital for our present requirements,

that is at least 12 months from the date of this document.

ASSETS AND LIABILITIES

In order to ensure appropriate liquidity management and capital allocation, we

dynamically monitor the size and composition of our balance sheet and seek to maintain a

liquid balance sheet. The major portion of our balance sheet consists of current assets and

liabilities, on account of the highly liquid nature of our business.

Current assets and liabilities

The following table sets forth the components of our current assets and liabilities as at

the dates indicated.

As at 31 December

As at

30 April

2017 2018 2019 2020

RMB’000

(unaudited)

CURRENT ASSETS

Prepayments, deposits and other

receivables 14,026 48,406 78,181 104,072

Tax recoverable 189 290 — —

Cash and cash equivalents 13,060 15,699 26,998 54,446

Total current assets 27,275 64,395 105,179 158,518

CURRENT LIABILITIES

Trade payables — 39 — 44

Other payables and accruals 7,229 11,233 22,355 25,105

Amounts due to related parties 2,638 808 1,844 4,387

Interest-bearing bank borrowings — 8,025 7,661 7,660

Lease liabilities 251 996 1,141 1,264

Tax payables 1,238 3,106 7,242 5,144

Total current liabilities 11,356 24,207 40,243 43,604

Current assets increased by approximately 136.1% from approximately RMB27.3

million as at 31 December 2017 to approximately RMB64.4 million as at 31 December 2018,

primarily attributable to an approximately RMB34.4 million increase in our prepayments,

deposits and other receivables. Current assets further increased by approximately 63.4% to


– 254 –




approximately RMB105.2 million as at 31 December 2019, primarily attributable to an

approximately RMB29.8 million increase in our prepayments, deposits and other

receivables and an approximately RMB11.3 million increase in cash and cash equivalents.

Current assets further increased by approximately 50.7% to approximately RMB158.5

million as at 30 April 2020, primarily attributable to an approximately RMB25.9 million

increase in our prepayments, consignment deposits and other receivables, primarily due to

the increased consignment deposits we advanced to certain sellers to incentive them to sell

their contemporary Chinese paintings on our platform, and an approximately RMB27.4

million increase in cash and cash equivalents, primarily due to the receipt of [REDACTED]

investment proceeds.

Current liabilities increased by approximately 113.1% from approximately RMB11.4


primarily attributable to (i) an approximately RMB8.0 million increase in interest-bearing

bank borrowings to fund our working capital; and (ii) an approximately RMB4.0 million

increase in other payables and accruals. Current liabilities further increased by

approximately 66.2% to approximately RMB40.2 million as at 31 December 2019,

primarily attributable to an approximately RMB11.1 million increase in other payables

and accruals and an approximately RMB4.1 million increase in tax payables, primarily due

to an increase in income tax payable as a result of a rise in profit before tax. Current

liabilities increased by approximately 8.3% to approximately RMB43.6 million as at 30

April 2020, primarily attributable to an approximately RMB2.8 million increase in other

payables and accruals and an approximately RMB2.5 million increase in due to related

parties, partially offset by an approximately RMB2.1 million decrease in tax payables.

Prepayments, consignment deposits and other receivables

The following table sets forth a breakdown of our prepayment, deposits and other

receivables as at the dates indicated:

As at 31 December

2017 2018 2019

RMB’000

Deposits 13,599 48,276 76,491

Prepayments 384 345 1,747

Other tax recoverables 17 26 —

Other receivables 135 145 505

14,135 48,792 78,793

Impairment allowance (109) (386) (612)

14,026 48,406 78,181


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Deposits represented the amount of consignment deposits we advance to certain sellers

to incentivize them to sell their contemporary Chinese paintings on our platform. Whether

we provide such amount and the amount to be advanced is generally determined through

negotiation between us and the sellers. As at 31 December 2017, 2018 and 2019, the

aggregate amount of consignment deposits to sellers amounted to approximately RMB13.6

million, RMB48.3 million and RMB76.5 million, respectively. See ‘‘Business — Our

business — Pricing — Consignment Deposits to Sellers’’ for more details. Our consignment

deposits increased significantly from approximately RMB13.6 million as at 31 December

2017 to approximately RMB48.3 million as at 31 December 2018, and further to

approximately RMB76.5 million as at 31 December 2019, which reflected the increasing

number of Chinese contemporary paintings we have on our platform consigned to us as a

result of our efforts to promote our Agency Services. In addition, our prepayments

increased significantly from RMB0.3 million as at 31 December 2018 to approximately

RMB1.7 million as at 31 December 2019, primarily attributable to an approximately

RMB1.5 million increase in prepaid [REDACTED].

The following table sets forth the movement of the consignment deposits for the period

indicated.

For the year ended 31 December

2017 2018 2019

RMB’000

Balance at the beginning of the period 3,483 13,599 48,276

Increase(1) 148,251 391,479 536,797

Decrease(2) (138,135) (356,802) (508,582)

Balance at the end of the period 13,599 48,276 76,491

Note:

(1) the total sum of consignment deposits we advanced to our sellers during the period.

(2) the total sum of consignment deposits where we have utilized upon receiving the full payment of the

sale price and have paid the net sale proceeds to the sellers during the period (excluding commission

from sellers and the consignment deposits of contemporary Chinese paintings). For more details, see

‘‘Business — Pricing — Consignment Deposits to Sellers’’ in this document.


– 256 –




The following table sets forth the aging analysis of our consignment deposits advanced

to sellers as at the date indicated.

As at 31 December

2017 2018 2019

RMB’000

Within 1 month 11,470 5,364 20,057

1 to 3 months 1,015 7,851 35,500

3 to 6 months 846 11,225 18,134

6 to 12 months 159 23,450 2,188

At end of year 13,490 47,890 75,879

The balance of the consignment deposits aging over 12 months as of 31 December 2018

increased significantly from approximately RMB0.2 million as of 31 December 2017 to

approximately RMB23.5 million as of 31 December 2018, primarily because it was our

strategic decision to accumulate consigned paintings over the year in preparation for the

launch of our Tyfon Art Gallery Platform in 2019 where they would be exhibited.

As at 30 April 2020, 72.6% or RMB55.5 million of the RMB76.5 million of

consignment deposits as at 31 December 2019, were utilized. Expected credit losses are

estimated by applying the probability of default approach with reference to credit ratings of

similar exposures. The probability of default is adjusted to reflect the current conditions

and forecasts of future economic conditions, as appropriate. The probability of default as at

31 December 2017, 2018 and 2019 were estimated to be 0.8% with a loss given default of

100%.

Other payables and accruals

As at 31 December

2017 2018 2019

RMB’000

Payroll payables 6,583 10,325 15,693

Other tax payables 596 745 1,204

Contract liabilities — 186 172

Other payables 50 84 5,379

Total 7,229 11,340 22,448

Our other payables and accruals primarily represented payroll payables, other tax

payables and other payables. Our other payables and accruals increased from

approximately RMB7.2 million as at 31 December 2017 to approximately RMB11.3

million as at 31 December 2018 primarily due to an increase in payroll payables from

approximately RMB6.6 million for the year ended 31 December 2017 to RMB10.3 million


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for the year ended 31 December 2018. Our other payables and accruals further increased to

approximately RMB22.4 million primarily as a result of the increase in payroll payables

from approximately RMB10.3 million for the year ended 31 December 2018 to

approximately RMB15.7 million for the year ended 31 December 2019, and an increase

of other payables, which include the accrued [REDACTED] in the sum of approximately

[REDACTED] in 2019.

Amounts due from/to related parties

The following table summarises the balance of our amounts due from/to related parties

as at the dates indicated:

(i) Due from related parties:

As at 31 December

Name 2017 2018 2019

RMB’000

Ms. Lu Rongqin 194 160 595

Mr. Qian Daichun — — 192

Mr. Ding Guangya — 128 —

194 288 787

During the Track Record Period, we provided Second Hand Painting Agency

Services to certain of our related parties. The amounts due from related parties as at 31

December 2017, 2018 and 2019 represented the consignment deposits we made to

certain of our related parties and their paintings consigned to us for sale on our

platform.

Our amounts due from related parties are unsecured, non-interest-bearing and

repayable within one year. Mr. Qian Daichun is the spouse of Ms. Wen Hongya, one of

our executive Directors.

(ii) Due to related parties:

As at 31 December

Name 2017 2018 2019

RMB’000

Ms. Hu 2,217 799 1,844

Changfeng Gallery 421 9 —

2,638 808 1,844


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During the Track Record Period, from time to time, we made or received advances

to/from and received or made repayments from/to certain of our related parties. Our

amount due to Changfeng Gallery as of 31 December 2018 was fully settled in 2019,

and our amount due to Ms. Hu of approximately RMB1.8 million as of 31 December

2019 was fully settled in June 2020.

Our amounts due to related parties were unsecured, non-interest bearing and non-

trade in nature an except the amount due to Ms. Hu in the sum of RMB250,000 as at

31 December 2018, which was non-trade in nature and repayable within a year, all of

our amounts due to related parties were repayable on demand.

Non-current Assets and Non-current Liabilities

The following table sets forth our non-current assets and non-current liabilities as at

the dates indicated:

As at 31 December

2017 2018 2019

RMB’000

NON-CURRENT ASSETS

Property, plant and equipment 929 1,794 2,452

Right-of-use assets 967 1,744 3,325

Deferred tax assets 1,278 2,740 4,645

Total non-current assets 3,174 6,278 10,422

NON-CURRENT LIABILITIES

Other payables and accruals — 107 93

Lease liabilities 342 463 2,361

Total non-current liabilities 342 570 2,454

Non-current assets increased by approximately 97.8% from approximately RMB3.2


primarily attributable to (i) an approximately RMB0.9 million increase in property, plant

and equipment; and (ii) an approximately RMB1.5 million increase in deferred tax assets,

primarily due to an increase in equity-settled share option expense of approximately

RMB0.5 million in 2018. Non-current assets further increased by approximately 66.0% to

RMB10.4 million as at 31 December 2019, primarily attributable to (i) an approximately

RMB1.6 million increase in right-of-use assets, primarily due to a net increase of

approximately RMB1.7 million in new leases for our headquarters and other renewed

office leases in 2019; and (ii) an approximately RMB1.9 million increase in deferred tax

assets, primarily due to an increase of accrued expenses of approximately RMB2.2 million

in 2019.


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Non-current liabilities increased by approximately 66.7% from approximately

RMB0.3 million as at 31 December 2017 to approximately RMB0.6 million as at 31

December 2018 and then substantially increased by approximately 330.5% to

approximately RMB2.5 million as at 31 December 2019, as we entered into certain new

leases in 2019 with lease term of more than one year.

INDEBTEDNESS, CONTINGENT LIABILITIES AND OFF-BALANCE SHEET

COMMITMENTS AND ARRANGEMENTS

Indebtedness

The table below sets forth our indebtedness balances as at the dates indicated:

As at 31 December

As at

30 April

20202017 2018 2019

RMB’000

Bank Loans

Current — secured — 8,025 7,661 7,661

We had no bank loans as at 31 December 2017. As at 31 December 2018 and 2019 and

30 April 2020, our interest-bearing bank loans amounted to approximately RMB8.0

million, RMB7.7 million and RMB7.7 million, all of which were guaranteed by Ms. Hu. The

loans in the sum of approximately RMB7.7 million have been repaid in full and as such the

guarantees by Ms. Hu on said loans have been released accordingly. Our Directors confirm

that there were no breach of any covenants relating to our banking facilities during the

Track Record Period and up to the Latest Practicable Date.

Contingent Liabilities

As at 30 April 2020, we were not involved in any material legal, arbitration or

administrative proceedings that if adversely determined, we expect would materially

adversely affect our financial position or results of operations, although there can be no

assurance that this will be the case in the future.

Save from the foregoing, as at 30 April 2020, we did not have any outstanding

mortgages, charges, debentures, other issued debt capital, bank overdrafts, loans, liabilities

under acceptance or other similar indebtedness, hire purchase and finance lease

commitments, any guarantees or other material contingent liabilities.

During the Track Record Period, we did not have any material default on our

indebtedness, and as at the Latest Practicable Date, all of our outstanding loan were not

subject to any material restrictive covenants.


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Off-Balance Sheet Commitments and Arrangements

As at the Latest Practicable Date, we had not entered into any off-balance sheet

transactions.

Contractual Obligations and Commitments

Our Directors have confirmed that our Group did not have any material contractual

obligations or commitment as at 30 April 2020.

CAPITAL EXPENDITURES

Our historical capital expenditures primarily included property, plant and equipment.The following table sets forth our capital expenditures for the periods presented:


2017 2018 2019

RMB’000

Property, plant and equipment 749 1,233 1,377

Our capital expenditure is expected to be RMB5.0 million for the year ending 31December 2020, which we will use primarily for renovation and office equipment andfixtures for setting up regional offices. We plan to fund our planned capital expenditureusing cash flows generated from operating activities and the [REDACTED] received fromthe [REDACTED].

RELATED PARTY TRANSACTIONS

We enter into transactions with our related parties from time to time. It is the view ofour Directors that each of the related party transactions set out in note 27 to theAccountant’s Report in Appendix I to this document were conducted in the ordinary courseof business on an arm’s length basis and with normal commercial terms between therelevant parties. Our Directors are also of the view that our related party transactionsduring the Track Record Period would not distort our track record results or make ourhistorical results not reflective of our future performance.

KEY FINANCIAL METRICS

The following table sets forth our key financial metrics during the Track RecordPeriod:

As at and for the Year ended 31 December

2017 2018 2019

Current ratio (times)(1) 2.4 2.7 2.6Gearing ratio(2) — 17.5% 10.5%Return on equity(3) 67.1% 54.9% 62.6%Return on assets(4) 41.3% 35.7% 39.5%


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(1) Current ratio is our current assets divided by our current liabilities at the end of each financial

period.

(2) Gearing ratio is total debt divided by total equity at the end of each financial period. Total debt

equals our total interest-bearing bank borrowings.

(3) Return on equity is calculated by the net profit for the period divided by the closing balance of the

total equity.

(4) Return on assets is calculated by the net profit for the period divided by the closing balance of the

total assets.

Current ratio

Our current ratio increased from 2.4 as at 31 December 2017 to 2.7 as at 31 December

2018, primarily due to the comparatively higher percentage increase in current assets as

compared with current liabilities. Our total current assets increased from approximately

RMB27.3 million as at 31 December 2017 to approximately RMB64.4 million as at 31

December 2018, primarily due to increase in consignment deposits as a result of the

increased number of paintings consigned to us following our business expansion in 2018.

Our current ratio remained relatively stable at 2.6 as at 31 December 2019 as compared to

31 December 2018.

Gearing ratio

Our gearing ratio increased from nil as at 31 December 2017 to 17.5% as at 31

December 2018 primarily due to a new bank loan of approximately RMB8.0 million we

obtained in 2018. Our gearing ratio then decreased to approximately 10.5% as at 31

December 2019, which was primarily attributable to an increase of approximately 58.9% in

our equity as at 31 December 2019 compared to 2018, while our interest-bearing bank

borrowings decreased slightly by approximately 4.5% during the same period.

Return on equity

Our return on equity decreased from approximately 67.1% for the year ended 31

December 2017 to approximately 54.9% for the year ended 31 December 2018 mainly

because the increase in our equity outpaced the growth of our net profit. Our net profit

increased by approximately 100.3% for the year ended 31 December 2018 as compared to

the year ended 31 December 2017, while our equity increased by approximately 144.8% as a

result of retained profit and non-controlling interest recorded for the year ended 31

December 2018. Our return on equity then increased to approximately 62.6% for the year

ended 31 December 2019 as our net profit recorded a larger growth of approximately 81.3%

for the year ended 31 December 2019 as compared to our equity, which only increased by

approximately 58.9% during the same period primarily due to the combined effect of

retained profit and non-controlling interest recorded in 2019 as well as the cash dividends

declared and paid to our shareholders in 2019.


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Return on Assets

Our return on assets decreased from approximately 41.3% for the year ended 31

December 2017 to approximately 35.7% for the year ended 31 December 2018 was primarily

due to the significant growth of our total assets by approximately 132.1% as at 31

December 2018 compared to 2017 resulting from the increase in our consignment deposits

as a result of our business expansion, which outweighed the effect of the growth in our net

profit during the same period of approximately 100.3%. Our return on assets then increased

to approximately 39.5% for the year ended 31 December 2019 as our net profit recorded a

larger growth of approximately 81.3% for the year ended 31 December 2019 as compared to

our total assets, which only increased by approximately 63.6% during the same period.

FINANCIAL RISK DISCLOSURE

We are exposed to a variety of financial risks which include interest rate risk, foreign

currency risk, credit risk and liquidity risk. We regularly monitor our exposure to these

risks. Our Board reviews and agrees policies for managing each of these risks and they are

summarised below. See note 30 in ‘‘Appendix I — Accountants’ Report’’ of this document

for more details.

Interest rate risk

Our Group’s exposure to the risk of changes in market interest rates relates primarily

to our interest-bearing bank borrowings. Some of these interest-bearing bank borrowings

were obtained at floating interest rates, which have exposed our Group to interest rate risk.

See note 20 in ‘‘Appendix I — Accountants’ Report’’ of this document for more details on

the interest rates and terms of repayment of our Group’s borrowings. The possible

reasonable changes in interest rates do not have significant impact to our Group’s profit or

loss and equity.

Foreign currency risk

Foreign currency risk is the risk of loss resulting from changes in foreign currency

exchange rates. Fluctuations in exchange rates between RMB and other currencies in which

our Group conducts business may affect our Group’s financial condition and results of

operations. Our Group seeks to limit its exposure to foreign currency risk by minimising its

net foreign currency position.

Credit risk

Our Group trades only with recognised and creditworthy third parties. It is our

Group’s policy that all customers who wish to trade on credit terms are subject to credit

verification procedures. In addition, receivable balances are monitored on an ongoing basis

and our Group’s exposure to bad debts is not significant.


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Liquidity risk

Our Group’s objective is to maintain a balance between continuity of funding and

flexibility through the use of bank overdrafts, bank loans and lease liabilities. Our Group

regularly reviews its major funding positions to ensure that it has adequate financial

resources in meeting its financial obligations.

DIVIDENDS

Under the Articles of Association, our Company in general meeting may declare

dividends to be paid to the shareholders but no dividend shall be declared in excess of the

amount recommended by the Board. The Articles of Association provide dividends may be

declared and paid out of the profits of the Company, realized or unrealized, or from any

reserve set aside from profits which the Directors determine is no longer needed. With the

sanction of an ordinary resolution dividends may also be declared and paid out of the credit

standing in the Company’s share premium account or any other fund or account which can

be authorized for this purpose in accordance with the Companies Law. During the Track

Record Period, we have declared to make (i) dividend distribution of approximately

RMB21.6 million to our then shareholders in 2018, respectively, all of which was capitalized

to the paid-in capital of Taifeng Culture Communication; and (ii) dividend distribution of

approximately RMB22.1 million to our then shareholders in 2019, approximately RMB19.3

million of which was paid to our then shareholders in cash and the remainder of

approximately RMB2.8 million was capitalized to the paid-in capital of Taifeng Culture

Communication. We have no plan to distribute the retained earnings of the subsidiaries

established in the PRC in the future as we intend to retain such earnings for operating and

expanding our business in the PRC.

We are a holding company incorporated under the laws of the Cayman Islands. As a

result, our ability to declare and pay out dividends will depend on the availability of

sufficient funds from wholly foreign owned enterprises and our integrated affiliated entities

incorporated in China. As advised by PRC Legal Advisers, in accordance with relevant

PRC laws and regulations, PRC companies are required to set aside an amount of not less

than 10% of the after-tax profit to the general provision, until the accumulated amount of

such provision reaches 50% of its registered capital, unless otherwise provided by laws and

regulations related to the foreign investment, in which case such provision shall prevail.

The amount of dividend actually distributed to our shareholders will depend upon our

earnings and financial condition, operating requirements, capital requirements and any

other conditions that our Directors may deem relevant and will be subject to approval of

our shareholders. Our Board has the absolute discretion to recommend any dividend. We

cannot assure that dividends of any amount will be declared or be distributed in any year.

Currently we do not have a formal dividend policy or a fixed dividend distribution ratio.

DISTRIBUTABLE RESERVES

As at 31 December 2019, our Company had approximately RMB28.5 million in

retained earnings, as determined under IFRS, available for distribution to our shareholders.


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[REDACTED] EXPENSES

[REDACTED] expenses represent professional fees, [REDACTED] and other fees

incurred in connection with the [REDACTED] and the [REDACTED]. We estimate that our

[REDACTED] expenses will be approximately [REDACTED] (assuming an [REDACTED]

of [REDACTED] per share, being the mid-point of the indicative [REDACTED] range and

assuming that the [REDACTED] is not exercised. During the Track Record Period,

approximately [REDACTED] has been charged to our consolidated statement of profit or

loss and other comprehensive income as [REDACTED] expenses. After 31 December 2019,

we expect that approximately [REDACTED] will be charged to our statements of profit or

loss and other comprehensive income as [REDACTED] expenses, and approximately

[REDACTED] will be accounted for as a deduction from equity upon the [REDACTED].

The [REDACTED] expenses above are the latest practicable estimate for reference only, and

the actual amount may differ from this estimate. Our Directors do not expect such

[REDACTED] expenses to have a material adverse impact on our results of operation for

the year ending 31 December 2020.

[REDACTED] ADJUSTED NET TANGIBLE ASSETS

The following [REDACTED] statement of adjusted net tangible assets of our Company

prepared in accordance with Rule 4.29 of the Listing Rules is for illustration purposes only

and it may not give a true picture of our net tangible assets following the [REDACTED].

The following statement of [REDACTED] adjusted net tangible assets of our Company is

set out here to illustrate the effect of the [REDACTED] on our net tangible assets

attributable to the shareholders of the Company as at 31 December 2019, as if the

[REDACTED] had taken place on 31 December 2019, and is based on the audited net assets

of the Company derived from the financial statement in the Accountants’ Report in

Appendix I to this document, and adjusted as described below.

Audited net

tangible assets

attributable to

the Shareholders

of our Company

as at

31 December

2019(1)

Estimated

[REDACTED]

from the

[REDACTED](2)(3)

[REDACTED]

adjusted

net tangible

assets of our

Company as at

31 December

2019(4)

[REDACTED] adjusted

net tangible assets per Share(3)(5)

(RMB’000) (RMB’000) (RMB’000) (RMB) (HK$)

Based on the

[REDACTED] of

[REDACTED] per Share

(being the lowest) 65,789 [REDACTED] [REDACTED] [REDACTED] [REDACTED]

Based on the

[REDACTED] of

[REDACTED] per Share

(being the highest) 65,789 [REDACTED] [REDACTED] [REDACTED] [REDACTED]


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Notes:

(1) The net tangible assets attributable to the Shareholders of the Company as at 31 December 2019 is

based on the net assets attributable to shareholders of the Company as at 31 December 2019 of

approximately RMB65.8 million, as set out in Appendix I to this document.

(2) The estimated [REDACTED] from the [REDACTED] are based on the [REDACTED] of

[REDACTED] (being the minimum [REDACTED]) and [REDACTED] per [REDACTED] (being

the maximum [REDACTED]) and the assumption that there are [REDACTED] newly issued

[REDACTED] in the [REDACTED], after deduction of the [REDACTED] and other related

expenses payable by the Company, assuming that the [REDACTED] is not exercised and without

taking into account any discretionary incentive fees.

(3) The estimated [REDACTED] from the [REDACTED] and the [REDACTED] adjusted net tangible

assets per share are translated into Renminbi at the rate of RMB0.91 to HK$1.00, the exchange rate

set by the PBOC prevailing on 31 December 2019. No representation is made that the Hong Kong

dollar amounts have been, could have been or could be converted to Renminbi, or vice versa, at that

rate or at any other rate.

(4) The [REDACTED] adjusted net tangible assets do not take into account our financial results or

other transactions subsequent to 31 December 2019.

(5) The [REDACTED] adjusted net tangible assets per share is arrived on the basis of [REDACTED]

shares in issue assuming that the [REDACTED] has been completed on 31 December 2019 and that

the [REDACTED] is not exercised.

NO MATERIAL ADVERSE CHANGE

Save as disclosed in this document, our Directors confirm that, up to the date of this

document, there has been no material adverse change in our financial or trading position

since 31 December 2019 (being the date on which the latest audited combined financial

information of our Group was prepared) and there is no event since 31 December 2019

which would materially affect the information shown in our Consolidated financial

statements included in the Accountants’ Report in Appendix I to this document.

DISCLOSURE UNDER RULES 13.13 TO 13.19 OF THE LISTING RULES

Our Directors confirm that, except as otherwise disclosed in this document, as at the

Latest Practicable Date, there was no circumstance that would give rise to a disclosure

requirement under Rules 13.13 to 13.19 of the Listing Rules.


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financial information...approximately 18.4% according to the frost &sullivan report. see...

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