Annual Report 2020

China Merchants China Direct Investments Limited Annual Report 2020 22 INVESTMENT MANAGER’S DISCUSSION AND ANALYSIS (CONTINUED) REVIEW OF INVESTMENTS (CONTINUED) Iflytek Co., Ltd. (“Iflytek”) was established in 1999, and is headquartered in Hefei, Anhui. It was listed on the SME Board of the Shenzhen Stock Exchange in May 2008. It is a national key software enterprise dedicated to the research of intelligent speech, language technologies, and AI technologies; the development of software and chip products; the provision of speech information services; and the integration of e-government systems. During the period of November to December 2016, the Fund acquired 4.54 million A shares of Iflytek at an average price of RMB19.09 (adjusted) per share on the secondary stock market of Mainland China with an aggregate invested amount of RMB130 million (equivalent to US$18.83 million). As of 31 December 2020, the Fund held a total of 6.81 million A shares of Iflytek, as a result of the receipt of 2.27 million new shares via a capitalisation issue from Iflytek in 2018, accounting for 0.306% of the issued share capital of Iflytek. In June 2020, the Fund received a cash dividend (net of tax) of RMB0.65 million from Iflytek for 2019. As of the end of 2020, the carrying value of the Fund’s interest in Iflytek was US$42.61 million, representing an increase of 26.74% over US$33.62 million at the end of last year. On 27 October 2020, Iflytek announced that its unaudited net profit for the first three quarters of 2020 was RMB554 million, up 48.36% year-over-year. The primary reason for the increase in net profit was that there was a delay in progress related to the implementation, delivery, inspection and acceptance of the company’s projects in the first quarter of 2020, due primarily to the outbreak of the novel coronavirus, which in turn had an adverse impact on the company’s operating results for the first quarter of 2020, as well as a residual influence on its annual results. With the resumption of operations and production in various industries, the adverse impact on the first quarter was well offset by the better results in the second and third quarters. In addition, the corporate strategic plan driven by the company’s AI core technologies has been achieving repeated success. In addition, according to an announcement of Iflytek dated 4 February 2021, its unaudited net profit for 2020 ranged from RMB1.23 billion to RMB1.39 billion, up 50% to 70% year-over-year. On 19 January 2021, Iflytek announced its proposed non-public issuance of not less than 59,559,262 shares and not more than 77,427,039 shares to raise funds of not less than RMB2.0 billion and not more than RMB2.6 billion. Of these, Mr. LIU Qingfeng, one of the de facto controlling shareholders of the company, shall subscribe for not less than 53,603,336 shares and not more than 71,471,113 shares, with a subscription amount of not less than RMB1.8 billion and not more than RMB2.4 billion, while a company controlled by Mr. LIU shall subscribe for 5,955,926 shares with a subscription amount of approximately RMB200 million. The proceeds from this placement shall be used in full to replenish the company’s working capital to strengthen its capital base, to optimise its asset structure and to enhance its risk-resistance capacity. The proposal of non-public shares issuance has been approved by the shareholders meeting of Iflytek, and is now pending for approval by regulatory authorities.