Financial Performance - Revenue for the six months ended June 30, 2022, was HK$1,159,157,000, representing a 38.5% increase from HK$836,761,000 in the same period of 2021[8] - Gross profit for the period was HK$467,085,000, with a gross margin of approximately 40.3%, compared to HK$254,852,000 in 2021[8] - Profit for the period attributable to owners of the Company was HK$203,191,000, a significant increase from HK$59,256,000 in the prior year, reflecting a growth of 242%[8] - Basic earnings per share increased to HK$10.01 from HK$2.92, indicating strong profitability growth[8] - Total comprehensive income for the period was HK$151,747,000, compared to HK$71,370,000 in 2021, marking a 112.5% increase[10] - The Company reported operating profit of HK$239,722,000, up from HK$76,454,000 in the previous year, showing a growth of 213%[8] - The Group's total other income for the six months ended June 30, 2022, was HK$24,880,000, significantly up from HK$13,490,000 in 2021, marking an increase of approximately 84.5%[45] - The Group's profit before taxation for the six months ended June 30, 2022, was impacted by various costs, including depreciation and amortization, totaling HK$10,879,000, HK$12,150,000, and HK$16,009,000 respectively[48] - Current taxation for the six months ended June 30, 2022, was HK$18,861,000, compared to HK$4,498,000 in 2021, showing a significant increase[50] Assets and Liabilities - Total assets increased to HK$3,456,568, up 21.7% from HK$2,840,990 as of December 31, 2021[12] - Current assets rose to HK$2,748,940, representing a 20.3% increase from HK$2,286,530 at the end of 2021[12] - Total liabilities increased to HK$2,069,392, up from HK$1,566,993, indicating a rise in financial obligations[14] - Non-current liabilities decreased to HK$14,732 from HK$27,441, reflecting a reduction in lease liabilities[14] - Trade receivables as of June 30, 2022, totaled HK$667,219,000, an increase from HK$536,284,000 as of December 31, 2021, showing a growth of approximately 24.4%[59] - Current trade payables amounted to HK$371,030,000 as of June 30, 2022, compared to HK$207,890,000 as of December 31, 2021, reflecting an increase of about 78.5%[61] - The Group's net current assets increased to HK$1,063.2 million as of June 30, 2022, up from HK$769.5 million as of December 31, 2021[90] Cash Flow and Financing - Net cash flows generated from operating activities were HK$153,020, compared to a net cash outflow of HK$138,642 in the same period last year[18] - Cash and cash equivalents at the end of the period were HK$610,045, an increase of 17.6% compared to HK$517,932 in the previous year[20] - The Group reported a net increase in cash and cash equivalents of HK$115,567, compared to HK$255,420 in the previous year[20] - As of June 30, 2022, the Group's bank and other borrowings amounted to HK$643.1 million, all due within one year and denominated in Renminbi, compared to HK$672.7 million as of December 31, 2021[90] - The Group had committed borrowing facilities available but not drawn amounting to HK$749.4 million as of June 30, 2022[90] Operational Costs - Administrative expenses were HK$212,592,000, which is an increase from HK$156,249,000 in 2021, indicating a rise in operational costs[8] - Selling and marketing costs decreased by 18.9% to HK$34.7 million, with the percentage of these costs to revenue dropping from 5.1% to 3.0%[84] - Research and development costs recognized as an expense amounted to HK$158,517,000 for the six months ended June 30, 2022, compared to HK$108,036,000 in 2021, reflecting a rise of approximately 46.7%[48] - Research and development costs amounted to HK$158.5 million, representing 13.7% of revenue, up from 12.9% in the previous year[87] Market and Product Development - The Company aims to expand its market presence and enhance product offerings, focusing on new technology development and strategic partnerships[7] - Demand for eSIM chips, intelligent connected vehicle secure element chips, and high-end SIM chips saw significant growth, contributing to increased sales volume[82] - The timing of demand for identity authentication products has shifted to the second half of 2022, expected to compensate for the shortfall in the first half[82] - The Group's integrated circuits design operation focuses on sectors such as identity authentication, financial payment, and Internet of Things[79] - The domestic integrated circuits industry's production capacity is expected to remain tight in 2022, with a slight easing anticipated by mid-2023[89] - The Group plans to strengthen upstream and downstream cooperation in the industrial chain to enhance competitiveness in the security chip industry[89] - Demand for security chips is expected to grow due to emerging applications in 5G, intelligent connected vehicles, and the Internet of Things[89] Corporate Governance - The Group's financial statements have been prepared in accordance with HKFRSs and HKASs, ensuring compliance with the applicable disclosure requirements[22] - The Company has complied with all applicable code provisions in the Corporate Governance Code throughout the six months ended June 30, 2022[103] - All directors confirmed full compliance with the Model Code for Securities Transactions throughout the six months ended June 30, 2022[104] - The Company emphasizes accountability, transparency, independence, responsibility, and fairness in its corporate governance practices[103] Shareholder Information - The Group did not declare any dividend for the six months ended June 30, 2022, consistent with the previous year[9] - As of June 30, 2022, China Electronics Corporation (BVI) Holdings Company Limited held 812,500,000 shares, representing 40.03% of the issued share capital[98] - Huada Semiconductor Co., Ltd held 1,206,180,000 shares, representing 59.42% of the issued share capital as of June 30, 2022[98] - The Company did not purchase, sell, or redeem any of its shares during the six months ended June 30, 2022[102]

Corporate Information [Board of Directors](index=3&type=section&id=Board%20of%20Directors) The company discloses the composition of its Board of Directors, including executive, non-executive, and independent non-executive directors, along with committee chairs and members - The Board of Directors includes Chairman Xu Haidong (Non-executive Director) and Vice Chairman and Managing Director Liu Hongzhou (Executive Director)[5](index=5&type=chunk) [Company Secretary and Registered Office](index=3&type=section&id=Company%20Secretary) Details the company secretary, Mr. Ng Kui Kwan, and the addresses of the registered office in Bermuda and the principal place of business in Hong Kong - The Company Secretary is Ng Kui Kwan, with the registered office in Bermuda and the principal Hong Kong office in China Resources Building, Wan Chai[5](index=5&type=chunk) [Investor Relations and Stock Code](index=4&type=section&id=Investor%20Relations) Provides contact information for investor relations, including phone, fax, website, and email, along with the company's stock code on the Hong Kong Stock Exchange - The stock code is **00085**, and investors can contact via phone (852) 2598 9088 or email investor@cecht.com.hk[6](index=6&type=chunk) [Principal Bankers and Share Registrars](index=4&type=section&id=Principal%20Bankers) Lists the company's principal bankers, such as Bank of Beijing and Bank of China (Hong Kong), along with its principal and Hong Kong share registrars - Principal bankers include Bank of Beijing and Bank of China (Hong Kong), with Tricor Abacus Limited serving as the Hong Kong share registrar[6](index=6&type=chunk) [Independent Auditor and Legal Advisers](index=4&type=section&id=Independent%20Auditor) Discloses PricewaterhouseCoopers as the company's independent auditor and Freshfields Bruckhaus Deringer as its legal advisers - The independent auditor is PricewaterhouseCoopers, and legal advisers are Freshfields Bruckhaus Deringer[6](index=6&type=chunk) CONSOLIDATED STATEMENT OF PROFIT OR LOSS [Overview of Consolidated Statement of Profit or Loss](index=5&type=section&id=Consolidated%20Statement%20of%20Profit%20or%20Loss) For the six months ended June 30, 2021, revenue increased by **16.8%** to **HKD 836.8 million**, but profit for the period decreased by **14.1%** to **HKD 59.0 million**, primarily due to lower operating profit and a shift from profit to loss in share of results of associates Key Figures from Consolidated Statement of Profit or Loss for the Six Months Ended June 30, 2021 | Metric | 2021 (Thousand HKD) | 2020 (Thousand HKD) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 836,761 | 716,443 | 16.8% | | Cost of sales | (581,909) | (462,669) | 25.8% | | Gross profit | 254,852 | 253,774 | 0.4% | | Other income | 13,490 | 14,304 | -5.8% | | Selling and marketing costs | (42,798) | (38,101) | 12.3% | | Administrative expenses | (156,249) | (136,555) | 14.4% | | Net reversal of impairment loss on trade and other receivables/(impairment loss) | 7,159 | (7,714) | N/A | | Operating profit | 76,454 | 85,708 | -10.8% | | Finance costs – net | (12,875) | (47,313) | -72.8% | | Share of results of associates | (36) | 38,229 | N/A | | Profit before taxation | 63,543 | 76,624 | -17.1% | | Taxation | (4,498) | (7,863) | -42.8% | | Profit for the period | 59,045 | 68,761 | -14.1% | | Profit attributable to owners of the Company | 59,256 | 67,547 | -12.3% | | Non-controlling interests | (211) | 1,214 | N/A | - Revenue increased by **16.8%** year-on-year, primarily driven by increased sales of integrated circuit products[8](index=8&type=chunk) - Profit for the period decreased by **14.1%** year-on-year, mainly due to a **10.8%** decline in operating profit and a shift from profit to loss in share of results of associates[8](index=8&type=chunk) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME [Overview of Consolidated Statement of Comprehensive Income](index=6&type=section&id=Consolidated%20Statement%20of%20Comprehensive%20Income) For the six months ended June 30, 2021, total comprehensive income significantly increased to **HKD 71.4 million**, primarily due to a positive shift in exchange differences on translation of financial statements Key Figures from Consolidated Statement of Comprehensive Income for the Six Months Ended June 30, 2021 | Metric | 2021 (Thousand HKD) | 2020 (Thousand HKD) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Profit for the period | 59,045 | 68,761 | -14.1% | | Other comprehensive income (after tax) | | | | | Exchange differences on translation of financial statements (may be reclassified to profit or loss) | 17,085 | (40,650) | N/A | | Exchange differences on translation of the Company's financial statements (will not be reclassified to profit or loss) | (4,760) | – | N/A | | Total comprehensive income for the period | 71,370 | 28,111 | 153.9% | | Total comprehensive income attributable to owners of the Company | 71,531 | 26,593 | 168.9% | | Non-controlling interests | (161) | 1,518 | N/A | - Total comprehensive income for the period significantly increased by **153.9%** year-on-year, mainly due to exchange differences on translation of financial statements shifting from a negative value in 2020 to a positive value in 2021[10](index=10&type=chunk) CONSOLIDATED STATEMENT OF FINANCIAL POSITION [Overview of Assets](index=7&type=section&id=ASSETS) As of June 30, 2021, total assets increased to **HKD 2,630.4 million**, primarily driven by significant increases in trade and other receivables and cash and cash equivalents within current assets Key Asset Figures from Consolidated Statement of Financial Position as of June 30, 2021 | Metric | June 30, 2021 (Thousand HKD) | December 31, 2020 (Thousand HKD) | Change (%) | | :--- | :--- | :--- | :--- | | **Non-current assets** | | | | | Property, plant and equipment | 44,262 | 43,784 | 1.1% | | Right-of-use assets | 64,256 | 63,059 | 1.9% | | Investment properties | 52,424 | 51,494 | 1.8% | | Intangible assets | 30,901 | 35,849 | -13.8% | | Investments in associates | 16,083 | 15,936 | 0.9% | | Trade and other receivables | 1,646 | 1,627 | 1.2% | | Deferred tax assets | 49,124 | 50,615 | -2.9% | | **Total non-current assets** | **258,696** | **262,364** | **-1.4%** | | **Current assets** | | | | | Inventories | 504,372 | 500,110 | 0.8% | | Trade and other receivables | 802,978 | 542,355 | 48.0% | | Financial assets at fair value through profit or loss | 10,578 | 15,403 | -31.4% | | Short-term deposits | 324,488 | 715,368 | -54.6% | | Cash and cash equivalents | 729,296 | 465,411 | 56.7% | | Restricted cash | – | 61,228 | -100.0% | | **Total current assets** | **2,371,712** | **2,299,875** | **3.1%** | | **Total assets** | **2,630,408** | **2,562,239** | **2.7%** | - Current trade and other receivables significantly increased by **48.0%** to **HKD 802.9 million**, and cash and cash equivalents increased by **56.7%** to **HKD 729.3 million**[12](index=12&type=chunk) - Short-term deposits decreased by **54.6%** to **HKD 324.5 million**, and restricted cash became zero[12](index=12&type=chunk) [Overview of Equity and Liabilities](index=8&type=section&id=EQUITY%20AND%20LIABILITIES) As of June 30, 2021, total equity increased to **HKD 1,183.7 million**, while total liabilities slightly decreased, primarily due to the elimination of trade and other payables within non-current liabilities Key Equity and Liability Figures from Consolidated Statement of Financial Position as of June 30, 2021 | Metric | June 30, 2021 (Thousand HKD) | December 31, 2020 (Thousand HKD) | Change (%) | | :--- | :--- | :--- | :--- | | **Equity attributable to owners of the Company** | | | | | Share capital and premium | 225,454 | 825,454 | -72.7% | | Reserves | (427,997) | (651,237) | -34.3% | | Retained profits | 1,362,633 | 914,342 | 49.0% | | **Total equity attributable to owners of the Company** | **1,160,090** | **1,088,559** | **6.6%** | | Non-controlling interests | 23,650 | 23,811 | -0.7% | | **Total equity** | **1,183,740** | **1,112,370** | **6.4%** | | **Non-current liabilities** | | | | | Lease liabilities | 36,624 | 37,935 | -3.4% | | Trade and other payables | – | 15,936 | -100.0% | | Deferred tax liabilities | 11,365 | 12,474 | -8.9% | | **Total non-current liabilities** | **47,989** | **66,345** | **-27.7%** | | **Current liabilities** | | | | | Deferred government grants | 56,886 | 58,454 | -2.7% | | Contract liabilities | 9,304 | 11,760 | -20.9% | | Trade and other payables | 632,403 | 559,125 | 13.1% | | Bank and other borrowings | 660,994 | 712,300 | -7.1% | | Lease liabilities | 39,017 | 29,132 | 34.0% | | Current tax payable | 75 | 12,753 | -99.4% | | **Total current liabilities** | **1,398,679** | **1,383,524** | **1.1%** | | **Total liabilities** | **1,446,668** | **1,449,869** | **-0.2%** | | **Total equity and liabilities** | **2,630,408** | **2,562,239** | **2.7%** | - Retained profits significantly increased by **49.0%** to **HKD 1,362.6 million**, while share capital and premium decreased by **72.7%** to **HKD 225.5 million**, potentially related to adjustments in the statement of changes in equity[14](index=14&type=chunk) - Non-current trade and other payables became zero, leading to a **27.7%** decrease in total non-current liabilities[14](index=14&type=chunk) CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY [Overview of Condensed Consolidated Statement of Changes in Equity](index=9&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENT%20OF%20CHANGES%20IN%20EQUITY) As of June 30, 2021, total equity increased to **HKD 1,183.7 million**, primarily driven by an increase in total comprehensive income for the period, the transfer of share premium to contributed surplus, and the offsetting of accumulated losses Key Figures from Condensed Consolidated Statement of Changes in Equity as of June 30, 2021 | Metric | Share capital (Thousand HKD) | Share premium (Thousand HKD) | Reserves (Thousand HKD) | Retained profits (Thousand HKD) | Total equity attributable to owners of the Company (Thousand HKD) | Non-controlling interests (Thousand HKD) | Total equity (Thousand HKD) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | As at January 1, 2021 | 20,299 | 805,155 | (651,237) | 914,342 | 1,088,559 | 21,811 | 1,112,370 | | Total comprehensive income | . | . | 12,275 | 59,256 | 71,531 | (161) | 71,370 | | Transfer of share premium to contributed surplus | . | (600,000) | 600,000 | . | . | . | . | | Offset of accumulated losses of the Company | . | . | (389,035) | 389,035 | . | . | . | | As at June 30, 2021 | 20,299 | 205,155 | (427,997) | 1,362,633 | 1,160,090 | 23,650 | 1,183,740 | - A **HKD 600 million** share premium was transferred to reserves, while **HKD 389 million** of accumulated losses were offset, leading to a significant increase in retained profits[16](index=16&type=chunk) - Total comprehensive income for the period was **HKD 71.4 million**, positively impacting total equity[16](index=16&type=chunk) CONSOLIDATED STATEMENT OF CASH FLOWS [Cash flows from operating activities](index=10&type=section&id=Cash%20flows%20from%20operating%20activities) For the six months ended June 30, 2021, net cash used in operating activities was **HKD 138.6 million**, showing improvement from the prior period but remaining negative Cash Flows from Operating Activities for the Six Months Ended June 30, 2021 | Metric | 2021 (Thousand HKD) | 2020 (Thousand HKD) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Cash flows used in operations | (101,424) | (138,839) | -27.0% | | Interest paid | (20,424) | (50,704) | -59.7% | | Income tax paid | (16,794) | (12,646) | 32.8% | | **Net cash flows used in operating activities** | **(138,642)** | **(202,189)** | **-31.4%** | - Net cash used in operating activities decreased by **31.4%** year-on-year, indicating a reduction in operating cash outflow pressure[18](index=18&type=chunk) - Interest paid significantly decreased by **59.7%**, contributing to improved cash flow[18](index=18&type=chunk) [Cash flows from investing activities](index=10&type=section&id=Cash%20flows%20from%20investing%20activities) For the six months ended June 30, 2021, net cash generated from investing activities was **HKD 391.7 million**, primarily benefiting from a decrease in short-term deposits Cash Flows from Investing Activities for the Six Months Ended June 30, 2021 | Metric | 2021 (Thousand HKD) | 2020 (Thousand HKD) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Interest received | 10,755 | 4,448 | 141.8% | | Purchase of property, plant and equipment and intangible assets | (15,146) | (15,593) | -2.9% | | Proceeds from disposal of financial assets at fair value through profit or loss | 5,170 | – | N/A | | Decrease in short-term deposits | 390,880 | 191,842 | 103.7% | | Proceeds from disposal of property, plant and equipment | 55 | 29 | 89.7% | | **Net cash flows generated from investing activities** | **391,714** | **180,726** | **116.7%** | - A **HKD 390.9 million** decrease in short-term deposits was the primary source of cash inflow from investing activities[18](index=18&type=chunk) - Interest received significantly increased by **141.8%** year-on-year[18](index=18&type=chunk) [Cash flows from financing activities](index=11&type=section&id=Cash%20flows%20from%20financing%20activities) For the six months ended June 30, 2021, net cash generated from financing activities was **HKD 2.3 million**, a significant decrease from the prior period, mainly due to reduced proceeds from bank and other borrowings Cash Flows from Financing Activities for the Six Months Ended June 30, 2021 | Metric | 2021 (Thousand HKD) | 2020 (Thousand HKD) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Proceeds from bank and other borrowings | – | 275,083 | -100.0% | | Repayment of bank and other borrowings | (51,306) | (110,254) | -53.5% | | Decrease/(increase) in restricted cash | 61,228 | (54,740) | N/A | | Principal portion of lease payments | (7,574) | (5,075) | 49.2% | | **Net cash flows generated from financing activities** | **2,348** | **105,014** | **-97.8%** | - Proceeds from bank and other borrowings were zero, compared to **HKD 275.1 million** in the prior period, leading to a significant decrease in financing cash flow[20](index=20&type=chunk) - A **HKD 61.2 million** decrease in restricted cash provided cash inflow from financing activities[20](index=20&type=chunk) [Net increase in cash and cash equivalents](index=11&type=section&id=Net%20increase%20in%20cash%20and%20cash%20equivalents) As of June 30, 2021, cash and cash equivalents increased by **HKD 255.4 million**, with an ending balance of **HKD 729.3 million** Changes in Cash and Cash Equivalents for the Six Months Ended June 30, 2021 | Metric | 2021 (Thousand HKD) | 2020 (Thousand HKD) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Net increase in cash and cash equivalents | 255,420 | 83,551 | 205.7% | | Effect of exchange rate changes | 8,465 | (1,135) | N/A | | Cash and cash equivalents at beginning of period | 465,411 | 350,219 | 32.9% | | **Cash and cash equivalents at end of period** | **729,296** | **432,635** | **68.6%** | - Net increase in cash and cash equivalents grew by **205.7%** year-on-year, reaching an ending balance of **HKD 729.3 million**[20](index=20&type=chunk) Notes to the Condensed Consolidated Interim Financial Statements [1 Basis of preparation](index=12&type=section&id=1%20Basis%20of%20preparation) The condensed consolidated interim financial statements are prepared in accordance with Appendix 16 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and Hong Kong Accounting Standard 34 'Interim Financial Reporting', using the historical cost convention, with modifications for the revaluation of investment properties and certain financial assets at fair value - The financial statements comply with Appendix 16 of the Hong Kong Listing Rules and Hong Kong Accounting Standard 34[22](index=22&type=chunk) - The basis of preparation is the historical cost convention, with investment properties and some financial assets revalued at fair value[23](index=23&type=chunk) [2 Principal accounting policies](index=13&type=section&id=2%20Principal%20accounting%20policies) Accounting policies remain consistent with the 2020 annual consolidated financial statements, except for the initial adoption of new or revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards effective January 1, 2021, which have no significant impact on the Group's performance or financial position - Accounting policies are consistent with the 2020 annual consolidated financial statements, except for the initial adoption of new or revised standards effective January 1, 2021[26](index=26&type=chunk) - The adoption of new standards has no significant impact on the Group's performance and financial position[26](index=26&type=chunk) [3 Financial risk management](index=13&type=section&id=3%20Financial%20risk%20management) The Group's operations are exposed to market risks (including foreign exchange and interest rate), credit risk, and liquidity risk, with no significant changes in financial risk management policies since December 31, 2020 - The Group is exposed to market risks (foreign exchange, fair value interest rate, cash flow interest rate), credit risk, and liquidity risk[28](index=28&type=chunk) - There have been no significant changes in financial risk management policies since December 31, 2020[28](index=28&type=chunk) [3.1 Financial risk factors](index=13&type=section&id=3.1%20Financial%20risk%20factors) This section outlines the primary financial risk factors impacting the Group's operations - Operating activities are primarily exposed to market risks (foreign exchange, interest rate), credit risk, and liquidity risk[28](index=28&type=chunk) [3.2 Liquidity risk](index=14&type=section&id=3.2%20Liquidity%20risk) This section details the Group's management of liquidity risk, including the maturity analysis of financial liabilities - The maturity analysis of financial liabilities at the end of the reporting period is based on contractual undiscounted cash flows[30](index=30&type=chunk) [3.3 Fair value estimation](index=15&type=section&id=3.3%20Fair%20value%20estimation) This section describes the methodologies and key assumptions used for estimating the fair value of financial instruments and investment properties Fair Value Changes of Financial Assets as of June 30, 2021 | Metric | January 1, 2021 (Thousand HKD) | Exchange differences (Thousand HKD) | Fair value changes (Thousand HKD) | Disposals (Thousand HKD) | June 30, 2021 (Thousand HKD) | | :--- | :--- | :--- | :--- | :--- | :--- | | Wealth management products | 15,403 | 169 | 176 | (5,170) | 10,578 | - As of June 30, 2021, wealth management product investments primarily consist of principal-protected, non-guaranteed return RMB-denominated products issued by commercial banks in China, redeemable at any time or within three months[36](index=36&type=chunk) Fair Value Changes of Investment Properties as of June 30, 2021 | Metric | January 1, 2021 (Thousand HKD) | Exchange differences (Thousand HKD) | Fair value changes (Thousand HKD) | June 30, 2021 (Thousand HKD) | | :--- | :--- | :--- | :--- | | Investment properties | 51,494 | 592 | 338 | 52,424 | - The fair value of investment properties (Beijing office and parking spaces) is determined using the direct comparison approach, with a market price of **RMB 31,401** per square meter[40](index=40&type=chunk) [4 Revenue and segment information](index=17&type=section&id=4%20Revenue%20and%20segment%20information) For the six months ended June 30, 2021, the Group's revenue primarily derived from the sale of integrated circuit products, totaling **HKD 836.8 million**, with management viewing the business as a single operating segment and the vast majority of revenue and non-current assets originating from the Chinese market Revenue for the Six Months Ended June 30, 2021 | Revenue source | 2021 (Thousand HKD) | 2020 (Thousand HKD) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Sales of integrated circuit products | 836,761 | 716,443 | 16.8% | - All revenue is derived from the sale of goods and recognized when control is transferred[42](index=42&type=chunk) - The Board considers the Group's business as a single operating segment, hence no segment information is disclosed[43](index=43&type=chunk) - Nearly **100%** of revenue and over **90%** of non-current assets are located in the Chinese market[43](index=43&type=chunk) [5 Other income](index=18&type=section&id=5%20Other%20income) For the six months ended June 30, 2021, total other income was **HKD 13.5 million**, a slight decrease from the prior period, mainly due to reduced government grants and exchange gains, partially offset by increased interest and rental income Other Income for the Six Months Ended June 30, 2021 | Income item | 2021 (Thousand HKD) | 2020 (Thousand HKD) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Government grants | 2,650 | 6,633 | -60.0% | | Exchange gains | – | 544 | -100.0% | | Fair value gains on financial assets at fair value through profit or loss | 176 | 174 | 1.1% | | Interest income | 9,349 | 4,844 | 92.9% | | Rental income | 1,848 | 1,225 | 50.8% | | Others | (533) | 884 | N/A | | **Total** | **13,490** | **14,304** | **-5.7%** | - Government grants significantly decreased by **60.0%**, and exchange gains shifted from positive to negative[44](index=44&type=chunk) - Interest income and rental income increased by **92.9%** and **50.8%** respectively[44](index=44&type=chunk) [6 Finance costs – net](index=18&type=section&id=6%20Finance%20costs%20%E2%80%93%20net) For the six months ended June 30, 2021, net finance costs significantly decreased by **72.8%** to **HKD 12.9 million**, primarily due to a substantial reduction in interest expense on borrowings Finance Costs – Net for the Six Months Ended June 30, 2021 | Item | 2021 (Thousand HKD) | 2020 (Thousand HKD) | YoY Change (%) | | :--- | :--- | :--- | :--- | | **Finance costs** | | | | | – Interest expense on borrowings | 12,934 | 47,699 | -72.9% | | – Interest expense on lease liabilities | 1,347 | 1,462 | -7.9% | | **Total finance costs** | **14,281** | **49,161** | **-70.9%** | | **Finance income** | | | | | – Interest income | (1,406) | (1,848) | -23.9% | | **Finance costs – net** | **12,875** | **47,313** | **-72.8%** | - Interest expense on borrowings significantly decreased by **72.9%** year-on-year, being the primary reason for the decline in net finance costs[45](index=45&type=chunk) [7 Profit before taxation](index=19&type=section&id=7%20Profit%20before%20taxation) For the six months ended June 30, 2021, profit before taxation was stated after deducting items such as depreciation, amortization, reversal of inventory provisions, and rental expenses, with research and development costs increasing to **HKD 108.0 million**, primarily for security chip product development Deductions from Profit Before Taxation for the Six Months Ended June 30, 2021 | Item | 2021 (Thousand HKD) | 2020 (Thousand HKD) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Depreciation of property, plant and equipment | 4,843 | 5,508 | -12.1% | | Depreciation of right-of-use assets | 11,076 | 12,757 | -13.1% | | Amortisation of intangible assets | 12,291 | 3,470 | 254.2% | | Inventories (reversal of provision)/provision | (3,931) | 8,871 | N/A | | Rental expense for short-term leases and leases of low-value assets | 5,487 | 5,334 | 2.9% | - Research and development costs increased to **HKD 108.0 million** (2020: HKD 90.0 million), representing **12.9%** of revenue, primarily for the development of security chip products, smart card performance enhancement, and IoT/IoV security chips[48](index=48&type=chunk) - Inventory provision shifted from a **HKD 8.9 million** provision in 2020 to a **HKD 3.9 million** reversal in 2021[48](index=48&type=chunk) [8 Taxation](index=19&type=section&id=8%20Taxation) For the six months ended June 30, 2021, total taxation was **HKD 4.5 million**, a significant decrease from the prior period, with no taxable profit in Hong Kong, Chinese subsidiaries enjoying a **10%** preferential corporate income tax rate, and a **10%** withholding income tax levied on dividends distributed to foreign investors Taxation for the Six Months Ended June 30, 2021 | Item | 2021 (Thousand HKD) | 2020 (Thousand HKD) | YoY Change (%) | | :--- | :--- | :--- | :--- | | **Current tax** | | | | | – China corporate income tax | (135) | 7,473 | N/A | | – Withholding income tax on distributed profits | 3,815 | 5,113 | -25.4% | | **Total current tax** | **3,680** | **12,586** | **-70.8%** | | **Deferred tax** | | | | | – China corporate income tax | 1,991 | (2,637) | N/A | | – Withholding income tax on undistributed profits | (1,173) | (2,086) | -43.8% | | **Total taxation** | **4,498** | **7,863** | **-42.8%** | - No provision for Hong Kong profits tax was made due to the absence of assessable profits[51](index=51&type=chunk) - Huada Electronic and Huahong, as 'Integrated Circuit Design Enterprises within the National Planning Layout', enjoy a **10%** preferential corporate income tax rate[51](index=51&type=chunk) - Foreign invested enterprises in China distributing profits generated after January 1, 2008, to foreign investors are subject to a **10%** withholding income tax[51](index=51&type=chunk) [9 Dividend](index=20&type=section&id=9%20Dividend) The Board resolved not to declare any dividend for the six months ended June 30, 2021 - The Board resolved not to declare any dividend for the six months ended June 30, 2021 (2020: nil)[51](index=51&type=chunk) [10 Earnings per share](index=21&type=section&id=10%20Earnings%20per%20share) For the six months ended June 30, 2021, basic earnings per share were **2.92 HK cents**, a decrease from the prior period, with no diluted earnings per share disclosed due to the absence of potentially dilutive ordinary shares Basic Earnings Per Share for the Six Months Ended June 30, 2021 | Metric | 2021 (HK cents) | 2020 (HK cents) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Basic earnings per share | 2.92 | 3.33 | -12.3% | - Basic earnings per share decreased by **12.3%**, consistent with the decline in profit attributable to owners of the Company[54](index=54&type=chunk) - No diluted earnings per share are disclosed due to the absence of potentially dilutive ordinary shares[55](index=55&type=chunk) [11 Property, plant and equipment and right-of-use assets](index=21&type=section&id=11%20Property%2C%20plant%20and%20equipment%20and%20right-of-use%20assets) For the six months ended June 30, 2021, the Group acquired **HKD 8.2 million** in property, plant and equipment and recognized **HKD 11.6 million** in right-of-use assets - Additions to property, plant and equipment amounted to **HKD 8.2 million** (2020: HKD 0.6 million)[56](index=56&type=chunk) - Proceeds from disposal of property, plant and equipment were **HKD 98 thousand** (2020: HKD 39 thousand)[56](index=56&type=chunk) - Right-of-use assets for leased office premises were recognized at **HKD 11.6 million** (2020: HKD 29.3 million)[56](index=56&type=chunk) [12 Trade and other receivables](index=22&type=section&id=12%20Trade%20and%20other%20receivables) As of June 30, 2021, the Group's total trade receivables (net of impairment loss provision) were **HKD 762.3 million**, a significant increase from the end of 2020, with the highest proportion due within 30 days Ageing Analysis of Trade Receivables as of June 30, 2021 | Ageing | June 30, 2021 (Thousand HKD) | December 31, 2020 (Thousand HKD) | Change (%) | | :--- | :--- | :--- | :--- | | Within 30 days | 406,543 | 114,637 | 254.6% | | 31-60 days | 95,911 | 71,648 | 33.9% | | 61-180 days | 239,116 | 250,734 | -4.6% | | Over 180 days and within 1 year | 15,776 | 49,245 | -68.0% | | Over 1 year | 4,987 | 21,652 | -77.0% | | **Total** | **762,333** | **507,916** | **50.1%** | - Total trade receivables increased by **50.1%** year-on-year, with amounts due within 30 days increasing by **254.6%**[60](index=60&type=chunk) - Most sales are on credit terms of **30 to 135 days**[58](index=58&type=chunk) [13 Trade and other payables](index=22&type=section&id=13%20Trade%20and%20other%20payables) As of June 30, 2021, the Group's total trade payables were **HKD 299.5 million**, a slight increase from the end of 2020, with a significant increase in amounts aged 31-60 days Ageing Analysis of Trade Payables as of June 30, 2021 | Ageing | June 30, 2021 (Thousand HKD) | December 31, 2020 (Thousand HKD) | Change (%) | | :--- | :--- | :--- | :--- | | Within 30 days | 134,427 | 138,695 | -3.1% | | 31-60 days | 131,795 | 62,257 | 111.7% | | Over 60 days | 33,258 | 83,152 | -60.0% | | **Total** | **299,480** | **284,104** | **5.4%** | - Total trade payables increased by **5.4%** year-on-year, with amounts aged 31-60 days increasing by **111.7%**[62](index=62&type=chunk) [14 Contingent liabilities](index=23&type=section&id=14%20Contingent%20liabilities) As of June 30, 2021, the Group had no significant contingent liabilities - As of June 30, 2021, the Group had no significant contingent liabilities (December 31, 2020: nil)[64](index=64&type=chunk) [15 Related party transactions and balances](index=23&type=section&id=15%20Related%20party%20transactions%20and%20balances) The Group engaged in several significant related party transactions in its ordinary course of business, including product sales, purchases, borrowings, and deposits with China Electronics Corporation and its jointly controlled entities, and disclosed key management compensation - Related party transactions include interest expense and guarantee fees with China Electronics Corporation, and product sales, purchases, interest income, and rental income with its jointly controlled entities[66](index=66&type=chunk) - Related party balances include borrowings from China Electronics Corporation and trade receivables, cash and deposits with its jointly controlled entities[67](index=67&type=chunk) - Except for interest-bearing deposits and borrowings, related party balances are unsecured, interest-free, and settled according to contractual terms; related party borrowings are unsecured with an annual interest rate of **4.35%**[68](index=68&type=chunk) [(a) Significant transactions with related parties](index=23&type=section&id=(a)%20Significant%20transactions%20with%20related%20parties) This section details the significant transactions conducted with related parties during the reporting period Significant Transactions with Related Parties for the Six Months Ended June 30, 2021 | Transacting party | Item | 2021 (Thousand HKD) | 2020 (Thousand HKD) | YoY Change (%) | | :--- | :--- | :--- | :--- | :--- | | China Electronics Corporation | Interest expense | 1,411 | 1,463 | -3.5% | | | Guarantee fees | 1,560 | 5,513 | -71.7% | | Companies jointly controlled by China Electronics Corporation | Sales of products | 67,623 | 51,091 | 32.4% | | | Purchases of goods and services | 63,881 | 69,403 | -7.9% | | | Interest income | 8,903 | 5,908 | 50.7% | | | Rental income | 1,318 | 1,225 | 7.6% | | | Property management fees | 2,664 | 2,657 | 0.3% | | | Additions to right-of-use assets | 11,565 | 29,322 | -60.6% | | | Maximum daily balance of financial assistance provided to the Group | 68,690 | 89,943 | -23.6% | | | Maximum daily balance of deposits placed by the Group | 979,710 | 649,578 | 50.8% | | Associates | Purchases of goods and services | 6,022 | 2,670 | 125.5% | [(b) Significant balances with related parties](index=24&type=section&id=(b)%20Significant%20balances%20with%20related%20parties) This section presents the significant outstanding balances with related parties at the end of the reporting period Significant Balances with Related Parties as of June 30, 2021 | Balance party | Item | June 30, 2021 (Thousand HKD) | December 31, 2020 (Thousand HKD) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | China Electronics Corporation | Other payables | 3,605 | 71,289 | -94.9% | | | Borrowings | 72,108 | – | N/A | | Companies jointly controlled by China Electronics Corporation | Trade receivables | 71,793 | 58,736 | 22.2% | | | Other receivables | 4,076 | 8,856 | -54.0% | | | Cash and deposits | 783,519 | 967,246 | -19.0% | | | Contract liabilities | 3,690 | 3,648 | 1.1% | | | Trade payables | 43,276 | 16,197 | 167.2% | | | Other payables | 5,124 | 7,216 | -29.0% | | Associates | Trade payables | 1,806 | 1,109 | 62.8% | - Related party borrowings are unsecured and bear interest at an annual rate of **4.35%**[68](index=68&type=chunk) [(c) Key management compensation](index=24&type=section&id=(c)%20Key%20management%20compensation) This section provides details on the compensation paid to key management personnel during the reporting period Key Management Compensation for the Six Months Ended June 30, 2021 | Item | 2021 (Thousand HKD) | 2020 (Thousand HKD) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Salaries, allowances and benefits in kind | 2,685 | 3,887 | -30.9% | | Retirement scheme contributions | 396 | 353 | 12.2% | | **Total** | **3,081** | **4,240** | **-27.3%** | Report on Review of Interim Financial Information [Introduction](index=25&type=section&id=Introduction) PricewaterhouseCoopers has reviewed the company's interim financial information for the six months ended June 30, 2021, confirming compliance with the Hong Kong Listing Rules and Hong Kong Accounting Standard 34 'Interim Financial Reporting' - Independent auditor PricewaterhouseCoopers has reviewed the interim financial information (pages 4 to 23)[71](index=71&type=chunk) - The review complies with the Hong Kong Listing Rules and Hong Kong Accounting Standard 34 'Interim Financial Reporting'[71](index=71&type=chunk) [Scope of Review](index=26&type=section&id=Scope%20of%20Review) The review was conducted in accordance with Hong Kong Standard on Review Engagements 2410, with a scope significantly narrower than an audit, thus no audit opinion is expressed, only a review conclusion - The review was conducted in accordance with Hong Kong Standard on Review Engagements 2410, primarily involving inquiries and analytical procedures[73](index=73&type=chunk) - The scope of the review is less than an audit, therefore no audit opinion is expressed[73](index=73&type=chunk) [Conclusion](index=26&type=section&id=Conclusion) Based on the review, the auditor found no matters that lead them to believe the Group's interim financial information is not prepared, in all material respects, in accordance with Hong Kong Accounting Standard 34 'Interim Financial Reporting' - The auditor found no instances where the interim financial information materially deviates from Hong Kong Accounting Standard 34[75](index=75&type=chunk) MANAGEMENT DISCUSSION AND ANALYSIS [Business Review](index=27&type=section&id=Business%20Review) In the first half of 2021, the Group's revenue increased by **16.8%** year-on-year, while profit attributable to owners of the Company decreased by **12.3%**, with the integrated circuit design business benefiting from eased domestic pandemic conditions and enhanced competitiveness in the domestic financial card chip market, leading to a **19.1%** increase in total sales volume; gross profit margin declined due to a higher proportion of telecom card chip sales, and R&D investment continued to increase, primarily focusing on security chip products - Revenue for the first half of 2021 was **HKD 836.8 million**, a **16.8%** year-on-year increase[78](index=78&type=chunk) - Profit attributable to owners of the Company was **HKD 59.3 million**, a **12.3%** year-on-year decrease[78](index=78&type=chunk) [Results overview](index=27&type=section&id=Results%20overview) This section provides a summary of the Group's key financial performance indicators for the reporting period Key Performance Indicators for the Six Months Ended June 30, 2021 | Metric | 2021 (Million HKD) | 2020 (Million HKD) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 836.8 | 716.4 | 16.8% | | Profit attributable to owners of the Company | 59.3 | 67.5 | -12.3% | | Basic earnings per share (HK cents) | 2.92 | 3.33 | -12.3% | [Integrated circuits design operation](index=28&type=section&id=Integrated%20circuits%20design%20operation) This section details the performance and strategic focus of the Group's integrated circuits design business - The business covers smart card and security chip design and application system development, with products used in identity recognition, financial payment, government public utilities, and telecommunications[79](index=79&type=chunk) - In the first half, **18** new authorized patents, **1** new software copyright, and **1** integrated circuit layout design were registered[79](index=79&type=chunk) - Affected by eased pandemic conditions, sales volumes of financial card chips, telecom card chips, and social security card chips increased year-on-year, with total sales volume growing by **19.1%**[83](index=83&type=chunk) - Sales volume of identity recognition products significantly decreased due to changes in demand timing, expected to be compensated in the second half[83](index=83&type=chunk) - Overall gross profit margin decreased by **4.9 percentage points** to **30.5%**, mainly due to an increased proportion of lower-margin telecom card chip sales[85](index=85&type=chunk) - Selling and marketing costs as a percentage of revenue were **5.1%** (2020: 5.3%), and administrative expenses as a percentage of revenue were **18.7%** (2020: 19.1%), both reflecting strict cost control[85](index=85&type=chunk) - R&D costs increased to **HKD 108.0 million**, representing **12.9%** of revenue, primarily focused on security chip products, smart card performance enhancement, and IoT/IoV security chip development[85](index=85&type=chunk) [Outlook](index=30&type=section&id=Outlook) This section provides the Group's forward-looking statements and strategic priorities for future business development - The advancement of domestic integrated circuits, national cryptographic algorithms, and 5G applications, along with the rapid development of the IoV and IoT markets, are expected to bring market opportunities[86](index=86&type=chunk) - Continued global semiconductor capacity constraints pose an operational challenge for capacity assurance in the second half of the year[86](index=86&type=chunk) - The Group will continue to monitor domestic market demand, strengthen cooperation with suppliers, ensure its leading position in smart card chips, and expand into the IoV and IoT markets[86](index=86&type=chunk) [Dividend](index=30&type=section&id=Dividend%20(MDA)) The Board resolved not to declare any dividend for the six months ended June 30, 2021 - The Board resolved not to declare any dividend for the six months ended June 30, 2021 (2020: nil)[86](index=86&type=chunk) [Financial Review](index=30&type=section&id=Financial%20Review) The Group adopts a prudent treasury policy, primarily meeting funding needs through internal resources and borrowings; as of June 30, 2021, cash and cash equivalents increased to **HKD 729.3 million**, with bank and other borrowings at **HKD 661.0 million**, all unsecured and fixed-rate, placing the Group in a net cash position with **HKD 953.1 million** in unutilized borrowing facilities - As of June 30, 2021, cash and cash equivalents were **HKD 729.3 million** (December 31, 2020: HKD 465.4 million), with **98.5%** denominated in RMB[86](index=86&type=chunk) - Bank and other borrowings amounted to **HKD 661.0 million** (December 31, 2020: HKD 712.3 million), all due within one year, denominated in RMB, and all unsecured fixed-rate borrowings[87](index=87&type=chunk) - As of June 30, 2021, the Group had unutilized committed borrowing facilities of **HKD 953.1 million**[87](index=87&type=chunk) - The Group is in a net cash position, with net current assets of **HKD 973.0 million** (December 31, 2020: HKD 916.4 million)[87](index=87&type=chunk) - As of June 30, 2021, the Group had no significant outstanding capital commitments or contingent liabilities[87](index=87&type=chunk) [Employee and Remuneration Policies](index=32&type=section&id=Employee%20and%20Remuneration%20Policies) As of June 30, 2021, the Group had approximately **370** employees, primarily based in mainland China, implementing rigorous recruitment and performance appraisal programs, with remuneration policies consistent with industry practices and regularly reviewed, linking bonuses to Group and individual performance, and employee training structured into company-level, departmental-level, and individual-level categories - As of June 30, 2021, the Group had approximately **370** employees, primarily located in mainland China[88](index=88&type=chunk) - Employee benefit expenses amounted to **HKD 109.9 million**[88](index=88&type=chunk) - Remuneration policy is based on performance and experience, linked to Group and individual performance[88](index=88&type=chunk) - Employee training is categorized into company-level (cross-departmental, general), departmental-level (professional knowledge and skills), and individual-level[88](index=88&type=chunk) OTHER INFORMATION [Directors' and Chief Executive's Interests and Short Positions in Shares, Underlying Shares and Debentures](index=33&type=section&id=Directors'%20and%20Chief%20Executive's%20Interests%20and%20Short%20Positions%20in%20Shares%2C%20Underlying%20Shares%20and%20Debentures) As of June 30, 2021, Non-executive Director Ms. Liu Jinmei held **197,250** shares in the company (long position), representing **0.01%** of the issued share capital, with no other directors or chief executives holding disclosable interests in shares or debentures - Non-executive Director Ms. Liu Jinmei held **197,250** shares in the Company (long position), representing **0.01%** of the issued share capital[89](index=89&type=chunk) - Save as disclosed above, no other directors or chief executives held any interests or short positions in shares or debentures required to be disclosed under Part XV of the Securities and Futures Ordinance[89](index=89&type=chunk) [Directors' Rights to Acquire Shares or Debentures](index=33&type=section&id=Directors'%20Rights%20to%20Acquire%20Shares%20or%20Debentures) For the six months ended June 30, 2021, neither the company, its holding company, nor any of its subsidiaries or fellow subsidiaries entered into any arrangements enabling directors or their close associates to acquire benefits by purchasing shares or debentures of the company or other corporate bodies - For the six months ended June 30, 2021, neither the Company nor its associated entities entered into any arrangements enabling directors or their close associates to acquire benefits by purchasing shares or debentures[89](index=89&type=chunk) [Shareholders with Notifiable Interests](index=34&type=section&id=Shareholders%20with%20Notifiable%20Interests) As of June 30, 2021, China Electronics Corporation (CEC) and its subsidiaries Huada Semiconductor Co., Ltd and CEC (BVI) Holdings Company Limited held interests of **5%** or more in the company's issued share capital, with CEC being the ultimate controlling company Shareholders with Notifiable Interests as of June 30, 2021 | Name of interest holder | Number of shares held or interested | Percentage of shareholding | | :--- | :--- | :--- | | China Electronics Corporation (BVI) Holdings Company Limited ("CEC (BVI)") | 812,500,000 | 40.03% | | Huada Semiconductor Co., Ltd ("Huada Semiconductor") | 1,206,180,000 | 59.42% | | China Electronics Corporation ("CEC") | 1,206,180,000 | 59.42% | - Huada Semiconductor holds **100%** equity in CEC (BVI), and CEC holds **100%** equity in Huada Semiconductor, with CEC considered the ultimate controlling company of the Company[90](index=90&type=chunk) [Specific Performance Obligation on Controlling Shareholder](index=35&type=section&id=Specific%20Performance%20Obligation%20on%20Controlling%20Shareholder) The company entered into an **RMB 300 million** uncommitted revolving loan facility agreement with a bank, stipulating that if China Electronics Corporation ceases to directly or indirectly hold not less than **51%** beneficial equity interest in the company, it will constitute an event of default - The Company entered into an **RMB 300 million** uncommitted revolving loan facility agreement with a bank[91](index=91&type=chunk) - If China Electronics Corporation ceases to directly or indirectly hold not less than **51%** beneficial equity interest in the Company, it will constitute an event of default under the loan agreement[91](index=91&type=chunk) [Purchase, Sale or Redemption of Securities](index=35&type=section&id=Purchase%2C%20Sale%20or%20Redemption%20of%20Securities) For the six months ended June 30, 2021, neither the company nor any of its subsidiaries repurchased or sold any of the company's shares, nor did the company redeem any of its shares - For the six months ended June 30, 2021, neither the Company nor its subsidiaries repurchased, sold, or redeemed any of the Company's shares[91](index=91&type=chunk) [Corporate Governance Code](index=36&type=section&id=Corporate%20Governance%20Code) The company is committed to best corporate governance practices and complied with all applicable code provisions of the Corporate Governance Code set out in Appendix 14 of the Listing Rules for the six months ended June 30, 2021 - The Company is committed to achieving best corporate governance, emphasizing accountability, transparency, independence, responsibility, and fairness[92](index=92&type=chunk) - For the six months ended June 30, 2021, the Company complied with all applicable provisions of the Corporate Governance Code[92](index=92&type=chunk) [The Model Code for Securities Transactions by Directors](index=36&type=section&id=The%20Model%20Code%20for%20Securities%20Transactions%20by%20Directors) The company has adopted the Model Code for Securities Transactions by Directors, and all directors confirmed full compliance for the six months ended June 30, 2021 - The Company has adopted the Model Code to regulate directors' securities transactions[92](index=92&type=chunk) - All directors confirmed full compliance with the Model Code during the reporting period[92](index=92&type=chunk) [Audit Committee](index=37&type=section&id=Audit%20Committee) The Audit Committee, under the Board of Directors, has reviewed the Group's unaudited condensed consolidated interim financial statements for the six months ended June 30, 2021 - The Audit Committee has reviewed the unaudited condensed consolidated interim financial statements for the six months ended June 30, 2021[93](index=93&type=chunk) [Changes in Directors' Particulars](index=37&type=section&id=Changes%20in%20Directors'%20Particulars) Discloses changes in Mr. Qiu Hongsheng's director particulars since the date of the 2020 annual report, including his appointments and resignations as independent director in other listed companies - Mr. Qiu Hongsheng was appointed as an independent director of CECEP Wanyun Co., Ltd. in April 2021 and ceased to be an independent director of GRINM Advanced Materials Co., Ltd. in May 2021[93](index=93&type=chunk)

[Corporate Information](index=2&type=section&id=Corporate%20Information) The report provides essential company details, including board members, committee structures, and key contacts - The report provides fundamental company information, including board members, committee composition, company secretary, registered office, principal Hong Kong office, investor relations contacts, principal bankers, share registrar, independent auditor (EY), and legal advisors[8](index=8&type=chunk)[9](index=9&type=chunk) [Consolidated Financial Statements](index=4&type=section&id=Consolidated%20Financial%20Statements) This section presents the company's consolidated financial statements, including profit or loss, comprehensive income, financial position, equity changes, and cash flows [Consolidated Statement of Profit or Loss](index=4&type=section&id=Consolidated%20Statement%20of%20Profit%20or%20Loss) Revenue decreased by 7.4% to HK$909 million, with profit attributable to equity holders falling 7.5% to HK$72.23 million, while gross margin slightly improved to 33.0% Consolidated Statement of Profit or Loss Summary (For the six months ended June 30) | Indicator | 2019 (HK$ thousands) | 2018 (HK$ thousands) | YoY Change | | :--- | :--- | :--- | :--- | | **Revenue** | 908,572 | 981,034 | -7.4% | | **Gross Profit** | 300,050 | 318,583 | -5.8% | | Gross Margin | 33.0% | 32.5% | +0.5pp | | **Operating Profit** | 107,453 | 117,109 | -8.2% | | **Profit for the Period** | 73,125 | 79,992 | -8.6% | | **Profit Attributable to Equity Holders** | 72,231 | 78,080 | -7.5% | | **Basic Earnings Per Share (HK cents)** | 3.56 | 3.85 | -7.5% | [Consolidated Statement of Comprehensive Income](index=5&type=section&id=Consolidated%20Statement%20of%20Comprehensive%20Income) Total comprehensive income for the period turned profitable at HK$58.55 million, primarily due to a significant reduction in exchange differences on financial statement translation Consolidated Statement of Comprehensive Income Summary (For the six months ended June 30) | Indicator | 2019 (HK$ thousands) | 2018 (HK$ thousands) | | :--- | :--- | :--- | | Profit for the Period | 73,125 | 79,992 | | Exchange Differences on Translation of Financial Statements | (14,572) | (107,731) | | **Total Comprehensive Income for the Period** | **58,553** | **(27,739)** | [Consolidated Statement of Financial Position](index=6&type=section&id=Consolidated%20Statement%20of%20Financial%20Position) Total assets increased slightly to HK$5.041 billion, while total liabilities remained stable at HK$3.039 billion, with total equity rising to HK$2.002 billion Consolidated Statement of Financial Position Summary | Indicator | June 30, 2019 (HK$ thousands) | December 31, 2018 (HK$ thousands) | | :--- | :--- | :--- | | **Total Assets** | 5,041,286 | 4,969,091 | | Non-current Assets | 2,922,507 | 3,133,608 | | Current Assets | 2,118,779 | 1,835,483 | | **Total Liabilities** | 3,038,883 | 3,027,908 | | Non-current Liabilities | 77,644 | 24,511 | | Current Liabilities | 2,961,239 | 3,003,397 | | **Total Equity** | 2,002,403 | 1,941,183 | - As of June 30, 2019, the Group's current liabilities exceeded current assets by **HK$842 million**, primarily due to **HK$2.286 billion** in short-term bank and other borrowings[24](index=24&type=chunk) [Condensed Consolidated Statement of Changes in Equity](index=8&type=section&id=Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Equity) Total equity increased to HK$2.002 billion, driven by the adoption of HKFRS 16 and comprehensive income, partially offset by dividend payments - Opening total equity was **HK$1.941 billion**, adjusted to **HK$1.984 billion** after adopting HKFRS 16[19](index=19&type=chunk) - Total comprehensive income for the period was **HK$58.55 million**, and dividends paid amounted to **HK$40.59 million**, resulting in a closing total equity of **HK$2.002 billion**[19](index=19&type=chunk) [Consolidated Statement of Cash Flows](index=9&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) Net cash outflow from operating activities expanded to HK$219 million, while cash and cash equivalents decreased to HK$230 million by period-end Consolidated Statement of Cash Flows Summary (For the six months ended June 30) | Indicator | 2019 (HK$ thousands) | 2018 (HK$ thousands) | | :--- | :--- | :--- | | Net Cash Flow Used in Operating Activities | (218,960) | (142,820) | | Net Cash Flow From Investing Activities | 76,462 | 27,320 | | Net Cash Flow (Used in)/From Financing Activities | (1,361) | 43,067 | | **Net Decrease in Cash and Cash Equivalents** | (143,859) | (72,433) | | **Cash and Cash Equivalents at End of Period** | 230,217 | 299,367 | [Notes to the Condensed Consolidated Interim Financial Statements](index=11&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Interim%20Financial%20Statements) This section details the significant accounting policies, revenue, segment information, profit before taxation, investments in associates, and related party transactions [Principal Accounting Policies](index=12&type=section&id=2%20Principal%20accounting%20policies) The Group adopted HKFRS 16 "Leases" for the first time, resulting in the recognition of right-of-use assets and lease liabilities with a retrospective adjustment to retained earnings - The Group first adopted HKFRS 16 'Leases' on January 1, 2019, applying the retrospective approach with cumulative effects adjusted to opening retained earnings[28](index=28&type=chunk)[31](index=31&type=chunk) Impact of Adopting HKFRS 16 as of January 1, 2019 | Item | Increase (HK$ thousands) | | :--- | :--- | | Right-of-use assets | 2,614 | | Investment in associates | 43,322 | | Lease liabilities | 2,672 | | Retained profits | 43,264 | [Revenue and Segment Information](index=18&type=section&id=4%20Revenue%20and%20segment%20information) All revenue is derived from integrated circuit product sales, recognized at a point in time, with no segment or geographical information presented due to single operating segment and primary operations in China - All of the Group's revenue is derived from the sale of integrated circuit products, totaling **HK$909 million** in the first half of 2019[51](index=51&type=chunk) - The Group's business is considered a single operating segment, with its primary market and assets located in China, thus no segment or geographical information is provided[52](index=52&type=chunk) [Profit Before Taxation](index=20&type=section&id=7%20Profit%20before%20taxation) Research and development costs slightly decreased to HK$106 million, while inventory provisions significantly reduced to HK$1.05 million from HK$14.86 million in the prior year - For the six months ended June 30, 2019, the Group's R&D costs were **HK$106 million** (2018: HK$109 million), representing **11.7% of revenue**[58](index=58&type=chunk)[59](index=59&type=chunk)[108](index=108&type=chunk) - Inventory provisions for the period significantly decreased to **HK$1.05 million** from **HK$14.86 million** in the prior year[58](index=58&type=chunk)[59](index=59&type=chunk) [Investment in Associates](index=23&type=section&id=12%20Investment%20in%20associates) The Group's investment in associates totaled HK$2.647 billion, with its share of results from associates amounting to HK$16.88 million - The Group's investment in associates had a period-end balance of **HK$2.647 billion**, a slight decrease from the opening balance of HK$2.666 billion[70](index=70&type=chunk) - The Group's significant associate is China Electronics Optics Valley Union (CEOVU), listed in Hong Kong, with the Group's share of its results being **HK$16.88 million** (2018: HK$13.25 million)[70](index=70&type=chunk)[73](index=73&type=chunk)[109](index=109&type=chunk) [Related Party Transactions and Balances](index=27&type=section&id=16%20Related%20party%20transactions%20and%20balances) The Group engaged in significant transactions with its ultimate holding company, China Electronics Corporation (CEC), and its jointly controlled entities, including sales, purchases, interest expenses, and rental income, with substantial balances outstanding at period-end Significant Related Party Transactions (For the six months ended June 30) | Transacting Party | Transaction Type | 2019 (HK$ thousands) | 2018 (HK$ thousands) | | :--- | :--- | :--- | :--- | | China Electronics Corporation (CEC) | Interest expense | 1,529 | 1,580 | | | Guarantee fees | 5,471 | 5,805 | | Companies jointly controlled by CEC | Sales of products | 72,968 | 98,156 | | | Purchase of goods and services | 59,050 | 405,577 | - As of June 30, 2019, significant balances with related parties (CEC and its jointly controlled companies) included borrowings of **HK$68.21 million**, deposits of **HK$352 million**, and trade receivables of **HK$85.78 million**[92](index=92&type=chunk) [Report on Review of Condensed Consolidated Interim Financial Information](index=29&type=section&id=Report%20on%20Review%20of%20Condensed%20Consolidated%20Interim%20Financial%20Information) This section presents the independent auditor's review report on the condensed consolidated interim financial information [Auditor's Conclusion](index=30&type=section&id=Auditor's%20Conclusion) Independent auditor Ernst & Young concluded that nothing came to their attention to suggest the interim financial information was not prepared in accordance with HKAS 34 - Independent auditor Ernst & Young issued an **unqualified review conclusion** on this interim financial report[101](index=101&type=chunk)[102](index=102&type=chunk) [Management Discussion and Analysis](index=31&type=section&id=Management%20Discussion%20and%20Analysis) This section provides management's perspective on the Group's business performance, outlook, and financial position for the period [Business Review](index=31&type=section&id=Business%20Review) Total sales volume decreased by 3.9% and revenue by 7.4% to HK$909 million due to market competition, while gross margin improved to 33.0% through cost control - Sales volume of financial card and social security card chips increased due to rising demand for domestic financial card chips and the launch of third-generation social security cards[107](index=107&type=chunk) - Intensified market price competition led to a **3.9% decrease in total sales volume** and a **7.4% decrease in revenue**[107](index=107&type=chunk) - Overall gross margin improved from 32.5% to **33.0%** through cost control measures, including accelerating new product launches and enhancing production efficiency[108](index=108&type=chunk) [Outlook](index=34&type=section&id=Outlook) The smart card chip market is expected to stabilize with increasing competition and price pressure, while the Group focuses on IoT security chip development and new application areas - The smart card chip market is expected to enter a stable development phase, but with intensified competition and downward pressure on product prices[109](index=109&type=chunk) - The Group's strategic focus will be on strengthening the development of IoT security chips and expanding applications in smart cities, smart homes, and connected vehicles[109](index=109&type=chunk) [Financial Review](index=35&type=section&id=Financial%20Review) The Group held HK$230 million in cash, with net current liabilities of HK$842 million, and a capital gearing ratio of 47.6%, supported by HK$2.001 billion in unutilized committed borrowing facilities Key Financial Ratios | Indicator | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Cash and Cash Equivalents | HK$230 million | HK$376 million | | Bank and Other Borrowings | HK$2.286 billion | HK$2.295 billion | | Net Current Liabilities | HK$842 million | HK$1.168 billion | | Capital Gearing Ratio | 47.6% | 48.5% | - The Group has **HK$2.001 billion** in unutilized committed borrowing facilities, providing liquidity support[110](index=110&type=chunk) [Other Information](index=37&type=section&id=Other%20Information) This section covers directors' and shareholders' interests and the company's corporate governance practices [Directors' and Shareholders' Interests](index=37&type=section&id=Directors'%20and%20Shareholders'%20Interests) The ultimate holding company, China Electronics Corporation (CEC), indirectly held 59.42% of the company's shares, with certain non-executive directors also holding minor stakes Major Shareholder Holdings (As of June 30, 2019) | Shareholder Name | Number of Shares Held | Percentage of Holding | | :--- | :--- | :--- | | Huada Semiconductor Co., Ltd. | 1,206,180,000 | 59.42% | | China Electronics Corporation (CEC) | 1,206,180,000 | 59.42% | - Non-executive Director and Chairman Mr. Dong Haoran held **4,672,420 shares (0.23%)**, and Non-executive Director Ms. Liu Jinmei held **197,250 shares (0.01%)**[112](index=112&type=chunk) [Corporate Governance](index=39&type=section&id=Corporate%20Governance) The company maintains high corporate governance standards, complying with all applicable code provisions, and its audit committee has reviewed the interim financial statements - The company complied with all applicable provisions of the Corporate Governance Code as set out in Appendix 14 of the Listing Rules for the six months ended June 30, 2019[118](index=118&type=chunk) - The Audit Committee under the Board of Directors has reviewed the Group's unaudited condensed consolidated interim financial statements[120](index=120&type=chunk)[122](index=122&type=chunk)