兴业合金(00505) - 2021 - 中期财报

Company Information This section provides an overview of the company's governance structure, key personnel, and operational contact details Board of Directors and Company Secretary This section discloses the composition of the company's Board of Directors (executive directors, independent non-executive directors), company secretary, authorized representatives, principal legal advisors, audit committee, remuneration committee, and nomination committee - Board members include Mr. Hu Changyuan (Chairman), Mr. Hu Minglie (Chief Executive Officer), Mr. Zhu Wenjun (Executive Director), and Mr. Chai Chaoming, Dr. Lou Dong, Ms. Lu Hong (Independent Non-Executive Directors)[9] - The Company Secretary is Ms. Mui Nga Mei, and the authorized representatives are Mr. Zhu Wenjun and Ms. Mui Nga Mei[9] - The Audit Committee Chairman is Mr. Chai Chaoming, the Remuneration Committee Chairman is Dr. Lou Dong, and the Nomination Committee Chairman is Mr. Chai Chaoming[9] Principal Places of Business and Other Information This section provides information on the company's principal places of business in Hong Kong, China (copper business and online game business), as well as share registrars, principal bankers, and company website - The company has principal places of business in Hong Kong, Ningbo City, Zhejiang Province, China (copper business), and Shenzhen City, Guangdong Province, China (online game business)[12] - The Hong Kong share registrar is Tricor Investor Services Limited, and the Cayman Islands principal share registrar is Royal Bank of Canada Trust Company (Cayman) Limited[12][13] - Principal bankers include Agricultural Bank of China, China Construction Bank, and Bank of China, with the company website at www.xingyealloy.com and stock code 505[12] Consolidated Statement of Profit or Loss For the six months ended June 30, 2021, the company's revenue significantly increased by 62.4% to RMB 3,167.8 million, with profit for the period growing by 278.6% to RMB 162.4 million, primarily driven by strong performance in the copper business Consolidated Statement of Profit or Loss Key Financial Data (For the six months ended June 30) | Indicator | 2021 (RMB thousands) | 2020 (RMB thousands) | Year-on-year Growth Rate | | :--- | :--- | :--- | :--- | | Revenue | 3,167,835 | 1,950,969 | 62.4% | | Cost of sales | (2,728,972) | (1,748,521) | 56.1% | | Gross profit | 438,863 | 202,448 | 116.8% | | Operating profit | 219,137 | 53,745 | 307.7% | | Net finance costs | (11,888) | (3,214) | 269.9% | | Profit before tax | 207,249 | 50,531 | 310.1% | | Income tax | (44,875) | (7,650) | 486.6% | | Profit for the period | 162,374 | 42,881 | 278.6% | | Attributable to equity holders of the Company | 162,138 | 42,797 | 278.9% | | Basic earnings per share (RMB cents) | 19.94 | 5.10 | 291.0% | | Diluted earnings per share (RMB cents) | 19.88 | 5.10 | 289.8% | Consolidated Statement of Profit or Loss and Other Comprehensive Income For the six months ended June 30, 2021, the company's total comprehensive income for the period was RMB 162.1 million, a significant increase from RMB 43.9 million in the prior year, primarily driven by a substantial rise in profit for the period Consolidated Statement of Profit or Loss and Other Comprehensive Income Key Data (For the six months ended June 30) | Indicator | 2021 (RMB thousands) | 2020 (RMB thousands) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Profit for the period | 162,374 | 42,881 | 278.6% increase | | Exchange differences on translation of financial statements of overseas operations | (256) | 1,048 | Decrease | | Total comprehensive income for the period | 162,118 | 43,929 | 269.0% increase | | Attributable to equity holders of the Company | 161,882 | 43,845 | 269.2% increase | | Attributable to non-controlling interests | 236 | 84 | 181.0% increase | Consolidated Statement of Financial Position As of June 30, 2021, the company's total assets and net assets both increased, with net current assets rising to RMB 596.4 million, indicating a robust financial position Consolidated Statement of Financial Position Key Data | Indicator | June 30, 2021 (RMB thousands) | December 31, 2020 (RMB thousands) | Change Rate | | :--- | :--- | :--- | :--- | | Non-current assets | | | | | Property, plant and equipment | 837,343 | 817,625 | 2.4% | | Deferred tax assets | 16,834 | 26,290 | -36.0% | | Total non-current assets | 937,933 | 924,590 | 1.4% | | Current assets | | | | | Inventories | 1,222,914 | 943,668 | 29.6% | | Trade and other receivables | 492,048 | 441,184 | 11.5% | | Derivative financial instruments | 17,213 | – | N/A | | Cash and cash equivalents | 348,357 | 223,300 | 56.0% | | Total current assets | 2,647,053 | 2,030,622 | 30.3% | | Current liabilities | | | | | Trade and other payables | 935,638 | 725,619 | 28.9% | | Interest-bearing borrowings | 1,089,751 | 828,385 | 31.6% | | Total current liabilities | 2,050,657 | 1,592,120 | 28.8% | | Net current assets | 596,396 | 438,502 | 36.0% | | Non-current liabilities | | | | | Interest-bearing borrowings | 99,000 | 88,790 | 11.5% | | Total non-current liabilities | 141,154 | 132,035 | 6.9% | | Equity | | | | | Total equity | 1,393,175 | 1,231,057 | 13.2% | Consolidated Statement of Changes in Equity For the six months ended June 30, 2021, the company's total equity increased to RMB 1,393.2 million, primarily due to a significant increase in profit for the period Consolidated Statement of Changes in Equity Key Data (For the six months ended June 30) | Indicator | January 1, 2021 (RMB thousands) | Profit for the period (RMB thousands) | Other comprehensive income (RMB thousands) | June 30, 2021 (RMB thousands) | | :--- | :--- | :--- | :--- | :--- | | Total equity attributable to equity holders of the Company | 1,228,897 | 162,138 | (256) | 1,390,779 | | Non-controlling interests | 2,160 | 236 | – | 2,396 | | Total equity | 1,231,057 | 162,374 | (256) | 1,393,175 | Consolidated Statement of Changes in Equity Key Data (For the six months ended June 30) | Indicator | January 1, 2020 (RMB thousands) | Profit for the period (RMB thousands) | Other comprehensive income (RMB thousands) | Repurchase and cancellation of contingent consideration shares (RMB thousands) | June 30, 2020 (RMB thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | | Total equity attributable to equity holders of the Company | 1,110,928 | 42,797 | 1,048 | (31,794) | 1,122,979 | | Non-controlling interests | 1,917 | 84 | – | – | 2,001 | | Total equity | 1,112,845 | 42,881 | 1,048 | (31,794) | 1,124,980 | Condensed Consolidated Statement of Cash Flows For the six months ended June 30, 2021, net cash from operating activities turned from positive to a net outflow of RMB 120.4 million, but net cash from financing activities significantly reversed to an inflow, resulting in a net increase in cash and cash equivalents of RMB 124.8 million Condensed Consolidated Statement of Cash Flows Key Data (For the six months ended June 30) | Activity | 2021 (RMB thousands) | 2020 (RMB thousands) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Net cash (used in) / generated from operating activities | (120,413) | 268,128 | Turned from inflow to outflow | | Net cash used in investing activities | (71,001) | (182,514) | Decrease in outflow | | Net cash generated from / (used in) financing activities | 316,182 | (41,861) | Turned from outflow to inflow | | Net increase in cash and cash equivalents | 124,768 | 43,753 | 185.2% increase | | Cash and cash equivalents at June 30 | 348,357 | 207,927 | 67.5% increase | Notes to the Unaudited Interim Financial Report This chapter elaborates on the basis of preparation, changes in accounting policies, revenue and segment reporting, various expenses, taxation, earnings per share, statement of financial position items, and capital management, providing supplementary information for understanding the Group's financial performance 1 Reporting Entity and Background Information Xingye Alloy Materials Group Limited (formerly Joyful Alliance Entertainment Holdings Limited) was incorporated in the Cayman Islands and listed in 2007, primarily engaged in manufacturing and selling high-precision copper strips, trading raw materials, and providing processing services, with online game operations added since 2016 - The company was incorporated in the Cayman Islands on July 19, 2007, and listed on the Main Board of the Hong Kong Stock Exchange on December 27, 2007[49] - The Group's principal businesses include the manufacture and sale of high-precision copper strips, trading of raw materials, and provision of processing services[49] - Following the acquisition of the online game business in August 2016, business activities also include the development, publishing, and operation of online games and related services[49] 2 Basis of Preparation The interim financial report is prepared in accordance with International Accounting Standard 34, adopting the same accounting policies as the 2020 annual financial statements, and includes explanatory notes for significant events and transactions - The interim financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting"[50] - The basis of preparation is consistent with the accounting policies adopted in the 2020 annual financial statements, except for changes in accounting policies expected to be reflected in the 2021 annual financial statements[50] - This interim financial report contains unaudited condensed consolidated financial statements and selected explanatory notes, aiming to illustrate changes in financial position and performance since the 2020 annual financial statements[50] 3 Changes in Accounting Policies Revisions to International Financial Reporting Standards (IFRS 16 amendments and Interest Rate Benchmark Reform – Phase 2) effective for the first time in this period had no significant impact on the Group's financial results and position - The IFRS amendments effective for the first time in the current accounting period include IFRS 16 (Amendments) and IFRS 9, IAS 39, etc (Amendments)[51] - These changes had no significant impact on the way the Group's results and financial position for the current or prior periods were prepared or presented in the interim financial report for the six months ended June 30, 2021[51] - The Group has not applied any new standards or interpretations that are not yet effective for the current accounting period[52] 4 Revenue and Segment Reporting The Group's revenue primarily derives from the copper products business (99.8%), with a smaller contribution from the online game business; copper product revenue significantly increased by 62.7%, while online game revenue decreased; the Group is managed and reported under two main segments: copper products and online games 4 (a) Disaggregation of Revenue This section details revenue disaggregated by major product or service lines and customer geographical locations, showing significant growth in copper product revenue and a decrease in online game revenue Revenue from Contracts with Customers by Major Product or Service Line (RMB thousands) | Product/Service Line | 2021 (Unaudited) | 2020 (Unaudited) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Related to copper products | | | | | - Sales of high-precision copper strips | 2,978,349 | 1,851,168 | 60.9% increase | | - Processing service fees | 129,035 | 72,403 | 78.2% increase | | - Trading of raw materials | 53,743 | 18,956 | 183.5% increase | | Subtotal (Copper products) | 3,161,127 | 1,942,527 | 62.7% increase | | Related to online games | | | | | - Publishing and operating online games | 5,956 | 7,392 | 19.4% decrease | | - Others | 752 | 1,050 | 28.4% decrease | | Subtotal (Online games) | 6,708 | 8,442 | 20.5% decrease | | Total revenue | 3,167,835 | 1,950,969 | 62.4% increase | Revenue by Geographical Location of Customers (RMB thousands) | Geographical Location | 2021 (Unaudited) | 2020 (Unaudited) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Mainland China | 2,860,960 | 1,771,832 | 61.5% increase | | Hong Kong, China | 56,154 | 26,863 | 109.0% increase | | Taiwan, China | 51,428 | 48,050 | 7.0% increase | | Bangladesh | 32,713 | 19,203 | 70.4% increase | | India | 25,933 | 17,830 | 45.4% increase | | Thailand | 24,667 | 16,101 | 53.2% increase | | Vietnam | 19,753 | 3,788 | 421.5% increase | | Other regions | 96,227 | 47,302 | 103.4% increase | | Total revenue | 3,167,835 | 1,950,969 | 62.4% increase | - The Group has a diversified customer base, with no single customer contributing more than 10% of total revenue during the reporting period[60] 4 (b) Segment Reporting The Group is divided into two reportable segments, copper products and online games, with disclosure of each segment's performance, assets, and liabilities; the copper products segment contributed the vast majority of revenue and profit before tax - The Group manages its businesses by service line, divided into two reportable segments: copper products and online games[61][62] Reportable Segment Revenue and Profit Before Tax (RMB thousands) | Indicator | Copper Products 2021 | Copper Products 2020 | Online Games 2021 | Online Games 2020 | Total 2021 | Total 2020 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue from external customers | 3,161,127 | 1,942,527 | 6,708 | 8,442 | 3,167,835 | 1,950,969 | | Reportable segment revenue | 3,161,127 | 1,942,754 | 6,708 | 8,442 | 3,167,835 | 1,951,196 | | Reportable segment profit / (loss) before tax | 207,596 | 44,242 | (347) | (1,940) | 207,249 | 42,302 | Reportable Segment Assets and Liabilities (RMB thousands) | Indicator | Copper Products June 30, 2021 | Copper Products December 31, 2020 | Online Games June 30, 2021 | Online Games December 31, 2020 | Total June 30, 2021 | Total December 31, 2020 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Reportable segment assets | 3,522,242 | 2,898,925 | 65,073 | 57,771 | 3,587,315 | 2,956,696 | | Reportable segment liabilities | 2,170,168 | 1,709,413 | 23,972 | 16,226 | 2,194,140 | 1,725,639 | 5 Other Expenses For the six months ended June 30, 2021, total other expenses increased to RMB 59.6 million, primarily due to an increase in net loss from derivative financial instruments Other Expenses (RMB thousands) | Item | 2021 (Unaudited) | 2020 (Unaudited) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Credit loss allowance for trade and other receivables | 1,620 | 2,379 | 31.9% decrease | | Impairment loss on property, plant and equipment | – | 1,248 | N/A | | Loss on disposal of property, plant and equipment | – | 223 | N/A | | Net loss on derivative financial instruments | 57,953 | 33,935 | 70.8% increase | | Others | 4 | 167 | 97.6% decrease | | Total | 59,577 | 37,952 | 57.0% increase | - The increase in other expenses was mainly due to the Group recording more net losses from derivative financial instruments of RMB 58.0 million in 2021[74] 6 Profit Before Tax Profit before tax significantly increased, but net finance costs rose due to fair value changes in contingent consideration receivables and payables, with other items like inventory costs, R&D expenses, and depreciation also disclosed 6 (a) Net Finance Costs Net finance costs increased from RMB 3.2 million in 2020 to RMB 11.9 million in 2021, primarily impacted by fair value changes in contingent consideration receivables and payables Net Finance Costs (RMB thousands) | Item | 2021 (Unaudited) | 2020 (Unaudited) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Interest income from bank deposits | 8,027 | 6,142 | 30.7% increase | | Fair value changes of contingent consideration receivables and payables | – | 8,229 | N/A | | Structured bank deposit income | 157 | 653 | 75.9% decrease | | Net foreign exchange gain | 1,757 | – | N/A | | Finance income | 9,941 | 15,024 | 33.9% decrease | | Interest expense on interest-bearing borrowings | (22,263) | (15,611) | 42.6% increase | | Interest on lease liabilities | (93) | (35) | 165.7% increase | | Less: Capitalized interest expense | 527 | – | N/A | | Net finance costs | (11,888) | (3,214) | 269.9% increase | - For the six months ended June 30, 2021, borrowing costs were capitalized at an annual rate of 4.30%[77] 6 (b) Other Items This section discloses major expense items including inventory costs, research and development expenses, depreciation, impairment losses, and government grants Other Items (RMB thousands) | Item | 2021 (Unaudited) | 2020 (Unaudited) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Cost of inventories | 2,727,108 | 1,746,069 | 56.2% increase | | Research and development expenses (included in administrative expenses) | 86,451 | 59,395 | 45.6% increase | | Depreciation – property, plant and equipment | 52,494 | 49,850 | 5.3% increase | | Depreciation – right-of-use assets | 1,301 | 1,307 | 0.5% decrease | | Impairment loss – trade and other receivables | 1,620 | 2,379 | 31.9% decrease | | Impairment loss – property, plant and equipment | – | 1,248 | N/A | | Amortization – intangible assets | – | 199 | N/A | | Government grants | 6,075 | 8,500 | 28.5% decrease | - Cost of inventories includes depreciation of RMB 29,925,000 (2020: RMB 32,122,000)[80] 7 Income Tax Income tax expense increased to RMB 44.9 million, with the consolidated effective tax rate rising from 15% to 22%, primarily due to increased taxable profits from subsidiaries taxed at higher rates Income Tax (RMB thousands) | Item | 2021 (Unaudited) | 2020 (Unaudited) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Current tax | | | | | Provision for the period | 33,962 | 8,212 | 313.6% increase | | Under / (over) provision in prior years | 1,457 | (8,473) | N/A | | Deferred tax | | | | | Origination and reversal of temporary differences | 9,456 | 7,911 | 19.5% increase | | Total income tax | 44,875 | 7,650 | 486.6% increase | - The Group's consolidated effective tax rate for the six months ended June 30, 2021, was 22% (2020: 15%)[84] - The increase in effective tax rate was mainly due to an increase in taxable profits from subsidiaries taxed at a higher applicable income tax rate of 25%[84] 8 Earnings Per Share Both basic and diluted earnings per share significantly increased, reflecting a substantial improvement in the company's profitability Earnings Per Share (RMB cents) | Indicator | 2021 (RMB cents) | 2020 (RMB cents) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Basic earnings per share | 19.94 | 5.10 | 291.0% increase | | Diluted earnings per share | 19.88 | 5.10 | 289.8% increase | - Basic earnings per share is calculated based on profit attributable to equity holders of the Company of RMB 162,138,000 (2020: RMB 42,797,000) and the weighted average number of ordinary shares outstanding of 813,263,173 shares[85] - Diluted earnings per share is calculated based on profit attributable to equity holders of the Company of RMB 162,138,000 (2020: RMB 42,797,000) and the weighted average number of ordinary shares outstanding after adjusting for all potentially dilutive ordinary shares of 815,397,352 shares[86] 9 Property, Plant and Equipment During the reporting period, the Group's cost of acquiring property, plant and equipment significantly increased to RMB 72.2 million, indicating a substantial rise in capital expenditure - For the six months ended June 30, 2021, the Group's cost of acquiring property, plant and equipment was RMB 72,212,000 (2020: RMB 21,823,000), an increase of 230.9%[88] - For the six months ended June 30, 2021, items of property, plant and equipment with a net book value of zero were disposed of[88] 10 Inventories As of June 30, 2021, total inventories increased to RMB 1,222.9 million, with an inventory write-down allowance of RMB 6.4 million recognized Inventory Composition (RMB thousands) | Item | June 30, 2021 (Unaudited) | December 31, 2020 (Audited) | Change Rate | | :--- | :--- | :--- | :--- | | Raw materials | 379,795 | 191,813 | 97.9% | | Work in progress | 682,531 | 622,302 | 9.7% | | Finished goods | 160,496 | 129,468 | 23.9% | | Others | 92 | 85 | 8.2% | | Total | 1,222,914 | 943,668 | 29.6% | - As of June 30, 2021, an allowance of RMB 6,378,000 (December 31, 2020: RMB 7,386,000) was made for inventories where the net realizable value was lower than the carrying amount[90] 11 Trade and Other Receivables Net trade and other receivables increased to RMB 492.0 million, with net trade receivables and bills receivable amounting to RMB 424.0 million; the Group pledged some bills receivable to obtain financing Trade and Other Receivables (RMB thousands) | Item | June 30, 2021 (Unaudited) | December 31, 2020 (Audited) | Change Rate | | :--- | :--- | :--- | :--- | | Net trade receivables and bills receivable after loss allowance | 423,951 | 378,355 | 12.0% | | Deposits for metal futures contracts | 21,140 | 28,993 | -27.1% | | Net other receivables after loss allowance | 1,476 | 660 | 123.6% | | Recoverable value-added tax | 27,529 | 5,170 | 432.5% | | Prepayments | 17,952 | 28,006 | -35.9% | | Total | 492,048 | 441,184 | 11.5% | - As of June 30, 2021, the Group discounted certain bank acceptance bills for cash and endorsed certain bank acceptance bills to suppliers, involving an amount of RMB 31,241,000[93] - As of June 30, 2021, bills receivable with a total carrying amount of RMB 69,409,000 were pledged to banks as collateral for issued bank acceptance bills and loan financing[97] 12 Restricted Bank Deposits Restricted bank deposits increased to RMB 422.4 million, primarily used as guarantee deposits for issuing commercial bills Restricted Bank Deposits (RMB thousands) | Item | June 30, 2021 (Unaudited) | December 31, 2020 (Audited) | Change Rate | | :--- | :--- | :--- | :--- | | Guarantee deposits for issuing commercial bills | 420,150 | 277,320 | 51.5% | | Others | 2,262 | 2,000 | 13.1% | | Total | 422,412 | 279,320 | 51.2% | 13 Trade and Other Payables Total trade and other payables increased to RMB 935.6 million, with trade payables and bills payable amounting to RMB 790.6 million Trade and Other Payables (RMB thousands) | Item | June 30, 2021 (Unaudited) | December 31, 2020 (Audited) | Change Rate | | :--- | :--- | :--- | :--- | | Trade payables and bills payable | 790,560 | 604,109 | 30.8% | | Employee benefits payable | 42,974 | 43,573 | -1.4% | | Payables for purchase of property, plant and equipment | 31,125 | 27,214 | 14.4% | | Accrued expenses and others | 17,170 | 24,616 | -30.3% | | Contract liabilities | 53,809 | 26,107 | 106.1% | | Total | 935,638 | 725,619 | 28.9% | 14 Interest-Bearing Borrowings Total interest-bearing borrowings increased to RMB 1,188.8 million, with short-term borrowings accounting for 91.7%; the Group's borrowings are partially secured by assets such as inventories, property, and equipment Repayment Schedule of Interest-Bearing Borrowings (RMB thousands) | Repayment Period | June 30, 2021 (Unaudited) | December 31, 2020 (Audited) | Change Rate | | :--- | :--- | :--- | :--- | | Within one year | 1,089,751 | 828,385 | 31.6% | | More than one year but less than two years | 68,000 | 88,000 | -22.7% | | More than five years | 31,000 | 790 | 3824.1% | | Total | 1,188,751 | 917,175 | 29.6% | - As of June 30, 2021, interest-bearing borrowings of RMB 381,100,000 were subject to financial covenants related to certain balance sheet ratios of the Group[105] - Secured bank loans bear interest at annual rates ranging from 0.32% to 4.79%, while unsecured bank loans bear interest at annual rates ranging from 4.13% to 4.35%[106] 15 Capital, Reserves and Dividends No dividends were declared during the reporting period; the company's share capital remained unchanged, and the capital gearing ratio slightly increased to 37.77% 15 (a) Dividends No dividends were declared or paid for the period ended June 30, 2021 - No dividends were declared or paid for the period ended June 30, 2021, and the Board of Directors has decided not to pay any interim dividend[109] 15 (b) Share Capital As of June 30, 2021, the number and amount of issued and fully paid ordinary shares remained unchanged Issued and Fully Paid Ordinary Shares (thousands of shares/HKD thousands/RMB thousands) | Indicator | June 30, 2021 Number of Shares (thousands of shares) | June 30, 2021 Amount (HKD thousands) | June 30, 2021 Equivalent (RMB thousands) | | :--- | :--- | :--- | :--- | | At January 1 | 814,559 | 81,459 | 73,676 | | Repurchase and cancellation of contingent consideration shares | – | – | – | | At June 30 / December 31 | 814,559 | 81,459 | 73,676 | 15 (c) Capital Management The Group manages its capital structure by monitoring the capital gearing ratio, which was 37.77% at the end of the reporting period, slightly higher than the previous year-end - The primary objectives of the Group's capital management are to safeguard the Group's ability to continue as a going concern and to maximize returns for shareholders and benefits for other stakeholders[113] - The Group monitors its capital structure using the capital gearing ratio, calculated as net debt divided by total capital[113] Capital Gearing Ratio | Indicator | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Capital gearing ratio | 37.77% | 36.23% | 16 Fair Value Measurement of Financial Instruments This section discloses financial assets and liabilities measured at fair value, primarily derivative financial instruments (futures contracts), classified by fair value hierarchy levels Financial Assets and Liabilities Measured at Fair Value (RMB thousands) | Item | June 30, 2021 Fair Value | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Assets | | | | | | Derivative financial instruments: futures contracts | 17,213 | 17,213 | – | – | | Liabilities | | | | | | Derivative financial instruments: futures contracts | (125) | (125) | – | – | Financial Assets and Liabilities Measured at Fair Value (RMB thousands) | Item | December 31, 2020 Fair Value | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Assets | | | | | | Structured bank deposits | 5,000 | – | 5,000 | – | | Liabilities | | | | | | Derivative financial instruments: futures contracts | (21,672) | (21,672) | – | – | - For the six months ended June 30, 2021, there were no transfers between Level 1 and Level 2, nor any transfers into or out of Level 3[123] 17 Share Award Scheme The share award scheme aims to incentivize employees, with the trustee holding company shares; the vesting dates for some awarded shares have been repeatedly postponed to encourage long-term employee service - The company adopted a share award scheme on April 18, 2016, to recognize and reward eligible employees for their contributions to the Group's business growth and development by granting company shares[126] - The trustee has purchased 9,477,000 shares of the company at a total cost of HKD 7,967,000 (equivalent to RMB 6,884,000)[126] - The vesting dates for some awarded shares have been repeatedly postponed, most recently to December 13, 2020, and December 13, 2021, to incentivize grantees to maintain their employment relationship with the Group[128] 18 Commitments As of the end of the reporting period, the Group's contracted but unprovided capital commitments amounted to RMB 524.6 million, primarily for plant construction and capacity expansion in the copper processing business Capital Commitments (RMB thousands) | Item | June 30, 2021 (Unaudited) | December 31, 2020 (Audited) | Change Rate | | :--- | :--- | :--- | :--- | | Contracted | 524,552 | 570,095 | -8.0% | | Total | 524,552 | 570,095 | -8.0% | - Capital commitments are primarily for the acquisition of property, plant and equipment[132] 19 Key Management Personnel Remuneration This section discloses the remuneration of key management personnel, including short-term employee benefits and post-employment benefits Key Management Personnel Remuneration (RMB thousands) | Item | 2021 (Unaudited) | 2020 (Unaudited) | | :--- | :--- | :--- | | Short-term employee benefits | 1,886 | 1,890 | | Post-employment benefits | 4 | – | | Total | 1,890 | 1,890 | 20. Non-Adjusting Events After the Reporting Period After the reporting period, the company successfully completed the placement of 85,000,000 new shares, raising net proceeds of approximately HKD 79.97 million, which will be used for new plant construction and general working capital - On July 29, 2021, the company successfully completed the placement of 85,000,000 new shares to no less than six independent placees[135] - The gross and net proceeds from the placement were approximately HKD 81,600,000 and HKD 79,968,000, respectively[135] - The company intends to use the net proceeds from the placement for the construction of new plant facilities on the Yongxin G-203 plot in Ningbo Hangzhou Bay New Zone, China, acquired by the Group in 2019, and for its general working capital[135] Management Discussion and Analysis This chapter provides a detailed review of the Group's copper processing and online game businesses, including market environment, operational performance, development strategies, and future outlook, along with an in-depth analysis of financial position, liquidity, capital structure, and market risks Copper Processing Business The copper processing business benefited from global economic recovery and rising copper prices, leading to significant increases in production, sales volume, and revenue, as well as a substantial improvement in net profit; the company actively expanded markets, innovated products, and reduced costs Market and Industry Review In the first half of 2021, global economic recovery, copper mine supply shortages, and favorable macroeconomic liquidity drove copper prices to new historical highs; the domestic copper strip processing industry performed well with full orders - Global copper mine supply was in a shortage, while global monetary liquidity remained strong, crude oil prices continued to rise, rapid vaccination progress, a large-scale infrastructure plan in the US, and a significant decline in the US dollar pushed copper prices to new historical highs[137] - In the first half of 2021, the average prices of LME spot copper and three-month copper increased by 65.67% and 65.00% year-on-year, respectively; SHFE spot copper and three-month copper average prices increased by 49.96% and 50.51% year-on-year, respectively[138] - In the first half of 2021, China's copper strip processing industry generally performed well, with companies having full orders, higher operating rates than in previous years, and significantly increased production output and capacity utilization compared to the same period last year[138] Business Review Total production and sales volume of copper strips reached 77,171 tons and 76,696 tons, respectively, with sales revenue increasing by 62.7% to RMB 3,161.1 million, and net profit growing substantially by 314.2% - In the first half of 2021, the Group's total production and sales volume of copper strips reached 77,171 tons and 76,696 tons, respectively[141] - The copper strip business achieved sales revenue of RMB 3,161.1 million, an increase of 62.7% compared to the same period in 2020[141] - The copper business achieved a net profit of RMB 162.8 million, an increase of 314.2% compared to the net profit of RMB 39.3 million (excluding fair value changes of contingent consideration receivables and payables) in the same period last year[141] Business Development The Group drove business development through various measures including market expansion (increasing sales to domestic high-end downstream industries), product innovation (deepening high-value-added product technology and breaking through trial certifications), and cost reduction (improving total volume and yield, expanding scrap copper procurement channels) - In terms of market expansion, the Group intensified its continuous sales efforts in domestic high-end downstream industries (electronics, connectors, integrated circuits, automotive electrical appliances, and related industries) for products originally introduced from advanced foreign counterparts[142] - In terms of product innovation, the Group deepened the stability of yield and process solidification technology for high-value-added, high-tech products, broke through trial certifications for multiple target customers, and significantly reduced product return rates[142] - In terms of cost reduction, production costs were lowered through significant increases in total volume and yield, as well as rational allocation of production plans; the Group actively expanded scrap copper procurement channels and varieties, and explored overseas scrap copper markets[142] Outlook Demand for copper strips is expected to continue growing in the second half of the year, especially in national key areas such as power, electronic information, and high-end equipment; the Group will strengthen risk management to achieve stable profit growth while ensuring production and sales volume - It is expected that the development of industries related to copper strip consumption, such as power, electronic information, high-end equipment, integrated circuits, and automotive manufacturing, will continue to increase the demand for copper strips, especially for high-precision copper strips in high-end fields[145] - The Group will continue to ensure production and sales volume, strengthen risk management, and achieve stable profit growth to cope with adverse factors such as the recurring global pandemic, high uncertainty in economic growth, and large fluctuations in commodity prices[145] Online Game Business The online game business saw total revenue decline to RMB 6.7 million and recorded a net loss, primarily due to shrinking revenue from existing games and new products still in testing; the Group continues to increase R&D investment and plans to launch new mobile and H5 games Online Game Business - Business Review Funnytime's total revenue was RMB 6.7 million, with a net loss of RMB 0.4 million, primarily due to shrinking revenue from existing games and new products being in testing - For the six months ended June 30, 2021, Funnytime achieved total revenue of RMB 6.7 million (2020: RMB 8.4 million) and a net loss of RMB 0.4 million (2020: net loss of RMB 4.6 million)[146] - The decrease in revenue and net loss were due to shrinking revenue from existing games and new products still being in the testing phase[146] Market and Industry Review The growth rate of actual sales revenue and user scale in China's game market slowed down, with mobile games still dominating the market and web games continuing to decline - From January to June 2021, China's game market achieved actual sales revenue of RMB 150.493 billion, a year-on-year increase of 7.89%, with a user scale of 667 million, a year-on-year increase of 1.38%, indicating a slowdown in growth[147] - The actual sales revenue of self-developed online games in China's domestic market was RMB 130.1 billion, a year-on-year increase of 8.3%, continuing to maintain over 80% of the domestic market share[147] - The mobile game market achieved actual sales revenue of RMB 114.8 billion, a year-on-year increase of 9.6%; the web game market achieved actual sales revenue of RMB 3.0 billion, a year-on-year decrease of 24.5%[147] Business Development The operations team stabilized existing game revenue through refined operations and collaborated with the R&D team to polish self-developed products; the R&D center has completed the development and first round of testing for the mobile game "Let's Cultivate Immortals Together" and a new H5 product - The operations center, through refined operations, enhanced user stickiness, stabilized product lifecycle and revenue, with several mature games still generating average monthly revenue of approximately RMB 1.0 million to RMB 1.2 million each[150] - The R&D center has completed the development and first round of testing for the new mobile game "Let's Cultivate Immortals Together," showing good data performance, and is expected to undergo a second round of testing and subsequent official open beta in the third quarter of 2021[151] - The first version of the new H5 product has been completed and is planned for online testing in the third quarter of 2021[151] Outlook The Group's online game business will continue to adhere to a premium game strategy, enhance product innovation, and leverage promotional resources to create multiple high-quality games - The Group's online game business will continue to adhere to premium games as its strategic high ground, enhancing product innovation[152] - It will uphold the core development strategy of "integrated research and operation," fully utilize promotional resources, and focus on long-term goals to create multiple high-quality games[152] Financial Review This section provides a detailed analysis of changes in revenue, gross profit, various expenses, net finance costs, income tax, and profit attributable to company shareholders during the reporting period, along with their main driving factors Revenue and Gross Profit Total revenue grew by 62.4% to RMB 3,167.8 million, with copper business revenue increasing by 62.7% and online game revenue decreasing; the copper business gross profit margin increased from 10.1% to 13.7% - During the reporting period, the Group recorded total sales revenue of RMB 3,167.8 million, an increase of 62.4% compared to the same period last year[155] - The Group's copper business recorded total revenue of RMB 3,161.1 million, an increase of 62.7% compared to RMB 1,942.5 million in the same period of 2020[155] - The overall gross profit margin of the Group's copper business increased from 10.1% in the same period of 2020 to 13.7% in the reporting period, mainly due to rising copper prices[157] Other Income Total other income decreased by 26.9% to RMB 7.9 million, primarily due to a reduction in government grants - For the six months ended June 30, 2021, the Group's total other income was RMB 7.9 million, a decrease of 26.9% compared to RMB 10.8 million in the same period last year[158] - The decrease in other income was mainly due to a reduction in government grants[158] Other Expenses Other expenses increased to RMB 59.6 million, mainly due to an increase in net loss from derivative financial instruments to RMB 58.0 million - For the six months ended June 30, 2021, the Group recorded other expenses of RMB 59.6 million, compared to RMB 38.0 million in the same period last year[159] - This increase was mainly due to the Group recording more net losses from derivative financial instruments of RMB 58.0 million in 2021, compared to RMB 33.9 million in 2020[159] Distribution Expenses The ratio of distribution expenses to revenue decreased to 0.9%, primarily due to increased revenue - For the six months ended June 30, 2021, the ratio of distribution expenses to revenue decreased to 0.9%, compared to 1.0% in the same period last year[160] - This was mainly due to the increase in revenue[160] Administrative Expenses Administrative expenses increased by 35.4% to RMB 138.8 million, primarily due to increased staff costs and research and development expenses - For the six months ended June 30, 2021, the Group's administrative expenses increased by 35.4% to RMB 138.8 million from RMB 102.5 million in the same period last year[162] - The increase in administrative expenses was due to increased staff costs and research and development expenses[162] Net Finance Costs Net finance costs increased to RMB 11.9 million, mainly due to the fair value changes of contingent consideration receivables and payables recorded in the same period of 2020 - For the six months ended June 30, 2021, the Group's net finance costs amounted to RMB 11.9 million, an increase of RMB 8.7 million compared to RMB 3.2 million in the same period last year[163] - The increase in net finance costs was mainly due to the Group recording fair value changes of contingent consideration receivables and payables of RMB 8.2 million in 2020[163] Income Tax Income tax expense increased to RMB 44.9 million, with the effective tax rate rising from 15% to 22%, due to increased taxable profits from subsidiaries taxed at higher rates - For the six months ended June 30, 2021, the Group's income tax expense was RMB 44.9 million (2020: RMB 7.7 million)[164] - The Group's consolidated effective tax rate for the six months ended June 30, 2021, was 22% (2020: 15%)[164] - The increase in effective tax rate was mainly due to an increase in taxable profits from subsidiaries taxed at a higher applicable income tax rate of 25%[164] Profit Attributable to Equity Holders of the Company Profit attributable to equity holders of the company significantly increased to RMB 162.1 million, a year-on-year increase of RMB 119.3 million - For the six months ended June 30, 2021, profit attributable to equity holders of the Company was RMB 162.1 million, an increase of RMB 119.3 million compared to RMB 42.8 million in the same period last year[165] Liquidity, Financial Resources and Capital Structure The Group's net current assets increased, with a high proportion of short-term interest-bearing borrowings, but it possesses sufficient bank credit and cash reserves, and the Board believes it has adequate financial resources to meet operational and debt requirements; the capital gearing ratio slightly increased - As of June 30, 2021, the Group recorded net current assets of RMB 596.4 million, mainly due to an increase in the Group's inventories[166] - As of June 30, 2021, short-term interest-bearing borrowings accounted for 91.7% of total interest-bearing borrowings[166] - The Group has available and undrawn bank credit facilities of RMB 1,319.3 million (including a long-term loan facility of RMB 655.0 million valid until 2026) and bank cash of RMB 914.9 million[166] - As of June 30, 2021, the Group had outstanding bank loans and other borrowings of approximately RMB 1,089.8 million that are repayable within one year[169] - As of June 30, 2021, 64.1% of the Group's debt was secured[169] - As of June 30, 2021, the gearing ratio (calculated as net debt divided by total capital) was 37.8% (December 31, 2020: 36.2%)[169] Pledged Assets The Group pledged assets with a total carrying amount of RMB 652.2 million to secure bank loans and credit facilities - As of June 30, 2021, the Group pledged assets with a total carrying amount of RMB 652.2 million (December 31, 2020: RMB 618.7 million) to secure the Group's bank loans and credit facilities[170] Capital Expenditure During the reporting period, the Group invested approximately RMB 67.6 million in the acquisition of property, plant and equipment, primarily funded by internal resources and bank borrowings - For the six months ended June 30, 2021, the Group invested approximately RMB 67.6 million in the acquisition of property, plant and equipment[171] - These capital expenditures were primarily funded by internal resources and bank borrowings[171] Capital Commitments As of the end of the reporting period, contracted but unprovided future capital expenditures amounted to RMB 524.6 million, primarily for plant construction and capacity expansion in the copper processing business - As of June 30, 2021, the Group had contracted but unprovided future capital expenditures of RMB 524.6 million[172] - These were mainly for plant construction and capacity expansion in the Group's copper processing business[172] Contingent Liabilities As of June 30, 2021, the Group had no significant contingent liabilities - As of June 30, 2021, the Group had no significant contingent liabilities[173] Market Risks The Group faces price risk (raw material and product price fluctuations), interest rate risk (bank borrowing interest rate fluctuations), and foreign exchange risk (export sales and raw material purchases denominated in foreign currencies); the Group uses futures contracts to hedge copper price risk but has not hedged interest rate and foreign exchange risks Price Risk The Group faces price fluctuation risks for raw materials (cathode copper, alloy scrap, etc.) and products, using SHFE and LME copper futures contracts to hedge copper price fluctuations, but recorded losses from futures contracts during the reporting period - The Group is exposed to price fluctuation risks for raw materials, primarily including cathode copper, alloy scrap, zinc, tin, nickel, and other metals[175] - The Group uses its copper futures contracts on SHFE and LME to hedge against copper price fluctuations[175] - For the six months ended June 30, 2021, the Group recorded losses from futures contracts of approximately RMB 58.0 million, compared to approximately RMB 33.9 million in the same period last year[175] Interest Rate Risk The Group's primary market risk related to interest rate changes is associated with fluctuations in bank borrowing interest rates, and it has not entered into any interest rate swaps to hedge this risk - The market risk of interest rate changes faced by the Group is primarily related to fluctuations in interest rates on bank borrowings[178] - The Group has not entered into any interest rate swaps to hedge interest rate risk[178] Foreign Exchange Risk The Group's export sales and certain raw material purchases are denominated in foreign currencies (primarily USD), exposing it to exchange rate fluctuation risk; a net foreign exchange gain was recorded during the reporting period, but no foreign exchange contracts were entered into for hedging - The Group's export sales and certain raw material purchases are denominated in foreign currencies (primarily US dollars), thus exchange rate fluctuations may impact the Group's operating results[179] - During the reporting period, the Group recorded a net foreign exchange gain of RMB 1.8 million, compared to a net loss of RMB 2.6 million in the same period of 2020[179] - As of June 30, 2021, the Group had not entered into any foreign exchange contracts to hedge foreign currency exchange rate risk[179] Employees As of June 30, 2021, the Group's total number of employees increased to 1,452; the company offers competitive compensation and benefits, and invests in employee training and share award schemes to attract and retain talent - As of June 30, 2021, the Group employed a total of 1,452 employees (December 31, 2020: 1,336 employees)[180] - Remuneration policies are regularly reviewed to ensure the Group provides competitive employment terms for employees, with benefits including salaries, pensions, medical insurance plans, and other applicable social insurance[180] - The Group has established annual training programs for employees and may grant share options and awarded shares to eligible employees[180] Other Information This chapter discloses non-financial information such as the interests of directors and chief executives, major shareholders in the company's shares, as well as compliance with share option schemes, share award schemes, corporate governance, and the Model Code for Securities Transactions Directors' and Chief Executive's Interests in Shares, Underlying Shares and Debentures This section discloses the long positions of directors and chief executives in the company's shares and underlying shares, including the number of shares and approximate percentage of shareholding held through trusts, controlled corporations, and personally Directors' and Chief Executive's Long Positions in the Company's Shares and Underlying Shares (As of June 30, 2021) | Director Name | Capacity / Nature of Interest | Number of Shares Held | Number of Underlying Shares | Approximate Percentage of Shareholding | | :--- | :--- | :--- | :--- | :--- | | Hu Changyuan | Founder of discretionary trust / Other interest | 265,200,000 | – | 32.56% | | | Interest in controlled corporation / Corporate interest | 13,213,000 | – | 1.62% | | | Beneficial owner / Personal interest | – | 400,000 | 0.06% | | Hu Minglie | Beneficial owner / Personal interest | – | 3,103,000 | 0.44% | | Chai Chaoming | Beneficial owner / Personal interest | 284,000 | 50,000 | 0.04% | | Lu Hong | Beneficial owner / Personal interest | 350,000 | 50,000 | 0.05% | | Zhu Wenjun | Beneficial owner / Personal interest | – | 400,000 | 0.06% | | Lou Dong | Beneficial owner / Personal interest | 150,000 | 50,000 | 0.02% | - Underlying shares (unlisted and physically settled) are awarded shares granted to directors under the share award scheme on December 13, 2017, with some shares vesting on December 13, 2021[187] Arrangements to Purchase Shares or Debentures Except for the share option scheme and share award scheme, neither the company nor its subsidiaries participated in any arrangements during the review period that would enable directors to benefit from purchasing shares or debentures of the company - Save for the share option scheme and the share award scheme, neither the company nor any of its subsidiaries was a party to any arrangements during the review period that would enable the directors to acquire benefits by means of the acquisition of shares or debentures of the company or any other body corporate[188] Share Option Scheme The 2016 Share Option Scheme was adopted by shareholders, but no share options were granted, exercised, lapsed, cancelled, or outstanding under the scheme during the review period - The shareholders adopted a share option scheme (the "2016 Share Option Scheme") at the extraordinary general meeting of the company held on May 27, 2016[189] - During the review period, no share options were granted, exercised, lapsed, cancelled, or outstanding under the 2016 Share Option Scheme[191] Share Award Scheme The share award scheme aims to incentivize employees, with the trustee holding shares; no new shares were subscribed or granted during the reporting period, and the vesting dates for some awarded shares have been repeatedly postponed - The share award scheme aims to allow the company to grant awards to selected employees as an encouragement for their contributions to the Group and to attract suitable talent for the Group's further development[193] - For the period ended June 30, 2021, no new shares were subscribed by the trustee, no shares of the company were acquired by the trustee under the rules of the share award scheme and the trust deed, no shares were granted to selected employees, and no shares were vested under the share award scheme[194] - The vesting dates for some awarded shares have been repeatedly postponed, most recently to December 13, 2020, and December 13, 2021[195] Major Shareholders This section discloses the interests of major shareholders (other than directors) in the company's shares and underlying shares as of June 30, 2021, including Luckie Strike Limited, Come Fortune International Limited, Dynamic Empire Holdings Limited, Nomura Holdings Inc., Zedra Trust Company (Singapore) Limited, Zedra Malta Limited, Zedra Holding SA, Zedra SA, Yu Yuesu, Bostone Group Limited, Xie Shicai, and Ma Jiafeng Major Shareholders' Interests in the Company's Shares and Underlying Shares (As of June 30, 2021) | Shareholder Name / Name | Capacity / Nature of Interest | Number of Shares (L) | Number of Underlying Shares | Approximate Percentage of Shareholding | | :--- | :--- | :--- | :--- | :--- | | Luckie Strike Limited | Beneficial owner / Beneficial interest | 110,000,000 | – | 13.50% | | Come Fortune International Limited | Beneficial owner / Beneficial interest | 155,200,000 | – | 19.05% | | Dynamic Empire Holdings Limited | Interest in controlled corporation / Corporate interest | 265,200,000 | – | 32.56% | | Nomura Holdings Inc. | Custodian (other than exempt custodian interest) / Other interest | 239,400,000 | – | 29.39% | | Zedra Trust Company (Singapore) Limited | Trustee (other than passive trustee) / Other interest | 265,200,000 | – | 32.56% | | Zedra Malta Limited | Interest in controlled corporation / Corporate interest | 265,200,000 | – | 32.56% | | Zedra Holding SA | Interest in controlled corporation / Corporate interest | 265,200,000 | – | 32.56% | | Zedra SA | Interest in controlled corporation / Corporate interest | 265,200,000 | – | 32.56% | | Yu Yuesu | Spouse's interest / Family interest | 278,813,000 | 100,000 | 34.24% | | Bostone Group Limited | Beneficial owner / Beneficial interest | 164,812,000 | – | 20.23% | | Xie Shicai | Interest in controlled corporation / Corporate interest | 187,720,000 | – | 23.05% | | Ma Jiafeng | Interest in controlled corporation / Corporate interest | 187,720,000 | – | 23.05% | - Mr. Hu Changyuan indirectly holds shares through Luckie Strike Limited and Come Fortune International Limited, and his spouse, Ms. Yu Yuesu, is deemed to have an interest by virtue of their spousal relationship[186][206] - Mr. Xie Shicai and Ms. Ma Jiafeng indirectly hold shares through Bostone Group Limited and Hong Kong Nice International New Energy Co, Limited; Ms. Ma is Mr. Xie's spouse, and Mr. Xie is the ultimate controlling shareholder of Ningbo Boway Alloy Material Co, Ltd[202] Audit Committee The Audit Committee has reviewed accounting principles and practices with management and has reviewed the interim results and report - The Audit Committee of the Board of Directors has reviewed the accounting principles and practices adopted by the Group with management and discussed financial reporting matters, including the review of the interim results and interim report prepared in accordance with relevant accounting standards for the review period[208] Compliance with Corporate Governance Code The company has complied with the Corporate Governance Code set out in Appendix 14 of the Listing Rules throughout the review period - During the review period, the company has complied with the Corporate Governance Code set out in Appendix 14 of the Listing Rules[209] Compliance with the Model Code for Securities Transactions All directors confirmed that they have complied with the standard requirements set out in the Model Code for Securities Transactions throughout the reporting period - Following specific enquiries made to all directors, all directors confirmed that they have complied with the standard requirements set out in the Model Code for Securities Transactions for the six months ended June 30, 2021[210] Purchase, Sale or Redemption of the Company's Listed Securities During the reporting period, neither the company nor its subsidiaries purchased, sold, or redeemed any listed shares; after the reporting period, the company completed the placement of 85,000,000 new shares - For the six months ended June 30, 2021, neither the company nor any of its subsidiaries purchased, sold, or redeemed any of the company's listed shares[211] - The company completed the placement of 85,000,000 new shares under general mandate on July 29, 2021[211] Interim Dividend The Board of Directors will not declare an interim dividend for the six months ended June 30, 2021 - The Board of Directors will not declare an interim dividend for the six months ended June 30, 2021 (2020: nil)[212] Disclosure of Changes in Directors' Information under Listing Rule 13.51B(1) Since the disclosure in the company's 2020 annual report, there have been no changes in directors' information requiring disclosure under Listing Rule 13.51B(1) - From the disclosure in the company's annual report for the year ended December 31, 2020, up to the date of this interim report, there have been no changes in directors' information requiring disclosure under Listing Rule 13.51B(1)[213]