Yunnan Baiyao Group Co., Ltd.

Interim Report 2025

August 2025

Section I Important Notes, Contents, and Definitions

The Board of Directors (the “Board”), the Supervisory Committee and the directors,supervisors and senior management of the Company confirm the truthfulness, accuracy andcompleteness of the contents of this Interim Report and there are no misrepresentation,misleading statement or material omission from this Interim Report, and they accept joint andseveral responsibilities for the truthfulness, accuracy and completeness of the contents herein.

Mr. Dong Ming, the person in charge of the Company, Mr. Ma Jia, the accounting officer,and Ms. Xu Jing, the head of accounting center (accounting supervisor), hereby declare thatthey warrant the truthfulness, accuracy, and completeness of the financial statements in thisInterim Report.

All directors of the Company attended the Board meeting in respect of considering andapproving this Interim Report.

The Company kindly requests investors to read through this Interim Report and payspecial attention to “X. Risks and Countermeasures” in the “Section III ManagementDiscussion and Analysis.” Investors are advised to pay attention to investment risks.

The profit distribution plan considered and approved by the Board of Directors is asfollows: Based on a total of 1,784,262,603 shares, a cash dividend of RMB 10.19 (tax inclusive)for every 10 shares will be paid to all shareholders, with no bonus shares issued (tax inclusive),and no capital reserve to increase the share capital.

This report has been prepared in Chinese and translated into English. Should there be anydiscrepancies or misunderstandings between the two versions, the Chinese version shall prevail.

Contents

Section I Important Notes, Contents, and Definitions ...... 1

Section II Company Profile and Key Financial Indicators ...... 5

Section III Management Discussion and Analysis ...... 9

Section IV Corporate Governance, Environment and Society ...... 46

Section V Significant Events ...... 50

Section VI Changes in Shareholdings and Particulars about Shareholders ...... 71

Section VII Bonds ...... 77

Section VIII Financial Statements ...... 78

Section IX Other Reported Data ...... 232

Documents Available for Inspection

(I) Financial statements affixed with the signatures and stamps of the person incharge of the Company, the accounting officer, and the general manager of FinancialManagement Department;(II) Originals of all the Company’s documents and announcements publiclydisclosed on the Securities Times, Shanghai Securities News, China Securities Journal,and www.cninfo.com.cn during the reporting period;(III) Other related materials.

Definitions

Section II Company Profile and Key Financial IndicatorsI. Company Profile

II. Contact Person and Contact Information

III. Other Information

1. Contact information of the Company

Whether the Company’s registered address, office address, postal code, website, and e-mail address have changed during the reportingperiod

□ Applicable ? Not applicable

There was no change in the Company’s registered address, office address, postal code, website, or e-mail address during the reportingperiod. For more information, please refer to the 2024 Annual Report.

2. Information disclosure and location

Whether the information disclosure and location have changed during the reporting period

□ Applicable ? Not applicable

There was no change in the stock exchange website, media outlets, and their websites where the Company disclosed the Interim Report,or the location where the Interim Report was prepared and placed during the reporting period. For more information, please refer to the2024 Annual Report.

3. Other information

Whether other information has changed during the reporting period

□ Applicable ? Not applicable

IV. Key Accounting Data and Financial IndicatorsWhether the Company needs retroactive adjustment or restatement of accounting data in prior years or not

□Yes ? No

Net profit after excluding the impact of share-based payment

Total share capital of the Company as of the trading day preceding disclosure:

Fully diluted earnings per share calculated based on the latest share capital:

Perpetual bond interest paid (RMB)

V. Differences in Accounting Data under Chinese Accounting Standards (CAS) and OverseasAccounting Standards

1. Differences in the net profits and net assets in financial statements disclosed respectively underInternational Financial Reporting Standards (IFRS) and CAS

□Applicable ?Not applicable

During the reporting period, there was no difference in net profits and net assets in financial statements disclosed respectively underIFRS and CAS.

2. Differences in the net profit and net assets in financial statements disclosed respectively under overseasaccounting standards and CAS

□Applicable ?Not applicable

During the reporting period, there was no difference in the net profits and assets in financial statements disclosed respectively underoverseas accounting standards and CAS.VI. Non-recurring Profits and Losses and their Amounts

?Applicable □Not applicable

Unit: RMB

Other profits and losses satisfying the definition of non-recurring profits and losses:

?Applicable □Not applicable

Other profits and losses satisfying the definition of non-recurring profits and losses: Other non-recurring profits and losses thatmeet the definition of non-recurring profits and losses mainly include other non-recurring profits and losses such as interest on fixeddeposits and value added tax credit.Note for the definition of non-recurring profits and losses set out in the No.1 Explanatory Announcement on InformationDisclosure for Companies Offering Their Securities to the Public - Non-recurring Profits and Losses, as recurring profits and losses

□Applicable ?Not applicable

The Company does not define any non-recurring profits and losses set out in the No.1 Explanatory Announcement on InformationDisclosure for Companies Offering Their Securities to the Public - Non-recurring Profits and Losses as recurring profits and losses.

Section III Management Discussion and AnalysisI. Principal Businesses of the Company during the Reporting Period

(I) Overview

1. Industry landscape and development trends

In recent years, China’s accelerating population aging has continued to drive rising demand for chronic diseasemanagement and public health services. The national “14

thFive-Year” Plan has designated the biopharmaceuticalsector as a strategic emerging industry, aiming to drive innovation and transformation of the industry through policymeasures such as supporting innovative drug development, accelerating the modernization and internationalizationof TCM, expanding healthcare access in underserved areas, leveraging AI in drug R&D, and scaling up the elderlyhealthcare sector. This presents new historical opportunities for the pharmaceutical and healthcare sector.

In the first half of 2025, the TCM industry is shaping a landscape of structural opportunities, woven togetherby policy momentum, pricing adjustments, technological breakthroughs, and diverging demand. First, the TCMindustry is undergoing a transition from resource dependency to quality orientation, with comprehensivestrengthening of quality control for Chinese medicinal materials. The Opinions on Improving the Quality of TCMand Promoting High-Quality Development of the TCM Industry issued by the State Council explicitly requiresadvancing the construction of Good Agricultural Practice (GAP) bases for Chinese medicinal materials andblockchain traceability. By 2025, the coverage rate of standardized bases shall exceed 70%, with the market sizefor formula granules surpassing RMB 100 billion thanks to the implementation of national standards. Second, theChinese medicinal material industry is undergoing in-depth price adjustments during its transformation andupgrading process. Supply chains are under pressure amid restructuring, and prices of Chinese medicinal materialsshow divergent trends. As of the end of June 2025, the Kangmei Chinese Medicinal Material Index declined by 22%year-on-year. However, the indices for varieties such as Panax notoginseng, Carthamus tinctorius, Poria cocos,and Saussurea costus exhibited relatively stable fluctuations. Third, the normalization of centralized procurementis accelerating industry and market differentiation. Within the terminal channels, purchase volumes at publichospitals are contracting, while the retail channel is achieving structural growth through “a combination ofmarketing and online promotion,” leading to a rapid increase in e-commerce penetration. Fourth, the diversificationof consumer demand has led to a stratification of consumption patterns. The rising prevalence of chronic diseasessuch as cardiovascular and cerebrovascular conditions has driven sustained growth in demand for TCM products in

related fields. The demand for health and wellness products is growing rapidly, with the concept of “homology ofmedicine and food” gaining widespread acceptance. Enthusiasts of wellness practices are increasingly younger,with those aged 25-34 accounting for over 60% of buyers of TCM wellness products (Source: 2025 Report onInnovation and Development Research of TCM in China). Therefore, demand for health and wellness-oriented TCMproducts remains robust.With policy reforms accelerating the approval of innovative drugs and dynamically adjusting the NationalDrug Reimbursement List, multi-departmental policies are now providing comprehensive support throughout the“entire lifecycle” of innovative drugs. Since 2025, China’s innovative drug industry has continued to grow, withpolicy support spanning the “entire lifecycle” of innovative drugs. The State Council has proposed launching a pilotprogram for the review and approval of clinical trials for innovative drugs, establishing a fast-track review channelfor such drugs. The National Healthcare Security Administration and the National Health Commission have jointlyintroduced sixteen measures to support the development of innovative drugs, fostering patient capital to support thissector. Statistics from the National Medical Products Administration show that 43 innovative drugs were approvedin China in the first half of the year, a 59% increase year-on-year.Within the comprehensive health industry, the Chinese consumer market in the first half of 2025 exhibitedcharacteristics of “stable in scale, split in structure, and still under pressure.” In the first half of 2025, the total retailsales of consumer goods reached RMB 24.5 trillion, marking a 5.0% year-on-year increase. The real per capitadisposable income of residents nationwide grew by 5.4%, yet the proportion of household deposits relative to GDPcontinued to rise. By sector, spending on essentials such as apparel and daily necessities grew slightly slower thanthe overall retail-sales pace (Source: National Bureau of Statistics). In the oral care sector, Nielsen IQ data revealsa significant divergence in growth between online and offline channels. Offline sales fell roughly 4.3% year-on-year, while online sales surged more than 30%. Generationally, 25- to 45-year-olds are ramping up health spending,shifting their consumption motive from “cure” to “prevention” and from “gap-filling” to “optimization,” and theyhabitually buy wellness goods online via e-commerce platforms (Source: 2025 Gen-Z Health Consumption TrendReport; Zhongyan Puhua Industrial Research Institute’s In-depth Research on the Health Products Industry andFuture Development Trends Forecast Report, 2025-2030). The group aged 60 and above is also a sizeablecontributor, moving beyond basic healthcare toward chronic-disease prevention and recovery management. In termsof distribution, there is a clear trend toward the integration and growth of online and offline channels. Offline retailchains are increasingly focusing on disease prevention, health education, and health management. The growingpenetration of health consumption in sub-county areas is opening up new growth opportunities for the industry.

2. Industry position

The Central Committee of the Communist Party of China and the State Council attach great importance to thedevelopment of TCM, positioning the inheritance and innovation of TCM as an important aspect of the socialistcause with Chinese characteristics in the new era. The report to the 20

thNational Congress of the Communist Partyof China has explicitly stated that we should “promote the inheritance and innovation of TCM.” The YunnanProvincial Committee of the Communist Party of China and the provincial government place great emphasis on thedevelopment of the Chinese medicinal material industry, positioning this industry as the key focus for developingagriculture of Yunnan plateau characteristics and an important part of the growth of “resource-driven economy.”The Three-year Action Work Plan for the High-quality Development of the TCM Industry in Yunnan Province(2025-2027) outlines the goal of building industrial clusters with Yunnan Baiyao Group serving as the “chain leader”to expand and strengthen the Chinese medicinal material industry.

Yunnan Baiyao has always been committed to the inheritance and innovation of TCM, continuously exploringthe intrinsic potential of traditional medicinal products, and promoting the integration of TCM into modern life. TheCompany continuously injects new vitality into its brand and products, forming a product portfolio with 40categories and 416 varieties. In the pharmaceutical products domain, Yunnan Baiyao holds 567 drug approvals and316 product varieties, including 222 types of Chinese patent medicines, 43 of which are exclusive varieties. TheCompany started with the century-old Yunnan Baiyao powder as its foundation and has gradually created a seriesof core pharmaceutical products in the field of musculoskeletal and minor wound care, covering all kinds of productforms such as aerosols, plasters, tinctures and woundplast, and has formed a competitive matrix of branded TCMin the areas of cold and anti-inflammatory, gastrointestinal digestion, cardiovascular medicines, and gynecologicaland pediatric medicines. In the field of health products, combining traditional Yunnan Baiyao products with oralcare products, we have successfully created a group of oral care products, with the flagship product of YunnanBaiyao Toothpaste, which has become a classic case of cross-sector innovation and reshaping of consumption byTCM enterprises. Based on the pharmaceutical science and technology, and drawing on the essence of natural plants,we have successfully created the scalp health care brand “Yangyuanqing.” Leveraging its successful developmentin pharmaceutical and health product sectors, the Company has expanded its business footprint into various domains,including natural medicine, TCM decoction pieces, special medicines, medical devices, personal care products, andhealth supplements. This move enables the Company’s evolution from a TCM manufacturing enterprise to a modern,comprehensive health-oriented entity.

In the first half of 2025, Yunnan Baiyao continued to maintain its market leadership in multiple business sectors.

The Company’s core product, Yunnan Baiyao Aerosol, ranked first in retail market share among topical aerosols ofChinese patent medicine used for joint and muscle pain in the musculoskeletal system. Yunnan Baiyao Woundplastranked first in retail market share in the topical hemostatic category. Yunnan Baiyao (Powder) ranked first in retailmarket share among the full-body Chinese patent medicines for bone injuries in the musculoskeletal system (Source:

Sinohealth CHIS). Yunnan Baiyao Toothpaste continues to maintain the No.1 market share in the Chinese full-channel market in the first half of 2025 (Source: Nielsen Retail Research Data). In the first half of 2025, YunnanBaiyao was listed for the 16

thconsecutive year on the Fortune China 500 List published by Fortune China, ranking

th; and was ranked 33

rdin the List of Top 50 Global Pharmaceutical Companies by Pharmaceutical Executivein US.

3. Product and business

The Company has four business groups, namely Pharmaceutical Business Group, Health Products BusinessGroup, TCM Resources Business Group and Yunnan Pharmaceutical Co., Ltd (“Yunnan Pharma”). These businessgroups serve as the foundation for the Company’s production and operations.

Pharmaceutical Business Group focuses on the products of Yunnan Baiyao series, (For example, YunnanBaiyao Aerosol, Yunnan Baiyao Plaster, Yunnan Baiyao Woundplast, etc.), which are mainly used for hemostasis,pain relief, swelling reduction, and blood stasis elimination. The BG extends its offerings to include other brandedTCMs with natural characteristics, covering areas such as tonifying Qi and blood, treating colds and flu,cardiovascular health, gynecology, pediatrics, and more. The BG is also actively involved in the development ofPanax notoginseng-based botanical supplements.

Health Products Business Group, with its core focus on the toothpaste category, relies on its robust brandinfrastructure encompassing consumers, products, and scenarios. Embracing a user-centric approach, the BGactively explores new consumer scenarios and introduces innovative product categories, particularly in the realmsof oral care and Yangyuanqing anti-hair loss solutions, aiming to become the benchmark of the new concept ofChinese healthy lifestyle.

By making full use of the characteristic medicinal plant resources of Yunnan Province, TCM ResourcesBusiness Group, while ensuring high quality, high efficiency and low cost supply of raw materials for Chinesemedicines, has built a digitalized industrial chain ecosystem for TCM materials with the model of “1+1+N,” whichconsists of “1 TCM production, research and marketing integrated digital intelligence platform + 1 new specializedmarket for TCM materials at the origin + multi-dimensional synergies,” so as to support “excellent TCM products”by “excellent Yunnan TCM resources.”

Yunnan Pharma remains steadfast in pursuit of maintaining its leading market share among pharmaceuticaldistribution companies in Yunnan Province. It has achieved full coverage in all 16 prefectures and cities of YunnanProvince, with its channels radiating across major retail chain pharmacies. It also assists governments and medicalinstitutions in building better management and service systems, providing high-quality and modern pharmaceuticalsupply chain service solutions for upstream and downstream customers.

4. Business data overview

In the first half of 2025, the Company maintained robust growth by focusing on its strategic planning andovercoming multiple challenges in the external environment. During the reporting period, the Company recordedoperating revenue of RMB 21.257 billion, up 3.92% year on year; net profit attributable to the parent companyreached RMB 3.633 billion, rising 13.93% from RMB 3.189 billion in the previous year and hitting a record highfor the same period; and net profit attributable to the parent company after deducting non-recurring profits andlosses of RMB 3.461 billion, up 10.40% from RMB 3.135 billion in the previous year and hitting a record high forthe same period.

In terms of growth quality, the Company’s net operating cash flow for the reporting period reached RMB 3.961billion, representing a 21.45% increase compared to the same period last year. The weighted average return on netassets was 9.09%, an increase of 1.16 percentage points over the same period of the previous year; basic earningsper share was RMB 2.04 per share, an increase of 13.97% over the same period of the previous year. Meanwhile,the Company’s business structure continued to optimize, with industrial revenue accounting for a further increasedshare of 40.01% of total operating revenue, representing an increase of 2.6 percentage points compared to the sameperiod last year. Industrial revenue grew at a rate of 11.13%.

The Company continued to maintain a healthy asset structure. As of the end of the reporting period, theCompany had total assets of RMB 54.535 billion, net assets attributable to shareholders of the listed company ofRMB 40.407 billion, the asset-liability ratio of 25.91%, and the cash and bank balance of RMB 11.294 billion.

(II) Review of the main work and prospects

1. Enhancing business development value under the leadership in Party building and strategicorientation

(1) Fully leveraging the leadership in Party building to promote high-quality development of theCompany

During the reporting period, the quality and effectiveness of the Company’s Party building work improvedsignificantly. Through ongoing consolidation and development, a new Party building model was established,

featuring overall coordination by the Group Party Committee, implementation by secondary-level Party Committees,and classified advancement by grassroots Party organizations. This created a new framework characterized by PartyCommittee leadership, collaboration among Party, government, labor union, and youth league organizations, andbroad participation of all employees. As a result, Party building has taken on a new outlook marked by firm ideals,solid foundations, strong vitality, and a drive for excellence. The Company’s cohesion, appeal, unity,competitiveness, and capacity for sustainable high-quality development have all been continuously strengthened.

(2) Pursuing strategic alignment with high standards to continuously enhance business developmentvalueDuring the reporting period, the Company advanced the implementation of its strategic plan in accordance withthe 2024-2028 Strategic Planning of Yunnan Baiyao Group, focusing on strategic positioning, developmentobjectives, industrial portfolio, operational strategies, and implementation pathways. The Company’s strategicmanagement system continued to be refined, strategic management capabilities were enhanced, and strategicawareness was continuously strengthened for guiding business operation development and optimizing resourceallocation. During the reporting period, the Company focused on its core responsibilities and principal businesses,returning to the essence of manufacturing. It comprehensively and systematically enhanced operational efficiencyacross the entire industrial chain, value chain, and all production factors, continuously strengthening its corecompetitiveness. Its overall business performance maintained rapid growth momentum, with significantly enhancedmanagement capabilities and notable achievements in quality improvement and efficiency gains. Growth rates,operational quality, and developmental vitality were further consolidated.

2. Focusing on the principal businesses and optimizing the structure to achieve high-quality businessdevelopment

(1) Pharmaceutical Business Group

During the reporting period, the principal business income of the Pharmaceutical Business Group reachedRMB 4.751 billion, up 10.8% year on year. Among the core products, Yunnan Baiyao Aerosol achieved salesrevenue of more than RMB 1.453 billion, with a year-on-year growth of 20.9%; Yunnan Baiyao Plaster, YunnanBaiyao Capsule, Yunnan Baiyao Woundplast and Yunnan Baiyao (Powder) recorded significant growth in salesrevenue over the same period of last year. Other branded TCM products showed impressive growth. The salesrevenue of Ginseng and Tuckahoe Spleen and Stomach Strengthening Granule exceeded RMB 100 million, thesales revenue of Pudilan Anti-inflammatory Tablets approached RMB 100 million, the sales revenue of Radix

Notoginseng Saponin Dispersible Tablets achieved significant growth. Among botanical supplements, the salesrevenue of Qixuekang Oral Liquid amounted to RMB 202 million, growing by approximately 116.2% year-on-year.In the first half of 2025, guided by its strategic vision, the Pharmaceutical Business Group prioritizedimplementing its “leading brand of pain management in the field of traumatology” strategy. Leveraging productand brand strengths, it deepened the recognition of Yunnan Baiyao products’ efficacy in the field of painmanagement. Adopting the “Pain Management Center” as its holistic marketing initiative, it advanced steadily andachieved remarkable results, with products such as aerosols and medicated plasters showing significant year-on-year growth. Large-scale coordinated operations have directly driven strategic chain sales growth. Meanwhile, thePharmaceutical Business Group further optimized the operation platform of “High Quality TCM,” focusing on high-potential tracks such as cardiovascular system, respiratory system, digestive system, and continued to enrich theproduct pipeline to build a large ecosystem in the pharmaceutical industry. During the reporting period, thePharmaceutical Business Group continued to promote various key tasks from marketing, channel cultivation,academic and clinical and other aspects. In marketing, the Pharmaceutical Business Group implemented a full-channel integrated campaign featuring celebrity endorsements aligned with Baiyao’s brand identity, which isdesigned to deeply integrate brand awareness, effectiveness, and sales across sports, music, and O2O transactionscenarios. It executed specialized, universally relatable, and highly interactive content marketing around key themessuch as “orthopedic pain relief,” “sports companions” and “summer spleen tonification.” Leveraging platforms likeDouyin and REDnote, widespread dissemination was achieved. In channel expansion, the division continued todevelop the “Yunding Jingwei” model to achieve direct supply to primary distributors in regional markets whileensuring clear product traceability. It actively developed online market, achieving O2O sales growth of over 20%year-on-year, and promoting enhanced recognition and sales of products such as Qixuekang and Ginseng andTuckahoe Spleen and Stomach Strengthening Granule through online content marketing. By deepening strategiccooperation with JD Health, the Company achieved a significant rise in rankings for its main series of essentialmedicines during the 2025 “618 Shopping Festival.” During the reporting period, the Company made greatbreakthroughs in online pharmaceutical sales, attracting 48.45 million visitors through e-commerce platforms andconverting 3.54 million consumers. This generated a total GMV of RMB 254 million, laying a solid foundation forfuture growth in online channels. In terms of academic and clinical study, the division has made steady progress inclinical research on Yunnan Baiyao (Powder) and Yunnan Baiyao Capsule in the treatment of diabetic foot andbone pain, Gongxuening Capsule in the treatment of abnormal uterine bleeding and the reduction of vaginal bleeding

after medication abortion, and Qixuekang Oral Liquid in the improvement of heart and blood vessel health and theprevention and treatment of plateau reaction, creating broader application scenarios for the products.

Aiming to “become a model of TCM inheritance and innovation development,” the Pharmaceutical BusinessGroup will, on the one hand, inherit, safeguard, and develop the superior products of Baiyao, optimize the existingproduct system and provide a comprehensive operation plan to achieve strategic growth of the products on otherhigh-potential core tracks, focusing on cardiovascular, respiratory, digestive, gynecological, and other major diseasetreatment areas. On the other hand, it will continue to enhance existing products through secondary developmentaligned with strategic objectives while selectively expanding into external projects to complete our product portfolioand strengthen our pharmaceutical system.

(2) Health Products Business Group

During the reporting period, the Health Products Business Group achieved an operating income of RMB 3.442billion, with a year-on-year growth of 9.46%. In the oral care sector, Yunnan Baiyao Toothpaste maintained itsposition as the top-ranked brand in terms of omni-channel market share in China during the first half of 2025 (Source:

Nielsen Retail Research Data). In the hair care and anti-hair loss segment, Yangyuanqing recorded sales revenue ofRMB 217 million during the reporting period, up 11% year on year. With dual certifications, that is, a specialcosmetic license for hair growth products and a national invention patent for anti-hair loss formulas, Yangyuanqingsecured the “ICIC Innovation Technology Award for Hair Care Products” at the ICIC 2025 Awards. During the2025 “618 Shopping Festival,” Yangyuanqing maintained its leading position as the No.1 Chinese brand for anti-hair loss shampoo on Tmall (Source: open.shangzhizhen.com).

In the first half of 2025, while maintaining stability in offline operations, the Health Products Business Groupreasonably increased investment in online channels and new product promotion, actively expanded its onlinepresence, and achieved phased results in online marketing. In terms of product categories, within the oral care sector,gum-care toothpaste maintained steady growth in its core market segment, while sensitivity-relief toothpastedemonstrated breakthrough growth trends. Whitening and children’s toothpaste saw steady increases. The hair careand anti-hair loss brand Yangyuanqing sustained overall growth thanks to digital retail growth. In marketing, theCompany continued to leverage its core brand keywords and launched targeted campaigns around key milestonesto further enhance brand influence and empower product development. In addition, we actively explored innovativemodels for university-enterprise collaborative research and development, and established the “Peking UniversityStomatology-Yunnan Baiyao Joint Laboratory for Oral Health.” Integrating the original innovation capabilities ofPeking University Hospital of Stomatology with Yunnan Baiyao’s industrial strengths, this joint laboratory focuses

on addressing high-prevalence national oral health issues such as periodontal problems and oral health ecosystemsthrough deep integration of industry, academia, and research. We have further deepened our collaboration with theYangtze Delta Region Research Institute of Tsinghua University, Zhejiang. Leveraging the institute’s resources, wehave jointly established the Aging Science Innovation and R&D Center. By exploring Baiyao’s traditional activeingredients and key innovative functional molecules, we focus on identifying proprietary active compounds withsoothing and restorative effects for oral inflammation or damage through AI-driven computational analysis. Byoptimizing the R&D management, channel management, production management, and supply managementprocesses within the Health Products Business Group, we have achieved end-to-end integration from suppliers tomarket launch, from corporate management to user services, and from product development to user needs.

Aiming to “become a top-tier provider” of high-quality health and wellness products, the Health ProductsBusiness Group will build a healthy ecology with quality of life at its core. On the one hand, the oral care business,as the foundation and benchmark of the healthcare segment, will continue to maintain and expand its leadingadvantage. The Company will further strengthen ecosystem management of its oral care portfolio, systematicallyexpand the product portfolio, enhance R&D-production-sales synergy and lean management, improve new productdevelopment and iteration capabilities, and continuously fortify the ecosystem. On the other hand, we will continueto rapidly scale up our hair care business, steadily strengthen our position in the scalp health ecosystem, andaccelerate the expansion and rejuvenation of Yangyuanqing.

(3) TCM Resources Business Group

During the reporting period, the TCM Resources Business Group achieved operating income of RMB 914million, representing a year-on-year increase of about 6.3%. The TCM Resources Business Group earnestly fulfilledits responsibilities as the “chain leader,” pursuing core development objectives centered on “high-level seed industrydevelopment, high-standard cultivation practices, high-capacity processing capabilities, high-tier market expansion,and high-stakes brand building.” It comprehensively implemented the “Six Unifications” operational model—unified planting planning, unified seed source R&D and supply, unified cultivation standards, unified originprocessing, unified procurement and sales, and unified management—to build a Chinese medicinal material industrycluster and drive coordinated development across the entire supply chain. We have established the YunyaoEnterprise Alliance and the Digital Intelligence Yunnan TCM Platform Testing Alliance, successfully exploringand forming a distinctive Yunnan-style “One Product, One Chain” development path for the Chinese medicinalmaterial industry.

In the first half of 2025, the TCM Resources Business Group focused on authentic Yunnan medicinal materialsand strategic advantage varieties of Baiyao and achieved significant results thanks to the coordinated efforts acrossall business units. In seeding innovation, a precise R&D and commercialization model of “1 variety + 1 expert team+ 3-5 cooperative bases” was adopted. Fourteen seed source bases were licensed, securing full coverage ofinnovative seed sources for the ten major Yunnan medicinal plants. In variety breeding, two new Paris polyphyllacultivar certificates were obtained, high-yielding and high-quality Panax notoginseng target plants were selected,and seed quality standards for Paris polyphylla and Saussurea costus were released. The planting area for improvedseed varieties has reached 90% of the annual target, with the “Yunyao Seed Valley” initiative showing initial results.In cultivation, we have obtained GAP certification for Panax notoginseng and expanded our GAP-certified basesfor Carthamus tinctorius, Amomum villosum, Poria cocos, Saussurea costus, and Panax notoginseng by over 7,000mu. We actively incorporated low-altitude economy and IoT technologies, installing IoT equipment across 11variety bases covering more than 30,000 mu. Regarding branded medicinal materials, in response to downwardpressure on Chinese medicinal material market prices during the first half of the year, the BG proactively adjustedits business strategy. By optimizing product mix and expanding sales channels, it increased market share, offsettingprice declines with volume growth. Shipment volume for the first half of the year rose by 38.3% year-on-year. Inthe market sector, breakthroughs have been achieved in cross-border Chinese medicinal material operations. Thefirst successful customs clearance of Chinese medicinal materials at the Mohan and Mengkang border crossings hasbeen completed, laying the groundwork for expanding into Southeast Asian and neighboring international marketsand establishing a cross-border supply chain system for Chinese medicinal materials. Digital Intelligence YunnanTCM focused on platform-based and ecosystem-driven development, with seven regional warehouses under its“One Product, One Chain” initiative starting operations. The platform’s transaction volume has surpassed RMB 1billion, with 18,000 farming households now registered on the platform. In addition, the platform is the only one inthe province that offers a complete tax compliance solution for Chinese medicinal materials throughout the entirechain, further strengthening its core competitiveness. The natural plant extract business has actively advanced itstransformation and upgrading, with the market competitiveness of its core product, breviscapine, significantlyenhanced and sales revenue substantially increased. Pharmaceutical services continued to expand market coverageand service depth, adding 54 new clients. TCM clinics saw 17,771 patient visits, while herbal decoction centersprocessed 293,500 prescriptions, representing year-over-year growth of 18% and 35%, respectively. In addition, bysigning contracts with industry veterans such as successors to National Great Master of TCM, we have further

strengthened our service team and enhanced professional expertise, thereby continuously solidifying the foundationfor the development of pharmaceutical services.Looking ahead, the TCM Resources Business Group will continue to undertake the strategic positioning andresponsibility of Yunnan Baiyao Group as the “chain leader” for the high-quality development of the TCM industryin Yunnan Province, tap the advantages of Chinese medicinal material resources in Yunnan, and push forward thehigh-quality development of the resources economy in an orderly manner, so as to turn Yunnan’s endowment ofChinese medicinal materials into a competitive advantage for the industry, as well as an advantage for the long-termsustainable development of the region, and achieve the strategic goal of supporting “excellent TCM products” by“excellent Yunnan TCM resources,” and contribute to the high-quality development of the national TCM industry.

(4) Yunnan Pharmaceutical Co., Ltd.

During the reporting period, Yunnan Pharma took multiple measures to stabilize the revenue base, realizingmain business income of RMB 12.164 billion and a net profit of RMB 351 million, up 17.75% year-on-year. Interms of products, non-pharmaceutical businesses such as medical devices, cosmeceuticals, and foods for specialmedical purposes have begun to yield results, with sales growing 10.6% year-on-year. Under the hospital-adjacentstore model, specialized pharmacies actively capturing prescription outflow from hospitals have seen significantgrowth in new specialty drug business, with sales increasing 57% year-on-year.In the first half of 2025, through Party-building leadership, optimized management and control, and a lean andefficient workforce, the Company continued to strengthen its two core businesses, hospital pharmaceuticaldistribution and commercial distribution, while focusing on cultivating growth areas such as medical devices andspecialty pharmacies, by stabilizing existing markets and expanded innovative businesses operationally,implementing cost reduction and efficiency enhancement in management and adopting a development strategy thatequally prioritized risk control and growth. It also strategically positioned itself in pharmaceutical brand operationservices. To enhance operational efficiency and adapt to a highly regulated environment, the Company acceleratedthe development of a digital supply chain collaboration platform. Leveraging pharmaceutical traceability codes andUnique Device Identification (UDI) as data connectors, we established a traceability system characterized by “end-to-end coverage, multi-stakeholder collaboration, and intelligent management,” thus empowering downstreammedical institution clients while enhancing the quality and efficiency of supply chain management. As a leadingregional pharmaceutical distributor, we spearheaded the advancement of Yunnan’s pharmaceutical distributionindustry toward high-quality development characterized by digital intelligence and standardization.

Looking ahead, Yunnan Pharma will continue to consolidate and expand its market share in existing hospitalsand distribution channels. It will implement a “double-up, double-down” strategy, cultivating new growth driversby expanding incremental businesses such as non-pharmaceutical operations, specialty pharmacies, andpharmaceutical brand management services. At the same time, we will deepen upstream value creation, strengthenlean operations, optimize supply chain management across the entire value chain, and strive to further enhanceoperational efficiency and quality. By refining customer-relationship management, reforming internal and externalcredit processes, establishing dedicated task forces, rolling out tiered customer-and-receivables controls, exploringclosed-loop collaboration among hospitals, enterprises, banks and merchants, tightening risk-customer oversight,and improving procurement and inventory turnover, we will effectively improve the composition of receivables andstock. With full supply-chain synergy, we will help build a patient-centric, closed-loop care ecosystem, drivinghigh-quality and healthy development.

(5) Continuously promoting the optimization of the business deployment and improvement of theoperating quality of the emerging business units

During the reporting period, the Company promoted the deployment optimization of the emerging businessunits, driving the development of business units such as the Medical Device BU and the Tonic Health & Skin BeautyBU through model innovation, product innovation, and other initiatives.

The Medical Device BU focuses on three major categories: pain therapy, topical plasters, and eye care. Duringthe reporting period, the BU maintained steady growth in overall revenue by stabilizing its core business centeredon products such as bandages and adhesive plasters. By focusing on the supply chain, it continuously optimized itsproduction workforce, enhanced quality and efficiency, and significantly improved profitability. In terms ofproducts, it has expanded and refined the lightweight, waterproof, elastic, and breathable bandage categories,achieving significant growth compared to the same period last year. The Tonic Health & Skin Beauty BU leveragedYunnan Baiyao’s distinctive foundational technologies to build core competitiveness in the “broader beautyindustry.” It has continuously optimized brand development and actively expanded both online and offline markets,with an aim to establish itself as a leading brand in traditional Chinese dietary therapy and herbal skincare.

(6) Continuously seeking innovation while upholding integrity to achieve tangible and significant R&Doutcomes

Upholding an innovation-driven development philosophy, the Company consistently leverages its strengths inboth TCM and innovative pharmaceuticals by “building platforms, establishing mechanisms, and attracting talents.”On one hand, we develop TCM by pursuing innovation and integrity. We are committed to practical germplasm

resource research and development. By combining independent R&D with collaborative research, we aim toexpedite the establishment of “an integrated breeding, propagation, and promotion system” for seed sources. Thisinitiative will advance breeding studies for authentic medicinal materials such as Panax notoginseng and Parispolyphylla. By strengthening innovation in Chinese patent medicines, we have made significant progress in theresearch and development of innovative TCMs. On the other hand, we pursue differentiated strategies in ininnovative drug deployment. Based on the criteria of technology frontier, clinical demand and resource endowment,we take the initiative to integrate into the national and local biomedical strategies, and deploy and developinnovative drugs with more competitiveness and market prospects. During the reporting period, upholding theinnovation-driven strategy, the Company has promoted the transformation of results, continuously improved thegrowth momentum, and promoted scientific planning of short-, medium- and long-term projects in an orderlymanner.For short-term projects, we will focus on secondary innovation development of marketed products and rapiddrug and medical device development. Currently, 16 major TCM varieties are undergoing secondary development,with 37 projects underway. Progress on key projects during the reporting period is as follows:

For medium-term projects, we have made every effort to promote the development of innovative TCMs andcontinued to build star products of Yunnan Baiyao transdermal preparations. Progress on key projects during thereporting period is as follows:

For the long-term projects, especially the innovative drug projects, we will place radiopharmaceuticals at thecore, align projects with social needs and cutting-edge science, and advance a pipeline of innovative drugs thatsecures the Company’s sustainable growth momentum. Progress on key projects during the reporting period is asfollows:

In the second half of 2025, the Company will further establish an R&D innovation system and operationalmanagement capabilities aligned with Yunnan Baiyao’s strategic development phase. We will strategically leverageour strengths in “TCM” and “innovative drugs,” while cultivating top-tier talents, including leading R&Dprofessionals and management personnel, to match our world-class hardware platforms. The Company will continueto broaden the connotation of innovation. Relying on lean and digital means, we will introduce positive incentivesto encourage innovation, create a positive atmosphere for innovation, establish sufficient project reserves, andaccelerate the implementation of innovative projects to promote the transformation of results.

(7) Continuously deepening the transformation strategy of digital intelligence to improve quality andefficiency of the Company

During the reporting period, the Company continued to implement the Digital Development Plan for 2022-2026 of Yunnan Baiyao Group. By leveraging cutting-edge data and AI technologies to empower all critical linksin the industrial chain, we are committed to driving industrial transformation and upgrading while fostering businessinnovation and development. Focusing on channel operation transformation, the Company has independentlydeveloped a “Marketing Business Operation Platform” and piloted its application within the PharmaceuticalBusiness Group. This enables distributors to place orders autonomously, facilitates precise expense accounting, andallows for real-time tracking of product flow, significantly enhancing operational efficiency of channel business.The “One-Item-One-Code Traceability Platform” independently developed by the Company has been applied totrace the origin of Chinese medicinal materials, providing digital identity markers for “authentic medicinalmaterials.”Tangible results have been achieved in accelerating the advancement of supply chain excellence. We haveredesigned the end-to-end processes with a focus on cost reduction, quality improvement, and efficiencyenhancement, and completed the construction of a comprehensive digital foundation covering the entire supplychain from order processing and warehousing to transportation and settlement. First, all business operations havebeen fully digitized, reducing the manual workload of frontline employees by 30%, and eliminating 60,000 paper-based documents annually, thus promoting green office practices. Second, 100% automation of settlement isachieved, and the cycle has been shortened from 30 days to real-time. Third, real-time data has been implementedacross the entire chain. By establishing 90 standardized processes and 60 management metrics, it provides robustsupport for business decision-making.AI-powered business applications have achieved tangible results in specific scenarios. Over 70 digitalemployees are currently deployed, achieving an annual labor savings equivalent to 7,000 person-days. In terms ofdigital transformation of the Chinese medicinal material industry, we have established a comprehensive closed-loopbusiness system spanning resources, cultivation, procurement, processing, warehousing, and payments through thedevelopment of the “Digital Intelligence of Yunnan TCM” platform and the “One Product, One Chain” digitalmanagement system for warehouses in places of origin. This has reduced settlement times for harvesting at place oforigin from one day to mere minutes, significantly enhancing supply chain coordination efficiency and precisionmanagement levels while streamlining the entire process from cultivation to distribution. By continuouslyadvancing comprehensive data governance and promoting data-driven business operations, we achieved the listingof Yunnan Baiyao Group’s first data product of “Traceability Query for Chinese Medicinal Materials” on theShanghai Data Exchange.

Looking forward, the Company will continue to empower the effective development of its business and providecompetitive strengths through its digital intelligence capabilities, explore the direction of transformation of“AI+Pharmaceuticals,” and accelerate the transformation of digital intelligence by deeply integrating advancedtechnologies such as AI, big data, and cloud computing into industrial chain aspects such as planting, processing,research and development, production, and marketing. Defining innovation through digital transformation, we willdeepen the integration of data elements with TCM to forge new productive forces, breathing new life into traditionalChinese medicine.(III) Business model

1. Transformation from a Chinese leading TCM enterprise to a “Chinese leading, world-class” modernpharmaceutical industry group

As a “chain leader,” the Company is committed to promoting coordinated development across the industrialchain, refining its focus on core areas, expanding the leadership of advantageous products, and accelerating theconstruction of the industrial system. Centered on the principles of “strengthening principal businesses, stabilizinggrowth, and ensuring sustainability,” we aim to create a comprehensive industrial chain for Yunnan-branded TCMmaterials. We will focus on expanding the long-term potential of pharmaceuticals, health products, TCM resources,and commercial logistics, thus achieving self-driven leapfrog development. In addition, based on the developmentstrategy, the Company will scientifically validate and rapidly promote the Group’s internationalization strategy, andfully leverage the synergistic and promotional effects of “two markets” and “two resources” at home and abroad,focusing on expanding the reach of TCM products abroad, creating new growth opportunities for health products,and integrating international resources for the development of innovative medicines, so as to continuously drive oursustained high-quality development, and support the transformation of Yunnan Baiyao from a Chinese leading TCMenterprise to a “Chinese leading, world-class” modern pharmaceutical industry group.

2. Transformation of the development model from “endogenous growth” to “intensive and extensivegrowth”

The Company adopts a two-pronged growth strategy as the main growth model that combines internalefficiency improvement (“intensive growth”) with external market expansion (“extensive growth”). “Intensivegrowth” focuses on tapping potential and increasing efficiency to stabilize the fundamental base. It concentrates onthe development foundations of the pharmaceutical, health, and distribution industries. Following the approach ofmaximizing overall benefits, it aims for systematic improvement and optimization across the industrial chain, valuechain, and production factors, continuously promoting the high-quality development of the Company’s principal

businesses. “Extensive growth” emphasizes foresight and insight. Based on the overall strategic requirements andorientation, we actively explore strategic mergers and acquisitions, strategic cooperation, and other models tocomplement and strengthen the existing industrial segments, and quickly break through the existing growthbottlenecks. This dual approach enables the Company to establish a sound and resilient industrial portfolio systemand to achieve sustainable, high-quality development.

3. Transformation from training internal talents to the model of “training internal talents + introducingexternal talents”The Company believes in the pivotal role of talent in driving its development. It has established a systematicand scientific training system that offers diverse career development pathways, fostering both specializedknowledge and comprehensive skills, with the mutual development of talents and the Company as the objective.The Company concentrates its superior resources and actively introduces high-level professionals from multiplefields, including drug R&D, digital construction, and strategic investment. It continues to enhance its businesscapabilities in multiple dimensions, such as innovative R&D, lean operations, and investment and mergers &acquisitions. By nurturing internal talents, actively recruiting external experts, and fully utilizing its organizationalenvironment for talent development and market resources, the Company strives to build a high-quality talent poolaligned with its future growth requirements.

4. Transformation from a traditional manufacturing enterprise to a smart enterprise based on digitaloperations

The Company is committed to building a digital driving force and actively seeking transformation to digitaloperations with a strong customer-centric approach to enhance customer value and experience. By leveragingcutting-edge digital technologies such as cloud computing, big data, AI, 5G, and the Internet of Things, theCompany drives innovation and development. The Company also seeks for transformation from a function-orientedprocess to a process that connects customer scenarios to drive the Company’s management change andorganizational development. Also, the Company is moving beyond a unified “data base” and governance strategyto build a data-driven intelligent decision-making system “based on facts.”II. Analysis on Core Competitiveness

(I) Brand strength

Yunnan Baiyao is a well-established Chinese heritage brand with a history of over 123 years. Centered around

the Yunnan Baiyao brand, the Company has expanded from a pharmaceutical brand into a multi-brand ecosystemcovering personal healthcare products, crude drugs, and comprehensive health products. We have built a diverseportfolio of brands and continuously expanded our reach to target audiences, enhancing our brand value over thelong term. The Company has been consistently listed in the brand value rankings of internationally authoritativeorganizations. During the reporting period, it was once again ranked 33

rd

in the List of Top 50 GlobalPharmaceutical Companies by Pharmaceutical Executive in US. Moreover, it has been repeatedly included in theList of China’s Best Brands published by Interbrand, and the Kantar BrandZ Top 100 Most Valuable Chinese Brandslist.(II) Full industrial chain advantageWe will further uphold our responsibilities as a chain leader, based on the strategic positioning of “the ‘chainleader’ with high-quality development of Yunnan TCM resources.” Relying on the authentic medicinal resourcesand location advantages of Yunnan Province, we will leverage Yunnan Baiyao’s accumulated expertise in intechnology, brand, channel, capital and talent, as well as the demonstration, leading and driving role of the leadingenterprise in industrial development. We have built a digitalized industrial chain ecosystem for TCM materials withthe model of “1+1+N,” which consists of “1 TCM production, research and marketing integrated digital intelligenceplatform + 1 new specialized market for TCM materials at the origin + multi-dimensional synergies,” to promotethe standardization, scaling, branding and digitalization of the TCM industry and transform resource advantagesinto industrial competitive advantages and long-term sustainable development advantages, so as to support“excellent TCM products” by “excellent Yunnan TCM resources.”

Driven by its long-term and continuous investment in key strategic varieties of TCM materials, the Companyhas achieved a complete and closed-loop industrial chain from seed selection and cultivation to production andprocessing. This has established a robust supply system for strategic medicinal materials, effectively ensuring thequality stability of TCM raw materials and controlling the price fluctuations of strategic TCM raw materials. Thissystem has laid the groundwork for the long-term and sustainable development of Yunnan Baiyao.

(III) Continuous innovation capability

Yunnan Baiyao consistently meets the rapidly evolving and upgrading consumer demand through continuousinnovation. The Company is committed to integrating TCM into modern life through the consumer-centered“customer-oriented innovation,” “social innovation” based on government-industry-academia-research-medicinecollaboration and “digital innovation” powered by advanced technologies such as AI, big data, and cloud computing.”We have evolved from a single hemostatic product to a vast Yunnan Baiyao industrial group, covering various

sectors of the health industry, and created classic examples of innovation and the integration of TCM products intodaily life, such as “Yunnan Baiyao Woundplast” and “Yunnan Baiyao Toothpaste.”Looking ahead, the Company will continue to enhance its innovation capabilities by continuously improvingthe level of R&D and promoting digital and intelligent reform. We have set up more than 10 national and provincialscientific research platforms and R&D centers with many research institutions and universities, focusing on the fieldof medicine, strengthening the introduction of talents, scientific research and cooperation and exchanges, andenhancing collaboration between basic and clinical research to truly achieve the effective transformation of researchachievements into cross-disciplinary innovation and development. The Company has positioned “AI+Medicine” asthe core direction of its strategic transformation, deeply integrating advanced technologies such as AI, big data andcloud computing into planting, processing, R&D, production, marketing and other aspects, accelerating thetransformation of digital intelligence, and focusing on the modernization of TCM and the intelligent upgrading ofhealth products.(IV) Talent team strengthsThe Company has established a long-term mechanism for talent security to deepen the market-orientedselection and employment mechanism, improve the mechanisms for talent introduction, training, and selection, andfoster an environment conducive to the growth of its talent pool. By focusing on both internal team developmentand the continuous external introduction of outstanding talents, we have built management teams with highprofessionalism and strong market awareness across business areas. The Company is committed to enhancing thespecialization, professionalism, and market orientation of its cadre and talent teams, continuously optimizing theirprofessional and knowledge structures to create a supportive environment for talent growth, and enhance the loyalty,contribution and sense of fulfillment among our talents. The Company continually refines its efficient incentivemechanism based on its strategic goals, and gives priority to those who have made significant contributions, as wellas key front-line positions in emerging industries, R&D, innovation, reform, and other critical areas when allocatingresources, to maximize the enthusiasm and creativity of cadres and employees, promote the Company towards high-quality development, and lay a strong foundation for achieving win-win cooperation among all stakeholders.

(V) Channel advantagesIn terms of pharmaceuticals, the Company has built a marketing network covering medical institutions andretail pharmacies across various provinces, regions, counties, and towns in China, and continues to conduct high-quality medical research projects to strengthen the medical foundation of its products and enhance collaborationwith healthcare institutions. In the retail sector, we have nationwide coverage, serving 5,000 top-tier chains and

reaching over 400,000 retail stores across China. Especially in areas such as East China, Central China, and YunnanProvince, the Company has achieved the high coverage, high penetration rate, and strong market service capabilities,and implemented the special marketing cooperation under the principle of “One Province, One Strategy” or even“One Chain Store, One Strategy.” Leveraging current consumer touchpoints and spending habits, the Company hasintegrated online and offline channels to execute omnichannel marketing. Beyond offering more high-qualityproducts, it continuously enhances its professional capabilities to deliver a broader range of health services.Regarding health products, Yunnan Baiyao has established a comprehensive nationwide sales team dedicatedto comprehensive health products, covering all terminals. Yunnan Baiyao Toothpaste continues to maintain aleading market share in China with a high brand penetration in the oral product category. Through ongoingoptimization of its full chain channels, the Company has not only strengthened its position in traditional offlinechannels but also experienced significant growth in emerging business models such as on-demand retail, communitygroup purchases, and interest-based e-commerce. This demonstrates the Company’s willingness to experiment andadapt, taking measured steps forward along the way, all of which enhance its ability to quickly respond to evolvingbusiness trends. Such channel advantages of Yunnan Baiyao have significantly enhanced market competitivenessof the Company, laying the foundation to continuously commercialize new products.III. Analysis on Principal BusinessesOverviewRefer to “I. Principal Businesses of the Company during the Reporting Period” for details.Year-on-year changes in the key financial data

Unit: RMB

Net cash flowsfrom operatingactivities

Significant changes in the profit composition or profit source of the Company during the reporting period

□ Applicable ? Not applicable

There were no significant changes in the profit composition or profit source of the Company during the reporting period.Operating revenue structure

Unit: RMB

Income fromplantation sales

The industries, products, or regions that account for more than 10% of the Company’s operating revenue or operating profit? Applicable □ Not applicable

Unit: RMB

When the statistical caliber of the Company’s principal business data is adjusted in the reporting period, the Company’s principalbusiness data should be subject to the one after the statistical caliber at the end of the reporting period is adjusted in the latest year

□ Applicable ? Not applicable

Ⅳ. Analysis on Non-principal Businesses? Applicable □ Not applicable

Unit: RMB

Note: Investment income from Shanghai Pharma amounted to RMB 784 million. This investment represents a strategic collaborationbetween the two parties, facilitating synergies in their respective industries. The investment income is sustainable.

V. Analysis on Assets and Liabilities

1. Significant changes in assets composition

Unit: RMB

of the period.

2. Major overseas assets

□ Applicable ?Not applicable

3. Assets and liabilities at fair value

? Applicable □ Not applicable

Unit: RMB

Other variations: None.Whether the Company has significant changes in measurement attributes of main assets during the reporting period

□ Yes ? No

4. Restrictions on asset rights as of the end of the reporting period

VI. Investment Analysis

1. Overview

? Applicable □ Not applicable

2. Significant equity investments made during the reporting period

□ Applicable ? Not applicable

3. Significant non-equity investments in progress during the reporting period

? Applicable □ Not applicable

Unit: RMB

4. Financial assets investment

(1) Securities investment

? Applicable □ Not applicable

Unit: RMB

(2) Investments in derivatives

□ Applicable ? Not applicable

The Company had no investments in derivatives during the reporting period.

5. Use of proceeds

□ Applicable ? Not applicable

The Company had no use of proceeds during the reporting period.VII. Significant Assets and Equity Sales

1. Significant assets sales

□ Applicable ? Not applicable

The Company had no significant assets sales during the reporting period.

2. Significant equity sales

□ Applicable ? Not applicable

VIII. Analysis on the Major Holding Companies and Joint-stock Companies? Applicable □ Not applicableMajor subsidiaries and joint-stock companies with a net profit impact of over 10%

Unit: RMB

related products, manufacturing andsales of pharmaceutical equipment,engineering installation andmaintenance, warehousing andlogistics, sea, land, and air freightforwarding business, industrialinvestment, asset management,provision of international economicand trade information and consultingservices, self-owned house leasing,import and export business ofvarious self-operated and agentdrugs and related goods andtechnologies.

related products, manufacturing andsales of pharmaceutical equipment,engineering installation andmaintenance, warehousing andlogistics, sea, land, and air freightforwarding business, industrialinvestment, asset management,provision of international economicand trade information and consultingservices, self-owned house leasing,import and export business ofvarious self-operated and agentdrugs and related goods andtechnologies.

Note: In accordance with relevant company regulations, the Health Products Company recognized brand usage fees totaling RMB 592 million payable to the parent company for the use of the“Yunnan Baiyao” main brand trademark. Excluding brand usage fees, the Health Products Company achieved a profit of RMB 1.198 billion for the first half of 2025.Acquisition and disposal of subsidiaries during the reporting period? Applicable □ Not applicable

Description of the major holding companies and joint-stock companies: None.

Ⅸ. Structured Entities Controlled by the Company? Applicable □ Not applicableSee Section VIII “X. Interest in Other Entities”X. Risks and Countermeasures

(I) Policy changesIn recent years, a series of supportive policies for the pharmaceutical industry have been introducedsuccessively, opening up favorable development opportunities for pharmaceutical enterprises. Meanwhile, thehealthcare reform will be further deepened, and the routine centralized volume-based procurement will cover morepharmaceuticals. Comprehensive revisions to laws and regulations pertaining to drug supervision are also on thehorizon. All these factors are exerting higher requirements for the healthy development of the pharmaceuticalindustry. Given this context, the Company will place even greater emphasis on aligning with the Chinesepharmaceutical policy direction, intensify its efforts in tracking, analyzing, and comprehending critical industryinformation, and promptly grasp industry development and shifting trends. By devising suitable strategies, theCompany aims to alleviate the pressure and uncertainty arising from policy changes on production and operations,ultimately achieving sustained growth.

(II) Market uncertaintiesDue to fluctuating raw material costs, price controls on pharmaceutical products, and intensified competitionsat the terminal level, the pharmaceutical industry is experiencing significant operational pressure. Health consumerproducts are facing challenges from increasingly rational consumer behavior and fragmented demand. In responseto these pressures, the Company will continue to leverage its full industry chain competitiveness and innovationas key drivers. By continuously consolidating the supply chain foundation, enhancing operational efficiency andrefining management of channels and retail, the Company aims to deepen its innovation, cost, and channeladvantages, which enables the Company to navigate through economic cycles and achieve sustainable, high-quality development in the competitive market.(III) Transformation of innovation and R&D achievementsIn pursuit of fulfilling technological advantages and enhancing core competitiveness, the Company hasconsistently escalated its investment in drug R&D over recent years. Generally, new drug R&D is featured withlarge amount of investment, long R&D cycle, less-than-expected industry transformation rate, market uncertaintyafter industrialization in the future, etc. Any changes in relevant policies and market demands will be likely toaffect the commercial value of the products under R&D. Upon completion of R&D, the successfulcommercialization of a new drug stands as an important factor influencing R&D yields. The Company is poisedto meticulously assess the R&D projects of novel drugs within the framework of its strategic direction. Resourceswill be apportioned to key projects, bolstering risk management capabilities throughout the R&D. CollaborativeIUR efforts will be fortified, optimizing the transformation of achievements and reducing the uncertaintiesassociated with R&D investments.(IV) External expansionBy implementing an industrial development strategy to seek both internal growth and external expansion, theCompany actively advances towards its strategic goals and strives to inject new momentum into sustainable

development. In the process of pursuing external expansion, a key challenge for the Company is how to leverageinvestment and innovation to introduce new variables, build a new Baiyao platform, integrate more externalresources, and develop a complete industry chain, to ultimately establish a strong foothold in a highly competitiveand rapidly changing market. The Company will remain strategy-driven and user-centric, continuously sharpeningmarket insight to build a healthy, sustainable portfolio.XI. Implementation of the Market Capitalization Management System and Valuation

Improvement PlanWhether the Company implemented the market capitalization management system?Yes □NoWhether the Company disclosed the valuation improvement plan

□Yes ?No

To effectively enhance the Company’s investment value, standardize market capitalization managementpractices, ensure the compliance, scientific rigor, and effectiveness of such activities, maximize corporate valueand shareholder interests, and actively respond to the call in the State Council’s Several Opinions on StrengtheningSupervision, Preventing Risks, and Promoting High-Quality Development of the Capital Market to encouragelisted companies to establish market capitalization management systems, the Company’s 10

thBoard of Directorsheld its first meeting of 2025 on March 31, 2025, and approved the Market Capitalization Management System ofYunnan Baiyao Group Co., Ltd. For details, please refer to the system disclosed on the same day onwww.cninfo.com.cn.XII. Implementation of the “Enhancement of Quality and Returns” Initiative

Whether the Company disclosed the Announcement of the “Enhancement of Quality and Returns” Initiative?Yes □No

The Company disclosed the Announcement on “Enhancement of Quality and Returns” Initiative(Announcement No.: 2024-12) on March 9, 2024.

Firmly upholding the principle of rewarding shareholders, and consistently focusing on its principalbusinesses and maintaining prudent operations, the Company kept enhancing shareholder returns, whilecontinuously advancing high-quality development. In April 2025, in active response to the call in the StateCouncil’s Several Opinions on Strengthening Supervision, Preventing Risks, and Promoting High-QualityDevelopment of the Capital Market to encourage listed companies to establish market capitalization managementsystems, the Company formulated the Market Capitalization Management System of Yunnan Baiyao Group Co.,Ltd in accordance with the Company Law of the People’s Republic of China, the Securities Law of the People’sRepublic of China, the Rules Governing the Listing of Shares on Shenzhen Stock Exchange, the Self-RegulatoryGuidelines No. 1 for Companies Listed on Shenzhen Stock Exchange - Standardized Operation of ListedCompanies on the Main Board, and the Listed Company Regulatory Guidance No. 10 - Market CapitalizationManagement, other laws and regulations and normative documents as well as the Articles of Association of YunnanBaiyao Group Co., Ltd. In accordance with the regulations and in light of our own circumstances, we adopted acomprehensive set of measures, including enhancing the quality of information disclosure, managing investor

relations, conducting cash dividends, and encouraging major shareholders to increase their holdings, to promotethe rational reflection of the Company’s investment value and its high-quality development achievements.

(I) Constantly improving the quality and efficiency of production and operationIn the first half of 2025, the Company maintained robust growth by focusing on its strategic planning andovercoming multiple challenges in the external environment. During the reporting period, the Company recordedoperating revenue of RMB 21.257 billion, up 3.92% year on year; net profit attributable to the parent companyreached RMB 3.633 billion, rising 13.93% from RMB 3.189 billion in the previous year and hitting a record highfor the same period; and net profit attributable to the parent company after deducting non-recurring profits andlosses of RMB 3.461 billion, up 10.40% from RMB 3.135 billion in the previous year and hitting a record high forthe same period.In terms of growth quality, the Company’s net operating cash flow for the reporting period reached RMB 3.961billion, representing a 21.45% increase compared to the same period last year. The weighted average return on netassets was 9.09%, an increase of 1.16 percentage points over the same period of the previous year; basic earningsper share was RMB 2.04 per share, an increase of 13.97% over the same period of the previous year. Meanwhile,the Company’s business structure continued to optimize, with industrial revenue accounting for a further increasedshare of 40.01% of total operating revenue, representing a 2.6 percentage point rise compared to the same periodlast year. Industrial revenue grew at a rate of 11.13%.

The Company continued to maintain a healthy asset structure. As of the end of the reporting period, theCompany had total assets of RMB 54.535 billion, net assets attributable to shareholders of the listed company ofRMB 40.407 billion, the asset-liability ratio of 25.91%, and the cash and bank balance of RMB 11.294 billion.(II) Enhancing returns to shareholders in multiple dimensionsThe Company has taken multiple measures to enhance shareholders’ sense of gain by means of cash dividendsand increase in shareholdings by major shareholders.During the reporting period, the Company completed the distribution of its 2024 annual dividend totaling RMB

2.114 billion, with a cash dividend of RMB 11.85 per 10 shares. This cash dividend, combined with the specialdividend already distributed in 2024, results in a total cumulative cash dividend of RMB 4.277 billion, representing

90.09% of the Company’s net profit attributable to shareholders of the listed company for 2024. On August 28,2025, the Company held the fifth session of the 10

thBoard of Directors for 2025 to consider and approve theproposal for a special dividend plan for 2025. The Company proposes to distribute a cash dividend of RMB10.19(including tax) per 10 shares to all shareholders on the basis of the total share capital of the Company of1,784,262,603 shares as at the end of the second quarter of 2025, and to distribute 0 bonus shares (including tax),and not to convert the capital reserve to share capital. The total amount of the special dividends for 2025 will beRMB 1,818,163,592.46, accounting for 50.05% of net profit attributable to the parent company of the Company infirst half of 2025. This proposal is subject to review and approval of the general meeting.

In August 2024, Yunnan State-owned Equity Operation Management Co., Ltd (“State-owned EquityManagement Company”), our shareholder, planned to increase its shareholding in the Company within six monthsfrom the date of the first increase (August 6, 2024), and planned to increase its shareholding in a cumulative amountof not less than RMB 500 million and not more than RMB 1 billion. From August 6, 2024 to February 5, 2025,State-owned Equity Management Company cumulatively increased its shareholding in the Company by 17,807,463shares through the trading system of Shenzhen Stock Exchange (SZSE) by means of centralized bidding transactions,

accounting for 0.9980% of the total share capital of the Company, and the cumulative amount of the increase inshareholding was RMB 950,379,399.02. As of the February 5, 2025, the term of the Shareholding Increase Planexpired and the Shareholding Increase Plan was completed.(III) Continuously improving the information disclosure qualityThe Company consistently adheres to the principles of truthfulness, accuracy, completeness, timeliness, andfairness in information disclosure, strictly following applicable laws, regulations, and corporate policies. Activelyengaging with investors, the Company carefully considers their needs and suggestions regarding periodic reports.The Company discloses annual report data across multiple dimensions, including segments and channels, ensuringcompliance while offering a comprehensive view of its operations and development. Meanwhile, the Companypractically engages in voluntary information disclosure, proactively sharing information that aids investors in valueassessment and decision-making, thereby enhancing the relevance and transparency of disclosures. In addition, theCompany employs various methods to present and interpret periodic reports, including graphics, videos, andPowerPoint presentations, to communicate information in a clear, engaging, and easy-to-understand manner. As ofthe end of the reporting period, Yunnan Baiyao has been awarded the Class A rating in the information disclosureassessment by the Shenzhen Stock Exchange for the 17

thconsecutive time.(IV) Fully protecting the rights and interests of investors and ensuring smooth communication channelsThe Company has established a smooth communication channel to effectively safeguard the rights and interestsof investors and continuously improves the effectiveness of positive interaction with investors. During the reportingperiod, the Company held a total of two performance briefings, with a record high level of investor participation.We received investors for a total of 31 times (online and offline), involving 105 organizations and more than 270investors, and survey records were released in a timely manner in accordance with information disclosurerequirements. We responded to 57 inquiries at irm.cninfo.com.cn. Specialized personnel were assigned to answerinvestor relations hotline calls in earnest, ensuring the effective operation of the investor relations hotline. Inaddition, the Company has scientifically built a professional financial media matrix through text, video and otherforms, and actively engages in multi-channel information dissemination, building and maintaining the Company’smulti-dimensional value in the capital market.

(V) Exploring and practicing the path of high-quality developmentThe Company has a clear strategic plan. For intensive growth, we will focus on the foundational developmentof the three key segments, that is pharmaceutical, health and distribution, and systematically explore potential andenhance efficiency across the industrial chain, value chain, and production factors. For extensive growth, we will,in line with the overall strategic requirements and orientation, actively explore ways to complement and strengthenexisting industrial segments through strategic mergers and acquisitions, strategic partnerships, and other approaches,enabling us to rapidly overcome current growth bottlenecks and achieve sustained growth. The Company aims toachieve growth in revenue, profit, asset scale, and other key indicators through the two-phase “2+3” strategy, whichwill drive the century-old Baiyao toward becoming a Chinese leading and world-class modern pharmaceuticalindustry group, achieving synergistic growth in scale, quality, and structure.

Creating value, managing value, and realizing value are essential steps in the value enhancement journey forlisted companies. The Company will strictly remain committed to fulfilling its responsibilities and obligations as alisted company. Through focusing on our principal businesses, continuous innovation, and operational

improvements to enhance our intrinsic value, we aim to promote the healthy and sustainable development of theCompany by continuously exploring and practicing the methodology of high-quality development. We will adhereto the “investor-oriented” principle, striving to safeguard investors’ rights and interests through various means,enhance investment returns and bolster investors’ sense of achievement. By effectively implementing the“Enhancement of Quality and Returns” initiative, we seek to boost market confidence and contribute to the positiveand healthy development of the capital market.

Section IV Corporate Governance, Environment and SocietyI. Changes of Directors, Supervisors, and Senior Management of the Company

? Applicable □Not applicable

II. Profit Distribution and Conversion of Capital Reserve into Share Capital during theReporting Period? Applicable □Not applicable

III. Implementation of the Company’s Equity Incentive Plan, Employee Stock Ownership Plan(ESOP), or Other Employee Incentive Measures

□ Applicable ?Not applicable

The Company had no equity incentive plans, employee stock ownership plans, or other employee incentive measures and theirimplementation during the reporting period.

IV. Disclosure of Environmental InformationWhether the listed company and its major subsidiaries are included in the list of enterprises legally required to disclose environmentalinformation?Yes □No

V. Social ResponsibilityIn the first half of 2025, under the guidance of President Xi Jinping’s Thought on Socialism with ChineseCharacteristics for a New Era, Yunnan Baiyao diligently implemented the spirit of the important speech made byGeneral Secretary Xi Jinping during his visit in Yunnan and the rural revitalization policies set forth by the PartyCentral Committee, the State Council, the Yunnan Provincial Committee of the Communist Party of China, andthe provincial government. Leveraging its industrial strengths, the Company continued to make efforts in industrialdevelopment, improvement of people’s livelihood, grassroots governance, and other aspects. Also, the Companysignificantly enhanced its support for poverty alleviation in Chazhiluo Village and Xinle Village in PantiangeTownship, Weixi Lisu Autonomous Prefecture, successfully completing its tasks in the first half of 2025.

(I) Overall planning and consolidated efforts for rural revitalizationThe Party Committee of Yunnan Baiyao attaches such importance to its targeted poverty alleviation task thathad been included into its annual key work scope for overall planning. This June, under higher-level directives,the Party Committee of the Group meticulously organized the centralized rotation of rural-revitalization workteams. Following a Group-wide open selection and a “best-of-the-best” approach, we have reassigned two residentfirst secretaries and two resident team members in poor villages. All four candidates combine solid politicalintegrity, proven competence, and a strong grass-roots style. Each brings either a pharmacy background or hands-on experience in Party building and the cultivation and processing of Chinese medicinal materials, ensuring

stronger support for local governance and for the development of the Chinese medicinal material industry in ourpartner villages.(II) Consolidated achievements in poverty alleviation and rural revitalizationThe resident work team of Yunnan Baiyao, working hand-in-hand with the “village Party committee andcommittee of villagers,” treats dynamic monitoring and targeted support for preventing relapse into poverty as itstop priority, rigorously implementing the “one assessment, one analysis and one review every month” mechanism.A comprehensive investigation was conducted on all households at risk of returning to poverty in 2025. Followingthe “three-tier review and four-step confirmation” procedure, the seven original monitoring households (24 people)in Chazhiluo Village were assessed. Five households (21 people) were ultimately cleared of risk. One householdwith two members remains at risk (one household of one person with no labor capacity under subsistenceguarantee). For these households, the work team has drawn up tailored support plans household by household andfine-tuned support policies, ensuring the requirements of the “shaking off poverty rather than responsibility,policies, assistance and supervision” are fully implemented and effectively advancing the stable transition fromconsolidating poverty-alleviation gains to rural revitalization.

(III) Routine duties of resident work teamsThe work team actively attends village-committee meetings, contributing ideas for the two villages’development. Through regular visits to priority households, they keep abreast of residents’ needs and convey careand warmth. When faced with mining hazards, medical-insurance payment difficulties, or natural-disaster threats,the team works with the village Party committee and the committee of villagers to intensify patrols and on-callduty, conduct door-to-door outreach, and roll out emergency measures, fully safeguarding people’s lives andproperty and ensuring village assignments proceed smoothly.(IV) Vigorously driving the development of the TCM materials cultivation industryPromotion of the intercropping model of the Dolomiaea costus. Large-scale trials of the intercropping modelof Dolomiaea costus have proven successful, and the “snowball effect” of the TCM materials industry poweringrural revitalization is now taking hold. In 2024, Chazhiluo Village’s 30-mu trial plots yielded 500 jin of corn and1,500 jin of Dolomiaea costus per mu. After deducting costs, net income rose by roughly RMB 2,000 per mu,giving the participating households an extra RMB 60,000 in total and marking the village’s first-ever collective-economy revenue from medicinal-herb cultivation. This short-cycle, high-return model has acted like a shot in thearm, igniting farmers’ confidence and enthusiasm. To date this year, 118 households have already adopted thepractice on more than 500 mu, with expected additional income topping RMB 800,000. Empowered by the

industry chain of the Company, cultivation of TCM materials in Pantian Township is shifting from small, scatteredplots to a quality-driven TCM base.

Promotion of Bletilla striata cultivation. With two years of small-plot trials under the resident work team’sguidance, Bletilla striata cultivation has achieved remarkable results. However, as 2025 large-scale rolloutapproached, high costs and a long payback period dampened farmers’ enthusiasm. Then, the resident work teams,along with the village Party committee, the committee of villagers and five Party branches, convened a specialmeeting on “four discussions and two disclosures” and decided to distribute Bletilla striata seedlings worth RMB16,000 by lottery among leading entrepreneurs, Party branch leaders and cooperatives, promoting medium-scaleplots and creating a “Party-building-led, industry-practice” model. In June 2025, the work team distributed Bletillastriata seedlings to establish ten demonstration plots totaling four mu, quadrupling the trial area, and created aWeChat group for growers to share know-how, laying the groundwork for large-scale rollout.(V) Improving infrastructures for a brighter futureYunnan Baiyao continued to make greater investment to construct the infrastructure of the assisted villages.To inherit and protect Chazhiluo Village’s peakcock dance culture, a prefecture-level intangible cultural heritage,the Company made another investment, amounting to RMB 150,000, in addition to the initial RMB 300,000 outlay,for design and decoration of the inheritance exhibition hall of peakcock dance, construction of the village bulletinboard, and repair of the exterior wall of the Party member activity room of Xinle Village. Now fully completedand open to the public, the project is actively advancing Lisu intangible cultural-heritage protection and ruralrevitalization.(VI) Consumption-based assistance for a shared rural-revitalization canvasAhead of the 2025 Spring Festival, the Company purchased a total of 4,637 agricultural and sideline productsfrom Diqing Prefecture through the “832 platform,” totaling RMB 436,700, effectively helping farmers solve theproblem of sales channels for agricultural and sideline products and boosting farmers’ incomes. In the first half ofthis year, Yunnan Baiyao Group fully leveraged its industrial strengths to purchase 6,111.1 kg of medicinal herbs,primarily Gentiana macrophylla and Angelica sinensis, worth RMB 406,700 from Shangri-La Hezheng TibetanMedicine Co., Ltd and Diqing Sanjiang Bio-Development Co., Ltd, effectively resolving local growers’ saleschallenges and broadening their path to prosperity.

Section V Significant Events

I. Commitments of the Company’s De Facto Controller, Shareholders, Related Parties and Acquirers, as well as the Company Itself andOther Related Entities Fulfilled during the Reporting Period or Ongoing at the Period-End?Applicable □Not applicable

regulations. 3. The financial independence of the listed company, thatis: (1) The listed company continues to maintain its independentfinancial department and independent financial accounting system;

(2) The listed company opens an independent bank account and does

not share a bank account with our company or any other enterprisesunder our control; (3) The listed company is able to makeindependent financial decisions, without our company’s illegalinterference with its asset utilization scheduling; (4) Theindependence of the listed company’s financial personnel who willnot work part-time or receive remuneration in any other enterprisesunder our control; (5) The listed company legally pays taxesindependently. 4. The institutional independence of the listedcompany, that is: (1) The listed company continues to maintain asound corporate governance structure and has an independent andcomplete organizational structure; (2) The general meeting, Board ofDirectors, independent directors, Supervisory Committee, generalmanager, etc. of the listed company independently exercise theirpowers in accordance with laws, regulations, and the listedcompany’s articles of association; (3) The listed company has anindependent and complete organizational structure, withoutinstitutional confusion with any other enterprises under our control.

5. The business independence of the listed company, that is: (1) The

listed company has the assets, personnel, qualifications, andcapabilities to independently carry out business activities, and alsohas the capabilities to independently and continuously operate in themarket; (2) The listed company has minimized related partytransactions between our company and any other enterprises underour control and the listed company as much as possible, and fairlycarry out necessary and inevitable related party transactions at fairprices in accordance with market-oriented principles, withtransaction procedures and information disclosure obligationsfulfilled in accordance with relevant laws, regulations, and normativedocuments. 6. The listed company maintains independence from ourcompany and any other enterprises under our control in any otheraspects.

change report

made in theacquisitionreport or equitychange report

fulfillment of these commitments, and the listed company has theright to supervise its fulfillment of this commitment letter. If SASACof Yunnan Province fails to effectively fulfill this commitment letter,leading to any actual losses to the listed company, SASAC of YunnanProvince will compensate for any and all of such direct or indirectlosses so caused to the listed company.

2. New Huadu and its acting-in-concert parties undertake that: after

the completion of this merger and overall listing, our company/I andany enterprises under our/my control will try the best to avoid relatedparty transactions with the listed company. For inevitable relatedparty transactions or those occurring for reasonable reasons, ourcompany/I undertake (s) to conduct such transactions on an equal andvoluntary basis in the principles of fairness, impartiality, andcompensation for equal value, with the transaction prices to bedetermined based on the reasonable prices recognized in the market.Our company/I and any other enterprises under our/my control willstrictly comply with the provisions of relevant laws, regulations,normative documents, and the articles of association of the listedcompany, perform the decision-making procedures and informationdisclosure obligations for related party transactions, and warrant notto harm any legitimate rights and interest of the listed company andany other shareholders through related party transactions. Thiscommitment letter shall come into effect and be irrevocable as of thedate of official signature by our company/me. Our company/Iwarrant(s) the effective fulfillment of these commitments, and thelisted company has the right to supervise the fulfillment of thiscommitment letter. If our company/I fail(s) to effectively fulfill thiscommitment letter, leading to any actual losses to the listed company,our company/I will compensate for any and all of such direct orindirect losses so caused to the listed company.

independence of the listed company in terms of personnel, assets,business, institutions, finance, etc. This commitment letter shall comeinto effect and be irrevocable as of the date of official signature byour company/institution. Our company/institution warrants theeffective fulfillment of these commitments, and the listed companyhas the right to supervise the fulfillment of this commitment letter. Ifour company/institution fails to effectively fulfill this commitmentletter, leading to any actual losses to the listed company, ourcompany/institution will compensate for any and all of such direct orindirect losses so caused to the listed company.

their then latest relevant regulations.

3. Our company/institution undertakes to effectively fulfill the

relevant compensatory measures formulated by the listed companyand the relevant commitments made by our company/institution. Ifour company/institution violates these commitments and causes anylosses to the listed company or investors, our company/institution iswilling to legally bear any and all of the corresponding compensationliabilities for such losses.

businesses of the listed company.

2. New Huadu undertakes that: As of the issuance date of this

commitment letter, our company and any enterprises under ourcontrol have not invested in any company, enterprise or otheroperating entity engaged in any business the same as, or similar to,the principal businesses of the listed company or co-operating or co-engaged, with others, in business the same as, or similar to, theprincipal businesses of the listed company.After the completion of this transaction, our company and anyenterprises under our control will not directly or indirectly engage inany form (including but not limited to investment, M&A, affiliation,joint ventures, cooperation, partnership, contracting or leasingoperations, and equity participation) in businesses that are the sameas or similar to, and constitute a competition with, the principalbusinesses of the listed company, nor will we directly or indirectlyown any absolute or relative control over any other companies,enterprises or operating entities that engage in businesses that are thesame as or similar to, and constitute a competition with the principalbusinesses of the listed company.During the commitment period mentioned above, if the listedcompany actually further expands its existing principal businesses,and our company and any enterprises under our control have not yetengaged in production or operation of such new businesses, ourcompany and any enterprises under our control will not engage insuch new businesses that compete with the principal businesses of thelisted company unless the listed company notifies us in writing that itwould no longer engage in such new businesses.During the aforementioned commitment period, if our company andany enterprises under our control obtain from any third party anybusiness opportunity that competes or may compete with theprincipal businesses of the listed company, we shall immediatelynotify the listed company. If the listed company provides a positiveresponse that it is willing to take advantage of that businessopportunity within the reasonable period specified in the notice, ourcompany and any enterprises under our control will abandon thatbusiness opportunity.If our company and any enterprises under our control violate any ofthe above statements and commitments, leading to any damages toany rights and interest of the listed company, our company agrees to

bear any and all of the corresponding compensation liabilities forsuch damages so caused to the listed company.

and effectiveness. Our company undertakes and warrants theinformation provided or disclosed in this transaction is authentic,accurate, complete, and effective, without false records, misleadingstatements, or material omissions, and is willing to bear any and allof the corresponding individual and joint legal liabilities for that.

incentives to be announced in the future will be linked to theimplementation of the compensatory measures taken by the listedcompany. 6. If, during the period after the date of issuance of thiscommitment letter and before the completion of this transaction bythe listed company, the CSRC makes other regulatory requirementsregarding compensatory measures and related commitments, and theabove commitments fail to meet such new regulatory regulations ofthe CSRC, I undertake to issue supplementary commitments inaccordance with the then latest CSRC regulations. 7. If I violate anyof the above commitments, leading to any losses to the listedcompany or investors, I’m willing to legally bear any and all of thecorresponding compensation liabilities for such losses so caused tothe listed company or investors.

the interest of the listed company and any and all of its shareholders.

concert parties. Our company and our acting-in-concert partieswarrant the effective fulfillment of these commitments, and the listedcompany has the right to supervise their fulfillment of thiscommitment letter. If our company and our acting-in-concert partiesfail to effectively fulfill this commitment letter, leading to any actuallosses to the listed company, our company and our acting-in-concertparties will compensate for any and all of such direct or indirect lossesso caused to the listed company.

stake in Shanghai Pharma after it issues bonus shares or convertpublic reserve funds into share capital.

II. Occupation of the Company’s Capital by the Controlling Shareholder or any of Its RelatedParties for Non-Operating Purposes

□Applicable ?Not applicable

During the reporting period, there was no occupation of the Company’s capital by the controlling shareholder or any of its relatedparties for non-operating purposes.III. Non-compliant Provision of External Guarantees

□Applicable ?Not applicable

There was no non-compliant provision of external guarantees during the reporting period.

IV. Engagement and Disengagement of Auditor

Whether the interim financial statements were audited or not

□Yes ?No

The Company’s interim financial statements were unaudited.

V. Explanations Given by the Board of Directors and the Supervisory Committee Regardingthe Auditor’s “Modified Opinion” on the Financial Statements of the Reporting Period

□Applicable ?Not applicable

VI. Explanations Given by the Board of Directors Regarding the Auditor’s “ModifiedOpinion” on the Financial Statements of Previous Year

□Applicable ?Not applicable

VII. Bankruptcy and Reorganization

□Applicable ?Not applicable

There was no bankruptcy or reorganization related events during the reporting period.

VII. Legal MattersMaterial litigation or arbitration matters

□Applicable ? Not applicable

During the reporting period, the Company had no material litigation or arbitration matters.Other litigation?Applicable □Not applicable

events notmeeting thedisclosurestandards forbeing included insignificantlitigation(arbitration)

IX. Punishments and Rectifications

□Applicable ?Not applicable

There was no punishment or rectification involving the Company during the reporting period.X. Credit Quality of the Company as well as its Controlling Shareholder and De FactoController

□Applicable ?Not applicable

XI. Significant Related Party Transactions

1. Connected transactions in relation to daily operations

□Applicable ?Not applicable

There were no related party transactions related to daily operations during the reporting period.

2. Related party transactions arising from acquisition or sale of assets or equity

□Applicable ?Not applicable

There were no related party transactions arising from acquisition or sale of assets or equity during the reporting period.

3. Related party transactions regarding joint investments in third parties

□Applicable ?Not applicable

There were no related party transactions regarding joint investments in third parties during the reporting period.

4. Amounts due to and from related parties

□Applicable ?Not applicable

There were no amounts due to and from related parties during the reporting period.

5. Transactions with related finance companies

?Applicable ?Not applicable

There were no deposit, loan, credit or other financial business occurring between the Company and its related financecompanies/related parties.

6. Transactions with related parties by finance company controlled by the Company?Applicable ?Not applicableThere were no deposit, loan, credit or other financial business occurred between any finance companies under the control of theCompany and related parties.

7. Other significant related party transactions

?Applicable ?Not applicableThere were no significant related party transactions during the reporting period.XII. Major Contracts and Their Performance

1. Entrustment, contracting and leases

(1) Entrustment

□Applicable ?Not applicable

There were no entrustment events of the Company during the reporting period.

(2) Contracting

□Applicable ?Not applicable

There were no contracting events of the Company during the reporting period.

(3) Leases

?Applicable ?Not applicable

There were no leases of the Company during the reporting period.

2. Major guarantees

?Applicable?Not applicableThere were no major guarantees of the Company during the reporting period.

3. Entrusted wealth management

?Applicable □Not applicable

Unit: RMB’0,000

Details of high-risk entrusted wealth management products with a significant amount per single item or of low safety and poorliquidity

□Applicable ?Not applicable

Cases under which it is expected that the principal of entrusted financing cannot be recovered, or there may be other circumstancesthat may result in impairment

□Applicable ?Not applicable

4. Other Significant Contracts

□Applicable

?Not applicable

There were no other significant contracts of the Company during the reporting period.

XIII. Explanation for Other Significant Events?Applicable □Not applicable

1. Progress on the joint fund establishment with a professional investment institution

On January 7, 2025, the Company and BOC International Capital Limited executed the SupplementalAgreement to the Partnership Agreement of Yunnan TCM Comprehensive Health Innovation Equity Investment FundPartnership (Limited Partnership). The supplemental agreement amends certain provisions of the PartnershipAgreement of Yunnan TCM Comprehensive Health Innovation Equity Investment Fund Partnership (LimitedPartnership). According to the fund manager’s notice, the Partnership has completed its industrial and commercialregistration and has obtained its private-fund filing with the Asset Management Association of China. More detailscan be found in the Announcement on the Progress of Establishing a Fund with a Professional Investment Institution(Announcement No. 2025-01), disclosed by the Company on January 9, 2025 at http://www.cninfo.com.cn. ThePartnership has now completed its initial capital contribution (10 % of total committed capital).

2. Senior management reaching statutory retirement age

On January 28, 2025, the Company issued the Announcement on Senior Management Reaching StatutoryRetirement Age (Announcement No. 2025-06). Mr. Qin Wanmin, Chief Innovation Officer and Senior VicePresident, resigned from all positions at the Company and its controlling subsidiaries upon reaching the mandatoryretirement age. Mr. Yang Yong, Chief Compliance Officer and Senior Vice President, also tendered his resignationfrom all positions at the Company and its controlling subsidiaries upon reaching the mandatory retirement age.

3. Shareholders’ partial share pledge and release of pledge

(1) On January 11, 2025, the Company disclosed the Announcement on the Release of Shareholders’ PartialShare Pledge (Announcement No. 2025-02). On January 10, 2025, the Company received a notice from itsshareholder State-owned Equity Management Company, stating that State-owned Equity Management Companyhad released the pledge on its 52,171,840 shares held in the Company (accounting for 2.92% of the Company’stotal share capital).

(2) On January 18, 2025, the Company disclosed the Announcement on Shareholders’ Partial Share Pledge

(Announcement No. 2025-03). In the past few days, the Company received a notice from its shareholder State-owned Equity Management Company, stating that State-owned Equity Management Company had pledged48,000,000 shares held in the Company (accounting for 2.69% of the Company’s total share capital).

(3) On January 22, 2025, the Company disclosed the Announcement on the Release of Shareholders’ PartialShare Pledge (Announcement No. 2025-04). In the past few days, the Company received a notice from itsshareholder State-owned Equity Management Company, stating that State-owned Equity Management Companyhad released the pledge on its 67,172,000 shares held in the Company (accounting for 3.76% of the Company’stotal share capital).

(4) On January 25, 2025, the Company disclosed the Announcement on Shareholders’ Partial Share Pledge(Announcement No. 2025-05). In the past few days, the Company received a notice from its shareholder State-owned Equity Management Company, stating that State-owned Equity Management Company had pledged67,500,000 shares held in the Company (accounting for 3.78% of the Company’s total share capital).

(5) On May 14, 2025, the Company disclosed the Announcement on the Release and Re-pledge ofShareholders’ Partial Shares (Announcement No. 2025-19). In the past few days, the Company received a noticefrom its shareholder New Huadu, stating that New Huadu had (i) released the pledge on its 350,594,000 sharesheld in the Company (accounting for 19.65% of the Company’s total share capital) and (ii) pledged 88,700,000shares held in the Company (accounting for 4.97% of the Company’s total share capital).

4. Expiration and completion of the shareholder’s share increase plan

On February 7, 2025, the Company disclosed the Announcement on the Expiration and Completion of theShareholder’s Share Increase Plan (Announcement No. 2025-07). From August 6, 2024 to February 5, 2025,State-owned Equity Management Company cumulatively increased its shareholding in the Company by17,807,463 shares through the trading system of Shenzhen Stock Exchange (SZSE) by means of centralizedbidding transactions, accounting for 0.9980% of the total share capital of the Company, and the cumulative amountof the increase in shareholding was RMB 950,379,399.02. As of the announcement date, the term of theShareholding Increase Plan expired and the Shareholding Increase Plan was completed.

5. R&D projects

On April 9, 2025, the Company disclosed the Announcement on the Approval of INR102 Injection for DrugClinical Trials (Announcement No. 2025-14). Yunhe Pharmaceutical (Tianjin) Co., Ltd (“Yunhe Pharma”), awholly-owned subsidiary of the Company, has received the Notice of Approval for Clinical Drug Trial (NoticeNo. 2025LP01012) issued by the National Medical Products Administration. Upon review, the application for

clinical trials of INR102 Injection submitted by Yunhe Pharma meets the relevant requirements for drugregistration, and approval is granted for conducting clinical trials in prostate cancer patients.

On June 18, 2025, the Company disclosed the Announcement on the Approval of JZ-14 Capsules for DrugClinical Trials (Announcement No. 2025-20). Yunnan Baiyao Zhengwu Technology (Shanghai) Co., Ltd(“Zhengwu Technology”), a controlled subsidiary of the Company, has recently received the Notice of Approvalfor Clinical Drug Trial (Notice Nos. 2025LP01506 and 2025LP01507) issued by the National Medical ProductsAdministration. Upon review, the application for clinical trials of JZ-14 Capsules submitted by ZhengwuTechnology meets the relevant requirements for drug registration, and approval is granted for conducting clinicaltrials in patients with ulcerative colitis.XIV. Significant Events of the Company’s Subsidiaries?Applicable □Not applicable

1. Completion of share placement of YNBY International

All conditions precedent under the new-share placement agreement of YNBY International, a controlledsubsidiary of the Company, have been satisfied, and the placement was completed on May 22, 2025. Pursuant tothe terms of the placement agreement, the placing agent successfully placed an aggregate of 800,000,000placement shares to not fewer than six placees at a placing price of HKD 0.1161 per share.

The net proceeds from the placement are approximately HKD 92 million. YNBY International intends toapply the proceeds as follows: HKD 55 million, or 60 % of the net proceeds, to fund the costs of expandinginternational operations—specifically OEM/ODM manufacturing and related services in ASEAN, productmarketing and sales, product registration, and the development of trading and health-food networks in ASEAN;HKD 37 million, or 40 % of the net proceeds, for general working capital and, when opportunities arise, for futureinvestments or expansion by YNBY International.

Following the completion of the placement, the total issued share capital of YNBY International rose from6,799,914,160 shares to 7,599,914,160 shares. The Company continues to hold 5,009,936,360 shares of YNBYInternational, representing 65.92 % of the total issued share capital of YNBY International.

2. The first batch of toothpaste branded “Yunnan Baiyao” produced by YNBY Internationallaunched for sale

The first batch of toothpaste branded “Yunnan Baiyao,” manufactured in Thailand by the Company’scontrolled subsidiary YNBY International, has been successfully delivered to and sold through its customers. This

marks the first time a “Yunnan Baiyao” branded toothpaste produced outside Mainland China has entered themarket.YNBY International has verified that the lot meets all stipulated quality standards and specifications and fullycomplies with relevant industry regulations. YNBY International will continue to monitor production and maintainrigorous quality-control measures to honor its commitments.

Section VI Changes in Shareholdings and Particulars about

ShareholdersI. Changes in Shares

1. Changes in shares

Unit: share

listed foreignshares

Reasons for changes in shareholdings?Applicable ?Not applicableApproval of changes in shareholdings?Applicable ?Not applicableTransfers for changes in shareholdings?Applicable ?Not applicableProgress of share repurchase implementation?Applicable ?Not applicableProgress of the implementation of the reduction and repurchase of shares through centralized bidding?Applicable ?Not applicableThe impact of changes in shareholdings on financial indicators such as basic and diluted earnings per share, net assets per shareattributable to the Company’s ordinary shareholders for the latest year and period

?Applicable ?Not applicableOther disclosures the Company deems necessary or required by securities regulators?Applicable ?Not applicable

2. Changes in shares subject to trading moratorium

?Applicable □Not applicable

Unit: share

held by seniormanagement

II. Issuance and Listing of Securities

?Applicable ?Not applicableIII. Number of Shareholders of the Company and Their Shareholdings

Unit: Share

New HuaduIndustrial Group Co.,Ltd.

New Huadu Industrial Group Co., Ltd.

Shareholders holding more than 5% of shares, top 10 shareholders and top 10 shareholders not subject to trading moratoriumparticipating in the lending of shares in the securities finance

□Applicable ?Not applicable

Changes in top 10 shareholders and top 10 shareholders with shares not subject to trading moratorium compared to the previous perioddue to lending/returning of shares in the securities finance

□Applicable ? Not applicable

Whether the top 10 ordinary shareholders and the top 10 ordinary shareholders not subject to trading moratorium of the Companyconducted any agreed repurchase transactions during the reporting period

□Yes ? No

The top 10 ordinary shareholders and the top 10 ordinary shareholders not subject to trading moratorium of the Company did notconduct any agreed repurchase transactions during the reporting period.IV. Changes in Shareholdings of Directors, Supervisors and Senior Management

□Applicable ? Not applicable

There was no change in the shareholdings of the directors, supervisors, and senior management of the Company during the reportingperiod. For details, please refer to the 2024 Annual Report.

V. Changes in Controlling Shareholders or De Facto ControllersChanges in controlling shareholders during the reporting period

□Applicable ? Not applicable

There was no change in the controlling shareholders of the Company during the reporting period.Change of de facto controllers during the reporting period

□Applicable ? Not applicable

There was no change in the de facto controllers of the Company during the reporting period.

VI. Preference Shares

?Applicable ? Not applicableThere were no preference shares in the Company during the reporting period.

Section VII Bonds

?Applicable ?Not applicable

Section VIII Financial Statements

I. Auditors’ ReportWhether the Interim Report has been audited

□Yes ? No

The Company’s interim financial statements were unaudited.II. Financial StatementsThe units in the Notes to the Financial Statements are presented in RMB.

1. Consolidated balance sheet

Prepared by: Yunnan Baiyao Group Co., Ltd.

June 30, 2025

Unit: RMB

Non-current assets:

Acting underwriting of securities

Total owners’ equity attributable toparent company

Legal representative: Dong Ming Accounting officer: Ma Jia Head of accounting center: Xu Jing

2. Balance sheet of parent company

Unit: RMB

Right-of-use assets

Other non-current liabilities

3. Consolidated income statement

Unit: RMB

Including: Interest expenses

2. Changes in fair value of other debt investments

Net profit realized by the combined party in business combination under common control before the business combination in thecurrent period was RMB 0.00, and net profit realized by the combined party in the previous period was RMB 0.00Legal representative: Dong Ming Accounting officer: Ma Jia Head of accounting center: Xu Jing

4. Income statement of parent company

Unit: RMB

Asset impairment losses (loss is indicated with “-”)

5. Consolidated cash flow statement

Unit: RMB

Net increase in customer deposits and placements fromfinancial institutions

Other cash paid relating to investment activities

6. Cash flow statement of parent company

Unit: RMB

Cash received from disposal of investments

7. Consolidated statement of changes in owners’ equity

Amount for the current period

Unit: RMB

3. Distribution to owners

(or shareholders)

Amount for the previous year

Unit: RMB

surplus reserves

8. Statement of changes in owners’ equity of parent company

Amount for the current period

Unit: RMB

1. Transfer of capital reserves to

capital (or share capital)

Amount for the previous year

Unit: RMB

III. Basic Information of the Company

1. Place of registration, form of organization and address of headquarters of the CompanyThe registered address of Yunnan Baiyao Group Co., Ltd is No.3686 Yunnan Baiyao Street, ChenggongDistrict, Kunming, Yunnan Province. The Company is established as a joint-stock limited company with its headoffice located at No.3686 Yunnan Baiyao Street, Chenggong District, Kunming, Yunnan Province.

2. History of the Company

The Company was formerly known as Yunnan Baiyao Factory, which was established in June 1971. On May3, 1993, Yunnan Provincial System Reform Committee approved the establishment of Yunnan Baiyao IndustrialCo., Ltd in the Document Yun Ti Gai [1993] No.48. The Company’s sponsors were Yunnan Baiyao Factory,Yunnan Fudian Trust and Investment Company and Lianjiang International Trade Co., Ltd. On June 18, 1993,the Economic System Reform Commission and the Planning Commission of Yunnan Province jointly issued theDocument Yun Ti Gai [1993] No.74 to approve the Company’s public offering of RMB 20 million of individualshares (in the par value of the shares). On June 24, 1993, the Administration of State-owned Assets of YunnanProvince issued the Document Yun Guo Zi Zi (1993) No.37 to confirm the appraisal results of Yunnan BaiyaoFactory and decided to set up RMB 40 million of national capital stock, amounting to 40 million shares. YunnanBaiyao Industrial Co., Ltd was approved by CSRC under the Document Zheng Jian Fa Shen Zi (1993) No.55 toissue 20 million RMB-denominated ordinary shares to the public. Yunnan Baiyao issued 20 million shares to thepublic in November 1993, of which 18 million shares were issued to the public individuals and 2 million sharesto the Company’s internal employees.On November 30, 1993, the Company was registered as a joint-stock limited company with theAdministration for Industry and Commerce of Yunnan Province, and on December 15, 1993, the public sharesissued by the Company were listed on the Shenzhen Stock Exchange, with a total share capital of 80 millionshares and a stock code of “000538.”

In accordance with the resolutions passed at the third Extraordinary General Meeting of the fifth Board ofDirectors of the Company in 2008 on August 11, 2008, and at the first Extraordinary General Meeting of theCompany in 2008 on August 27, 2008, and the approval by the CSRC on the Document (2008) No.1411 Reply onApproving the Private Issuance of Shares of Yunnan Baiyao Group Co., Ltd, the Company issued 50,000,000 newshares to Ping An Life Insurance Company of China Limited in a private offering, raising funds of RMB1,393,500,000.00 (including issuance expenses), all of which were subscribed in cash. The share capital of theCompany increased from 484,051,138 shares to 534,051,138 shares after the implementation of the aboveprivate offerings.

In accordance with the 2009 Annual Equity Distribution Plan approved at the General Meeting of the Companyin May 2010, 3 shares were issued to all shareholders from the capital reserve as a bonus for every 10 shares held.The Company’s share capital amounted to 534,051,138 shares prior to the distribution, and the total share capitalincreased to 694,266,479 shares after the distribution.

The 2013 Annual General Meeting was held on May 8, 2014, and in accordance with the resolution of themeeting and the amended articles of association, the shareholders of the Company increased the registered capitalby RMB 347,133,239.00. The newly registered capital would be increased by the distribution of 5 bonus shares for

every 10 shares to all shareholders based on the Company’s existing total share capital of 694,266,479 shares. Afterthe change, the share capital of the Company increased from 694,266,479 shares to 1,041,399,718 shares.The Company underwent a merger and overall listing with Baiyao Holdings by issuing shares to threeshareholders of Baiyao Holdings: SASAC of Yunnan Province, New Huadu and Jiangsu Yuyue. This merger andoverall listing were successfully completed on June 1, 2019, with the Company as the existing entity. As a result,the Company acquired all the assets, liabilities, businesses, contracts, and other rights and obligations of BaiyaoHoldings. Following the completion of the transaction, the 432,426,597 shares of the listed company previouslyheld by Baiyao Holdings were canceled. The merger and overall listing brought in a newly registered capital ofRMB 236,003,599.00, and the Company’s total share capital amounted to RMB 1,277,403,317.00 after this change.A total of 236,003,599 newly issued shares subject to trading moratorium were issued, with a listing date of July 3,2019, and the shares were listed on the Shenzhen Stock Exchange. Upon completion of this transaction, SASAC ofYunnan Province and New Huadu with its acting-in-concert parties, were equally the largest shareholder of theCompany, and neither of them obtained control over the Company.

On May 22, 2020, SASAC of Yunnan Province transferred its 321,160,222 shares of the Company to State-owned Equity Management Company at nil consideration. Upon completion of this transfer, State-owned EquityManagement Company and New Huadu with its acting-in-concert parties, were equally the largest shareholder ofthe Company, and there was no change in the Company’s situation of not having a de facto controller or controllingshareholder.

On December 8, 2021, SASAC of Yunnan Province transferred 100% of its shares of State-owned EquityManagement Company into Yunnan Investment Group. After the equity transfer, Yunnan Investment Group held321,160,222 shares of the Company through the State-owned Equity Management Company, accounting for 25.04%of the total share capital of the Company. State-owned Equity Management Company and New Huadu with its acting-in-concert parties, were equally the largest shareholder of the Company, and there was no change in the Company’ssituation of not having a de facto controller or controlling shareholder.

On April 20, 2022, the Company’s 2021 Annual Equity Distribution Plan had been considered and approvedat the Company’s 2021 Annual General Meeting, and the details of 2021 Annual Equity Distribution Plan were asfollows: Based on the total share capital on the equity registration date when the distribution plan was implementedin the future, a cash dividend of RMB 16.00 (including tax) for every 10 shares and 4.00 bonus shares (includingtax) for every 10 shares would be distributed to all shareholders, and there would be no conversion of share capitalfrom the capital reserve. On April 21, 2020, the fourth session of the ninth Board of Directors of the Company in2020 and the third session of the ninth Supervisory Committee of the Company in 2020 respectively consideredand approved the Proposal on Granting Stock Options (Initially Granted Part) to Incentive Participants of the 2020Equity Incentive Plan. As of December 31, 2022, the Company had completed distributing dividends of513,206,278 shares and stock exercises of 941,029 shares, increasing its share capital to 1,796,862,549 shares.On April 23, 2024, the Company disclosed the Announcement on Completion of Cancellation of theRepurchased Shares and Changes in Shares (Announcement No. 2024-21). The Company completed thecancellation of the aforesaid 12,599,946 repurchased shares at the Shenzhen Branch of China Securities Depositoryand Clearing Corporation Limited on April 19, 2024. Upon completion of the cancellation of the shares repurchased,

the total number of shares of the Company was 1,784,262,603.00. The shares repurchased for cancellation will nothave a material impact on the Company’s financial condition and operating results.

As of June 30, 2025, the Company has a total capital of 1,784,262,603 shares, with 0 shares in treasury. Thesituation that the Company has no de facto controller and no controlling shareholder remain unchanged.

3. Business nature and principal businesses of the Company

The business nature and operating activities of the Company and its subsidiaries (collectively referred to asthe “Group”) mainly include: R&D, manufacturing, and sales of chemical APIs, chemical preparations, Chinesepatent medicines, TCM materials, biological products, medical devices, healthcare food, food, beverages, speciallabor protection products, non-household textile products, daily chemical products, cosmetics, outdoor products;Sales of rubber pastes, plasters, disinfectant products, electronic and digital products; Information technology,science and technology and economic and technological consulting services; Import and export of goods; Propertyoperation and management (carrying out business activities with qualification certificates), wholesale and retail ofdrugs, logistics and distribution, etc (For items that require approval according to law, business activities of theseprojects can only be carried out after approval by relevant departments).

4. These financial statements were approved for reporting by a resolution of the Board of Directors ofthe Company dated August 28, 2025.

As of June 30, 2025, there were 114 subsidiaries and structured entities included in the scope of the Group’sconsolidated financial statements. For details, please refer to Note IX “Interest in Other Entities.” The Group had3 new entities included in its consolidated financial statements compared to the end of the previous year. For details,please refer to Note IX “Changes in the Consolidation Scope.IV. Basis for Preparation of Financial Statements

1. Basis for preparation

The financial statements of the Group are prepared on the basis of going concern assumptions, based on actualtransactions and events that occur and in accordance with the Accounting Standards for Business Enterprises - BasicStandards issued by the Ministry of Finance (issued by Decree No. 33 of the Ministry of Finance, revised by DecreeNo. 76 of the Ministry of Finance), 40 specific accounting standards, Guidelines for the Application of AccountingStandards for Business Enterprises, interpretations of Accounting Standards for Business Enterprises and otherrelevant provisions promulgated and revised on and after February 15, 2006 (collectively “Accounting Standardsfor Business Enterprises” or “ASBEs”), as well the disclosure provisions of the Rules No.15 for Governing theDisclosure of Information by Companies Issuing Public Securities - General Provisions for Financial Reporting(Revised in 2023) issued by CSRC.

In accordance with the relevant provisions of the Accounting Standards for Business Enterprises, the Group’saccounting is based on the accrual basis. Except for certain financial instruments, these financial statements areprepared at historical cost. In case of asset impairment, provision for impairment would be made according to therelevant regulations.

2. Going concern basis

The Company and the Group evaluated their abilities to continue as a going concern for at least 12 monthsfrom the end of the reporting period and there are no material matters affecting their abilities to continue as a going

concern.

V．Significant Accounting Policies and Accounting EstimatesNotes on specific accounting policies and accounting estimates:

Based on the actual production and operation characteristics and in accordance with the provisions of relevantaccounting standards for enterprises, the Group has formulated a number of specific accounting policies andaccounting estimates for transactions and matters such as revenue recognition and R&D expenses. For details, seethe descriptions under Section 31 “Revenue” under this Note V. For the descriptions of significant accountingjudgments and estimates made by the management, please refer to Section 36 “Other Significant AccountingPolicies and Accounting Estimates” under this Note V.

1. Statement of compliance with the ASBEs

The financial statements prepared by the Company are in compliance with the requirements of the AccountingStandards for Business Enterprises (ASBEs), and have reflected truly and completely such relevant information asthe financial positions of the Company and the Group as of June 30, 2025 as well as the business results and cashflows of the Company and the Group for the first half of 2025. In addition, all significant aspects of the financialstatements of the Company and the Group also comply with the disclosure requirements about the financialstatements and their notes in the Rules No.15 for Governing the Disclosure of Information by Companies IssuingPublic Securities - General Provisions for Financial Reporting as amended by the CSRC in 2023.

2. Accounting period

The Group’s accounting periods are divided into annual and interim periods. An interim period refers to areporting period less than a full accounting year. The accounting year of the Group is the calendar year that startsfrom January 1 and ends on December 31.

3. Operating cycle

The normal operating cycle refers to the period from purchasing the assets for processing to realizing the cashor cash equivalents. The operating cycle of the Group consists of 12 months which is the standard of theclassification for the liquidity of the assets and liabilities.

4. Reporting currency

RMB is the currency used in the major economic environment where the Company and its domesticsubsidiaries operate. The reporting currency of the Company and its domestic subsidiaries is RMB. The Company’sforeign subsidiaries select HKD as their reporting currencies based on the currency of the primary economicenvironment in which they operate. The currency used by the Group in preparing the financial statements is RMB.

5. Determination method and selection basis of materiality standards

?Applicable□Not applicable

6. Accounting treatment for business combination under common control and not under common control

A business combination refers to the transaction or matter in which one reporting subject formed due to thecombination of two or above separate entities. A business combination can be classified as the combination undercommon control and not under common control.

(1) Business combination under common control

A business combination under common control is a business combination in which all of the combining entitiesare ultimately controlled by the same party or parties both before and after the combination, and that control is nottransitory. For a business combination under common control, the party that obtains the control of the other partieson the combination date is the acquirer, and other parties involving in the business combination are the acquirees.The combination date is the date on which the acquirer effectively obtains the control of the acquirees.

Assets and liabilities that are obtained by the acquirer in a business combination shall be measured at their bookvalue at the combination date as recorded by the acquirees. The difference between the book value of the net assetsobtained and the book value of the consideration paid by the acquirer for the combination (or the aggregate par valueof the issued shares) shall be adjusted to share premium under capital reserve (or capital premium). If the share

premium under capital reserve (or capital premium) is not sufficient to absorb the difference, any excess shall beadjusted against retained earnings.Expenses that are directly attributable to the business combination by the acquirer are charged to the currentprofits and losses in which they are incurred.

(2) Business combination not under common control

A business combination not under common control is a business combination in which all of the combiningentities are not ultimately controlled by the same party or parties both before and after the combination. For abusiness combination not under common control, the party that obtains the control of the other parties on theacquisition date is the acquirer; other parties involving in the business combination are the acquirees. The acquisitiondate is the date on which the acquirer effectively obtains control of the acquirees.For a business combination not under common control, the cost of business combination is the fair value ofassets paid, liabilities incurred or undertaken, and equity securities issued by the acquirer for obtaining the controlof the acquirees at the acquisition date. Expenses that are attributable to the business combination such as audit fees,legal services fees, consultancy fees and other administration expenses incurred by the Company as acquirer areexpensed in the current profits and losses in which they are incurred. Transaction fees of equity securities or debtsecurities issued by the acquirer as consideration for a business combination are included in the initially recognizedamount of equity securities or debt securities. Contingent consideration involved is recorded as the combination costat its fair value on the acquisition date. Should any new or further evidence in relation to the circumstances existingon the acquisition date arise within 12 months after the acquisition date, making it necessary to adjust the contingentconsideration, the goodwill arising from the business combination shall be adjusted accordingly. The cost ofcombination incurred and identifiable net assets obtained by the acquirer in a business combination are measured atfair value on the acquisition date. Where the cost of the combination exceeds the acquirer’s interest in the fair valueof the acquiree’s identifiable net assets on the acquisition date, the difference is recognized as goodwill; Where thecost of combination is lower than the acquirer’s interest in the fair value of the acquiree’s identifiable net assets onthe acquisition date, the difference is recognized in current profits and losses after a review of measurement for thefair value of identifiable assets, liabilities and contingent liabilities of the acquiree and the combination cost.In relation to the deductible temporary difference acquired from the acquiree, which was not recognized asdeferred tax assets due to non-fulfillment of the recognition criteria at the date of the acquisition, if new or furtherinformation that is obtained within 12 months after the acquisition date indicates that related conditions at theacquisition date already existed, and that the realization of the economic benefits brought by the deductibletemporary difference of the acquiree on the acquisition date can be expected, the relevant deferred tax assets shallbe recognized and goodwill shall be deducted accordingly. When the amount of goodwill is less than the deferredtax assets that shall be recognized, the difference shall be recognized in the current profits and losses. Except for theabove circumstances, deferred tax assets in relation to business combination are recognized in the current profitsand losses.For a business combination involving entities not under common control that is achieved in stages, theCompany shall determine whether the business combination shall be treated as “a bundle of transactions” in

accordance with the determination standards as contained in the Circular on the Publishment of Interpretation No.5on Accounting Standards for Business Enterprises Issued by the Ministry of Finance (Finance and Taxation (2012)No. 19) and Section 51 of Accounting Standards for Business Enterprises No.33 - Consolidated FinancialStatements (See Item (2) of Section 6 “Preparation of the consolidated financial statements” under this Note V).Where the business combination is treated as “a bundle of transactions,” the business combination shall be accountedfor in accordance with the previous paragraphs and Section 17 “Long-term equity investments” of this Note V;where the business combination does not fall within “a bundle of transactions,” the business combination in theCompany’s and the consolidated financial statements shall be accounted for as follows:

In the Company’s financial statements, the initial cost of the investment shall be the sum of the book value ofequity investment held in the acquiree prior to the acquisition date and the amount of additional investment made tothe acquiree at the acquisition date. Other comprehensive income relating to the equity interest held in the acquireeprior to the acquisition date shall be, upon disposal of the investment, accounted for in accordance with the samebasis as that the acquiree adopts in directly disposing of relevant assets or liabilities.In the consolidated financial statements, the equity interest held in the acquiree prior to the acquisition date isre-measured according to its fair value at the acquisition date; the difference between the fair value and the bookvalue is recognized as investment income for the current period. Other comprehensive income relating to the equityinterest held in the acquiree prior to the acquisition date shall be accounted for in accordance with the same basis asthat the acquiree adopts in directly disposing of relevant assets or liabilities.

7. Judgement criteria of control and preparation of consolidated financial statements

(1) Criteria for the recognition of scope of consolidated financial statements

The scope of consolidation shall be determined based on the concept of control. Control means that the Grouphas power over the investee, enjoys variable returns through its participation in the investee’s related activities, andhas the ability to use its power over the investee to influence the amount of its returns. The consolidated financialstatements comprise the financial statements of the Company and all of its subsidiaries, which are defined as thoseentities controlled by the Group.

Once any change in the facts and circumstances arises which leads to a change in the elements involved in thedefinition of control, the Group will conduct an assessment.

(2) Preparation of consolidated financial statements

Subsidiaries are consolidated from the date on which the Group obtains their net assets and actual control overtheir operating decisions, and are deconsolidated from the date when such control ceases. For subsidiaries beingdisposed of, the business results and cash flows prior to the date of disposal are duly included in the consolidatedincome statement and consolidated cash flow statement; for subsidiaries disposed of during the period, the openingbalances of the consolidated balance sheet would not be restated. For subsidiaries acquired from a businesscombination not under common control, their operating results and cash flows subsequent to the acquisition dateare included in the consolidated income statement and consolidated cash flow statement, and the opening balancesand comparative figures in the consolidated financial statements would not be restated. For subsidiaries acquiredfrom a business combination under common control and acquirees from a merger by absorption, their operating

results and cash flows from the date of commencement of the period in which the combination occurred to the dateof combination are included in the consolidated income statement and consolidated cash flow statement, and thecomparative figures in the consolidated financial statements would be restated.In preparing the consolidated financial statements, where the accounting policies or the accounting periods areinconsistent between the Company and subsidiaries, the financial statements of subsidiaries are adjusted inaccordance with the accounting policies and accounting period of the Company. For subsidiaries acquired from abusiness combination involving enterprises not under common control, the financial statements of the subsidiariesare adjusted based on the fair value of the identifiable net assets at the acquisition date.All significant intra-group balances, transactions and unrealized profits are offset in preparing the consolidatedfinancial statements.The portion of a subsidiary’s equity and the portion of a subsidiary’s net profits and losses for the period notattributable to the Company are recognized as minority interests and profits and losses attributable to minorityinterests respectively, which are presented under shareholders’ equity and net profit separately, in the consolidatedfinancial statement. A subsidiary’s net current profits and losses attributable to minority interests is recognized as“share of profits and losses of minority interests” under net profit in the consolidated income statement. When theamount of a subsidiary’s loss attributable to the minority shareholders exceeds the minority shareholders’ share ofthe opening balance of shareholders’ equity of the subsidiary, the excess is deducted from the minority interests.In event of loss of control over a former subsidiary due to disposal of certain equity investments or other reasons,any retained equity is re-measured at its fair value on the date when the control is lost. The surplus of the aggregateconsiderations received upon disposal of equity plus the fair value of any retained equity less the share of net assetsin the former subsidiary calculated cumulatively from the acquisition date based on the original shareholdingpercentage is included in the investment income for the period when the control is lost. Other comprehensive incomerelated to the equity investment in the former subsidiary shall be accounted for on the same basis at the time of lossof control as the subsidiary directly disposed of the related asset or liability. Then, the remaining equity shall bemeasured subsequently in accordance with the Accounting Standards for Business Enterprises No. 2 - Long-termEquity Investments or Accounting Standards for Business Enterprises No. 22 - The Recognition and Measurementof Financial Instruments and other regulations. For details, please see Section 17 “Long-term equity investments”or Section 11 “Financial instruments” under this Note V.

For disposal of the Group’s equity investments in a subsidiary in phases through multiple transactions untilloss of control, it is determined based on whether such transactions should be regarded as a bundle of transactions.If the terms, conditions and economic effects of all transactions are conducted for the purpose of disposing of theequity investments in a subsidiary and meet the following one or more criteria, it is usually shown that such multipletransactions are deemed as a bundle of transactions for accounting treatment: ① These transactions were enteredinto at the same time or upon the consideration of the effects therebetween; ② These transactions can only generateone complete business result when conducted all together; ③ The occurrence of one transaction depends on theoccurrence of at least one other transaction; and ④ One transaction alone is not economical, but is economical whenconsidered with other transactions. When the transactions do not constitute a bundle of transactions, each transaction

thereof shall be accounted in accordance with principles applicable to the “disposal of part of long-term equityinvestments in a subsidiary that does not result in the loss of control” (please see Item (2) ④ of Section 17 “Long-term equity investments” under this Note V for details) and “loss of control over a former subsidiary due to disposalof certain equity investments or other reasons” (please see the preceding paragraph for details). If such transactionsfall under a bundle of transactions, those transactions are accounted for as one deal under which the subsidiary isdisposed of and control is lost. However, before the control over the subsidiary is lost, the surplus betweenconsideration received for each disposal and the value of corresponding share of net assets in the subsidiary entitledby the investment underlying the disposal shall be recognized as other comprehensive income in the consolidatedfinancial statements, and, when control is lost, converted into investment income or loss for the period in whichcontrol is lost.

8. Classification of joint venture arrangements and accounting treatment method for joint operations

Joint venture arrangement means an arrangement under the common control of two or more parties. The Groupclassifies the joint venture arrangement into joint operations and joint ventures based on the rights and obligationsit enjoys and assumes in the joint venture arrangement. Joint operation means a joint venture arrangement in whichthe Group owns the assets and assumes the liabilities associated with the arrangement. Joint venture means a jointventure arrangement in which the Group only has rights to the net assets of the arrangement.

The Group’s investments in joint ventures are accounted for using the equity method and are treated inaccordance with the accounting policies described in Item (2) ② “Long-term equity investments accounted forusing the equity method” in Section 17 “Long-term equity investments” under this Note V.

For the joint operations, the Group, as a joint venture party, recognizes the assets and liabilities separately heldby the Group, as well as the assets and liabilities jointly held by the Group in accordance with the Group’s share;recognizes the income arising from the disposal of the Group’s share of joint operation output; recognizes the incomefrom the sale of outputs from joint operations based on the Group’s share; and recognizes the expenses incurred bythe Group alone and the expenses incurred based on the Group’s share in the joint operation.

When the Group, as a joint venture party, invests in or sells assets to the joint venture (which do not constitutea business, the same below), or purchases assets from the joint operation, the Group recognizes only those portionsof the profits and losses arising from the transaction that are attributable to other participants in the joint operation,prior to the sale of such assets to a third party. In the event that such assets incur asset impairment losses inaccordance with the provisions of Accounting Standard for Enterprises No. 8 - Asset Impairment, the Group willfully recognize such losses if the assets are invested or sold by the Group to the joint operation; In the case of assetspurchased by the Group from the joint operation, the Group will recognize such losses on the basis of its share ofcommitment.

9. Determination standards for cash and cash equivalents

Cash and cash equivalents of the Group include the cash on hand, deposits that can be used for payment at anytime, the investments that are held for a short period of time (generally maturing within three months from the dateof purchase) which are highly liquid, easily convertible to known amounts of cash, and having minimal risk ofchanges in value.

10. Foreign currency business and foreign currency statement translation

The method for determining the conversion exchange rate in foreign currency transactionsUpon initial recognition, the foreign currency transactions of the Group are converted into the amount ofreporting currency according to the spot exchange rate of the trading day (usually referring to the median price ofthe foreign exchange rate of the day published by the People’s Bank of China, the same below).

(1) Translation of foreign currency monetary items and foreign currency non-monetary itemsOn the balance sheet date, if the foreign currency monetary items are translated at the spot rate of the balancesheet date, the resulting exchange difference, except for ① Exchange differences arising from special loans inforeign currencies related to the acquisition and construction of assets eligible for capitalization, which shall betreated in accordance with the principle of capitalization of borrowing costs; ② Exchange differences of hedginginstruments used to operate effective hedging of net investment abroad (this difference is included in othercomprehensive income and is not recognized as current profits and losses until the net investment is disposed of)and ③ foreign currency monetary items classified as measured at fair value through other comprehensive income,shall be recorded into current profits and losses, provided that exchange differences resulting from changes in otherbook balances other than amortized costs (including impairment) shall be recorded in other comprehensive income.The non-monetary foreign currency items measured at historical cost shall be measured at the amount ofreporting currency that is translated into based on the spot rate on the transaction date. For non-monetary foreigncurrency items measured at fair value, the exchange rate prevailing at the date when the fair value is determined isused for translation, and the difference between the translated amount of the reporting currency and the originalamount of the reporting currency shall be treated as the change in fair value (including change of exchange rate) andrecorded in current profits and losses or recognized as other comprehensive income.

(2) Translation of foreign currency financial statement

Foreign currency financial statements of overseas operations are translated into RMB statements in thefollowing ways: The items of assets and liabilities in the balance sheet were translated at the spot exchange rate onthe balance sheet date. The shareholders’ equity items are translated at the spot rate at the time of occurrence exceptfor the “undistributed profit” items. The income and expense items in the income statement are converted using theaverage exchange rate of the current period on the date of occurrence of the transaction. The undistributed profit atthe beginning of the year is the undistributed profit at the end of the year after the conversion of the previous year;The undistributed profit at the end of the period is calculated and shown on the basis of each item of profitdistribution after translation; The difference between the total amount of asset items and liability items andshareholders’ equity items after translation is treated as the difference in the translation of foreign currencystatements and recognized as other comprehensive income. Upon disposal of an overseas operation and loss ofcontrol, the conversion difference of the foreign currency statement related to the overseas operation, as shownunder the shareholders’ equity item in the balance sheet, shall be transferred to the profits and losses of the disposalof the current period in full or in proportion to the disposal of the overseas operation.Foreign currency cash flow and cash flow of overseas subsidiaries shall be translated at the spot exchange ratein the period when the cash flow is generated. The effect of exchange rate changes on cash is presented separately

in the cash flow statement as an adjustment item.The figures for the beginning of the year and the actual figures for the previous year are presented in accordancewith the amounts of the financial statements of the previous year after translation.Upon the disposal of all the owners’ equity of the Group’s overseas operations or the loss of control overoverseas operations due to the disposal of part of the equity investment or other reasons, the translation differenceof the foreign currency statement related to the owners’ equity of the overseas operations attributable to the parentcompany, as shown under the shareholders’ equity item in the balance sheet, shall be fully transferred to the profitsand losses of the disposal period.

When part of the equity investment is disposed of or the proportion of overseas operating interest is reducedfor other reasons but the control of overseas operations is not lost, the difference in the translation of foreign currencystatements related to the disposal part of the overseas operation will be attributed to the minority shareholders’equity and will not be transferred to the current profits and losses. Upon disposal of part of the equity of the overseasoperation as an associate or joint venture, the translation difference of the foreign currency statement related to theoverseas operation shall be transferred to the profits and losses of the disposal period in proportion to the disposalof the overseas operation.

If there are foreign currency monetary items that substantially constitute net investments in overseas operations,the exchange difference resulting from changes in exchange rates shall be recognized as other comprehensiveincome in the consolidated financial statements as “translation difference in foreign currency statements;” Upondisposal of the overseas operations, it shall be included in the profits and losses of the disposal period.

11. Financial instruments

When the Group becomes a party to a financial instrument contract, it shall recognize a financial asset orfinancial liability.

(1) Classification, recognition and measurement of financial assets

The Group has classified the financial assets as financial assets at amortized cost; financial assets at fair valuethrough other comprehensive income and financial assets at fair value through profits and losses based on thebusiness model for managing financial assets and the contractual cash flow characteristics of the financial assets.

Financial assets are measured at fair value on initial recognition. For financial assets at fair value through profitsand losses, the related transaction costs are recognized directly in profits and losses; and for other categories offinancial assets, the related transaction costs are recognized in initial recognition amounts. For the accountsreceivable or notes receivable arising from the sale of products or the provision of services that do not contain ortake into account a significant financing component, the amount of consideration to which the Group is expected tobe entitled shall be taken as the initial recognition amount.

① Financial assets at amortized cost

The Group’s business model of managing financial assets at amortized cost is aimed at the collection ofcontractual cash flows, and the contractual cash flow characteristics of such financial assets are consistent with thebasic borrowing arrangement, that is, the cash flows generated on a specific date are only payments of principal and

interest based on the outstanding principal amount. For such financial assets, the effective interest rate method isused for subsequent measurement at amortized cost, and any profits or losses arising from amortization orimpairment is included in the current profits and losses.

② Financial assets at fair value through other comprehensive income

The Group’s business model of managing such financial assets is aimed at the collection and disposal ofcontractual cash flows, and the contractual cash flow characteristics of such financial assets are consistent with thebasic borrowing arrangement. The Group measures such financial assets at fair value and their changes arerecognized in other comprehensive income, but impairment losses or gains, exchange profits and losses and interestincome calculated under the effective interest rate method are recognized in current profits and losses.In addition, the Group has designated certain non-trading equity instrument investments as financial assets atfair value through other comprehensive income. The Group recognizes the relevant dividend income of suchfinancial assets in current profits and losses and the fair value changes in other comprehensive income. Upon thederecognition of the financial assets, the accumulated profits and losses previously recognized in othercomprehensive income are transferred from other comprehensive income to retained earnings and are not recognizedin the current profits and losses.

③ Financial assets at fair value through profits and losses

The Group’s financial assets other than those at amortized cost and those at fair value through othercomprehensive income as described above are classified as financial assets at fair value through profits and losses.In addition, at the time of initial recognition, in order to eliminate or significantly reduce accounting misalignments,the Group designated certain financial assets as financial assets at fair value through profits and losses. Suchfinancial assets are subsequently measured at fair value, with changes in fair value recognized in the current profitsand losses.

(2) Classification, recognition and measurement of financial liabilities

Financial liabilities are classified as financial liabilities at fair value through profits and losses and otherfinancial liabilities at the time of initial recognition. For financial liabilities at fair value through profits and losses,the related transaction costs are recognized directly in profits or losses, and for other financial liabilities, the relatedtransaction costs are recognized in their initial recognition amounts.

① Financial liabilities at fair value through profits and losses

The financial liabilities at fair value through profits and losses include financial liabilities held for trading(including derivatives that are financial liabilities) and those designated as financial liabilities at fair value throughprofits and losses at the initial recognition.

Financial liabilities held for trading (including derivatives that are financial liabilities) are subsequentlymeasured at fair value, with changes in fair value recognized in current profits and losses, except for those relatedto hedge accounting.

For those designated as financial liabilities at fair value through profits and losses, the change in fair value ofsuch liabilities caused by changes in the Group’s own credit risk is included in other comprehensive income, and

the cumulative change in its fair value caused by changes in its own credit risk included in other comprehensiveincome is transferred to retained earnings when such liabilities are derecognized. Other changes in fair value areincluded in current profits and losses. If the treatment of the effect of the change in the credit risk of the financialliabilities in the manner described above would cause or widen the accounting mismatch in profits and losses, theGroup would recognize the full profits or losses of the financial liabilities (including the amount affected by thechange in the credit risk of the enterprise) in the current profits and losses.

② Other financial liabilities

Financial liabilities other than those resulting from the transfer of financial assets that does not meet theconditions for derecognition or continues to be involved in the transfer of financial assets, and other financialliabilities excluding financial guarantee contracts are classified as financial liabilities at amortized cost, which aresubsequently measured at amortized cost, and the profits and losses resulting from the derecognition or amortizationare included in current profits and losses.

(3) Recognition basis and measurement method for transfer of financial assets

A financial asset is derecognized if it meets any of the following conditions: ① The contractual right to receivethe cash flow of the financial asset is terminated; ② The financial asset has been transferred, and substantially allthe risks and returns of ownership of the financial asset have been transferred to the transferee; ③ The financialasset has been transferred, substantially all the risks and returns of ownership of the financial asset have neither beentransferred nor retained, but the control over the financial asset has been relinquished.

If neither substantially all the risks and returns of ownership of a financial asset are transferred nor retained,and the control over the financial asset is not relinquished, the underlying financial asset shall be recognized to theextent of its continuing involvement in the transferred financial asset, and the related liability shall be recognizedaccordingly. The extent of continued involvement in the transferred financial asset is the level of risk to which theenterprise is exposed as a result of changes in the value of that financial asset.

If the overall transfer of financial assets meets the conditions for derecognition, the difference between thebook value of the transferred financial assets and the consideration received as a result of the transfer and thecumulative change in the fair value originally included in other comprehensive income is included in the currentprofits and losses.

If the partial transfer of financial assets meets the conditions for derecognition, the book value of the transferredfinancial assets shall be apportioned between the portion derecognized and the portion not for derecognitionaccording to their relative fair value. The difference between the sum of the consideration received as a result of thetransfer and the cumulative changes in fair value originally included in other comprehensive income that should beapportioned to the portion derecognized and the above-mentioned book value apportioned are recognized in currentprofits and losses.

If the Group sells the financial assets by recourse or makes endorsement transfer of the financial assets it holds,it is necessary to determine whether virtually all risks and returns in the ownership of the financial asset have beentransferred. If the Group has transferred substantially all the risks and returns related to the ownership of a financial

asset to the transferee, the Group shall derecognize the financial asset. If substantially all the risks and returns relatedto the ownership of a financial asset are retained, the financial assets shall not be derecognized. If substantially allthe risks and returns related to the ownership of the financial asset are neither transferred nor retained, whether theenterprise retains control of the asset shall be determined and accounting treatment shall be made in accordance withthe principles described in the preceding paragraphs.

(4) Derecognition of financial liabilities

A financial liability (or a portion thereof) is derecognized when the present obligation is discharged. If anagreement is entered into between the Group (the borrower) and the lender to replace the original financial liabilityby assuming a new financial liability, and the contractual terms of the new financial liability are materially differentfrom those of the original financial liability, the original financial liability is derecognized and the new financialliability is recognized at the same time. If the Group materially modifies the contractual terms of the originalfinancial liability (or part thereof), it shall derecognize the original financial liability and recognize a new financialliability in accordance with the modified terms.

If a financial liability is derecognized in whole or in part, the difference between the book value of thederecognized portion and the consideration paid (including non-cash assets transferred or liabilities assumed) isrecognized in current profits and losses.

(5) Offsetting of financial assets and financial liabilities

When the Group has the legal rights to offset the financial assets and financial liabilities whose amounts havebeen recognized, the legal rights are currently exercisable, and the Group plans to settle with net amount or realizethe financial asset and repay the financial liability simultaneously, the financial assets and financial liabilities canbe presented in the balance sheet with the net amount after they are mutually offset. Apart from this, financial assetsand financial liabilities shall be presented separately in the balance sheet and not be offset against each other.

(6) Methods for determining the fair value of financial assets and financial liabilities

Fair value is the price that a market participant would receive to sell an asset or pay to transfer a liability in anorderly transaction occurring on the measurement date. Regarding the financial instruments for which there is anactive market, the Group uses quoted prices in an active market to determine their fair values. A quoted price in anactive market is a price that is readily available on a regular basis from an exchange, broker, trade association,pricing service agency, etc., and represents the price of a market transaction that actually takes place in a fair trade.If there is no active market for the financial instrument, the Group uses valuation techniques to determine its fairvalue. The valuation techniques include reference to prices used in recent market transactions by the parties who arefamiliar with the situation and willing to deal, reference to the current fair value of other substantially identicalfinancial instruments, the discounted cash flow method, and option pricing models. In the valuation, the Group willadopt the valuation techniques applicable in the current situation and supported by sufficiently available data andother information, select the input values that are consistent with the characteristics of the asset or liabilityconsidered by market participants in the transaction of the relevant asset or liability, and give priority to the relevantobservable input values when possible. The non-observable input values will be used only when the relevantobservable input values are unavailable or not practicable to obtain.

(7) Equity instruments

Equity instruments are contracts that demonstrate ownership of the remaining interest in the Group’s assetsafter deducting all liabilities. The Group’s issuance (including refinancing), repurchase, sale or cancellation of equityinstruments is treated as changes in equity, and the transaction expenses related to equity transactions are deductedfrom equity. The Group does not recognize the changes in fair value of equity instruments.Dividends (including “interest” on instruments classified as equity instruments) distributed during the existenceof the Group’s equity instruments are treated as profit distributions.

(8) Impairment of financial assets

The financial assets for which the Group needs to recognize impairment losses are financial assets at amortizedcost, debt instruments at fair value through other comprehensive income, lease receivables, which mainly includenotes receivable, accounts receivable, receivables financing, other receivables, debt investments, other debtinvestments, long-term receivables, etc. In addition, for contractual assets and certain financial guarantee contracts,impairment provisions are made and credit impairment losses are recognized in accordance with the accountingpolicies described in this section.

① Recognition of provision for impairment losses

On the basis of expected credit losses, the Group makes an impairment provision and recognizes creditimpairment losses for each of the above items in accordance with its applicable expected credit losses measurementmethod (general method or simplified method).

Credit losses represent the difference between all contractual cash flows receivable under the contract and allcash flows expected to be received by the Group, discounted at the original effective interest rate, i.e., the presentvalue of all cash shortfalls. Financial assets purchased or originated by the Group that are credit impaired shall bediscounted at the credit-adjusted effective interest rate of the financial assets.

The general method of measurement of expected credit losses means that the Group assesses at each balancesheet date whether the credit risk of financial assets (including contractual assets and other applicable items, thesame below) has increased significantly since the initial recognition. If the credit risk has increased significantlysince the initial recognition, the Group measures the loss provision at an amount equivalent to the expected creditlosses over the entire duration; If credit risk does not increase significantly since the initial recognition, the Groupmeasures the loss provision at an amount equivalent to expected credit losses over the next 12 months. The Groupwill consider all the reasonable and evidence-based information, including forward-looking information, whenassessing expected credit losses.

For financial instruments with low credit risk on the balance sheet date, the Group assumes that their credit riskhas not increased significantly since initial recognition, and measures the provision for losses based on expectedcredit losses over the next 12 months.

② Criteria for determining whether credit risk has increased significantly since the initial recognition

If the probability of default of a financial asset during the estimated duration determined on the balance sheetdate is significantly higher than the probability of default during the estimated duration determined at the time of

initial recognition, it indicates that the credit risk of the financial asset has significantly increased. Except inexceptional circumstances, the Group uses the change in default risk occurring over the next 12 months as areasonable estimate of the change in default risk occurring over the duration to determine whether credit risk hasincreased significantly since the initial recognition.

③ The portfolio-based approach to assessing expected credit risk

The Group assesses credit risk individually for financial assets with significantly different credit risks, such asreceivables that are in dispute with other parties or involved in litigation or arbitration; or where there are clearindications that the debtor is likely to be unable to meet its repayment obligations.Apart from financial assets that are individually assessed for credit risk, the Group classifies financial assetsinto different groups based on common risk characteristics and assesses credit risk on a portfolio basis.

④ Accounting treatment of impairment of financial assets

At the end of the period, the Group will calculate the estimated credit losses of various financial assets, and ifthe estimated credit losses are greater than the book value of its current impairment provision, the difference isrecognized as an impairment loss; If it is less than the book value of the current impairment provision, the differenceis recognized as an impairment gain.

⑤ Determination of credit losses of various financial assets

a. Notes receivable

The Group measures the loss provision for notes receivable at the amount equivalent to expected credit lossesin the entire duration. Based on the credit risk characteristics of notes receivable, they are divided into differentportfolios:

b. Accounts receivable and contractual assets

For the accounts receivable and contractual assets that do not have a significant financing component, theGroup measures the loss provision at the amount equivalent to expected credit losses in the entire duration.

For the accounts receivable, contractual assets and lease receivables that have a significant financingcomponent, the Group chooses to always measure the loss provision at an amount equivalent to expected creditlosses over the duration.

Apart from the accounts receivable for single assessment of credit risk, they are divided into different portfoliosbased on their credit risk characteristics:

Item

Method for calculating aging years based on credit risk characteristics portfolio: The Group calculates the agingyears of accounts receivable based on the principle of First Occurrence, First Recovery.Recognition criteria for provision of bad debts of a single account receivable: The Group conducts separateimpairment tests on accounts receivable with significantly different credit risk characteristics, such as significantlydeteriorating credit status of the debtor, low possibility of future repayment, and credit impairment that has occurred.

c. Accounts receivable financing

Notes and accounts receivable measured at fair value through other comprehensive income are presented asaccounts receivable financing if their maturities are within one year (including one year) from the initial recognitiondate. The Group measures the loss provision at the amount equivalent to expected credit losses in the entire duration.

Apart from the accounts receivable financing for single assessment of credit risk, they are divided into differentportfolios based on their credit risk characteristics:

Method for calculating aging years based on credit risk characteristics portfolio: The Group calculates theaging years of accounts receivable based on the principle of First Occurrence, First Recovery.

Recognition criteria for provision of bad debts of a single account receivable: The Group conducts separateimpairment tests on accounts receivable with significantly different credit risk characteristics, such as significantlydeteriorating credit status of the debtor, low possibility of future repayment, and credit impairment that has occurred.

d. Other receivables

Based on whether the credit risk of other receivables has increased significantly since initial recognition, theGroup measures the loss provision at the amount equivalent to expected credit losses in the next 12 months or theentire duration. Apart from the other receivable for single assessment of credit risk, they are divided into differentportfolios based on their credit risk characteristics:

Method for calculating aging years based on credit risk characteristics portfolio: The Group calculates theaging years of accounts receivable based on the principle of First Occurrence, First Recovery.

Recognition criteria for provision of bad debts of a single account receivable: The Group conducts separateimpairment tests on accounts receivable with significantly different credit risk characteristics, such as significantlydeteriorating credit status of the debtor, low possibility of future repayment, and credit impairment that has occurred.

12. Notes receivable

Please refer to “11. Financial instruments.”

13. Accounts receivable

Please refer to “11. Financial instruments.”

14. Accounts receivable financing

Notes and accounts receivable at fair value through other comprehensive income are presented as accountsreceivable financing if their maturities are within one year (including one year) from the initial recognition date.The Notes and accounts receivable with the maturity of more than 1 year since the initial recognition date arepresented as other debt investments. For the relevant accounting policies, please refer to “11. Financial instruments”under this Note.

15. Other receivables

Method of determining expected credit losses on other receivables and the accounting treatment

Method of determining expected credit losses on other receivables and the accounting treatment

For the method of determining expected credit losses on other receivables and the accounting treatment, pleaserefer to “11. Financial instruments.”

16. Inventories

(1) Categories of inventories

Inventories mainly include raw materials, packaging and low-value consumable goods, products in process,goods in stock, consumable biological assets, development costs, development products, etc.

(2) Pricing of inventories

Inventories are initially measured at actual cost. The cost of inventories includes procurement cost, processingcost and other costs. Inventories are measured by the weighted average method upon delivery.

(3) Determination of net realizable value of inventories and method of making provision forinventory impairment

The net realizable value of inventories refers to the estimated selling price deducted by estimated costs untilthey are made into finished goods, estimated selling expense and relevant taxes in daily activities. The determinationof the net realizable value of inventories is based on conclusive evidence obtained, taking into account the purposefor which the inventories are held and the effect of events after the balance sheet date.

Inventories are measured at the lower of cost or net realizable value at the balance sheet date, and provisionfor their impairment shall be made when the net realizable value is below the cost of inventories. Provision forinventory impairment is made on the basis of the difference whereby the cost of one single inventory item exceedsits net realizable value. For inventories with large quantities and low unit prices, provision for inventory impairmentshall be made according to inventory categories. Inventories that are related to product series produced and sold inthe same region and have the same or similar end use or purpose, and are difficult to be documented separately fromother items that shall be combined for making provision for inventory impairment.

After provision for inventory impairment is made, if the factors that once resulted in the impairment disappear,leading to the net realizable value of inventories higher than their book value, the provision of inventory impairmentshall be reversed to the extent of provision previously made, and the reversed amount shall be recognized in currentprofits and losses.

(4) The inventory system shall be the perpetual inventory system.

(5) Amortization of low-value consumables and packaging materials

The low-value consumables and packaging materials are amortized using a one-off amortization method.

17. Long-term equity investments

Long-term equity investments in this section refers to any equity investment by which the Group has control,common control or significant influence over the investee. Long-term equity investments by which the Group doesnot have control, common control or significant influence over the investee are accounted for as financial assets atfair value through profits or losses. If they are non-trading, the Group may elect to designate them as financial assetsat fair value through other comprehensive income at the time of initial recognition. For the accounting policies,please refer to “11. Financial instruments” under Note IV.

Common control is the Group’s contractually agreed sharing of control over an arrangement, and the activitiesunder which must be decided by unanimous agreement from parties who share the control. Significant influence isthe power of the Group to participate in the decision-making for financial and operating policies of an investee, butnot to control or common control the formulation of such policies together with other parties.

(1) Determination of investment cost

For long-term equity investments acquired relating to business combination under common control, the initialinvestment cost is determined on the date of consolidation according to the percentage of shareholders/owners’equity from the combined party as a part of the book value of total shareholders/owners’ equity set forth in theconsolidated financial statements of the ultimate controlling party. The difference between the said initialinvestment cost and the sum of cash being paid, non-cash assets being transferred and book value of liabilities beingassumed shall be adjusted against the capital reserve; or, in case of insufficient capital reserve to cover the difference,against the retained earnings accordingly. In case that the consideration of the business combination is satisfied byissuing equity securities, the initial investment cost of the long-term equity investments is determined on the dateof consolidation according to the percentage of shareholders’ equity from the combined party as a part of the bookvalue of total shareholders’ equity set forth in the consolidated financial statements of the ultimate controlling party.With the sum of par values of shares being issued as the share capital, the difference between the said initialinvestment cost and the sum of par values of shares being issued shall be adjusted against the capital reserve; or, incase of insufficient capital reserve to cover the difference, against the retained earnings accordingly. Where abusiness combination under common control is achieved by acquiring the equity of a combined party under commoncontrol in phases through multiple transactions, following policies shall apply depending on whether thosetransactions are “a bundle of transactions”: if so, the Company shall account for all transactions together as the onedeal to obtain the control; if not, the initial investment cost of the long-term equity investments shall be determinedon the date of consolidation according to the percentage of shareholders/owners’ equity from the combined party as

a part of the book value of total shareholders’ equity set forth in the consolidated financial statements of the ultimatecontrolling party, while the difference between the initial investment cost and the sum of book value of long-termequity investments before the consolidation and that of consideration newly paid to acquire additional equities onthe date of consolidation shall be adjusted against the capital reserve, or, in case of insufficient capital reserve tocover the difference, against retained earnings accordingly. Accounting treatment is currently not required for othercomprehensive income that has been recognized due to the adoption of equity method in accounting or theclassification as financial assets at fair value through other comprehensive income in respect of equity investmentsheld before the date of consolidation.For the long-term equity investments acquired relating to business combination not under common control, theinitial investment cost is the cost of combination on the date of acquisition which equals to the aggregate fair valueof assets transferred, liabilities incurred or assumed and equity securities issued by the acquirer. Where a businesscombination not under common control is achieved by acquiring the equity of a combined party under commoncontrol in phases through multiple transactions, following policies shall apply depending on whether thosetransactions are “a bundle of transactions”: if so, the Group shall account for all transactions together as the onedeal to obtain the control; if not, the initial investment cost of the long-term equity investments that is re-accountedfor using the cost method shall be the sum of book value of long-term equity investments previously held by theacquirer in the acquiree and new investment cost. Accounting treatment is currently not required for othercomprehensive income in respect of equity investments that have been accounted for using the equity method.

The intermediary expenses on items such as audit, legal service and valuation advisory for businesscombination and other related administrative expenses incurred by the combining party or acquirer are recognizedin current profits and losses upon their occurrence.Long-term equity investments other than those formed by business combination is initially measured at costwhich varies depending on the different ways of acquiring the long-term equity investments and is determined byconsidering the amount of actual cash paid by the Group, the fair value of the equity securities issued by the Group,the conventional value stipulated in the investment contract or agreement, the fair value or original book value ofthe assets surrendered in the non-cash and bank balance swap transaction, the fair value of the long-term equityinvestments itself, and etc. The expenses, taxes and other necessary expenses directly related to the acquisition ofthe long-term equity investments are also included in the investment cost. For additional long-term equityinvestments that entitles the Company with significant influence or common control but not control over the investee,its cost of investment is the sum of fair value of equity investments that have been held plus new cost of investmentpursuant to the Accounting Standards for Business Enterprises No. 22 - Recognition and Measurement of FinancialInstrument.

(2) Subsequent measurement and recognition method of profits and losses

A long-term equity investment with common control (excluding that constituting a joint venture) over orsignificant influence on the investee is accounted for by using the equity method, and a long-term equity investmentwith control over the investee is accounted for in the Company’s financial statements by using the cost method.

① Long-term equity investment accounted for with cost method

When a long-term equity investment is accounted for with cost method, its price is measured at initialinvestment cost, and when the long-term equity investment is added or disposed, its cost is adjusted accordingly.The cash dividend or profit declared by the investee, except for the cash dividend or profit declared but not yetgranted that is included in the price or consideration actually paid upon the acquisition of the investment, shall berecognized as investment income for the period.

② Long-term equity investment accounted for with equity method

When a long-term equity investment is accounted for with equity method and its initial investment cost ishigher than the proportion of fair value of the investee’s identifiable net assets attributable to the investor becauseof the investment, its initial cost shall not be adjusted; if lower, the difference shall be recognized in the currentprofits and losses, and its cost shall be adjusted accordingly.

When a long-term equity investment is accounted for with equity method, the investment income and othercomprehensive income arising therefrom are recognized in accordance with the proportion of net profits and lossesand other comprehensive income of the investee attributable to the investor, and the book value of long-term equityinvestments is adjusted accordingly; if any profit or cash dividend is declared by the investee, the book value oflong-term equity investments shall be reduced according to the part of profit or dividends attributable to the investor;if there is any other changes in shareholders’ equity other than net profits and losses, other comprehensive incomeand profit distribution, such change shall be adjusted against the book value of long-term equity investments andrecognized in the capital reserve. The Group recognizes its share of the investee’s net profits and losses based onfair value of the investee’s identifiable assets at the time of acquisition, after making appropriate adjustments to netprofits thereto. In case of any inconsistency between the accounting policies and accounting periods adopted by theinvestee and by the Group, the financial statements of the investee shall be adjusted in accordance with theaccounting policies and accounting periods of the Group, and the gain on investment and other comprehensiveincome shall be recognized accordingly. In respect of the transactions between the Group and its associates and jointventures in which the assets invested or disposed of are not part of the business, the share of unrealized profits andlosses arising from inter-group transactions shall be offset by the portion attributable to the Group, and the profitsand losses on investment shall be recognized accordingly. However, any unrealized loss arising from inter-grouptransactions between the Group and an investee is not offset to the extent that the loss is impairment loss of theassets transferred. Where the Group invests to its joint ventures or associates an asset forming part of a business,giving rise to the acquisition of a long-term equity investment by the investor without obtaining control, the initialinvestment cost of the additional long-term equity investments shall be recognized at fair value of the businessinvested. The difference between initial investment cost and book value of the business invested will be fullyincluded in current profits and losses. Where the Group disposes of an asset forming part of a business to itsassociates or joint ventures, the difference between the consideration received and the book value of the businessshall be fully included in current profits and losses. Where the Group acquires from its associates or joint venturesan asset forming part of a business, the profits or losses related to the transaction shall be accounted for andrecognized in accordance with the Accounting Standards for Business Enterprises No. 20 - Business Combination.

The Group’s share of net loss of the investee shall be recognized to the extent that the book value of the long-

term equity investment and any long-term equity that substantially forms part of the investor’s net investment in theinvestee are written down to zero. If the Group has to assume additional obligations to the loss of the investee, theestimated liabilities shall be recognized for the estimated obligation assumed and charged to investment loss for theperiod. Where the investee makes profits in subsequent periods, the Group shall re-recognize its share of the profitsafter setting off against the share of unrecognized losses.

③ Acquisition of minority interests

When preparing the consolidated financial statements, the Company adjusts the capital reserve and, if thecapital reserve is insufficient, adjusts the retained earnings based on the difference between the additional long-termequity investments arising on acquisition of minority interests and the Company’s share in the net assets of thesubsidiary accrued from the acquisition date (or consolidation date) in proportion to the additional shareholdings.

④ Disposal of long-term equity investments

In the consolidated financial statements, if the parent company disposes part of the long-term equity investmentin the subsidiary without losing its control, the difference between the disposal price and the Company’s share inthe net assets of the subsidiary attributable to the disposal of the long-term equity investment is recognized in theshareholders’ equity; if the parent company disposes part of the long-term equity investment in the subsidiaryresulting in the loss of its control over the subsidiary, the accounting treatment shall be in accordance with thepolicies as set out in Item (2) of Section 6 “Accounting treatment for business combination under common controland not under common control” under this Note V.

In other cases, upon the disposal of a long-term equity investment, the difference between the book value ofthe investment and the price received is recognized in the current profits and losses.

For a long-term equity investment that is accounted for using the equity method where the remaining equityafter disposal continues to be accounted for using the equity method, the portion of other comprehensive incomepreviously included in shareholder’s equity shall be treated in accordance with the same basis as the investee directlydisposes of relevant asset or liability on pro rata basis at the time of disposal. The owners’ equity recognized for thechange in owners’ equity of the investee other than net profits and losses, other comprehensive income and profitdistribution, shall be transferred to current profits and losses on pro rata basis.

For a long-term equity investment accounted for using the cost method where the remaining equity afterdisposal continues to be accounted for using cost method, other comprehensive income recognized using the equitymethod or in accordance with the standard for recognition and measurement of financial instruments prior to theacquisition of control over the investee shall be treated in accordance with the same basis as the investee directlydisposes of relevant asset or liability, and transferred to current profits and losses on pro rata basis. The change inowners’ equity recognized in net assets of the investee by using the equity method other than net profits and losses,other comprehensive income and profit distribution shall be transferred to current profits and losses on pro rata basis.

In preparing separate financial statements, if control is lost over the investee upon partial disposal of equityinvestment, the remaining equity with common control or an ability to impose a significant influence over theinvestee after disposal shall be accounted for using the equity method, and shall be adjusted as if it has been

accounted for using the equity method since it was acquired. The remaining equity without common control or anability to impose a significant influence over the investee after disposal shall be accounted for based on the standardfor recognition and measurement of financial instruments, and the difference between its fair value and book valueon the date of loss of control shall be included in current profits and losses. In respect of other comprehensive incomerecognized using the equity method or in accordance with the standard for recognition and measurement of financialinstruments prior to the acquisition of control over the investee, it shall be accounted for in accordance with thesame basis as the investee directly disposes of relevant asset or liability when the control is lost. The change inowners’ equity recognized in net assets of the investee by using the equity method other than net profits and losses,other comprehensive income and profit distribution shall be transferred to current profits and losses at the time whenthe control over investee is lost. Where the remaining equity after disposal is accounted for using the equity method,other comprehensive income and other owners’ equity shall be carried forward on pro rata basis. Where theremaining equity after disposal is accounted for in accordance with the standard for recognition and measurementof financial instruments, other comprehensive income and other owners’ equity shall be fully carried forward.

If the common control or significant influence of the Group over the investee is lost upon partial disposal ofequity investment, the remaining equity after disposal shall be accounted for in accordance with the standard forrecognition and measurement of financial instruments. The difference between its fair value and book value on thedate of loss of common control or significant influence shall be included in current profits and losses. For othercomprehensive income recognized previously for the equity investment using equity method, it shall be accountedfor in accordance with the same basis as the investee directly disposes of relevant asset or liability at the time whenthe equity method is ceased to be used. The owners’ equity recognized arising from the change in owners’ equity ofthe investee other than net profits and losses, other comprehensive income and profit distribution shall be transferredto current profits and losses at the time when the equity method is ceased to be used.

Where the Group disposes of its equity investment in a subsidiary in a series of transactions until the control islost, and such transactions form “a bundle of transactions,” each transaction shall be accounted for as a disposal ofequity investment of the subsidiary resulting in a loss of control. The difference between the consideration for eachtransaction and the book value of the long-term equity investment attributable to the equity interests disposed priorto loss of control shall be initially recognized as other comprehensive income, and upon loss of control, transferredto current profits and losses when the loss of control takes place.

18. Investment properties

Measurement model for investment propertyCost modelDepreciation or amortization method

Investment properties are real estate held for rental income or capital appreciation, or both, including land userights that have been leased, land use rights that are held and intended to be transferred after appreciation, andbuildings that have been leased. In addition, vacant buildings held by the Group for operating leases are reported asinvestment properties if the Board of Directors (or similar organization) makes a written resolution that they will beused for operating leases and the intention to hold them will not change in the near future.

Investment properties shall be initially measured at cost. The subsequent expenses related to investmentproperties shall be recognized as cost of the investment properties only if it is probable that economic benefitsassociated with the assets will flow to the Group and the cost of the assets can be measured reliably. Other subsequentexpenses shall be recognized in the current profits and losses when incurred.The Group uses the cost model for subsequent measurement of investment properties and depreciates oramortizes them according to the policies consistent with that for buildings or land use rights.For the method of impairment test and provision for impairment loss of investment properties, please refer toSection 25 “Impairment of long-term assets” under Note V.

When the purpose of an investment property changes to self-use, from the date of the change, the investmentproperty shall be reclassified as a fixed asset or intangible asset. When the purpose of a self-use property changesto earning rental income or capital appreciation, from the date of the change, the fixed asset or intangible asset shallbe reclassified as an investment property. Upon reclassification, for investment properties measured using the costmodel, the carrying value before reclassification is recognized as the carrying value after reclassification. Forinvestment properties measured using the fair value model, the fair value on the date of reclassification is recognizedas the carrying value after reclassification.

An investment property is derecognized upon disposal or when it is permanently withdrawn from use and nofuture economic benefits are expected from its disposal. The net proceeds from sale, transfer, retirement or damageof an investment property after its book value and related taxes and expenses are recognized in the current profitsand losses.

19. Fixed assets

(1) Recognition criteria

Fixed assets refer to the tangible assets held by the Company for producing goods, rendering services, rentingor operation and administration purposes with useful life of over one accounting year. The fixed assets arerecognized only when the economic interests related thereto are likely to flow into the Group and its cost can bemeasured reliably. The fixed assets are initially measured at cost with consideration of the impact of estimateddisposal costs.

(2) Depreciation method

The expected residual value refers to the anticipated condition of the fixed asset at the end of its estimateduseful life. It represents the estimated amount that the Group would receive from the disposal of the asset, net ofany expected disposal costs incurred.

(3) Impairment test method and provision for impairment of fixed assets

The impairment testing method and provision for impairment of fixed assets can be found in Section 25“Impairment of Long-term Assets” under Note V.

(4) Other information

Subsequent expenditures related to fixed assets that are expected to generate economic benefits and can bereliably measured are capitalized as part of the fixed asset's cost, and the carrying value of the replaced portion isderecognized. Other subsequent expenditures are recognized in the current period's income statement uponoccurrence.

When a fixed asset is classified as held for disposal or is expected to no longer generate economic benefitsthrough use or disposal, it is derecognized. Proceeds from the sale, transfer, scrapping, or destruction of fixed assets,net of their carrying value and related taxes, are recognized in the current period’s income statement.

The Group reviews the useful lives, estimated residual values, and depreciation methods of fixed assets at leastannually. Changes in these estimates are treated as changes in accounting estimates.

20. Construction in progress

The cost of construction in progress is measured according to the actual expense for the construction in progress,including all the necessary expenses incurred in the process of construction, borrowing costs to be capitalized beforethe project is ready for its intended use and other related costs.

The construction in progress is transferred to fixed assets after it is ready for its intended use.

For the method of impairment test and provision for impairment loss of construction in progress, please referto Section 25 “Impairment of long-term assets” under Note V.

21. Borrowing costs

Borrowing costs include interest on borrowings, amortization of discounts or premiums, ancillary costs, andexchange differences arising from foreign currency borrowings. Where the borrowing costs can be directlyattributable to the acquisition and construction or production activities of assets eligible for capitalization, it shallbe capitalized on the basis that the expense for the asset has already been incurred, the borrowing costs have beenincurred and the acquisition and construction or production activities necessary to prepare the asset for its intendeduse or for sale have already commenced; after the acquired or produced asset eligible for capitalization is availablefor its intended use or for sale, the capitalization shall be stopped. Other borrowing costs shall be recognized as

expenses at the time when they are incurred.The actual interest cost incurred in the period of specific-purpose borrowing net of any interest income fromthe borrowed funds not used and deposited in bank or any investment income from the temporary investment ofthose funds shall be capitalized; the amount of interest of general-purpose borrowings to be capitalized is determinedby multiplying the weighted average of the amounts of cumulative expenses on the asset over and above the amountsof specific-purpose borrowings by the capitalization rate of the corresponding general-purpose borrowings.Capitalization rate is calculated and determined based on the weighted average rate of general-purpose borrowings.During the capitalization period, exchange differences related to specific-purpose borrowings denominated inforeign currencies are fully capitalized; exchange differences related to general-purpose borrowings denominatedin foreign currencies are recognized in the current profits and losses.Assets eligible for capitalization refer to the fixed assets, investment properties, inventories and other assetsthat require a substantially long period of time of acquisition and construction or production activities for intendeduse or for sale.Where the acquisition and construction or production activities of an asset eligible for capitalization isinterrupted abnormally and the interruption period lasts for more than 3 months, the capitalization of the borrowingcosts shall be suspended until the acquisition and construction or production of the asset is resumed.

22. Biological assets

(1) Consumptive biological assets

Consumptive biological assets are the biological assets held for sale or harvested for agricultural products inthe future, including growing field crops, vegetables, timber stands and livestock stored for sale. Consumptivebiological assets shall be initially measured at cost. The cost of a consumptive biological asset that is cultivated,constructed, propagated or farmed by the Company is the necessary expense incurred before the asset isharvested/closed/sold/sold or placed in storage that is directly attributable to the asset, including borrowing coststhat are eligible for capitalization. Subsequent expenses such as management and feeding costs incurred afterharvesting/closing/storage of consumptive biological assets are included in current profits and losses.Consumptive biological assets are carried forward at book value using the weighted average method whenharvested or sold.On the balance sheet date, consumptive biological assets are measured at the lower of cost or net realizablevalue, and the provision for impairment of consumptive biological assets shall be calculated and recognized basedon the methods consistent with those for the recognition of the provision for inventory impairment. Where theimpairment factors disappear, the amount written down shall be restored and reversed from the original provisionfor depreciation, with the amount reversed recognized in the current profits and losses.

(2) Productive biological assets

Productive biological assets refer to the biological assets held for the purpose of producing agricultural products,providing services or leasing, including economic forests, firewood forests, production animals and draft animals.Productive biological assets shall be initially measured at cost. The cost of a self-created or propagated productive

biological asset is the necessary expense incurred before the asset achieves the intended purpose of production andoperation that can be directly attributable to the asset, including borrowing costs that meet the capitalizationconditions.The Group reviews the useful life and estimated net residual value of a productive biological asset and thedepreciation method applied at least at each year-end. Any change shall be accounted for as a change in accountingestimate.

The difference between the disposal proceeds from the sale, liquidation, death or destruction of productivebiological assets less their book value and related taxes and charges is included in the current profits and losses.The Group determines whether a productive biological asset has any signs of impairment on each balance sheetdate. If the asset shows signs of impairment, the recoverable amount is estimated. The recoverable amount isestimated on a single asset basis. If it is difficult to estimate the recoverable amount of a single asset, the recoverableamount of the asset group to which the asset belongs shall be determined. If the recoverable amount of an asset islower than its book value, the provision for asset impairment shall be made according to the difference and recordedin the current profits and losses.

Once the above asset impairment loss is recognized, it shall not be reversed in subsequent accounting periods.

If a productive biological asset changes its use and becomes a consumptive biological asset, the cost of thechange of use is determined at the book value at the time of the change of use. If the productive biological assetchanges its use and becomes a public welfare biological asset, whether there is any impairment is determined inaccordance with the provisions of Accounting Standard for Business Enterprises No. 8 - Asset Impairment. Whenan impairment occurs, an impairment provision shall be first made and then determined on the basis of the bookvalue after such provision is made.

23. Oil and gas assets

Not applicable.

24. Intangible assets

(1) Useful life and its basis for determination, estimate, amortization method or review procedure

An intangible asset is an identifiable non-monetary asset without physical substance owned or controlled bythe Group.

An intangible asset shall be initially measured at cost. The expenses incurred on an intangible asset shall berecognized as cost of the intangible asset only if it is probable that economic benefits associated with the asset willflow to the Group and the cost of the asset can be measured reliably. Other expenses shall be recognized in thecurrent profits and losses when incurred.

Land use right acquired shall normally be recognized as an intangible asset. For self-constructed buildings (e.g.plants), the expenses on the land use right and cost of the buildings shall be separately accounted for as an intangibleasset and fixed asset. For buildings and structures purchased, the purchase consideration shall be allocated amongthe land use right and the buildings on a reasonable basis. In case there is difficulty in making a reasonable allocation,the consideration shall be recognized in full as a fixed asset.

An intangible asset with a definite useful life is amortized on average and by stages using the straight linemethod by deducting the estimated net residual value and accrued provision for impairment loss from the originalvalue over the estimated useful life from the time when it is available for use. An intangible asset with an indefiniteuseful life is not amortized.During the end of the period, the Company shall check the useful life and the amortization method of intangibleassets with limited useful life and carry out accounting estimate change in case that a change happens. In addition,the Company shall check the useful life of intangible assets with indefinite useful life. If there are evidences showingthat the intangible assets can bring economic benefit for the Company within the foreseeable period, the Companyshall estimate the useful life and carry out amortization according to the amortization policy for intangible assetswith finite useful life.

The Group’s intangible assets include land use rights, software, franchise rights, patent technology, non-patenttechnology, and trademarks. The amortization periods and conditions for the main intangible assets are as follows:

① Land use rights are amortized over the remaining useful life specified in the land use right certificate, with

an average annual amortization period of 30-50 years. When the purchase price of land and buildings cannot

be reasonably allocated between land use rights and buildings, the entire amount is treated as fixed assets.

② Software, patent technology, and non-patent technology are amortized over the estimated useful life of 10

years, with an average annual amortization period.

③ Franchise rights are amortized over the estimated useful life of 30 years, with an average annual

amortization period.

(2) Scope of R&D expenses and related accounting treatment

The scope of our Company’s R&D expenses is primarily determined based on the Company’s R&D projects.It includes R&D personnel salaries, direct input costs, depreciation and amortization expenses, design and testingexpenses, outsourced R&D expenses, and other expenses.

The Group classifies the expense on an internal R&D project into expense at the research phase and expenseat the development phase.

Expense at the research phase is recognized in the current profits and losses when incurred.

Expense at the development phase is recognized as an intangible asset if all of the following conditions aresatisfied at the same time, and otherwise, it is recognized in the current profits and losses:

① It is technically feasible to complete the intangible asset so that it will be available for use or sale;

② It is intended to complete and to use or sell the intangible asset;

③ It can be demonstrated how the intangible asset will generate economic benefits, including demonstratingthat there is an existing market for products produced by the intangible asset or for the intangible asset itself, andthat it can be proven to be useful if the intangible asset is to be used internally;

④ There are adequate technical, financial and other resources to complete the development and the ability touse or sell the intangible assets;

⑤ The expense attributable to the intangible asset at its development phase can be reliably measured.All the expenses on R&D which cannot be distinguished between the research phase and development phaseare recognized in the profits and losses when incurred.The specific criteria for dividing internal R&D projects into research phase and development phase are asfollows: Once the corresponding project meets the aforementioned conditions and is approved through a reviewprocess, it enters the development phase and begins capitalization.

(3) The impairment testing method and provision for impairment of intangible assetsFor the impairment testing method and provision for impairment of intangible assets, please refer to Section25 of “Impairment of long-term assets” under Note V.

25. Impairment of long-term assets

For non-current non-financial assets such as fixed assets, construction in progress, right of use assets, intangibleassets with limited useful life, investment real estate measured at cost and long-term equity investments insubsidiaries, joint ventures and associates, the Group determines whether there are signs of impairment on thebalance sheet date. If the asset shows signs of impairment, the recoverable amount is estimated, and impairment testis conducted. Goodwill, intangible assets with indefinite useful lives and intangible assets that have not yet readyfor use are tested annually for impairment regardless of whether there is an indication of impairment.If the impairment test results show that the recoverable amount of an asset is lower than its carrying value, theimpairment provision shall be made and the impairment loss shall be recorded according to the difference. Therecoverable amount is the higher between the net value of the fair value of the asset less the disposal expense andthe present value of the estimated future cash flow of the asset. The fair value of the asset is determined based onthe sales agreement price in fair transactions. Where there is no sales agreement but there is an active market for theasset, the fair value shall be determined according to the buyer’s bid for the asset. Where there is neither salesagreement nor active market for the asset, the fair value of the asset is estimated based on the best informationavailable. Disposal costs include legal costs associated with the disposal of the asset, related taxes, removal costsand direct costs incurred to bring the asset to marketable status. The present value of the expected future cash flowof the asset shall be determined according to the discounted amount of the expected future cash flow generated bythe asset in the process of continuous use and final disposal, which is converted according to the appropriate discountrate. The asset impairment provision is calculated and recognized on a single asset basis. If it is difficult to estimatethe recoverable amount of a single asset, the recoverable amount of the asset group to which the asset belongs shallbe determined. An asset group is the smallest portfolio of assets that can independently generate cash inflows.For the goodwill presented separately in the financial statements, when tested for impairment, the book valueof goodwill will be apportioned to the asset group or combination of asset groups expected to benefit from thesynergies of the business combination. Where the test results indicate that the recoverable amount of an asset groupor combination of asset groups containing the apportioned goodwill is less than its book value, the correspondingimpairment loss is recognized. The impairment loss amount is first set off against the book value of the goodwillapportioned to the asset group or combination of asset groups and then set off against the book value of other assets

based on the proportion of the book value of each asset other than goodwill in the asset group or combination ofasset groups.Once the above asset impairment loss is recognized, it shall not be reversed in subsequent accounting periodsfor the part whose value is restored.

26. Long-term deferred expenses

Long-term unamortized expenses are the expenses that have been incurred but shall be borne in the reportingperiod and subsequent periods for a period of assessment of more than one year. The Group’s long-term deferredexpenses mainly consist of building renovations and project improvements. These long-term deferred expenses areamortized using the straight-line method over the estimated period of benefit.

27. Contractual liabilities

The contractual liabilities refer to the obligation of the Group to transfer goods to customers for considerationreceived or receivable. If the customer has paid the contractual consideration or the Group has obtained anunconditional right of collection prior to the transfer of goods by the Group to the customer, the Group presents theamount received or receivable as a contractual liability on the date when the actual payment is made by the customeror the payment due date, whichever is earlier. Contractual assets and contractual liabilities under the same contractare presented on a net basis, and contractual assets and contractual liabilities under different contracts are not offset.

28. Employee compensation

(1) Accounting treatment for short-term employee compensation

The employee compensation of the Group includes short-term compensation, post-employment benefits,termination benefits and other long-term employee benefits. Where:

Short-term compensation mainly includes wages, bonuses, allowances and subsidies, employee welfareexpenses, medical insurance premiums, maternity insurance premiums, work-related injury insurance premiums,housing provident funds, union funds and employee education funds, non-monetary benefits, etc. The Grouprecognizes short-term employee compensation actually incurred during the accounting period in which employeesprovide services to the Group as a liability and includes it in current profits and losses or related asset cost. Non-monetary benefits are measured at fair value.

(2) Accounting treatment for post-employment benefits

Post-employment benefits mainly include basic pension insurance, unemployment insurance and annuity. Thepost-employment benefits plan includes the establishment of a defined contribution plan and the establishment of adefined benefit plan. If a defined contribution plan is adopted, the corresponding amount due is included in therelevant asset cost or current profits and losses at the time of occurrence.

If the employment relationship with the employee is terminated before the expiration of the employee’semployment contract, or a compensation proposal is made to encourage the employee to voluntarily accept thereduction, the employee compensation liabilities arising from termination benefits shall be recognized and includedin current profits and losses when the Group cannot unilaterally withdraw the termination benefits provided as aresult of the termination plan or the reduction proposal, or the Group recognizes the costs associated with the

reorganization involving the payment of termination benefits, whichever is earlier. However, if the terminationbenefits cannot be fully paid within 12 months after the end of the annual reporting period, they shall be treated asother long-term employee compensations.

(3) Accounting treatment for termination benefits

Internal employee retirement plans are treated in the same way as the termination benefits mentioned above.The Group will recognize the salary of internal retirees and social insurance premiums to be paid during the periodfrom the date the employee ceases to provide service to the normal retirement date in the current profits and losses(termination benefits) when the conditions for recognition of the estimated liabilities are met.

(4) Accounting treatment for other long-term employee benefits

Other long-term employee benefits provided by the Group to employees that meet the defined contribution planare accounted for in accordance with the defined contribution plan. Other benefits shall be accounted for inaccordance with the defined benefit plan.

29. Estimated liabilities

An obligation relating to a contingency is recognized as an estimated liability when the following conditionsare met: (1) The obligation is a current obligation undertaken by the Group; (2) The performance of the obligationis likely to result in the outflow of economic benefits; (3) The amount of the obligation can be measured reliably.

On the balance sheet date, estimated liabilities are measured according to the best estimate of expenses requiredto meet the relevant current obligations, taking into account factors such as risks, uncertainties and the time valueof money associated with contingencies.

If all or part of the expenses required to pay off the estimated liabilities are expected to be compensated by athird party, the compensation amount shall be recognized separately as an asset when it is basically determined thatit can be received, and the recognized compensation amount shall not exceed the book value of the estimatedliabilities.

(1) Loss-making contract

A loss-making contract is a contract in which the cost of fulfilling the contractual obligation inevitably exceedsthe expected economic benefit. If the contract to be executed becomes a loss-making contract and the obligationsarising from the loss-making contract meet the conditions for recognition of the above-mentioned estimatedliabilities, the portion of the estimated loss of the contract exceeding the recognized impairment loss (if any) of theunderlying asset of the contract is recognized as an estimated liability.

(2) Reorganization obligation

For a detailed, formal reorganization plan that has been announced to the public, the estimated liability amountis determined on the basis of direct expenses related to the reorganization, subject to meeting the conditions forrecognition of the estimated liabilities described above.

30. Share-based payments

(1) Accounting treatment for share-based payment

Share-based payments are transactions in which equity instruments are granted or liabilities are assumed on

the basis of equity instruments in exchange for services rendered by employees or other parties. The share-basedpayments are divided into equity-settled share-based payment and cash-settled share-based payment.

① Equity-settled share-based payments

Equity-settled share-based payments in exchange for services rendered by employees shall be measured at daysthe fair value of the equity instruments granted to employees. For the equity-settled share-based payment that canonly be vested after services during a waiting period are provided, or required performance conditions are met, theamount of such fair value is calculated on a straight-line basis, based on the best estimate of the number of equityinstruments that can be vested during the waiting period, and is included in the relevant costs or expenses, or ifavailable immediately after grant, included in the relevant costs or expenses on the grant date, increasing capitalreserves accordingly.On each balance sheet date during the waiting period, the Group makes the best estimate based on the latestfollow-up information such as changes in the number of employees that satisfy vesting conditions, and revises thenumber of equity instruments expected to be vested. The impact of the above estimates is included in the relevantcosts or expenses for the period, and capital reserves are adjusted accordingly.The equity-settled share-based payments in exchange for services rendered by other parties shall be measuredat the fair value of the services on the acquisition date if the fair value of services rendered by other parties can bereliably measured. However, if the fair value of services rendered by other parties cannot be reliably measured, butthe fair value of the equity instruments can be reliably measured, the equity-settled share-based payments shall bemeasured at the fair value of the equity instruments on the acquisition date of the services, and included in therelevant costs or expenses, increasing shareholders’ equity correspondingly.When the fair value of equity instruments granted cannot be reliably measured, the intrinsic value of the equityinstruments is used to measure their value on the grant date, subsequent balance sheet dates, and settlement dates.Changes in the intrinsic value are recognized in the current period’s income statement.

② Cash-settled share-based payments

A cash-settled share-based payment shall be measured in accordance with the fair value of liability determinedbased on the shares or other equity instruments undertaken by the Group. If the cash-settled share-based paymentcan be vested immediately after granting, it shall be included in the relevant costs or expenses on the grant date,increasing the liabilities correspondingly. For the cash-settled share-based payment that can only be vested afterservices during a waiting period are provided or required performance conditions are met, on each balance sheetdate during the waiting period, the services obtained during the current period are included in the cost or expenseat the fair value of the liabilities assumed by the Group based on the best estimate of the situation of vesting,increasing the corresponding liabilities correspondingly.

The Group shall, on each balance sheet date and each account date prior to the settlement of the relevantliabilities, re-measure the fair values of the liabilities and include the changes in the current profits and losses.

(2)

Accounting treatment for modification and termination of share-based payment plan

When the Group makes a modification to the share-based payment plan, if the modification increases the fair

value of the equity instrument granted, the increase in services obtained is recognized in accordance with the increasein the fair value of the equity instrument. The increase in the fair value of equity instruments refers to the differencebetween fair values of the equity instruments before and after the modification on the date of modification. If amodification reduces the total fair value of share-based payments or is otherwise unfavorable to the employees, theacquired services continue to be accounted for as if the change never occurs, unless the Group cancels some or allof the equity instruments granted.

If a grant of equity instruments is canceled during the waiting period, the Group treats the cancellation of thegranted equity instruments as accelerated exercise of right and includes the amount to be recognized over theremaining waiting period in the current profits and losses immediately, and recognizes the capital reserve at thesame time. If employees or other parties can choose to meet the non-vesting conditions but have not met theconditions within the waiting period, the Group treats it as cancellation of equity instruments granted.(3)

Accounting treatment for share-based payment transactions involving the shareholders or de factocontrollers of the Group and Company

Transactions involving share payments between the shareholders or de facto controllers of the Group andCompany are accounted for in the Group’s consolidated financial statements in accordance with the followingprovisions if either one of the settlement enterprises and receiving enterprises is within the Group, while the otherone is outside the Group:

① If the settlement enterprise settles by its own equity instruments, the share-based payment transaction shallbe treated as the equity-settled share-based payment; otherwise, they shall be treated as the cash-settled share-basedpayment.

If the settlement enterprise is an investor of the enterprise receiving the services, it shall be recognized as along-term equity investment in the enterprise receiving the services according to the fair value of the equityinstrument on the grant date or the fair value of the liability assumed, and the capital reserve (other capital reserve)or liability shall be recognized at the same time.

② If the enterprise receiving the services has no settlement obligation or the equity instrument granted to itsemployees is its own equity instrument, the share-based payment transaction shall be treated as the equity-settledshare-based payment. If the enterprise receiving the services has settlement obligation and the equity instrumentgranted to its employees is not its own equity instrument, the share-based payment transaction shall be treated asthe cash-settled share-based payment.

For the share-based payment transaction occurring among the enterprises within the Group, where theenterprise receiving the services and the settlement enterprise are not the same enterprise, the recognition andmeasurement of the share-based payment transaction in the individual financial statements of the enterprisereceiving the services and the settlement enterprise shall be processed in accordance with the above principles.

31. Revenue

Disclose the accounting policies for revenue recognition and measurement by business type

Revenue is the total inflow of economic benefits arising from the Group’s ordinary activities that would result

in an increase in shareholders’ equity and are unrelated to capital contributions by shareholders. When the contractbetween the Group and the customer meets the following conditions, revenue is recognized when the customerobtains control of the relevant goods (including services, the same below) : The parties to the contract have approvedthe contract and undertake to perform their obligations; The contract specifies the rights and obligations of theparties to the contract in relation to the goods transferred or the provision of services; The contract has clear paymentterms related to the transferred goods; The contract is commercial in nature, i.e. the performance of the contract willchange the risk, timing or amount of the Group’s future cash flows; The consideration to which the Group is entitledas a result of the transfer of goods to customers is likely to be recovered. Gaining control of the relevant goodsmeans being able to dominate the use of that goods and derive almost all of the economic benefits from it.On the commencement date of the contract, the Group identifies the individual performance obligation existingin the contract and allocates the transaction price to each individual performance obligation in proportion to theindividual selling price of the goods promised by each individual performance obligation. Factors such as variableconsideration, significant financing elements in the contract, non-cash consideration, and consideration payable tocustomers are considered in determining the transaction price.For each individual performance obligation in the contract, the Group will recognize the transaction priceallocated to the individual performance obligation in accordance with the performance progress during the relevantperformance period as revenue if one of the following conditions is met: The customer acquires and consumes theeconomic benefits arising from the Group’s performance at the same time as the Group fulfills its obligations; Thecustomer can control the goods under construction in the course of the Group’s performance; The goods producedin the course of the Group’s performance have irreplaceable uses and the Group is entitled to receive paymentthroughout the contract period for the cumulative part of the performance completed to date. The performanceprogress is determined by the input or output method, depending on the nature of the goods transferred. When theperformance progress cannot be reasonably determined, and the costs incurred by the Group are expected to becompensated, revenue is recognized at the amount of the costs incurred until the progress of performance can bereasonably determined.

If one of the above conditions is not met, the Group recognizes revenue at the point at which the customerobtains control of the relevant goods at the transaction price apportioned to the individual performance obligation.In determining whether a customer has acquired control of the goods, the Group considers the following indications:

The enterprise has the current right of collection in respect of the goods, that is, the customer has the current paymentobligation in respect of the goods; The enterprise has transferred the legal ownership of the goods to the customer,that is, the customer has the legal ownership of the goods; The enterprise has physically transferred the goods to thecustomer, that is, the customer has physically possessed the goods; The enterprise has transferred the main risks andreturns in the ownership of the goods to the customer, that is, the customer has obtained the main risks and returnsin the ownership of the goods; The customer has accepted the goods; Other indications that the customer has takencontrol of the goods.

Revenue recognition principles for specific scenarios are as follows:

(1) Domestic sales:

Revenue is recognized when control is transferred to the customer upon delivering the products to thecustomer’s specified location and obtaining customer acknowledgement through a signed confirmation, as stipulatedin the sales contract or order.Revenue is recognized when control is transferred to the customer upon delivering the products to thecustomer’s specified location and completing the customer's inspection based on relevant standards, as stipulated inthe sales contract or order.Revenue is recognized when the services have been provided, and the right to collect service fees is obtained.

(2) International sales:

Revenue is recognized when control is transferred to the customer upon the products being dispatched andcustoms clearance procedures being completed, as stipulated in the sales contract or order.

Situations where similar businesses adopt different operation models involving different revenue recognition methods andmeasurement methods:

Not applicable.

32. Contract cost

Incremental cost incurred by the Group to acquire contract that is expected to be recovered is taken as thecontract acquisition cost and recognized as an asset. However, if the amortization period of the asset does not exceedone year, it is included in the current profits and losses when it occurs.

The cost incurred for the performance of the contract is recognized as an asset if it does not fall within thescope of Accounting Standard for Business Enterprises No. 14 - Revenue (Revised in 2017) and meets the followingconditions: ① The cost is directly related to a current or anticipated contract, including direct labor, direct materials,manufacturing expenses (or similar expenses), cost expressly borne by the customer, and other costs incurred solelyas a result of the contract; ② This cost increases the Group’s future resources to meet its performance obligations;

③ This cost is expected to be recovered.

Assets related to contract costs are amortized on the same basis as for the recognition of the commodity revenueassociated with the assets and are recognized in current profits and losses.

When the carrying amount of an asset related to contract costs exceeds the difference between the followingtwo amounts, an impairment provision is recognized for the excess amount, and an asset impairment loss isrecognized: (1) The expected remaining consideration to be obtained from transferring the goods related to that asset.

(2) The estimated costs necessary to complete the transfer of the related goods. If there is a change in the factorsthat led to impairment in previous periods, resulting in the difference between (1) minus (2) exceeding the carryingamount of the asset, the previously recognized impairment provision is reversed and recognized in the currentperiod’s income statement. However, the carrying amount of the asset after the reversal should not exceed thecarrying amount of the asset on the date of the reversal, assuming no impairment provision had been recognized.

33. Government subsidy

Government subsidy refers to the cash and bank balance and non-cash and bank balance that the Group obtainsfrom the government free of charge, excluding the capital invested by the government as an investor with the

corresponding owners’ equity. Government subsidies are divided into asset-related government subsidies andincome-related government subsidies. The Group defines government subsidies obtained for the acquisition orotherwise formation of long-term assets as asset-related government subsidies. Other government subsidies aredefined as income-related government subsidies. If the government document does not specify the recipients of thesubsidies, the subsidies divided into asset-related government subsidies and income-related government subsidiesin the following way: (1) If the government documents specify the specific project for which the subsidy is targeted,the division shall be made according to the relative proportion of the disbursement amount forming assets and thedisbursement amount included in the expenses in the budget of the specific project, and the division proportion shallbe reviewed on each balance sheet date and changed if necessary; (2) Where the government document only has ageneral description of the purpose and no specific project is specified, it shall be regarded as an income-relatedgovernment subsidy. For a government subsidy in the form of transfer of cash and bank balance, the subsidy ismeasured at the amount received or receivable. For a government subsidy in the form of transfer of non-cash andbank balance, it is measured at fair value; if the fair value cannot be reliably determinable, the subsidy is measuredat nominal amount. Government subsidies measured at nominal amounts are directly included in current profits andlosses.

The Group usually recognizes and measures government subsidies in accordance with the amount actuallyreceived when they are actually received. However, government subsidies are recognized at the amount receivableif there is evidence that the Group can meet the relevant conditions specified in the financial support policy at theend of the period and the Group is expected to receive the financial support funds. Government subsidies measuredat the amounts receivable shall also meet the following conditions: (1) The amount of the receivable subsidies hasbeen confirmed by the competent government department in writing, or can be reasonably calculated according tothe relevant provisions of the officially issued measures for the management of financial funds, and there is nosignificant uncertainty in the estimated amount; (2) It is based on the financial support projects and financial fundmanagement measures officially issued by the local financial department and actively disclosed in accordance withthe provisions of the Regulations on the Disclosure of Government Information, and the management measuresshould be inclusive (that is, any enterprise that meets the prescribed conditions can apply), rather than specificallyformulated for specific enterprises; (3) The relevant grant approval has clearly promised the disbursement period,and the disbursement of the amount is guaranteed by the corresponding financial budget, so it can be reasonablyguaranteed that it can be received within the specified period; (4) Other relevant conditions that should be met basedon the specific circumstances of the Group and the grant in question (if any).Asset-related government subsidies are recognized as deferred income and included in the current profits andlosses over the useful life of the related assets in accordance with a reasonable and systematic method. Income-related government subsidies that compensate the future costs, expenses or losses are recorded as deferred incomeand recognized in current profits and losses in the period in which the related costs, expenses or losses are recognized;Income-related government subsidies that compensate the incurred expenses or losses are included directly in thecurrent profits and losses.

For government subsidies that contain both parts related to assets and parts related to income, accounting

treatments shall be made separately for different parts. If it is difficult to distinguish, it shall be classified as theincome-related government subsidy.Government subsidies related to ordinary activities are recorded in other income in accordance the substanceof economic operations. Government subsidies unrelated to daily activities are included in non-operating revenueand expense.

When confirmed government subsidies need to be returned and there is a related balance of deferred income,the related deferred income balance is offset. Any excess amount is recognized in the current period’s incomestatement or adjusted against the carrying value of the asset (for government subsidies that were initially offsetagainst the carrying value of the asset); in other cases, it is recognized directly in the current profits and losses.

34. Deferred income tax assets/deferred income tax liabilities

(1) Current income tax

The current income tax liabilities (or assets) generated in the current period and previous periods are measuredon the balance sheet date in accordance with the expected payable (or refunded) income tax amount calculatedaccording to the tax law. The taxable income amount on which the current income tax expense is calculated is basedon the corresponding adjustment of the pre-tax accounting profit of the reporting period in accordance with therelevant provisions of the tax law.

(2) Deferred income tax assets and deferred income tax liabilities

The deferred income tax assets and deferred income tax liabilities can be determined with the balance sheetliability method, based on the difference between the book value of certain assets and liabilities and the tax basis,as well as the temporary difference between the tax basis and the book value of the items not recognized as assetsand liabilities but whose tax basis can be determined according to the tax law.

For taxable temporary differences relating to the initial recognition of goodwill and the initial recognition ofassets or liabilities arising from transactions that are neither a business combination nor affect accounting profit andtaxable income (or deductible losses) at the time of occurrence, the relevant deferred tax liabilities are not recognized(except for individual transactions in which the initial recognition of assets and liabilities results in equal amountsof taxable temporary differences and deductible temporary differences). In addition, for taxable temporarydifferences related to investments in subsidiaries, associates and joint ventures, deferred tax liabilities are notrecognized if the Group is able to control the timing of the reversal of the temporary difference and it is likely thatthe temporary difference will not be reversed in the foreseeable future. Subject to the above exceptions, the Grouprecognizes all other deferred tax liabilities arising from taxable temporary differences.

For deductible temporary differences relating to the initial recognition of assets or liabilities arising fromtransactions that are neither a business combination nor affect accounting profit and taxable income (or deductiblelosses) at the time of occurrence, the relevant deferred tax assets are not recognized (except for individualtransactions in which the initial recognition of assets and liabilities results in equal amounts of taxable temporarydifferences and deductible temporary differences). For deductible temporary differences associated withinvestments in subsidiaries, associates and joint ventures, the relevant deferred tax asset is not recognized if it is notlikely that the temporary differences will reverse in the foreseeable future and it is not likely that taxable income

will be available against which the deductible temporary differences can be utilized in the future. Subject to theabove exceptions, the Group recognizes other deferred income tax assets arising from deductible temporarydifferences to the extent that it is probable that taxable income will be available against which deductible temporarydifferences can be utilized.For the deductible losses and tax credits that can be carried forward to future years, the Group recognizes thecorresponding deferred tax assets to the extent that it is probable that future taxable income will be available againstwhich the deductible losses and tax credits can be utilized.On the balance sheet date, deferred income tax assets and deferred income tax liabilities are measured at thetax rates that are expected to apply in the period in which the asset is recovered or the liability is settled accordingto the tax law.

On the balance sheet date, the Group reviews the book value of deferred income tax assets. If no sufficienttaxable income is probably obtained in the future to offset the benefits of deferred income tax assets, the book valueof the deferred income tax assets shall be written down. When it is probable to obtain sufficient taxable incometaxes, such write-off amount shall be reversed.

(3) Income tax expense

Income tax expenses include current income tax expenses and deferred income tax expenses.

Except for current income tax and deferred income tax related to transactions and events recognized as othercomprehensive income or directly included in shareholders’ equity, and the book value of deferred income taxadjusted goodwill resulting from business combination, the remaining current income tax and deferred income taxexpenses or gains are included in current profits and losses.

(4) Offsetting of income tax

If the Group has the legal right to settle on a net basis, and intends to settle on a net basis or acquire assets andsettle liabilities simultaneously, the current income tax assets and current income tax liabilities are presented on anet basis after offsetting.

If the Group has a legally enforceable right to settle current income tax assets and liabilities on a net basis，and the deferred income tax assets and liabilities are related to the income taxes levied by the same taxation authorityon either the same taxable entity or different taxable entities, which intend either to settle current income tax assetsand liabilities on a net basis or to realize the assets and settle the liabilities simultaneously, in each future period inwhich significant amounts of deferred income tax assets and liabilities are expected to be reversed, the deferredincome tax assets and liabilities can be offset and presented on a net basis.

35. Leases

(1)

Accounting treatment as the lessee

Leasing refers to contracts in which the Group conveys or acquires the right to control the use of one or moreidentified assets for a specified period in exchange for consideration. At the commencement date of a contract, theGroup assesses whether the contract is a lease or contains a lease component.

The Group’s lease assets are mainly housing and buildings.

① Initial measurement

On the date of commencement of the lease term, the Group recognizes the right to use the lease asset duringthe lease term as a right of use asset and recognizes the present value of the outstanding lease payments as a leaseliability, except for short-term leases and low value asset leases. When calculating the present value of leasepayments, the interest rate implicit in the lease is used as the discount rate. If the interest rate implicit in the leasecannot be determined, the lessor’s incremental borrowing rate is used as the discount rate.

② Subsequent measurement

The Group shall depreciate the right of use assets in accordance with the relevant depreciation provisions ofAccounting Standard for Business Enterprises No. 4 - Fixed Assets (see Section 19 “Fixed assets” under NoteV for details). If the ownership of the leased asset can be reasonably determined at the end of the lease term, theGroup shall depreciate the leased asset during the remaining useful life. Where it is unable to reasonably determinethe ownership of the leased asset at the end of the lease term, the Group shall make depreciation provision over thelease term or the remaining useful life of the leased asset, whichever is shorter.

The Group calculates the interest expense on lease liabilities for each period of the lease term at a fixed periodicrate, which is included in the current profits and losses, or the relevant asset costs. Variable lease payments that arenot included in the measurement of the lease liability are recognized in current profits and losses, or the relevantasset costs when they are actually incurred.

After the commencement date of the lease term, when there is a change in the substantive fixed payment amount,a change in the amount expected to be payable for the guaranteed residual value, a change in the index or rate usedto determine the lease payment amount, or a change in the evaluation result or actual exercise of the purchase option,renewal option or termination option, the Group remeasures the lease liability at the present value of the changedlease payment amount and adjusts the carrying value of the right-of-use asset accordingly. If the book value of theright-of-use asset has been reduced to zero but the lease liability is subject to further reduction, the Group recognizesthe remaining amount in current profits and losses.

③ Short-term leases and leases of low-value assets

For short-term leases (leases with a lease term of not more than 12 months since the commencement date ofthe lease) and low-value asset leases (the value of a single lease asset, which is a brand-new asset, is lower thaneither RMB 40,000 or USD 5,000), the Group adopts a simplified approach whereby the right of use assets and leaseliabilities are not recognized and the lease payments are recognized in the relevant asset cost or current profits andlosses in accordance with the straight-line method or other systematic and reasonable methods during the variousperiods of the lease term.(2)

Accounting treatment as the lessor

On the inception date of the lease, the Group classifies the lease as a finance lease and an operating lease basedon the substance of transaction. A finance lease is a lease that transfers substantially all the risks and returnsassociated with ownership of the leased asset. An operating lease is a lease other than a finance lease.

① Operating lease

Lease receipts under operating leases are recognized as rental income on a straight-line basis over the respectiveperiods of the lease term. Variable lease payments acquired in connection with operating leases that are not includedin the lease receipts are recognized in current profits and losses when they are actually incurred.

② Finance lease

The Group recognizes finance lease receivables and derecognizes finance lease assets on the commencementdate of the lease term. Finance lease receivables are initially measured at the net lease investment (the sum of theunsecured balance and the unreceived lease proceeds on the commencement date of the lease term at the presentvalue discounted with the intrinsic interest rate of the lease), and interest income is recognized during the lease termat a fixed periodic interest rate. Variable lease payments obtained by the Group which are not included in the netlease investment measurement are recognized in current profits and losses when they are actually incurred.

36. Other significant accounting policies and accounting estimates

Share repurchase

Consideration and transaction costs paid in share repurchases reduce shareholders’ equity and no profits orlosses is recognized when shares of the Company are repurchased, transferred or cancelled.

For the transfer of treasury shares, the difference between the amount actually received and the book value oftreasury shares shall be included in the capital reserve. If the capital reserve is insufficient for deduction, the surplusreserve and undistributed profits shall be deducted. For the cancellation of treasury shares, the share capital shall bereduced according to the par value of the shares and the number of shares cancelled, and the difference between thebook balance and the par value of treasury shares shall be charged to the capital reserve. If the capital reserve isinsufficient for deduction, the surplus reserve and undistributed profits shall be deducted.

37. Changes in significant accounting policies and accounting estimates

(1) Changes in significant accounting policies

? Applicable □ Not applicable

① Interpretation No. 17 of the Accounting Standards for Enterprises

The Ministry of Finance issued Interpretation No. 17 of the Accounting Standards for Enterprises (hereinafterreferred to as “Interpretation No. 17”) on November 9, 2023, which will be effective from January 1, 2024. TheGroup will adopt the provisions of Interpretation No. 17 starting from January 1, 2024. The implementation ofrelevant provisions of Interpretation No. 17 will have no impact on the Group’s financial statements during thereporting period.

② Interpretation No. 18 of the Accounting Standards for Enterprises

The Ministry of Finance issued Interpretation No. 18 of the Accounting Standards for Enterprises (hereinafterreferred to as “Interpretation No. 18”) on December 31, 2024, which will be effective from the date of issuance.The Group will adopt the provisions of Interpretation No. 18 starting from December 31, 2024. The implementationof relevant provisions of Interpretation No. 18 will have no impact on the Group’s financial statements during thereporting period.

(2) Changes in significant accounting estimates

□ Applicable

? Not applicable

(3) First-time implementation of the new accounting standard in 2025 to adjust relevant items in thefinancial statements at the beginning of the year of first-time implementation

□ Applicable

? Not applicable

38. Significant accounting judgment and estimate

As operating activities have inherent uncertainties, the Group needs to make judgments, estimates andassumptions upon report items that cannot be accurately calculated in applying the above accounting policies. Thesejudgments, estimates and assumptions are made based on historical experiences of the management of the Group,taking other related factors into consideration. These judgments and estimates may affect the presented amounts ofincomes, expenses, assets and liabilities and, as well as the disclosure of contingent liabilities on the balance sheetdate. However, the uncertainty in these estimates may result in actual results that differ from the current estimatesof the Group’s management, resulting in material adjustments to the book value of assets or liabilities affected inthe future.The Group reviews the above judgments, estimates and assumptions periodically based on going concern. Ifthe changes of accounting estimates only affect the current period, the influence amount is recognized in the currentperiod. If the changes of accounting estimates affect both of the current year and the future period, the influenceamount is recognized in the current period and the future period.As at the balance sheet date, the significant areas in which the Group is required to make judgments, estimatesand assumptions regarding the amounts of items in the financial statements are as follows:

(1) Revenue recognition

As set out in Section 31 “Revenue” under Note V, the Group’s revenue recognition involves significantaccounting judgments and estimates such as: identifying customer contracts; estimating the recoverability of theconsideration to which the Group is entitled as a result of the transfer of goods to the customer; identifying theperformance obligations in the contract; estimating the variable consideration present in the contract and the amountof accumulated recognized revenue that is highly unlikely to be materially reversed when the related uncertainty iseliminated; whether there is any significant financing component to the contract; estimating the individual sellingprice of the individual performance obligations in the contract; determining whether the performance obligation isto be performed within a certain period of time or at a certain point; determining the implementation progress, etc.

The Group mainly relies on past experience and work to make judgments, and these significant judgments andchanges in estimates may have an impact on the operating revenue, operating costs, and profits and losses of theperiod for the current or subsequent periods, and may constitute a material impact.

(2) Leases

① Identification of leases

When identifying whether a contract is a lease or contains a lease, the Group needs to assess whether thereexists an identified asset and the customer controls the use of the asset for a certain period of time. In this assessment,consideration needs to be given to the nature of the asset, substantial replacement rights, and whether the customer

is entitled to receive virtually all of the economic benefits arising from the use of the asset during that period andable to direct the use of the asset.

② Classification of leases

When acting as a lessor, the Group classifies leases into operating leases and finance leases. When making theclassification, the management needs to make an analysis and judgment as to whether all the risks and rewardsassociated with ownership of the leased asset have been substantially transferred to the lessee.

③ Lease liabilities

When the Group is the lessee, the lease liabilities shall be initially measured at the present value of theoutstanding lease payment on the commencement date of the lease term. When measuring the present value of leasepayments, the Group estimates the discount rate used and the lease term of a lease contract with a renewal ortermination option. When assessing the lease term, the Group takes into account all relevant facts and circumstancesrelating to the economic benefits arising from the exercise of the option by the Group, including expected changesin facts and circumstances between the commencement date of the lease term and the exercise date of the option.Different judgments and estimates may affect the recognition of lease liabilities and right-of-use assets and willaffect the profits or losses in subsequent periods.

(3) Impairment of financial assets

The Group uses the expected credit loss model to evaluate the impairment of financial instruments, and theapplication of the expected credit loss model requires significant judgments and estimates that take into account allreasonable and evidence-based information, including forward-looking information. When making such judgmentsand estimates, the Group extrapolates the expected changes in the debtors' credit risk based on historical data andfactors such as changes in economic policies, macroeconomic indicators, industry risks, external market conditions,technological environment and customer conditions.

(4) Provision for inventory impairment

According to the inventory accounting policy, the Group makes provision for inventory impairment based oneither the cost or the realizable net value of the old and unsalable inventory, whichever is lower, if the cost is higherthan the realizable net value. The impairment of inventory to net realizable value is based on assessing themarketability of the inventory and its net realizable value. Assessment of inventory impairment requires themanagement to make judgments and estimates on the basis of obtaining solid evidence and considering factors suchas the purpose of holding inventory and the impact of events after the balance sheet date. The difference betweenactual results and the original estimate will affect the book value of inventory and the withdrawal or reversal of theprovision for inventory impairment during the period in which the estimate is changed.

(5) Fair value of financial instruments

For financial instruments without active market, the Group will determine their fair values through variousvaluation methods. These valuation methods include discounted cash flow model analysis. In the valuation, theGroup needs to estimate future cash flows, credit risk, market volatility and correlation, and select an appropriatediscount rate. These assumptions are subject to uncertainty, and changes in them can have an impact on the fairvalue of financial instruments. Where equity instrument investments or contracts are publicly quoted, the Group

does not use cost as the best estimate of their fair value.

(6) Provision for impairment of long-term assets

On the balance sheet date, the Group makes a judgment on whether there is any sign of possible impairment ofnon-current assets other than financial assets. Intangible assets with uncertain useful life shall be subject toimpairment tests when there are signs of impairment in addition to annual impairment tests. Non-current assets otherthan financial assets shall be subject to impairment tests when there are signs indicating that their book value isuncollectible.Impairment occurs when the book value of an asset or asset group is greater than the recoverable amount, thatis, the net amount of fair value minus disposal expenses and the present value of expected future cash flow,whichever is higher.The net amount of fair value minus disposal expenses shall be determined by reference to the sale agreementprice or observable market price of similar assets in an arm’s length transaction, less the incremental cost directlyattributable to the disposal of the asset.When estimating the present value of future cash flows, it is necessary to make significant judgments about theoutput of the asset (or group of assets), the selling price, the associated operating costs, and the discount rate usedin calculating the present value. When estimating the recoverable amounts, the Group uses all the relevantinformation available, including projections of production volumes, selling prices and related operating costs basedon reasonable and supportable assumptions.

The Group tests goodwill for impairment at least annually. This requires an estimate of the present value of thefuture cash flows of the asset group or combination of asset groups to which goodwill has been allocated. Whenestimating the present value of the future cash flow, the Group needs to estimate the expected future cash flowgenerated by the asset group or combination of asset groups, and determine the present value of the future cash flowat an appropriate discount rate.

(7) Depreciation and amortization

The Group depreciates and amortizes the investment real estate, fixed assets and intangible assets on a straight-line basis over their useful lives, taking into account their residual value. The Group periodically reviews the usefullife to determine the amount of depreciation and amortisation expenses to be included in each reporting period. Theuseful life is determined by the Group based on previous experience with similar assets as well as expectedtechnological updates. If there is any material change in previous estimates, an adjustment will be made todepreciation and amortization expense in future periods.

(8) Deferred income tax assets

To the extent that there is likely sufficient taxable profit to offset the loss, the Group recognises deferred taxassets on all unutilised tax losses. This requires the management of the Group to use massive judgments to estimatethe time and amount of taxable profit in the future and then to determine the value of deferred tax assets incombination with tax planning strategies.

(9) Income tax

In the normal business activities of the Group, there are certain uncertainties in the final tax treatment andcalculation of some transactions. Whether some items can be deducted before tax requires the approval of the taxauthority. Where the final tax outcome of these matters is different from the estimated amounts, the differences willimpact the current income tax and deferred income tax in the period in which such determination is made.

(10) Measurement at fair value

Certain assets and liabilities of the Group are measured at fair value in the financial statements. The Group’sBoard of Directors has established a Valuation Committee, led by the Group’s Chief Financial Officer, to determineappropriate valuation techniques and inputs for fair value measurement. When estimating the fair value of an assetor liability, the Group uses available observable market data. If the inputs of level 1 are not available, the Groupwill hire qualified third-party appraisers to perform the valuation. The Valuation Committee works closely withqualified external appraisers to determine appropriate valuation techniques and relevant input values for the models.The Chief Financial Officer reports the findings of the Valuation Committee to the Group’s Board of Directors ona quarterly basis, explaining the reasons for fluctuations in the fair value of relevant assets and liabilities. Relevantinformation on the valuation techniques and input values used in determining the fair value of various assets andliabilities is disclosed in “Note XII.”

39. Others

None.

VI. Taxation

1. Main tax types and tax rates

If there are taxable entities with different corporate income tax rates, disclose the description of the situation

YNBY International Limited

Yunnan Baiyao Group Seed Technology Co., Ltd.

2. Preferential tax treatment

(1) A total of 8 companies, including Yunnan Baiyao Group Co., Ltd, Yunnan Baiyao Group Medicine E-commerce Co., Ltd, Yunnan Baiyao Group Health Products Co., Ltd, Yunnan Baiyao Group Lijiang PharmaceuticalCo., Ltd, Yunnan Baiyao Group Wenshan Qihua Co., Ltd, Yunnan Baiyao Pharmacy Co., Ltd, Yunnan BaiyaoTeayield Co., Ltd., and Yunnan Baiyao Group Dali Pharmaceutical Co., Ltd, enjoy the preferential tax treatmentfor the Western Development and pay the enterprise income tax at the tax rate of 15%.

(2) Yunnan Institute of Materia Medica enjoys the preferential tax treatment for high-tech enterprises and paythe enterprise income tax at the tax rate of 15%.

(3) For Yunnan Baiyao Group Sanqi Industry Co., Ltd and Yunnan Baiyao Group Tai’an BiotechnologyIndustry Co., Ltd, the primary processing of agricultural products is exempt from enterprise income tax, and theincome other than that is taxed at 25%.For Lijiang Yunquan Biological Development Co., Ltd, the primary processing of agricultural products isexempt from enterprise income tax, and the income other than that shall be subject to enterprise income tax for smalland micro enterprises.

(4) The Hong Kong-based company (YNBY International Limited and its subsidiaries in Hong Kong as asingle taxpayer entity) is subject to the “two-tiered tax rate” policy. This means that for annual taxable profits notexceeding HKD 2 million, a tax rate of 8.25% applies; for profits exceeding HKD 2 million, a tax rate of 16.5%applies. 100% of the profits tax for the year 2024/25 can be waived, with a cap of HKD 1,500 for each company.

(5) According to the Announcement of the General Administration of Taxation of the Ministry of Finance onthe Further Implementation of the Preferential Income Tax Policy for Small and Micro Enterprises (Finance andTaxation [2022] No. 13), “the part of the annual taxable income of small and micro profit enterprises exceedingRMB 1 million but not exceeding RMB 3 million shall be included in the taxable income at a reduced rate of 25%,and the enterprise income tax shall be paid at a tax rate of 20%. The period of implementation of this announcementis from January 1, 2022 to December 31, 2024,” the Announcement of the General Administration of Taxation ofthe Ministry of Finance on Preferential Income Tax Policies for Small and Micro Enterprises and IndividualIndustrial and Commercial Households (Finance and Taxation [2023] No. 6), “the part of the annual taxable incomeof small and micro profit enterprises that does not exceed RMB 1 million shall be included in the taxable income ata reduced rate of 25%, and the enterprise income tax shall be paid at a tax rate of 20%. The period of enforcementof this Announcement is from January 1, 2023 to December 31, 2024,” and the Announcement of the GeneralAdministration of Taxation of the Ministry of Finance on Tax Policies for Further Supporting the Development ofSmall and Micro Enterprises and Individual Industrial and Commercial Enterprises (Finance and Taxation [2023]No. 12), “For small, low-profit enterprises, the taxable income amount shall be calculated at a reduced rate of 25%,

and the enterprise income tax shall be paid at a tax rate of 20%. The policy shall be continued until December 31,2027.” Thirty-four companies, including Yunnan Fengqing Tea Plant Co., Ltd, and Beijing Rui’er TestingTechnology Co., Ltd pay enterprise income tax at a tax rate of 20% according to this policy.

3. Others: None.

VII. Notes to Items in Consolidated Financial Statements

1. Cash and bank balance

Unit: RMB

Other explanations: None.

2. Financial assets held for trading

Unit: RMB

Other explanations: Others include banking products that are characterized by higher safety and better liquidity, as well as wealthmanagement products from brokerage firms.

3. Notes receivable

(1) Notes receivable by type

Unit: RMB

(2) Disclosure by the method of provision for bad debts

Unit: RMB

Provision for bad debts by portfolio:

Unit: RMB

The explanation for determining the basis of this combination: None.If provision was made for bad debts of notes receivable in accordance with the general expected credit loss model:

□ Applicable

? Not applicable

(3) Provision for bad debts accrued, recovered or reversed during the reporting period: None.

(4) Notes receivable pledged by the Company at the end of the reporting period: None.

(5) Notes receivable endorsed or discounted by the Company, which were not yet due on the balance sheetdate as at the end of the reporting period

Unit: RMB

(6) Actual write-off of notes receivable for the period: None.

4. Accounts receivable

(1) Disclosure by aging

Unit: RMB

(2) Disclosure by the method of provision for bad debts

Unit: RMB

Provision for bad debts made on an individual basis:

Unit: RMB

Provision for bad debts made on a portfolio basis:

Unit: RMB

Explanation on the basis for determining the portfolio: None.If provision was made for bad debts of accounts receivable in accordance with the general expected credit loss model:

□ Applicable

?

Not applicable

(3) Provision for bad debts accrued, recovered or reversed during the reporting periodProvision for bad debts for the period:

Unit: RMB

Including: Significant amount recovered or reversed provision for bad debts during the reporting period: None.

(4) Actual write-off of accounts receivable for the period:

Unit: RMB

Significant write-off of accounts receivable: None.

Explanation on write-off of accounts receivable: None.

(5) Top five customers in closing balance of accounts receivable and contractual assets summarized by

debtor

Unit: RMB

5. Accounts receivable financing

(1) Accounts receivable financing by type

Unit: RMB

(2) Classified disclosure according to the method of bad debt provision: None.

(3) The bad debt provisions accrued, recovered, or reversed during the period: None.

(4) Financing of receivable pledged by the Company at the end of the reporting period: None.

(5) Financing of receivable endorsed or discounted by the Company, which was not yet due on the balancesheet date as at the end of the reporting period:

Unit: RMB

(6) Financing of the actual write-off of accounts receivable during the reporting period: None.

(7) Increase/decrease in the financing of accounts receivable and in their fair values during the reportingperiod: None.

(8) Other explanations: None.

6. Other receivables

Unit: RMB

(1) Interests receivable

1) Interests receivable by type: None.

2) Major overdue interests: None.

3) Disclosure by method of provision for bad debts

□Applicable ?Not applicable

4) Provision for bad debts accrued, recovered or reversed during the reporting period: None.

5) Actual write-off of interests receivable during the period: None.

(2) Dividends receivable

1) Dividends receivable by type

Unit: RMB

2) Significant dividends receivable aged over one year: None.

3) Disclosure by the method of provision for bad debts

□Applicable

?Not applicable

4) Provision for bad debts accrued, recovered or reversed during the reporting period: None.

5) Actual write-off of dividend receivable during the period: None.

(3) Other receivables

1) Other receivables by nature

Unit: RMB

2) Disclosure by aging

Unit: RMB

3) Disclosure by the method of provision for bad debts

? Applicable □ Not applicable

Provision was made for bad debts in accordance with the general expected credit loss model:

Unit: RMB

Division base for each phase and proportion of provision for bad debts: None.

Changes in book balance with significant changes in loss reserves in the current period

□ Applicable

?

Not applicable

4) Provision for bad debts accrued, recovered or reversed during the current periodProvision for bad debts during the reporting period:

Unit: RMB

Recovery or reversal of provision for bad debts with significant amount during the reporting period: None.

5) Actual write-off of other receivables for the period: None

6) Top five customers in closing balance of other receivables summarized by debtor

Unit: RMB

7) Presentation under Other Receivables due to centralized fund management: None.

7. Prepayments

(1) Prepayments by aging

Unit: RMB

2 to 3 years

Explanation on why prepayments with aging of more than 1 year and an important amount not settled in time: None.

(2) Top five suppliers in closing balance of prepayment summarized by payee

Other explanations: None.

8. Inventories

Did the Company need to comply with the disclosure requirements of the real estate industry: No.

(1) Categories of inventories

Unit: RMB