Proposed Offer Price at HK$17 Per H Share; A Premium of More Than 220% over Net Asset Value of Each Share

HONG KONG — Shandong Luoxin Pharmaceutical Group Stock Co., Ltd. (“Shandong Luoxin” or the “Group”) (stock code: 8058) has announced that Giant Star Global (HK) Limited (“Giant Star HK”) and Ally Bridge Flagship LX (HK) Limited (“Ally Bridge Flagship”) (“Joint Offerors”) have extended a voluntary conditional offer (the “Offer”) for all the issued H shares in Shandong Luoxin (other than those already owned, controlled or agreed to be acquired by the Joint Offerors and parties acting in concert with any of them who have undertaken not to accept the Offer) and proposed the withdrawal of listing of its H shares from The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

The offer price is HK$17 in cash for each H share, a premium of approximately 223.81% over RMB4.62 which is the audited consolidated net asset value of each share as at 31 December 2016. The offer price is (1) a premium of approximately 31.78% over HK$12.90 which is the closing price per H share as quoted on the Stock Exchange on the last trading date (6 March 2017); (2) a premium of approximately 39.69% over HK$12.17 which is the average closing price per H share as quoted on the Stock Exchange for the 30 trading days up to and including the last trading date; (3) a premium of approximately 54.55% over HK$11.00 which is the average closing price per H share as quoted on the Stock Exchange for the 90 trading days up to and including the last trading date; (4) a premium of approximately 50.44% over HK$11.30 which is the average closing price per H Share as quoted on the Stock Exchange for the 180 trading days up to and including the last trading date. Based on the cash offer price of HK$17.00 per H share and the total number of H shares subject to the Offer of 137,796,627 H shares, the total consideration of the Offer (assuming the Offer is accepted in full and there are no changes in the share capital of Shandong Luoxin) is approximately HK$2,342,542,659. Of the total consideration, HK$1,570,440,599 would be financed by Giant Star HK by cash or the credit facility available under the Pingan Loan Facility or a combination of the above; and the rest of HK$772,102,060 would be financed by Ally Bridge Flagship by a combination of a credit facility available under the SHK Facility Letter and cash from its internal resources.

Shandong Luoxin is principally engaged in the manufacturing and distribution of pharmaceutical products and has registered satisfactory profitability since its listing in December 2005. Nevertheless, the operating environment of pharmaceutical enterprises has become difficult since 2015 due to the sustained decrease in tender prices, drug proportion, medical insurance premium control, the introduction of policies like quality consistency evaluation for generic drugs, reform on registration category for chemical drugs and reform on assessment and approval for pharmaceutical products. Therefore, the Group is also facing increasing pressure on its sales and profitability. For the year ended 31 December 2016, the Group’s profit attributable to shareholders decreased by 23.07% year-on-year.

In view of the numerous newly implemented industry policies mentioned above, the Group is not only devoting significant efforts on the establishment of its sales teams and proactively broadening its sales network, it is also adjusting its operating strategies in order to adapt to changes in the industry and market demand trends by investing additional resources in scientific research. However, it is anticipated that these measures taken by the Group will result in squeeze on its net profit margin in the short-to-mid-term. As a publicly listed company, investors would have different requirements with regard to their return on investment, which may differ from the development plan of the Group in the long run. It is believed that the Offer will enable the Group to have greater flexibility to make timely investment decision and to focus on its long-term development.

The Joint Offerors believe that the Offer provides a compelling opportunity for the H shareholders to dispose of their H shares at an attractive premium over the prevailing market price without incurring any illiquidity discount. The offer price represents 65.38 times the offer price of the H shares at the initial public offering, therefore bringing satisfactory return to the shareholders. In addition, considering the low trading volume in the H shares, the Offer presents an opportunity for the H shareholders to dispose of their H shares and exit their investment for cash proceeds. Furthermore, assuming the Offer will become unconditional, the Group will make an application for the listing of the H shares to be withdrawn from the Stock Exchange in accordance with the GEM Listing Rules. If the H shares are delisted from the Stock Exchange, the H shareholders will hold the securities that are not listed and the liquidity of the H shares will be severely reduced.

The Offer will initially be open for acceptances from 11 April 2017. The extraordinary general meeting (EGM) and the H share class meeting of Shandong Luoxin for the purpose of considering and approving the proposed withdrawal of listing of the H shares of Shandong Luoxin from the Stock Exchange, will be held at 10:30 a.m. and 11:00 a.m., respectively, on 29 May 2017. Once all of the conditions under the Offer have been either fulfilled or waived (as applicable), the Offer will be declared unconditional and the Offer will be extended for a subsequent period of at least 28 days before the Offer is closed in order to allow sufficient time for those H shareholders who have not initially accepted the Offer to accept the Offer or to process the transfer of their H shares.

As the independent financial adviser, KGI Capital Asia Limited considers the terms of the proposal can provide a valuable opportunity for the independent H shareholders to realize their investments in the Group, and are fair and reasonable and in the interests of the independent shareholders, and accordingly advises the independent committee to recommend the independent shareholders to accept the Offer and vote in favour of the resolution of the delisting at the H share class meeting and the EGM having taken into account the following factors and reasons:(i) despite the Group is profitable, it is experiencing continuous decline in profit due to narrowing in net profit margin as a result of heavy research and development cost and the cost of expanding sales force; (ii) the overall slowdown of China’s pharmaceutical industry, tightening industry policies, issuance of new classification measure of drug registration and implementation of quality consistency evaluation; (iii) the H share offer price represents premiums over the prevailing H share price; (iv) the general underperformance of the H share price compared to the HSI and HSCEI during the Pre-Announcement Period , suggesting a lack of significant retail and/or institutional investors’ interest in the Group relative to the overall market performance; (v) the thin trading volume in the H shares during the Review Period1, indicating that the proposal provides a valuable opportunity for the independent H shareholders to realise their investments in the Group, which would not normally be available through the market given the thin trading liquidity; and (vi) the 2016 P/E ratio and P/B ratio implied by the H share offer price were both higher than the respective average ratios as at the latest practicable date (7 April 2017) of the comparable companies.

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