DaChan Food Asia : RENEWAL OF TWO CONTINUING CONNECTED TRANSACTIONS

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

(the "Company")

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 3999)

RENEWAL OF TWO CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

Reference is made to the Company's announcement dated 18 April 2018 regarding, among others, two continuing connected transactions contemplated under:

1. Marubeni Master Purchase Agreement entered into between the Company and Marubeni PRC; and
2. Marubeni Master Supply Agreement entered into between the Company and Marubeni.

The terms of all Current Agreements shall expire on 31 December 2021.

On 26 April 2021, the Company entered into the following agreements:

1. Marubeni Master Purchase (Renewal) Agreement with Marubeni PRC; and
2. Marubeni Master Supply (Renewal) Agreement with Marubeni.

The Renewal Agreements will be effective for three years starting from 1 January 2022. The major terms of the Renewal Agreements are substantially the same as those of the Current Agreements.

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LISTING RULES IMPLICATIONS

Marubeni is the ultimate holding company of Marubeni PRC, and Marubeni is a substantial shareholder of a subsidiary of the Company. Therefore, each of Marubeni and Marubeni PRC is a connected person of the Company under the Listing Rules and the transactions contemplated under the Renewal Agreements constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

As the Renewal Agreements are entered into by the Company with connected persons at the subsidiary level on normal commercial terms and have been approved by the Board and the Directors (including independent non-executive Directors) are of the view that the transactions contemplated thereunder are in the ordinary and usual course of business of the Company, on normal commercial terms, fair and reasonable and in the interests of the Company and Shareholders as a whole, the continuing connected transactions contemplated thereunder, though subject to the reporting, announcement and annual review requirements under Chapter 14A of the Listing Rules, are exempt from the circular, independent financial advice and independent shareholders' approval requirements pursuant to Rule 14A.101 of the Listing Rules.

INTRODUCTION

Reference is made to the Company's announcement dated 18 April 2018 regarding, among others, two continuing connected transactions contemplated under:

1. Marubeni Master Purchase Agreement entered into between the Company and Marubeni PRC; and
2. Marubeni Master Supply Agreement entered into between the Company and Marubeni.

The terms of all Current Agreements shall expire on 31 December 2021.

On 26 April 2021, the Company entered into the following agreements:

1. Marubeni Master Purchase (Renewal) Agreement with Marubeni PRC; and
2. Marubeni Master Supply (Renewal) Agreement with Marubeni.

The Renewal Agreements will be effective for three years starting from 1 January 2022. The major terms of the Renewal Agreements are substantially the same as those of the Current Agreements. Details of the Renewal Agreements are set out below.

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RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

1. Marubeni Master Purchase (Renewal) Agreement

As the Marubeni Master Purchase Agreement will expire on 31 December 2021 and the Company and Marubeni PRC intended to carry out transactions of similar nature to those under the Marubeni Master Purchase Agreement, they entered into the Marubeni Master Purchase (Renewal) Agreement.

Set out below are the major terms of the Marubeni Master Purchase (Renewal) Agreement:

Date:	26 April 2021
Parties:	(i) the Company - the purchaser (for itself and on behalf of PRC Members
	of the Group); and
	(ii) Marubeni PRC - the supplier (for itself and on behalf of Members of the
	Marubeni PRC Group).
Duration:	3 years starting from 1 January 2022 to 31 December 2024
Major terms:	The Company agrees to procure PRC Members of the Group to purchase
	and Marubeni PRC agrees to procure Members of the Marubeni PRC Group
	to sell coated flour for food processing products processed, manufactured,
	produced, sold and/or wholesaled by the Members of the Marubeni PRC
	Group on a non-exclusive basis pursuant to sales contracts to be entered into
	between the relevant PRC Members of the Group and the relevant Members
	of the Marubeni PRC Group from time to time in accordance with the terms
	of the Marubeni Master Purchase (Renewal) Agreement. The terms of such
	sales contracts shall not contradict the Marubeni Master Purchase (Renewal)
	Agreement (except for terms in relation to general matters such as notice
	clause).
Price determination:	The prices of the products shall be agreed between the parties to the relevant
	sales contract on an arm's length basis and shall be on normal commercial
	terms and the price shall be within the range of fair price of the same or
	similar products provided by the Member of the Marubeni PRC Group to
	Independent Third Parties in the PRC when the Member of the Marubeni PRC
	Group signs the relevant sales contract.
Payment:	The Company shall procure relevant PRC Member of the Group to pay
	the price of the products in accordance with the sales contract entered into
	between the relevant PRC Member of the Group and the relevant Member of
	the Marubeni PRC Group from time to time.

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2. Marubeni Master Supply (Renewal) Agreement

As the Marubeni Master Supply Agreement will expire on 31 December 2021 and the Company and Marubeni intended to carry out transactions of similar nature to those under the Marubeni Master Supply Agreement, they entered into the Marubeni Master Supply (Renewal) Agreement.

Set out below are the major terms of the Marubeni Master Supply (Renewal) Agreement:

Date:	26 April 2021
Parties:	(i) the Company - the supplier (for itself and on behalf of other members of
	the Group); and
	(ii) Marubeni - the purchaser.
Duration:	3 years starting from 1 January 2022 to 31 December 2024
Major terms:	Marubeni agrees to purchase and the Company (for itself and on behalf of
	other members of the Group) agrees to sell meat related products of the
	relevant member of the Group (including any instalment of the goods or any
	parts for them) as set out in the written purchase order placed by Marubeni
	in accordance with the terms and conditions of the Marubeni Master Supply
	(Renewal) Agreement.
Price determination:	The price of the products shall be agreed between the relevant member of the
	Group and Marubeni by reference to the cost of production for the products
	involved and using the same price determination basis as that adopted by
	the relevant member of the Group from time to time for sale of the same or
	similar products to its other customers who are Independent Third Parties.
Payment:	Marubeni will, upon acceptance of the products tendered in conformity with
	the purchase order placed by Marubeni, pay the purchase price of the products
	within the period and manner as laid down in the said purchase order.

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PRICING POLICIES AND INTERNAL CONTROL MEASURES REGARDING PRICE DETERMINATION FOR THE TRANSACTIONS

1. Purchase of products under the Marubeni Master Purchase (Renewal) Agreement

The Group purchases coated flour for food processing from the Members of the Marubeni PRC Group from time to time.

The Group enters into annual purchase contracts with at least 3 suppliers (including Marubeni PRC) in respect of coated flour for food processing. The purchase prices of various types of coated flour for food processing are determined in the annual purchase contracts and may be subject to adjustments (if necessary) to be agreed by both parties monthly.

As the coated flour for food processing purchased from the Members of the Marubeni PRC Group is of specific formulas and ingredients, there is no public price for reference for similar coated flour for food processing. Therefore, the Group considers (i) the prevailing selling prices of substituting products of other suppliers who are Independent Third Parties and (ii) the cost of the formula and ingredients of the product to be purchased when assessing whether the purchase price or proposed adjusted price is reasonable. The purchase supervisor reviews the purchase price or suggested adjusted price with reference to the factors above. If the purchase supervisor is satisfied that the purchase prices stipulated in the annual purchase contract or the suggested adjusted price (as the case may be) are reasonable, he/she will approve the contract or the price adjustment (as the case may be).

The actual volume of purchase from a particular supplier is not specified in the annual purchase contract. The Group may buy coated flour for food processing from any supplier with which the Group has entered into an annual purchase contract. When the Group has to purchase coated flour for food processing, it will first consider (i) whether the clients of the Group have any preference or specific requirements on the ingredient or source of production of coated flour for food processing and (ii) whether the research and development team of the Group has any specific requirements on the coated flour for food processing to be used. If so, the relevant purchase department will only select the supplier meeting all the required specifications. Where more than one supplier meets the required specifications, the relevant purchase department will make purchases from the one which offers the best terms. If there is only one supplier which has entered into an annual purchase contract meeting the required specifications, the relevant purchase department will make comparison with reference to quotations from two other suppliers which are Independent Third Parties and have not entered into an annual purchase contract, and makes purchase from such supplier which offers the best price. If there is no required specification, the relevant purchase department will make purchases from the supplier which offers the best price for the Group.

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2. Supply of products under Marubeni Master Supply (Renewal) Agreement The Group supplies meat related products to Marubeni.

After receiving Marubeni's request for meat related products, the Group will give a written quotation to Marubeni and deliver the products after both parties agree on the price.

As the meat related products supplied to Marubeni are customized and no other customers would purchase such specific types of products from the Group, the Group will determine the quotation with reference to the production cost plus a margin of at least 10%. The Group will subsequently form an internal price for reference on such basis and enter the internal price for reference to the information system maintained by the Group. The Group will update such internal price for reference monthly. If the quotation price is below the internal reference price in the information system, the relevant sales department head has to review the terms proposed by the relevant sales department and ensure the terms offered to Marubeni are no more favourable than those offered to Independent Third Parties. In determining the terms of supply, the Group treats Marubeni equally as other purchasers (if any) save and except that the long-established business relationship between the Group and Marubeni is taken into account.

Having considered the Group's pricing policies and internal control measures regarding price determination for the Transactions, the Directors are of the view that the Transactions will be conducted on normal commercial terms and not prejudicial to the interests of the Company and its minority Shareholders.

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HISTORICAL FIGURES

The following table sets out the respective aggregate value of products sold and purchased under the continuing connected transactions entered into pursuant to each of the Current Agreements for the two years ended 31 December 2020 and the 3 months ended 31 March 2021, the respective annual caps under the Current Agreements for the three years ending 31 December 2021, and the corresponding utilisation rates of the existing annual caps:

					For the 3 months
					ended 31 March
					2021 (unaudited)
					(for actual amount
					only)/for the
					year ending
Continuing connected		For the year ended	For the year ended	31 December 2021
transactions under the		31 December 2019	31 December 2020	(for annual
Current Agreements		(audited)	(audited)	cap only)
			RMB'000	RMB'000	RMB'000
1.	Marubeni Master	Actual	2,410	2,011	522
	Purchase Agreement	Annual Caps	20,000	25,000	30,000
		Utilisation Rates^	12%	8%	7%
2.	Marubeni Master	Actual	185,341	160,456	32,500
	Supply Agreement	Annual Caps	450,000	450,000	450,000
		Utilisation Rates^	41%	36%	29%

• The utilisation rates for transactions under the Current Agreements for the 3 months ended 31 March 2021 were calculated based on one-fourth of the annual caps set for the year ended 31 December 2021.

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PROPOSED ANNUAL CAPS

The following table sets out the respective proposed annual caps of the Transactions under each of the Renewal Agreements:

Continuing connected
transactions under the		For the year ending	For the year ending	For the year ending
Renewal Agreements		31 December 2022	31 December 2023	31 December 2024
			RMB'000	RMB'000	RMB'000
1.	Marubeni Master	Proposed annual cap	5,200	5,500	5,800
	Purchase (Renewal)
	Agreement
2.	Marubeni Master	Proposed annual cap	308,000	314,000	320,000
	Supply (Renewal)
	Agreement

REASONS FOR THE PROPOSED ANNUAL CAPS

The major basis and assumptions for determining the proposed annual caps for the two continuing connected transactions are set out below.

1. Proposed annual caps for Marubeni Master Purchase (Renewal) Agreement

The proposed annual caps for the transactions contemplated under the Marubeni Master Purchase (Renewal) Agreement are determined after taking into account the following factors:

1. the coated flour for food processing purchased by the PRC Members of the Group from the Members of the Marubeni PRC Group is mainly used in the cooked food production lines of the cooked food processing factory in Dalian, the PRC. As affected by the COVID-19 pandemic, sales of processed cooked food decreased and the demand for coated flour for food processing by the cooked food processing factory in Dalian also decreased, which resulted in the decrease of the purchase amount of the coated flour for food processing purchased to RMB2,011 thousand in 2020. The Group expects that the decline of the pandemic will trigger an increase in the demand of processed cooked food in the market, and it is expected that the development of new products will accelerate after normalization of business travel between Japan and the PRC with a doubling of new products, which will lead to an increase in the demand for coated flour for food processing by the cooked food processing factory in Dalian. Therefore, the estimated annual purchase amount is RMB3,500 thousand for 2021, and the expected growth rate of sales from 2022 to 2024 is 6% per annum (based on the average growth of GDP of the PRC). Based on the aforesaid, it is estimated that the purchase amount of coated flour for food processing will be approximately RMB3,710 thousand, RMB3,933 thousand and RMB4,169 thousand in 2022, 2023 and 2024 respectively; and

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1. based on the above estimated purchase amount, an approximately 40% flexibility buffer is then added to cover factors such as fluctuations in raw material prices and exchange rate for coated flour for food processing, taking into account in particular:
2. 1. as indicated by relevant data of the Chicago Board of Trade, the price fluctuation of the relevant raw material (i.e. international wheat) was approximately 40% last year; and
   2. the volatility of the exchange rate of RMB against USD was approximately 11% last year.

The estimated cap for the purchase amount of coated flour for food processing by the PRC Members of the Group from Members of the Marubeni PRC Group for the next three years, i.e. 2022 to 2024, is set at RMB5,200 thousand, RMB5,500 thousand and RMB5,800 thousand respectively.

2. Proposed annual caps for Marubeni Master Supply (Renewal) Agreement

The proposed annual caps for the transactions contemplated under the Marubeni Master Supply (Renewal) Agreement are determined after taking into account the following factors:

1. the total sales of meat related products by the Group to Marubeni decreased to RMB160,456 thousand in 2020 due to the impact of the COVID-19 pandemic. The Group expects that the total sales will return to the normal level of approximately RMB180,000 thousand after the pandemic has receded;
2. the capacity of the production line for export to Japan will increase approximately 20% after the expansion of the cooked food processing factory in Dalian, while the expected growth rate of the total sales of meat related products to Marubeni in the next three years is 2% per annum (estimated based on the growth of GDP of Japan in the next three years). It is expected that the total sales of meat related products to Marubeni will be RMB220,320 thousand, RMB224,726 thousand and RMB229,220 thousand in 2022, 2023 and 2024 respectively;
3. based on the estimates in (i) and (ii) above, an approximately 40% flexibility buffer is then added to cover factors such as fluctuations in raw material prices and exchange rate for meat related products, taking into account in particular:
4. 1. as indicated by the relevant data of the Chicago Board of Trade, the price fluctuation of relevant raw material (i.e. international wheat) was approximately 40% last year; and
   2. the volatility of the exchange rate of RMB against USD was approximately 11% last year.

Therefore, the estimated cap for the sales of meat related products by the Group to Marubeni is set at RMB308,000 thousand, RMB314,000 thousand and RMB320,000 thousand from 2022 to 2024 respectively.

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REASONS FOR AND BENEFITS OF THE CONTINUING CONNECTED TRANSACTIONS

The Directors (including the independent non-executive Directors) consider that the terms of each of the Renewal Agreements are fair and reasonable, on normal commercial terms or better and in the ordinary and usual course of business of the Group and it is in the interests of the Company and the Shareholders as a whole to enter into the Transactions for the following reasons:

1. Marubeni Master Purchase (Renewal) Agreement
   In respect of the Marubeni Master Purchase (Renewal) Agreement, the transactions thereunder will continue to facilitate the smooth operation of the Group's business by securing a stable and reliable source of high quality raw materials necessary for the Group's operation. Furthermore, purchasing goods from the Members of the Marubeni PRC Group will strengthen the already close business relationship with Marubeni PRC, which is one of the main customers of the Group.
2. Marubeni Master Supply (Renewal) Agreement

Marubeni is a major client of the Group. By entering into the Marubeni Master Supply (Renewal) Agreement, a closer and long term supplier-customer relationship with Marubeni, which is beneficial to the Group, can be secured. It is also expected that relevant transactions can generate considerable revenue for the Group. Besides, by maintaining a good co-operation relationship with Marubeni, the Group may expand its domestic and overseas market with the assistance of Marubeni.

LISTING RULES IMPLICATIONS

Marubeni is the ultimate holding company of Marubeni PRC, and Marubeni is a substantial shareholder of a subsidiary of the Company. Therefore, each of Marubeni and Marubeni PRC is a connected person of the Company under the Listing Rules and the transactions contemplated under the Renewal Agreements constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

As the Renewal Agreements are entered into by the Company with connected persons at the subsidiary level on normal commercial terms and have been approved by the Board and the Directors (including independent non-executive Directors) are of the view that the transactions contemplated thereunder are in the ordinary and usual course of business of the Company, on normal commercial terms, fair and reasonable and in the interests of the Company and Shareholders as a whole, the continuing connected transactions contemplated thereunder, though subject to the reporting, announcement and annual review requirements under Chapter 14A of the Listing Rules, are exempt from the circular, independent financial advice and independent shareholders' approval requirements pursuant to Rule 14A.101 of the Listing Rules.

None of the Directors has a material interest in the Transactions which required them to abstain from voting on the Board resolutions to approve the same.

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GENERAL INFORMATION OF THE PARTIES

The Group is a leading fully integrated animal protein provider whose business scope covers feeds, one- stop industrial chain of broilers and food processing, etc. For more information on the Group, please visit its official website at http://www.dachanfoodasia.com (the information that appears in this website does not form part of this announcement).

The principal business activities of Marubeni and Marubeni PRC are trading of commodities including but not limited to agri-marine products, metal and mineral, and energy products.

DEFINITIONS

In this announcement, unless the context otherwise requires, the following terms have the following meanings:

"Board"	the board of Directors;
"Company"	DaChan Food (Asia) Limited, a company incorporated in the Cayman
	Islands with limited liability, whose shares are listed on the Main
	Board of the Stock Exchange (stock code: 3999);
"connected person(s)"	has the meanings ascribed to it under the Listing Rules;
"Current Agreements"	the Marubeni Master Purchase Agreement and the Marubeni Master
	Supply Agreement;
"Director(s)"	the director(s) of the Company;
"Group"	the Company and its subsidiaries from time to time;
"HK$"	Hong Kong dollars, the lawful currency of Hong Kong;
"Hong Kong"	the Hong Kong Special Administrative Region of the People's Republic
	of China;
"Independent Third Party/	any third party that is not a connected person of the Company and the
Parties"	term "Independent Third Parties" shall be construed accordingly;
"Listing Rules"	the Rules Governing the Listing of Securities on the Stock Exchange of
	Hong Kong Limited as amended from time to time;

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"Marubeni"	Marubeni Corporation, a company incorporated in Japan with limited
	liability and whose shares are listed on the Tokyo Stock Exchange,
	Inc.;
"Marubeni PRC"	Marubeni (PRC) Limited* (丸紅（中國）有限公司), a company
	established in the PRC and a subsidiary of Marubeni;
"Marubeni Master Purchase	the master purchase (renewal 2018) agreement* (主購買(二零一八年續
Agreement"	期)協議) entered into between the Company and Marubeni PRC dated
	18 April 2018;
"Marubeni Master Supply	the master supply (renewal 2018) agreement entered into between the
Agreement"	Company and Marubeni dated 18 April 2018;
"Marubeni Master Purchase	the master purchase (renewal 2021) agreement* (主購買(二零二一年續
(Renewal) Agreement"	期)協議) entered into between the Company and Marubeni PRC dated
	26 April 2021;
"Marubeni Master Supply	the master supply (renewal 2021) agreement entered into between the
(Renewal) Agreement"	Company and Marubeni dated 26 April 2021;
"Member(s) of the Marubeni	the wholly-owned subsidiaries established by Marubeni PRC in the
PRC Group"	PRC from time to time;
"Renewal Agreements"	the Marubeni Master Purchase (Renewal) Agreement and the Marubeni
	Master Supply (Renewal) Agreement;
"PRC"	the People's Republic of China excluding Hong Kong, the Macao
	Special Administrative Region of the People's Republic of China and
	Taiwan for the purpose of this announcement;
"PRC Member(s) of the Group"	the subsidiaries established by the Group in the PRC from time to time;
"RMB"	Renminbi, the lawful currency of the PRC;
"Shareholder(s)"	holder(s) of share(s) of the Company;
"Stock Exchange"	The Stock Exchange of Hong Kong Limited;
"subsidiary"	has the meaning ascribed to it under the Listing Rules and the term
	"subsidiaries" shall be construed accordingly;
"Transactions"	the transactions contemplated under the Renewal Agreements;

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"USD"	US dollars, the lawful currency of the United States of America; and
"%"	per cent.
	By order of the Board
	Wei, Chun-hsien
	Chairman
Hong Kong, 26 April 2021

As at the date of this announcement, Mr. Wei, Chun-hsien (Chairman) and Mr. Han Chia-Yin are the executive directors of the Company, Mr. Han Chia-Yau, Mr. Harn Jia-Chen, Mr. Han Jia-Hwan, Mr. Chao Tien-Shin and Mr. Wei Anning are the non-executive directors of the Company, and Mr. Way Yung-Do, Mr. Chen Chih, Mr. Ting Yu-Shan and Mr. Hsia, Li-Yan are the independent non-executive directors of the Company.

The English transliteration of the Chinese name(s) in this announcement, where indicated with *, is included for information purpose only, and should not be regarded as the official English name(s) of such Chinese name(s).

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