Annual Report 2023

China Merchants China Direct Investments Limited Annual Report 2023 7 INVESTMENT MANAGER’S DISCUSSION AND ANALYSIS OVERALL PERFORMANCE China Merchants China Direct Investments Limited and its subsidiaries (the “ Fund ”) recorded a profit attributable to equity shareholders of US$5.73 million for the year ended 31 December 2023, compared to a loss attributable to equity shareholders of US$153.17 million for last year. The reversal was mainly due to a significantly smaller decline in the overall value of the financial assets at fair value through profit or loss (the “ Financial Assets ”), while at the same time the investment income recorded a sizable increase as compared to last year. As of 31 December 2023, the net assets of the Fund were US$557.94 million (31 December 2022: US$571.57 million), with a net asset value per share of US$3.663 (31 December 2022: US$3.752). The net loss on the Financial Assets for the year was US$9.03 million, compared to a net loss of US$199.78 million for last year. Looking deeper, the Fund’s listed and unlisted investments recorded a net loss of US$62.70 million and a net gain of US$53.67 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 increased by 28.75% to US$19.12 million (2022: US$14.85 million) as compared to last year, due mainly to a significant increase in dividend income from investments. ACQUISITIONS AND DISPOSALS OF INVESTMENTS In 2023, the Fund continued to seek out and rigorously evaluate investment opportunities. During the year, the Fund made investments in the information technology industry. The direct investments completed include the following: On 7 July 2023, the Fund entered into an investment agreement and other relevant agreements in relation to Beijing Hanwei Innovation Technology Co., Ltd. (“ Hanwei ”), pursuant to which the Fund agreed to contribute capital of RMB50 million to Hanwei in order to subscribe to the preferred shares issued by Hanwei and to obtain a 6.42% equity interest. The Fund paid the investment amount of RMB50 million (equivalent to US$7.02 million) to Hanwei on 27 July 2023 to complete the transaction. Hanwei is a fabless IC (Integrated Circuit) design company focusing on ultra-wideband (UWB) technology, and its high-precision positioning products developed primarily for consumer goods such as automotives, smartphones and wearables. On 6 December 2023, the Fund entered into a preferred share purchase agreement and other relevant agreements in relation to Moonshot AI Ltd. (“ Moonshot AI ”), pursuant to which the Fund agreed to contribute capital of US$10 million to Moonshot AI in order to subscribe to the preferred shares issued by Moonshot AI and to obtain a 1.29% equity interest. The Fund paid the said investment amount to Moonshot AI on 15 December 2023 to complete the transaction. Moonshot AI is a startup company that is focused on the research and development (R&D) of general- purpose large multimodal model and end-customer applications. In addition, the Fund completed a full exit from a listed investment in the year. During the period of September 2022 to January 2023, the Fund sold its entire holding of 67.24 million H shares of China Reinsurance (Group) Corporation (“ China Re ”) for net proceeds of HK$34.77 million (equivalent to US$4.46 million), and has fully exited from the project. The pre-tax internal rate of return to the Fund from China Re was negative 15.47%.