Annual Report 2019

INVESTMENT MANAGER’S DISCUSSION AND ANALYSIS China Merchants China Direct Investments Limited Annual Report 2019 7 OVERALL PERFORMANCE China Merchants China Direct Investments Limited and its subsidiaries (the “ Fund ”) recorded a profit attributable to equity shareholders of US$101.81 million for the year ended 31 December 2019, compared to a loss attributable to equity shareholders of US$87.02 million for last year. The reversal was mainly due to a significant increase in the overall value of the financial assets at fair value through profit or loss (the “ Financial Assets ”), resulting in the recognition of a gain, rather than a loss as in the prior year. As of 31 December 2019, the net assets of the Fund were US$649.05 million (31 December 2018: US$575.06 million), with a net asset value per share of US$4.261 (31 December 2018: US$3.775). The net gain on the Financial Assets for the year was US$131.85 million, compared to a net loss of US$111.12 million for last year. The listed and unlisted investments recorded net gains of US$114.35 million and US$17.50 million, respectively. For more information on the change in fair value of each of the listed and unlisted investments, please see the section titled “Review of Investments” in this Investment Manager’s Discussion and Analysis. Total investment income for the year decreased by 17.74% to US$15.53 million (2018: US$18.88 million) as compared to last year, due mainly to a decrease in dividend income from investments. ACQUISITIONS AND DISPOSALS OF INVESTMENTS In 2019, the Fund continued to seek out and rigorously evaluate investment opportunities. During the year, the Fund increased its investment in an existing project and completed an investment in a new project, both related to the field of information technology. In addition, the Fund remitted the consideration for an investment in a new information technology-related project. Pony AI Inc. (“ Pony AI ”) carried out a new round of equity financing and introduced a new investor. To avoid the dilution of interest, the Fund exercised its anti-dilution rights under the relevant agreements and made a further investment of US$0.61 million in Pony AI on 25 April 2019 so as to maintain its equity interest and certain rights (including information rights) in Pony AI as unchanged. On 2 September 2019, the Fund entered into a capital increase agreement and other relevant agreements in relation to Shenzhen Arashi Vision Co., Ltd. (“ Arashi Vision ”), pursuant to which the Fund agreed to contribute capital of RMB20 million to Arashi Vision in return for a 1% equity interest in Arashi Vision. The Fund completed the capital injection of RMB20 million (equivalent to US$2.83 million) on 20 September 2019. On 31 October 2019, the Fund entered into an equity transfer agreement with an existing shareholder of Arashi Vision, pursuant to which the Fund agreed to acquire a 0.625% equity interest in Arashi Vision at a price of RMB10 million, bringing the Fund’s total investment in Arashi Vision to RMB30 million, accounting for a 1.625% equity interest in the company. Arashi Vision is a company striving to become a global leader engaged in the research, development and manufacture of 360-degree video products. On 27 December 2019, the Fund entered into an equity transfer agreement in relation to Anhui iFlytek Healthcare Information Technology Co., Ltd. (“ iFlytek Healthcare ”), pursuant to which the Fund agreed to acquire a 3% equity interest in iFlytek Healthcare from an existing shareholder, Anhui Iflytek Venture Capital LLP, at a price of RMB60 million. The Fund remitted the consideration of RMB60 million (equivalent to US$8.60 million) on 31 December 2019 and the equity transfer was duly completed on 27 February 2020. iFlytek Healthcare is an artificial intelligence (AI) medical enterprise.